IMA Journal of Management Mathematics (2010) 21, 227237

doi:10.1093/imaman/dpp016
Advance Access publication on November 12, 2009

Spare parts management: a review of forecasting research and extensions

J OHN E. B OYLAN
Faculty of Enterprise and Innovation, Buckinghamshire New University, Queen Alexandra
Road, High Wycombe, Bucks HP11 2JZ, UK

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AND

A RIS A. S YNTETOS
Centre for Operational Research and Applied Statistics, University of Salford, Manchester
M5 4WT, UK
[Received on 21 December 2008; accepted on 10 August 2009]

Spare parts are very common in many industries and forecasting their requirements is an important op-
erational issue. In recent years, there have been advances in forecasting methods for spare parts, demand
information sharing strategies and the design of forecast support systems. Some work has also been done
on the value of judgemental adjustment of statistical forecasts. In this paper, these developments are
reviewed and avenues for further research are explored.

Keywords: spare parts management; forecasting; stock control; forecast support systems (FSS).

1. Introduction: spare parts management

Effective inventory management of spare parts is essential to many companies, from capital-intensive
manufacturers to service organizations, such as telecommunications companies and airlines. In these
industries, a wide range of spare parts is held in stock, with significant implications for availability and
inventory holding. Their management is therefore a very important task.
Intermittent demand patterns are common among spare parts. They are characterized by sequences
of zero demand observations interspersed by occasional non-zero demands. Moreover, demand, when
it occurs, may often be of a highly variable size, generating erraticness. If an item is both intermittent
and erratic, it is said to be lumpy. Figure 1 shows examples of intermittent and lumpy demand patterns,
based on the annual demand history for two service parts used in the aerospace industry.
The compound nature of the underlying demand structure, based on demand arrivals and demand
sizes, makes forecasting very difficult. The area of intermittent demand forecasting has received much
attention in recent years and significant advancements have been made in the field. In this paper, we
provide an overview of these developments pointing out, where appropriate, interesting avenues for
further research. This paper differs from other recent reviews (Fildes et al., 2008; Syntetos et al., 2009a)
in that it concentrates on spare parts management, offering a new framework for spare parts forecasting,
encompassing forecast support systems (FSS).
In the following section, we discuss forecasting in terms of (i) the selection of an appropriate esti-
mator, (ii) its application and (iii) managerial adjustments to the statistical forecasts, reflecting market
intelligence. In Section 3, recent advancements in intermittent demand forecasting are reviewed along

Email: john.boylan@bucks.ac.uk

c The authors 2009. Published by Oxford University Press on behalf of the Institute of Mathematics and its Applications. All rights reserved.
228 J. E. BOYLAN AND A. A. SYNTETOS

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FIG. 1. Intermittent and lumpy demand patterns.

with a discussion of the value and importance of judgemental interventions. Subsequently, recent work
is summarized on the value of information sharing in improving forecast accuracy, followed, in Section
5, by a discussion on the importance of an FSS and specific requirements that such systems need to ad-
dress when dealing with intermittent demand items. Finally, the conclusions of this review are presented
in Section 6.

2. Strategies for improving performance

Improvement of forecasting procedures for spare parts has been addressed by a number of authors in
recent years. Their proposals may be classified according to three phases of forecasting (see Fig. 2):
1. Pre-processing
2. Processing
3. Post-processing
Pre-processing includes the rules or protocols that designate a spare part as fast moving or slow
moving, intermittent or lumpy. Williams (1984) was the first to investigate this problem for slow-moving
items, suggesting a number of criteria that must be fulfilled by these classification rules. One essential
criterion was that the classification must clearly suggest in what different ways to treat the different cat-
egories. In keeping with this requirement, Syntetos et al. (2005) compared the performance of methods
designed for intermittent and non-intermittent demand items to derive rules that allow the superior fore-
casting method to be employed. The classification variables were identified as (i) mean time between
demands and (ii) the coefficient of variation of demand sizes. This approach was applied to a system
for automotive spares by Boylan et al. (2008), who found the performance of the system to be robust to
the exact choice of cut-off values. The classification rules have been refined by Kostenko & Hyndman
(2006), although this enhancement has not yet been tested on real data.
Processing denotes the application of the appropriate forecasting method, when the classifica-
tion phase has been concluded. For faster moving spares, variations of exponential smoothing are still
popular choices for software packages. There is support for this continued application of exponential
smoothing from the M3-competition (Makridakis & Hibon 2000), where such methods performed
well in comparison to more elaborate approaches on a set of 3003 real time series. For fast-moving
parts with short demand histories, the estimation of seasonal components can be challenging. Miller &
 SPARE PARTS MANAGEMENT 229

FIG. 2. Phases of forecasting.

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Williams (2003) proposed a shrinkage method that dampens seasonal estimates towards unity. Dekker
et al. (2004) suggested a variation of the HoltWinters method, where the level and trend components
are estimated at the individual item level but seasonality at the group level. Rules for basing seasonality
on groups, for non-trended series, have been derived and tested on demand data in the lighting industry
by Chen & Boylan (2007, 2008). For slower moving spares, a number of innovations in forecasting
methods have been put forward recently, using both parametric and non-parametric approaches. These
are important developments in spare parts management and are discussed separately in Section 3.
Post-processing denotes any adjustments made by the user to the statistical forecast. Judgemental
methods, such as the direct use of managers opinions, are often applied in practice (see, e.g. Klassen &
Flores, 2001; McCarthy et al., 2006). Empirical findings on forecast accuracy have shown mixed results
(OConnor et al., 1993; Sanders & Ritzman, 2001). However, some positive evidence for slow-moving
items will be reviewed later in this paper.
To underpin the three phases of forecasting, it may be beneficial to adopt an FSS. An FSS is any sys-
tem that provides support to the forecasting function within an organization. This is an important topic
but one that has been neglected in the academic literature until recently. Developments are discussed in
this review, with suggestions for further research.
The improvement of forecasting procedures is one approach to enhancement of forecasting accuracy.
Accuracy may be measured in various ways. In the context of spare parts, two important measures are
the bias and variance of lead time demand forecast error. These measures, in turn, affect the stock
and customer service levels of the spare parts (see Boylan & Syntetos, 2006, for a discussion of such
accuracy implication metrics).
The correct choice of forecasting method and forecasting parameters can reduce the variance of lead
time demand forecast error and consequent safety stocks. However, there always remains some noise
which cannot be predicted, even with the optimal forecasting procedure. If it is possible to reduce this
noise, then forecast accuracy will improve, even if there is no change to the forecasting method. There
has been much discussion on the amplification of demand noise as demand progresses up the supply
chain (known as the bullwhip effect). It has been suggested that the sharing of demand information will
enable higher echelons to forecast demand more accurately. This stream of research will be investigated
further in Section 4 of the paper.

3. Forecasting spare part requirements

Parametric approaches to forecasting rely upon estimates of some essential demand distribution param-
eters, typically the mean and variance. Classical and widely used estimators, such as single exponential
smoothing, have long been shown to overestimate the mean level of intermittent demand, if applied im-
mediately after a demand occurrence. This is important in operational systems as stock requirements are
often recalculated at this point. Currently, most industrial software applications are based upon Cros-
230 J. E. BOYLAN AND A. A. SYNTETOS

tons methodology. In addition, Crostons method has recently attracted considerable attention from
academic scholars and his article has seen more than 40 citations in the last 4 years.
Croston (1972) proposed a method that captures the compound nature of the underlying demand
structure (i.e. demand arrivals and demand sizes, when demand occurs). In particular, he suggested using
single exponential smoothing for separately forecasting the interval between demand incidences and the
demand sizes. The ratio of the latter to the former may then be used to estimate the mean demand per
time period. The theoretical properties of Crostons method have been investigated by Snyder (2002),
who found his model and method to be inconsistent. Shenstone & Hyndman (2005) cast doubt on the
existence of any stochastic demand model for which Crostons method is optimal.

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Syntetos & Boylan (2001) showed that Crostons estimator is biased and they proposed a bias-
adjusted method (SyntetosBoylan approximation; Syntetos & Boylan, 2005), in which Crostons es-
timate is deflated by a factor of 1 /2, where is the smoothing constant used to update the single
exponential smoothing estimates of the mean inter-arrival time for demands. Adjustment factors that
overcome the bias of Crostons approach have also been discussed by Boylan & Syntetos (2003) and
Shale et al. (2006). It is important to resolve bias issues as the attainment of service level targets is
linked to forecast biases.
In terms of the hypothesized demand distribution (that is also required for forecasting purposes), the
Poisson is obviously a natural candidate for representing very low demands. The normal distribution is
usually inappropriate, although some empirical evidence suggests that for long lead times (that permit
central limit theorem effects) the normality assumption may be more reasonable. The negative binomial
distribution has attracted attention for representing intermittent demand patterns. The negative binomial
is a compound distribution (Poisson arrivals and logarithmic sizes being one of its possible compound
representations) and in that respect its choice may be justified theoretically. In addition, empirical
evidence exists in its support (Eaves, 2002).
An assumption about the underlying demand distribution is essential unless a non-parametric pro-
cedure is utilized to reconstruct the empirical distribution of demand. In terms of non-parametric fore-
casting, the bootstrapping approach has received considerable attention (and criticism) in the academic
literature. Classical bootstrapping (Efron, 1979) involves consecutive sampling, with replacement, from
an available data set, to construct an empirical distribution of the data under concern. A large number of
replications (say 10,000) is typically used, and although this procedure is computationally demanding,
bootstrapping is nowadays fairly easy to apply given the recent advancements in computing. An impor-
tant underlying assumption in such applications is that the past behaviour of data pertains also in the
future. The two main drawbacks of classical bootstrapping can be summarized as follows: (i) any po-
tential autocorrelation of the data is not taken into account and (ii) values generated in the reconstructed
empirical distribution may not differ from the observations in the original sample.
Porras & Dekker (2008) proposed a bootstrapping approach that samples consecutive demand obser-
vations from the available data set. The number of consecutive observations sampled in each replication
is equal to the length of the lead time. Such an approach addresses, partly at least, the issue of auto-
correlation. Finally, Willemain et al. (2004) proposed a patented non-parametric forecasting method
specifically developed for intermittent demand data. Their method is essentially a heuristic that com-
bines a Markov process, bootstrapping and jittering to simulate an entire distribution for lead time
demand rather than a single forecast. Estimation of transition probabilities through the application of
the Markov process deals with autocorrelation, whereas jittering is an ad hoc procedure designed to
allow simulated values to differ from those already observed. The researchers claimed significant im-
provements in forecasting accuracy achieved by using their approach over single exponential smoothing
and Crostons method. Gardner & Koehler (2005) criticized this study in terms of its methodological
 SPARE PARTS MANAGEMENT 231

arrangements and experimental structure. They pointed out that Willemain et al. (2004) did not use
the correct lead time demand distribution for either single exponential smoothing or Crostons method.
This was a twofold criticism consisting of arguments against the use of the classical lead time demand
variance estimation procedure and the use of the normal distribution for representing demand. Also,
Willemain et al. (2004) did not consider published modifications to Crostons method, such as the esti-
mator proposed by Syntetos & Boylan (2005).
Further empirical evidence is required in order to develop our understanding of the benefits offered
by such a non-parametric approach. In particular, a comparison between the recently developed adap-
tations of Crostons method (in conjunction with an appropriate distribution) with the bootstrapping

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approach should prove to be beneficial from both theoretical and practitioner perspectives.

3.1 Judgemental adjustments

As discussed in Section 3, the forecasting aspect of post-processing denotes any adjustments made
by the user to the statistical forecast. Such adjustments are very common in industrial applications and
there has been some research on comparing the relative merits of statistical forecasting and that of an
integrated approach (i.e. statistical forecasting and judgemental adjustments). Nevertheless, the relevant
analysis does not distinguish between slow- and fast-moving items. Syntetos et al. (2009b) examined
the monthly intermittent demand forecasts for the UK branch of a major international pharmaceutical
company. The company relies upon commercially available software to produce system forecasts per
stock-keeping unit (SKU) for each time period (i.e. month). Final forecasts are produced at a later stage
through the superimposition of judgements based on marketing intelligence gathered by the company
forecasters. In the analysis conducted, the benefits of the intervention were evaluated by comparing the
actual sales to system and final forecasts using both forecast accuracy and inventory control (accuracy
implication) metrics. The study provided the first published evidence that judgemental adjustments can
be effective when they are applied to forecasts of products with intermittent/slow demand. However,
the effectiveness was found to be conditional on the nature of the adjustments and the characteristics
of the demand time series. For all series, negative adjustments were found to be more effective than
positive adjustments and large negative adjustments had the greatest benefit in improving forecasting
accuracy. These results are consistent with those found for products that are not subject to intermittent
demand (Fildes et al., 2009). Nevertheless, further research is needed on the implications of forecasting
adjustments on the prediction of the whole demand distribution, including percentiles of demand that
are employed for inventory purposes.
Additional conclusions from this study relate to (i) the lack of learning effect, i.e. the adjustments do
not tend to improve over time, and (ii) the fact that the improved forecast accuracy achieved by judge-
mentally adjusting forecasts is also reflected in the stock control performance of the estimates under
concern. Adjusted forecasts have been found to offer service levels closer to the targets, as compared
with the system forecasts, at the expense of modest stock volume differences.
While this research has provided evidence of the benefits that can be achieved through judgemental
adjustments of system forecasts, there is scope for improvement in the way that judgemental adjustments
are applied. Some of these improvements may be achievable through the development of facilities to
support judgemental intervention within forecasting software as described in Fildes et al. (2006) and
backed up by experimental evidence (Goodwin et al., 2006).
Given the frequency with which adjustments are applied to forecasts of intermittent demand and the
value of judgemental intervention that the pharmaceutical case study has revealed, further research into
the design and effectiveness of these facilities would appear to be merited. This issue is further discussed
in Section 5.
232 J. E. BOYLAN AND A. A. SYNTETOS

4. Demand information sharing

The bullwhip effect is a relatively new term, coined by Lee et al. (1997), for a phenomenon that has
been long recognized by operational research (OR) practitioners and researchers alike. It refers to
amplification of demand variance through the supply chain: the orders received by a manufacturer
(e.g.) are more variable than the demand on a retailer. This effect was examined by Forrester (1961)
using system dynamics simulation. There are four main causes of the bullwhip effect:
1. Lead times and demand signal processing. Owing to the interaction between the demand process
and the inventory rules, demand variance is amplified.

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2. Order batching. Economies of scale may amplify the variance of orders because of rounding-up
effects.
3. Rationing and shortage gaming. This refers to the practice of over-ordering, in a shortage situa-
tion, to ensure that some stock is received.
4. Price fluctuations.
Each of these causes of the bullwhip effect may be addressed, at least in part, by demand information
sharing, whereby the manufacturer has access to such data as demand or point-of-sale data at the retailer,
forecasts of demand by the retailer, capacity and inventory data and price changes (in advance).
From a forecasting perspective, the first cause is particularly important. Suppose that the forecasts
are based on orders only. If these are more variable than the demand at the retailer, then more accurate
forecasts can be obtained by using the retailer demand data, assuming this is shared with the manufac-
turer. Lee et al. (2000) quantified the reduction in variance by sharing demand information under the
following assumptions:
Single retailer and single manufacturer.
Demand at the retailer follows an autoregressive process of order one (AR(1)). This process is known
to the manufacturer, as are the parameters of the (AR(1)) model.
Orders are determined by an order-up-to policy: when inventory falls below a designated level, St ,
an order is placed to take the stock back up to St .
Lee et al. (2000) compared the inventory costs of two scenarios: no information sharing and demand
information sharing, demonstrating through simulation that substantial savings may accrue from sharing
demand data.
The study by Lee et al. (2000) may be criticized for its very restrictive assumptions and for the lack
of testing on real data. However, it represented a step forward in understanding the dynamics of the
bullwhip effect and the central role played by the inventory rule employed within the system.
In a separate stream of research, culminating in the paper by Gilbert (2005), it has been shown
that Autoregressive Integrated Moving Average (ARIMA) demand at the retailer translates to ARIMA
demand at the manufacturer, under the same conditions as specified by Lee et al. (2000).
This translation of demand processes upstream (from retailer to manufacturer) has led some re-
searchers, such as Raghunathan (2001) and Zhang (2004), to claim that an inverse process is possible,
known as downstream demand inference. In the inverse process, it is assumed that if a manufacturer
knows his own demand data and order process, ARIMA( p, d, q M ), and also the demand process at the
retailer, ARIMA( p, d, q R ), then he can deduce the demand history at the retailer. Recently, this stream
of research has been challenged by Ali & Boylan (2007). These authors drop the assumption that the
manufacturer knows the retailers ARIMA demand process since it is unrealistic to assume it to be
 SPARE PARTS MANAGEMENT 233

known when the demand data themselves are unknown. They show that it is not possible to deduce both
the demand process and the demand values at the retailer. This has important consequences for demand
information sharing. If Raghunathan (2001) and Zhang (2004) were correct, and downstream demand
inference were feasible, then there would be no value in information sharing.
Although it has been established that there are savings to be achieved by demand information shar-
ing, much work remains to be done to determine the sensitivity of these savings to the nature of the
ARIMA( p, d, q R ) process, the parameters of the process, the lead timeand the variability of the de-
mand noise. Also, research is required to extend the analysis to more complex supply chains and to
other inventory rules.

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Towill et al. (2007) suggested that there are three lenses through which the bullwhip effect may
be viewed. The first is the variance lens, which assumes a stationary stochastic input, and which is at
the heart of the work by Lee et al. (2000) and other authors that have followed in this vein of research.
The second is the shock lens, which assumes a step input (i.e. a sudden change from one state to
another). This has been addressed using control theory and system dynamics. The third is the filter lens,
assuming cyclic demand, including seasonality and rogue seasonality (i.e. induced by the system).
This has been addressed by expressing the problem in the frequency domain and identifying optimum
bandwidths so that the message is transmitted and the noise is minimized. Greater integration of
these three lenses remains a challenge for research on the bullwhip effect.

5. Forecast support systems

Forecasting at the SKU level in order to support operations management and inventory decision making
is a very difficult task. In most companies, the size and complexity of the forecasting task necessitate the
use of an FSS (Fildes et al., 2006). An FSS is any system that provides support to the forecasting
function within a company. The support provided for the everyday forecasting needs could range from
minimal (basic extrapolations with naive methods) to highly advanced information systems (IS) with
facilities such as data mining to provide estimates of the impact of special events (e.g. promotions). An
FSS is not necessarily a software solution; it may be a well-documented process, regarded as an auto-
mated or semi-automated system. However, for most applications, an FSS is an IS that provides support
for forecasting tasks. Several studies initiated at the Universities of Lancaster and Bath have revealed
that some companies make limited use of the facilities that are available in the statistical forecasting
software they have purchased. Despite their costs, the software packages are often used for little more
than data display. Management judgement is the predominant, or even exclusive, element in the deriva-
tion of the forecasts. Forecasting improvements may be achievable through the development of facilities
to support judgemental intervention within forecasting software.
The company-based studies focussed on the use of FSS for supporting the task of forecasting require-
ments of fast-moving goods. The incorporation of facilities to support the management of intermittent
SKUs and the reflection of the specific characteristics of the relevant demand patterns in the develop-
ment of FSS have never been discussed in the academic literature. Further research on the following
three issues should be particularly interesting from both academic and practitioner perspectives:
1. Graphical display of intermittent demands.
2. Incorporation of judgement into FSS.
3. Handling outliers/very lumpy demand occurrences.
Graphical display of intermittent demand has been somewhat neglected. Smart (2007) described
the visual display in SmartSoftware, shown in Fig. 3. A probability mass function is displayed, with
234 J. E. BOYLAN AND A. A. SYNTETOS

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FIG. 3. Graphical display of intermittent demands (Smart Software, Inc.).

50 and 95% percentiles highlighted, in addition to the mean value. Croston (2007) proposed a simpler
alternative, namely the cumulative demand over time; this is intended to help the forecaster to see,
at a glance, if there are any changes to the pattern of demand. Thus, it may facilitate judgemental
adjustment.
With the exception of the results presented by Syntetos et al. (2009b), no other empirical evidence
has been put forward in the literature on the effectiveness of integrating statistical forecasts with man-
agerial judgement. More research is required in this area in order to (i) replicate the findings of Syntetos
et al. and (ii) generate insight as to how and why the relevant judgemental interventions are performed.
Such knowledge would then allow the structured incorporation of rules into FSS, to facilitate decision
making.
Usually, most forecasting software packages incorporate rules (based upon the mean demand and
its standard deviation) to identify extreme demands (outliers). Once the outlier has been detected, it is
then handled separately with appropriate exception reporting. In the case of spare parts, erraticness
(i.e. demand sizes associated with a very high variability) is often an integral part of the underlying
demand structure; thus, the identification of an extreme value and how to deal with that become very
challenging. Research is needed on the identification of outliers in this case and the effect of handling
them differently to other demands.

6. Conclusions
The forecasting of demand for spare parts has attracted a considerable amount of research in recent
years. In this paper, a simple classification scheme has been proposed, namely, (i) pre-processing, (ii)
processing and (iii) post-processing. This classification scheme reminds researchers that the first and
third stages are as worthy of investigation as the second stage (which has received most attention). The
whole process of forecasting can be supported by an FSS.
In the pre-processing stage, advances have been made in classifying spare parts as intermittent or
non-intermittent and as lumpy or non-lumpy. Recent empirical work has shown that forecasting
 SPARE PARTS MANAGEMENT 235

accuracy is not sensitive to the exact cut-off values. For faster moving products, the method of seasonal
estimation must be decided. Rules have been proposed to allow a system to classify SKUs according to
whether seasonality should be based on individual series or on grouped data.
In the processing stage, improvements have been suggested to Crostons method, to ensure that it
is (approximately) unbiased. Non-parametric bootstrapping methods have also been proposed, although
their relative performance requires further research. Another line of research is to consider the sharing
of demand information, to reduce the noise in the series being forecasted, and thus improve forecast
accuracy. Recent theoretical papers, that suggest that there is no benefit in information sharing, have
been challenged. More work remains to be done on quantifying the benefit of information sharing,

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particularly for complex supply chains.
In the post-processing stage, users may amend the system forecasts, based on market (or other)
intelligence, before implementing the final forecast. Although there are a number of studies on faster
moving SKUs, the evidence on slower parts is scarce. One recent study shows that there is potential
for improving accuracy through judgemental intervention. There is also scope for investigating the role
of FSS, building on suggestions that have been made for the effective graphical display of intermittent
demand.

Funding
Engineering and Physical Sciences Research Council (EP/F012632/1; EP/G006075/1 to A.A.S.).

Acknowledgements
More information on this project may be obtained at http://www.mams.salford.ac.uk/CORAS/Projects/
Bridging the Gap/. The authors would like to thank the participants in the 49th annual conference of the
UK Operational Research Society (Edinburgh, 46 September 2007) for their constructive comments
on an earlier draft of this paper.

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