DistCo, a large warehouse service company in the San Francisco Bay Area, stores pharmaceutical products for customers while they are in transit to local retailers. DistCo can store a maximum of 280,000 cases of products at its present facility. Because their business has been growing, the companys management wonders if they should acquire other warehouses in 2001. The materials specialist has accumulated the following inventory data:

Inventory (thousand

Year Quarter Period of cases)

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1996 1 1 176

2 2 134

3 3 186

4 4 195

1997 1 5 189

2 6 157

3 7 195

4 8 211

1998 1 9 205

2 10 180

3 11 212

4 12 229

1999 1 13 223

2 14 192

3 15 234

4 16 248

2000 1 17 239

2 18 217

3 19 271

4 20 284

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A. Explain how you select the best time-series forecasting model and why it is better than the others are. What is the forecast performance? What quarterly inventory is to be expected in each quarter of 2001?

You may include the following elements to the answer

1. - Explain how to measure forecast accuracy using MSE
   • The MSE (mean squared error) is a measure of the quality of an estimatorit is always non-negative, and values closer to zero are better. In statistics, the mean squared error (MSE) measures the average of the squares of the errorsthat is, the average squared difference between the estimated values and what is estimated
   • Compare MSE of different methods.
   • Explain which method is best and why (by observing patterns in actual data).
   • Conclude with your forecast results in 2001

B. What are the potential factors that may affect the forecast accuracy of the model you have selected?

There are always some factors not be able to consider in time-series analysis. For examples, interest rate, GDP, political event, natural event, etc.