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Zeus Computer Chips, Inc., used to have major contracts to produce the Centrino-type chips. The market has been declining during the past three years because of the quad-core chips, which it cannot produce, so Zeus has the unpleasant task of forecasting next year. The task is unpleasant because the firm has not been able to find replacement chips for its product lines. Here is demand over the past 12 quarters:

Two

Yearsago

Last year

This year

I

4800

I

3500

I

3200

II

3500

II

2700

II

2100

III

4300

III

3500

III

2700

IV

3000

IV

2400

IV

1700

Use the decomposition technique to forecast demand for the next four quarters.

Short Answer

Expert verified

Forecasting models are tried and tested frameworks that help in predicting the outcomes more easily within the field of business and marketing.

Step by step solution

01

Definition of decomposition technique

Thedecomposition technique is the process of identifying and separating time series data into fundamental components like trend and seasonality. When demand contains both seasonal and trend effects at an identical time, the question is how they relate to each other. In this description, we examine two varieties of seasonal variation:

Additive and Multiplicative.

Additive seasonal variation simply assumes that the seasonal amount may be a constant regardless of the trend or average amount.

Forecastincludingtrendandseasonal=Trend+Seasonal

In aMultiplicative seasonal variation, the trend is multiplied by the seasonal factors.

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02

Explanation

a = 4210.25 and b = -168.24

The formula given below is used to calculate the forecast including trend and seasonal factors for the next quarter.

Forecast including trend and seasonal = Trend x Seasonal factor

Theforecast demand for the next four quarters is shown in column (4) of the table given above.

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Most popular questions from this chapter

Match the industry type to the expected benefits from an MRP system as High, Medium, or Low.

Ray’s Satellite Emporium wishes to determine the best order size for its best-selling satellite dish (model TS111). Ray has estimated the annual demand for this model at 1,000 units. His cost to carry one unit is \(100 per year per unit, and he has estimated that each order costs \)25 to place. Using the EOQ model, how many should Ray order each time?

Question: After using your forecasting model for six months, you decide to test it using MAD and a tracking signal. Here are the forecast and actual demands for the six months;

Period

Forecast

Actual

May

450

500

June

500

550

July

550

400

August

600

500

September

650

675

October

700

600

a. Find the tracking signal.

b. Decide whether your forecasting routine is acceptable.

In the past, Taylor Industries has used a fixed–time period inventory system that involved taking a complete inventory count of all items each month. However, increasing labor costs are forcing Taylor Industries to examine alternative ways to reduce the amount of labor involved in inventory stockrooms, yet without increasing other costs, such as shortage costs. Here is a random sample of 20 of Taylor’s items.

a. What would you recommend Taylor do to cut back its labor cost? (Illustrate using an ABC plan.)

b. Item 15 is critical to continued operations. How would you recommend it be classified?

What is the process used to ensure that all of the needs for a particular item are calculated at the same time in the MRP process?

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