Empirical Modeling and Its Applications. Chapter 3: Least Squares Method and Empirical Modeling: A Case Study in a Mexican Manufacturing Firm

Abstract

Empirical modeling (EM) has been a useful approach for the analysis of different problems across a number of areas/fields of knowledge. As is known, this type of modeling is particularly helpful when parametric models due to a number of reasons cannot be constructed. Based on different methodologies and approaches (e.g., Least Squares Method, LSM), EM allows the analyst to obtain an initial understanding of the relationships that exists among the different variables that belong to a particular system or a process. In some cases, the results from empirical models can be used to make decisions about those variables, with the intent of resolving a given problem. The investigation describes the application of EM to the estimation of shipping costs in a Mexican manufacturing firm. The results show that overall, transportation costs using an empirical model tend to be lower than costs calculated by a previous model. This demonstrates the practical and potential utility that results based on EM can have in a real-life setting.