Chapter 7

Demand Forecasting in a Supply Chain

True/False

1. The forecast of demand forms the basis for all strategic and planning
decisions in a supply chain.
Answer: True

2. Throughout the supply chain, all pull processes are performed in anticipation
of customer demand, whereas all push processes are performed in response
to customer demand.
Answer: False

3. For pull processes, a manager must forecast what customer demand will be
in order to plan the level of available capacity and inventory.
Answer: True

4. For push processes, a manager must forecast what customer demand will be
in order to plan the level of available capacity and inventory.
Answer: False

5. The result when each stage in the supply chain makes its own separate
forecast is often a match between supply and demand, because these
forecasts are often very different.
Answer: False

6. When all stages of a supply chain produce a collaborative forecast, it tends to

be much more accurate.
Answer: True

7. Leaders in many supply chains have started moving toward collaborative

forecasting to improve their ability to match supply and demand.
Answer: True

8. Mature products with stable demand are usually the most difficult to forecast.
Answer: False

9. Forecasting and the accompanying managerial decisions are extremely

difficult when either the supply of raw materials or the demand for the finished
product is highly variable.
Answer: True

10. Forecasts are always right.

Answer: False

11. Forecasts should include both the expected value of the forecast and a
measure of forecast error.
Answer: True

12. Long-term forecasts are usually more accurate than short-term forecasts.
Answer: False
Difficulty: Moderate
13. Aggregate forecasts are usually more accurate than disaggregate forecasts,
as they tend to have a smaller standard deviation of error relative to the
mean.
Answer: True

14. In general, the further up the supply chain a company is (or the further they
are from the consumer), the smaller the distortion of information they receive.
Answer: False

15. Collaborative forecasting based on sales to the end customer can help
enterprises further up the supply chain reduce forecast error.
Answer: True

16. Qualitative forecasting methods are most appropriate when there is good
historical data available or when experts do not have market intelligence that
is critical in making the forecast.
Answer: False

17. Time series forecasting methods are based on the assumption that past
demand history is a good indicator of future demand.
Answer: True

18. Time series forecasting methods are the most difficult methods to implement.
Answer: False

19. Causal forecasting methods find a correlation between demand and

environmental factors and use estimates of what environmental factors will be
to forecast future demand.
Answer: True

20. Simulation forecasting methods imitate the consumer choices that give rise to
demand to arrive at a forecast.
Answer: True

21. The objective of forecasting is to filter out the random component (noise) and
estimate the systematic component.
Answer: True

22. The forecast error measures the difference between the forecast and the
estimate.
Answer: False

23. The goal of any forecasting method is to predict the systematic component of
demand and estimate the random component.
Answer: True

24. A static method of forecasting assumes that the estimates of level, trend, and
seasonality within the systematic component vary as new demand is
observed.
Answer: False

25. In adaptive forecasting, the estimates of level, trend, and seasonality are
updated after each demand observation.
Answer: True
26. The moving average forecast method is used when demand has an
observable trend or seasonality.
Answer: False

Multiple Choice

1. The basis for all strategic and planning decisions in a supply chain comes
from
a. the forecast of demand.
b. sales targets.
c. profitability projections.
d. production efficiency goals.
e. all of the above
Answer: a

2. For push processes, a manager must forecast what customer demand will be
in order to
a. plan the service level.
b. plan the level of available capacity and inventory.
c. plan the level of productivity.
d. plan the level of production.
e. none of the above
Answer: d

3. For pull processes, a manager must forecast what customer demand will be
in order to
a. plan the service level.
b. plan the level of available capacity and inventory.
c. plan the level of productivity.
d. plan the level of production.
e. none of the above
Answer: b

4. The result of each stage in the supply chain making its own separate forecast
is
a. an accurate forecast.
b. a more accurate forecast.
c. a match between supply and demand.
d. a mismatch between supply and demand.
e. none of the above
Answer: d

5. When all stages of a supply chain produce a collaborative forecast, it tends to

be
a. much more detailed.
b. much more complex.
c. much more accurate.
d. much more flexible.
e. all of the above
Answer: c

6. The resulting accuracy of a collaborative forecast enables supply chains to be

a. more responsive but less efficient in serving their customers.
b. both more responsive and more efficient in serving their customers.
c. less responsive but less efficient in serving their customers.
 d. both less responsive and less efficient in serving their customers.
e. None of the above are true.
Answer: b

7. Leaders in many supply chains have started moving

a. toward independent forecasting to improve their ability to match
supply and demand.
b. toward consecutive forecasting to improve their ability to match supply
and demand.
c. toward sequential forecasting to improve their ability to match supply
and demand.
d. toward collaborative forecasting to improve their ability to match
supply and demand.
e. None of the above are true.
Answer: d

8. Production can utilize forecasts to make decisions concerning

a. scheduling.
b. sales-force allocation.
c. promotions.
d. new product introduction.
e. budgetary planning.
Answer: a

9. Marketing can utilize forecasts to make decisions concerning

a. scheduling.
b. promotions.
c. inventory control.
d. aggregate planning.
e. purchasing.
Answer: b

10. Finance can utilize forecasts to make decisions concerning

a. scheduling.
b. promotions.
c. plant/equipment investment.
d. aggregate planning.
e. purchasing.
Answer: a

11. Personnel can utilize forecasts to make decisions concerning

a. scheduling.
b. promotions.
c. plant/equipment investment.
d. workforce planning.
e. purchasing.
Answer: b

12. Mature products with stable demand

a. are usually easiest to forecast.
b. are usually hardest to forecast.
c. cannot be forecast.
d. do not need to be forecast.
e. none of the above
Answer: a
13. When either the supply of raw materials or the demand for the finished
product is highly variable, forecasting and the accompanying managerial
decisions
a. are extremely simple.
b. are relatively straightforward.
c. are extremely difficult.
d. should not be attempted.
e. none of the above
Answer: c

14. One of the characteristics of forecasts is

a. forecasts are always right.
b. forecasts are always wrong.
c. short-term forecasts are usually less accurate than long-term
forecasts.
d. long-term forecasts are usually more accurate than short-term
forecasts.
e. none of the above
Answer: b

15. One of the characteristics of forecasts is

a. aggregate forecasts are usually less accurate than disaggregate
forecasts.
b. disaggregate forecasts are usually more accurate than aggregate
forecasts.
c. short-term forecasts are usually less accurate than long-term forecasts.
d. long-term forecasts are usually less accurate than short-term forecasts.
e. none of the above
Answer: d

16. One of the characteristics of forecasts is

a. aggregate forecasts are usually more accurate than disaggregate
forecasts.
b. disaggregate forecasts are usually more accurate than aggregate
forecasts.
c. short-term forecasts are usually less accurate than long-term forecasts.
d. long-term forecasts are usually more accurate than short-term forecasts.
e. none of the above
Answer: a

17. Forecasts are always wrong and therefore

a. should include both the expected value of the forecast and a measure
of forecast error.
b. should not include both the expected value of the forecast and a
measure of forecast error.
c. should only be used when there are no accurate estimates.
d. should be missing the expected value of the forecast and a measure
of forecast error.
e. none of the above
Answer: a

18. Long-term forecasts are usually less accurate than short-term forecasts
because
a. short-term forecasts have a larger standard deviation of error relative
to the mean than long-term forecasts.
 b. short-term forecasts have more standard deviation of error relative to
the mean than long-term forecasts.
c. long-term forecasts have a smaller standard deviation of error relative
to the mean than short-term forecasts.
d. long-term forecasts have a larger standard deviation of error relative
to the mean than short-term forecasts.
e. none of the above
Answer: d

19. Aggregate forecasts are usually more accurate than disaggregate forecasts
because
a. aggregate forecasts tend to have a larger standard deviation of error
relative to the mean.
b. aggregate forecasts tend to have a smaller standard deviation of error
relative to the mean.
c. disaggregate forecasts tend to have a smaller standard deviation of
error relative to the mean.
d. disaggregate forecasts tend to have less standard deviation of error
relative to the mean.
e. none of the above
Answer: b

20. In general, the further up the supply chain a company is (or the further they
are from the consumer),
a. the greater the distortion of information they receive.
b. the smaller the distortion of information they receive.
c. the information they receive is more accurate.
d. the information they receive is more useful.
e. none of the above
Answer: a

21. Which of the following is not a forecasting method?

a. qualitative
b. time series
c. causal
d. simulation
e. All of the above are forecasting methods.
Answer: e

22. Forecasting methods that are primarily subjective and rely on human
judgment are known as
a. qualitative forecasting methods.
b. time series forecasting methods.
c. causal forecasting methods.
d. simulation forecasting methods.
e. none of the above
Answer: a

23. Forecasting methods that use historical demand to make a forecast are
known as
a. qualitative forecasting methods.
b. time series forecasting methods.
c. causal forecasting methods.
d. simulation forecasting methods.
e. none of the above.
Answer: b
24. Forecasting methods that assume that the demand forecast is highly
correlated with certain factors in the environment (e.g., the state of the
economy, interest rates, etc.) to make a forecast are known as
a. qualitative forecasting methods.
b. time series forecasting methods.
c. causal forecasting methods.
d. simulation forecasting methods.
e. none of the above
Answer: c

25. Forecasting methods that imitate the consumer choices that give rise to
demand to arrive at a forecast are known as
a. qualitative forecasting methods.
b. time series forecasting methods.
c. causal forecasting methods.
d. simulation forecasting methods.
e. none of the above
Answer: d

26. Qualitative forecasting methods are most appropriate when

a. there is good historical data available.
b. there is little historical data available.
c. experts do not have critical market intelligence.
d. forecasting demand into the near future.
e. trying to achieve a high level of detail.
Answer: b

27. Time series forecasting methods are most appropriate when

a. there is little historical data available.
b. the basic demand pattern varies significantly from one year to the
next.
c. the basic demand pattern does not vary significantly from one year to
the next.
d. experts have critical market intelligence.
e. forecasting demand several years into the future.
Answer: c

28. Which forecasting methods are the simplest to implement and can serve as a
good starting point for a demand forecast?
a. qualitative forecasting methods
b. time series forecasting methods
c. causal forecasting methods
d. simulation forecasting methods
e. none of the above
Answer: b

29. Which of the following is not a step to help an organization perform effective
forecasting?
a. Understand the objective of forecasting.
b. Integrate demand planning and forecasting throughout the supply
chain.
c. Understand and identify customer segments.
d. Identify and understand supplier requirements.
e. Determine the appropriate forecasting technique.
Answer: d
30. The goal of any forecasting method is to
a. predict the random component of demand and estimate the
systematic component.
b. predict the systematic component of demand and estimate the
random component.
c. predict the seasonal component of demand and estimate the random
component.
d. predict the random component of demand and estimate the seasonal
component.
e. predict the trend component of demand and estimate the random
component.
Answer: b

31. The multiplicative form of the systematic component of demand is shown as

a. level × trend × seasonal factor.
b. level + trend + seasonal factor.
c. (level + trend) × seasonal factor.
d. level × (trend + seasonal factor).
e. (level × trend) + seasonal factor.
Answer: a
Difficulty: Easy

32. The additive form of the systematic component of demand is shown as

a. level × trend × seasonal factor.
b. level + trend + seasonal factor.
c. (level + trend) × seasonal factor.
d. level × (trend + seasonal factor).
e. (level × trend) + seasonal factor.
Answer: b

33. The mixed form of the systematic component of demand is shown as

a. level × trend × seasonal factor.
b. level + trend + seasonal factor.
c. (level + trend) × seasonal factor.
d. level × (trend + seasonal factor).
e. (level × trend) + seasonal factor.
Answer: c

34. Which of the following is not a necessary step to estimate the three
parameters—level, trend, and seasonal factors of the systematic component
of demand?
a. Deseasonalize demand and run linear regression to estimate level
and trend.
b. Estimate seasonal factors.
c. Remove the trend factor of demand and run linear regression to
estimate seasonal factors.
d. All of the above are steps.
e. None of the above are steps.
Answer: c

35. A static method of forecasting

a. assumes that the estimates of level, trend, and seasonality within the
systematic component do not vary as new demand is observed.
 b. assumes that the estimates of level, trend, and seasonality within the
systematic component vary as new demand is observed.
c. the estimates of level, trend, and seasonality are updated after each
demand observation.
d. All of the above are true.
e. None of the above are true.
Answer: a

36. In adaptive forecasting

a. there is an assumption that the estimates of level, trend, and seasonality
within the systematic component do not vary as new demand is observed.
b. the estimates of level, trend, and seasonality within the systematic
component are not adjusted as new demand is observed.
c. the estimates of level, trend, and seasonality are updated after each
demand observation.
d. All of the above are true.
e. None of the above are true.
Answer: c

37. The moving average forecast method is used when

a. demand has observable trend or seasonality.
b. demand has no observable trend or seasonality.
c. demand has observable trend and seasonality.
d. demand has no observable level or seasonality.
e. none of the above
Answer: b

38. The simple exponential smoothing forecast method is appropriate when

a. demand has observable trend or seasonality.
b. demand has no observable trend or seasonality.
c. demand has observable trend and seasonality.
d. demand has no observable level or seasonality.
e. none of the above
Answer: b

39. The trend corrected exponential smoothing (Holt’s Model) forecast method is
appropriate when
a. demand has observable trend or seasonality.
b. demand has no observable trend or seasonality.
c. demand has observable trend but no seasonality.
d. demand has no observable level or seasonality.
e. none of the above
Answer: c

40. The trend and seasonality corrected exponential smoothing (Winter’s Model)
forecast method is appropriate when
a. demand has observable trend, level, and seasonality.
b. demand has no observable trend or seasonality.
c. demand has observable trend but no seasonality.
d. demand has no observable level or seasonality.
e. none of the above
Answer: a

41. Managers perform a thorough error analysis on a forecast for which of the
following key reasons?
 a. To establish a closely linked systematic forecasting method to accurately
predict the level season component of demand.
b. To determine whether the current forecasting method is accurately
predicting the systematic component of demand.
c. In order to develop contingency plans that account for forecast error.
d. all of the above
e. b and c only
Answer: e

42. The measure of forecast error where the amount of error of each forecast is
squared and then an average is calculated is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.
Answer: a

43. The measure of forecast error where the absolute amount of error of each
forecast is averaged is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.
Answer: b

44. The measure of forecast error where the average absolute error of each
forecast is shown as a percentage of demand is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.
Answer: c

45. The measure of whether a forecast method consistently over- or

underestimates demand is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.
Answer: d

46. The measure of how significantly a forecast method consistently over- or

underestimates demand is
a. mean squared error (MSE).
b. mean absolute deviation (MAD).
c. mean absolute percentage error (MAPE).
d. bias.
e. the tracking signal.
Answer: e