Forecasting Intermittent Demand by Hyperbolic-Exponential Smoothing

Abstract

Croston's method is generally viewed as being superior to exponential smoothing when the demand is intermittent, but it has the drawbacks of bias and an inability to deal with obsolescence, where the demand for an item ceases altogether. Several variants have been reported, some of which are unbiased on certain types of demand, but only one recent variant addresses the problem of obsolescence. We describe a new hybrid of Croston's method and Bayesian inference called Hyperbolic-Exponential Smoothing, which is unbiased on non-intermittent and stochastic intermittent demand, decays hyperbolically when obsolescence occurs, and performs well in experiments. (C) 2014 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.