SEASONAL EXPONENTIAL SMOOTHING WITH DAMPED TRENDS - AN APPLICATION FOR PRODUCTION PLANNING

This paper reviews a spreadsheet-based forecasting approach which a pr ocess industry manufacturer developed and implemented to link annual c orporate forecasts with its manufacturing/distribution operations. Fir st, we consider how this forecasting system supports overall productio n planning and why it must be compatible with corporate forecasts. We then review the results of substantial testing of variations on the Wi nters three-parameter exponential smoothing model on 28 actual product family time series. In particular, we evaluate whether the use of dam ping parameters improves forecast accuracy. The paper concludes that a Winters four-parameter model (i.e. the standard Winters three-paramet er model augmented by a fourth parameter to damp the trend) provides t he most accurate forecasts of the models evaluated. Our application co nfirms the fact that there are situations where the use of damped tren d parameters in short-run exponential smoothing based forecasting mode ls is beneficial.