Question: A company is using exponential smoothing when forecasting the demand for a special product. The forecast is updated once every week. The smoothing constant for

A company is using exponential smoothing when forecasting the demand for a special product. The forecast is updated once every week. The smoothing constant for the demand forecast is 0.1, and for MAD a smoothing constant equal to 0.2 is used. Last week the forecast for the demand and MAD were 250 and 30, respectively. The observed demand during this week is 230. The supplier lead time is 3 weeks. Assume that forecast errors during different weeks are independent of each other.
With the above information we get that
The updated demand forcast for newt week I 248 units.
The updated forcast for MAD is 28
and the forecast for the total demand during the next 3 weeks are 744
Assume that the inventory for this special product is controlled by an (R,Q) policy with continuous review. Assume that Q=120 and that the demand during the lead time follows a normal distribution. Determine the lowest value of safety stock, SS, such that both S_1 and S_2 are at least 95%.

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