Exponential smoothing models: Means and variances for lead-time demand

Ralph D. Snyder, Anne B. Koehler, Rob J Hyndman, J. Keith Ord
(2004) European Journal of Operational Research 158(2) 444-455

DOI

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.

Keywords: Forecasting; inventory control; lead-time demand; exponential smoothing; forecast variance.