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Hierarchical Estimation as Basis for Hierarchical Forecasting

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  • Strijbosch, L.W.G.
  • Heuts, R.M.J.
  • Moors, J.J.A.

    (Tilburg University, Center for Economic Research)

Abstract

In inventory management, hierarchical forecasting (HF) is a hot issue : families of items are formed for which total demand is forecasted; total forecast then is broken up to produce forecasts for the individual items.Since HF is a complicated procedure, analytical results are hard to obtain; consequently, most literature is based on simulations and case studies.This paper succeeds in following a more theoretical approach by simplifying the problem : we consider estimation instead of forecasting.So, from a random sample we estimate both total demand and the fraction of this total that individual items take; multiplying these two quantities gives a new estimate of individual demand.Then our research question is: can aggregation of items, followed by fractioning, lead to more accurate estimates of individual demand?Thirdly, a more practical situation is investigated by means of simulation.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2006-86.

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Date of creation: 2006
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Handle: RePEc:dgr:kubcen:200686

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Web page: http://center.uvt.nl

Related research

Keywords: hierarchical forecasting; aggregation; top-down approach;

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