Pim Ouwehand1 , Rob J Hyndman2 , Ton G. de Kok1 and Karel H. van Donselaar1
- Department of Technology Management, Eindhoven University of Technology, P.O. Box 513, 5600 MB Eindhoven, The Netherlands.
- Department of Econometrics and Business Statistics, Monash University, VIC 3800, Australia.
Abstract We present an approach to improve forecast accuracy by simultaneously forecasting a group of products that exhibit similar seasonal demand patterns. Better seasonality estimates can be made by using information on all products in a group, and using these improved estimates when forecasting at the individual product level. This approach is called the group seasonal indices (GSI) approach, and is a generalization of the classical Holt-Winters procedure. This article describes an underlying state space model for this method and presents simulation results that show when it yields more accurate forecasts than Holt-Winters.
Keywords: common seasonality, demand forecasting, exponential smoothing, Holt-Winters, state space model.