Assessing the effect of using demand parameters estimates in inventory control and improving the performance using a correction function

E. Janssen, L.W.G. Strijbosch, R.C.M. Brekelmans

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Inventory models need some specification of the distribution of demand in order to find the optimal order-up-to level or reorder point. This distribution is unknown in real life and there are several solutions to overcome this problem. One approach is to assume a distribution, estimate its parameters and replace the unknown demand parameters by these estimates in the theoretically correct model. Earlier research suggests that this approach will lead to underperformance, even if the true demand distribution is indeed the assumed one. This paper directs the cause of the underperformance and quantifies it in case of normally distributed demand. Furthermore the formulae for the order-up-to levels are corrected analytically where possible and otherwise by use of simulation and linear regression. Simulation shows that these corrections improve the attained performance.
Original languageEnglish
Pages (from-to)34-42
JournalInternational Journal of Production Economics
Volume118
Issue number1
Publication statusPublished - 2009

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Inventory control
Linear regression
Specifications
Underperformance
Simulation

Cite this

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title = "Assessing the effect of using demand parameters estimates in inventory control and improving the performance using a correction function",
abstract = "Inventory models need some specification of the distribution of demand in order to find the optimal order-up-to level or reorder point. This distribution is unknown in real life and there are several solutions to overcome this problem. One approach is to assume a distribution, estimate its parameters and replace the unknown demand parameters by these estimates in the theoretically correct model. Earlier research suggests that this approach will lead to underperformance, even if the true demand distribution is indeed the assumed one. This paper directs the cause of the underperformance and quantifies it in case of normally distributed demand. Furthermore the formulae for the order-up-to levels are corrected analytically where possible and otherwise by use of simulation and linear regression. Simulation shows that these corrections improve the attained performance.",
author = "E. Janssen and L.W.G. Strijbosch and R.C.M. Brekelmans",
note = "Appeared previously as CentER DP 0690",
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journal = "International Journal of Production Economics",
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Assessing the effect of using demand parameters estimates in inventory control and improving the performance using a correction function. / Janssen, E.; Strijbosch, L.W.G.; Brekelmans, R.C.M.

In: International Journal of Production Economics, Vol. 118, No. 1, 2009, p. 34-42.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Assessing the effect of using demand parameters estimates in inventory control and improving the performance using a correction function

AU - Janssen, E.

AU - Strijbosch, L.W.G.

AU - Brekelmans, R.C.M.

N1 - Appeared previously as CentER DP 0690

PY - 2009

Y1 - 2009

N2 - Inventory models need some specification of the distribution of demand in order to find the optimal order-up-to level or reorder point. This distribution is unknown in real life and there are several solutions to overcome this problem. One approach is to assume a distribution, estimate its parameters and replace the unknown demand parameters by these estimates in the theoretically correct model. Earlier research suggests that this approach will lead to underperformance, even if the true demand distribution is indeed the assumed one. This paper directs the cause of the underperformance and quantifies it in case of normally distributed demand. Furthermore the formulae for the order-up-to levels are corrected analytically where possible and otherwise by use of simulation and linear regression. Simulation shows that these corrections improve the attained performance.

AB - Inventory models need some specification of the distribution of demand in order to find the optimal order-up-to level or reorder point. This distribution is unknown in real life and there are several solutions to overcome this problem. One approach is to assume a distribution, estimate its parameters and replace the unknown demand parameters by these estimates in the theoretically correct model. Earlier research suggests that this approach will lead to underperformance, even if the true demand distribution is indeed the assumed one. This paper directs the cause of the underperformance and quantifies it in case of normally distributed demand. Furthermore the formulae for the order-up-to levels are corrected analytically where possible and otherwise by use of simulation and linear regression. Simulation shows that these corrections improve the attained performance.

M3 - Article

VL - 118

SP - 34

EP - 42

JO - International Journal of Production Economics

JF - International Journal of Production Economics

SN - 0925-5273

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ER -