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Weekly demand figures at Hot Pizza are as follows:
| Week | Demand($) |
| 1 | 108 |
| 2 | 116 |
| 3 | 118 |
| 4 | 124 |
| 5 | 96 |
| 6 | 119 |
| 7 | 96 |
| 8 | 102 |
| 9 | 112 |
| 10 | 102 |
| 11 | 92 |
| 12 | 91 |
Using the Hot Pizza weekly demand figures provided, estimate demand for Week 4 to Week 12 by using a 3-week moving average as well as simple exponential smoothing with α = 0.2. Evaluate the MAD, MAPE, MSE, bias, and TS in each case. Which of the two methods do you prefer? Why? Include all calculations as well as your narrative explanation and summary.
Expert Answer
Consider the calculations for Error, Absolute Error, Squared Absolute Error, Percentage Error as per image below.
MAD = Average of Absolute Errors
MAPE = Average of Absolute Percentage Error
MSE = Average of Swuared Errors
Bias = Total Error / No. of periods
TS = Total Error / MAD
1. 3 Month Moving Average
MAD = 10.04. MAPE = 10%. MSE = 146.33. Bias = -5/9 = -0.56. TS = -5/10.04 = -0.49
2. Exponential Smoothing
MAD = 11.53. MAPE = 12%. MSE = 178.72. Bias = -8.69/9 = -0.96. TS = -8.69/11.53 = -0.75
As per MAD, MAPE, MSE, Bias, TS – 3 month moving average is better estimate of forecast.
