A forecast is an estimate of the level of demand to be expected for a product for
some period of time in future. If company know its customers past behavior, it
may shed light on their future behavior. Thus, forecast is basically a guess, but by
the use of certain techniques it could be more than just a guess. The objective of
every forecast is to support decisions that are based on the forecast, so thecompany must clearly identify forecasting model. In the following sections we discuss the statistical models for demand forecasting.
Winter’s exponential smoothing model is used for forecasting the demand when the
effects of seasonality and trend are to be taken into consideration. According to
this method, three components to the model are assumed: a permanent
component, a trend, and a seasonal component. Each component is continuously
updated using a smoothing constant. It is applied to the most recent observation
and the last estimate. In the Winter’s model, it is assumed that each observation is
the sum of a deseasonalized value and a seasonal index