Auto Parts Forecasting Case Study Essay Sample

Car Parts is a big maker of trim parts for cars. The manager of marketing research demands to find which prognosis method is the most accurate in calculating gross revenues for the twelvemonth 2008 based on the collected informations on quarterly gross revenues for the old four old ages. After running four different methods of prediction: arrested development with clip series. arrested development with economic factors. Holtz-Winters linear theoretical account. and Holtz-Winter multiplicative theoretical account. Based on the mistake the most appropriate method of prediction is arrested development with economic factors. Based on this theoretical account. gross revenues for the twelvemonth 2008 lessening significantly. which may be declarative of possible recession. Therefore. it is extremely recommended that car parts plans expeditiously with the available resources to forestall big loss of money.

Background
Forecast is “a be aftering tool that helps direction in its efforts to get by with the uncertainness of the hereafter. trusting chiefly on informations from the past and present and analysis of trends” ( BusinessDictionary. com ) . A good prognosis helps companies prepare to forestall big sum of money loses by be aftering more expeditiously. In the Auto Parts prediction instance survey. the manager of selling of a big maker of trim parts for cars understands the effects of calculating mistakes and wants to calculate the gross revenues every bit accurate as possible. After roll uping gross revenues informations for each one-fourth of the past four old ages. he ran a figure of prognosiss utilizing the method of times series. However. there are some factors such as economic activity and oil monetary values that may hold a important impact on car parts gross revenues for which he is concerned. Therefore. the manager of marketing research decided to utilize econometric variables to look into if gross revenues forecast are better predicted utilizing this theoretical account. Problem

The big maker of trim parts for cars must make up one’s mind which prognosis method is the most accurate in calculating gross revenues for the twelvemonth 2008 based on the collected informations on quarterly gross revenues for the old four old ages. Analysis

The information provided for the car parts instance survey in Excel included: quarterly gross revenues. non-farm activity index and oil monetary values for the old ages 2004. 2005. 2006. and 2007. Four different theoretical accounts were used to calculate gross revenues for 2008: arrested development with clip series. arrested development with economic factors. Holt-Winters linear theoretical account. and Holt-Winters multiplicative theoretical account.

Arrested development with clip series:
Time series is a sequence of observations which are ordered in clip or infinite ( Young. 1997 ) . There are two types of clip series informations: uninterrupted such as EKGs and discrete which are spaced intervals. The chief characteristics of clip series are tendency and seasonality. Trend is a long term motion in a clip series. The tendency is the way and rate of alteration in the clip series. Tendencies may be identified by taking norms over a period of clip in seasonal informations. If the norms change over clip. so a tendency is identified. For illustration. in economics the GDP has a positive tendency in the long term while resources and hole cost has a negative tendency in the long term. Seasonality is the constituent of fluctuation in a clip series which is dependent on the clip of the twelvemonth. There are four seasons: spring. summer. autumn and winter. Dummies are used for seasonality. For the car parts instance survey. arrested development with clip series method was ran where Y the dependant variable is gross revenues while X. X1 the independent variables are tendency and seasonality severally.

Dummies were used for spring. summer. autumn and winter. If a season is non-significant P & gt ; 0. 05. so it does non hold an impact on gross revenues. After running the first arrested development. winter ( Q4 ) is non-significant because it has a P value greater than 0. 05 and a t value less than absolute 2 ; hence. winter ( Q4 ) does non hold an impact on gross revenues. After the first arrested development based on the F statistics the theoretical account is good ; nevertheless. one of the independent variables ( Q4 ) was non-significant. Subsequently. Q4 was eliminated and a 2nd arrested development was ran. After running the 2nd arrested development without Q4. based on the F statistics the theoretical account is good. The R Square value means how much the independent variable explains the behaviour of the dependant variable.

In this theoretical account. the R square value represents how much tendency and seasonality explain the behaviour of gross revenues. R square is equal to 95. 47. which means that the theoretical account explanatory power is high. Historical information ( Q1 ) was recreated utilizing the theoretical account to compare prognosis to original informations so that can be manipulate later and the mistake statistic is used. The mistake statistics were calculated utilizing the notes for steps of calculating mistake in chalkboard. The smaller the mistake the better the theoretical account. The norm of the mistakes must be equal to zero ME=0. MSE is calculated by taking the mistake absolute values and making the norm. Then the square root of MSE=RMSE. and MAPE is the % mistake. The notes for steps of calculating mistake indicate that “a value of U & gt ; 1 indicates a hapless prediction theoretical account comparative to a naive prognosis. A good prediction theoretical account has a value of U prognosis.

Arrested development with economic factors
Arrested development with factor uses historical informations as input. For the car parts instance survey. the dependent variable gross revenues informations is from 2004 through 2007 and independent variables M2. non-farm activity index and oil monetary values represent the economic factor that will potentially impact gross revenues during 2008. After the first arrested development with factors was ran. M2 was non-significant because the P value was greater than 0. 05. Arrested development with factors utilizations intercept. tendency and seasonality. Where L is intercept. B is tendency and S is seasonality. Arrested development is the methodological analysis used for prediction. For arrested development with factors. the intercept. tendency and seasonality are changeless.

The L. B and S values were calculated utilizing the Notes on Exponential smoothing. After reexamining the theoretical account utilizing alpha. beta and gamma invariables. the theoretical account was optimized by utilizing Microsoft convergent thinker and as a mark cell the square root of every mistake statistic minimized. Alpha. beta and gamma have an impact on L. B and S values which have an impact in the prognosis theoretical account and hence the mistake. Alpha has an impact on L. beta has an impact on B and gamma has an impact on S. The theoretical account explanatory power is high since R square is equal to 93. 36. After running arrested development with factor the theoretical account is good based on the F statistics.

Arrested development Statisticss

Holtz-Winters theoretical accounts
“Holt ( 1957 ) and Winters ( 1960 ) extended Holt’s method to capture seasonality. The Holt-Winters seasonal method comprises the prognosis equation and three smoothing equations — one for the degree ? T. one for tendency B T. and one for the seasonal constituent denoted by s T. with smoothing parametric quantities ? . ? ? and ? . We use thousand to denote the period of the seasonality. i. e. . the figure of seasons in a twelvemonth. For illustration. for quarterly informations m=4. and for monthly informations m=12. There are two fluctuations to this method that differ in the nature of the seasonal constituent. The linear method is preferred when the seasonal fluctuations are approximately changeless through the series. while the multiplicative method is preferred when the seasonal fluctuations are altering relative to the degree of the series. With the linear method. the seasonal constituent is expressed in absolute footings in the graduated table of the ascertained series. and in the degree equation the series is seasonally adjusted by deducting the seasonal constituent. Within each twelvemonth the seasonal constituent will add up to about zero.

With the multiplicative method. the seasonal constituent is expressed in comparative footings ( per centums ) and the series is seasonally adjusted by spliting through by the seasonal constituent. Within each twelvemonth. the seasonal constituent will sum up to about m ” . ( OTexts. 2013 ) The difference between Regression and Holtz Winters is that while arrested development uses tendency. intercept and seasonality as changeless. in Holtz-Winters they are altering or traveling and when ciphering the prognosis uses the period before. tendency. intercept and the seasonality one season before. The expression on the notes on exponential smoothing were used to cipher L. B and S. After reexamining the theoretical account utilizing L. B and S utilizing the period before. the theoretical account can be optimize. For the optimisation we used Microsoft convergent thinker and as a mark cell we minimized the square root of every square statistics ( common RMSF ) . Alpha. Beta. and gamma have an impact on L. B and S which had impact in the prognosis theoretical account and hence the mistakes.

Mentions
BusinessDictionary. com. 2013 retrieved from: hypertext transfer protocol: //www. businessdictionary. com/definition/forecasting. html # ixzz2nKL11Ly4 Doane. D. R. . & A ; Seward. L. E. ( 2013 ) . Applied Statistics Business & A ; Economic ( 4th ed. ) . U. Second: McGraw-Hill Education. Microsoft Office Excel. ( 2013 ) . Redmond. WA: Microsoft Corporation Read more Makridakis. S. . Wheelwright. S. C. & A ; Hyndman. R. J. ( 1998 ) . Forecasting Methods and Applications. ( 3rd Edition ) . New York: John Wiley & A ; Sons. Inc. OText. com. 2013

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