A comparative assessment of holt winter exponential smoothing and autoregressive integrated moving average for inventory optimization in supply chains

Abstract

Precise demand forecasting and agile pricing strategies are crucial in modern business. This study aims to enhance these strategies by evaluating the efficacy of Holt-Winters Exponential Smoothing (HWES) and Autoregressive Integrated Moving Average (ARIMA) models. The study assesses their performance in predicting demand amid unpredictable factors and develops robust forecasting algorithms using real-world data. It evaluates HWES and ARIMA in capturing demand fluctuations, considering seasonality, market trends, and cyclic patterns. A comprehensive comparative analysis is conducted under stable and unstable economic conditions. The study also focuses on a dynamic pricing model for limited sale seasons, examining lost sales patterns over time. In the context of supply chain and inventory management, efficient demand forecasting and dynamic pricing are essential for optimizing inventory levels and minimizing costs. Supply chains must adapt quickly to demand fluctuations to avoid overstocking or stockouts, which lead to revenue losses and inefficiencies. The findings reveal that ARIMA consistently outperforms HWES in minimizing lost sales, demonstrating its efficacy in demand forecasting, mitigating stockouts, and reducing revenue losses, particularly in varying economic conditions. This research significantly contributes to current knowledge by developing tailored forecasting algorithms and a dynamic pricing model, enhancing supply chain resilience and performance in uncertain business environments.

Keywords

• Demand forecasting
• Holt winter exponential smoothing
• Autoregressive integrated moving average
• Dynamic pricing
• Inventory optimization
• Predictive analytics