Croston’s Method
Exponential smoothing is often used to forecast demand for inventory in stock management. However, if the demand is sporadic or intermittent, the exponent smoothing usually produces stock levels that are too low. Croston’s Method improves the exponential smoothing by estimating the average size of demand (Z) and the average interval between demands (X). Croston’s Method is useful when forecasting spare parts or equipment where demand is in batches for replenishment of inventories, when the demand appears random or with irregular patterns, and when there are several periods with zero demand.
Initialization
Iteration
Iteration over periods i and using q as the interval between last two periods of demand.
Forecast
This is estimated by Z considering average interval X, is calculated either as constant (average) or sporadic:
- For Sporadic, the forecast is distributed according to the mean interval X.
- For Constant (average), the forecast is distributed according to the mean interval
X.