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Intermittent demand: linking forecasting to inventory obsolescence

Teunter, R, Syntetos, A and Babai, M.Z. 2011, 'Intermittent demand: linking forecasting to inventory obsolescence' , European Journal of Operational Research, 214 (3) , pp. 606-615.

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    Abstract

    The standard method to forecast intermittent demand is that by Croston. This method is available in ERP type solutions such as SAP and specialised forecasting software packages (e.g. Forecast Pro), and often applied in practice. It uses exponential smoothing to separately update the estimated demand size and demand interval whenever a positive demand occurs, and their ratio provides the forecast of demand per period. The Croston method has two important disadvantages. First and foremost, not updating after (many) periods with zero demand renders the method unsuitable for dealing with obsolescence issues. Second, the method is positively biased and this is true for all points in time (i.e. considering the forecasts made at an arbitrary time period) and issue points only (i.e. considering the forecasts following a positive demand occurrence only). The second issue has been addressed in the literature by the proposal of an estimator (Syntetos–Boylan Approximation, SBA) that is approximately unbiased. In this paper, we propose a new method that overcomes both these shortcomings while not adding complexity. Different from the Croston method, the new method is unbiased (for all points in time) and it updates the demand probability instead of the demand interval, doing so in every period. The comparative merits of the new estimator are assessed by means of an extensive simulation experiment. The results indicate its superior performance and enable insights to be gained into the linkage between demand forecasting and obsolescence.

    Item Type: Article
    Uncontrolled Keywords: Forecasting, intermittent demand, inventory control, obsolescence
    Themes: Subjects outside of the University Themes
    Schools: Colleges and Schools > College of Business & Law > Salford Business School > Operations and Global Logistics Management
    Journal or Publication Title: European Journal of Operational Research
    Publisher: Elsevier
    Refereed: Yes
    ISSN: 0377-2217
    Funders: Engineering and Physical Sciences Research Council (EPSRC)
    Depositing User: Professor Aris Syntetos
    Date Deposited: 14 Oct 2011 09:40
    Last Modified: 20 Jan 2014 20:52
    URI: http://usir.salford.ac.uk/id/eprint/18313

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