Forecasting Indices

Forecasting with Indices

                                                          Wal-Mart

Wal-Mart manages approximately $32 billion in inventory at any given time. With Wal-Mart dealing with this size of inventory the cooperation has to have an effective and efficient inventory control system. By using the system known as the SMART inventory system Wal-Mart can maintain “everyday low prices.” Wal-Mart uses a stock tracking inventory management system. The “beep, beep” sound at a Wal-Mart cash register is an affordable laser technology that uses the bar codes or the universal product code (UPC) to keep track   and help Wal-Mart to manage the company’s inventory more efficiently. This type of system was created in the 70s.

This is how the inventory system for Wal-Mart began and evolved. Bar-codes or Radio frequency identification (RFID’s) tell the scanners on the registers what items are being scanned. The software input into the registers then transmits and interprets the merchandise bought and how many. By using this type of inventory system this alerts the company when a product needs reordered.

MT | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Total |

1 | 196 | 188 | 192 | 164 | 140 | 120 | 112 | 140 | 160 | 168 | 192 | 200 | 1972 |

2 | 200 | 188 | 192 | 164 | 140 | 122 | 132 | 144 | 176 | 168 | 196 | 194 | 2016 |

3 | 196 | 212 | 202 | 180 | 150 | 140 | 156 | 144 | 164 | 186 | 200 | 230 | 2160 |

4 | 242 | 240 | 196 | 220 | 200 | 192 | 176 | 184 | 204 | 228 | 250 | 260 | 2592 |

Mean: | 208.6 | 207.0 | 192.6 | 182.0 | 157.6 | 143.6 | 144.0 | 153.0 | 177.6 | 187.6 | 209.6 | 221.0 | 2185 |

Index: | 1.14 | 1.14 | 1.06 | 1.00 | 0.87 | 0.79 | 0.79 | 0.84 | 0.97 | 1.03 | 1.15 | 1.22 | 12 |

Suppose we wish to calculate seasonal factors and a trend, then calculate the forecasted sales for July in year 5.

The first step in the seasonal forecast will be to compute monthly indices using the past four-year sales. For...