Forecasting with Indices

Dr. Julianne Manchester
August 22, 2010

Forecasting With Indices
According to Business: The Ultimate Resource (2009), “forecasting is the prediction of outcomes, trends, or expected future behavior of a business, industry sector, or the economy through the use of statistics.   Forecasting is an operational research technique used as a basis for management planning and decision making.   Common types of forecasting include trend analysis, regression analysis, Delphi technique, time series analysis, correlation, exponential smoothing, and input-output analysis.”   Simply stated, forecasting is a way of predicting future results or expectations based on assumptions or historical data.
An index is a statistical measure of changes in a portfolio of stocks representing a portion of the overall market (Investopedia, 2010).   Quantitative indexes and rating systems are used to give information about general trends and to allow us to make comparisons and judgments (Sevilla & Somers, 2007).   An index or index number measures the change in a particular item (typically a product or service) between two time periods (Lind, Marchal, & Wathen, 2008, p. 570).   Furthermore, an index number is a number that expresses the relative change in price, quantity, or value compared to a base period (Lind et al., 2008).   The following time series analysis will discuss the inventory forecast methodology for Company XYZ.
An inventory system tracks products for a company and provides important information in strategic planning.   Managers can track inventory by factors such as units in demand, number of items received, items on order, items on hand, or any number of factors important to the company using the system.   The inventory system that Company XYZ uses (see Table 1) tracks the units in demand and indicates the typical demands for summer highs over a four year period.
Historical data is used by companies to forecast future outcomes through Time Series Analysis.   Time series...