1)What are some of the consequences of poor forecasts? Explain.

Overly optimistic errors can lead Retailers into over ordering products, resulting in bloated
inventories. When that happens there is pressure to move the excess merchandise. Customers are
delighted by these markdowns, retailers profits generally suffer. Furthermore retailers will
naturally cut back on new orders while they work off their inventories creating a ripple effect
that hits the entire supply chain from shippers, to producers, to suppliers of raw materials.
Poor forecasting leads to poor business decisions and can sometimes lead to catastrophic results.
Optimistic forecasts often mean that the firm projects a demand that is much higher than the
actual demand and will lead to inventories pilling up and retailers having to discount the
products to clear the shelves. The reverse is true if the forecast is too pessimistic. This means that
the project demand is much lower than actual demand. In this case, the risk is of stock-outs at the
retailers end and there will be many dissatisfied customers.
The consequences of a poor forecast depend on who is using it. Lets say that a weather channel
company is forecasting the weather and gives a poor forecast about a hurricane that is.................
approaching a city and they do not prepare for it, it could generate enormous damages. A
consequence of a poor forecast for a retailer store could lead to a bloated inventory because of...
over-order. A poor financial forecast can lead to the bankruptcy of a company. Consequences inv
olve vary as I said before it depending on who and where forecast is used.
2)What advantages as a forecasting tool does exponential smoothing have over moving
averages?
When implemented digitally, exponential smoothing is easier to implement and more efficient to
compute, as it does not require maintaining a history of previous input data values. Furthermore,
there are no sudden effects in the output as occurs with a moving average when an outlying data
point passes out of the interval over which you are averaging. With exponential smoothing, the
effect of the unusual data fades uniformly. (It still has a big impact when it first appears.)
The advantage of the EMA is that by being weighted to the most recent price changes, it
responds more quickly to price changes than the SMA does. This is particularly helpful to traders

attempting to trade intraday swing highs and lows, since the EMA signals trend change more
rapidly than the SMA does.
7) Choose the type of forecasting technique (survey, Delphi, averaging, seasonal naive, trend, or
associative) that would be most appropriate for predicting
Demand for Mothers Day cards is a seasonal nave because this technique uses have been used b
efore and mothers day is an established date of the year, and this is data with trend
Popularity of a new TV series- Trend because one season of a TV series could have much popula
rity but when the next...season came people lost interest and it losses popularity this is a drastic c
hange in the movement of data
Demand for vacations on the moon- Delphi because this technique employs the gathering of data
by passing out surveys
you can learn of this demand by asking people what they think about it. And they need to

know

if people would be interested in demanding this service

The impact a price increase of 10% would have on the sale of orange marmalade-averaging beca
use it would reflect recent value. And would explain how the increase of the price could affect sa
les of this product
Demand for toothpaste in a particular supermarket associative because they can look at the pric
e of the toothpaste and the publicity used for
this product, there are several explanatory variables to realize this forecast

3)What factors enter into the choice of a value for the smoothing constant in exponential
smoothing?
The smoothing constants determine the sensitivity of forecasts to changes in demand. Large
values of make forecasts more responsive to more recent levels, whereas smaller values have a
damping effect. Large values of have a similar effect, emphasizing recent trend over older
estimates of trend.

It depends on how much weight you want to give to recent data. This would require a high value
smoothing constant. If you have lots of data points, and there is little seasonality, and there is a
trend in place, you might consider weighting the recent data more heavily. if you have
intermittent demand, or don't have as many data points as you would like, I would tend to use a
lower smoothing factor and give as much weight to older data as the newer data. Maybe a
smoothing factor of 50%.
Some modeling software will optimize the smoothing constant for you, so as to minimize the
prediction error. But, I would use this only if you understand how your data behaves.

4)Contrast the terms sales and demand.

Demand Forecasting and Sales Forecasting are different, and the results of each can have a
dramatic impact on your profitability. Demand Forecasting and Sales Forecasting should be
calculated with some similar and some different data points. While closely related, the two
resulting forecast numbers will not be the same in most business situations. The forecast results
will impact the inventory replenishment by impacting available inventory, expected inventory
orders, and sales. An inventory replenishment system that is based on a demand forecast
(demand driven) can reduce the risk of lost sales while improving service. This in turn delivers
higher sales by connecting inventory levels with demand forecast.
Sales Forecasting is the easier of the two choices: you load your sales history into the sales
forecast engine and the system delivers a sales forecast. Sales Forecasting is critical for the retail
business to create financial plans with the banks, plan sales growth, and plan resource strategies.
Sales Forecasting systems have a vanilla approach that is clean and simple, and it works
without issues for the most basic of products. Legacy systems often will pair the sales forecasting
with their demand planning tools to determine inventory replenishment for the business.
The problem to this approach? Sales Forecasting is a measure of the market response; it is not a
measure of market demand.

Many types of events will create sales unit increases and decreases that raise or lower a sales
forecast. However, a sales forecast engine may not react correctly.
For example, imagine a case in which sales are zero one week due to no available inventory. A
sales forecast does not factor in the unavailable inventory all week, and the forecast will end up
artificially low.
On the other hand, imagine a case where sales gain rapidly this week, but the price was marked
down due to inventory overstock. Sales will obviously be high for that week, and the resulting
sales forecast will be artificially high.
Demand Forecasting needs demand history inputs and Sales Forecasting uses sales history.
Demand History is created by scrubbing the sales history and at times adding to the sales
history. Demand Forecasting uses demand history with events to calculate a demand forecast.
One example: Out of stock days with zero sales may need a demand history correction to show
what would have occurred if inventory had been available. The demand history can be autocalculated by systems like iKIS using BI analysis tools to filter sales types regular, lost, promo,
event, and close-out demand. For many legacy systems, this is a manual process that requires a
trained and informed user to filter the data and calculate demand history for input into the
forecasting algorithms.
The differences between demand forecasting and sales forecasting are subtle in some places; for
example, they both use sales history. The major difference is in what history is input into the
algorithms. Demand forecasting must correct for a variety of external factors (like promotional
events) to calculate base demand. Planning inventory replenishment requires scrubbing the sales
data of events that will not repeat. Likewise, it also necessitates the ability to buy inventory for
future, new events.
Demand Forecasting and Sales Forecasting are different and their respective uses should not be
the same for the many reasons highlighted today. Technology hardware and the resulting
software runs faster for less money and more accurately than even 5 years ago. That means today
you have better choices to pick and choose for your business need. These choices provide

significant opportunities to improve your inventory replenishment practices and achieve higher
sales, lower operating costs, and better service for your customers.
5)Contrast the reactive and proactive approaches to forecasting. Give several examples of types
of organizations or situations in which each type is used.
Reactive business strategies are those that respond to some unanticipated event only after it
occurs, while proactive strategies are designed to anticipate possible challenges. Because no one
can anticipate every possibility, no organization can be proactive in every situation. However,
businesses that emphasize proactive strategy are usually more effective at dealing with
challenges.
Initiative
The distinction between proactive and reactive approaches is a recognized principle of military
strategy, often expressed in the phrase "seize, retain and exploit the initiative." Proactive
strategies are superior because they allow the company using the strategy the freedom to make
its own decisions rather than responding out of necessity to a situation that already may be out of
control. Companies that use proactive strategies have a better chance of seizing and retaining the
initiative in the competition with other companies.
Application
The difference between applying a proactive strategy and a reactive strategy is largely one of
preparation and accountability. For instance, if a potential customer asks a roofing contractor for
references, the roofer can react by going through his list of past customers and calling them one
by one to find out if they'd be willing to provide a reference. A better strategy would be to assign
one employee to maintain a database of satisfied customers who already indicated their
willingness to do so. In a competition between a contractor with a reactive reference strategy and
one with a proactive reference strategy, the one who can provide high-quality references rapidly
will enjoy a clear advantage in bidding for the job.
Quality Control

Another example of the difference between proactive and reactive strategies is in the area of
quality control. If a hotel manager assumes everything is fine until she receives a customer
complaint, she is using a reactive strategy. The weakness of this approach is that many
dissatisfied customers do not complain to management; they simply go elsewhere next time and
advise others to do the same. A proactive strategy could include making careful hiring decisions,
fostering a customer service culture among the staff, checking with guests during their stay to
ensure their needs are being met and any other actions likely to prevent customer dissatisfaction.
Combined Strategies
Because no business can always be proactive, it helps to include proactive elements in any
reactive strategy. In classic strategic doctrine, this is referred to as including offensive elements
on defense. Responding to customer complaints generally is considered a reactive strategy.
However, if a business such as a pizza delivery restaurant includes a note on every box
encouraging dissatisfied customers to call for a free pie, the company can avert potential harm
and may receive good word of mouth as well.