Question: The famous Widget Company uses simple exponential smoothing to forecast the demand for its best-selling widgets. The company is considering whether it should use α = .1 or α = .3 for forecasting purposes. Use the following data for daily sales to arrive at a recommendation:
Develop an Excel spreadsheet to answer the following questions.
a. For the first seven days of data compare the absolute deviation for forecasts using α = .1 and α = .3. Start with A0 = 33. Which method is best?
b. Use the second week of data to make the same comparison. Use A7 = 32. Which method is best now?
c. What does this example illustrate?