SALES

FORECASTING
PT. Sosro, January 2010

Module 1

INTRODUCTION

Introduction

Find your partner

Introduce your partners
to the class

1. What is your name?

2. What is your place of
employment? How long
have you been with your
companies? What are the
areas of your
responsibility?
3. What is your expectations
of the course? What is one
question that you hope to
get answered during the
class?
4. Tell us one fun thing that
you like to do on
weekend?

Administrative Tasks

Hours
Locations
Emergency Phone
Parking Lot
Smoking Policy
Attendance List
Name Tents
Training Manuals

Training Agenda Day 1

09:00 10:30 Module 1: Introduction to sales forecasting
10:30 10:45 Break
10:45 12:00 Module 2: Indicators Affecting Sales
Forecasting
12:00 1:15

Lunch

13:15 14:30 Module 3: Moving Average Forecasting

Techniques
14:30 14:45 Break
14:45 15:30 Module 4: Linear Regression Forecasting
Techniques
15:30 16:00 Day One Wrap Up and Preview Day Two

Training Agenda Day 2

09:00 10:30

Module 5: Multiple Regression Forecasting

Techniques

10:30 10:45

Break

10:45 12:00

Module 6: One Way Anova Forecasting

Techniques

12:00 13:15

Lunch

13:15 14:30

Module 6: Two Way Anova Forecasting

Techniques

14:30 14:45

Break

14:45 15:30

Module 7: Forecasting as a Strategic Business

Tools

15:30 16:00

Course Summary and Wrap Up

What is Forecasting?
Process of predicting a future
event
Underlying basis of all business
decisions
Production
Inventory
Personnel
Facilities

4-7

Types of Forecasts by Time

Horizon

4-8

Short-term vs. Longer-term

Forecasting

4-9

Influence of Product Life

Cycle

4-10

Strategy and Issues During a

Products Life

OM Strategy/Issues

Company Strategy/Issues

Introduction

Growth

Best period to
increase market
share

Practical to change
price or quality
image

R&D product
engineering critical

Strengthen niche

Maturity

Poor time to change

image, price, or quality
Competitive costs
become critical

Decline

Cost control
critical

Defend market position

Drive-thru
restaurants
CDROM

Sales
Color copiers

Fax
machines

3 1/2
Floppy
disks
Station
wagons

Internet

HDTV
Product design and
development critical
Frequent product and
process design
changes
Short production runs
High production costs

Forecasting critical

Standardization

Product and process

reliability

Less rapid product

changes - more minor
changes

Competitive product
improvements and
options
Increase capacity

Limited models

Shift toward product

focused

Attention to quality

Enhance distribution

Optimum capacity
Increasing stability of
process
Long production runs

Product improvement
and cost cutting

Little product
differentiation
Cost minimization
Over capacity in the
industry
Prune line to
eliminate items not
returning good
margin
Reduce capacity

Module 2

INDICATORS AFFECTING
SALES FORECASTING

Types of Forecasts

4-13

Seven Steps in Forecasting

4-14

Sales over 4 Years with

Trend and Seasonality
Sales for product or service

Seasonal peaks

Actual
demand line

Average demand
over four years
Random
variation
Year
1

4-15

Trend component

Year
2

Year
3

Year
4

Actual Demand, Moving

Average, Weighted Moving
Average
Weighted moving average
Actual sales

Moving average

4-16

Realities of Forecasting
Forecasts are seldom perfect
Most forecasting methods assume
that there is some underlying
stability in the system
Both product family and aggregated
product forecasts are more accurate
than individual product forecasts

4-17

Forecasting Approach

Overview of Qualitative
Methods

4-19

Jury of Executive Opinion

Involves small group of high-level
managers

Group estimates demand by working

together

Combines managerial experience with

statistical models
Relatively quick
Group-think
disadvantage
4-20
1995 Corel Corp.

Sales Force Composite

Each salesperson projects their sales

Combined at district & national levels
Sales reps know customers wants
Tends to be overly optimistic

4-21

Delphi Method
Iterative group process
3 types of people
Decision makers
Staf
Respondents

Reduces group-think

4-22

Consumer Market Survey

Ask customers about purchasing
plans
What consumers say, and what they
actually do are often diferent
Sometimes difficult to answer

4-23

Overview of Quantitative
Approaches

Nave approach
Moving averages
Exponential smoothing
Trend projection

Linear regression

Time-series
Models

Associative
models

4-24

What is a Time Series?

Set of evenly spaced numerical data

Obtained by observing response variable
at regular time periods

Forecast based only on past values

Assumes that factors influencing past and
present will continue influence in future

Example
Year: 20052006200720082009
Sales: 78.763.589.793.2 92.1

4-25

Time Series Components

4-26

Trend

Cyclical

Seasonal

Random

Trend Component
Persistent, overall upward or
downward pattern
Due to population, technology etc.
Several years duration

4-27

Seasonal Component
Regular pattern of up & down
fluctuations
Due to weather, customs etc.
Occurs within 1 year

4-28

Cyclical Component
Repeating up & down movements
Due to interactions of factors
influencing economy
Usually 2-10 years duration

4-29

Random Component
Erratic, unsystematic, residual
fluctuations
Due to random variation or
unforeseen events
Union strike
Tornado

Short duration &

nonrepeating
4-30

Module 3

MOVING AVERAGE
FORECASTING
TECHNIQUES

General Time Series Models

Any observed value in a time series is
the product (or sum) of time series
components
Multiplicative model
Yi = Ti Si Ci Ri (if quarterly or mo. data)

Additive model
Yi = Ti + Si + Ci + Ri (if quarterly or mo.
data)
4-32

Naive Approach
Assumes demand in next period is the
same as demand in most recent period

e.g., If May sales were 48, then June sales will be

48

Sometimes cost efective & efficient

4-33

Nave Seasonal Model

Nave Seasonal Model

Formula (1) : Yt+1 = Y1
Y24+1=Y24 , Y25=650
E25=Y25 Y25=850650=200
Formula (2) : Yt+1=Yt+(Yt-Yt1)
Y24+1=Y24+(Y24-(Y24-1)
=650+(650-400) = 650+250
= 900
E25=Y25-Y25= 850-900=-50

Moving Average Method

MA is a series of arithmetic means

Used if little or no trend

Used often for smoothing

Provides overall impression of data over time

Equation

Demand in Previous n Periods

MA
n

4-36

Moving Average Example

Youre manager that sells beverages.
You want to forecast sales (000) for
2011 using a 3-period moving
average.
2006
4
2007
6
2008
5
2009
3
2010
7
4-37

Moving Average Solution

4-38

Moving Average Solution

4-39

Moving Average Solution

4-40

Moving Average Graph

Sales
8
6
4
2
95

Actual
Forecast

96

97 98
Year

99

00

Weighted Moving Average

Method
Used when trend is present
Older data usually less important

Weights based on intuition

Often lay between 0 & 1, & sum to 1.0

Equation
WMA =

4-42

(Weight for period n) (Demand in period n)

Weights

Actual Demand, Moving

Average, Weighted Moving
Average
Weighted moving average
Actual sales

Moving average

Moving Average Technique

Moving Average Technique

Double Moving Average

Double Moving Average

Forecast

Disadvantages of
Moving Average Methods
Increasing n makes forecast less
sensitive to changes
Do not forecast trend well
Require much historical data

4-48

Exponential Smoothing
Method
Form of weighted moving average
Weights decline exponentially
Most recent data weighted most

Requires smoothing constant ()

Ranges from 0 to 1
Subjectively chosen

Involves little record keeping of past

data

Exponential Smoothing
Equations

Ft = At - 1 + (1-)At - 2 + (1- )2At - 3

+ (1- )3At - 4 + ... + (1- )t-1A0
Ft = Forecast value
At = Actual value
= Smoothing constant

Ft = Ft-1 + (At-1 - Ft-1)

Use for computing forecast

4-50

Exponential Smoothing
Example
Youre organizing a meeting. You want
to forecast attendance for 2011 using
exponential smoothing
( = .10). The 2006 forecast was 175.
2006
180
2007 168
2008
159
2009
175
2010
190
1995 Corel Corp.

4-51

Exponential Smoothing
Solution
F
= F + (A - F )
t

t-1

180

2007

168

2008

159

2009

175

2010

190

2011

NA

t-1

Forecast,Ft
( = .10)

Time Actual
2006

t-1

175.00 (Given)
175.00 +

4-52

Exponential Smoothing
Solution
F
= F + (A - F )
t

Time Actual
2006

180

2007

168

2008

159

2009

175

2010

190

2011

NA

t-1

t-1

t-1

Forecast, Ft
( = .10)
175.00 (Given)
175.00 + .10(180 - 175.00) = 175.50

4-53

Exponential Smoothing
Solution
F
= F + (A - F )
t

Time Actual

t-1

t-1

t-1

Forecast,Ft
( = .10)

Exponential Smoothing
Graph
Sales
Actual
190
180
170
Forecast
160
150
140
06 07 08 09 10 11
Year
4-55

Exponential Smoothing
Techniques

Exponential Smoothing
Y4=0.6*S3 + 0.4*Y3
Dumping factor (1
) = 0.4
= 0.6
= 0.4

Multiplicative Seasonal
Model
Find average historical demand for each season by
summing the demand for that season in each year, and
dividing by the number of years for which you have
data.
Compute the average demand over all seasons by
dividing the total average annual demand by the
number of seasons.
Compute a seasonal index by dividing that seasons
historical demand (from step 1) by the average demand
over all seasons.
Estimate next years total demand
Divide this estimate of total demand by the number of
seasons, then multiply it by the seasonal index for that
season. This provides the seasonal forecast.

Module 4

SIMPLE LINEAR
REGRESSION MODEL

Linear Regression Model

Shows linear relationship between
dependent & explanatory variables
Example: Sales & advertising (not time)
Y-intercept

Slope

^
Yi = a + b Xi
Dependent
(response) variable

Independent
(explanatory)
variable

Linear Regression
Techniques

Summary Output
Yt = 32.13 14.53
(Xt)

Simple Linear Regression

Simple Linear Regression

Interpretation of
Coefficients
Slope (b)
Estimated Y changes by b for each 1 unit
increase in X
If b = 2, then sales (Y) is expected to increase
by 2 for each 1 unit increase in advertising (X)

Y-intercept (a)
Average value of Y when X = 0
If a = 4, then average sales (Y) is expected to
be 4 when advertising (X) is 0

4-66

Random Error Variation

Variation of actual Y from predicted Y
Measured by standard error of estimate
Sample standard deviation of errors
Denoted SY,X

Afects several factors

Parameter significance
Prediction accuracy

4-67

Least Squares Assumptions

Relationship is assumed to be linear.
Plot the data first - if curve appears to be
present, use curvilinear analysis.
Relationship is assumed to hold only
within or slightly outside data range. Do
not attempt to predict time periods far
beyond the range of the data base.
Deviations around least squares line are
assumed to be random.
4-68

Standard Error of the

Estimate
n

y i yi

S y,x i

4-69

Text uses
symbol Yc

n
yi
i

yi b x i yi

Correlation
Answers: how strong is the linear
relationship between the variables?
Coefficient of correlation Sample
correlation coefficient denoted r
Values range from -1 to +1
Measures degree of association

Used mainly for understanding

4-70

Module 5

MULTIPLE REGRESSION
MODEL

Multiple Regression Analysis

Y = Konstanta + B1X1 + B2X2+
BnXn

Case Study
Sosro produce 3 products (Tea,
Cofee and Milk). How can I forecast
the sales base on historical unit price
per product?

Historical Data

Data Analysis

Summary Output
Sales Prediction = 35,102.90+2.06
(Price Tea) +4.17 (Price Cofee) +
4.79 (Price Milk)

Forecast Chart

Case Study
How can I forecast the sales if
qualitative factors (season, event,
etc) involves?

Data Conversion

Data Analysis

Summary Output

Sales forecast

Sample Coefficient of
Correlation

4-83

n x i yi x i yi

n
x

x
n
y

i
i
i
i
i i
i
i
n

Guidelines for Selecting

Forecasting Model
You want to achieve:
No pattern^ or direction in forecast error
Error = (Yi - Yi) = (Actual - Forecast)
Seen in plots of errors over time

Smallest forecast error

Mean square error (MSE)
Mean absolute deviation (MAD)

4-85

Pattern of Forecast Error

Trend Not Fully
Accounted for

Desired Pattern

Error

Error

0
Time (Years)

Time (Years)

4-86

Multi Regression Forecasting

Module 2

ONE WAY ANOVA

One Way Anova

Summary Out

2 Way Anova

Two Way Anova Summary

Module 4

JUDGEMENTAL
FORECASTING

Multiple Regression Analysis

Any Question?
The unique challenges associated
with providing efective customer
service to phone callers.
Identify the strengths and
weaknesses of your telephone
styles and techniques.
Identify efective telephone skills

Module 5

MANAGING THE
FORECASTING PROCESS

Learning Objectives
Identify methods for difusing
customer anger or hostility
Develop strategies for handling
difficult customers
Identify which verbal and non-verbal
messages exacerbate a difficult
situation and which difuse a difficult
situation

Strategies to Handle
Difficult Customer Situation
1. Listen
Use active and reflective
listening skills

2. Empathize
Putting yourself in customer
shoes
Connect with persons feeling
making a statement that tells the
person we understand the feeling
paraphrasing his or her words to show
the person we understand the issue

Stick to what Company can and

cant do

Strategies to handle Difficult

Customer Situation
3. Respond
professionally
Use customers name
Maintain friendly
manner
Use appropriate body
language

4. Recognize underlying
factors
Customer act for a
reason
Negative emotion

Strategies to Handle
Difficult Customer Situation
5. Ask question
Be sure to listen to
everything

6. Give feedback
Treat the public as
customer seeking service
Play tour tone of voice

7. Summarize
Communicate what you
will do and when you will
do it
Remember to under
promise and over deliver

Limited English Speaking

Be patient and concentrate
Remember, the customer is just as frustrated as you are

Speak slowly and distinctly

Dont speak so slowly that it appears to be an insult

Be extra courteous
you really do care and want to help

Avoid using slang or industry jargon

Use plain, simple English. Dont use terms or phrases that will
only add to the confusion

Speak in normal tone of voice

Dont shout. Speaking loudly wont help

Dont try to listen to every word

Listen carefully for key words and phrases

Limited English Speaking

Reiterate what has been said
Once the customer has told you what the problem is, summarize

Dont ask do you understand?

The customer may feel you are insulting him or her.

Avoid humor
Stick to the problem. Diferent cultures view humor in diferent
ways.

Write it down
Use simple, short sentences.

If you speak another language, try using it

The client may understand the other language better than English

Develop a list of employee who speak foreign languages

Use this as a resource for helping non-English speaking customers.

Listen to foreign language tape

Tips for Long-Winded Caller

People will monopolize anothers time on the
telephone
Dont think silent or giving short answer will work
dont ask questions
Refocus the attention
Stating a relevant point

Using PRC technique

(Paraphrase, Reflect, Close)

Budget time to listen

Budget what you can afordbut dont tell the caller you are doing this

Establish mutual time limit

take control of the conversation before it gets too far

Patience: Give extra minute or two

Let the other party go gracefully with statements such as:I know you
are busy. I appreciate your help. .Thanks for your time. The information
you have provided is very helpful. Ill be back in touch as soon as.

Strategies to Handle
Argumentative Customer
Speak softly
the customer must be quiet in order
to hear you.

Ask for their opinion

If you give them some control by
asking a question, they are liable to
ease up.

Take a break, dont get drawn in

excuse yourself briefly, count to 10,
or get a drink of water

Concentrate on the points of the

argument
Deal with these points one at a time.

Strategies to Handle
Verbally Abusive Customer
Remember, Customer isnt angry with
you
but at the agency, the situation, or
something else completely unrelated

Talk quietly
talk quietly so that he or she has to be
quieter to hear you.

Talk at normal pace

If you begin to talk quickly, it will only
make matters worse

Let the consumer know the

consequences
When you use this language, it makes it
impossible for me or anyone to assist you.

Strategies to Handle
Threatening Customer
Threat can be an
attempt to intimidate
you
Keep calm and keep
your responses
focused on the issue
at hand

Strategies to Handle
Threatening Customer
Try to avoid getting into discussion of the threat
Lead the conversation back to the fundamental issue
in dispute

Evaluate customer ability to make good on

threat and decide what to do from there
Dont overreact
Look for signs of drug or alcohol use

Advice consumer of the repercussion

Before the threats escalate, calmly advise the
customer of the repercussions of the threats,

Terminate the interview

document the threat, warn/alert the appropriate
people (supervisor, reception staf, etc.)

Strategies to Handle
Hostile/Angry Customer
1. An angry customer is
most likely not angry
with you

Dont
Take the anger
personally
Blame the customer
Avoid blame
Dominate the
conversation

Strategies to Handle
Hostile/Angry Customer
2. Detach yourself from
the Customers
Hostility
Maintain self control

3. Hostility curve
Lets wait, hear him/her
out

Strategies to Handle
Hostile/Angry Customer
Listen
When the customer stops talking, start giving feedback to
indicate you heard his or her key points

Empathize
you understand the situation from the customers
perspective. Express empathy for the feelings expressed
or demonstrated.

Apologize
Apologize when the agency is at fault

Service
S =Say youre sorry. E = Expedite solutions. R = Respond to the
customer. V = Victory to the customer. I = Implement improvements. C =
Communicate results. E = Extend the outcome.

Summarize
Clearly communicate what you will do and when you will
do it

Saying No
Sometimes you have to say no, but if you do it
right, you can still get a thank you for your
service

Saying No
Explain why it cant be done
Dont quote policy
Dont say, Because its the law.

Dont be patronizing
Dont talk down to the customer.

Ofer alternatives when u can

Try to help the customer find

solutions to the problem.

Avoid making excuses

Im sorry your case hasnt been
processed yet

Eliminate negative phrases

Dont mention other/similar
complaints

Group Activity

Price for Handling Difficult

Customer

Any Question?
Methods for difusing the anger
and hostility of customers.
Strategies for handling difficult
customers

Module 6

SUMMARY & WRAP UP