Essays on Exponential Smoothing

Introduction

Planning is an important aspect of managing any business. Planning sometimes involves prediction of the future conditions. Forecasting sales is significant in profit planning among other strategic decisions. Several methods are used in forecasting sales. A business should apply the method that most accurately estimates the future sales. Excellent Consulting Group wants to identify the best method to forecast its sales for year two. A forecast has already been made using the regression analysis method. The technique involved developing an equation which gives the monthly sales figure as a function of the number of customers in each month. The ...

Abstract

Linear Regression (LR) forecasts the value of a random variable (dependent variable) for a given value of an associated independent variable. The regression equation provides the formula for such a calculation. Simple Exponential Smoothing (SES) forecasts the bases its forecasts on a weighted average of past data, with more weight on the more recent periods. A smoothing factor helps in providing weight. It generally forecasts for the short-term. In the present case, we forecast the sales data for year-2 for ABC Furniture Company using both the methods. For SES, we use two smoothing factors α equal to 0.15 and 0.90 ...

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Question 1

- Describe the different types of costs associated with inventory. Inventory costs can be divided into three main categories, namely purchase costs (the cost of procurement), storage costs (maintenance) and costs related to the lack of goods (shrinkage). Purchase costs (also called as the costs of order preparation, especially when it comes to production), or restocking are economic consequences caused by direct orders, that is, costs that arise every time the company place customer’s order. These costs can be divided into two parts: the costs directly for the placement of the order (they can be persistent and ...

Shuzworld needs to decide which would be more economical: reconditioning their existing equipment for this production, buying new equipment, or outsourcing the production to China. Reconditioning which has a fixed cost of $50,000 and included as a variable cost of $1,000 for every 1,000 sneakers produced. By purchasing new equipment it has a fixed cost of $200,000 and a variable cost of $500 for every 1,000 sneakers. By outsourcing production to China they will incurr no fixed costs, and the variable costs will be $3,000 for every 1,000 sneakers that will be produced.

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Many decisions made in operation management are based on forecasts. This is the basic principle used in matching supply to demand. A company’s accurate forecast enables it to take advantage of future opportunities and decrease on any impending risk (Stevenson 109). Forecasting is basically an anticipation of an event in the future. In business, entrepreneurs need to forecast or make a valid anticipation of what a customer will want to buy. In operations management, forecasting is a way of getting information on what a customer will demand in future. This is a way of aligning the supply according to demand in the market. ...

Shuzworld Suitable Method for Production of Sneakers

Shuzworld has given been given the go-ahead to produce Samba Sneakers by the marketing team. These brightly-colored sneakers will be aimed at teens and pre-teens and have colorized rubber soles. There are 3 options available for the production of the sneakers. They include using reconditioned equipment, purchasing new equipment in its Shanghai plant, or outsourcing to another manufacturing operation. The following is an analysis of the 3 options in order to determine the one which minimizes cost while at the same time maximizes the profits. The reconditioning option requires Fixed Costs of $ 50,000 and Variable Costs of $ ...