File: ch12, Chapter 12: Forecasting

True/False

1. Forecasts based on mathematical formulas are referred to as qualitative forecasts. Ans: False Difficulty: Easy Feedback: The Strategic Role of Forecasting

2. One way to deal with the bullwhip effect is to develop and share the forecasts with other supply chain members. Ans: True Difficulty: Easy Feedback: The Strategic Role of Forecasting

3. Continuous replenishment systems rely heavily on extremely accurate long-term forecasts. Ans: False Difficulty: Easy Feedback: Forecast Accuracy

4. Forecasting customer demand is rarely a key to providing good quality service. Ans: False Difficulty: Easy Feedback: The Strategic Role of Forecasting

5. The type of forecasting method used depends entirely whether the supply chain is continuous replenishment or not. Ans: False

Difficulty: Moderate Feedback: Time Series Methods

6. A gradual, long-term up or down movement of demand is referred to as a trend. Ans: True Difficulty: Moderate Feedback: The Strategic Role of Forecasting

7. A seasonal pattern is an oscillating movement in demand that occurs periodically over the short-run and is repetitive. Ans: True Difficulty: Moderate Feedback: The Strategic Role of Forecasting

8. Time series methods use historical data to predict future demand. Ans: True Difficulty: Moderate Feedback: Time Series Methods

9. The most common type of forecasting method for long-term strategic planning is based on quantitative modeling Ans: False Difficulty: Moderate Feedback: Time Series Methods

10. The Delphi method generates forecasts based on informed judgments and opinions from knowledgeable individuals. Ans: True Difficulty: Moderate Feedback: Components of Forecasting Demand

11. One reason time series methods are popular for forecasting is that they are relatively easy to use and understand. Ans: True Difficulty: Moderate Feedback: Time Series Methods

12. Exponential smoothing is an averaging method for forecasting that reacts more strongly to recent changes in demand. Ans: True Difficulty: Moderate Feedback: Times Series Methods

13. A linear regression model that relates demand to time is known as a linear trend line. Ans: True Difficulty: Moderate Feedback: Regression Methods

14. The average, absolute difference between the forecast and demand is a popular measure of forecast error. Ans: True Difficulty: Moderate Feedback: Forecast Accuracy

15. The larger the mean absolute deviation (MAD) the more accurate the forecast. Ans: False Difficulty: Moderate Feedback: Forecast Accuracy

16. Forecast bias is measured by the per-period average of the sum of the forecast errors.

Ans: True Difficulty: Moderate Feedback: Forecast Accuracy

17. Linear regression relates two variables using a linear model. Ans: True Difficulty: Moderate Feedback: Regression Methods

18. A correlation coefficient is a measure of the strength of the linear relationship between an independent and a dependent variable. Ans: True Difficulty: Moderate Feedback: Regression Methods

19. Qualitative forecasts use mathematical techniques and statistical formulas. Ans: False Difficulty: Moderate Feedback: The Strategic Role of Forecasting

20. A gradual, long-term up or down movement of demand is called a trend. Ans: True Difficulty: Moderate Feedback: Components of Forecasting Demand

21. Movements in demand that do not follow a given pattern are referred to as random variations. Ans: True Difficulty: Easy Feedback: Components of Forecasting Demand

22. Multiple regression analysis can be used to relate demand to two or more dependent variables. Ans: False Difficulty: Moderate Feedback: Regression Methods

23. Because of globalization of markets, managers are finding it increasingly more difficult to create accurate demand forecasts. Ans: True Difficulty: Moderate Feedback: The Strategic Role of Forecasting

24. In today competitive environment, effective supply chain management requires accurate demand forecasts. Ans: True Difficulty: Moderate Feedback: The Strategic Role of Forecasting

25. Sharing demand forecasts with supply chain members has resulted in an increased bullwhip effect. Ans: False Difficulty: Moderate Feedback: The Strategic Role of Forecasting

26. The trend toward continuous replenishment in supply chain design has shifted the need for accurate forecasts from short-term to long-term. Ans: False Difficulty: Moderate Feedback: The Strategic Role of Forecasting

27. Because of advances in technology, many service industries no longer require accurate forecasts to provide high quality service. Ans: False Difficulty: Moderate Feedback: The Strategic Role of Forecasting

28. The type of forecasting method selected depends on time frame, demand behavior and causes of behavior. Ans: True Difficulty: Hard Feedback: The Strategic Role of Forecasting

29. Many companies are shifting from long-term to short-term forecast for strategic planning. Ans: False Difficulty: Moderate Feedback: Components of Forecasting Demand

30. The demand behavior for skis is considered cyclical. Ans: False Difficulty: Moderate Feedback: Components of Forecasting Demand

31. The long-term strategic planning process is dependent upon qualitative forecasting methods. Ans: True Difficulty: Moderate Feedback: Components of Forecasting Demand

32. Time series methods assume that demand patterns in the past is a good predictor of demand in the future. Ans: True Difficulty: Moderate Feedback: Times Series

33. The moving average method is used for creating forecasts when there is no variation in demand. Ans: False Difficulty: Moderate Feedback: Times Series

34. Because of ease of use and simplicity, exponential smoothing is preferred over smoothing average. Ans: False Difficulty: Moderate Feedback: Times Series

35. Because of the development of advanced forecasting models managers no longer track forecast error. Ans: False Difficulty: Moderate Feedback: Forecast Accuracy

36. Regression is used for forecasting when there is a relationship between the dependent variable, demand, and one or more independent (explanatory) variables. Ans: True Difficulty: Moderate Feedback: Regression Methods

37. Correlation in linear regression is a measure of the strength of the relationship

between the dependent variable, demand, and an independent (explanatory) variable. Ans: True Difficulty: Moderate Feedback: Regression Methods 38. Short-midrange forecasts tend to use quantitative models that forecast demand based on historical demand. Ans: True Difficulty: Moderate Feedback: Components of Forecasting Demand

39. Because of the heightened competition resulting from globalization most companies find little strategic value in long-range forecast. Ans: True Difficulty: Moderate Feedback: Components of Forecast Demand

40. Long-range qualitative forecasts are used to determine future demand for new products, markets and customers. Ans: True Difficulty: Moderate Feedback: The Strategic Role of Forecasting

Multiple Choice

41. Forecast methods based on judgment, opinion, past experiences, or best guesses are known as ___________ methods. a. quantitative b. qualitative c. time series d. regression Ans: b

Difficulty: Easy Feedback: The Strategic Role of Forecasting in supply chain management

a) b) c) d) e)

42. Regression forecasting methods relate _________to other factors that cause demand behavior. Supply Demand Time Money Efficiency

Ans: b. Difficulty: Moderate Feedback: Forecasting Methods

43. The _______ method uses demand in the first period to forecast demand in the next period. a) nave b) moving average c) exponential smoothing. d) linear trend Ans: a Difficulty: Moderate Feedback: Times Series Methods

44. The _________________ forecast method consists of an exponentially smoothed forecast with a trend adjustment factor added to it. a) Exponentially smoothed b) Adjusted exponentially smoothed c) Time series d) Moving average Ans: b. Difficulty: Moderate Feedback: Time Series Methods

45. The per period average of cumulative error is called a) cumulative forecast variation. b) absolute error. c) average error. d) noise. Ans: c. Difficulty: Easy Feedback: Forecast Accuracy 46. Selecting the type of forecasting method to use depends on a. the time frame of the forecast. b. the behavior of demand and demand patterns. c. the causes of demand behavior. d. all of the above. Ans: d Difficulty: Easy Feedback: Time Series Methods 47. A long-range forecast would normally not be used to a. design the supply chain. b. implement strategic programs. c. determine production schedules. d. plan new products for changing markets Ans: c Difficulty: Moderate Feedback: The Strategic Role of Forecasting

48. Which of the following is not a type of predictable demand behavior? a. trend b. random variation c. cycle d. seasonal pattern Ans: b Difficulty: Moderate Feedback: Components of Forecasting Demand

49. A ___________ is an up-and-down movement in demand that repeats itself over a lengthy time period of more than a year. a. trend b. seasonal pattern c. random variation d. cycle Ans: d Difficulty: Easy Feedback: Components in Forecasting Demand

50. A qualitative procedure used to develop a consensus forecast is known as a. exponential smoothing. b. regression methods. c. the Delphi technique. d. nave forecasting. Ans: c Difficulty: Moderate Feedback: The Strategic Role of Forecasting

51. A forecast where the current periods demand is used as the next periods forecast is known as a a. moving average forecast. b. nave forecast. c. weighted moving average forecast. d. Delphi forecast. Ans: b Difficulty: Moderate Feedback: The Strategic Role of Forecasting

52. The sum of the weights in a weighted moving average forecast a. must equal the number of periods being averaged. b. must equal 1.00. c. must be less than 1.00. d. must be greater than 1.00. Ans: b Difficulty: Easy

Feedback: Components of Forecasting Demand

53. An exponential smoothing forecasting technique requires all of the following except a. the forecast for the current period. b. the actual demand for the current period. c. a smoothing constant. d. large amounts of historical demand data. Ans: d Difficulty: Moderate Feedback: Components of Forecasting Demand

54.The smoothing constant, , in the exponential smoothing forecast a. must always be a value greater than 1.0. b. must always be a value less than 0.10. c. must be a value between 0.0 and 1.0. d. should be equal to the time frame for the forecast. Ans: c Difficulty: Moderate Feedback: Components of Forecasting Demand

55.The closer the smoothing constant, , is to 1.0 a. the greater the reaction to the most recent demand. b. the greater the dampening, or smoothing, effect. c. the more accurate the forecast. d. the less accurate the forecast. Ans: a Difficulty: Moderate Feedback: Components of Forecasting Demand

56. The exponential smoothing model produces a nave forecast when the smoothing constant, , is equal to a. 0.00. b. 1.00.

c. 0.50. d. 2.00 Ans: b Difficulty: Moderate Feedback: Components of Forecasting Demand

57. Given the following demand data for the past five months, the three period moving average forecast for June is
Period January February March April May Demand 120 90 100 75 110

a. b. c. d.

103.33. 99.00. 95.00. 92.50

Ans: c Difficulty: Moderate Feedback: Time Series Methods

58. Given the following demand data for the past five months, the four period moving average forecast for June is
Period January February March April May Demand 120 90 100 75 110

a. b. c. d.

96.25. 99.00. 110.00. 93.75.

Ans: d Difficulty: Moderate Feedback: Time Series Methods

59. A company wants to product a weighted moving average forecast for April with the weights 0.40, 0.35, and 0.25 assigned to March, February, and January, respectively. If the company had demands of 5,000 in January, 4,750 in February, and 5,200 in March, then Aprils forecast is a. 4983.33. b. 4992.50. c. 4962.50. d. 5000.00. Ans: b Difficulty: Moderate Feedback: Time Series Methods

60. The weighted moving average forecast for the fifth period with weights of 0.15 for period 1, 0.20 for period 2, 0.25 for period 3, and 0.40 for period 4, using the demand data shown below is Period Demand 1 2 3 4 a. b. c. d. 3760 3700 3650 3325 3500 3800 3500 4000

Ans: a Difficulty: Moderate Feedback: Time Series Methods

61. Given the demand and forecast values below, the nave forecast for September is Period Demand Forecast

April May June July August September a. b. c. d. 100.6. 99.0. 102.0. cannot be determined.

100 105 97 102 99

97 103 98 105 102

Ans: b Difficulty: Moderate Feedback: Regression Methods

62. A forecasting model has produced the following forecasts: Period January February March April May The forecast error for February is a. 10. b. -10. c. -15. d. -5 Ans: d Difficulty: Moderate Feedback: Regression Methods Demand 120 110 115 125 130 Forecast 110 115 120 115 125 Error

63. A forecasting model has produced the following forecasts: Period January February March April May Demand 120 110 115 125 130 Forecast 110 115 120 115 125 Error

The mean absolute deviation (MAD) for the end of May is a. 7.0. b. 7.5. c. 10.0 d. 3.0 Ans: a Difficulty: Hard Feedback: Forecasting Accuracy 64. A forecasting model has produced the following forecasts: Period January February March April May Demand 120 110 115 125 130 Forecast 110 115 120 115 125 Error

The mean absolute percentage deviation (MAPD) for the end of May is a. 0.0250. b. 0.0583. c. 0.5830. d. 0.6670. Ans b Difficulty: Hard Feedback: Forecasting Accuracy

65. A forecasting model has produced the following forecasts: Period January February March April May Demand 120 110 115 125 130 Forecast 110 115 120 115 125 Error

At the end of May the average error would be a. 7. b. 5. c. 3. d. 1. Ans: c Difficulty: Moderate Feedback: Forecasting Accuracy

66. A forecasting model has produced the following forecasts: Period January February March April May Demand 120 110 115 125 130 Forecast 110 115 120 115 125 Error

At the end of May the tracking signal would be a. 0.000. b. 0.667. c. 1.333. d. 2.143.

Ans: d Difficulty: Hard Feedback: Forecasting Accuracy

67. The mean absolute percentage deviation (MAPD) measures the absolute error as a percentage of a. all errors. b. per period demand. c. total demand. d. the average error. Ans: c Difficulty: Moderate Feedback: Forecasting Accuracy

68. A large positive cumulative error indicates that the forecast is probably a. higher than the actual demand. b. lower than the actual demand. c. unbiased. d. biased. Ans: b Difficulty: Moderate Feedback: Forecasting Accuracy

69. Which of the following statements concerning average error is true? a. a positive value indicates high bias, and a negative value indicates low bias b. a positive value indicates zero bias, and a negative value indicates low bias c. a negative value indicates zero bias, and a negative value indicates high bias d. a positive value indicates low bias, and a negative value indicates high bias Ans: d Difficulty: Moderate Feedback: Forecasting Accuracy

70. Which of the following is a reason why a forecast can go out of control? a. a change in trend

b. an irregular variation such as unseasonable weather c. a promotional campaign d. all of the above Ans: d Difficulty: Moderate Feedback: Forecast Accuracy

71. Which of the following can be used to monitor a forecast to see if it is biased high or low? a. a tracking signal b. the mean absolute deviation (MAD) c. the mean absolute percentage deviation (MAPD) d. a linear trend line model Ans: a Difficulty: Moderate Feedback: Forecast Accuracy

72. A tracking signal is computed by a. multiplying the cumulative error by MAD b. multiplying the absolute error by MAD c. dividing MAD by the cumulative absolute error d. dividing the cumulative error by MAD Ans: d Difficulty: Moderate Feedback: Forecast Accuracy

73. If forecast errors are normally distributed then a. 1 MAD = 1 b. 1 MAD 0.8 c. 0.8 MAD 1 d. 1 MAD 1.96 Ans: b Difficulty: Moderate Feedback: Components of Forecasting Demand

74. A mathematical technique for forecasting that relates the dependent variable to an independent variable is a. correlation analysis. b. exponential smoothing. c. linear regression. d. weighted moving average. Ans: c Difficulty: Easy Feedback: Regression Methods

75. Correlation is a measure of the strength of the a. nonlinear relationship between two dependent variables. b. nonlinear relationship between a dependent and independent variable. c. linear relationship between two dependent variables. d. linear relationship between a dependent and independent variable. Ans: d Difficulty: Moderate Feedback: Components of Forecasting Demand

76. For the demand values and the January forecast shown in the table below the exponential smoothing forecast for March using = 0.30 is
Period January February March April Demand 500 476 503 Forecast 480

a. b. c. d.

489. 486. 483. 480.

Ans: a Difficulty: Hard Feedback: Regression Methods

77. For the demand values and the January forecast shown in the table below the exponential smoothing forecast for March using = 0.40 is
Period January February March Demand 1250 1225 Forecast 1200

a. b. c. d.

1200. 1220. 1222. 1225.

Ans: c Difficulty: Hard Feedback: Regression Methods

78. If the forecast for July was 3300 and the actual demand for July was 3250, then the exponential smoothing forecast for August using = 0.20 is a. 3300. b. 3290. c. 3275. d. 3250. Ans: b Difficulty: Moderate Feedback: Regression Methods

79. Given the demand and forecast values shown in the table below:
Period June July August September Demand 495 515 519 496 Forecast 484 506 528 506

October

557

550

The three-period moving average forecast for November is a. 516. b. 528. c. 524. d. 515. Ans: c Difficulty: Moderate Feedback: Regression Methods

80. Given the demand and forecast values shown in the table below:
Period June July August September October Demand 495 515 519 496 557 Forecast 484 506 528 506 550

The exponential smoothing forecast for November using = 0.35 is a. b. c. d. 552.45. 553.50. 554.55. 557.50.

Ans: a Difficulty: Moderate Feedback: Regression Methods

81. Given the demand and forecast values shown in the table below:
Period June July August September Demand 495 515 519 496 Forecast 484 506 528 506

October

557

550

The forecast error for September is a. 10.00. b. -10.00. c. 1.00. d. 39.00. Ans: b Difficulty: Moderate Feedback: Forecast Accuracy

82. Given the demand and forecast values shown in the table below:
Period June July August September October Demand 495 515 519 496 557 Forecast 484 506 528 506 550

The MAD through the end of October would be a. 9.20 b. -9.20 c. 1.00 d. 7.00 Ans: a Difficulty: Hard Feedback: Forecast Accuracy

Short Answer

83. Explain the difference between qualitative and quantitative forecasting methods. Ans: Qualitative forecasting methods are based on judgment, opinion, past experience, or best guesses. They are most useful for predicting the future when there is no past historical data to model or when the need exists to predict for the very long-term. Quantitative forecasting methods are based on mathematical formulas. Examples of

quantitative forecasting methods are time series and regression analysis. Difficulty: Moderate Feedback: Components of Forecasting Demand

84. Discuss the importance of accurate forecasts in supply chain management. Ans: A companys supply chain encompasses all of the facilities, functions, and activities involved in producing a product or service from suppliers to customers. Supply chain functions such as purchasing, inventory, production, scheduling, and transportation are all affected in the short run by product demand and in the long run by new products and processes. Forecasts of product demand determine how much inventory is needed, how much product to make, and how much material to purchase from suppliers to meet forecasted customer needs. This in turn determines the kind of transportation that will be needed and where plants, warehouses and distribution centers will be located. Without accurate forecasts, large costs of costly inventory must be kept at each stage of the supply chain to compensate for the uncertainties of customer demand. If there are insufficient inventories, customer service suffers because of late deliveries and stock outs. This can be quite damaging to customer service and the need to have on-time delivery to compete in todays competitive environment. Difficulty: Hard Feedback: The Strategic Role of Forecasting

85. Compare and contrast short-mid-range forecasts and long-range forecasts. Ans: Forecasts are either short-to mid-range, or long-range. Short-range (to mid-range) forecasts are typically for daily, weekly, or monthly sales demand for up to approximately two years into the future, depending on the company and the type of industry. They are primarily used to determine production and delivery schedules and to establish inventory levels. A long-range forecast is usually for a period longer than two years into the future. A long-range forecast is normally used for strategic planningto establish long-term goals, plan new products for changing markets, enter new markets, develop new facilities, develop technology, design the supply chain and implement strategic programs, such as TQM. It is important to remember that these classifications are generalizations and the line between short-and long-range forecasts is not always so distinct. Difficulty: Moderate Feedback: Components of Forecasting Demand

86. Explain how and why time series and regression forecasting methods differ.

Ans: Time series methods are statistical techniques that use historical data to predict future demand. Time series techniques assume that what has occurred in the past will continue to occur in the future. Regression (or causal) forecasting methods attempt to develop a mathematical relationship (in the form of a regression model) between demand and factors that cause demand to behave the way it does. Difficulty: Moderate Feedback: Time Series Methods, Regression Methods