CPIM Practice Exam

What is the consequence of using a moving average forecast without removing seasonality?

1. Forecast will be consistently accurate.

2. Seasonal downswings will be projected to continue downward.

3. Demand will tend to underproduce at the end of a seasonal upswing.

4. Seasonal upswings will project to continue upward.

The correct answer is: Seasonal upswings will project to continue upward.

Using a moving average forecast without adjusting for seasonality can lead to a projection that fails to accurately reflect the underlying patterns in demand. When seasonality is present, demand typically fluctuates due to predictable variations, such as increased sales during certain times of the year. If the moving average method is applied without stripping out these seasonal effects, it tends to smudge the distinct peaks and valleys associated with seasonal demand patterns. As a result, the forecast will likely show a continuation of the most recent trend, which, if at a peak, can mislead stakeholders into expecting that demand will continue to rise, rather than recognizing the seasonal nature of the fluctuations. This continuation projection can lead to overproduction if businesses anticipate demand to keep increasing based on seasonal upswing data that is not adequately addressed. Thus, the projection of seasonal upswings continuing upward arises from the fact that moving averages do not account for the cyclical nature of the data, which can misrepresent the actual demand behavior.