Hierarchical Estimation as Basis for Hierarchical Forecasting
AbstractIn 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 InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2006-86.
Date of creation: 2006
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Web page: http://center.uvt.nl
hierarchical forecasting; aggregation; top-down approach;
Find related papers by JEL classification:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-ECM-2006-09-30 (Econometrics)
- NEP-ETS-2006-09-30 (Econometric Time Series)
- NEP-FOR-2006-09-30 (Forecasting)
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