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Smoothing
linear, exponential, and damped trends (TRENDSMOOTH)
Demand forecasting models include the trend-adjusted smoothing model.
TRENDSMOOTH lets you compare several different types of trend before committing
to a forecast.
Exponential smoothing
with a trend works much like simple smoothing except that two
components must be updated each period: level and trend. The
level is a smoothed estimate of the value of the data at the
end of each period. The trend is a smoothed estimate of
average growth at the end of each period.
To explain this type of forecasting, let's review an
application at Alief Precision Arms, a company that
manufactures high-quality replicas of the Colt Single-Action
Army revolver and other revolvers from the nineteenth century.
Alief was founded in 1987 and experienced rapid growth through
about 1994. Since 1994, growth has slowed and Alief is
uncertain about the growth that should be projected in the
future.
The worksheet was developed to help Alief compare several
different types of trend forecasts. This worksheet can produce
a linear or straight-line trend, a damped trend in which the
amount of growth declines each period in the future, or an
exponential trend in which the amount of growth increases each
period in the future.
TRENDSMOOTH is a robust model, relatively insensitive to
smoothing parameters provided that they are approximately
correct.
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