Operations Management Principles Ip 2
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The objective of the report is to develop a forecast given the actual quantities for 23 periods (Refer Table I).
Table I ЁC Actual Quantities for Periods 1 to 23
Period
Actual Quantity
The first step in the forecasting process is to choose a suitable forecasting technique. Since a forecast is required for the next period only, the techniques being considered are Moving average, Weighted Moving Average and Exponential Smoothing. (Stevenson, 2007, p.96) In order to make an appropriate choice the nature of the given data must be studied. For this a plot of the given data is drawn (Stevenson, 2007, p.96) and shown in Figure 1.
Figure 1 ЁC Plot of Actual Quantity
From the plot it is evident that the process is fairly stable, though there is significant variation about a central level. There is no consistent directional change. Nor does the quantity for any period seem to be dependent on the immediately preceding quantities. In this situation Weighted Moving Average and Exponential Smoothing techniques do not offer any advantage. In fact they may suffer the disadvantage of chasing the previous value. Hence the Moving Average technique is appropriate and will be adopted. (Stevenson, 2007, pp.72-6)
In order to ascertain the optimum number of periods the moving averages will be calculated using 3 periods, 4 periods and 5 periods. The final selection will be made based on suitable measures of error. Since for a 5 period moving average the calculation will begin from period 6, period 6 is chosen as the starting period for other calculations as well. For each period the forecasted quantity for period 24 is determined. The moving averages are tabulated in Table II.
Table II ЁC Results of Moving Average Calculations
Period
Actual Quantity
MA with 3 periods
MA with 4 periods
MA with 5 periods
The 3 period, 4 period and 5 period moving average gives a forecast for the 24th period of 302 units, 317 units and 307 units respectively. Given the fact that the actual data varies from 147 units to 590 units the forecasts are fairly close to each other.
The forecasts for the 24th period depend on the actual quantities of the last 3, 4 and 5 periods respectively for the 3 period, 4 period and 5 period moving