Chapter 51. Forecasting with Moving Averages

  • What are the shortcomings of using moving averages in forecasting?

  • How can I optimize moving average forecasts?

  • Can I modify moving average forecasting to incorporate trend and seasonality?

Consider a department store that sells thousands of products. (The products are often referred to as SKUs, or stock keeping units.) The department store needs an easy, efficient method to forecast demand for each SKU. For example, it needs to predict next week’s demand for baseball bats.

A commonly used approach is to predict demand for next week using the average of, say, the demand for each of the last three weeks. This approach is known as a three-week moving average forecast. The data points used in the forecast ...

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