The Variance of Lead-Time Demand

Freya Johnston · P. J. Harrison

60 citations0/0 files storedJournal of the Operational Research Society

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Forecasting Techniques and Applications Supply Chain and Inventory Management Management and Optimization Techniques

Abstract

Many short-term forecasting systems are based on exponentially weighted moving averages. It is usual to forecast the cumulative demand over a lead time or production horizon, and to describe this forecast in terms of its mean and variance. When the forecast horizon is fixed, the variance is often taken as the product of the number of periods and the variance per period. This is a serious error and typically underestimates the variance by a factor of about two. This paper details the need for a proper awareness of the correction factors.

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1960Statistical Forecasting for Inventory Control.1967Stock Control—Experience and Usable Theory

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1999A Quantile Regression Approach to Generating Prediction Intervals 2003Exponential smoothing models: Means and variances for lead-time demand 2019On the performance of adjusted bootstrapping methods for intermittent demand forecasting 2022Approximations for the Lead Time Variance: a Forecasting and Inventory Evaluation

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