- What forecasting methods should the company consider?
In the given case, Best Homes must opt for time series forecasting method. The primary reasons to support the same are:
- Time series forecasting helps in forecast the demands based on seasonal patterns, so the variations in forecast and actual data is not much.
- Time series forecasting is quite a reliable method for forecasting
- Trend estimation gets facilitated with the help of this approach
2- Use the classical decomposition method to forecast average demand for 2016 by month. What is your forecast of monthly average demand for 2016?
Sales projections from all the regions under the coverage of the company will help in assessing the overall demand forecast, which the company can estimate and prepare its manufacturing process as well as inventory management accordingly. These sales projections will help in understanding the trend pattern which may affect the overall region of the company and hence, the business may adapt its manufacturing strategy accordingly.
Q1: The nature of the plot for the given demand data suggests that there is a clear effect of a) seasonality, b) trend and c) it also needs smoothing.
Therefore, applicable methods of forecasting are:
- Winter’s method
- Linear multiple regression with dummy binary variables for seasons.