UNIT TWO

INVENTORY MANAGEMENT
AND FORECASTING TECHNIQUES
Forecasting technique
is using different
methods to predict
quantity usage in the
future.
 What is 'Inventory Management'
Inventory management is the
overseeing and controlling of the
ordering, storage and use of
components that a company will use
in the production of the items.
It will sell as well as the
overseeing and
controlling of quantities
of finished products for
sale.
A business's inventory is one of
its major assets and represents
an investment that is tied up
until the item is sold or used in
the production of an item that
is sold.
It also costs money to
store, track and insure
inventory.
 TYPES OF FORECASTING TECHNIQUE

A.moving Averages
Moving averages move in the sense
that as new data becomes available,
it replaces the oldest data in the
equation.
An average represents the
“middling” value of a set of
numbers.
The moving average is exactly the
same, but the average is
calculated several times for
several subsets of data.
For example, if you want a two-year
moving average for a data set from
2000, 2001, 2002 and 2003 you
would find averages for the subsets:
2000/2001, 2001/2002 and
2002/2003.
Moving averages are usually plotted
and are best visualized.
Calculate a five-year moving average from the following data set:
YEAR SALES (GHC)
2003 4
2004 6
2005 5
2006 8
2007 9
2008 5
2009 4
2010 3
2011 7
2012 8
The mean (average) sales for the first five
years (2003-2007) is calculated by finding
the mean from the first five years (i.e.
adding the five sales totals and dividing
by 5). This gives you the moving average
for 2005 (the center year) = 6.4M:
The average sales for the
second subset of five years
(2004 – 2008), centred
around 2006, is 6.6M:
(6M + 5M + 8M + 9M + 5M) /
5 = 6.6M
The average sales for the third
subset of five years (2005 –
2009), centred around 2007, is
6.6M:
(5M + 8M + 9M + 5M + 4M) / 5
= 6.2M
EXAMPLE 2
YEAR SALES
2005 20
2006 25
2007 30
2008 35
2009 25
2010 40
2011 45
2012 50
2013 55
 WORKED EXAMPLE TWO

Calculate the first,

second, third and fourth
moving average
EXAMPLE 3
WEEK SALES(KG)
1 200
2 300
3 400
4 200
5 300
6 200
7 100
8 500
9 600
10 300
11 400
12 500
Calculate the first,
second, third, forth
and fifth moving
average