A large automobile parts supplier, keeps track of the demand for a particular pa

Question

A large automobile parts supplier, keeps track of the demand for a particular part needed by its customers, automobile manufacturers. The time series plot below shows monthly demand for this part (in thousands) for a five year period. a. Identify the dominant time series component (s) in the data. b. Suppose that the single exponential smoothing (SES) model was applied to these data. Below are time series graphs showing SES results using two different smoothing constants (alpha = 0.2 and alpha = 0.8). In which application is a larger value of a used?

Explanation / Answer

a) Seasonal component since every 12 months it raises and falls.

b) Smaller alpha value can be used because trend looks stable. Also selecting the alpha value is selected by trial and error concept. Generally, the higher alpha value is used when you want to assign more weighting value to the recent value. Similarly, less alpha value is used when you want to give more weight to the earlier observations.

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