2 Demand Forecasting Free Online FlashCards

What is a demand forecast?

A demand forecast is an informed estimate of future customer demand, not a promise that actual demand will match it.

How should a forecast horizon be chosen?

The forecast horizon should match the decision: weekly replenishment calls for a shorter horizon than capacity planning months ahead.

Why might recorded sales understate demand?

Recorded sales can be lower than actual demand when a stockout prevents customers from buying what they wanted.

How does the mean forecasting method make a forecast?

The mean method forecasts every future period using the historical average: $\hat y_{T+h|T}=\bar y$.

What value does the naïve method forecast?

The naïve method uses the latest observation as the forecast for every future period: $\hat y_{T+h|T}=y_T$.

How does the seasonal naïve method forecast?

It forecasts each future period using demand from the matching season in the most recent cycle; for example, next January uses last January’s demand.

What assumption does the drift method make?

The drift method extends the average historical change per period, assuming that this average rate of change continues.

How do trend and seasonality differ?

Trend is sustained upward or downward movement; seasonality is a pattern that recurs at a known interval.

What characterizes additive seasonality?

In an additive pattern, seasonal effects are roughly constant in size as demand rises or falls: $y_t=T_t+S_t+R_t$.

What characterizes multiplicative seasonality?

In a multiplicative pattern, seasonal swings change in proportion to the demand level: $y_t=T_t\times S_t\times R_t$.

What makes forecast evaluation out of sample?

Evaluate using only information that would have been available at the forecast time, such as by holding back later observations or using rolling-origin evaluation.

What do the signs of forecast errors indicate?

Forecast error is actual demand minus forecast, $e_t=y_t-\hat y_t$. Positive errors indicate underforecasting; negative errors indicate overforecasting.