Problem Set 1

Answer the three (3) questions on demand forecasting and customer relationship management.

1. Based on the information shown below, develop forecasts for April to October using:

(a) A 3-period weighted moving average model (w1 = 0.5, w2 = 0.3, and w3 = 0.2).

(b) An exponential smoothing model with = 0.35. Assume the forecast for March was 950.

MonthActual Demand

Jan 1050

Feb 975

Mar 1000

Apr 870

May970

Jun 1220

Jul 1170

Aug1150

Sep1235

Oct 1275

2. Based on the information shown below, calculate MAD, MSE and tracking signal.

Week Actual Demand Forecast

1 750 770

2 690 730

3 820 710

4 850 790

5 870 840

6 780 850

7 915 890

8 950 920

3. For the information given, rank the customers in terms of customer lifetime value.

Avg. Annual Sales Avg.Profit MarginExpected Lifetime

Customer 1:$3,45017 %8 years

Customer 2:$2,00013 %6 years

Customer 3:$1,40032 %10 years

Use a discount rate of 6 percent and treat the average sales figures as annuities. Should any of these customers be fired?