TY - BOOK
T1 - Using imperfect advance demand information in forecasting
AU - Tan, T.
PY - 2007
Y1 - 2007
N2 - In this paper we consider the demand forecasting problem of a make-to-stock
system operating in a business-to-business environment where some customers provide in-
formation on their future orders, which are subject to changes in time and hence consti-
tuting imperfect advance demand information (ADI). The demand is highly volatile and
non-stationary, not only because it is subject to seasonality and changing trends, but also
because some individual client demands have significant in°uence on the total demand. In
such an environment, traditional forecasting methods may result in highly inaccurate fore-
casts, since they are mostly developed for the total demand based only on the demand
history, not making use of demand information and ignoring the effects of individual order
patterns of the customers. We propose a forecasting methodology that makes use of in-
dividual ordering pattern histories of the product-customer combinations and the current
build-up of orders. Moreover, we propose making use of limited judgmental updates on the
statistical forecasts prior to the use of ADI. In our application at a company that produces
dairy ingredients this method resulted in significant improvements in the forecasts and as
a result, required safety stocks are reduced by 25% by incorporating ADI in forecasts, and
we demonstrated that the reduction amounts to 37% in case judgmental updates are also
utilized.
AB - In this paper we consider the demand forecasting problem of a make-to-stock
system operating in a business-to-business environment where some customers provide in-
formation on their future orders, which are subject to changes in time and hence consti-
tuting imperfect advance demand information (ADI). The demand is highly volatile and
non-stationary, not only because it is subject to seasonality and changing trends, but also
because some individual client demands have significant in°uence on the total demand. In
such an environment, traditional forecasting methods may result in highly inaccurate fore-
casts, since they are mostly developed for the total demand based only on the demand
history, not making use of demand information and ignoring the effects of individual order
patterns of the customers. We propose a forecasting methodology that makes use of in-
dividual ordering pattern histories of the product-customer combinations and the current
build-up of orders. Moreover, we propose making use of limited judgmental updates on the
statistical forecasts prior to the use of ADI. In our application at a company that produces
dairy ingredients this method resulted in significant improvements in the forecasts and as
a result, required safety stocks are reduced by 25% by incorporating ADI in forecasts, and
we demonstrated that the reduction amounts to 37% in case judgmental updates are also
utilized.
M3 - Report
SN - 978-90-386-0926-3
T3 - BETA publicatie : working papers
BT - Using imperfect advance demand information in forecasting
PB - Technische Universiteit Eindhoven
CY - Eindhoven
ER -