CROSTON METHOD

Sporadic Data Categorization

• The categorization scheme is based on two parameters:

• Average inter demand interval (ADI) and
• Squared coefficient of variation (CV2 )

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 ADI and CV2

• ADI is defined as the average number of time periods between two successive demands
N 1

t i
ADI  i 1

N 1
where N indicates the number of periods with non-zero demand and t is the interval
between two consecutive demands

• The CV2 is defined as the squared of the ratio of the standard deviation of the demand
data divided by the average demand

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 Syntetos and Boylan Categorization Scheme

• Syntetos and Boylan (2005) have suggested (ADI = 1.32 and CV2 = 0.49)
as cut off values
• Syntetos and Boylan Categorization Scheme

ADI ≤ 1.32 ADI > 1.32

CV2 > 0.49 Erratic Lumpy
CV2 ≤ 0.49 Smooth Intermittent

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 Croston’s Method

• It involves two steps

• Initialization
• Calculation of Forecasts

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 Croston Method
• Let Yt be the demand occurring during the time period t
0 𝑤ℎ𝑒𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 𝑑𝑜𝑒𝑠𝑛′ 𝑡 𝑜𝑐𝑐𝑢𝑟 𝑖𝑛 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑡
• 𝑋𝑡 = ቊ
1 𝑤ℎ𝑒𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 𝑜𝑐𝑐𝑢𝑟𝑠 𝑖𝑛 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑡
• Let jt be the number of periods with nonzero demand during interval [0, t] (index
of non-zero demands) such that 𝑗𝑡 = σ𝑡𝑖=1 𝑋𝑖
• Let 𝑌𝑗∗ denotes size of the jth non-zero demand
• Let 𝑄𝑗∗ denotes inter-arrival time between 𝑌𝑗−1
∗
and 𝑌𝑗∗ i.e. 𝑌𝑡 = 𝑋𝑡 𝑌𝑗∗
 Croston Method
• Let Zj and Pj be the forecasts of the jth demand size and inter-arrival time
respectively
• Zj = (1 − α)Zj−1 + αYj
• Pj = (1 − α)Pj−1 + αQj
• The smoothing parameter α takes values between 0 and 1
𝑍𝑗
• 𝑌𝑗+1 =
෢
𝑃𝑗