The effect of correlation between demands on hierarchical forecasting

Chen, H; Boylan, JE

Abstract

The forecasting needs for inventory control purposes are hierarchical. For SKUs in a product family or a SKU stored across different depot locations, forecasts can be made from the individual series’ history or derived top-down. Many discussions have been found in the literature, but it is not clear under what conditions one approach is better than the other. Correlation between demands has been identified as a very important factor to affect the performance of the two approaches, but there has been much confusion on whether positive or negative correlation. This paper summarises the conflicting discussions in the literature, argues that it is negative correlation that benefits the top-down or grouping approach, and quantifies the effect of correlation through simulation experiments.

• Publication Date: Sep 1, 2009
• Deposit Date: Dec 12, 2011
• Publicly Available Date: Apr 5, 2016
• Publisher: Emerald
• Pages: 173-188
• Book Title: Advances in Business and Management Forecasting
• ISBN: 9781848555488
• DOI: https://doi.org/10.1108/S1477-4070%282009%290000006011
• Publisher URL: http://dx.doi.org/10.1108/S1477-4070(2009)0000006011
• Related Public URLs: http://www.emeraldinsight.com/
• Additional Information: Additional Information : This article is (c) Emerald Group Publishing and permission has been granted for this version to appear here. Emerald does not grant permission for this article to be further copied/distributed or hosted elsewhere without the express permission from Emerald Group Publishing Limited