Management of supply chain: an alternative modelling technique for forecasting

Abstract

Forecasting is a necessity almost in any operation. However, the tools of forecasting are still primitive in view of the great strides made by research and the increasing abundance of data made possible by automatic identification technologies, such as radio frequency identification (RFID). The relationship of various parameters that may change and impact decisions are so abundant that any credible attempt to drive meaningful associations are in demand to deliver the value from acquired data. This paper proposes some modifications to adapt an advanced forecasting technique (GARCH) with the aim to develop it as a decision support tool applicable to a wide variety of operations including supply chain management (SCM). We have made an attempt to coalesce a few different ideas toward a ‘solutions’ approach aimed to model volatility and in the process, perhaps, better manage risk. It is possible that industry, governments, corporations, businesses, security organizations, consulting firms and academics with deep knowledge in one or more fields, may spend the next few decades striving to synthesize one or more models of effective modus operandi to combine these ideas with other emerging concepts, tools, technologies and standards to collectively better understand, analyse and respond to uncertainty. However, the inclination to reject deep-rooted ideas based on inconclusive results from pilot projects is a detrimental trend and begs to ask the question whether one can aspire to build an elephant using mouse as a model.

Keywords:

• forecasting
• supply chain management
• multivariate GARCH
• risk analysis
• intelligent decision systems
• RFID
• sensor data

^**Co-author shared the 2003 Nobel Prize in Economics.

^**Co-author shared the 2003 Nobel Prize in Economics.

Acknowledgements

Part of this work was made possible by the financial support from the sponsors of the MIT Forum for Supply Chain Innovation. The corresponding author (S Datta) is the Co-Founder and Research Director of the MIT Forum for Supply Chain Innovation. The corresponding author benefited from numerous discussions with industry and government thought leaders, worldwide. Special thanks are due to Robert Engle, New York University.