C. Forecasting and other supply chain activities

A recent report produced by Shop n Pay's chief demand planner has revealed that the retailer's reliance on simple exponential smoothing to forecast demand for its products is partly responsible for the significant bullwhip effect in the supply chain and the stock outs in the past few years. In this regard, the chief demand planner is recommending that exponential smoothing with trend adjustment (Holt's Model) should be used to forecast demand for aggregate planning for the 2020 fiscal year.

Mr Msimanga has retrieved from the retailer's database the following information on number of goods sold over a two-year period.

REQUIRED:

Use the information provided above under section C: Forecasting and other supply chain activities to answer the following questions:

2.3.1

"A recent report produced by Shop n Pay's chief demand planner has revealed that the retailer's reliance on simple exponential smoothing to forecast demand for its products is partly responsible of the significant pile-up of goods in the company's main distribution centre."

In light of the statement above, highlight any THREE (3) weakness of the simple exponential smoothing method of forecasting. (3)

2.3.2

Calculate the Exponential smoothing with trend component forecast (FIT) for second to the twenty-fifth month using an initial trend forecast (1) of 10 000, an initial exponential smoothing forecast (1) of 640 000 units, =0.20, and =0.30. (6)

2.3.3

Plot the actual demand, the simple exponential smoothing (SES) forecast, and trend-adjusted exponential smoothing (FIT) forecast on the same graph. Briefly comment on the observed difference(s) between the plots of the two forecasts. (5)