Consider the following statements:
Exponential smoothing
1. is a modification of moving average method
2. is a weighted average of past observations
3. assigns the highest weight age to the most recent observation
4. Which of the statements given above are correct?
Option (A)
1, 2 and 3
Option (B)
1 and 2 only
2 and 3 only
1 and 3 only
Correct Option:
Question Solution:
Exponential smoothing method- in this method the weight is assigned to a previous period’s demand exponentially as that data gets older. Thus recent data receives a higher weightage than does the older demand data. It is used when forecasting horizon is relatively short for example, a daily weekly or monthly demand needs to be forecasted. It is desired that forecast is adjusted for randomness (fluctuation in demand) & track trend and seasonality, then this method is used.