The Definitive Guide to Inventory Management by CSCMP Matthew A. Waller Terry L. Esper & Matthew A. Waller & Terry L. Esper

Author:CSCMP,Matthew A. Waller,Terry L. Esper & Matthew A. Waller & Terry L. Esper
Language: eng
Format: epub
Publisher: Pearson Education Limited (US titles)
Published: 2014-01-15T00:00:00+00:00

If the trend is sufficiently pronounced, even if the demand has a lot of noise, the trend component can often be estimated relatively accurately. However, you must make sure you have sufficient data to estimate a trend. Figure 4-21 is an example of this.

Figure 4-21 An illusion of trend

Figure 4-21 is simulated demand from demand that only has a level component. The level component is 10, and the stochastic term is from a normal distribution with a mean of zero and a standard deviation of 5. In this example, there appears to be a trend but obviously, based on the underlying model, there is no trend.

Figure 4-22 is simulated data from the same demand distribution from Figure 4-21 except that it is simulated for 40 periods. Of course this is just one discrete event simulation, but it illustrates the point that even at 40 periods, you could detect a trend that does not exist.

Figure 4-22 Another illusion of trend

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