Forecasting with combined seasonal indices

Traditional methods of forecasting the demand for products that exhibit a seasonal pattern call for estimation of the seasonal component based on the history of demands for that particular product. It is proposed that the seasonal estimation would be more accurate if the demands for similar products were first combined into a product line. Seasonal indices calculated for the product line would then be used as the estimate of the seasonal component for each of the products. A demonstration of the technique with six product lines show that combined indices reduce average forecast errors. Reductions of 2-20% are shown for the total mean squared errors for the product lines.