Inventory management is an important part of supply chain management: inventory shortages could result in reduced delivery speeds and response speeds while excess inventory could lead to increased inventory and operating costs. Therefore, finding ways to efficiently control inventory has become an issue companies are most concerned about. Choosing a proper inventory management method based on the lead-time demand distribution fitted from historical data has become the key criteria to solve this issue. However, it is difficult to determine the lead-time distribution based on the limited amount of historical data directly. Thus, the method this report introduces uses a multivariate higher-order Markov chain to reconstruct historical data in order to expand the amount of data used to fit the lead-time distribution of demand, which is significant for inventory management.
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