Estimating a retailer's base stock level: an optimal distribution center order forecast policy

Abstract

Errors in order forecasts are a salient source of inefficiencies in retail supply chains. Many operational decisions made by suppliers hinge on order forecasts, which typically are based solely on either order or point-of-sale (POS) history. Using a discrete-time formulation, this research demonstrates that if a supplier knows that a retailer is using a base stock policy, it should use that knowledge to forecast the retailer's orders, even if the supplier does not know the base stock level and/or have access to POS data.

Keywords:

• forecasting
• supply chain management
• retailing
• base stock policy