Advantage Of Make-To-Stock Strategy Based On Linear Mixed-Effect Model
In the past few decades, demand forecasting becomes relatively difficult because of the rapid changes of world economic environment. In this research, the make-to-stock (MTS) production strategy is applied as an illustration to explain that forecasting plays an essential role in business management. We also suggest that linear mixed-effect (LME) model could be used as a tool for prediction and against environment complexity. Data analysis is based on a real data of order quantity demand from an international display company operating in the industry field, and the company needs accurate demand forecasting before adopting MTS strategy. The forecasting result from LME model is compared to the common used approaches, times series model, exponential smoothing and linear model. The LME model has the smallest average prediction errors. Furthermore, multiple items in the data are regarded as a random effect in the LME model, so that the demands of items can be predicted simultaneously by using one LME model. However, the other approaches need to split the data into different item categories, and predict the item demand by establishing model for each item. This feature also demonstrates the practicability of the LME model in real business operation.
Index Terms- forecasting, linear mixed-effect model, make-to-stock, order demand, production strategy