On the bias of intermittent demand estimates

Forecasting and inventory control for intermittent demand items has been a major problem in the manufacturing and supply environment. Croston (Operati onal Research Quarterly 23 (1972) 289), proposed a method according to whic h intermittent demand estimates can be built from constituent events. Crost on's method has been reported to be a robust method but has shown more mode st benefits in forecasting accuracy than expected. In this research, one of the causes of this unexpected performance has been identified, as a first step towards improving Croston's method. Certain limitations are identified in Croston's approach and a correction in his derivation of the expected e stimate of demand per time period is presented. In addition, a modification to his method that gives approximately unbiased demand per period estimate s is introduced. All the conclusions are confirmed by means of an extended simulation experiment where Croston's and Revised Croston's methods are com pared. The forecasting accuracy comparison corresponds to a situation of an inventory control system employing a re-order interval or product group re view. (C) 2001 Elsevier Science B.V. All rights reserved.