Question

Does exponential smoothing track a trend in the demand satisfactorily? What is the reason? Are both moving averages method and the exponential smoothing method of forecasting related? How and why?

Answer 1

Does exponential smoothing track a trend in the demand satisfactorily?

First of all lets understand the difference between smoothing and exponential smoothing. In exponential smoothing, we don't have to figure out how much weight is to be applied to each previous period, the smoothing factor automatically does that.

Since Exponential Smoothing in demand forecast is used to remove random variation Or noise from the historical demand, and thus it llows us to better identify demand trends and seasonality and demand levels that can be used to estimate future demands.

Are moving average methods and the exponential smoothing method forecasting related?

The most practised way of removing random variations is simple average or say moving average method.

Exponential smoothing and moving average methods have similar defects of introducing a lag relative to input data. They also differ in that exponential smoothing takes into account all past data whereas moving average only takes into account few past points. They also differ in that moving average requires that the past few points say "n" or the data point at at lag "n+1" Plus the most recent forecast value, whereas exponential smoothing only needs the most recent forecast value .