Nonparametric Demand Forecasting with Right Censored Observations

Abstract

In a newsvendor inventory system, demand observations often get right censored when there are lost sales and no backordering. Demands for newsvendor-type products are often forecasted from censored observations. The Kap-lan-Meier product limit estimator is the well-known nonparametric method to deal with censored data, but it is unde-fined beyond the largest observation if it is censored. To address this shortfall, some completion methods are suggested in the literature. In this paper, we propose two hypotheses to investigate estimation bias of the product limit estimator, and provide three modified completion methods based on the proposed hypotheses. The proposed hypotheses are veri-fied and the proposed completion methods are compared with current nonparametric completion methods by simulation studies. Simulation results show that biases of the proposed completion methods are significantly smaller than that of those in the literature.