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Jun 26, 2019

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Required for supply chain understanding

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18 visualizzazioni51 pagineRequired for supply chain understanding

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Outline

Elements of a good forecast.

Outline the steps in the forecasting process.

Qualitative forecasting techniques and the advantages and

disadvantages of each.

Briefly describe averaging techniques, trend and seasonal

techniques, and regression analysis, and solve typical

problems.

Describe measures of forecast accuracy.

Identify the major factors to consider when choosing a

forecasting technique.

Collaborative Planning, Forecasting, and Replenishment

2

Forecasts

A statement about the future value of a variable of

interest such as demand.

Forecasting is used to make informed decisions.

Long-range

Short-range

3

Why Forecasts

Forecasts affect decisions and activities throughout an

organization

4

Why Forecasting Demand in SCM

Match demand and supply to avoid

stock out

lost sales

high costs of inventory and obsolescence

material shortage

poor responsiveness to market dynamics

Collaboration between buyer and supplier become a rule

rather than exception

5

Sony Experience

hits in just a few minutes when accepting order of PS2 in

late Feb, 2000

In March 2000 sales of PS2 was 10 times of forecasted

sales.

6

How to Match Supply and Demand

Techniques

Hold plenty of stock to satisfy uncertain pull

Flexible pricing

Overtime, subcontracting and temporary worker in the

short term

Effective forecasting

Collaboration Planning, Forecasting and Replenishment

7

Features of Forecasts

past ==> future

randomness

I see that you will

• Forecasts more accurate for get an A this semester.

groups than individuals

as time horizon increases

8

Elements of a Good Forecast

9

Steps in the Forecasting Process

“The forecast”

Step 5 Make the forecast

Step 4 Obtain, clean and analyze data

Step 3 Select a forecasting technique

3-10

Step 1 Determine purpose of forecast

Forecasting Techniques

Qualitative forecasting: methods of using opinions

and intuition- subjective approach

1. Jury of executive opinion

2. Delphi method etc.

3. Sales force opinion

4. Consumer surveys

Quantitative forecasting : methods of using

mathematical models and historical data

1. Time series models

i. Static models

ii. Adaptive models

i. Simple moving average

ii. Weighted moving average

iii. Exponential smoothing

2. Regression Analysis etc.

11

Qualitative Forecasting

12

Qualitative Forecasting

1. Jury of executive opinion

• A panel of senior experienced executive forecasts

• Dominance may diminish effectiveness

• Sports Obermeyer averages the weighted individual forecast of

each committee member

2. Delphi Method

• A group of internal and external experts were surveyed

• Members do not physically meet so no dominance problem

• Answers of each round survey are accumulated and summarized

and then resend to every participants for review until consensus

is reached

• The method is time consuming and expensive

13

Qualitative Forecasting

• Proximity gives good forecast

• May be biased if target or salary related to the forecast

4. Consumer survey

• Questionnaire survey over telephone, mail, internet or personal

interviews

• The challenge is to identify the sample respondents.

14

Quantitative Methods

Time series forecasting: Future is an extension of past

Components are time variations, cyclical variations, seasonal

variations, and random variations

Techniques:

Static

Adaptive

(independent variables) are related to demand

15

Forecast Variations

Irregular

variation

Trend

Cycles

90

89

88

Seasonal variations

16

Components of an Observation

Observed demand (O) =

Systematic component (S) + Random component (R)

17

Components of an Observation

• Systematic component: Expected value of demand

• Random component: The part of the forecast that deviates

from the systematic component

• Forecast error: difference between forecast and actual

demand

• Goal is to predict systematic component of demand

Multiplicative: (level)(trend)(seasonal factor)

Additive: level + trend + seasonal factor

Mixed: (level + trend)(seasonal factor)

18

Static Methods

A static method assumes that the estimates of level, trend, and

seasonality within the systematic component do not vary as

new demand is observed.

Assume a mixed model:

Systematic component = (level + trend)(seasonal factor)

Ft+l = [L + (t + l)T]St+l

L = Estimate of level for period 0

T = Estimate of trend

St = Estimate of seasonal factor for period t

Dt = Actual demand in period t

Ft = Forecast of demand in period t

19

Static Methods

Estimating level and trend from time series data

Estimating seasonal factors

20

Time Series Forecasting

Quarter, Year Demand Dt

II, 1 8000

III, 1 13000

IV, 1 23000

I, 2 34000

II, 2 10000

III, 2 18000

IV, 2 23000

I, 3 38000

II, 3 12000

III, 3 13000

IV, 3 32000

I, 4 41000

21 Forecast demand for the next four quarters.

Estimating Level and Trend

Before estimating level and trend, demand data must

be deseasonalized

Deseasonalized demand = demand that would have been

observed in the absence of seasonal fluctuations

Periodicity (p)

the number of periods after which the seasonal cycle

repeats itself

22

Static Methods

Deseasonalizing Demand (Dt )

Dt = (sum is from i = t+1-(p/2) to t-1+(p/2))

S Di / p for p odd

(sum is from i = t-(p/2) to t+(p/2)), p/2 truncated to lower integer

23

Static Methods

Deseasonalizing Demand

For t = 3:

D3 = {D1 + D5 + Sum(i=2 to 4) [2Di]}/8

= {8000+10000+[(2)(13000)+(2)(23000)+(2)(34000)]}/8

= 19750

D4 = {D2 + D6 + Sum(i=3 to 5) [2Di]}/8

= {13000+18000+[(2)(23000)+(2)(34000)+(2)(10000)]/8

= 20625

24

Static Methods

Deseasonalizing Demand

Then use the following linear regression model

Dt = L + tT

where Dt = deseasonalized demand in period t

L = level (deseasonalized demand at period 0)

T = trend (rate of growth of deseasonalized demand)

t = period

Trend and Level is determined by linear regression using:

deseasonalized demand as the dependent variable, and

period as the independent variable (can be done in Excel)

In the example, L = 18,439 and T = 524

25

Static Methods

Measuring Linear trend

Linear Regression Model

Fitting simple linear regression line to a time series data.

^

Y = a + b X Dt = L + T . t

Where

Y / Dt = dependent variable / deseasonalized demand /Estimate

X / t = Independent variable /time variable

a / L= Intercept of the line and

b / T = Slope of the line

n =number of period

_

( t Y) n t Y

b or T = 2 _ 2

t n t

b or L= Y bt

Static Methods

Linear Trend Calculation Example

Adjusted 4 Avg.

4 period Estimated Seasonal

Period Quarter Demand Yrs Moving t^2 ty Seasonal

moving average Demand index

Avg Index

1 II, 1 8000 18963 0.42 0.47

Deseasonaliz

ed demand

2 III, 1 13000 19487 0.67 0.68

19500

3 IV, 1 23000 19750 9 59250 20010 1.15 1.17

20000

4 I, 2 34000 20625 16 82500 20534 1.66 1.66

21250

5 II, 2 10000 21250 25 106250 21058 0.47 0.47

21250

6 III, 2 18000 21750 36 130500 21582 0.83 0.68

22250

7 IV, 2 23000 22500 49 157500 22106 1.04 1.17

22750

8 I, 3 38000 22125 64 177000 22629 1.68 1.66

21500

9 II, 3 12000 22625 81 203625 23153 0.52 0.47

23750

10 III, 3 13000 24125 100 241250 23677 0.55 0.68

24500

11 IV, 3 32000 24201 1.32 1.17

Sum t Sum y Sum t^2 Sum ty

Total 52 174750 174750 380 1157875

n= 8

Average of t 6.5 21843.75

corresponding

to

deseasonalize

d demand 27

Static Methods

Linear Trend Calculation

( t Y) _ n t Y = 523.81

b or T =

t

2 _ n t 2

b or L = Y bt = 18439

Y = 18439 + 5.23 t

28

Static Methods

Estimating Seasonal Factors

demand for each period

St = Dt / Dt = seasonal factor for period t

In the example,

D2 = 18439 + (524)(2) = 19487 D2 = 13000

S2 = 13000/19487 = 0.67

The seasonal factors for the other periods are calculated in

the same manner

29

Static Methods

Estimating Seasonal Factors

t Dt Dt-bar S-bar

1 8000 18963 0.42 = 8000/18963

2 13000 19487 0.67 = 13000/19487

3 23000 20011 1.15 = 23000/20011

4 34000 20535 1.66 = 34000/20535

5 10000 21059 0.47 = 10000/21059

6 18000 21583 0.83 = 18000/21583

7 23000 22107 1.04 = 23000/22107

8 38000 22631 1.68 = 38000/22631

9 12000 23155 0.52 = 12000/23155

10 13000 23679 0.55 = 13000/23679

11 32000 24203 1.32 = 32000/24203

12 41000 24727 1.66 = 41000/24727

30

Static Methods

Estimating Seasonal Factors

The overall seasonal factor for a “season” is then obtained by averaging

all of the factors for a “season”

If there are r seasonal cycles, for all periods of the form pt+i, 1<i<p,

the seasonal factor for season i is

Si = [Sum(j=0 to r-1) Sjp+i]/r

In the example, there are 3 seasonal cycles in the data and p=4, so

S1 = (0.42+0.47+0.52)/3 = 0.47

S2 = (0.67+0.83+0.55)/3 = 0.68

S3 = (1.15+1.04+1.32)/3 = 1.17

S4 = (1.66+1.68+1.66)/3 = 1.67

31

Static Methods

Estimating the Forecast

periods of demand:

F14 = (L+14T)S2 = [18439+(14)(524)](0.68) = 17,527

F15 = (L+15T)S3 = [18439+(15)(524)](1.17) = 30,770

F16 = (L+16T)S4 = [18439+(16)(524)](1.67) = 44,794

32

Static Methods

Adaptive Forecasting

adjusted after each demand observation

Methods of adaptive forecasting

Moving average

Simple exponential smoothing

Trend-corrected exponential smoothing (Holt’s model)

Trend- and seasonality-corrected exponential smoothing

(Winter’s model)

33

Adaptive Time Series Forecasting Models

Moving Average method is used when demand has no observable trend

or seasonality.

1. Simple Moving Average Forecasting Model : A technique that averages a

number of recent actual values, updated as new values become available. Last forecast is

considered as forecast for all future periods for which data is still to release.

3 year moving average

n

A

Period Actual Forecasted

t i Demand Demand

Ft MAn i 1 1

2

1600

2200

n 3 2000

i = An index that corresponds to time period 4 1600 1933

n = Number of periods (data points) in the 5 2500 1933

6 3500 2033

moving average

7 3300 2533

At-i = Actual value in period t-i 8 3200 3100

MA= Moving average 9 3900 3333

Ft = Forecast for time period t 10 4700 3467

11 4300 3933

12 4400 4300

Adaptive Forecasting

Adaptive Time Series Forecasting Models

2. Weighted Moving Average Forecasting Model

This models overcomes the question of Simple moving average method giving

equal weight in all years

More recent values in a series are given more weight in computing the forecast.

Last forecast is considered as forecast for all future periods for which

data is still to release.

If weight in last year 5, previous year 3 and year before that 2, than the 3 years moving

average forecast is

F4= .2 (1600) + .3(2200) + .5(2000) = 1980

Adaptive Forecasting

Adaptive Time Series Forecasting Models

3. Exponential Smoothing Forecasting Model

Weighted averaging method based on previous forecast plus a percentage of the forecast

error

The next period’s forecasted demand is the current period’s forecast adjusted by a

fraction of the difference between the current’s period's actual demand and its forecast.

Last forecast is considered as forecast for all future periods for which data is still to

release.

Simple and Minimal data required

Suitable for data that show little trend or seasonal patterns

The more emphasis on recent data the higher value for Alpha.

Where

Ft+1 = Forecast for period t+1,

Ft = Forecast for period t,

At = Actual demand for period t, and

α = A smoothing constant (0 ≤ α ≤ 1)

Adaptive Forecasting

4. Basic Formula for Adaptive Forecasting (Trend

and/or season adjusted exponential smoothing)

Ft+1 = (Lt + lT)St+1 = forecast for period t+l in period t

Lt = Estimate of level at the end of period t

Tt = Estimate of trend at the end of period t

St = Estimate of seasonal factor for period t

Ft = Forecast of demand for period t (made period t-1 or earlier)

Dt = Actual demand observed in period t

Et = Forecast error in period t

At = Absolute deviation for period t = |Et|

MAD = Mean Absolute Deviation = average value of At

37

General Steps

Initialize: Compute initial estimates of level (L0), trend (T0), and

seasonal factors (S1,…,Sp). This is done as in static forecasting.

Forecast: Forecast demand for period t+1 using the general equation

Modify estimates: Modify the estimates of level (Lt+1), trend (Tt+1), and

seasonal factor (St+p+1), given the error Et+1 in the forecast

Repeat steps 2, 3, and 4 for each subsequent period

38

Trend-Corrected Exponential Smoothing

(Holt’s Model)

Appropriate when the demand is assumed to have a level and trend in the

systematic component of demand but no seasonality

Obtain initial estimate of level and trend by running a linear regression of

the following form:

Dt = at + b

T0 = a

L0 = b

In period t, the forecast for future periods is expressed as follows:

Ft+1 = Lt + Tt

Ft+n = Lt + nTt

39

Trend-Corrected Exponential Smoothing

(Holt’s Model)

After observing demand for period t, revise the estimates for level and trend as follows:

Example: Tahoe Salt demand data. Forecast demand for period 1 using Holt’s model

(trend corrected exponential smoothing)

7-40

Holt’s Model Example (continued)

Forecast for period 1:

F1 = L0 + T0 = 12015 + 1549 = 13564

Observed demand for period 1 = D1 = 8000

E1 = F1 - D1 = 13564 - 8000 = 5564

Assume a = 0.1, b = 0.2

L1 = aD1 + (1-a)(L0+T0) = (0.1)(8000) + (0.9)(13564) = 13008

T1 = b(L1 - L0) + (1-b)T0 = (0.2)(13008 - 12015) + (0.8)(1549)

= 1438

F2 = L1 + T1 = 13008 + 1438 = 14446

41

Trend- and Seasonality-Corrected

Exponential Smoothing (Winter’s Model)

Appropriate when the systematic component of demand is assumed to

have a level, trend, and seasonal factor

Systematic component = (level+trend)(seasonal factor)

Assume periodicity p

(S1,…,Sp) using procedure for static forecasting

In period t, the forecast for future periods is given by:

42

Trend- and Seasonality-Corrected Exponential

Smoothing (continued)

After observing demand for period t+1, revise estimates for level, trend, and seasonal

factors as follows:

Tt+1 = b(Lt+1 - Lt) + (1-b)Tt

St+p+1 = g(Dt+1/Lt+1) + (1-g)St+1

a = smoothing constant for level

Example: Tahoe Salt data. Forecast demand for period 1 using Winter’s model.

Initial estimates of level, trend, and seasonal factors are obtained as in the static

forecasting case

43

Trend- and Seasonality-Corrected Exponential

Smoothing Example (continued)

F1 = (L0 + T0)S1 = (18439+524)(0.47) = 8913

The observed demand for period 1 = D1 = 8000

Forecast error for period 1 = E1 = F1-D1 = 8913 - 8000 = 913

Assume a = 0.1, b=0.2, g=0.1; revise estimates for level and trend for period 1 and for

seasonal factor for period 5

L1 = a(D1/S1)+(1-a)(L0+T0) = (0.1)(8000/0.47)+(0.9)(18439+524)=18769

44

Associative Forecasting Models

1. Simple regression

Y = b0 + b1x

Where

Y = Forecast or dependent variable

x = Explanatory or Independent variable

b0 = Intercept of the line and

b1 = Slope of the line

2. Multiple regression

Y = b0 + b1 x1+b2x2+ ………+bk xk

Simple Linear Regression

46

Forecasting Accuracy

Forecast error, et = At –Ft

47

MAD, MSE, and MAPE

Actual forecast

MAD =

n

2

( Actual forecast)

MSE =

n

MAPE =

n

48

Tracking Signal

•Tracking signal

–Ratio of cumulative error to MAD

Tracking signal =

(Actual- forecast)

MAD

Bias – Persistent tendency for forecasts to be

Greater or less than actual values.

49

Forecasting Accuracy

2

Period Demand Forecast Error (e) Absolute e Absolute

Error %

Error

1 1600 1523 77 77 5929 4.8%

2 2200 1810 390 390 152100 17.7%

3 2000 2097 -97 97 9409 4.9%

4 1600 2383 -783 783 613089 48.9%

5 2500 2670 -170 170 28900 6.8%

6 3500 2957 543 543 294849 15.5%

7 3300 3243 57 57 3249 1.7%

8 3200 3530 -330 330 108900 10.3%

9 3900 3817 83 83 6889 2.1%

10 4700 4103 597 597 356409 12.7%

11 4300 4390 -90 90 8100 2.1%

12 4400 4677 -277 277 76729 6.3%

Total 0 3494 1664552 1.339001

Average 291.1667 138712.7 11.158%

RSFE MAD MSE MAPE

Software

Forecasting software

Forecast Pro and Forecast Pro XE

SmartForecasts

SPSS (Statistical Package for Social Science)

SAS

EBUSE

CPFR software

Manugistics

i2 Technologies

Syncra systems

51

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