FORECAST DEMAND

FORECAST IS DIFFICULT
Prediction is very difficult, especially if it's about the future -Niels Bohr" It is often said there are two types of forecasts ... lucky or wrong!!!! -in "Control" magazine published by Institute of Operations Management"Forecasting is the art of saying what will happen, and then explaining why it didn't! -Anonymous (communicated by Balaji Rajagopalan)-

FORECASTING
Prediction, projection, estimation
occurrence of uncertain future events or levels activity

FITTING FORECASTING TO THE PURPOSE

DEFINE PURPOSE DEFINE FORECAST

What? Aggregat? Product? Item? Sparepart? Where? Which geographic area should include? When? Forecast horizon? How? Divide forecast into period? Frequency to update? Accuracy needed?

CHARACTERISTICS OF GOOD FORECAST

ACCURACY

COST

RESPONSE

SIMPLICITY

PRINCIPLES OF FORECASTING
Forecast involves error >>> they are usually wrong Family forecast are more accurate than item forecast. Aggregate forecasts are more accurate. Short-range forecasts are more accurate than long-range forecasts A good forecast is more than a single number

DEMAND INFLUENCE FACTORS

1. 2. 3. 4. Business condition and state of the economy Competitor actions and reactions Governmental legislative action Market trend
Product life cycles Style and fashion Changing consumer demands

5. Technological innovations

DEMAND MANAGEMENT
Where possible, calculate demand rather than forecast. If not possible...
Independent Demand
(finished goods and spare parts)

Dependent Demand
(components)

B(4)

C(2)

D(2)

E(1)

D(3)

F(2)

Demand Estimates

Sales Forecast

Production Resource Forecast

Examples of Production Resource Forecasts

Forecast Horizon

Time Span

Item Being Forecast

Product lines Factory capacities Planning for new products Capital expenditures Facility location or expansion R&D
Product groups Department capacities Sales planning Production planning and budgeting Specific product quantities Machine capacities Planning Purchasing Scheduling Workforce levels Production levels Job assignments

Units of Measure Dollars, tons, etc.

Long-Range

Years

MediumRange

Months

Dollars, tons, etc.

Short-Range

Weeks

Physical units of products

FORECAST METHODS
QUALITATIVE
Sales force composite Market Research Management Decision (Jury of executive opinion) The Delphi Method

QUANTITATIVE
Time series

Time Series Analysis

Selalu menggunakan data historis (Nave methods) Komponen time series:
Trend Seasonality Cycles Randomness

Simple Time Series Models

Moving Average (Simple & Weighted) Exponential Smoothing (Single) Double Exponential Smoothing (Holts) Winters Method for Seasonal Problems

Simple Moving Average

Forecast Ft is average of n previous observations or actuals Dt :

Ft 1 Ft 1

1 ( Dt Dt 1 Dt 1n ) n 1 t Di n i t 1n

Note that the n past observations are equally weighted. Issues with moving average forecasts:
All n past observations treated equally; Observations older than n are not included at all; Requires that n past observations be retained; Problem when 1000's of items are being forecast.

Example of Simple Moving Average

Week 1 2 3 4 5 6 7 8 9 10 11 12 Demand 3-Week 6-Week 650 678 720 785 682.67 859 727.67 920 788.00 850 854.67 768.67 758 876.33 802.00 892 842.67 815.33 920 833.33 844.00 789 856.67 866.50 844 867.00 854.83

Weighted Moving Average

Forecast is based on n past demand data, each given a certain weight. The total weight must equal to 1.

Ft 1 ( wt Dt wt 1Dt 1 wt 1n Dt 1n )

Re-do the above example, using 3 past data, each given a weight of 0.5, 0.3, and 0.2 (larger for more recent data)

Exponential Smoothing
New Forecast = (current observation of demand) + (1-) (last forecast) Or Ft = (Dt-1) + (1-)Ft-1
And

Ft-1 = (Dt-2) + (1-)Ft-2, dst Sehingga pada model ini, semua data historis terwakili pada forecast terakhir dengan bobot yang semakin kecil (untuk data yang semakin lama)

Exponential Smoothing
Include all past observations Weight recent observations much more heavily than very old observations:
weight

0 1
Decreasing weight given to older observations

(1 ) (1 ) 2 (1 )
today
3

Exponential Smoothing
Notes:
Only 2 values (Dt and Ft-1 ) are required, compared with n for moving average Parameter determined empirically (whatever works best) Rule of thumb: < 0.5 = 0.1 to = 0.3

Forecast for k periods into future is:

Ft k Ft

Exponential Smoothing
Example:
Exponential smoothing and a constant model are being used for forecasting. The smoothed average at the end of period zero was 80. The actual demand in period 1 was 104. The smoothing constant is 0,1. What is the forecast for period 2 made at the end of period 1?

Persamaan MA dan ES
Sama-sama mengasumsikan demand bersifat stationary Keduanya tergantung pada 1 nilai parameter, N pada MA dan pada ES. Kalau ada trend, kedua-duanya terlambat dalam merespon

Perbedaan MA dan ES
MA mengakomodasikan lebih banyak data ES hanya menyimpan dua data: forecast terakhir dan actual demand terakhir, sedang MA menyimpan N data demand terakhir