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Fertilizer Demand Forecasting

The document presents historical demand data for fertilizer and uses two methods to forecast future demand: a 3-year simple moving average and a weighted moving average that weights the most recent year higher. The weighted moving average produced a forecast with a lower standard error (3.291 vs 3.598), suggesting it is the better forecasting method.

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474 views4 pages

Fertilizer Demand Forecasting

The document presents historical demand data for fertilizer and uses two methods to forecast future demand: a 3-year simple moving average and a weighted moving average that weights the most recent year higher. The weighted moving average produced a forecast with a lower standard error (3.291 vs 3.598), suggesting it is the better forecasting method.

Uploaded by

estoniloann
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Data collected on the yearly demand for 50-pound bags of fertilizer at Wallace Garden Supply are shown
in the following table. Develop a 3-year moving average to forecast sales. Then estimate demand again
with a weighted moving average in which sales in the most recent year are given a weight of 2 and sales
in the other 2 years are each given a weight of 1. Which method do you think is best?
Year Demand For Fertilizer
(1,000s of Bags)

1 4

2 6

3 4

4 5

5 10

6 8

7 7

8 9

9 12

10 14

11 15

Develop a 3-year moving average to forecast sales.

The three-year moving average is computed as (Year 1 +Year 2+ Year 3)/3. Given this formula, the
following values were computed with the 12th year forecasted demand for fertilizer at 13.667.
Year Demand For Fertilizer Forecast
(1,000s of Bags) (3-year moving average)

1 4

2 6

3 4

4 5 4.667

5 10 5.000

6 8 6.333

7 7 7.667
8 9 8.333

9 12 8.000

10 14 9.333

11 15 11.667

12 13.667

Using the moving average, the pair came up with the same forecast for the demand for fertilizer in QM
for windows with a standard error of 3.598.

Similarly, the graph below shows the forecasted demand for Wallace Garden’s fertilizer which is
observed to be generally lower than the actual sales.

Then estimate demand again with a weighted moving average in which sales in the most recent year
are given a weight of 2 and sales in the other 2 years are each given a weight of 1.
Year Demand For Weight Forecast
Fertilizer (3-year moving
(1,000s of Bags) average)

1 4 1

2 6 1

3 4 2

4 5 4.5

5 10 5

6 8 7.25

7 7 7.75

8 9 8

9 12 8.25

10 14 10

11 15 12.25

12 14

The weighted moving average is computed as (Year 1*Weight +Year 2*Weight + Year 3*Weight)/3.
Given this formula, the following values were computed with the 12th year forecasted demand for
fertilizer at 14.

Using the weighted moving average, the pair came up with the same forecast for the demand for fertilizer
in QM for windows with a standard error of 3.291

Similarly, the graph below shows the forecasted demand for Wallace Garden’s fertilizer:
Which method do you think is best?

Based on the computed standard error for moving average (3.598) versus weighted
moving average (3.291), the weighted moving average had a lower error and can be interpreted
as the better method to forecast the demand for Wallace Garden’s fertilizers.

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