Exponential smoothing models: Means and variances for lead-time demand

Exponential smoothing models: Means and variances for lead-time demand

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Article ID: iaor20052410
Country: Netherlands
Volume: 158
Issue: 2
Start Page Number: 444
End Page Number: 455
Publication Date: Oct 2004
Journal: European Journal of Operational Research
Authors: , , ,
Keywords: inventory, time series & forecasting methods
Abstract:

Exponential smoothing is often used to forecast lead-time demand (LTD) for inventory control. In this paper, formulae are provided for calculating means and variances of LTD for a wide variety of exponential smoothing methods. A feature of many of the formulae is that variances, as well as the means, depends on trends and seasonal effects. Thus, these formulae provide the opportunity to implement methods that ensure that safety stocks adjust to changes in trend or changes in season. An example using weekly sales shows how safety stocks can be seriously underestimated during peak sales periods.

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