Optimising forecasting models for inventory planning

Kourentzes, Nikolaos and Trapero, Juan R. and Barrow, Devon (2020) Optimising forecasting models for inventory planning. International Journal of Production Economics, 225: 107597. ISSN 0925-5273

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Inaccurate forecasts can be costly for company operations, in terms of stock-outs and lost sales, or over-stocking, while not meeting service level targets. The forecasting literature, often disjoint from the needs of the forecast users, has focused on providing optimal models in terms of likelihood and various accuracy metrics. However, there is evidence that this does not always lead to better inventory performance, as often the translation between forecast errors and inventory results is not linear. In this study, we consider an approach to parametrising forecasting models by directly considering appropriate inventory metrics and the current inventory policy. We propose a way to combine the competing multiple inventory objectives, i.e. meeting demand, while eliminating excessive stock, and use the resulting cost function to identify inventory optimal parameters for forecasting models. We evaluate the proposed parametrisation against established alternatives and demonstrate its performance on real data. Furthermore, we explore the connection between forecast accuracy and inventory performance and discuss the extent to which the former is an appropriate proxy of the latter.

Item Type:
Journal Article
Journal or Publication Title:
International Journal of Production Economics
Additional Information:
This is the author’s version of a work that was accepted for publication in International Journal of Production Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Journal of Production Economics, 225, 2020 DOI: 10.1016/.j.ijpe.2019.107597
Uncontrolled Keywords:
?? forecastinginventory managementoptimisationlikelihoodsimulationbusiness, management and accounting(all)economics and econometricsmanagement science and operations researchindustrial and manufacturing engineering ??
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Deposited On:
07 Jan 2020 14:45
Last Modified:
28 Apr 2024 00:03