Contributions on Forecasting for Intermittent Demand: New

approaches and methodologies

PhD proposal to conduct research studies

Mohammad Alhazmi
Table of Contents

Introduction: ................................................................................................ 3 

Literature review: ......................................................................................... 5 

Forecasting for intermittent demand background: .................................. 5 

Definition of intermittent demand (I.D.): ................................................. 6 

Issues and improvements: ........................................................................ 6 

Forecasting Methods Challenges: ............................................................. 7 

Exponential Smoothing Method: .............................................................. 8 

Forecasting Objectives: ............................................................................ 8 

Conclusion: .................................................................................................. 9 

Methodology: ............................................................................................. 10 

Reference: .................................................................................................. 13 
Introduction:

In the business world, it has been required a pathway to connect enterprises with its

suppliers, distributors, and consumers. This network department called supply chain, which

makes a link between the company and its suppliers to produce and distributes product to the

final consumer. Moreover, the supply chain department includes different activities, people,

entities, information, and resources. In general, companies tend to develop their supply chain

department to reduce their cost and remain competitive in the business landscape. The supply

chain involves several steps which end to sell the product to the final consumer. These steps

include moving and transforming raw materials to become a finished product, then storing

these products into inventory based on customer demand, finally distribute and transport

products from the firm's stock to end-user. The supply chain can play an important role

whenever reduce a company's overall costs and boost profitability. Otherwise, it could cause a

loss for the company. The objective of the supply chain is to increase the overall value

generated (Syntetos et al., 2016).

Recently, many enterprises suffered from issues that target an organization's warehouse

and distribution channels. Then it could cause misunderstanding with customers who are an

essential part of every business. In general, every organization has a stock to store their product.

However, the level of the products in the stock depends mainly on customer demand. Whenever

the customer has a high demand for a product, the company must provide it rapidly in the stock.

Then it can always be seen in the stock because of frequency.

On the other hand, sometimes a particular product has an intermittent demand due to

some reasons. For instance, the product that has seasonal demand can be classified as a slow-

moving product or 'lumpy' (Doszyń, 2018). Moreover, the sales operation of these products

with unusual demand is unexpected, which results in periods of zero sales. In some cases, the

product which has unusual demand might take account of 60% of the stock (Teunter et al.,
2011). Intermittent demand usually occurs in the aerospace, automotive, military, and I.T.

sectors. Occasional demand and product life cycle decline are reasons for seasonal demand—

all in all, the product which has seasonal demand often classified as risky because it might

disappear. Intermittent demand items may be any Stock Keeping Unit (SKU) within the range

of products offered by an organization at any level of the supply chain.

Accurate forecasting for the demand that is intermittent is essential to control the

inventory. To minimize outcomes of intermittent demand, it must forecast for the intermittent

demand. Moreover, forecasting for sporadic demand can be through several techniques.

Although intermittent demand considers as a logistic issue, organizations still manufacturer's

slow-moving products (Willemain et al., 2004). Techniques such as moving average, simple

exponential smoothing, and Croston's method are popular in forecasting for intermittent

demand regardless of their accuracy. Besides, many methods involved forecast for sporadic

demand, such as Ad-hoc methods, Model-based methods, and Alternative forecasting methods

(Waller, 2015). The most popular method called Croston's method, which estimating demand

probability and demand size separately were more intuitive and accurate (Waller, 2015).

Although Croston's method has established in 1972s, it still accurate (Doszyń, 2018). Methods

such as Bootstrapping depends on the previous observations of non-zero demand to forecast

demand over some lead time. These techniques cannot completely stop this issue, but it helps

to reduce the drawbacks.

This research study will contribute to overcoming the possible challenges which have

been stated in forecasting for intermittent demand literature. For instance, challenges of

forecasting and evaluating forecasting techniques. Individually, it will examine the predictive

accuracy of various machine-learning approaches along with the widely used Coston's method

for intermittent time series forecasting. Using multiple multi-period time-series, it would like

to see if there is a method that tends to capture intermittent demand better than others.
 The next sections begin by presenting a brief history of forecasting methods, followed

by detailing some basic concepts which are necessary for understanding this research work.

Then, a state of the art of forecasting is detailed, identifying the intermittent demand issues in

the inventory, and proposing a method (to measure the performance of forecasting methods),

(empirically investigating the impact of forecasting methods) (developing a method to

implementing intermittent demand) (or providing real-life case study that can be generalized

and in which this research study could contribute in filling the gap in the forecasting literature.

Literature review:

In a literature review, various research was identified using scholarly databases like the

ScienceDirect and Folia Oeconomica and publishers like the Elsevier. Keywords used during

the research include; forecasting method, inventory, supply chain. Indeed, forecasting for

intermittent demand has become one of the unprecedented research trends for both academic

and commercial organizations. Several academic domains have considered different

techniques for either new developments or solving problems. Thus, this research work is

devoted to present the necessary fundamental concepts of forecasting in the context of the

organization.

Forecasting for intermittent demand background:

Classic time-series models, including simple exponential smoothing (SES) and moving

averages, have examined by earlier researches. However, classic time-series models are

designed mainly for high demand coming in intervals, thus they fail to address specific

challenges faced with intermittent demand issues. Moreover, different models have tried to

solve this problem, which specially designed for low-volume, sporadic types of demand such

as Croston's method, Bernoulli process, and Poisson models (Hong et al., 2017). Previous

research has also discussed different problems related to intermittent demand from various
points of view. According to Syntetos et al. (2010), some pay attention to prediction

distributions dependent on a period of time and concentrate on managing inventory over lead-

time. On the other hand, some consider the measurement performance of either the entire

prediction distribution or point distributions (Snyder et al., 2012). Besides, some researches

have turned to explore algorithms and improve predictive accuracy (Kourentzes, 2013).

Despite the improvement in performance, those methods don't provide a significant suggestion

(Smart, 2009). Finally, intermittent demand poses challenges industry-wide, and techniques

need to be improved to help companies efficiently address the concerns.

Definition of intermittent demand (I.D.):

Generally, the term intermittent demand refers to some periods showing no demand at

all (Syntetos and Boylan, 2005). The success of supply chain management largely depends on

accurate estimations of costs, timelines, and resources. Based on this, forecasting for

intermittent demand aims to ensure the reduction of deadstock, reduction of costs, and optimum

utilization of resources while meeting timelines and individual transaction needs. Willemain,

Smart, and Schwarz (2004) define intermittent demand as "a random demand consisting of a

large proportion of zero values." Items with intermittent demand include slow-moving heavy

machinery and highly-priced capital goods. Forecasting for intermittent demand is, therefore,

crucial to organizations manufacturing slow-moving items since they need to forecast their

sales for accurate planning.

Issues and improvements:

Forecasting for intermittent demand enables organizations to avoid costly supply chain

processes. In this regard, Willemain et al. (2004) propose "an algorithm for forecasting of the

intermittent demand over a fixed period." This approach integrates two contributions, namely

adapting the integral probability accuracy and the bootstrap (Waller, 2015). The approach

involves performing an estimation of high percentage of lead time distributions for the
independent data (Ostertagova & Ostertag, 2012). This approach is essential in dealing with

the resultant "autocorrelation between the successive demands" (Ostertagova & Ostertag

2012). As such, this approach helps an organization control its stock more effectively and avoid

additional costs. Organizations must use a forecasting method that helps to minimize or avoid

bias. In this context, Babai et al. (2019) propose a Syntetos-Boylan approximation (SBA),

arguing that it is not associated with bias, unlike the popularly known Croston's method (Bias).

In fact, the latter often (Croston method) results in over-forecasting the mean demand, hence

ineffectiveness. Babai et al. (2019), define SBA as a method that uses a deflating factor. This

deflating factor is linear in the smoothing constant. According to Babai et al. (2019), SBA has

consistently outperformed Croston's method in several independent empirical studies. Coupled

with the low risk of bias, this makes SBA a preferable approach.

Forecasting Methods Challenges:

When forecasting for intermittent demand, the high risk of obsolescence makes

determining stock a challenging task. Syntetos, Babai, and Gardner (2015) propose "a simple

parametric method as the best approach for forecasting for intermittent demand." The

significant advantage of this method is its effectiveness in the trade-off between customer

service and inventory investment, which makes the value added by bootstrapping questionable

(Syntetos 2001). The obsolescence is associated with large proportions of dead stock in various

industrial complexes (MIT Center for Transportation & Logistics n.d). Bootstrapping refers to

a method that relies on a random sampling of a metric. According to Doszyń (2018),

bootstrapping reveals different projections of customer service in empirical studies. Customer

service is the first aspect that must work efficiently to ensure successful forecasting of

intermittent demand.

While bootstrapping has its advantages, such as stimulating demand values, parametric

methods are more straightforward because they do not require extensive computing knowledge.
According to Syntetos (2001), a significant advantage of the parametric method is that "it is

not susceptible to potentially damaging judgmental interventions." As a result, this method

ensures consistent transparency. Another advantage is that the use of parametric methods helps

to overcome the challenges experienced by firms due to obsolescence. On the other hand,

Doszyń (2018) objects to the use of parametric methods by stating that, despite the simple

approach to forecasting for intermittent demand, they have complex interactions with the stock

control. As a result, forecast errors are likely to occur that will distort projections of customer

service levels in the context of the intermittent demand.

Exponential Smoothing Method:

Since forecasting for intermittent demand involves a considerable volume of products,

it requires the most efficient and appropriate method. According to Syntetos (2001),

exponential smoothing is the most reliable method. Notably, Sardar (2017) observes that this

method does not disclose its maximum potential when used in forecasting for a low volume of

products. This is due to the reliance on distribution describing the data count as opposed to the

normal distribution. Teunter, Syntetos, and Babai (2011), explain that it is insufficient to look

at the point of forecasts while making decisions on inventory; instead, stock metrics control is

more preferable. Given the prediction distribution as a result of exponential smoothing, this

method is appropriate for forecasting the intermittent demand because the distribution provides

room for counting problems beyond inventory stock.

While establishing the most effective and appropriate method of forecasting for intermittent

demand, it is essential to consider the criterion of accuracy.

Forecasting Objectives:

According to Sarang and Laxmidhar (2006), the goal of forecasting is to measure the

error and subsequently minimize it. Besides, the exponential smoothing forecast offers an

adjustment to the error that has resulted in the last forecast. Sarang and Laxmidhar (2006),
define exponential smoothing as an intuitive forecasting method that weighs the time series

unequally, thereby establishing the existing errors. The random movement of intermittent

forecasting makes simple exponential smoothing (SES) both appropriate and reliable since it

has neither seasonal patterns nor trends. The ability of SES to capture errors can be used for

future corrections, which is crucial in achieving the goal of eliminating short-term wastage.

The specific distribution-free approach is argued to be more effective compared to parametric

methods. The distribution-free approach is defined as a method that allows for capturing broad

demand distributions during forecasting. As argued by Hasni et al. (2019), this approach helps

to capture the skewness of the intermittent lead-time demand distributions. As a result, it

reliably predicts the standard deviation of the empirical data as well as the mean. This approach

can be used in establishing the minor lead-time demand beyond its range (Snyder, Ord&

Beaumont, 2012). The large losses or dead stock due to the intermittent demand can be reduced

because this particular procedure provides proper service levels coupled with lower costs. The

costs can only rise in the case of simulated distribution (Snyder et al., 2012). However, in such

cases, the simulated distribution must also have a standard shape with positive skewness.

Conclusively, the distribution-free approach is useful in that it provides reliable information to

prevent significant losses from dead stock.

Conclusion:

Forecasting for intermittent demand aims allows for reducing dead stock and costs,

utilizing resources optimally, and meeting timelines. Organizations that produce slow-moving

goods require forecasting for intermittent demand for accurate planning. Such organizations

still face risks of obsolescence, hence the need to apply simple parametric models such as

bootstrapping. Despite their efficiency, these methods do not require sophisticated computing

knowledge. Regarding the topic at hand, the current literature offers accurate information from

reliable and updated sources. However, gaps exist in terms of the real-life application of the
models. The information provided is mostly theoretical, while the information on practical

application is missing. Therefore, future studies should focus on the actual application of these

models while emphasizing the most efficient and unbiased models.

Methodology:

This proposal will investigate different firm's inventories to measure which the most

appreciate method to forecast their intermittent demand. It comprises a periodic series of

demand for unknown items, each of which reflects the request for a specific object. Both time

series are measured daily or weekly. The original data includes three features: serial number,

time, and value.

The data information of this research will be retrieved from both primary and secondary

sources. There are adequate resources available at the discretion of the researcher's to ensure

that it meets the thresholds of the I.D. research criteria. Some of the primary sources of

information of this research include the various workers working at logistics companies and

their supervisors. They have had first-hand encounters with the intermittent data and

information. Therefore, they are at a vantage point to offer opinions and insight on the working

criteria of the intermittent demand. Some of the primary means of collecting the primary data

include face to face interviews, questionnaires, as well as the online survey platforms. These

workers were able to provide examples of high-speed value chain expositions and the high-

process capital goods and how they affect the overall demand.

Secondary sources of information will also be used to add to data collection. The overall

benefit of the data and information collected will include, among other aspects, the available

information online. Logistics and chain supply companies have their operational data online,

making them the prime source of information that can be calculated to create a reliable

outcome. Other secondary sources of information will include the journals and articles

available in various databases; they are known to be critical sources of information on seasonal
demand and the general effect on the chain supply business. Association of logistics companies

will provide adequate data that will sufficiently address the connection between the product

types and the seasonal demand and supply.

The methodology will also address the inventory control based on the systematic

forecasting for all the demands and the ability of the companies to meet them. The intermittent

nature of demand makes it a bit hard to manage the inventory with the connection between the

inbound and the outbound segments not seamlessly connected. The forecasting will enable the

research to adequately determine the free and the ease with which the cargo can be controlled

within the ports. The research will use such methods as the Croton's forecasting method, which

allows for the estimation of the demand probability and interval size. The demand quantity

must be addressed within the context of the time available to deliver the cargo. Model-based

forecasting methods such as the Auto-regressive moving average (ARMA) will help with

stationary and the stochastic processes.

The ARMA method will allow for the elimination of non-value integers during the

forecasting method. The forecasting accuracy will have to be re-examined thoroughly,

especially considering that any inaccurate outcome can jeopardize the entire process and spoil

the outcome. The ID smooth series will help to normalize the mean and though the mean

average percentage error (MAPE); this must be done qualitatively rather than quantitatively.

Therefore, the quality of data used will be keenly checked rather than the quantity of the data

used. The theory of economic order quantities (EOQ) is of the essence at this stage, as its

application helps with the determination of the quantities of official forecasts without any

errors.

The use and examination of the industries' database will highly help with the assessment

of relative accuracy. For this purpose, the research will examine the database of nine local and

international industries, which will help with the examination of the I.D. variance with the
industrial size and the number of employees. The different databases will come from various

fields such as Main carrier managing fleet of planes, manufacturers belonging to fortune 500

heavy equipment, British hardware, and spare parts manufacturers, electronic distributors,

marine engine distributors among the rest.

The variables used in this research will be particular rather than random. For instance,

the research will use the specific employees' information from the nine different companies, as

well as the distribution index, to ensure that the biases of the data are eliminated—parametric

forecasting through the simple exponential smoothing (SES). The experimental design used in

the process will also allow for the exposition of the data set used and the performance

measurement. The performance measurement will allow for the determination of the

relationship between conventional accuracy and the error that arises from the mean calculation.

The stock control, performance, and distribution demand intervals all work in unison towards

bringing a predictable pattern of intermittent demand that helps with the calculation of the

overall objectives and the of the I.D.

Finally, the research will use various statistical approaches to create and ensure there

are reliable and consistent results of the research. The use of such statistical measures like the

student-t distribution, poison, and the ANOVA tests will ensure that the consistency of the

outcome is measured and weighted against the measures of both the dependent and the

independent variables. The margin of error will also be lowered through such measures as

range and central tendency measures like mean, mode, and median. Therefore, for this research,

the primary data source will be the electronic data, which is usually easy to verify and to check

for accuracy against other readily available sources.

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