Some product items have an intermittent demand pattern that makes them all but impossible to forecast with traditional, smoothing-based forecasting methods. Items with intermittent demand – also known as lumpy, volatile, variable or unpredictable demand – have many zero or low volume values interspersed with random spikes of demand that are often many times larger than the average. This problem is especially prevalent in companies that manage large inventories of service and spare parts in industries such as aviation, aerospace, automotive, high tech, and electronics, as well as in MRO (Maintenance, Repair and Overhaul).
In these businesses, as much as 80% of the parts and product items may have intermittent or lumpy demand. Intermittent demand makes it difficult to accurately estimate the safety stock and service level inventory requirements needed for successful supply chain planning. Because forecasts of intermittent and lumpy demand have been so unreliable, most companies forecast inventory requirements relying primarily on subjective business knowledge, forecast only a fraction of their higher volume inventory, use simple “rule of thumb” estimates, or traditional statistical forecasting that incorrectly assumes a particular type demand distribution for inventory control. The result is that billions of dollars are wasted every year because of either excess inventory costs or poor customer service due to stock-outs.
Intermittent demand – also known as lumpy, volatile, variable or unpredictable demand.
The Smart Solution
SmartForecasts and Smart Inventory Optimization use a unique empirical probabilistic forecasting approach that results in accurate forecasts of inventory requirements where demand is intermittent. The solution works particularly well whenever demand does not conform to a simple normal distribution. Our patented, APICS award-winning “bootstrapping” technology rapidly generates tens of thousands of possible scenarios of future demand sequences and cumulative demand values over an item’s lead time. These scenarios are statistically similar to the item’s observed data, and they capture the relevant details of intermittent demand without relying on the assumptions commonly made about the nature of demand distributions by traditional forecasting methods. The result is a highly accurate forecast of the entire distribution of cumulative demand over an item’s full lead time. With the information these demand distributions provide, you can easily plan your company’s safety stock and service level inventory requirements for thousands of intermittently demanded items with nearly 100% accuracy.
Companies using our powerful intermittent demand forecasting and planning solution typically reduce standing inventory by 20% in the first year, increase parts availability 10-20%, and reduce the need for and associated costs of emergency transshipment to close gaps in their supply chain. Repair and service parts inventories are truly optimized, leading to more efficient operations, improvements in customer service, and significantly less cash tied up in inventory.
White Paper: What you Need to know about Forecasting and Planning Service Parts
This paper describes Smart Software’s patented methodology for forecasting demand, safety stocks, and reorder points on items such as service parts and components with intermittent demand, and provides several examples of customer success.
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