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Fall 2017

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The Prescott Bakery Company Case Study

 

Instructions: Complete the following as part of the individual case study report on the Prescott Bakery Company.  Refer to the instructions provided, and to the voluntary chats and PowerPoints appropriate to this forecasting case study.

 

Part 1.

The Forecasting Techniques

 

Based on the five (5) steps in creating a forecast, help Bill by presenting him with suggestions that walk him through each of these steps as they apply to this problem.  Remember, Bill is not a statistician, so help him with common English terms, (and define any uncommon ones) and go through each of these planning steps with him so that he can understand what they mean.

 

Step 1: Define the Problem to be solved

(How does Bill go about trying to figure out what forecasting problems he has in his business?  This is a general discussion of how any business figures out what problems it may be happening related to forecasting.)

 

 

 

Step 2: Gather Statistical and Other Data

(How does Bill get the data that he needs for any problem, and how can he be sure that the data is correct and accurate?  What other types of data could impact a forecast – think production issues and cost of raw materials, etc.  Do NOT just state that the information is already provided.  Concentrate on explaining how to obtain accurate data that can be used in forecasting.)

 

 

 

Step 3: Look for Patterns in the Data or Outliers

(What should Bill look at in the data?  What types of graphs should he develop, and what statistics should he review before he attempts to forecast using this data, such as the mean, standard deviation, Kurtosis, etc.?)

 

 

 

Step 4: Select a Forecasting Model to Use[1]

(What is a forecast?  How long does a forecasting technique work?  What are the different types of forecasts that he could use for his company?  How does he know if the forecasting technique is any good for his company?)

 

 

 

Step 5: Evaluate the Results of the Forecasting Model and Apply the Results

(Once he has a forecast how does he ensure that the forecast remains accurate, and then how does he apply the results of the forecast?)

 

 

 

Part 2. Creating Forecasts for the Company

 

The Raw Data for Parts 2 and 3 of the Case Study

 

Prescott Bakery Pie Production 2016
January 4,925 $6.00
February 5,639 $7.31
March 5,842 $6.10
April 6,236 $7.35
May 5,849 $6.60
June 6,201 $6.88
July 5,809 $7.15
August 5,082 $7.33
September 6,011 $6.09
October 5,470 $5.97
November 5,892 $6.57
December 5,364 $6.93
January

 

 

Using the templates provided, complete the following table.  NOTE: The exponential smoothing template must be run four (4) times with a different alpha to complete this table.  Remember that the company estimates that it produces about 5,600pies a month (you need this figure for each of these forecasting techniques for the initial estimate average and for the estimator in the causal forecasting technique).

 

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Prescott Bakery Forecasting Summary Table
Forecasting technique
Statistic Last Value Averaging Moving Average 3MA Exponential Smoothing with Seasonality (a=.1) Exponential Smoothing with Seasonality (a=.5) Exponential Smoothing with Seasonality (a=.7) Exponential Smoothing with Seasonality (a=.9)
MAD
MSE
January Forecast

 

 

For each of these techniques explain (1) what the technique is, (2) how does it work and then (3) what the results mean.  You only need to explain the MAD and the MSE once, but make sure that Bill can understand what you are telling him, then at the end of this section compare these different forecasting techniques and recommend that he consider adopting one (and only one) to use as a possible forecasting technique.  Be sure to explain your reasons for this decision.  Type your responses in the following section, but remember to explain these results completely within each section.

 

  1. How is the MAD forecasting statistic calculated and what does the results mean?

 

 

 

  1. How is the MSE forecasting statistic calculated and what does the results mean?

 

 

 

  1. How is the last Value Forecasting Technique calculated and what does the results mean?

 

 

 

  1. How is the Averaging Forecasting Technique calculated and what does the results mean?

 

 

 

  1. How is the Moving Average Forecasting Technique (3MA) calculated, what does the term “3MA” mean, and what does the results mean?

 

 

 

  1. How is the Exponential Smoothing Forecasting Technique calculated and what does the results mean as you vary the alpha?

 

 

 

  1. Which is the best forecast for the Bakery company and why?

 

Be specific about why you selected one of these forecasting techniques as the best.  If you selected one of the exponential smoothing forecasts then defend why one level of alpha is better than the other levels.

 

  1. Remember, the goal of smoothing is to reduce the highs and lows of the raw data. But, if you eliminate all the variability (e.g., a straight line) by the smoothing then your forecast is probably meaningless.
  2. Also, the MAD and the MSE come into play when determining which forecast is the best. Look for a combination of relative smoothing of the forecasted data along with a relatively low MAD and MSE, that’s where the actual best forecast will be found.

 

The best forecast is:

 

 

 

Why is this the best forecast?

 

 

 

Part 3. Forecasting using Casual forecasting techniques

 

Now use the Blank Linear (Casual) Regression Spreadsheet to determine what the estimated number of pies that could be produced if the average selling price was as follows:

 

  • An average cost of $7.25;
  • An average cost of $7.59; and,
  • An average cost of $8.19.

 

In this forecasting technique, the number of pies sold the prior year is the dependent variable, while the average cost of the pies is the independent variable.Remember to set the estimator at 5,600

.

 

NOTE: If you have forgotten how to use the results of the linear regression go to the PowerPoint presentation for week 5, slide 54 for how to do these calculations.

 

  Average cost of $7.25 Average cost of $7.59 Average cost of $8.19
Number of Pies to be produced at this average cost:

 

  1. Of these three causal forecasts, which one do you believe offers the best forecast for the company? Be specific in your answer.

 

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[1] Here you may discuss in general what are common forecasting techniques.

Last Updated on April 25, 2020 by Essay Pro