Example of simple exponential smoothing:

A TV manufacturer utilizes simple exponential smoothing with α = 0.1 to forecast demand. For the first week of March, the forecast was 400 units while actual demand turned out to be 370 units.

1. Forecast the demand for the second week of March.

2. If the actual demand for the second week turned out to be 417 units, forecast the demand for the 3^rd week. Continue forecasting for the subsequent four weeks. You can take actual demands for the subsequent weeks as 409, 388, 377, 445, and 410 units.

3. Develop an adjusted exponential forecast for this company. You may assume the initial trend adjustment factor T_t as zero and β = 0.1.

Solution

(a) F_{t + 1} = F_t + α (D_t - F_t)

                     = 400 + 0.1 (370 - 400) = 397 units.

 (b)

(c)        The trend adjustment is accomplished by total of a correction factor

[(( 1 -β )/ β ) T_{t +1} )]   to the simple exponential forecast.

As the initial trend adjustment factor (given) T_t = 0, we have

March 1^st Week

T_{t + 1} = β (F_{t + 1} - F_t) + (1 - β) T_t

= 0.1 (397 - 400) + (0.9) (0) = - 0.30

T_{(t +1) adj} = F_{t +1} +( 1 -β / β )T _{t +1}

= 397 +( 0.9/0.1)  (- 0.30) = 394.30

The adjusted forecast for the second week of March = 394.30.

March 2^nd Week

T_{t + 1} = 0.1 (399 - 397) + (0.9) (- 0.30)

= 0.2 - 0.27 = - 0.07

F_{(t + 1) adj} = 399 + 9 (- 0.07) = 398.37

The remaining values may be put in table form, as below.

The trend-adjusted forecast for the third week of April is F_{t, adj}   = 393.54 units whereas simple exponential forecast for the same week is 400 units.

The main reason for broad use of simple and adjusted exponential smoothing is that the forecast may be computerized quickly, requires very little memory space, and data can be updated easily. These methods are specifically useful to firms which have thousands of items in inventory. Since each forecast value contains all past forecast and demand data in the properly exponentially weighted manner, there is no requirement to maintain records of historical data (as in case of arithmetic moving averages). It is an effective and efficient method of forecasting with a built-in means of tracking the average while discounting the erratic random fluctuations.

Posted Date: 2/1/2013 12:05:04 AM | Location : United States

Ask an Expert

Related Discussions:- Example of simple exponential smoothing, Assignment Help, Ask Question on Example of simple exponential smoothing, Get Answer, Expert's Help, Example of simple exponential smoothing Discussions

Write discussion on Example of simple exponential smoothing
Your posts are moderated

Write your message here..

Related Questions

Strength of materials., what is the difference betwen proof stress and rupt... what is the difference betwen proof stress and rupture stress?

Classification of steam turbine, CLASSIFIC A TION :  The steam tu... CLASSIFIC A TION :  The steam turbines can be classified as follows: 1 .     In accordance to method of steam expansion: (a) Impulse   (b) Reaction. 2 .     In

Milling, #question.types images. #question.types images.

Explain welding process, Welding Process: There are many definition of a we... Welding Process: There are many definition of a welding process. But the most comprehensive definition is below. Welding is defined as a "a localized coalescence of metals, wher

A solid sphere is rotating in free space, A solid sphere is rotating in fre... A solid sphere is rotating in free space. If the radius of the sphere is increased keeping mass same  which one of the following will not be affected? Solution) In free space, nei

Describe brazing process, Brazing is a technique of joining two similar of... Brazing is a technique of joining two similar of dissimilar metal pieces together by heating the surfaces and by using a non-ferrous filler metal having its melting point above 42

Capacity planning, Capacity Planning: This unit defined different ways... Capacity Planning: This unit defined different ways to measure capacity, set up maximum capacity, and calculate capacity utilization. The long-term and short-term strategies t

Conversion of pressure reading into kpa, Conve r t following reading of p... Conve r t following reading of pressure to kPa, supposing that the barometer reads 760mm Hg. (1) 90cm Hg gauge (2) 40cm Hg vacuum (3) 1.2m H 2 O gauge Sol: Given

Show the design of the control rooms, Q. Show the design of the control roo... Q. Show the design of the control rooms? The design of the control rooms in any plant is very important. The control room operator(s) must be able to control and manage safety

Explain different types of frames, (a) Explain different types of frames. C... (a) Explain different types of frames. Compare their merits and demerits. Diagram and illustrate a frameless construction. (b) Illustration briefly the constructional features o