Demand Forecasting of individual Probability Density Functions with Machine Learning

09/15/2020
by   F. Wick, et al.
0

Demand forecasting is a central component for many aspects of supply chain operations, as it provides crucial input for subsequent decision making like ordering processes. While machine learning methods can significantly improve prediction accuracy over traditional time series forecasting, the calculated predictions are often just point estimations for the conditional mean of the underlying probability distribution, and the most powerful approaches, like deep learning, are usually opaque in terms of how its individual predictions can be interpreted. Using the novel supervised machine learning method "Cyclic Boosting", complete individual probability density functions can be predicted instead of single numbers. While metrics evaluating point estimates are widely used, methods for assessing the accuracy of predicted distributions are rare and this work proposes new techniques for both qualitative and quantitative evaluation methods. Additionally, each single prediction obtained with this framework is explainable. This is a major benefit in particular for practitioners, as this allows them to avoid "black-box" models and understand the contributing factors for each individual prediction.

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