SOS: A Quantile Estimation Procedure for Dynamic Lot-sizing Problems

Abstract

This paper reviews some of the current approaches available for computing the demand quantiles required to plan the procurement of items with stochastic non-stationary demands. The paper first describes the stochastic single-item lot-sizing problem considered and then presents a practical solution approach based on a dynamic lot-sizing model. Three methods available to compute demand quantiles are then reviewed and a new procedure based on smoothed order statistics (SOS) is proposed. Finally, the behaviour of these estimation methods, when used to solve single-item lot-sizing problems with non-stationary stochastic demands, is studied by simulation.

Keywords:

• Inventory
• Quantile Estimation
• Dynamic Lot-Sizing
• Forecasting