Bayesian Statistics in Retail Inventory Management

Philips, J. Donald; Dawson Jr., Lyndon F.
June 1968
Journal of Retailing;Summer68, Vol. 44 Issue 2, p27
Academic Journal
This article illustrates that Bayesian statistics may be useful to a retailer in calculating his economic inventory order quantities and reorder points. If inventory control is considered an important part of retail management, a degree of exactness is necessary to obtain maximum profits. The generally accepted method of determining economic order points uses the mathematical technique of simple averages. Under the Bayesian approach of assigning personal probabilities to various inventory factors, each variable influences the outcome in relation to its importance to a particular retailer's inventory problem. By assigning personal probabilities to varying levels of demand the Bayesian approach in effect is weighting the demand schedule of the retailer. Of particular usefulness in this Bayesian concept is a payoff table. The construction of the table involves the establishment of a series of demand possibilities and the assignment of probabilities to each of these varying levels of demand.


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