Framework of 2D KDE and LSTM-Based Forecasting for Cost-Effective Inventory Management in Smart Manufacturing

Abstract

Over the last decade, the development of machine-learning models has enabled the design of sophisticated regression models. For this reason, studies have been conducted to design predictive models using machine learning in various industries. In particular, in terms of inventory management, forecasting models predict historical market demand, predict future demand, and enable systematic inventory management. However, in most small and medium enterprise (SMEs), there is no systematic management of data, and because of the lack of data and the volatility of random data, it is difficult for prediction models to work well. Since the predictive model is a core function derived from the management of the enterprise’s inventory data, the poor performance of the model causes the company’s inventory data-management system to be degraded. Companies that have poor inventory data because of this vicious cycle will continue to have difficulty introducing data-management systems. In this paper, we propose a framework that can reliably predict the inventory data of a firm by modeling the volatility of a firm stochastically. The framework makes the prediction using the point prediction model by means of LSTM(Long Short Term Memory), the 2D kernel density function, and the prediction result reflecting inventory-management cost. Through various experiments, the necessity of interval prediction in demand prediction and the validity of the cost-effective prediction model through the readjustment function were shown.

Advanced financial modeling techniques for reducing inventory costs: A review of strategies and their effectiveness in manufacturing

“…The most recent phase in the evolution of financial modeling techniques in inventory management is characterized by the integration of advanced technologies, such as machine learning and artificial intelligence (AI). Kim et al (2022) present a groundbreaking framework that combines 2D Kernel Density Estimation (KDE) and Long Short-Term Memory (LSTM) networks for forecasting inventory needs in smart manufacturing. This approach not only allows for more accurate demand forecasting but also facilitates costeffective inventory management by modeling the volatility of firm-specific data.…”

“…This approach not only allows for more accurate demand forecasting but also facilitates costeffective inventory management by modeling the volatility of firm-specific data. The application of such advanced technologies represents a significant leap forward from traditional and even early quantitative models, offering unprecedented precision and efficiency in inventory management (Kim et al, 2022). The historical overview of financial modeling techniques in inventory management reveals a trajectory of continuous improvement and sophistication.…”