Economic Order Quantity Estimation with Uncertain External Information on Product Demand Quantile

Abstract

In this chapter, a more accurate method for estimating economic order quantity (EOQ) is suggested. This method improves accuracy by using uncertain external additional information about market demand. External additional information can be available in form of summary statistics (sample means, sample quantiles) and their uncertainty measures (confidence intervals, widths of confidence intervals, standard errors, sample variances, or sample standard deviations). Annual demand was estimated by average sales and improved with the use of uncertain quantile information. It is shown that uncertain additional information can reduce variance of the estimator. This new approach is illustrated using sales data of midsize retail company.