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1 2016

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Order quantity distributions: estimating an adequate aggregation horizon

Eriksen P. S., Nielsen P.

Management and Production Engineering Review

2016

Vol. 7, No. 3

39--48

In this paper an investigation into the demand, faced by a company in the form of customer orders, is performed both from an explorative numerical and analytical perspective. The aim of the research is to establish the behavior of customer orders in first-come-first-serve (FCFS) systems and the impact of order quantity variation on the planning environment. A discussion of assumptions regarding demand from various planning and control perspectives underlines that most planning methods are based on the assumption that demand in the form of customer orders are independently identically distributed and stem from symmetrical distributions. To investigate and illustrate the need to aggregate demand to live up to these assumptions, a simple methodological framework to investigate the validity of the assumptions and for analyzing the behavior of orders is developed. The paper also presents an analytical approach to identify the aggregation horizon needed to achieve a stable demand. Furthermore, a case study application of the presented framework is presented and concluded on.