Notes
A great discussion between Joannes Vermorel (Lokad CEO) and Warren Powell on probabilistic forecast and sequential decision making overall (and also on supply chain).
An investment of 1h40m (normal speed) that is worth every minute.
Really liked the business/hands-on approach from both on how to address these topics on the day-2-day corporate life and the several great insights on how to approach and implement them from Academia to business.
A couple of additional takeaways from my side:
Will have a close look at the resources made available on Lokad (as it seems a great source of information and knowledge about this subject)
Have bookmarked the course by Warren Powell on Sequential Decision Analytics and Modeling (Priceton) for future reference
Downloaded Powell’s textbook on the subject “Modeling sequential decision problems” for future reading (available on the course site).
Extended Summary
“… In a recent interview hosted by Conor Doherty, Head of Communication at Lokad, Warren Powell, a retired professor from Princeton University and Chief Innovation Officer at Optimal Dynamics, and Joannes Vermorel, CEO and founder of Lokad, engaged in a thought-provoking discussion on probabilistic forecasts and sequential decision making in supply chain under the presence of uncertainty.
Warren Powell, a seasoned veteran in the field of decision making across complex fields, began by sharing his career journey. His work started with the deregulation of freight transportation in the United States, which led him to focus on planning under uncertainty. He also discussed his role at Optimal Dynamics, a startup he works with, where he guides his former PhD students and contemplates new directions for the company.
The conversation then shifted to Powell’s book, “Reinforcement Learning and Stochastic Optimization,” which delves into the realm of distributional or probabilistic forecasting. Powell shared an anecdote about a company that wanted to understand the value of offering a shipper a discount if they could predict future loads. This sparked his interest in the topic and led him to explore the challenges of forecasting in truckload lokad.com/third-party-logistics due to its stochastic nature.
Joannes Vermorel, on the other hand, shared his journey from deterministic methods to probabilistic forecasting. He discussed his realization that deterministic methods were not working and the need to embrace uncertainty in lokad.com/third-party-logistics. He also criticized the academic community for its lack of real-world application and its focus on proving theorems and running numerical work.
The discussion then turned to the difference between deterministic and probabilistic forecasting. Powell explained that while deterministic forecasting provides a single, actionable number, it fails to account for real-world variability. He argued that distributional forecasting, which provides a range of possible outcomes, is superior, although businesses often struggle to understand and apply this concept.
Vermorel agreed with Powell, adding that probabilistic forecasting requires more complex metrics and a deeper understanding of probability distributions. He likened deterministic forecasting to looking at a tiny, detailed section of a desk through a microscope, while probabilistic forecasting provides a broader, more complete view.
The conversation concluded with Vermorel sharing his experience implementing probabilistic forecasting at Lokad. He noted that it took several years to figure out how to optimize decisions based on these forecasts. He also discussed the lack of a unified community or paradigm for dealing with uncertainty in decision-making. Powell agreed, describing the field of decisions and uncertainty as a “jungle” due to the variety of different communities, languages, and notational systems. He shared his diverse experiences in various fields, from freight transportation to energy systems, and how these experiences led him to realize the limitations of certain approaches and the need for a broader perspective….”
