What is Croston method in SAP SCM-APO-FCS - Demand Planning?

SAP Term: Croston method

• Component: SCM-APO-FCS

• Component Name: Demand Planning

• Description: Exponential smoothing is often used to forecast demand in stock control systems. However, this method almost always produces inappropriate stock levels if demand is intermittent. The Croston method is suitable if intermittent demand appears at random, with many - or even most - time periods having no demand; where demand does occur, the historical data is randomly distributed, independently or almost independently of the demand interval. Such demand patterns are known as "lumpy demand" or irregular, random or sporadic demand. One example might be demand for spare parts or equipment that is usually ordered in batches to replenish downstream inventories. The Croston method models the data as a two-step process: one step for the intervals between demands, and the other for the sizes of the demands. This method makes separate exponential smoothing estimates of the average size of a demand and the average interval between demands.

Smart SAP Assistant

• Key Concepts: 
  The Croston method is a forecasting technique used in SAP's Supply Chain Management-Advanced Planning and Optimization-Forecasting and Demand Planning (SCM-APO-FCS) component. It is a time series forecasting method that uses a combination of exponential smoothing and the Croston algorithm to predict future demand. The Croston method is particularly useful for forecasting intermittent demand, which is demand that occurs at irregular intervals. 
  
  How to use it: 
  The Croston method can be used in SAP's SCM-APO-FCS Demand Planning component by selecting the "Croston" option in the forecasting settings. This will enable the system to use the Croston algorithm to forecast future demand. The user can then adjust the parameters of the algorithm, such as the smoothing factor, to fine-tune the forecast. 
  
  Tips & Tricks: 
  When using the Croston method, it is important to ensure that the data used for forecasting is accurate and up-to-date. Additionally, it is important to adjust the parameters of the algorithm to ensure that it is producing accurate forecasts. 
  
  Related Information: 
  For more information on the Croston method and how to use it in SAP's SCM-APO-FCS Demand Planning component, please refer to SAP's official documentation on the topic. Additionally, there are many online resources available that provide further information on this forecasting technique.