Question 3:

b) Apply 3 different forecasting methods to forecast the commercial sales of milk in

January 2012 in Canada.

Data Deseasonalization:
- Before applying 3 different methods to forecast the commercial sales of milk, we
first need to deseasonalize the data by dividing each number by its seasonal index.
Here is our result for data conversion:
 The Exponential Smoothing method:
- It is a forecasting method that is easy to use& is handle efficiently by computers.
- The basic exponential smoothing formula can be mathematically written as:
Ft = Ft-1 + α.(Yt-1–Ft-1)
Where:
Ft = new forecast (for time period t)
Ft-1 = previous forecast (for time period t-1)
α = smoothing constant (0 ≤ α ≤ 1)
Yt-1= previous period’s actual demand
- In this particular exercise, we select α = 0.61 (the reason why our group selects
this number will be explained in the Reference sector – Excel file).
- Here is our result of solving the problem by Excel:
 The Moving Average method:
- This method is useful when the market demand is stay fairly steady over time.
- The resultis the average of the most recent n data values from the time series.
- This method tends to smooth out short-term irregularities in the data series
𝑆𝑢𝑚 𝑜𝑓 𝑑𝑒𝑚𝑎𝑛𝑑𝑠 𝑖𝑛 𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠
- Moving average forecast =
𝑛
- Mathematically, this is written as:
𝑌𝑡−1 + 𝑌𝑡−2 + … + 𝑌𝑡−𝑛
Ft =
𝑛

Where:
Ft = forecast for time period t
Yt= actual value in time period t
n = number of periods to average
- In this particular exercise, we choose n = 2 (the reason why we choose this number
is also explained in the Reference sector – Excel file).
- Here is our result of solving the problem by Excel:
 The Weighted Moving Average Method:
- This method uses weights to place more emphasis on recent values.
- We often use when a trend or other pattern is emerging.
- This may be expressed as:
𝑆𝑢𝑚 𝑜𝑓 (𝑑𝑒𝑚𝑎𝑛𝑑 𝑖𝑛 𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑛 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 𝑥 𝑐𝑜𝑟𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑤𝑒𝑖𝑔ℎ𝑡)
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑚𝑜𝑣𝑖𝑛𝑔 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 =
𝑆𝑢𝑚 𝑜𝑓 𝑤𝑒𝑖𝑔ℎ𝑡𝑠

- Mathematically, this is:

𝑤1 .𝑌𝑡 −1 + 𝑤2 .𝑌𝑡−2 + … + 𝑤𝑛 .𝑌𝑡−𝑛
Ft =
𝑤1 + 𝑤2 + … + 𝑤𝑛

Where: wi= weight for observation in time period t-i

- In this particular exercise, we choose n=3 (months)

- Here is the result of solving the problem by Excel:
Conclusion:After applying 3 different forecasting methods, we can conclude
that the Exponential Smoothingmethod give us the best forecasting result because
it has the lowest MAD, which means that this method has the lowest forecast
errors → it is the most accurate method to forecast the commercial sales of milk in
Canada in 2012. To obtain more accurate forecast, we multiple the forecasted sales
by this method with related seasonal index. The final forecasted sales in January
2012 is 29396.24