MODELING THE EVOLUTION OF DEMAND FORECASTS WITH APPLICATION TO SAFETY STOCK ANALYSIS IN PRODUCTION DISTRIBUTION-SYSTEMS

In this paper, we propose a general probabilistic model for modeling the evolution of demand forecasts, referred to as the Martingale Model of Forecast Evolution (MNFE). We combine the MMFE with a linear programming model of production and distribution planning implemented in a rolling horizon fashion. The resulting simulation methodology is used to analyze safety stock levels for a multi-product/multi-plant production/distribution system with seasonal stochastic demand. In the context of this application we demonstrate the importance of good forecasting.