PRODUCTION PLANNING

CONTROL
LECTURE# 2
FORECASTING
Benedikta Siboro, M.Sc
LEARNING OBJECTIVE
 Identify Principles of Forecasting
 Explain the steps in the forecasting process
 Identify types of forecasting methods and their characteristics
 Describe time series and causal models
 Generate forecasts for data with different patterns: level, trend, seasonality, and cyclical
PRINCIPLES OF FORECASTING
 Forecasts are rarely perfect
 Forecasts are more accurate for grouped data than for individual items
 Forecast are more accurate for shorter than longer time periods
 Should include an estimate of error
TYPES OF FORECASTING
1. Qualitative Methods
2. Quantitative Methods
DIFFERENCE OF METHODS
QUALITATIVE METHODS
 These methods are used when historical data are scarce or not available at all.
 They generally use expert opinion to predict future events subjectively
 Advantage : useful when historical data either are not available or are scarce. For example,
sales of new product, environment and technology over the long term.
 Disadvantage : Subjective
 Type of qualitative methods : Delphi Method, market research, surveys, etc.
QUALITATIVE METHODS
QUANTITATIVE METHODS
 These methods are used when historical data are available.
 They generally construct a forecasting model from available data or theory to do forecasts.
 Advantage : Objective. Once the underlying model or technique has been chosen, the
corresponding forecasts are determined automatically. They are fully reproducible by any
forecaster.
 Disadvantage : Need data
QUANTITATIVE METHODS

Quantitative

Time Series/ Causal/Multivariate

Univariate Methods Methods

Weight Moving Exponential Transfer Function

Naive Simple Mean Moving Average Intervention Analysis
Average Smoothing Models
TIME SERIES METHODS
 A method to analysis a set of data from time function.
 There are some of models or combination that always repeat in a basis time and it can identify based
on historical data
 Objective : prediction future observations
 Method :

1. Smoothing
a. Naïve
b. Simple mean
c. Moving Average
d. Weighting moving average
e. Exponential Smoothing (single, double)
TIME SERIES MODELS (2)
2. Projection trend method with regression : is a forecast method based on trend line of project
that will investigate in the future ( short and long time forecast)
Methods :
a. Constant  Yt =a ; a =
Where : Yt = forecast t period , and n = sum of period
b. Linear  Yt =a + bt
c. ;
d. Quadratic
e. Exponential
f. Cyclical
TIME SERIES MODELS(3)
3. Decomposition Model
This model assumes that a time series is made up of several components. These components
are :
a. Trend : represents the long-run behavior of the data and can be increasing, decreasing or
constant,.
b. Seasonality : relates to periodic fluctuations that repeat themselves at fix interval of time.
c. Cyclic behavior represents the ups and downs of the economy or of a specific industry.
d. Randomness : always present in a time series and represent variation that cannot explained.
 Sales of Petrol
100
90
80
70
60
50
Sales

40
30
20
10
0 Sales of Cosmetic
i t i t i t
o n u e ed h u Fr Sa Su n o n Tu e ed Th u Fr Sa Su n o n Tu e ed Th u Fr Sa Su n
M T W T M W M W 35

30
Day
25

20

Sales
15

10

0
1 2 3 4 1 2 3 4 1 2 3 4 1

Quarter
TIME SERIES MODELS
1. Naïve 
 the forecast is equal to the actual value observed during the last period
 Assume that recent periods are the best predictors of the future.

2. Simple mean 
 The average of all available data

3. Moving Average  /n
 the average value over a set time period (e.g. the last four weeks)
 each new forecast drops the oldest data point and adds a new observation
 more responsive to a trend but still lags behind actual data
TIME SERIES MODELS (2)
4. Weighted Moving Average ,
 all weights must add to 100% or 1.00

e.g. 0.5; 0.3; 0.2

 allows emphasizing one period over others; above indicates more weight on the recent
data
 differs from the simple moving average that weighs all period equally (more responsive
to trend)
TIME SERIES MODELS (3)
5. Exponential Smoothing 
Need just three pieces of data to start:
 Last period’s forecast (
 Last periods actual value ()
 Select value of smoothing coefficient, α, between 0 and 1
 If no last period forecast available, average the last few periods or use naïve
method
 Most frequently used time series method because of ease of use and minimal
amount of data needed
CAUSAL METHOD
 A method to find a causal relationship one to others variable and this causal will use to
forecast value of these variable.
 Some causal methods :

a. Regression and correlation

b. Econometric
c. Input-output
FORECASTING ACCURACY
EXERCISE
 Do forecast demand of Suzuki motorcycle at Bursa Motor Shop every month on 2019. Use
regression method.

Year Demand (Unit)

2008 155307
2009 156371
2010 167021
2011 152091
2012 154634
2013 156556
2014 158169
2015 158760
2016 156556
2017 170504
2018 1772201