A Profit Function-Maximizing Inventory Backorder Prediction System Using Big Data Analytics

Abstract

Inventory backorder prediction is widely recognized as an important component of inventory models. However, backorder prediction is traditionally based on stochastic approximation, thus neglecting the substantial amount of useful information hidden in historical inventory data. To provide those inventory models with a big data-driven backorder prediction, we propose a machine learning model equipped with an undersampling procedure to maximize the expected profit of backorder decisions. This is achieved by integrating the proposed profit-based measure into the prediction model and optimizing the decision threshold to identify the optimal backorder strategy. We show that the proposed inventory backorder prediction model shows better prediction and profit function performance than the state-of-the-art machine learning methods used for large imbalanced data. Notably, the proposed model is computationally effective and robust to variation in both warehousing/inventory cost and sales margin. In addition, the model predicts both major (non-backorder items) and minor (backorder items) classes in a benchmark dataset.