Abstract
Problem statement: There are numerous difficulties associated with replenishing intermittent demand items and these are compounded when the demand distribution(s) vary seasonally. Excess inventories during an “off” season are typical, while shortages frequently occur during the “in” season, especially at the transition points between “seasons”. Approach: Evaluate the extent to which items characterized by non-stationary (seasonal) intermittent demand can be managed with commonly used forecasting and replenishment methods, including existing “intermittent demand” methods. Extensive simulation studies were conducted using combinations of two commonly used forecasting methods and two replenishment policies to evaluate the impact of non-stationary intermittent demand on key inventory performance measures, including average inventory and net profits, including the extent to which combinations of forecasting and replenishment models is adversely impacted by the non-stationary demand distributions. Results: No combination of forecasting and replenishment methods tested consistently outperformed the others and all methods demonstrated a propensity to replace demanded units an average of 10 weeks before the inventory was required to avert a shortage. Conclusion: The inventory performance of the policies tested was consistent with our expectations and offered evidence of the need for further development of forecasting and replenishment models addressing the special characteristics of items with non-stationary intermittent demand.
Highlights
The difficulties associated with managing inventory for items with intermittent demand are widely recognized and this problem characterizes a large percentage of the inventory management decisions faced by many companies
Accessories, slow selling items in large assortments and low volume big ticket items are all representative of classes of items likely to be typified by intermittent demand
90% of the items stocked at retail by a national specialty retailer known to one of the authors sell fewer than one unit per week
Summary
The difficulties associated with managing inventory for items with intermittent demand are widely recognized and this problem characterizes a large percentage of the inventory management decisions faced by many companies. 90% of the items stocked at retail by a national specialty retailer known to one of the authors sell fewer than one unit per week. These statistics help to illustrate the scope of this problem and emphasize the need for an efficient and effective method for making intermittent demand item inventory decisions. It is this particular specialty retailer who motivated this study. Initially motivated by a single company, the nature of the demand described is consistent with the nature of retail demand for a wide variety of merchandise including apparel, consumer electronics, toys and other holiday items, patio furniture and other summer seasonal merchandise and school supplies
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