Certified Production & Operations Manager (POM) Practice Exam

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What is the smoothing constant, alpha, if the previous forecast was 66 and four units less than actual demand resulted in a new forecast of 66.6?

The correct answer is: .15

To determine the smoothing constant, alpha, we can use the formula for exponential smoothing, which is: New Forecast = Previous Forecast + alpha * (Actual Demand - Previous Forecast) In this scenario, the previous forecast is 66, and the new forecast is 66.6. We also know that the actual demand is four units more than the previous forecast. Therefore, the actual demand can be calculated as: Actual Demand = Previous Forecast + 4 = 66 + 4 = 70. Now we can plug the values into the exponential smoothing formula: 66.6 = 66 + alpha * (70 - 66) This simplifies to: 66.6 = 66 + alpha * 4 To isolate alpha, we subtract 66 from both sides: 0.6 = alpha * 4 Now, we divide both sides by 4: alpha = 0.6 / 4 alpha = 0.15 Thus, the smoothing constant alpha is 0.15, which corresponds to choice A. This value indicates that 15% of the difference between the actual demand and the previous forecast is taken into account in the new forecast, reflecting a balance between the previous forecast and observed demand.