Transcript 5-14: Wallace Garden Supply Demand for Fertilizer

5-14: Wallace Garden Supply
Demand for Fertilizer
• Fertilizer is sold in 50 pound bags – data is
given in units of 1,000s of bags over an 11
year period.
• Estimate demand on a 3-year moving
average.
• Estimate demand on a weighted moving
average.
• Determine which method is best.
Jan White - BUS 340 - Problem 5-14
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A. Three-year moving average
Year
Demand
1
2
3
4
5
6
7
8
9
10
11
4
6
4
5
10
8
7
9
12
14
15
(4 + 6 + 4)/3 = 4.67
(6 + 4 + 5)/3 = 5.00
(4 + 5 + 10)/3 = 6.33
(5 + 10 + 8)/3 = 7.67
(10 + 8 + 7)/3 = 8.33
(8 + 7 + 9)/3 = 8.00
(7 + 9 + 12)/3 = 9.33
(9 + 12 + 14)/3 = 11.67
(12 + 14 + 15)/3 = 13.67
Mean Absolute Deviation (MAD) is
2.54
Jan White - BUS 340 - Problem 5-14
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B. Weighted Moving Averages
Year
Demand
Weights
1
4
1
2
6
1
3
4
2
4
5
5
10
6
8
7
7
8
9
9
12
10
14
11
15
In this model, sales for the
most recent year are given
a weight of 2, and sales in the
two years prior to the last a
weight of 1.
Demand for each of the
periods are multiplied by
their respective weights,
added, and then divided by
three, as in the previous model.
Jan White - BUS 340 - Problem 5-14
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Computation Model for Weighted
Moving Averages
• Data for years 6 (8 units), 7 (7 units), and 8
(9 units) are multiplied by 1, 1 and 2
respectively, then divided by 4 (sum of the
weights) to arrive at the average.
((8 x 1) + (7 x 1) + (9 x 2))/4 = 8.25 units
• This method provides a better forecast as it
can give a more accurate projection. MAD
is lower (2.31).
Jan White - BUS 340 - Problem 5-14
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