Seasonal Index

This expresses the seasonal variations in demand for an item. An item’s seasonal index for a period concerns the relation between the normal demand for the item during one period and the mean demand for that item over a year.

Description

A seasonal index is used for automatic forecast calculations. This can be to seasonally adjust demand before recalculating base forecasts, or to make seasonal corrections when extrapolating base forecasts.

Calculation methods

The following methods can be used to calculate the seasonal index.

From the seasonal curve for the item group

For this method the seasonal curve entered for the item group of the item is used as the basis for calculating the seasonal index. For each forecast period, a seasonal curve specifies the percentage of annual demand apportioned to that period (seasonal share).

The seasonal index per period is equal to each seasonal share divided by 100 and then multiplied by the number of periods.

From the seasonal curve for the product group

For this method, the seasonal curve entered for the product group of the item is used as the basis for calculating the seasonal index. For each forecast period, a seasonal curve specifies the percentage of annual demand apportioned to that period (seasonal share).

The seasonal index per period is equal to each seasonal share divided by 100 and then multiplied by the number of periods.

Periodic calculation as seasonal index per item

This calculation is made from the previous year’s seasonal index for the period and the seasonal index from the same period in the current year using exponential smoothing.

Periodic calculation as index from seasonal shares per item

This calculation is made from exponential smoothing from percentage shares of annual demand determined during two sequential rolling years.

Sample calculation

Assume this information is specified for an item:

Aug. 94 Aug. 95
Actual demand 120 145
Base forecast 136 132
Seasonal index 0.92 --
Seasonal share rolling year 8% 11%

The seasonal share for the corresponding item group during August: 8%.

The seasonal share for the corresponding product group during August: 13%.

Gamma factor used: 0.2.

Alpha factor used: 0.3.

Number of forecast periods per year: 12.

The following seasonal index will be calculated for August 1995 using each of the calculation methods.

From the seasonal curve for the item group

S(Aug.) = 8 * 12 / 100 = 0.96

From the seasonal curve for the product group

S(Aug.) = 13 * 12 / 100 = 1.56

Periodic calculation as seasonal index per item

S(Aug.) = 0.2 * 120 / 136 + (1-0.2) * 0.92 = 0.91

Periodic calculation as index from seasonal shares per item

S(Aug.) = (0.3 * 8 + (1-0.3) * 11) * 12 / 100 = (2.4 + 7.7) * 12 / 100 = 1.21.