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Evaluation of hierarchical forecasting for substitutable products

Author

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  • S. Viswanathan
  • Handik Widiarta
  • R. Piplani

Abstract

This paper addresses hierarchical forecasting in a production planning environment. Specifically, we examine the relative effectiveness of Top-Down (TD) and Bottom-Up (BU) strategies for forecasting the demand for a substitutable product (which belongs to a family) as well as the demand for the product family under different types of family demand processes. Through a simulation study, it is revealed that the TD strategy consistently outperforms the BU strategy for forecasting product family demand. The relative superiority of the TD strategy further improves by as much as 52% as the product demand variability increases and the degree of substitutability between the products decreases. This phenomenon, however, is not always true for forecasting the demand for the products within the family. In this case, it is found that there are a few situations wherein the BU strategy marginally outperforms the TD strategy, especially when the product demand variability is high and the degree of product substitutability is low.

Suggested Citation

  • S. Viswanathan & Handik Widiarta & R. Piplani, 2008. "Evaluation of hierarchical forecasting for substitutable products," International Journal of Services and Operations Management, Inderscience Enterprises Ltd, vol. 4(3), pages 277-295.
    • Handle: RePEc:ids:ijsoma:v:4:y:2008:i:3:p:277-295
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    Cited by:

    1. Moon, Seongmin & Hicks, Christian & Simpson, Andrew, 2012. "The development of a hierarchical forecasting method for predicting spare parts demand in the South Korean Navy—A case study," International Journal of Production Economics, Elsevier, vol. 140(2), pages 794-802.
    2. Hakeem‐Ur Rehman & Guohua Wan & Raza Rafique, 2023. "A hybrid approach with step‐size aggregation to forecasting hierarchical time series," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(1), pages 176-192, January.

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