Selecting Ordering Policy and Items Classification Based on Canonical Correlation and Cluster Analysis

Abstract

It is difficult to find an appropriate ordering policy for a many types of items. One of the reasons for this difficulty is that each item has a different demand trend. We will classify items by shipment trend and then decide the ordering policy for each item category. In this study, we indicate that categorizing items from their statistical characteristics leads to an ordering policy suitable for that category. We analyze the ordering policy and shipment trend and propose a new method for selecting the ordering policy which is based on finding the strongest relation between the classification of the items and the ordering policy. In our numerical experiment, from actual shipment data of about 5,000 items over the past year, we calculated many statistics that represent the trend of each item. Next, we applied the canonical correlation analysis between the evaluations of ordering policies and the various statistics. Furthermore, we applied the cluster analysis on the statistics concerning the performance of ordering policies. Finally, we separate items into several categories and show that the appropriate ordering policies are different for each category.