INDUSTRIAL

M A N AG E M E N T

#3
Forecasting Method
FORECAS TING
WHY IS FORECAS TING IMPORTANT?
Demand for products and services is usually uncertain.
Forecasting can be used for…
• Strategic planning (long range planning)
• Finance and accounting (budgets and cost controls)
• Marketing (future sales, new products)
• Production and operations
METHOD
• Linear Regression
• Moving Average
• Exponential Smoothing
WHAT IS FORECAS TING ALL ABOUT?
Demand for S-Mart
Chocolate
We try to predict the
future by looking back
at the past

Predicted
demand
looking
Time back six
Jan Feb Mar Apr May Jun Jul Aug months
Actual demand (past sales)
Predicted demand
KEY ISSUES IN FORECAS TING
• A forecast is only as good as the information included in the
forecast (past data)
• History is not a perfect predictor of the future (i.e.: there is no
such thing as a perfect forecast)

REMEMBER: Forecasting is based on the assumption that the past

predicts the future! When forecasting, think carefully whether or not
the past is strongly related to what you expect to see in the future…
WHAT SHOULD WE CONSIDER WHEN
LOOKING AT PAS T DEMAND DATA?

• Trends

• Seasonality

• Cyclical elements

• Autocorrelation

• Random variation
SOME IMPORTANT QUESTIONS
• What is the purpose of the forecast?
• Which systems will use the forecast?
• How important is the past in estimating the future?

Answers will help determine time horizons, techniques,

and level of detail for the forecast.
EXAMPLE
Data Permintaan Produk Z

Bulan, x Periode Permintaan, y

Januari 1 46
Februari 2 56
Maret 3 54
April 4 43
Mei 5 57
Juni 6 56
Juli 7 67
Agustus 8 62
September 9 50
Oktober 10 56
November 11 47
Desember 12 56
PLOT DATA
Permintaan

80
70
60
50
40
30
20
10
0
0 2 4 6 8 10 12
 M E N G G U NA K A N M O D E L R E G R E S I

Periode Permintaan, y x*y x^2

1 46 46 1
2 56 112 4
3 54 162 9
4 43 172 16
5 57 285 25
6 56 336 36
7 67 469 49
8 62 496 64
9 50 450 81
10 56 560 100
11 47 517 121
12 56 672 144
78 650 4277 650
 12 12
x  i = 650
12
= 78
y
2
i = 650 i =1
i x
i =1 i =1

12

x y
i =1
i i = 4277 x = 6.5 y = 54.17

(12)(4277) − (78)(650)
b= a = 54.17 − (0.3636 )(6.5)
(12)(650) − (78)2

= 51.8
= 0.3636


y = 51.8 + 0.3636x
 M OV I N G AV E R AG E

Periode Permintaan, y Moving Average

1 46
2 56
y1 + y 2 + ... + y x
3 54 yˆ x +1 =
4 43 52.00 x
5 57 51.00 1 x
6 56 51.33 =  xi
7 67 52.00 x i =1
8 62 60.00
9 50 61.67
10 56 59.67
11 47 56.00
12 56 51.00
13 53.00
 EXPONENTIAL SMOOTHING
Bulan, x Periode y Estimasi
Januari 1 46 yˆ x +1 = y x + (1 −  ) yˆ x
Februari 2 56 46
Maret 3 54 47.00
Contoh 1 perhitungan estimasi april
April 4 43 47.70
=0.1(54)+0.9(47) = 47.7
Mei 5 57 47.23
Contoh 2 perhitungan estimasi agustus
Juni 6 56 48.21
Juli 7 67 48.99 = 0.1(67)+0.9(48.99) = 50.79
Agustus 8 62 50.79 dst
September 9 50 51.91
Oktober 10 56 51.72
November 11 47 52.15
Desember 12 56 51.63
9-Jan 13 52.07
 HOW CAN WE COMPARE ACROSS
FORECASTING MODELS?
We need a metric that provides estimation of accuracy

Errors can be:

Forecast Error 1. biased (consistent)

2. random

Forecast error = Difference between actual and forecasted value

(also known as residual)
Periode y Forecasting
Linear MA ES
1 46 52,17
2 56 52,53 46
3 54 52,89 47
4 43 53,26 52 47,7 Which result will be
5
6
57
56
53,62
53,98
51
51,33
47,23
48,21
used?
7 67 54,35 52 48,99
8 62 54,71 60 50,79
9 50 55,08 61,67 51,91
10 56 55,44 59,67 51,72
11 47 55,80 56 52,15
12 56 56,17 51 51,63
13 56,53 53 52,07
 Actual Vs FC Linear
80

70

60

50

40

30

20

10

0
1 2 3 4 5 6 7 8 9 10 11 12 13
 Actual Vs FC_Moving Average

80

70

60

50

40

30

20

10

0
1 2 3 4 5 6 7 8 9 10 11 12 13
 Actual Vs. Exponential Smoothing
80

70

60

50

40

30

20

10

0
1 2 3 4 5 6 7 8 9 10 11 12 13
 HOW TO CALCULATE FORECAS T ERROR?

• MAE (Mean Absolute Error) • ME (Mean Error)

• MSE (Mean Square Error)
• MAPE (Mean Absolute
Percentage Error)
• SSE (Sum of Square Error)
• SDE (Standard Deviation of
Error)
• PE (Percentage Error)
• MPE (Mean Percentage Error)
COMMON MEASURES OF ERROR (1)

Mean Absolute Deviation (MAD)

∑ |actual - forecast|
MAD =
n
COMMON MEASURES OF ERROR (2)

Mean Squared Error (MSE)

∑ (forecast errors)2
MSE =
n
COMMON MEASURES OF ERROR (3)

Mean Absolute Percent Error (MAPE)

n
100 ∑ |actuali - forecasti|/actuali
MAPE = i=1
n
Periode y Linear Error SE Percent Periode y MA Error SE Percent
1 46 52,17 6,17 38,03 0,12 1 46
2 56 52,53 3,47 12,04 0,07 2 56
3 54 52,89 1,11 1,22 0,02 3 54
4 43 53,26 10,26 105,21 0,19 4 43 52 9,00 81,00 0,17
5 57 53,62 3,38 11,42 0,06 5 57 51 6,00 36,00 0,12
6 56 53,98 2,02 4,06 0,04 6 56 51,33 4,67 21,81 0,09
7 67 54,35 12,65 160,07 0,23 7 67 52 15,00 225,00 0,29
8 62 54,71 7,29 53,12 0,13 8 62 60 2,00 4,00 0,03
9 50 55,08 5,08 25,76 0,09 9 50 61,67 11,67 136,19 0,19
10 56 55,44 0,56 0,31 0,01 10 56 59,67 3,67 13,47 0,06
11 47 55,80 8,80 77,49 0,16 11 47 56 9,00 81,00 0,16
12 56 56,17 0,17 0,03 0,00 12 56 51 5,00 25,00 0,10
Total 60,94 488,76 1,13 Total 66,01 623,47 1,21
MAD 5,08 MAD 8,25
MSE 40,73 MSE 69,27
MAPE 9,39 MAPE 13,48
Periode y ES Error SE Percent
1 46 0,00 Rekap Linear MA ES
2 56 46,00 10,00 100,00 0,18
3 54 47,00 7,00 49,00 0,13
MAD 5,08 7,33 7,65
4 43 47,70 4,70 22,09 0,11
5 57 47,23 9,77 95,45 0,17
6 56 48,21 7,79 60,68 0,14 MSE 40,73 69,27 76,80
7 67 48,99 18,01 324,36 0,27
8 62 50,79 11,21 125,66 0,18 MAPE 9,65 13,71 13,45
9 50 51,91 1,91 3,65 0,04
10 56 51,72 4,28 18,32 0,08
11 47 52,15 5,15 26,52 0,11
Periode Linear MA ES
12 56 51,63 4,37 19,10 0,08
Total 84,19 844,84 1,48
MAD 7,65 13 56,5 53 52,07
MSE 76,80
MAPE 13,45