A new approach to forecasting intermittent demand based on the mixed zero‐truncated Poisson model

Abstract

AbstractThis paper proposes a new approach to forecasting intermittent demand by considering the effects of external factors. We classify intermittent demand data into two parts—zero value and nonzero value—and fit nonzero values into a mixed zero‐truncated Poisson model. All the parameters in this model are obtained by an EM algorithm, which regards external factors as independent variables of a logistic regression model and log‐linear regression model. We then calculate the probability of occurrence of zero value at each period and predict demand occurrence by comparing it with critical value. When demand occurs, we use the weighted average of the mixed zero‐truncated Poisson model as predicted nonzero demands, which are combined with predicted demand occurrences to form the final forecasting demand series. Two performance measures are developed to assess the forecasting methods. By presenting a case study of electric power material from the State Grid Shanghai Electric Power Company in China, we show that our approach provides greater accuracy in forecasting than the Poisson model, the hurdle shifted Poisson model, the hurdle Poisson model, and Croston's method.