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Supply Chain Math Formulas With Example

The document provides three examples of forecasting methods: 1) simple moving average, 2) exponential smoothing, and 3) exponential smoothing with trend adjustment. The simple moving average example forecasts the demand for month 7 as the average of the previous 3 months. The exponential smoothing example forecasts month 7 demand using a 0.4 smoothing constant. The exponential smoothing with trend adjustment forecasts month 7 using 0.4 and 0.2 smoothing constants for average and trend respectively.

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Shakil Faraji
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704 views4 pages

Supply Chain Math Formulas With Example

The document provides three examples of forecasting methods: 1) simple moving average, 2) exponential smoothing, and 3) exponential smoothing with trend adjustment. The simple moving average example forecasts the demand for month 7 as the average of the previous 3 months. The exponential smoothing example forecasts month 7 demand using a 0.4 smoothing constant. The exponential smoothing with trend adjustment forecasts month 7 using 0.4 and 0.2 smoothing constants for average and trend respectively.

Uploaded by

Shakil Faraji
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd

1

A Simple Moving Average Example

Moving Average Forecast =


 demand in previous n periods
n
Where n is the number of periods in the moving average

Example: The demand for Gingerbread Men is shown in the table. Forecast the demand for
month 7.

Month Demand Calculation Forecast


1 1500
2 2200
3 2700
4 4200 1500  2200  2700 2133
 2133
3
5 7800

6 5400

Bakery Gingerbread Man Sales

9000

8000

7000

6000

5000 Demand
Sales

4000 Forecast

3000

2000

1000

0
1 2 3 4 5 6 7
Period
2

An Exponential S moothing Example

Exponential Smoothing Forecast Ft =  At-1 + (1– ) Ft-1

Where Ft = New Forecast


Ft-1 = Previous Forecast
 = Smoothing Constant: (0    1)
At-1 = Previous Period’s Actual Demand

Example: The demand for Gingerbread Men is shown in the table. Forecast the demand for
month 7, using a smoothing constant of 0.4. The forecast for month 1 is 1500 units.

Month Demand Calculation Forecast


1 1500 1500
2 2200 0.4*1500 + (1-0.4) *1500 1500

3 2700 0.4*2200 + (1-0.4) *1500 1780

4 4200 0.4*2700 + (1-0.4) *1780 2148

5 7800 0.4*4200 + (1-0.4) *2148 2969

6 5400 0.4*7800 + (1-0.4) *2969 3121

7 0.4*5400 + (1-0.4) *3121 4032


3

Bakery Gingerbread Man Sales

9000

8000

7000

6000

5000
Demand
Sales

4000 Forecast

3000

2000

1000

0
1 2 3 4 5 6 7
Period

An Exponential Smoothing With Trend Adjustment Example

Forecast Including Trend Ft = (At-1) + (1 - )(Ft-1 + Tt-1)

Trend Tt = (Ft – Ft-1) + (1 - )T t-1

Where Ft = Exponentially smoothed forecast for period t


Tt = Exponentially smoothed trend for period t
At = Actual demand for period t
 = Smoothing constant for the average (0    1)
 = Smoothing constant for the trend (0    1)

Example: The demand for Gingerbread Men is shown in the table. Forecast the demand for
month 7, using a smoothing constant for the average of 0.4, and a smoothing constant for the
trend of 0.2. The forecast for month 1 is 1500 units and the trend for month 1 is 200 units.

Month Demand Forecast Trend FIT


1 1500 1500 200 1700
2 2200 0.4(1500) + 0.6(1700) 0.2(1620 – 1500) + 0.8(200) 1804
= 1620 = 184
3 2700

4 4200

5 7800

6 5400
4

B a ke ry Gi ng e rb re a d M a n S a l e s

9000

8000

7000

6000

Demand
5000
For ecas t
Tr end
4000
FIT

3000

2000

1000

0
1 2 3 4 5 6 7

P e r iod

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