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Demand forecast by neuro-fuzzy techniques

Conference Paper  in  IEEE International Conference on Fuzzy Systems · August 1997

DOI: 10.1109/FUZZY.1997.619745 · Source: IEEE Xplore

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 Demand forecast by neuro-fuzzy techniques. Description of linguistic
variables. Part I.
I.Escoda(1) , A.Sanz (2) , A.Herms (1)
(1) Laboratori d`Enginyeria i Materials Electrònics
Dep.Física Aplicada y Electrònica
Unversitat de Barcelona
escoda@iris1.fae.ub.es
(2) Departamento de Electrónica
Universidad de Zaragoza

Abstract. This work presents the first part of the investigation project for the development of an expert
system for “Demand forecast by Neuro-Fuzzy techniques”. The work is focused on development and
representation of linguistic variables to qualify the product demand. Variables are quantified using fuzzy
logic, allowing the model to evaluate, quantify and qualify data. Phases for this work are: collection of
information, identification of linguistic variables and definition of linguistic rules.

1. Introduction

In any process of taking a decision is necessary to formulate a forecast or made what is called
“prediction or prevision”, to provide the decision agent with the maximum information to reduce
uncertainty. We understand by forecasting a process that includes: collection and process of relevant
information, identification of relevant variable values and obtaining of predictable variable values.

One of the most relevant parameter and forecasting target is the expected demand for certain period of
time and for one or more products. For a decision system, for instance marketing, commercial,
production, logistic or financial, is unavoidable to be able to know or predict the future demand as
accurate to reality as possible.

Methods [1-8] based on traditional tools are useful for a forecasting demand system when variables are of
quantifiable nature, but for subjective nature variables is, quite often, hard to analyse them with these
tools. Subjectivity of some relevant variables in demand make difficult its quantification and therefore
the possibility to introduce them in the model without any loss of relevancy in the forecasting. Fuzzy
logic techniques [9-13] can be very helpful since they allow to introduce in the system in a calculable
way any subjective variable by means of linguistic terms showing its subjectivity ranges. Fuzzy sets may
represent uncertainty and inherent vagueness to linguistic variable definition [14].

Main target of this work is to establish linguistic variables of a demand system by means of fuzzy logic,
and be able afterwards to look at them in a demand forecasting system. This work describes the
methodology for: acquisition and analysis of informative sources from a demand system, definition of
subjective nature variables and establish, by means of fuzzy logic techniques, linguistic variables and
relevant linguistic values for demand and develop the membership functions and linguistic rules.

2. Methodology.

Steps to follow in the methodology are the following:

1) Demand environment analysis and definition of significant variables.

2) Acquisition of informative basis and definition of database.
3) Identification of linguistic variables and linguistic values.
4) Definition of membership functions.
5) Linguistic rules development.

To develop these steps is essential to rely on experts with a huge knowledge of : demand systems,
marketing, commercial, production, logistic, financial and informative systems.
1. Demand environment analysis and definition of significant variables.

A demand system is made up by two functionally independent environments: Factory-Distributor

environment (FBR-DIS) and Distributor-Consumer (DIS-CON) with interchange of information between
then in relation to the products, selling transactions, stocks, etc.

FBR DIS CON

Some dependent variables existing in these environments make that the global design takes into account
an interdependence between them.

1.1. Factory-Distributor environment (FBR-DIS)

In this environment take part the variables that perform sales done by FBR to DIS, which are represented
by historical temporary series. We can distinguish different types of significant variables on this
environment: products, customers, periods, sales quantity, promotions.

If we call (a) to products and [c] to customers, we will have in the system GROUP (A) and [C]
representing the total of products and customers:

C = {c1 ,c2 ,c3 ,.............,cj } j=1,2,3....,n

(1)
. A = {a1 ,a2 ,a3 ,...............ai ) i=1,2,3,...,n (2)

If to the variable (v) we assign the total quantity of a product sold to a customer for a certain period of
time (t) (day, week, month, year) in the system we will have to consider GROUP (V) as the total sales of
products done to the customers:

V (t )  {V 1(t ),V 2 (t ),V 3(t ),..............Vn(t )} i = 1,2,3 , ..... , n ; (3)

Where V(i) is the sales to a customer C(i) of products A(j) in the period t.

In this same environment we may have other variables as the promotional that will represent the selling
conditions applied to a customer (ci) for a product (aj) in a period (t), for instance a promotional offer for
one or more products, promotions can be of several types: by units, in price, with presents, etc. These
variables by means of its own nature act as selling modifiers, and create a demand activation with
immediate effect. For the same product/customer we may have several activators acting in the same
period (t).

P(t)={p1,p2 ,.........pl} l=1,2,3......n (4)

So a product demand in a period t will rely on parameters such as: kind of customer, product and offer
activators. So the sale V(t) in a period t can be represented by the function f:

V(t)=f(C,A,P(t)) (5)
where C represents the customers group, A the articles or products and P the activators present in period
t.

1.2. Distributor-Consumer environment (DIS-CON).

We will consider that in the environment (DIS-CON) the consumer at the selling point is receiving more
or less strong stimulus by means of demand pushers. Consumer may respond to these stimulus in a more
or less immediate way changing its buying habits.
The analysis of this environment gives as a result that the significant variables are mainly of subjective
nature and then hardly quantifiable. So we have variables of consumer scope, product, habitat place, kind
of selling point, advertising, etc. All these variables can be grouped according its common features
having as a result groups of demand pushers since from one way or other they may activate the
predictable variable in a positive or negative way. In table 2 we detail the different variables taking part
in this environment.

Table 2. (DIS-CON) Environment variables.

Variables Group Nature

Direct advertising PUB Subjective

Promotional advertising PUB Subjective
Selling point type PCL Subjective
Selling point area PCL Subjective
Consumer age PCO Subjective
Social class PCO Subjective
Habitat area PCO Subjective
Life quality SAL Subjective
Type of product PRO Subjective
Product price PRO Subjective
Buying price differential PRO Subjective
Product made in the area PRO Subjective
Strikes OTR Subjective
Stock breaks OTR Subjective

Where PUB represents the advertising group (PUB), PCL the distributor profile group, PCO the
consumer profile group, SAL the health group, OTR the event group, PRO the product group.

If we assign the variable (i) to the pushers, we will have in the system a pushers group (I) acting in a
general or particular way on the consumers.

I(t) = {i1(t), i2(t), i3(t),..., ik(t),..., in(t)}

(6)

When considering the system in a global way we notice that these pushers { i1, i2, i3,..., } although affect
the (DIS-CON) environment, are generative belonging to (FBR-DIS) environment and shape the
activators p(j) that the manufacturer applies to the sale for one customers for different products and we
can represent this by means of one of the pusher functions:

P(t) = g(I(t)) (7)

Substituting (7) in (5) we have that the sale V(t) in a period t will be represented by following function:

V(t) = f(C,A,g(I(t))) (8)

From equation (8) it is deducted that both environments, although can be analysed independently, have
an interdependence by means of the different pushers shaping the selling activators and pushing
consumer demand in a more or less strong way.
2. Acquisition of informative basis and definition of data base.

At this step we will try to establish the different available sources of information that may supply
significant information to be able to define afterwards the data base containing the variable values
affecting demand forecasting. For a decision system is unavoidable to establish the information sources
[1]. Information supplied by these sources is analysed determining the significant variables for
forecasting. The most usual and valuable information sources and quite often infra-valued, will be the
information systems available within the corporation (sales, marketing, production, logistic) as well as
external sources (governmental, financial, from international organisms, etc). Historical data has memory
and gives information about the organisation, its market and its results. From them we can extract
information so valuable as tendencies or seasonable behaviour, the effect of decisions and actions from
the organisation, from competition or even governmental interventions.

Analysing these informative sources and later interviews with experts we will have to determine the most
relevant data as well as its nature (quantifiable or subjective). In table 1 there are some of these:

Table 1. Structure of available data.

Relevant data Nature

Customers Quantifiable
Products Quantifiable
Selling quantity Quantifiable
Date Quantifiable
Promotions Quantifiable
Promotional pushers Quantifiable and subjective

With the above information we have to define the data base with the data structures containing the
relevant variable values for the demand. For all the above mentioned it can be deducted that the data base
that must be defined for a system forecasting must contain at least the following data structure:

Data structure Description

tblCustomers Data Customers

tblProducto Data Products
tblHistSelling Data Histor. of salling
tblHistActivators Data Histor. of activators
tblHisPushers Data Histor. pushers
tblPushers Data of Pushers
tblActivators Data of Activators

In this work it has been defined the data base with Microsoft Access to be used in a Windows NT or
Windows 95 environment.

3. Determination of linguistic variables and linguistic values.

This stage is of great importance and it is done with the expert’s help who will allow us to determine and
quantify the linguistic variables. From the interview with the experts it can be established that the
subjective nature activators P(t) and the pushers I(t) must be considered as linguistic variables.

From different groups of pushers and activators available only three have been taken into account on this
work (i1, i2, i3). Two of them (i1, i2) belonging to PUB group (brochure and headline) and the pusher (i3)
belonging to PRO group (price). These pushers are the features of a promotional offer represented by a p
activator, for instance, an offer with the pushers (brochure, headline, price) that can be qualified by (a
good brochure, a good headline and a good price).

From these interviews we can quantify these linguistic variables I(t) and P(t) fixing the linguistic values
representing the activation strength range that they can take. For this, ranges where experts can fix
linguistic values within a variable interval are fixed. It was requested to the experts to break the variable
dominion interval at different levels according to the importance, advising them to assign each of the
levels to the variables.

The analysis of the phase pointed out that several levels could be assigned (very low, low, medium, high,
very high), it was also seen that three levels for linguistic values was enough for each of the variables.
Levels assigned were:

1) Low pusher or activation strength grade (BA).

2) Medium pusher or activation strength grade (ME).
3) High pusher or activation strength grade (AL).

4. Ownership function determination.

At this stage of the process it is required to arrange a correspondence between subjective variables with
an membership dominion, for instance [0,1], in other words, to fix a method that allows us to see the
changes in state from a precise variable on an membership function, that is to say, to each x value we
associate a membership function value u(x) that shows its membership grade. The geometrical forms of
membership functions developed and fully spread in the bibliography can be of different types
(triangular, trapezoidal, Gaussian, S, etc). On this work we have taken a membership function of
Gaussian type:

(x;a.b)=exp(-(x-a)2 /b2) (9)

This is a symmetrical function centred on a, being b the wide of the function.

We assign to each variable a membership function in order to have a graphic representation of requested
linguistic values, as indicated in figure 1. The overlapping in the curves is necessary as advised by the
practical experience, to be able to see the levels with wrongly defined limits. In our system it can be
tested that the values taken by the variables may belong to several contiguous linguistic values.

Fig. 1 Linguistic values

With the graphic representation of variables, the experts must help to identify the variable dominion with
values min, medium, maximum than each linguistic value may take in the flowing dominion of variables.
In table 3 we are giving the value that the experts identified for the variables that will be considered in
this work:

Table 3. Pushers and activators

 Variables % min medium max

i(1) (brochure) 20 35 50

i(2) (headline) 50 75 100

i(3) (price) 15 20 30

i(4) (offer) 100 150 300

Values given in the table correspond with the activation % that each of the variables may have on the
targeted forecasting variable.

5. Linguistic rules basis.

At this stage and taking into account the system 5linguistic variables and the linguistic values that they
may take, it can be developed the rule basis by means of defining the different linguistic rules that will
typify the system behaviour. These rules will be of the mode:

R: IF i1 is low(BA) AND i2 is low(BA) AND i3 is low(BA) THEN p is low(BA)

In our project system we have pushing variables (i1, i2, i3) and the activating variable (p) with three
different values for each pusher and each activator, they are named (BA,ME,AL). The rules that show the
possible system behaviours will be given by the different combinations of linguistic values that may take
the variables. From the total number of possible rules (81 rules), in the studied system we requested to the
experts to analyse and select those most relevant in the system behaviour, rejecting the other rules. In
table 4 we give some of the relevant rules for our system.

Table 4. Linguistic rules

R1: IF brochure is Low(BA) AND headline is Low(BA) AND price is Low(BA) THEN offer is
Low(BA)

R2: IF brochure is Low(BA) AND headline is Low(BA) AND price is Medium(ME) THEN offer is
Low(BA)

. . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . . . . . ... . . . .. . . . . . . . . .. . . .. . . . .. .. ...... .. . . . .

R66: IF brochure is High(AL) AND headline is High(AL) AND price is Medium(ME) THEN offer is
High(AL)

R67: IF brochure is High(AL) AND headline is High(AL) AND price is High(AL) THEN offer is
High(AL)

3. Conclusions.

There are some important conclusions implied from the results obtained: It has been established an easy
working methodology consisting of the following steps:

1) Determination of information sources for a demand system, 2) determination of data structures that
have to be used in a demand system, 3) identification of quantifiable variables, linguistic variables and its
linguistic values, 4) linguistic rules basis featuring the system in relation to subjective variables. These
conclusions are the work basis for the design of an intelligent system for demand forecasting designed by
means of neuronal and fuzzy logic techniques, which is the leif-motiv of this investigation project.

Acknowlegments: This investigation work has been financed by Central Lechera Asturiana SA within
the contract SALDAPD.
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