A Comparative Evaluation of Intermittent Demand Forecasting with Updated Smoothing Constants

Research in the area of forecasting and stock inventory control for intermittent demand is designed to provide robust models for the underlying demand which appears at random, with some time periods having no demand at all. Croston’s method is a popular technique for these models and it uses two single exponential smoothing (SES) models which involve smoothing constants. A key issue is the choice of the values due to the sensitivity of the forecasts to changes in demand. Suggested selections of the smoothing constants include values between 0.1 and 0.3. Since an ARIMA model has been illustrated to be equivalent to SES, an optimal smoothing constant can be selected from the ARIMA model for SES. This chapter will conduct simulations to investigate whether using an optimal smoothing constant versus the suggested smoothing constant is important. Since SES is designed to be an adapted method, data are simulated which vary between slow and fast demand.