An evaluation of using the noise-to-signal ratio to determine the smoothing constant in exponential smoothing for inventory control

Abstract

This research evaluates the use of the noise to signal ratio to determine the optimal smoothing constant (alpha) for exponential smoothing for inventory control. As the Navy continues the transition of 'right-sizing,' inventory managers are faced with fewer personnel and operating funds. Controlling inventory expenditures through an aggressive approach to demand forecasting could be an opportunity to promote efficiency. The author examines the use of the noise to signal ratio to develop a simple, yet effective way to choose the smoothing constant. The new adjusted exponential smoothing method is then validated through a series of comparisons with the traditional method of exponential smoothing currently in use for demand forecasting