Supply Chain Concepts
Seasonal Index
Major Topic Area: demand management
A seasonal index is used when forecasting products with seasonal demand patterns. What exactly is a seasonal demand pattern? When a product experiences a seasonal demand pattern, demand has a repeatable shape during that timeframe. For example, many products linked to school, experience a "back to school" spike in demand. Similarly, products like suntan lotion have a summer seasonality. Seasonality can be experienced over any timeframe. Common timeframes are monthly and weekly. However, some retailers, like restaurants, develop a time of day seasonality.
A seasonal index is used to compare the average demand for a specific period of time compared to the average demand.
Example: The following example creates quarterly seasonal indices for a product that has two years of historical data.
| Quarter | Year 1 | Year 2 | Index |
| 1 | 100 | 110 | 1.06 |
| 2 | 75 | 85 | 0.81 |
| 3 | 145 | 155 | 1.52 |
| 4 | 50 | 70 | 0.6 |
| Total | 370 | 420 | 3.99 |
Average quarter = (370 + 420) /8 = 98.75
Seasonal index Qtr 1 = 105/98.75 =1.06
(105 is the average of 100 & 110)
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