Optimal forecast biasing in theoretical inventory models

Recent findings in production research have demonstrated that bias in forecasts may improve system performance in a simulated multiple-product MRP system, and optimal planned bias can be identified for simulated single product MRP settings. This paper provides an analytical approach and theoretical evidence that optimal planned bias exists to minimize the expected loss for the traditional EOQ model, as well as for the Newsboy model, when relaxing the assumption of known demand rate in the EOQ model and the assumption of known boundary of demand distribution in the Newsboy problem. Findings of this paper also provide a rationale for impact of forecast errors on cost behaviour, and facilitate a benchmark for comparing different findings of previous research work.