Using imperfect advance demand information in forecasting

Email: t.tan{at}tue.nlReceived on 4 January 2007. Accepted on 11 January 2008. In this paper, we consider the demand-forecasting problem ofa make-to-stock system operating in a business-to-business environmentwhere some customers provide information on their future orders,which are subject to changes in time, hence constituting imperfectadvance demand information (ADI). The demand is highly volatileand non-stationary not only because it is subject to seasonalityand changing trends but also because some individual clientdemands have significant influence on the total demand. In suchan environment, traditional forecasting methods may result inhighly inaccurate forecasts, since they are mostly developedfor the total demand based only on the demand history, not makinguse of demand information and ignoring the effects of individualorder patterns of the customers. We propose a forecasting methodologythat makes use of individual ordering pattern histories of theproduct–customer combinations and the current build upof orders. Moreover, we propose making use of limited judgementalupdates on the statistical forecasts prior to the use of ADI.