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Statistical Estimation Problems in Inventory Control


  • R. H. Hayes

    (Graduate School of Business Administration Harvard University)


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

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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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