Paper Title
Advantage Of Make-To-Stock Strategy Based On Linear Mixed-Effect Model
Abstract
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