Question

“A recent report produced by Shop n Pay’s chief demand planner has revealed that the retailer’s reliance on simple exponential smoothing to forecast demand for its products is partly responsible of the significant pile-up of goods in the company’s main distribution centre.”

Question

In light of the statement above, highlight any THREE (3) weakness of the simple exponential smoothing method of forecasting.

Answer 1

Disadvantages of Exponential Smoothing

Disadvantages:

1. The forecasts lag behind the actual trend.

The name itself suggests, smoothing which means that the random variations are neglected. Hence, the actual trends are overlooked.

2. Trends are not readily taken care of:

Exponential smoothing works best for short time periods. The presence of cyclical and seasonal leads to inaccuracies in the forecasts.

3. No fixed starting method:

In case of no initial forecasts, there is no fixed method as to how should the forecast be proceeded with.

4. Higher weightage on the past data often leads to severe impacts on the early forecasts.

5. It is not suitable for longer periods.