Case Study #2 - Forecasting Ahmed is the Sales Manager at a large corporation that manufactures engines for recreational vehicles (four-wheelers and utility vehicles such as those sold under the brand name GatorTM). The company has been in business making engines for over 15 years but has only sold these small engines for the past eight years. After much growth in the industry, the company is questioning whether sales can be sustained at these levels. Recessions tend to impact discretionary spending as the company observed a few years ago. Executives are considering building a new facility, expanding existing facilities, or maintaining the status quo. Of course, they are also concerned that another recession might severely impact sales. To address these strategic questions, Ahmed must prepare a sales forecast and report his best prediction to upper management and the board. Fortunately, there is a significant amount of historical data available. However, Ahmed must choose the most appropriate forecast and make a sales recommendation to the executive committee. He will also need to rely upon his intuition and experience as a sales manager to ensure the conclusions he makes are logical and rational. Year Actual Sales 1 $3,400,000 2 $3,820,000 3 $3,644,000 4 $3,212,000 5 $3,622,000 6 $4,484,000 7 $4,674,000 8 $5,060,000 ??? Next Year Requirements Ahmed will want to compare several forecasts. ● Two-year historical moving average ● Four-year historical moving average ● Exponential smoothing In the case of exponential smoothing, he must choose the best coefficient and will compare: ● α = 0.2, ● α = 0.5, and ● α = 0.8.

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Transcribed Image Text:**Case Study #2 – Forecasting** Ahmed is the Sales Manager at a large corporation that manufactures engines for recreational vehicles (four-wheelers and utility vehicles such as those sold under the brand name Gator™). The company has been in business making engines for over 15 years but has only sold these small engines for the past eight years. After much growth in the industry, the company is questioning whether sales can be sustained at these levels. Recessions tend to impact discretionary spending as the company observed a few years ago. Executives are considering building a new facility, expanding existing facilities, or maintaining the status quo. Of course, they are also concerned that another recession might severely impact sales. To address these strategic questions, Ahmed must prepare a sales forecast and report his best prediction to upper management and the board. Fortunately, there is a significant amount of historical data available. However, Ahmed must choose the most appropriate forecast and make a sales recommendation to the executive committee. He will also need to rely upon his intuition and experience as a sales manager to ensure the conclusions he makes are logical and rational. **Historical Sales Data:** | Year | Actual Sales | |------|--------------------| | 1 | $3,400,000 | | 2 | $3,820,000 | | 3 | $3,644,000 | | 4 | $3,212,000 | | 5 | $3,622,000 | | 6 | $4,484,000 | | 7 | $4,674,000 | | 8 | $5,060,000 | | Next Year | ??? | **Requirements:** Ahmed will want to compare several forecasts. - Two-year historical moving average - Four-year historical moving average - Exponential smoothing In the case of exponential smoothing, he must choose the best coefficient and will compare: - α = 0.2, - α = 0.5, and - α = 0.8. **Explanation of Forecasting Methods:** 1. **Two-Year Historical Moving Average:** - This method averages the sales data for the past two years to predict the sales for the next year. 2. **Four-Year Historical Moving Average:** - This technique involves averaging the sales data for the past four years to estimate the sales for the upcoming year. 3

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