Intermittent Demand Forecasting Context, Methods and

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 9.7 Measures Based on the Mean Error
9.8 Measures Based on the Mean Square Error
9.9 Accuracy of Predictive Distributions
9.10 Accuracy Implication Measures
9.11 Chapter Summary
Technical Notes
10 Judgement, Bias, and Mean Square Error
10.1 Introduction
10.2 Judgemental Forecasting
10.3 Forecast Bias
10.4 The Components of Mean Square Error
10.5 Chapter Summary
Technical Notes
11 Classification Methods
11.1 Introduction
11.2 Classification Schemes
11.3 ABC Classification
11.4 Extensions to the ABC Classification
11.5 Conceptual Clarifications
11.6 Classification Based on Demand Sources
11.7 Forecasting‐based Classifications
11.8 Chapter Summary
Technical Notes
12 Maintenance and Obsolescence
12.1 Introduction
12.2 Maintenance Contexts
12.3 Causal Forecasting
12.4 Time Series Methods
12.5 Forecasting in Context
12.6 Chapter Summary
 Technical Notes
13 Non‐parametric Methods
13.1 Introduction
13.2 Empirical Distribution Functions
13.3 Non‐overlapping and Overlapping Blocks
13.4 Comparison of Approaches
13.5 Resampling Methods
13.6 Limitations of Simple Bootstrapping
13.7 Extensions to Simple Bootstrapping
13.8 Chapter Summary
Technical Notes
14 Model‐based Methods
14.1 Introduction
14.2 Models and Methods
14.3 Integer Autoregressive Moving Average (INARMA)
Models
14.4 INARMA Parameter Estimation
14.5 Identification of INARMA Models
14.6 Forecasting Using INARMA Models
14.7 Predicting the Whole Demand Distribution
14.8 State Space Models for Intermittence
14.9 Chapter Summary
Technical Notes
15 Software for Intermittent Demand
15.1 Introduction
15.2 Taxonomy of Software
15.3 Framework for Software Evaluation
15.4 Software Features and Their Availability
15.5 Training
15.6 Forecast Support Systems
 15.7 Alternative Perspectives
15.8 Way Forward
15.9 Chapter Summary
Technical Note
ReferencesReferences
Author Index
Subject Index
End User License Agreement

List of Tables
Chapter 3
Table 3.1 Order comprising five order lines.
Table 3.2 Distribution of demand over one week.
Table 3.3 Probability distribution of total demand over two
weeks.
Table 3.4 Cumulative distribution of total demand over two
weeks.
Table 3.5 Distribution of total demand over two weeks
conditional on non‐zero...
Table 3.6 Fill rates per time period.
Table 3.7 Distribution of lumpy demand over one week.
Table 3.8 Traditional fill rate calculation ( and ;
).
Table 3.9 Sobel's fill rate calculation ( , ,
).
Chapter 4
Table 4.1 Triangular distribution example.
Table 4.2 Poisson probabilities ( ).
Table 4.3 Calculation of chi‐square goodness of fit statistic.
 Table 4.4 Example of demand incidences.
Table 4.5 Weekly demand data.
Table 4.6 Sequence of demand occurrences (1) and non‐
occurrences (0).
Table 4.7 Observed and estimated order incidences over
four weeks.
Table 4.8 Critical values of the chi‐square distribution for
degrees of freed...
Chapter 5
Table 5.1 Poisson ( ) and stuttering Poisson (
and probabilities (prob) an...
Table 5.2 Calculation of negative binomial probabilities (
and ).
Table 5.3 Percentages of SKUs with strong fit (demand per
period).
Table 5.4 Percentages of SKUs with strong fit (lead time
demand).
Table 5.5 Variables to be forecasted for four demand
distributions.
Table 5.6 ‘Stars and bars’ diagrams.
Chapter 6
Table 6.1 SES bias (issue points only, ) as a
percentage of average demand.
Table 6.2 Intermittent demand series (first eight periods).
Table 6.3 Series of demand sizes and demand intervals.
Table 6.4 Intermittent demand series (first 10 periods).
Table 6.5 Intermittent series (after demand occurrence in
period zero).
Table 6.6 Croston's bias as a percentage of average demand.
Table 6.7 Bias correction factors.
 Table 6.8 Bias of SES ( ) as a percentage of average
demand conditional on de...
Chapter 7
Table 7.1 Updating of mean and variance using SES.
Table 7.2 Updating of variance over protection interval:
scaled and direct.
Table 7.3 Distributions of demand over gamma distributed
lead times.
Chapter 8
Table 8.1 Safety factors for CSL targets, normal demand.
Table 8.2 Safety factors for fill rate (FR) targets, normal
demand.
Table 8.3 Asymmetric effect of under‐ and over‐forecasting.
Table 8.4 Adjusted safety factors for cycle service levels.
Table 8.5 Cycle service level for Poisson demand ((R+L)
).
Table 8.6 Fill rate for Poisson distributed demand.
Table 8.7 Cycle service levels for stuttering Poisson
distributed demand.
Table 8.8 Weighted cumulative probabilities.
Table 8.9 Adjusted safety factors for fill rates.
Table 8.10 component calculations for Poisson
distributed demand.
Table 8.11 calculations for Poisson distributed
demand.
Table 8.12 Fill rate calculations for Poisson demand.
Table 8.13 component calculations for stuttering
Poisson demand.
Chapter 9
 Table 9.1 Mean error, mean square error, mean absolute
error, and mean absolu...
Table 9.2 Forecast value added (FVA) example.
Table 9.3 MAPEFF and sMAPE for intermittent demand.
Table 9.4 MAE : Mean ratios for multiple series.
Table 9.5 Mean absolute error for zero forecasts.
Table 9.6 Mean error (ME) and mean absolute error (MAE).
Table 9.7 Scaled mean error for multiple series.
Chapter 10
Table 10.1 Reported usage of forecast methods in practice.
Table 10.2 Judgemental adjustments: effect on cycle service
levels.
Table 10.3 Cumulative forecast error (CFE).
Table 10.4 Mean square error (frequent zeroes).
Chapter 13
Table 13.1 Cumulative frequency percentages.
Table 13.2 Three‐month overlapping blocks (OB) and non‐
overlapping blocks (NO...
Table 13.3 Resampling from previous observations.
Table 13.4 VZ resampling method ( ).
Table 13.5 Most recent 10 observations from Table 13.2.
Table 13.6 Conditional probabilities of demand occurrence.
Table 13.7 Simple bootstrapping with Markov chain
extension..
Table 13.8 Theta function calculation ( , ),
overlap of one period.
Chapter 14
Table 14.1 INAR(1) process example.
 Table 14.2 INMA(1) process example.
Table 14.3 Four simplest INARMA models.
Table 14.4 Empirical evidence on model identification.
Table 14.5 Conditional probabilities of demand at time
( ) given demand at t...
Table 14.6 Cumulative conditional probabilities at time
( ) given demand at ...
Table 14.7 Cumulative probabilities of demand over two
periods ( ), given dem...
Chapter 15
Table 15.1 Software implementation.

List of Illustrations
Chapter 1
Figure 1.1 Intermittent and lumpy demand.
Chapter 2
Figure 2.1 Bill of materials (BoM) example.
Figure 2.2 Periodic review and continuous review systems.
Figure 2.3 Continuous review and policies for
unit sized transactions.
Figure 2.4 Periodic review policy.
Chapter 3
Figure 3.1 Comparison of CSL and .
Figure 3.2 Exchange curve.
Figure 3.3 RightStock Inventory Strategist.
Chapter 4
 Figure 4.1 Monthly demand time series for an automotive
SKU.
Figure 4.2 Demand frequencies for an automotive SKU.
Figure 4.3 Demand relative frequencies with triangle
superimposed.
Figure 4.4 Actual relative frequencies and triangular
probabilities.
Figure 4.5 Poisson distribution for varying mean ( )
values.
Figure 4.6 Poisson probabilities and actual relative
frequencies.
Figure 4.7 Variance and mean of weekly order frequencies.
Chapter 5
Figure 5.1 Geometric distribution ( ).
Figure 5.2 Standard deviation and mean of demand sizes.
Source: Johnston et ...
Figure 5.3 Frequency distribution of order sizes. Source:
Johnston et al. 20...
Figure 5.4 Logarithmic distribution ( = 0.33, 0.66, 0.99).
Figure 5.5 Exponential distributions. (a) Probability
density; (b) Cumulativ...
Figure 5.6 Erlang distributions.
Figure 5.7 Normal distribution (poor approximation).
Figure 5.8 Normal distribution (better approximation).
Chapter 6
Figure 6.1 Weights of previous observations. (a) .
(b) .
Figure 6.2 SES response to a step‐change. (a) . (b)
.
Figure 6.3 SES bias for issue points only ( ).
 Figure 6.4 Forecast initialisation and optimisation.
Figure 6.5 ADIDA forecasting framework.
Figure 6.6 Comparison of model forms.
Chapter 8
Figure 8.1 Standard normal distribution.
Figure 8.2 Normally distributed demand and OUT levels.
Chapter 9
Figure 9.1 Errors and absolute (‘Abs’) errors.
Figure 9.2 Non‐uniform distributions of randomised PITs.
Figure 9.3 Exchange curves.
Chapter 10
Figure 10.1 Cumulative demands and forecasts.
Figure 10.2 Squared error decomposition.
Figure 10.3 (Extended) squared error decomposition.
Chapter 11
Figure 11.1 Customer demand and forecasting.
Figure 11.2 Categorisation of non‐normal demand patterns.
Figure 11.3 Categorisation based on sources of demand
characteristics.
Figure 11.4 Categorisation by mean square error: SES (issue
points, ) vs. C...
Figure 11.5 Categorisation by mean square error: SES vs.
SBA.
Chapter 12
Figure 12.1 Maintenance generated demand and
forecasting.
Figure 12.2 Life cycle stages.
Figure 12.3 TSB and Croston forecasts.
 Figure 12.4 Forecasting in context.
Figure 12.5 Inventory‐forecasting interactions.
Chapter 13
Figure 13.1 Intermittent series.
Figure 13.2 Cumulative frequency percentages: three‐month
overlapping blocks...
Figure 13.3 Proportional reduction in variance of CDF
estimates by using OB ...
Figure 13.4 Cumulative frequency percentages (OB, NOB,
and bootstrap).
Chapter 14
Figure 14.1 Demand transitions from one period to the next.
Intermittent Demand
Forecasting
Context, Methods and Applications

John E. Boylan
Lancaster University
Lancaster, UK

Aris A. Syntetos
Cardiff University
Cardiff, UK
This edition first published 2021
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For Jan and Rachel
Preface
The images on the front of this book highlight a crucial tension for all
advanced economies. There is a desire to travel more and consume
more, but also a growing awareness of the detrimental effects that
this is having on the environment. There is a belated realisation that
those of us living in countries with developed economies need to
consume less and waste less.
Waste can occur at all stages of the supply chain. Consumers may
buy food they never eat or clothes they never wear. Retailers and
wholesalers may order goods from manufacturers that never sell.
These wastages can be significantly reduced by better demand
forecasting and inventory management. Some items conform to
regular demand patterns and are relatively easy to forecast. Other
items, with irregular and intermittent demand patterns, are much
harder.
Wastage can be addressed by changes in production, moving away
from built‐in obsolescence and towards products that can be
maintained and repaired economically. For this to be an attractive
proposition, spare parts need to be readily available. Unfortunately,
these items are often the most difficult to forecast because many of
them are subject to the sporadic nature of intermittent demand.
Although there have been significant advances in intermittent
demand forecasting over recent decades, these are not all available in
commercial software. In the final chapter of this book, we highlight
the progress that has been made, including methods that are freely
available in open source software.
The reasons for the slow adoption of new forecasting methods and
approaches in commercial software are varied. We believe that one of
the reasons is a lack of appreciation of the benefits that may accrue.
Because intermittent demand items are so difficult to forecast, it may
be thought that highly accurate forecasting methods can never be
found. This may be true. However, it is possible to find more
accurate methods, which can contribute towards significant
improvements in inventory management.
There is also a need for greater awareness of the methods that have
been developed in recent years. Information on them is scattered
amongst a variety of academic journals, and some of the articles are
highly technical. Therefore, we have set ourselves the challenge of
synthesizing this body of knowledge. We have endeavoured to bring
together the main strands of research into a coherent whole, and
assuming no prior knowledge of the subject.
There are various perspectives from which demand forecasting can
be addressed. One option would be to take an operations
management view, with a focus on forecasting and planning
processes. Another would be to take a more statistical perspective,
starting with mathematical models and working through their
properties. While some of our material has been influenced by these
orientations, the dominant perspective of this book is that of
operational research (OR). The start point of OR should always be
the real‐life situation that is encountered. This means that it is
essential to gain an in‐depth understanding of inventory systems and
how forecasts inform these decisions. Such an appreciation enables a
sharper focus on forecasting requirements and the appropriate
criteria for a ‘good forecast’.
In this book, the first three chapters focus on the inventory
management context in which forecasting occurs, including the
inventory policies and the service level measures that are appropriate
for intermittent demand. Recognising the interconnection between
inventory policies, demand distributions, and forecasting methods,
the next two chapters focus on demand distributions, including
evidence from studies of real‐world data. The following two chapters
concentrate on forecasting methods, with discussion of practical
issues that must be addressed in their implementation. We then turn
to the linkage between forecasts and inventory availability, and
review how forecast accuracy should be measured and how its
implications for inventories should be assessed. We also look at how
stock keeping units should be classified for forecasting purposes, and
examine methods designed specifically to address maintenance and
obsolescence. The next two chapters deal with methods that can
tackle more challenging demand patterns. We conclude with a review
of forecasting software requirements and our views on the way
forward.