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Statistical Estimation Problems in Inventory Control

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  • R. H. Hayes

    (Graduate School of Business Administration Harvard University)

Abstract

In this paper we define and illustrate the use of the concept of "Expected Total Operating Cost" (ETOC) in dealing with inventory policy estimation when the cost structure is piecewise linear. We show, through examples, that estimates based on classical procedures are often unsatisfactory when viewed in terms of ETOC, and derive improved estimates. Then we look at the problem from a Bayesian point of view and derive the prior distributions (within a particular class) that are implied by the adoption of these superior procedures.

Suggested Citation

  • R. H. Hayes, 1969. "Statistical Estimation Problems in Inventory Control," Management Science, INFORMS, vol. 15(11), pages 686-701, July.
    • Handle: RePEc:inm:ormnsc:v:15:y:1969:i:11:p:686-701
    DOI: 10.1287/mnsc.15.11.686
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    Cited by:

    1. Saurabh Bansal & Mahesh Nagarajan, 2017. "Product Portfolio Management with Production Flexibility in Agribusiness," Operations Research, INFORMS, vol. 65(4), pages 914-930, August.
    2. Guo, Min & Chen, Yu-wang & Wang, Hongwei & Yang, Jian-Bo & Zhang, Keyong, 2019. "The single-period (newsvendor) problem under interval grade uncertainties," European Journal of Operational Research, Elsevier, vol. 273(1), pages 198-216.
    3. Janssen, E. & Strijbosch, L.W.G. & Brekelmans, R.C.M., 2007. "How to Determine the Order-up-to Level When Demand is Gamma Distributed with Unknown Parameters," Discussion Paper 2007-71, Tilburg University, Center for Economic Research.
    4. Prak, Dennis & Teunter, Ruud & Syntetos, Aris, 2017. "On the calculation of safety stocks when demand is forecasted," European Journal of Operational Research, Elsevier, vol. 256(2), pages 454-461.
    5. Harvey M. Wagner, 2002. "And Then There Were None," Operations Research, INFORMS, vol. 50(1), pages 217-226, February.
    6. Halkos, George & Kevork, Ilias, 2012. "Evaluating alternative frequentist inferential approaches for optimal order quantities in the newsvendor model under exponential demand," MPRA Paper 39650, University Library of Munich, Germany.
    7. Rossi, Roberto & Prestwich, Steven & Tarim, S. Armagan & Hnich, Brahim, 2014. "Confidence-based optimisation for the newsvendor problem under binomial, Poisson and exponential demand," European Journal of Operational Research, Elsevier, vol. 239(3), pages 674-684.
    8. Qi Feng & J. George Shanthikumar, 2022. "Developing operations management data analytics," Production and Operations Management, Production and Operations Management Society, vol. 31(12), pages 4544-4557, December.
    9. Sujit K. Basu & Rahul Mukerjee, 1990. "Asymptotic normality of the estimated optimal order quantity for one‐period inventories with supply uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 37(5), pages 745-751, October.
    10. Mengshi Lu & J. George Shanthikumar & Zuo‐Jun Max Shen, 2015. "Technical note – operational statistics: Properties and the risk‐averse case," Naval Research Logistics (NRL), John Wiley & Sons, vol. 62(3), pages 206-214, April.
    11. Halkos, George & Kevork, Ilias, 2012. "Unbiased estimation of maximum expected profits in the Newsvendor Model: a case study analysis," MPRA Paper 40724, University Library of Munich, Germany.
    12. Alp Akcay & Bahar Biller & Sridhar Tayur, 2011. "Improved Inventory Targets in the Presence of Limited Historical Demand Data," Manufacturing & Service Operations Management, INFORMS, vol. 13(3), pages 297-309, July.

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