Production Planning Inventory Control

Forecasting

Teknologi Industri Pertanian

Our Discussion Today
Fundamental Concepts of Forecasting
Classification of Forecast
Some Methods in Forecasting
Does it a Right Methods ?
Hot issue related with Forecasting
Error on Forecasting, whats the effect ?
Case Study and software application
Software Application : Ms Excel, G Bass, Minitab, and others
spreadsheet solution
Just Answer This Question
WHERE YOU ARE ?
I. I dont know what is forecast
II. Why I must learn Forecast ? Atau bagi
anda yang sudah menjadi praktisi dan
kebetulan bekerja di PPC, kenapa saya IV
tidak pernah meramal ?
III. Atau kalau anda lebih kritis lagi, semua III
orang tahu yang namanya meramal itu
kadang tidak tepat, kenapa kemudian
masih harus dipelajari ? II
IV. More extreme if you have question, Are
we dont have any better option that
more accurate than a forecast ? I
Introduction to Forecasting
Y

Forecasting

n n+1 n+2 Function

of Time
Forecasting is an approach to
estimate or deal with something that A frustrating
contains uncertainty and related with endeavor
time in the future ?!#$?/!?#
Why We Need to Forecast
All organizations operate in an atmosphere of uncertainty and
become more complex
All decisions must be made for uncertainty future based on
imperfect knowledge
Educated guesses are more valuable than uneducated guesses
Better understanding quantitative forecasting techniques as
valuable supplement
The Traditional Model of Forecasting
MTO vs MTS
MTO MTS

VARIASI JENIS PRODUK

JENIS MESIN

LAYOUT MESIN

KETRAMPILAN KARYAWAN

KOMPLEKSITAS ALIRAN MATERIAL

KESULITAN PERKIRAAN DEMAND

KERUMITAN SISTEM PPC

MASING-MASING JENIS SISTEM PRODUKSI MEMPUNYAI

KOMPLEKSITAS YANG BEDA-BEDA, SEHINGGA
SISTEM PPC YANG COCOK JUGA BEDA
How Critical Forecast for MTS Company
Forecast in MTO
Forecast tidak banyak dikenal dan dipergunakan di
perusahaan Make To Order
Overproduction di perusahaan dengan karakteristik MTO
justru adalah kerugian
Forecast bukan merupakan isu utama di MTO, justru isu
utama adalah nervousness system, responsiveness, dan
material management (Pujawan, 2000).
Characteristics & Assumptions of Forecast

Characteristics of Assumptions of
Forecasts Forecasting Models
Forecasts are usually Information (data) about
wrong or seldom correct the past is available
Aggregate forecasts are The pattern of the past
usually more accurate will continue into the
Less accurate further future (Time Series
into the future Models).
Klasifikasi Model
Forecasting
Models

Qualitative Quantitative

Sales force Consumer Jury of Delphi Causal

Time series
composite survey executive method

Moving Exponential
ARIMA Neural Regression Econometrics
average smoothing Decomposition
networks
Qualitative Method
Emphasize judgement, expert opinion, surveys, etc.
Focus: medium to long range timing
Applications: New product Development, new technology.
Example Generalized Bass Model

Kelebihan Qualitative Methods : Kelemahan Qualitative Methods :

Mampu melakukan prediksi
walaupun tidak ada
dukungan data historis
Umumnya cukup valid
karena melibatkan para
expert yang kompeten
dengan permasalahan yang
terjadi, sehingga model dan
metode yang dipergunakan
cukup akurat
Cost nya sangat tinggi
karena melibatkan expert
terkait dengan labour time
Memakan waktu yang
cenderung lama apalagi
Building Models & Methods
memerlukan validasi guna
hasil yang relevan
Quantitative Method
Forecasting
Models

Qualitative Quantitative

Sales force Consumer Jury of Delphi Causal

Time series
composite survey executive method

Moving Exponential
ARIMA Neural Regression Econometrics
average smoothing Decomposition
networks
Quantitative Method

Causal Methods
Price
Population Causal Year 2001
Advertising Model Sales

Time Series Methods

Sales1999
Sales1998 Time Series Year 2000
Sales1997 Model Sales

Causal Forecasting Model
Causal Model adalah suatu model forecasting yang
memandang sesuatu yang akan kita ramalkan dipengaruhi
oleh faktor faktor yang harus didefinisikan terlebih dahulu.
Sesuatu yang akan kita ramalkan disebut sebagai Dependent
Variable sedangkan faktor faktor yang mempengaruhi
disebut sebagai Independent Variable
Model ini lebih sering pula disebut sebagai Multiple
Regression, dimana 1 D.V, didefinisikan oleh n I.V dimana n >
1. Tapi ada beberapa special case untuk causal model, antara
lain :
Simple Regression 1 DV didefinisikan 1 IV + error
masuk ke Time Series Non Seasonal Pattern
Econometric Models Multiple Regression yang dibangun
dan dimodelkan khusus untuk perhitungan indikator ekonomi
Software Application
Multiple Regression
Two or more independent Multiple Regression
variables are used to
Using SPSS
predict the dependent
variable: Analyze Regression
Linear
Y = b0 + b1X1 + b2X2 + ,,,+
b pX p + e
Use Excels Tools | Data
Analysis | Regression
Different on Inputs
Example (Causal Forecasting Models)
Special Advert. Number Sacramento adalah sebuah FO
Periods offer budgets Advert. Sales
terkenal di negara X. Tabel
January 0 47900 20 299900
disamping adalah data Sales
February 2 45600 23 176600
bulan January 2003 November
March 2 10670 7 174600
2003 mereka untuk 99 oulets.
April 1 9900 4 250500
Mereka memperkirakan bahwa
May 2 36200 12 138600
nilai sales sangat dipengaruhi
June 0 4300 2 148100 oleh 3 faktor, yaitu penawaran
July 1 7700 4 207600 khusus (diskon), budget iklan,
August 2 12300 6 149700 dan jumlah iklan di sebuah TV
September 1 5700 3 215900 relasi bisnis mereka.
October 2 19100 8 208700
November 0 17300 11 142500

Hitung sales bulan Desember, bila pihak marketing memutuskan akan terjadi 3
hari diskon, 16x iklan, dan Budget iklan U$D 15424 (Using Excell Spreadsheet for
Solution) selama Desember 2003
Analisa Kelayakan Model Regresi yang dipergunakan (SPSS)
Klasifikasi Model
Forecasting
Models

Qualitative Quantitative

Sales force Consumer Jury of Delphi Causal

Time series
composite survey executive method

Moving Exponential
ARIMA Neural Regression Econometrics
average smoothing Decomposition
networks
Time Series Model Building
Base Assumption : What happen in the past will continued and
occurs in the future with special pattern followed. Phase of Time
Series
Historical data collection & Evaluation Time Series
characteristics ! Data plotting (time series plot)
Forecasting model building
Evaluation and selection of model
Forecasting with the final selected model
Types of Time Series Model

Nonseasonal Model Software Involved

Trend
Nave
Moving average
Exponential Smoothing

Seasonal Model
Time Series Decomposition
ARIMA Not Discuss on This
Training
Artificial Neural Network (ANN)
Components of Time Series
Trend: long term overall up or
down movement
Seasonality: periodic pattern
repeating every year
Cycles: up & down movement
repeating over long time frame
Random Variations: random
movements follow no pattern
Note : Cyclical (fluctuations > a
year) are difficult to identify,
hence are often regarded as
part of the trend. Therefore our
trend component is actually a
trend-cycle component
Trend Model Capture Trend
Only
Moving Average Model Capture
Trend & Seasonal
Exponential Smoothing Model
Trend and sometimes Seasonal
(Holt and Winter Model)
Decomposition Almost all,
except Cycle (Can decompose but
the value for recompose need
judgement from the user)
Components of Time Series

Trend Cycle

Random
movement
Time Time

Seasonal Trend with

pattern seasonal pattern

Demand

Time Time
Trend Model
Trend Model sangat tepat dipergunakan apabila karakteristik data
cenderung jelas bersifat trend.
Prinsip Trend adalah mencoba melakukan Curve Fitting berdasarkan suatu
model persamaan tertentu untuk mendapatkan persamaan garis yang
merefleksikan kondisi data aktual dengan menjadikan nilai t (waktu)
sebagai variabel independen
Beberapa model persamaan garis yang dipergunakan :
Linear Simple Linear Regression sebagai fungsi t y = ax + b + e
Kuadratik Yt = a + bt + ct2
Power Yt = atb
7Model persamaan garis lainnya
3000 S Curve, Eksponential, dll
6 2500
5 Power
2000
4
1500
3
2 1000
1 500 Quadratic
0 0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Application of Trend Using Software
Using Minitab SPPS 10.0 for Windows
Minitab pada perhitungan Trend
mempergunakan 4 persamaan SPSS menggunakan 11 Persamaan
garis garis, yaitu
Linear
Linear - Logaritma
Kuadratik
Eksponential Inverse - Kuadratik
S Curve Kubik - Power
Klik Analyze Time Series
Trend Analysis Compound - S Curve
Logistics - Growth
Eksponential
Klik Analyze Regression Curve
Estimation
Example (Trend Model)
Periods Sales PT Makmur Jaya mempunyai data sales selama 2003
sebagaimana data disamping. Anda sebagai Planner
January 185 perusahaan ditugaskan untuk membuat estimasi sales Januari
Februari 2004. Berdasarkan hasil plotting, anda melihat
February 174 kecenderungan data yang menaik tanpa adanya efek
March 200 seasonal, sehingga anda memutuskan akan menggunakan
trend projection, dengan 4 pers. Garis, linear, kuadratik,
April 210
power, dan kubik. Setelah diperhitungkan, mana yang akan
May 205 anda pilih sebagai rumusan anda ???
June 245 Sales

July 234 300

250 250 264
245 234 245 235 242
August 250 200 185 200 210 205
Sales

174
150

September 264 100

50

October
0
245
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Ju

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November 235
M
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A
Ja

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Fe

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D
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S
Moths
December 242
Example (Trend Model)
Power Kubik Kuadratik Linear History
Error Powe Fit Powe Error Cubic Fit Cubic Error Kuadrat Fit Kuadrat Error Linear Fit Linear Sales Periods

184,00 1,00 93,85 91,15 121,56 63,44 156,66 28,34 185 January

178,26 6,74 27,36 157,64 66,52 118,48 128,32 56,68 174 February

164,40 20,60 18,07 203,07 19,88 165,12 99,98 85,02 200 March

139,51 45,49 46,01 231,01 18,37 203,37 71,64 113,36 210 April

100,90 84,10 60,06 245,06 48,22 233,22 43,30 141,70 205 May

46,05 138,95 63,80 248,80 69,68 254,68 14,96 170,04 245 June

27,43 212,43 60,83 245,83 82,74 267,74 13,38 198,38 234 July

121,83 306,83 54,72 239,72 87,40 272,40 41,72 226,72 250 August

239,39 424,39 49,08 234,08 83,66 268,66 70,06 255,06 264 SEPT.

382,25 567,25 47,48 232,48 71,53 256,53 98,40 283,40 245 October

552,49 737,49 53,52 238,52 51,00 236,00 126,74 311,74 235 NOV

752,17 937,17 70,78 255,78 22,08 207,08 155,08 340,08 242 DECEM

240,72 53,80 61,89 85,02 MAD

101204,41 3242,43 4733,66 9571,56 MSD
Naive Model
The simplest time series forecasting model
Idea: what happened last time (last year, last month,
yesterday) will happen again this time
Nave Model:
Algebraic: Ft = Yt-1
Yt-1 : actual value in period t-1
Ft : forecast for period t
Spreadsheet: B3: = A2; Copy down
Moving Average Model
Simple n - Period Moving Average

A t-1 + A t-2 + A t-3 +...+A t-n

Ft =
n
Issues of MA Model
Nave model is a special case of MA with n = 1
Idea is to reduce random variation or smooth data
All previous n observation are treated equally (equal weights)
MA that following by Centered Moving Averages can capture Cycle +
Trend
Simple Moving Average Problem

Week Demand A t-1 + A t-2 + A t-3 +...+A t- n

1 650 Ft =
2 678 n
3 720
4 785 Question: What are the 4th-
5 859 week, 5th-week, 6-week,
6 920 7th-week moving average
7 850
forecasts for demand?
8 758
9 892 Assume you only have 4th,
10 920 5th, 6th, and 7 weeks of
11 789 actual demand data for the
12 844 respective forecasts
Simple Moving Average Problem
Calculating the moving averages gives us:
Week Demand 3-Week
1 650 F4=(650+678+720)/3
2 678
=682.67
3 720
4 785 682,67
5 859 727,67
6 920 788,00
7 850 854,67
8 758 876,33
9 892 842,67
10 920 833,33
11 789 856,67
12 844 867,00
Simple Moving Average Problem
Longer-period moving averages (larger n) react to actual
changes more slowly

1000
900
Dem and

Demand
800
3-Week
700
6-Week
600
500
1 2 3 4 5 6 7 8 9 10 11 12
Week
Moving Average Model

Weighted n - Period Moving Average

Ft = w 1 A t-1 + w 2 A t- 2 + w 3 A t-3 + ...+ w n A t- n

n

w
i=1
i =1

1. Typically weights are decreasing : w1>w2>>wn

2. Sum of the weights = wi = 1
3. Flexible weights reflect relative importance of each previous observation in
forecasting
4. Optimal weights can be found via Solver
Weighted MA: an Illustration Model

Month Weight Data

August 17% 130
September 33% 110
October 50% 90
November forecast:
FNov = (0.50)(90)+(0.33)(110)+(0.17)(130)
= 103.4
Simple Exponential Smoothing Problem
A special type of weighted moving average
Include all past observations
Use a unique set of weights that weight recent observations much
more heavily than very old observations
weight 0 1
Decreasing weights given
to older observations
(1 )
(1 ) 2
(1 ) 3

Today
Simple ES: The Model
Ft Yt 1 (1 )Yt 2 (1 ) 2 Yt 3
Ft Yt 1 (1 )Yt 2 (1 a)Yt 3

Ft Yt 1 (1 ) Ft 1
New forecast = weighted sum of last period
actual value and last period forecast
: Smoothing constant
Ft : Forecast for period t
Ft-1 : Last period forecast
Yt-1 : Last period actual value
Simple Exponential Smoothing
Properties of Simple Exponential Smoothing
Widely used and successful model
Requires very little data
Larger , more responsive forecast; Smaller ,
smoother forecast
Best can be found by Solver
Suitable for relatively stable time series
Exponential Smoothing Problem
Week Demand
1 820 Question: Given the
2 775
weekly demand data,
3 680
4 655
what are the exponential
5 750 smoothing forecasts for
6 802 periods 2-10 using =0.10
7 798 and =0.60?
8 689 Assume F1=D1
9 775
10
Exponential Smoothing Problem
Answer: The respective alphas columns denote the forecast values. Note
that you can only forecast one time period into the future.
Week Demand 0.1 0.6
1 820 820.00 820.00
2 775 820.00 820.00
3 680 815.50 820.00
4 655 801.95 817.30
5 750 787.26 808.09
6 802 783.53 795.59
7 798 785.38 788.35
8 689 786.64 786.57
9 775 776.88 786.61
10 776.69 780.77
Exponential Smoothing Problem
Note how that the smaller alpha the smoother the
line in this example.

900
800 Demand
Demand

700 0,1
600 0,6
500
1 2 3 4 5 6 7 8 9 10
Week
Evaluation Non Seasonal Model
Nave cenderung harus dihindari
MA akan cenderung bisa dipergunakan untuk estimate sales
harian, dimana efek trend ataupun seasonal tidak terlalu nampak
Sales / Produksi Harian
E.S memiliki hasil yang responsive atau smoothing terhadap actual
data. Tapi masalahnya adalah :
Hanya tepat untuk one periods ahead
Asumsi bahwa data mengikuti kecenderungan eksponensial,
sehingga seharusnya nilai foracast adalah nilai tertinggi dari
nilai nialai aktual sebelumnya
Holt dan Winter memiliki output yang baik, tapi kurang aplikatif
karena kesulitan dalam mengkonversikan nilai aktual dari alpha,
beta, dan gamma dalam kondisi aktual
Trend hanya tepat dipergunakan apabila tidak terlihat adanya
seasonal dan data aktual jelas terlihat pola nail turunnya
Klasifikasi Model
Forecasting
Models

Qualitative Quantitative

Sales force Consumer Jury of Delphi Causal

Time series
composite survey executive method

Moving Exponential
ARIMA Neural Regression Econometrics
average smoothing Decomposition
networks
Decomposition Model
Mampu menguraikan pola trend, seasonal, Random, dan cycle
secara terpisah
Rumusan dasar :
X t = f (It, Tt, Ct, Et)
Dimana :
Xt : Actual data pada periode ke t
It : Komponen Seasonal pada periode ke t
Et : Komponen error dan random pada periode ke t
Ct : Komponen Cycle pada periode ke t
Tt : Komponen trend pada periode ke t
(See case study 3 Chapter 1)
Prosedur Perhitungan Decomposition Model

F(t) : (T(t) * C(t) * S(t)) + e

Phase 3. Hitung
dengan menggunakan
curve fitting persamaan
Phase 1 : Gunakan MA yang garis yang paling Phase 4 : Hasil
disempurnakan oleh CMA untuk mendekati kondisi Phase 1 bagi
mengisolasi efek T(t) dan C(t). aktual Trend dengan hasil
Bagi hasil antara data aktual phase 3
dengan nilai CMA. Hasilnya Cycle
adalah S(t) + error

Phase 5. Forecast separately

Phase 2 : Removing error by using Seasonal, Trend, and Cycle. And
UCL & LCL Limit for data with same determine the factors that must
periods seasonal only considers to anticipate random
effect
Fase I. Estimate Seasonal Component

Step 1: Calculate 1-Year Moving Averages

For quarterly data, use 4-period MA
For monthly data, use 12-period MA
Step 2: Calculate Centered Moving Averages
Simple average of two adjacent MAs
Step 3: Calculate Seasonal Ratio (SR)
SR = Y / CMA
Fase II. Removing Random Effect
Kelompokkan data sesuai dengan Tahun Bulan Maret UCL LCL On Control ?
periodenya. 1 0,97 0,48 1,86 0,97
Hitung nilai sigma (S.D) dan rataannya.
Lalu tetapkan nilai UCL dan LCL dan 2 1,98 0,48 1,86 1,168
plotkan. Perhatikan data pada tahun 3 0,87 0,48 1,86 0,87
keberapakah yang outlier
4 0,92 0,48 1,86 0,92
Pada contoh disamping tampak bahwa
data tahun kedua outlier, sehingga dia 5 1,1 0,48 1,86 1,1
harus dibuang. SD 0,46
Untuk menghindari adanya missing Rate 1,168
value, maka nilai harus direplace dengan
cara : outlier 1,5 Sigma
Gunakan nilai modus
Atau gunakan nilai rata rata
Atau jumlahkan nilai sebelum dan
sesudah data (pada tahun yang
sama) lalu bagi dua Find the reason
Output fase ini adalah seasonal only for uncontrolling
We use rate as
Hitung Seasonal Index (SI) periods. Note this
Replacement of
for calculate
forecat in the Missing Value
future
Fase II. Removing Random Effect
Year Quarter 1 Quarter 2 Quarter 3 Quarter 4
1 - - SR3,1 SR4,1
2 SR1,2 SR2,2 SR3,2 SR4,2
3 SR1,3 SR2,3 SR3,3 SR4,3
4 SR1,4 SR2,4 SR3,4 SR4,4
5 SR1,5 SR2,5 - -
Average ASR1 ASR2 ASR3 ASR4
S.I. SI1 = ASR1/GA SI2 = ASR2/GA SI3 = ASR3/GA SI4 = ASR4/GA

ASR = Average Seasonal Ratio

GA = Grand Average = average of all ASRs

The average of Seasonal Indices (SI) must be 1

Fase III. Curve Fitting
Step 1: Remove seasonal effect
Deseasonalized data t = Yt / SIt
Step 2: Fit a trend line to deseasonalized data
U must use the lowest error. Use MSD as criteria
If U have a lot of time, used all line equation on Curve
estimation SPSS, and ifnt at least just used the linear
and kuadratik equation on Excell
Step 3: Calculate the trend value for each period
Note: If the deseasonalized data look stable (no apparent
trend), simple exponential smoothing may be used in Steps 2
and 3 to calculate the forecast (rather than trend) for each
period.
Fase IV. Collecting Cycle
Hasil dari phase I SR adalah Trend + Cycle
Dari fase III, anda mendapatkan nilai Trend
Cycle bisa dicari dengan cara SR / Trend
Wujud cycle sama dengan Seasonal yaitu berupa angka
decimal pecahan perseratus. Hanya perbedaannya, kalau
pada trend dan seasonal nilai periode berikutnya bisa dengan
jelas diperhitungkan, maka pada cycle tidak. Cycle lebih
bersifat judgement
Fase V. Forecast Separately&Re-Compose

Misal kita punya data sales bulanan selama 5 tahun. Kemudian dengan
Decomposition Methods, kita ingin mencari berapa sales bulan Januari tahun
ke enam. Setelah serangkaian proses kita memperoleh data data sbb :

Trend Equation 545X^2 2000X + 3542 Cycle Estimate =

545(61)^2 2000(61) + 35442 = 1909487
1.14

SI January = 0.87

From random record its known that

January 6th years will occurs significant
Sales January = improving sales because retailer
1909487 * 0.87 * 1.14 speculation on price. Its estimate
* 1.45 = 2746025.35 145%
Using Software
U can use Minitab Release 13.0 Analyze Time Series Decomposition
There is 2 model that U can use on Minitab
Multiplicative Yt = St * Tt * Ct + e
Additive Yt = St + Tt + Ct + e
Important parameter :
Seasonal Length U must sure with the value U use for this Ex. : U have monthly data
during six years, so I can use 12 as seasonal length and thats mean I define 1 seasonal
= 1 years and on my data there 6 seasonal periods
Use seasonal and trend always. Never use seasonal only if U use Multiplicative or
additive model
Special Case Fitting Trend Decomposition using Mintab
First Compute the data by using trend analysis Choose the minimum MSD and
dont forget to collect the residual data, fit, and forecast result for next periods
Input the residual on decomposition additive, why ? But this time note that U just want
to know seasonal only
Compute the next result forecast. Compose again the result and calculate the MSD. Just
compare if U us the model above. This Model called Fitting trend Decomposition,
Above called Classical D, and the methods that I try to explain before called Cencus II
(X 11)
Case Study (Decomposition)
Estimasikan dengan Months I II III IV V
menggunakan January 154 200 213 167 248
decomposition models February 174 187 298 296 308
berapakah sales yang terjadi March 189 345 152 217 292
pada Bulan January tahun April 197 200 300 190 158
keenam ! 254 214 400 214 186
May
Gunakan Minitab dan nanti June 214 254 315 197 207
akan kita bandingkan
July 264 199 354 209 211
hasilnya dengan hasil
August 234 241 324 300 227
perhitungan manual X 11 !
September 357 264 314 225 311

October 234 300 364 226 254

November 275 315 354 247 266

December 240 311 314 300 280

Klasifikasi Model
Forecasting
Models

Qualitative Quantitative

Sales force Consumer Jury of Delphi Causal

Time series
composite survey executive method

Moving Exponential
ARIMA Neural Regression Econometrics
average smoothing Decomposition
networks
Artificial Neural Network
Proses pencarian keterkaitan antar faktor pembangun keputusan
yang disempurnakan dengan memandang hubungan antar waktu
Faktor yang terlibat adalah kuantitatif dan kualitatif
Contoh aplikasinya Software Alyuda Forecaster
Choosing a Forecasting Method
Objective data available? Delphi Methods
No
Yes

New product situation? New product methods (ch. 7)

Yes
No

Large changes in environment? Extrapolation/Time Series methods

No
Yes
No
Good information on relationships? Neural nets
No
Yes
No
Much data on causal variables? Causal method
No
Yes
No
Major data problems?
Segmentation/Classification
Yes methods (ch. 3)
Evaluation of Forecasting Model
BIAS - The arithmetic mean of the errors

BIAS
(Actual - Forecast) Error

n n

n is the number of forecast errors

Excel: =AVERAGE(error range)
Mean Absolute Deviation - MAD

MAD
| Actual - Forecast | | Error |

n n
No direct Excel function to calculate MAD
Evaluation of Forecasting Model
Mean Square Error MSE / MSD

MSE
(Actual - Forecast) 2

(Error) 2

n n
Excel: =SUMSQ(error range)/COUNT(error range)
Mean Absolute Percentage Error - MAPE

| Actual - Forecast |
Actual
*100%
MAPE
n
R2 - only for curve fitting model such as regression
In general, the lower the error measure (BIAS, MAD, MSE) or the higher the R2,
the better the forecasting model
MAD Problem
Question: What is the MAD value given the
forecast values in the table below?

Month Sales Forecast

1 220 n/a
2 250 255
3 210 205
4 300 320
5 325 315
MAD Problem Situation

Month Sales Forecast Abs Error

1 220 n/a
2 250 255 5
3 210 205 5
4 300 320 20
5 325 315 10

40

n
Note that by itself, the MAD
A
t=1
t - Ft
40 only lets us know the mean
MAD = = = 10 error in a set of forecasts.
n 4
Confidence Interval for Forecast
If normal, the error can provide a
confidence interval for the forecast.
The % confidence interval for the forecast -
Using the standard deviation of the forecast:

Y Forecast Z (%) SF
t t
( A F ) 2

SF t
n 1
Confidence Interval for Forecast
If normal, the error can provide a
confidence interval for the forecast.
The % confidence interval for the forecast -
Using the standard deviation of the forecast:

Y Forecast Z (%) SF
t t
( A F ) 2

SF t
n 1
Example of Forecast Confidence Interval

Using exponential smoothing in the previous

example, what is a 95% confidence interval for the
forecast for month 9?
alpha= 0.6
beta= 0.4
Start in month three to more
Excel exp Text exp.
What is the interval
accurately reflect the
exponential smoothing.
Month Demand smooth Smooth (A-F)^2 within which we are
1 12 #N/A #N/A
2 17 12.00 12.00 95% confident that the
3 20 14.00 15.00 25
4 19 16.40 18.00 1 demand will be??
5 24 17.44 18.60 29.16
6
7
26
31
20.06
22.44
21.84
24.34
17.31
44.41
30.53+-1.96*5.11
8 32 25.86 28.33 13.44
9 36 28.32 30.53
sum= 130.31
n= 6.00
n-1= 5.00
Sf= 5.11
Why I Suggest to U to Using MSD
Penggunaan MSD Sebagai
parameter penentuan model
trend terbaik dikarenakan
alasan minimasi variansi.
Artinya kita tidak menghendaki
model equations yang tiba tiba
errornya drop terlalu tinggi.
Mungkin untuk jelasnya berikut
dapat dilihat pada tabulasi ini Terdapat dua buah metode forecasting, katakanlah
Metode 1 dan 2. Error (selisih mutlak antara data aktual
dan fit) dapat dilihat pada tabulasi di samping. Mari kita
hitung MAD :
MAD = ERROR METODE / n
MAD1 = 17/5 = 5.67
MAD2 = 23/3 = 7.67
MAD not always become Tampak dari sini MAD metod 1 lebih kecil daripada
the small value when metode 2. Tapi sekarang coba perhatikan perbandingan
MSD-nya :
MSD did. So do the MSD = (Error Metode)2 / n
opposite. When Its MSD1 = (1 + 4 + 1 + 1 + 121 + 1) / 5 = 129 / 5 = 25.8
happen what model you MSD2 = (9 + 16 + 36 + 9 + 9 + 9) / 5 = 88 / 5 = 17.6
will choose ?
Hot Issue in Forecasting
Agrregate Forecasting is more accurate than single forecast
For MTS, Colllaboration idea has been developed to
minimizing error and uncertainty
Watch out with Bullwhip phenomenon, when all part in your
Supply Chain doing a forecast with same purposes !
Forecasting can become an operational activity, or just can
become a strategic activity ! Clearly your forecasting goals !
Combination of subjective and objective methods is the
most methods that implement by many company nowadays
See my case study 5 and 6 at chapter 1 your handouts !
Final Thoughts- Big Picture
Time is the enemy of the logistics planner because time means
uncertainty.
Forecasting is often essential but think in terms of reducing the
importance / impact of the forecast.
How ? Remember reduction in the cycle time, demand
management, Information systems, and JIT ideas.
Judgemental Forecasting Applications

Low High
Sales Sales
Technique < $100M > $500M
Managers opinion 40.7% 39.6%
Jury of executive opinion 40.7% 41.6%
Sales force composite 29.6% 35.4%
Number of Firms 27 48

Source: Nada Sanders and Karl Mandrodt (1994) Practitioners Continue to Rely on Judgmental Forecasting
Methods Instead of Quantitative Methods, Interfaces, vol. 24, no. 2, pp. 92-100.