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Exponential Smoothing Forecasts Explained

The document provides a solved example of exponential smoothing for weekly demand data using two different alpha values, α = 0.10 and α = 0.60. It details the calculations for forecasting demand from periods 2 to 10, with the final forecast for period 10 being 776.4 for α = 0.10. The document also explains the implications of different alpha values on the accuracy of the forecasts.

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164 views4 pages

Exponential Smoothing Forecasts Explained

The document provides a solved example of exponential smoothing for weekly demand data using two different alpha values, α = 0.10 and α = 0.60. It details the calculations for forecasting demand from periods 2 to 10, with the final forecast for period 10 being 776.4 for α = 0.10. The document also explains the implications of different alpha values on the accuracy of the forecasts.

Uploaded by

pandukhant81
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Solved Example of Exponential Smoothing

Question:
Given the weekly demand data, what are the exponential smoothing forecasts for
Periods 2-10 using
A) α = 0.10

B) α = 0.60
Assume F1=D1

Week Demand
1 820
2 775
3 680
4 655
5 750
6 802
7 798
8 689
9 775
10 ?

Solution:
We know the formula for exponential smoothing which is:

Ft = Ft-1 + α (At-1 - Ft-1)

Where

Ft = Forecast value for the coming time period

Ft-1 = Forecast value in 1 past time period


At-1 = Actual occurrence in the 1 past time period

α = Alpha smoothing constant

A)
α = 0.10
We will calculate it in the following table:

Week Demand α = 0.10


(At) (Ft)
1 820 820
(F1 = D1)
Assumed
2 775 820
3 680 815
4 655 801.5
5 750 787
6 802 783
7 798 785
8 689 786.3
9 775 776.6
10 ---- 776.4

Ft = Ft-1 + α (At-1 - Ft-1)

Exponential smoothing forecast for period 2 – 10 years.

F2 = F2-1 + α (A2-1 - F2-1)

F2 = F1 + α (A1 – F1)
F2 = 820 + 0.10 (820-820)

F2 = 820+0

F2 = 820

Similarly,

F3 = F2 + α (A2 –F2)

F3 = 820 + 0.10 (775-820)

F3 = 820 – 4.5

F3 = 815 (Approx.)

F4 = 815+ 0.10 (680-815)

F4 = 801.5

F5 = 801.5 + 0.10 (655-801.5)

F5 = 787

F6 = 787 + 0.10 (750-787)

F6 = 783

F7 = 783 + 0.10 (802-783)

F7 = 785

F8 = 785 + .10 (798-785)

F8 = 786.3
F9 = 786.3 + 0.10 (689–786.3)

F9 = 776.6

F10 = 776.6 + 0.10 (775-776.6)

F10 = 776.4 (Which is the required amount)

Students, in the same way you can calculate the value of forecast (F10) for α = 0.60.

Also note that smaller values of α shows smoother trend because if α = 0.10, it implies
that your results will be 90% accurate and there will be 10% chances of error. If α = 0.60,
it implies that your results will be 40% accurate and there will be 60% chances of error.

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