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Marketing Research Department of J.E. Hall Inc: The Exponential Smoothing Method

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Barbara Herdman is the manager of the Marketing Research Department of J.E. Hall Inc. She recently collected demand data for the last six years of a special product and then asked one of her associates, Mr Brown, to forecast the data for the same past six years using the sales force composite method. The following data provides the details for Mr Brown's forecast:

Year Actual Demand Mr Brown's Forecast
1 490 492
2 510 503
3 535 512
4 560 578
5 590 580
6 630 620

a) Forecast the demand for the 7th year using the exponential smoothing method with alpha = 0.4. Show all details clearly. Use the initial forecast for 1st year of 492?

b) Which of the above methods is more accurate using MAD criteria?

c) Barbara performed a regression analysis on the six year data and established the following equation:

Demand = 456 + 28x(t) where t is code of year (t = 1,2,3,4,5,6)
Where t represents time period in years

Forecast the demand for the 7th year using the equation above.

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Solution shows forecasting of the demand for the 7th year using the exponential smoothing method.

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