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A semi-parametric approach for estimating critical fractiles under autocorrelated demand

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  • Lee, Yun Shin

Abstract

Forecasting critical fractiles of the lead time demand distribution is an important problem for operations managers making newsvendor-type inventory decisions. In this paper, we propose a semi-parametric approach to forecasting the critical fractile when demand is serially correlated. Starting from a user-defined but potentially misspecified forecasting model, we use historical demand data to generate empirical forecast errors of this model. These errors are then used to (1) parametrically correct for any bias in the point forecast conditional on the recent demand history and (2) non-parametrically estimate the critical fractile of the demand distribution without imposing distributional assumptions. We present conditions under which this semi-parametric approach provides a consistent estimate of the critical fractile and evaluate its finite sample properties using simulation and real data for retail inventory planning.

Suggested Citation

  • Lee, Yun Shin, 2014. "A semi-parametric approach for estimating critical fractiles under autocorrelated demand," European Journal of Operational Research, Elsevier, vol. 234(1), pages 163-173.
  • Handle: RePEc:eee:ejores:v:234:y:2014:i:1:p:163-173
    DOI: 10.1016/j.ejor.2013.10.055
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    References listed on IDEAS

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    Cited by:

    1. Lee, Yun Shin, 2014. "Management of a periodic-review inventory system using Bayesian model averaging when new marketing efforts are made," International Journal of Production Economics, Elsevier, vol. 158(C), pages 278-289.
    2. Trapero, Juan R. & Cardós, Manuel & Kourentzes, Nikolaos, 2019. "Empirical safety stock estimation based on kernel and GARCH models," Omega, Elsevier, vol. 84(C), pages 199-211.
    3. Trapero, Juan R. & Cardós, Manuel & Kourentzes, Nikolaos, 2019. "Quantile forecast optimal combination to enhance safety stock estimation," International Journal of Forecasting, Elsevier, vol. 35(1), pages 239-250.
    4. Hedenstierna, Carl Philip T. & Disney, Stephen M., 2016. "Inventory performance under staggered deliveries and autocorrelated demand," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1082-1091.

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