On the bias of intermittent demand estimates

Forecasting and inventory control for intermittent demand items has been a major problem in the manufacturing and supply environment. Croston, proposed a method according to which intermittent demand estimates can be built from constituent events. Croston's method has been reported to be a robust method but has shown more modest benefits in forecasting accuracy than expected. In this research, one of the causes of this unexpected performance has been identified, as a first step towards improving Croston's method. Certain limitations are identified in Croston's approach and a correction in his derivation of the expected estimate of demand per time period is presented. In addition, a modification to his method that gives approximately unbiased demand per period estimates is introduced. All the conclusions are confirmed by means of an extended simulation experiment where Croston's and Revised Croston's methods are compared. The forecasting accuracy comparison corresponds to a situation of an inventory control system employing a re-order interval or product group review.