Intermittent Demand Forecasting

2Inventory Management and Forecasting

2.1 Introduction

In the previous chapter, we showed that the management of intermittent demand items is an important task for many organisations. These items require certain operational decisions to be taken at the level of an individual stock keeping unit (SKU) including whether to stock the item at all and, if so, how much to stock. Both of these decisions will be addressed in this chapter. We discuss the major inventory replenishment policies and their appropriateness for intermittent demand items. This is the foundation for inventory forecasting and is an essential component of all software dedicated to inventory management. We also consider what forecasts are important when demand is intermittent. The interface between forecasting and stock control has been rather neglected in the academic literature although it is vital in real‐world inventory applications.

2.2 Scheduling and Forecasting

Before discussing the integration of forecasting and inventory control for intermittent demand items, a distinction needs to be made between the inventory management practices required for dependent and independent demand items.

2.2.1 Material Requirements Planning (MRP)

The design and construction of any physical product is captured in its bill of materials (BoM) which, as illustrated in Figure 2.1, shows the product's assemblies (middle level) and components (bottom level). Demand at the top level, corresponding to the end product, is defined ...