Forecast

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Forecast: Unit Objectives

At the conclusion of this unit,
you will be able to:
Name the prerequisites for forecasting in
the R/3 System
Describe and distinguish between the

forecast models available in the R/3

System
Carry out, evaluate and influence the

forecast
Describe the characteristics of the first

forecast
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Forecast: Business Scenario

When a series of consumption values is

analyzed, certain patterns can usually be

detected. By carrying out the forecast in
the R/3 System, you can derive a prediction
of future requirements from these patterns.
These forecast values can be used for
requirements planning.

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Prerequisites
Material
Plant

1
1000
Material

MRP data

Forecast data

MRP type

Forecast model
Period indicator

Consumption values
1253
1178
1182

12.97
11.97
10.97

Customizing
MRP type
Forecast

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In order to carry out the forecast for a material, you must first of all define the forecast parameters for
this material in the material master record.
You can only carry out the forecast if historical consumption values for this material are available. In
general, the system updates the consumption values in the material master record during withdrawal
postings. Before the forecast is carried out, the consumption values can be checked and corrected if
necessary. In addition, you can manually enter historical consumption values as basic values for the first
forecast.
If no historical data exists for a material which the system can access during the forecast, you can
carry out the forecast with reference to another material.
The forecast results are only used for MRP if the forecast indicator is set in Customizing.

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Forecast Models
Constant model

Trend model

Seasonal model

Seasonal trend
model
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When a series of consumption values is analyzed, certain patterns can usually be detected. From these
patterns it is then possible to differentiate between various forecast models:
Constant model: A constant consumption flow applies if consumption values vary very little from a
stable mean value.
Trend model: With a trend model, consumption values fall or rise constantly over a long period of
time with only occasional deviations.
Seasonal model: If periodically recurring peak or low values which differ significantly from a
stable mean value are observed, it is a case of a seasonal consumption flow.
Seasonal trend model: A seasonal trend consumption model is characterized by a continual increase
or decrease of the mean value.
If none of the above patterns can be detected in a series of past consumption values, then we have an
irregular consumption flow.

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Model Selection
Selection
Interactive

Automatic

Constant model
Trend model
Seasonal model
Seasonal trend
model

Automatic model
selection

Models

Parameters
Basic value
Basic value
Trend value
Basic value
Seasonal indices
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Before the first forecast can be carried out, you must define which forecast model the system is to use
to calculate the forecast values.There are three basic possibilities:
Manual model selection,
Automatic model selection,
Manual model selection with additional system check.
If you want to select a model manually, then you must first of all analyze past consumption data.
If you want to have a model automatically selected, you can instruct the system to analyze the
historical data with respect to trend model, seasonal model, or seasonal trend model.
If you want to use manual model selection with additional system check, you specify a model manually
and set the system so that it additionally checks historical values for a seasonal pattern or trend.

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First Forecast
Consumption values
110
105
Material 1
92
...
Forecast model T

Forecast values
Period 01: 116
02: 122
03: 128
...

Forecast

Model Initialization
Calculation of model
parameters
e.g. basic value
trend value

Parameter Optimization
Optimization of
smoothing factors

Ex-Post Forecast
Forecast for past
periods
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During the first material forecast, the necessary model parameters (basic value, trend value, seasonal
indices) are determined for the respective forecast model. Model initialization takes place during the
forecast. It must also be carried out in cases of structural interruption, that is, if the existing forecast
becomes invalid.
Parameter optimization is used to optimize the smoothing factors. The system calculates several
parameter combinations and then selects the combination with the lowest mean absolute deviation.
Ex-post forecast is a forecast for past periods. A forecast for the latest past consumption values is
carried out on the basis of older past consumption values. They are compared to the actual consumption
values in order to adjust the model parameters to the actual consumption flow in an optimum way.

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Ex-Post Forecast
Consumption

Time
Number of past
consumption values
for initialization

Ex-post Forecas

Number of past
consumption values

Forecast

Number of forecast
values

Past consumption values (historical data)

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Forecast values

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If more past values are available than the system requires or is to use for model initialization, then the
system will carry out an ex-post forecast. In order to do this, the system divides the time series of past
values into two groups. The first group with the older values is used for initialization. The forecast is
repeated for the second section, that is, the forecast is carried out parallel to the time series of
consumption. The forecast values for the past are then compared to actual consumption values. Thus,
the parameters are adapted to the most recent developments.
The ex-post forecast is used for:
Models based on exponential smoothing
Parameter optimization
Skipping forecast periods
Evaluation of the forecast accuracy

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Procedures
Interactive forecast

Batch forecast

Maintain historical data

Start

Plant
MRP controller

Carry out forecast

List

Values
Messages

Check forecast values

and messages

Reprocess

Plant
MRP controller
Error class

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There are several possibilities available to you for carrying out the material forecast:
Individual forecast (interactive/not interactive)
Total forecast (online/in background mode)
The interactive forecast is triggered in the material master record from the forecast screen. The forecast
settings can be changed interactively as often as necessary before the forecast results are saved. An
interactive graphic is available for checking the forecast where the forecast values can be changed.
The total forecast is carried out at plant level and for each period indicator. In order not to overload the
system, you should carry out the total forecast in background mode. As soon as the forecast run is
finished, the system displays a list of all materials for which the forecast was carried out, provided you
have set the indicator Log record. If not, no list will be generated.

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Reprocessing the Forecast Results

Lists

A
Material

Messages for material

B
Material

Material

Process

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After a forecast run, the results must be checked over to make sure that the forecast was carried out
correctly. There are two ways of doing this:
Checking the forecast result using a list
You can print a list of the materials which were included in the forecast via a print program and then
you can use this list to check the results.
Checking the forecast result in online mode
Errors or exceptional situations which appear during the total forecast are recorded in the exception
messages and are allocated to a certain error class. If an error occurs in a material forecast, then the
system marks the material for which the error occurs for reprocessing. The marked materials can be
checked and reprocessed in online mode. If you want to limit the selection, you can specify an error
class.
Possible exceptional situations include the following:
No historical data exists
Safety stock not calculated as service level = 0,
Pattern of consumption series has changed.
The allocation of an exceptional situation to an error class is carried out in Customizing.

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Influencing the Forecast

Manual correction of the consumption values
and the forecast values

Firming the forecast values

Limiting the time axis for the historical data

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The historical data updated by the system cannot be changed manually but can only be influenced by
correction values. This is for example necessary for outliers.
The forecast values calculated by the system also cannot be changed manually but can only be
influenced by correction values.
The system automatically sets a firming indicator for corrected forecast values. This means that the
correction value cannot be changed during subsequent forecast runs.
Forecast values can also be firmed manually. In this case, the values also cannot be changed during
subsequent forecast runs.
The number of historical data defines the scope of historical data the system has to consider during the
forecast. The default value is the maximum possible number (60). If you limit the number of historical
data, only the latest values are taken into account during the forecast.

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Measuring Errors
ET

Error total (sum of the differences between

forecast and consumption)

MAD =

Mean absolute deviation

TS

Tracking signal

ET
MAD

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When calculating the forecast, the system also calculates the degree of error (error total, MAD,
tracking signal).
The forecast error is the difference between actual consumption values and the forecast values from the
same period whereas the error total is the sum of all the forecast errors in a consumption series. The
error total is used to check the validity of the forecast model in operation. If a model is still valid, you
can assume that the error total is distributed normally and has an average of zero.
If the consumption pattern has changed, however, the error total will no longer be equal to zero. You
must standardize the calculated forecast error in order to set boundaries. Therefore, in addition to the
error total, the system also calculates the mean absolute deviation (MAD) as a second value. The
system then adds the errors (irrespective of the plus or minus sign) and divides them by the number of
consumption values.
Using the quotient from the error total and the MAD, the system can now define a tracking signal
during every forecast to identify changes in the pattern of a consumption series in time. The tracking
signal is compared to the tracking limit specified in the material master. When the tracking signal is
greater than the tracking limit, you will receive a message stating that the forecast model should be
checked.
The system automatically sets the tracking limit (the default value is 4.00). However, it can be changed
by the MRP controller in the material master record.

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Forecast: Summary
In order to carry out the forecast for a
material, you must first of all maintain the
forecast parameters for this material in the
material master record and consumption
values must be available.
There are several forecast models available.
You can carry out model selection manually
or automatically.
You can carry out the forecast as a total
forecast or as an interactive individual
forecast.
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