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Exponential Smoothing for Inventory Control: Means and Variances of Lead-Time Demand

By Ralph D. Snyder, Anne B. Koehler, Rob J. Hyndman and J. Keith Ord

Abstract

Exponential smoothing is often used to forecast lead-time demand for inventory control. In this paper, formulae are provided for calculating means and variances of lead-time demand for a wide variety of exponential smoothing methods. A feature of many of the formulae is that variances, as well as the means, depend on trends and seasonal effects. Thus, these formulae provide the opportunity to implement methods that ensure that safety stocks adjust to changes in trend or changes in season.Forecasting; inventory control; lead-time demand; exponential smoothing; forecast variance.

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