Receiver operating characteristic analysis for forecasting obsolescence risk

Connor Jennings, Dazhong Wu, Janis Terpenny

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

In today's world of rapidly advancing technologies, the impacts and costs of change on products and systems are dramatic. As new products are introduced into the market, manufacturers cease production of older products. These products that are no longer procurable have become obsolete. Planning ahead for when products become obsolete requires accurate and dependable forecasting methods as well as methods to assess costs associated with obsolescence. Currently, obsolescence risk forecasting models assign statuses of procurable or discontinued to parts to denote the part's availability. As with any forecast, some parts will be mislabeled, i.e., a procurable part may be labeled as discontinued or vice versa. Typically, it is assumed the cost of a type I and type II errors are equal. However, a procurable part labeled as discontinued may trigger a premature redesign and potentially worse, a discontinued part labeled as procurable could cause a starved manufacturing line or even production shutdowns. The objective of this paper is to present a new method that has been developed to avoid significant errors in cost calculations and resultant decisions. The method makes use of Receiver Operating Characteristic (ROC) analysis that makes it possible to account for asymmetric costs when parts are misclassified. A case study of the digital camera market is presented to demonstrate the method. When a new optimal risk cut-off threshold is calculated using ROC analysis, an average reduction of 26.4% in cost per prediction in the camera market is demonstrated.

Original languageEnglish (US)
Title of host publication67th Annual Conference and Expo of the Institute of Industrial Engineers 2017
EditorsHarriet B. Nembhard, Katie Coperich, Elizabeth Cudney
PublisherInstitute of Industrial Engineers
Pages722-727
Number of pages6
ISBN (Electronic)9780983762461
StatePublished - Jan 1 2017
Event67th Annual Conference and Expo of the Institute of Industrial Engineers 2017 - Pittsburgh, United States
Duration: May 20 2017May 23 2017

Publication series

Name67th Annual Conference and Expo of the Institute of Industrial Engineers 2017

Other

Other67th Annual Conference and Expo of the Institute of Industrial Engineers 2017
CountryUnited States
CityPittsburgh
Period5/20/175/23/17

All Science Journal Classification (ASJC) codes

  • Industrial and Manufacturing Engineering

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  • Cite this

    Jennings, C., Wu, D., & Terpenny, J. (2017). Receiver operating characteristic analysis for forecasting obsolescence risk. In H. B. Nembhard, K. Coperich, & E. Cudney (Eds.), 67th Annual Conference and Expo of the Institute of Industrial Engineers 2017 (pp. 722-727). (67th Annual Conference and Expo of the Institute of Industrial Engineers 2017). Institute of Industrial Engineers.