TY - UNPB

T1 - On the bias of Croston''s forecasting method

AU - Teunter, R H

AU - Sani, B

PY - 2006

Y1 - 2006

N2 - Croston's forecasting method has been shown to be appropriate in dealing with intermittent demand items. The method, however, suffers from a positive bias as shown by Syntetos and Boylan (2001, 2005) who proposed a modification. Unfortunately, the modification ignores the damping effect on the bias of the probability that a demand occurs. This leads to overcompensation and a negative bias, which can in fact be larger than the positive bias of the original method. Levén and Segerstedt (2004) also proposed a modified Croston method, but that suffers from an even more severe bias. Building on the results of Syntetos and Boylan (2001, 2005), we propose a new modification that takes the damping effect into account. A numerical study confirms that it considerably outperforms the existing methods. Moreover, the performance is better over the entire range of relevant parameters, which avoids the need to use different methods depending on the demand categorisation as suggested by Syntetos et al. (2005).

AB - Croston's forecasting method has been shown to be appropriate in dealing with intermittent demand items. The method, however, suffers from a positive bias as shown by Syntetos and Boylan (2001, 2005) who proposed a modification. Unfortunately, the modification ignores the damping effect on the bias of the probability that a demand occurs. This leads to overcompensation and a negative bias, which can in fact be larger than the positive bias of the original method. Levén and Segerstedt (2004) also proposed a modified Croston method, but that suffers from an even more severe bias. Building on the results of Syntetos and Boylan (2001, 2005), we propose a new modification that takes the damping effect into account. A numerical study confirms that it considerably outperforms the existing methods. Moreover, the performance is better over the entire range of relevant parameters, which avoids the need to use different methods depending on the demand categorisation as suggested by Syntetos et al. (2005).

KW - Intermittent demand

KW - Croston's method

M3 - Working paper

T3 - Management Science Working Paper Series

BT - On the bias of Croston''s forecasting method

PB - The Department of Management Science

CY - Lancaster University

ER -