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: | Ord J. Keith, Koehler Anne B., Snyder Ralph D., Hyndman Rob J. |
Keywords: | inventory, time series & forecasting methods |
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.