Proceedings of the Asia Pacific Industrial Engineering & Management Systems Conference 2012

V. Kachitvichyanukul, H.T. Luong, and R. Pitakaso Eds.

The Application of Forecasting Techniques:

A Case Study of Chemical Fertilizer Store
Chompoonoot Kasemset and Watcharapat Chatchayangkul
Department of Industrial Engineering, Faculty of Engineering
Chiang Mai University, Chiang Mai, Thailand
Tel: (+66) 53- 944125-6 Fax: (+66) 5353-944185
Email: chompook@gmail.com

Abstract. This research work aims to propose sales forecasting models for a case study of chemical fertilizer
store. The first step is to group products based on ABC classification concept while considering ordering lead
time as an additional criterion. In this case study, there are 2 types of chemical fertilizer, 16-20-0 (Kra-tai) and
46-0-0 (Chor-fah), classified as group A. The historical sales of both products are analyzed to obtain practical
forecasting models. The results are (1) using liner trend line with seasonal adjustment forecasting model for
16-20-0 (Kra-tai) and (2) using exponential smoothing technique for 46-0-0 (Chor-fah). These two methods
give minimum value of mean absolute percentage error (MAPE) for both products comparing with other
methods.
Keywords: Forecasting, ABC Analysis, Case Study

1. INTRODUCTION

section 2, research methodology in section 3, case study

and results in section 4, conclusion and discussion in
section 5 and recommendation and further study in section
6.

Presently, a chemical fertilizer product is in maturity

stage of their product life cycle in which market saturation
is reached. Particularly in Thailand, the use of chemical
fertilizers trend to decrease due to uncertain economic
conditions and natural disaster affected on Thais
agricultures. Chemical fertilizer stores have to decrease
prices in order to compete in the market. Improving
inventory management policy in order to reduce inventory
costs is one possible way that can help in gaining more
profit when reducing price is applied to compete with other
shops.
The starting step of inventory management is to
estimate the future sales as input data in setting optimal lot
sizing policy.
In this study, one chemical fertilizer store in Thailand
is selected to be a case study. This store sells chemical
fertilizers to general customers. Currently, the store has
collected historical sales but there is no procedure to utilize
this data. The objective of this study is to develop
forecasting models for this shop. The starting step is
product classification based on ABC concept. Then,
products in class A are selected to be analyzed and assigned
practical forecasting models.
The paper organization starts with preliminaries in

2. PRELIMINARIES
2.1 ABC Classification
The objective of ABC classification is to classify
products in to different classes based on values of products
turnover. The advantage of this concept is to set up
appropriate policy for each product group depended on its
important level in companys investment.
Class A is the most important group of product
classified from 15-20 % of total products quantity and 6080% of total product value.
Class B is the group of product with 20-30 % of total
product quantity and 15-25% of total product value.
Class C is the least important with 50-60 % of total
products quantity and 5-10% of total product value.
The concept of ABC classification mentioned above is
the common policy widely used in normal case. In many
research works, modified ABC classification by
considering multi-criteria were proposed, for example; Lei
et al. (2005), Zhou and Fan (2007), Hadi-Vencheh (2010),

: Corresponding Author
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Kasemset and Chatchayangkul

Bonjakovic (2010),, and most of them proposed

mathematical models for ABC classification based on
linear and non-linear models.
When products are classified as different groups,
group each
group will be controlled by different policies as shown in
Table 1.

forecasting demand. Linear trend

tr
line is used to formulate a
linear equation that presents the relationship between
demand ass a dependent variable and time (shown in Figure
1). The error occurring between actual values
value and forecast
values from this technique will be minimized because the
concept of least square error is used when formulating
linear trend equation. The disadvantage of this technique is
all future forecasts will follow a straight line and this
technique will good-perform
performed when the trend of data is
unchanged.

Table 1: ABC Inventory Management Policy

Class

Degree
of
Control

Type of
Records

Lot
Sizes

Frequency
of Review

Size of
Safety
Stocks

Tight

Accurate
and
complete

Low

Continuous

Small

Moderate

good

Medium

Occasional

Moderate

Loose

Simple

Large

Infrequent

Large

Source: Tersine (1994)

For this case study, the problem is not complicated and

it is practical with simple technique as basic ABC
classification. The detail is addressed in section 3 and 4.
4

Figure 1: Linear Trend Line

Source: Russell & Taylor (2011)

2.2 Forecasting
The decision on selecting the right forecasting method
is to determine forecasting accuracy that depended on
forecasting error or the
he difference between forecast vales
and actual values.. The well known methods are mean
absolute deviation (MAD), mean absolute
a
percent deviation
(MAPD), mean absolute percent error (MAPE), cumulative
error,, average error or bias, etc.
Accurate forecasts of future demand can help in
effective operations improvement in retail supply chain
because retail saless always present seasonal variation. Chu
and Zhang (2003) presented a comparative study among
linear and non-linear models in aggregate retail sales
forecasting. In conclusion of this work, non-linear
non
model
was recommended to be used for retail forecasting
especially neural network based models.
In this study, forecasting models are developed based
on simple techniques (explain in section 3) due to not much
number of historical data and simple pattern of sales. Thus,
forecasting model based on simple techniques are practical
in real working situation and easy to be handle by the shop
owner.

Forecasting is a technique for predicting

redicting the future that
always wrong. In supply chain management, forecasting is
still needed because having partial
artial knowledge from
forecasting is better than having no knowledge. Thus, the
better management is able to estimate the future, the better
it should be able to prepare for it.
Forecasting techniques can be classified as two main
groups. The first group is qualitative
ualitative methods using
management judgment, expertise, and opinion to predict
future demand. The second group is quantitative
uantitative methods
based on mathematical formulas, i.e. time
ime series methods,
regression methods, and so on, attempting to develop a
mathematical relationship between demand and factors that
cause its behavior.
Time series methods are statistical
tatistical techniques
technique that use
historical demand
and data to predict future demand.
demand The well
known techniques, i.e. simple moving average (MA),
weighted moving average,, exponential smoothing and
adjusted exponential smoothing, are examples of this group.
The advantage of time series methods is that this technique
is simple to be implemented due to uncomplicated
calculation. In contrast, the forecasting value from this
method will not present variations due to season, cycle and
trend. Thus, this method will be practical with a short-time
forecasting that contains less variation.
Regression model is used to develop a mathematical
relationship between demand and factors that cause its
behavior. When demand displays obvious trend overtime,
linear trend line that relates demand to time can be used for

3. METHODOLOGY
The research methodology is addressed as follows.

3.1 Data Collection

Data
ata of fertilizer types,
types their ordering lead times and
historical saless of the year 2009 to 2011,
2011 were collected.

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Kasemset and Chatchayangkul

to be transformed to quarterly value by multiplying with

seasonal index.
After optimal forecasting model for products in class
A are obtained, these models are used to develop the
decision support tool for the fertilizer store as the further
work.

These data were used in ABC classification and forecasting

model development in following steps.

3.2 ABC Classification

In this step, fertilizer types and their lead times were
used in modified ABC classification while considering
product values, sales volume and ordering lead time.
Based on ABC classification concept, A is the group of
high significant product, B is the group of medium
significant product and C is the group of low significant
product. After the product classification, product group A is
selected to find the optimal forecasting model.

4. CASE STUDY AND RESULTS

4.1 Case Study
Data collections of fertilizer types and monthly sales
during 2009-2011 are analyzed. There are 18 fertilizer
types presented in Figure 2.

3.3 Forecasting Model Development

In this step, the collected data, historical sales, of
product group A are used to design forecasting models for
each product. In this study, three basic techniques are used
to calculate F(t) as forecasting value for time t;
1) Linear Trend Line (modified from detail in Figure 1)
F(t)

a + bt

(1)

2) Exponential Smoothing based on equation (2)

F(t)

Dt-1 + (1-)Ft-1

(2)
Figure 2: 18 Fertilizers Demand

when is a smoothing constant, Dt-1 is real sales for period

t-1 and Ft-1 is sales forecasting value for period t-1.
3) Adjusted Exponential Smoothing
From forecasting value based on exponential
smoothing method, trend adjustment is added following
equation (3) to (4);
AF(t)

Ft + Tt

Ordering lead time is one factor applied in product

classification. In this case, there are two supply sources that
are manufacturer and wholesaler. Products delivered by
manufacturer take seven days while products from
wholesaler take only two days for transportation.

(3)

4.2 Product Classification

where T is exponentially smoothed trend factor that can be

calculated as equation (4);
T(t)

(Ft - Ft-1)+ (1- )Tt-1

Appling the concept of ABC classification, Pareto

chart of sales values for all fertilizers can be presented as
Figure 3. There are two fertilizer types, 16-20-0 (Kra-tai)
and 46-0-0 (Chor-fah), that can be considered as group A
due to their high sales volumes.
Then, lead time is considered as additional criterion
for product classification. The detail is shown in Table 1.
Table 1 shows that when lead time is considered the
same types of fertilizers are still classified as group A
because of their longest lead time, seven days, that the store
have to wait for the transportation from fertilizer
manufacturers to the shop.

(4)

when is a smoothing trend factor that is 0 < < 1.

To obtain optimal forecasting models, mean absolute
percent error (MAPE) of each model are compared (as
equation 5). The smallest value of MAPE identifies the
optimal forecasting model for each product in group A.
(5)
The optimal forecasting model will give yearly sales
forecasting values. In practical, this yearly sales value has

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while monthly sales show seasonal effects that cause the

difference among sales of each month. From monthly data,
there are four periods classified following the effect of
seasonal as; 1th-3rd month (January-March), 4th-6th (AprilMay), 7th-9th (July-September) and 10th-12th (OctoberDecember).

Figure 3: Pareto Chart of Fertilizers

From this step, there are two types, 16-20-0 (Kra-tai)
and 46-0-0 (Chor-fah), of fertilizer that can be considered
as group A. The following step is to find the practical
forecasting models for both of them.
Table 1: Fertilizer Classification
Fertilizer Type

% Sale

16-20-0 (Rabbit)
46-0-0 (Chor Fah)
15-15-15 (A)
13-13-22
8-24-24 (B)
16-20-0
25-7-7
15-15-15 (B)
8-24-24 (A)
25-0-0
0-0-60
15-0-0
46-0-0 (B)
14-14-22
27-6-6
21-0-0
16-16-8
46-0-0 (A)

31.17
30.69
8.10
5.72
3.91
3.34
3.25
3.14
2.22
2.06
1.75
1.14
0.94
0.82
0.81
0.47
0.27
0.20

Cumulative
% Sale
31.17
61.86
69.96
75.68
79.59
82.93
86.18
89.32
91.54
93.6
95.35
96.49
97.43
98.25
99.06
99.53
99.8
100

Lead Time
(Day)
7
7
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2

Supplier

Class

Manufacturer
Manufacturer
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler
Wholesaler

A
A
B
B
B
B
B
B
C
C
C
C
C
C
C
C
C
C

Figure 4a: Monthly Sales of 16-20-0 (Kra-tai)

Figure 4b: Yearly Sales of 16-20-0 (Kra-tai)

The finding of optimal forecasting model can be
presented as in Table 2. When considering % MAPE, linear
trend model is the best model among other methods with
1.11% MAPE as the minimum value.
The linear trend line forecasting model of 16-20-0
(Kra-tai) can be represented as equation (6).

4.3 Proposed Forecasting Model

For each type of fertilizer in group A, three basic
techniques are evaluated using sales historical data from the
year 2009 to 2011;
1) Linear Trend Line
2) Exponential Smoothing
3) Adjusted Exponential Smoothing
To obtain optimal forecasting models, mean absolute
percent error (MAPE) is used to identify the optimal
forecasting model for each product in group A.

F(t)

1806 + 631t

(6)

when F(t) is a forecasting value for year t.

Then, this equation is used to calculate the forecasting
value for year 2012 as 4,330 bags. In practical, the store
interest in quarterly sales forecast so the yearly sales
forecast is multiplied by each period seasonal index to
derive quarterly forecasting value as shown in Table 3.

4.3.1 Forecasting Model for 16-20-0 (Kra-tai)

Sales data for 16-20-0 (Kra-tai) during 2009 to 2011
are presented in Figure 4a and 4b.
From Figure 4a and 4b, sales data show that the yearly
sales of 16-20-0 (Kra-tai) trend to increase continuously

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Kasemset and Chatchayangkul

Table 2: Forecasting Model Fitting for 16-20-0 (Kra-tai)

Table 3: Forecasting Model Fitting for 16-20-0 (Kra-tai)

From Figure 5a and 5b, sales data show that the yearly
sales of 46-0-0 (Chor-fah) seem stable while monthly sales
show some variation among different periods.
The finding of optimal forecasting model can be
presented as in Table 4. When considering % MAPE,
exponential smoothing with = 0.7 is the best model with
minimum value of MAPE.
The forecasting model of 46-0-0 (Chor-fah) can be
represented as equation (7).

4.3.2 Forecasting Model for 46-0-0 (Chor-fah)

Sales data for 16-20-0 (Kra-tai) during 2009 to 2011
are presented in Figure 5a and 5b.

F(t)

0.7 Dt-1 + 0.3Ft-1

(7)

when F(t) is a forecasting value for year t, Dt-1 is real sales

for period t-1 and Ft-1 is sales forecasting value for period t1.
Then, this equation is used to calculate the forecasting
value for year 2012 as 3,265 bags. In practical, the store
uses quarterly sales forecast so the yearly sales forecast is
multiplied by seasonal index of each quarter to derive
quarterly forecasting values as shown in Table 5.

Figure 5a: Monthly Sales of 46-0-0 (Chor-fah)

5. CONCLUSION AND DISCUSSION

In this study, the forecasting models of chemical
fertilizer store are proposed. The starting step is to classify
group of fertilizer products based on ABC classification
considering sales value and ordering lead time. There are
two fertilizer types classified in group A that are 16-20-0
(Kra-tai) and 46-0-0 (Chor-fah). Both products are totally
62% of total sales and ordering lead times are the longest as
7 days. Then, the sales of group A is used to derive the
practical forecasting model.

Figure 5b: Yearly Sales of 46-0-0 (Chor-fah)

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Kasemset and Chatchayangkul

Table 4: Forecasting Model Fitting for 46-0-0 (Chor-fah)

Table 5: Forecasting Model Fitting for 46-0-0 (Chor-fah)

In conclusion, 16-20-0 (Kra-tai) sales is fitted with

forecasting model based on linear trend line adjusted by
seasonal index and 46-0-0 (Chor-fah) sales is fitted with
exponential smoothing based model.
The sales pattern of 16-20-0 (Kra-tai) is fitted with
linear trend line because the sales contain the effect of
increasing trend. When the data have trend pattern, linear
trend line is good for predicting future values.
For 46-0-0 (Chor-fah) sales, exponential smoothing is
fitted for forecasting future sales when the historical data
have no-trend pattern.

6. RECOMMENDATION
STUDY

AND

ACKNOWLEDGMENT
The author would like to thank the Department of
Industrial Engineering, Faculty of Engineering, Chiang Mai
University, Chiang Mai, Thailand, for the financial support.

REFERENCES
Chu, C.W. and Zhang, G.P. (2003) A comparative
study of linear and nonlinear models for aggregate retail
sales forecasting, Int. J. Production Economics, 86, 217231.
Hadi-Vencheh, A. (2010) An improvement to multiple
criteria ABC inventory classification, European Journal of
Operational Research, 201, 962-965.
Bonjakovic, M. (2010) Multi-criteria Inventory
Model for Spare Parts, Tehnicki Vjesnik, 17(4), 499-504.
Lei, Q., Chen, J. and Zhou, Q. (2005) Multiple
Criteria Inventory Classification Based on Principal
Components Analysis and Neural Network, School of
Economics and Management, Tsinghua University, Beijing,
China.
Russell & Taylor (2011) Operations Management 7th
Edition, John Wiley & Sons Limited.
Tersine, R. T. (1994) Principles of Inventory and
Materials Management, Prentice-Hall, Englewood Cliff, NJ.

FURTHER

From this study, the forecasting models of chemical

fertilizer store are developed for fertilizer types classified in
group A that are 16-20-0 (Kra-tai) and 46-0-0 (Chor-fah).
The developed models from this study are used again in
decision supporting tool development for this store to help
in real working situation.
The used models are not long-lasting correct. The
model validation is needed. One measurement used in
measure model validation called Tracking Signal (TS)
used to identify how model correctly perform under current
situation. If the tracking signal is out of control, the model
need to be adjusted to maintain the ability if forecasting.
Normally, TS control chart is set as 2-5 MADs (Mean
Absolute Deviation). The detail of TS can also be found in
Russell & Taylor (2011), as well.

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AUTHOR BIOGRAPHIES
Chompoonoot Kasemset is a lecturer in Department of
Industrial Engineering, Faculty of Engineering, Chiang Mai
University, Chiang Mai, Thailand. Her research interests
include operation management, applied operations research
and simulation in production and operation management.
Her area of specialization is Theory of Constraint (TOC).
Her email address is <chompook@gmail.com>
Watcharapat Chatchayangkul is a Master student of
Industrial Management, Faculty of Engineering, Chiang
Mai University, Chiang Mai, Thailand. He received a
B.Eng from Electrical Engineering, King Mongkuts
Institute of Technology Lardkrabang, Thailand in 1998. His
email address is <patohappyness@gmail.com>

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