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THE APPLICATION OF A DYNAMIC FORECASTING MODEL WITH INVENTORY CONTROL PROPERTIES
Author(s) -
Buffa Frank P.
Publication year - 1975
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1975.tb01022.x
Subject(s) - exponential smoothing , standard deviation , econometrics , forecast error , exponential function , stock (firearms) , safety stock , computer science , statistics , mathematics , mathematical analysis , supply chain , political science , law , engineering , mechanical engineering
This article summarizes the application of a forecasting model. Forecasts are made of monthly sales of products which do not change in style on an annual basis. The model is an exponential smoothing model. Adjustments of the parameters of the model are made whenever the average forecast error over the previous four periods is too large to be explained solely by unassignable causes. The efficiency gained in using the model is measured by the ratio of the standard deviation of the forecast errors to the standard deviation of sales. If this ratio is less than one, then the safety stock level that is carried for a given product can be reduced if sales are forecasted with the model and the standard deviation of the forecast errors is used to determine the safety stock level. The net effect is the reduction in the cost of carrying safety stocks. The results of the proposed model are also compared to a similar set of results generated from a basic, exponential model.