Improved Inventory Targets in the Presence of Limited Historical Demand Data

Improved Inventory Targets in the Presence of Limited Historical Demand Data

0.00 Avg rating0 Votes
Article ID: iaor20117249
Volume: 13
Issue: 3
Start Page Number: 297
End Page Number: 309
Publication Date: Jun 2011
Journal: Manufacturing & Service Operations Management
Authors: , ,
Keywords: supply & supply chains, simulation: applications, combinatorial optimization, statistics: distributions
Abstract:

Most of the literature on inventory management assumes that the demand distribution and the values of its parameters are known with certainty. In this paper, we consider a repeated newsvendor setting where this is not the case and study the problem of setting inventory targets when there is a limited amount of historical demand data. Consequently, we achieve the following objectives: (1) to quantify the inaccuracy in the inventory‐target estimation as a function of the length of the historical demand data, the critical fractile, and the shape parameters of the demand distribution; and (2) to determine the inventory target that minimizes the expected cost and accounts for the uncertainty around the demand parameters estimated from limited historical data. We achieve these objectives by using the concept of expected total operating cost and representing the demand distribution with the highly flexible Johnson translation system. Our procedures require no restrictive assumptions about the first four moments of the demand random variables, and they can be easily implemented in practical settings with reduced expected total operating costs.

Reviews

Required fields are marked *. Your email address will not be published.