Trend- and Seasonality-Corrected Exponential Smoothing (Winters Model)

This method is appropriate when the systematic component of demand has a level, a trend, and a
seasonal factor. In this case we have Systematic component of demand = 1level + trend2 * seasonal
factor.

Assume periodicity of demand to be p. To begin, we need initial estimates of level (L0),

trend (T0), and seasonal factors (S1, . . . , Sp). We obtain these estimates using the procedure for
static forecasting described earlier in the chapter.

In Period t, given estimates of level, Lt, trend, Tt, and seasonal factors, St, . . . , St+p-1, the
forecast for future periods is given by
Ft + 1 = (Lt + Tt)St + 1 and Ft + l = (Lt + lTt)St + l (7.17)

The forecast for Period 1 (using Equation 7.17) is thus given by

F1 = (L0 + T0)S1

The forecast of demand for Period 2 (using Equation 7.17) is thus given by
F2 = (L1 + T1)S2

Using Winters model (Equation 7.17), the forecast for the next four periods is

F15 = (L14 + T14)S15 = (24,791 + 532) * 0.47 = 11,902

F16 = (L14 + 2T14)S16 = (24,791 + 2 * 532) * 0.68 = 17,581
F17 = (L14 + 3T14)S17 = 124,791 + 3 * 532) * 1.17 = 30,873
F18 = (L14 + 4T14)S18 = 124,791 + 4 * 532) * 1.67 = 44,955
The values in the spreadsheet are below
11,940
17,579
30,930
44,928