International Journal of Electronic Business Management, Vol. 9, No. 2, pp.

107-121 (2011) 107

CONSTRUCTING A SALES FORECASTING MODEL BY

INTEGRATING GRA AND ELMA CASE STUDY FOR
RETAIL INDUSTRY
Fei-Long Chen and Tsung-Yin Ou*
Department of Industrial Engineering and Engineering Management
National Tsing Hua University
Hsinchu (300), Taiwan

ABSTRACT
Due to the strong competition and economic hardship, sales forecasting is a challenging
problem as the demand fluctuation is influenced by many factors. A good forecasting
model leads to improve the customers satisfaction, reduce destruction of fresh food,
increase sales revenue and make production plan efficiently. In this study, the GELM
forecasting model integrates Grey Relation Analysis (GRA) and extreme learning machine
(ELM) to support purchasing decisions in the retail industry. GRA can sieve out the more
influential factors from raw data and transforms them as the input data in a novel neural
network such as ELM that can abandon the slow gradient-based learning speed and
parameters tuned iteratively. The proposed system evaluated the real sales data of fresh
food in the retail industry. The experimental results indicate the GELM model outperforms
than other time series forecasting models, such as GARCH, GBPN and the GMFLN model
in predicting accuracy and training speed. Otherwise, the different activation functions of
the GELM model have significant differences in training time and performance during our
experiments.

Keywords: Sales Forecasting, Grey Relation Analysis, Extreme Learning Machine, Retail
Industry, Activation Functions

1. INTRODUCTION critical issue to figure out the influential factors then

* obtain accurate forecasting results about the fresh
In retail industry actual operations, sales
forecasting plays a more and more prominent role as
part of the commercial enterprise. However, sales
forecasting is usually a highly complex problem due
to the influence of internal and external factors. If
decision-makers could estimate their sales quantities
properly, the demands of customers would be
satisfied and the cost of spoiled fresh food would be
substantially reduced. Actually, the variations in
consumers demand are caused by many factors like
price, promotion, changing consumer preference or
weather changes, especially in fresh food [34]. Both
shortage and surplus of fresh items, which can only
be sold for a limited period, would lead to loss
revenue for the retail company. An effective and
timely forecasting model is an urgent and
indispensable tool for handling the inventory level in
the retail business. On the other hand, poor
forecasting methods would result in redundant or
insufficient stock that will affect the income and
competitive advantage directly. Therefore, it is a very
*
Corresponding author: d927810@oz.nthu.edu.tw
food within a modern retail industry.
Since managers in retails usually lack an
accurate forecasting tool, they have to rely on their
own experience or consult the point of sales system
(POS system) to predict the future demand and place
purchasing orders. Few decision makers adopt
statistical methods, such as the moving average
method or exponential smoothing to deal with the
time daily problems. LeVee [27] indicated that
accurate sales forecasting was obtainable and that it
can help the decision-makers to calculate the
production and material costs and determine the sales
price. In fact, most conventional sales forecasting
methods used either factors or time series data to
determine the sales prediction. The relationship
between the past time series data (independent
variables) and the sales prediction (dependent
variable) is always too complicated to acquire an
advantageous ordering suggestions by using the
unsuited statistical approaches. Practically, the POS
system actually provides some forecasting
suggestions for the managers to place orders.
However, most decision-makers still prefer to place
the same quantity as usual or depend on their own
108 International Journal of Electronic Business Management, Vol. 9, No. 2 (2011)
intuition instead of model-based approaches. In this
paper, we present a relatively novel neural network
methodology, Grey relation analysis integrated with
extreme learning machine (GELM) to construct a
forecasting model in the fresh food sector of the retail
industry.
Sales in the retail sector exhibit strong seasonal
variations. Historically, modeling and forecasting
seasonal data is one of the major research efforts and
many theoretical and heuristic methods have been
developed in the last several decades. The available
traditional quantitative approaches include heuristic
methods such as time series decomposition and
exponential smoothing as well as time series
regression and autoregressive and integrated moving
average (ARIMA) models that have formal statistical
foundations [7]. Nevertheless, their forecasting ability
is limited by their assumption of a linear behavior and
thus, it is not always satisfactory [37]. Recently,
artificial neural network (ANN) have been applied
comprehensively in sales forecasting [17,31], pattern
recognition [26], aggregate retail [7], PCB industry
[11]. Most studies indicate that ANN have the better
performance than conventional methodology [23,24].
This flexible data-driven modeling property has made
the ANN model an attractive tool for many
forecasting tasks. However, most ANN and its
varieties used gradient-bases learning algorithms,
such as back-propagation network (BPN), and faced
many difficulties in stopping criteria, learning rate,
learning epochs, over-tuning, local minima and long
computing time. A new learning algorithm for
single-hidden-layer feed-forward neural network
(SLFN) called the extreme learning machine (ELM)
has been proposed recently and overcome the
previous disadvantages as we mentioned [18,19,30,
32,34].
The rest of this study will illustrate the GELM
model for improving the accuracy of forecasting fresh
foods in the retail industry. Section 2 reviews the
related sales forecasting literatures including the
traditional statistical model and the ANN model.
Section 3 presents the methodology of this study in
solving the real forecasting problems. Section 4
describes the development of various forecasting
models and discusses the comparison results. Then
the conclusion will be provided in Section 5.
2. LITERATURES REVIEW
The available traditional time series forecasting
approaches are divided into two groups i.e. the
univariate time series model and multivariate time
series model. One of the major limitations of
traditional statistical methods is that they are
essentially linear methods. The sales status of fresh
food is often influenced by uncertain factors such as
weather, promotion, competitive market, etc.
Therefore, traditional methodologies require some
improvements for providing better forecasting
suggestions.
Next, we will briefly introduce the traditional
statistical forecasting models and ANN model in
sales forecasting applications.
2.1 Traditional Statistical Model for Time Series
Data Forecasting
In the past several decades, many researchers
had used many kinds of forecasting methods to study
time series events. Univariate time series models
include the moving average model, exponential
smoothing model, and auto-regressive integrated
moving average (ARIMA) model. Box and Jenkins
[9] developed ARIMA, a basic principle of this
model is the assumption of linearity among the
variables. However, many time series events may not
hold on the linearity assumption. Clearly, ARIMA
models could not be effectively used to capture and
explain non-linear relationships, especially for
handling actual sales forecasting problems. When it is
applied to processes that are non-linear, forecasting
errors often increase greatly as the forecasting
horizon becomes longer. For improving forecasting
non-linear time series events, many researchers have
developed alternative modeling approaches. These
approaches include non-linear regression models, the
bilinear model, the threshold auto-regressive model,
the auto-regressive heteroscedastic model (ARCH)
[16] and generalized auto-regression conditional
heterskedasticity (GARCH) model [4].
Although the traditional methods have been
proved somewhat effective, they still have certain
shortcomings. Zhang [36] indicated that although
these methods had displayed some improvements
over the linear models in some specific cases, they
tended to be applied to special events, and lacked
generality and were poorly implement.
2.2 ANN Model in Time Series Data Forecasting
The ANN model is a model-free approach that
was been recently applied in forecasting due to its
competent performance in forecasting and pattern
recognition. In general, it consists of a collection of
simple non-linear computing elements whose inputs
and outputs are tied together to form a network. Many
studies have attempted to apply ANN model to time
series forecasting. Weigend. et al. [35] introduced the
''weight-elimination'' back-propagation learning
procedure and applied it to sunspots and
exchange-rate time series. Tang and Han [33]
compared the ANN model with the ARIMA model by
using international airline passenger traffic, domestic
car sales and foreign car sales in the USA.
Chakraborty et al. [10] presented an ANN approach
based on multivariate time-series analysis, which can
F. L. Chen and T. Y. Ou: Constructing a Sales Forecasting Model by Integrating GRA and ELM
accurately predict the flour prices in three cities in the
USA. Lachtermacher et al.[20] developed a calibrated
ANN model. In this model, the Box-Jenkins methods
are used to determine the lag components of the input
data. Moreover, it employed a heuristics method to
choose the number of hidden units.
Ansuj et al. [5] expressed a comparison made
for the time series model with interventions related to
the ANN model for analyzing the sales behavior of a
medium-size enterprise. The results showed that the
ANN model was more accurate. Furthermore, Bigus
[7] used promotion, time of year, end of month age,
and weekly sales as inputs for the ANN model to
forecast the weekly demand with promising results.
Kuo and Chen [22] believed that the traditional
statistic approaches had higher performance dealing
with data of seasonality and trends, but they are
inappropriate for unexpected situations.
In the ELM method, the input weights (linking
the input layer to the hidden layer) and hidden biases
are randomly chosen and the output weights (linking
the hidden layer to the output layer) are analytically
determined by using the Moore-Penrose (MP)
generalized inverse. As this new learning algorithm
can be easily implemented, it tends to identify the
smallest training error, obtains the smallest norm of
weights and the good generalization performance,
and runs extremely fast.
2.3 Demand Forecasting of the Retail Industry
Chu and Zhang [13] and Alon et al.[4]
developed the artificial networks for forecasting the
aggregate retail sales. Alon et al.[21] compared with
traditional methods including Winter exponential
smoothing, Box-Jenkins ARIMA model, and
multivariate regression. The derivative analysis
shows that the nonlinear neural networks model is
able to capture the dynamic nonlinear trend and
seasonal patterns, as well as the interactions between
them. Chu et al.[7] found the non-linear models are
able to outperform linear counterparts in
out-of-sample forecasting, and prior seasonal
adjustment of the data can significantly improve
performance of the neural network model. The
overall best model is the neural network built on
deseasonalized time series data. Doganis et al. [15]
also presented a evolutionary sales forecasting model
which is a combination of two artificial intelligence
technologies, namely the radial basis function and
genetic algorithm. The methodology is applied
successfully to sales data of fresh milk provided by a
major manufacturing company of daily product.
Aburto and Weber [1] presented a hybrid intelligent
system combing ARIMA model and MLP neural
networks for demand forecasting. It shows
improvements in forecasting accuracy and a
replenishment system for a Chilean supermarket,
which leads simultaneously to fewer sales and lower
109
inventory levels. Au et al. [6] and Sun et al.[37]
developed different sales forecasting models in
fashion retailing. Au et al. [6] illustrated evolutionary
neuron network for sales forecasting and showed that
when guided with the BIC and the pre-search
approach, the non-fully connected neuron network
can converge faster and more accurate in forecasting
for time series than the fully connected neuron
network and traditional SARIMA model. Forecasting
is often time crucial, the improvement of convergence
speed makes widely applicable to decision-making
problems. Sun et al [37] applied ELM neural network
model to investigate the relationship between sales
amount and some significant factors which affect
demand. The experiment results demonstrate that the
proposed methods outperform than back-propagation
neural network model. Ali et al. [3] explored
forecasting accuracy versus data and model
complexity tradeoff in the grocery retailing sales
forecasting problem, by considering a wide spectrum
in data and technique complexity. The experiment
results indicated that simple time series techniques
perform very well for periods without promotions.
However, for periods with promotions, regression
trees with explicit features improve accuracy
substantially. More sophisticated input is only
beneficial when advanced techniques are used. Chen
et al. [12] developed the GMFLN forecasting model
by integrating GRA and MFLN neural networks.
GRA sieves out the more influential factors from raw
data then transforms them as the input data in the
MFLN model. The experimental results indicated the
proposed forecasting model outperforms than MA,
ARIMA and GARCH forecasting model of the retail
goods.
According to the above literature review, the
retail forecasting problems are usually a time and
accuracy crucial issue. This paper aims to construct a
more efficiently sales forecasting model that could
perform more accurate and faster than the univariate
and multivariate time series model for retail goods.
As we know, sales will be affected by many dynamic
factors. GRA and the expert knowledge will sieve the
more influential factors out as the input variables of
the ELM model. Providing an improved forecasting
method that can help the managers to make decisions
for ordering the appropriate amounts will be the focal
point of this research.
3. METHODOLOGY
The following section presents the purposed
sales forecasting model by integrating GRA and
ELM. The GRA computes the Grey Relation Grades
(GRG), which are the influential degree of a
compared series by relative distance. Subsequently,
the data composed of these input and output pairs are
divided into training, testing and predicting data. All
110 International Journal of Electronic Business Management, Vol. 9, No. 2 (2011)

the data sets should be normalized into a specific
range [-1,1]. The ELM would offer predicting results
then process the unnormalization step, to convert the
data back into unnormalized outcomes.
3.1 Grey Relation Analysis (GRA)
Deng [14] proposed the Grey Relation Analysis
(GRA) mathematics. It has been successfully applied
in many fields such as management, economics, and
engineering. The Grey Relation Grades (GRG) is the
influence degree of a compared series on the
reference series that can be represented by the relative
distance. The smaller distance would have more
influence. The degree of influence describes the
relative variations between two factors that indicate
the magnitude and gradient in a given system. The
GRG between two series, the compared series and the
reference series, is called relational coefficient
r ( x0 (k ), xi (k )) . Before calculating the Grey relational
coefficients, each data series must be normalized by
dividing the respective data from the original series
with their averages.
After performing Grey data processing, the
transformed reference sequence is x0={x0(1), x0(2),...,
x0(n)}. The compared sequences are denoted by
xi={xi(1), xi(2),,xi(n)}, i=1 to m. The relational
coefficient r ( x0 (k ), xi (k )) between the reference
series x0(t) and the compared series xi(t) at time t=k
can be calculated using the following equation [20]:
3.2 Normalization and Unnormalization
The normalized method for the input and
output data set is described as follows:
X ij Max{ X ij } ( X ij Min{ X ij })
X normalize
( Max{ X ij } Min{ X ij })
i 1,2,..., n; j 1,2,..., N (3)
The unnormalized method for the predicting
result is described as follows:
Punnormalize
Pij ( Max{ X ij } Min{ X ij }) Max{ X ij } Min{ X ij }
2
i 1,2,..., n; j 1,2,..., N (4)
3.3 Extreme Learning Machine (ELM)
ELM is a single hidden-layer feed-forward
neural network (SLFN). It randomly chooses the
input weight matrix W and analytically determines
the output weight matrix of SLFN. Suppose that we
are training a SLFN with K hidden neurons and an
activation function vectors g ( x) [ g1 ( x), g 2 ( x),...,
g k (x)] to learn N distinct samples ( xi , ti ) , where
xi [ xi1 , xi 2 ,..., xin ]T R n and ti [ti1 , ti 2 ,...tim ]T R m .
If the SLFN can approximate the N samples with a
zero error then we have

N
r ( x0 , xi (k )) j 1
|| y j t j || 0 (5)
min min | x0 (k ) xi (k ) | max max | x0 (k ) xi (k ) |
i k i k
Where y is the actual output value of the
| x0 (k ) xi (k ) | max max | x0 (k ) xi (k ) |
i k SLFN. There also exist parameters i , wi and bi
k=1,2,,mi=1,2,,m (1) such that

While is a distinguishing coefficient K

(0< 1) that is used to adjust the range of the g (w x

i 1
i i i j bi ) t j j 1,2,..., N (6)
comparison environment and control level of
differences in the relational coefficients. When
=1, the comparison environment is altered. When Where wi [ wi1 , wi 2 ,..., wim ]T is the weight
=0, the comparison environment disappears. In vector connecting the ith hidden node and the input
cases, when the data variation is large, usually nodes, i [ i1 , i 2 ,..., im ]T is the weight vector
ranges from 0.1 to 0.5 for reducing the influence of connecting the ith hidden node and the output node,
extremely large mini mink | x0 (k ) xi (k ) | . and bi is the threshold of the ith hidden node. The
where | x0 (k ) xi (k ) | denotes the absolute operation wi x j in Equation (6) denotes the inner
difference between the two sequences, which product of wi and x j . The above N equations can
represent the distance x0i (k ) after data be written compactly as:
transformation is the minimum (maximum) distance
for the time in all compared sequences which form H T
the comparison environment. While mini mink Where
|x0(k)-xi(k)| equals zero since the transformed series H ( w1 ,..., w , b1 ,..., b , x1 ,...x N )
~ ~
N N
will crisscross at a certain point.

maxi maxk | x0 (k) xi (k) | [maxi maxk | x0 (k) xi (k) |] (2)

F. L. Chen and T. Y. Ou: Constructing a Sales Forecasting Model by Integrating GRA and ELM 111

g (w x b ) g (w x b ) rational analysis but also avoid the preconceived

1 1 1 1
N
~ ~
N opinions of experts.
Step 5: Divide the input and output data into
g ( w x b ) g ( w x b ) training data, testing data and predicting data
1 N 1 ~
N
N~
N
T t1T input layers, hidden layers and output layers.
1 Different from traditional learning algorithms the
and T (7)
T t NT proposed learning algorithm tends to reach the
N N m
~ ~ N m
In ELM, the input weights and hidden biases
are randomly generated instead of tuned. Thus the
determination of the output weights is as simple as
finding the least-square (LS) solution to the linear is
H (8)
where H is the MP generalized inverse of
the matrix H. The minimum norm LS solution is
unique and has the smallest norm among all the LS
solutions.
3.4 Steps of Constructing the GELM Forecasting
Model
This section will describe how to constructing a
Grey relation analysis and Extreme Learning
Machine (GELM) forecasting model systematically.
The basic elements of the present study are presented
in Figure1, and can be briefly described as follows:
Step 1: Data collection
Collect the daily sales and price data from the
target store and the other relative series data provided
by neighboring stores or some government agencies
as the forecasting references. One of the data is the
forecasting target ( x0 X ) , and the other is the m
comparison series data ( x0 X , i 1,2,..., m) where
( X {x | 1,2,..., m} .
Step 2: Normalize the initial data
All initial data is composed of a moving
window of fixed length along with the series and the
input data will be normalized by Equation (3). After
normalizing all the collected data, each data set will
fall into the interval between -1 and 1.
Step 3: Calculate the grey relation grades (GRG)
The grey relational grades between the two
series at a certain time point t is represented by grey
relational coefficient r ( x0 (k ), xi (k )) , define as
Equation (1). The range of GRG is closed interval
between 0 and 1. The great GRG between two data
sets, the closer the relationship between these data
sets are.
Step 4: Select the more affective factors
According to the ranking of the GRG, an expert
who owns the domain knowledge can select the
important factors that affect the sales amounts more
significant. Step 2 and Step 3 not only can provide a
The ELM is a SLFN with three main layers,
smallest training error and obtains the smallest norm
of weights. The ELM can be summarized as follows:
Algorithm ELM: Given a training set
N {( xi , ti ) | xi R n , ti R m } , activation function
~
g(x), and hidden node number N ,
Step 5.1 Randomly assign input weight wi and
~
bias bi , i 1,2,..., N .
Step 5.2 Calculate the hidden layer output matrix
H.
Step 5.3 Calculate the output weight .
H T where T [t1 ,..., t N ]T
H is the MP generalized inverse of matrix H
(See Appendix)
Step 6: Select different activation functions and
neuron number of hidden nodes
The ELM randomly chooses hidden nodes and
analytically determines the output weights. There are
three activation functions (sigmoidalsinehardlim)
and four kinds of hidden node (2050100200) can
be select.
Step 7: Input training and testing data and predict
the further sales amounts
Obtain the predicted results of training and
testing data then unnormalize the outcomes by
Equation (4)
As discussed in the Appendix, we have the
following important properties:
1. Minimum training error
The special solution H T is one of the
least-square solution of a general linear system
H T , meaning that the smallest training error can
be reached by this special solution:
H T HH T T min H T (9)
Although almost all learning algorithms wish to
reach the minimum training error, however, most of
them cannot reach it because of local minimum or
infinite training iteration is usually not allowed in
applications.
2. Smallest norm of weight
Further, the special solution H T has the
smallest norm among all the least-square solutions of
H T :
112 International Journal of Electronic Business Management, Vol. 9, No. 2 (2011)
H T ,
{ : H T Hz T , z R N N (10) neural network construction while the test set is used
The minimum norm least-square solutions of
H T is unique, which is H T network. The structural size of the GELM model
Step 8: Measure the accuracy of the forecasting
results
Measure the accuracy of the forecasting results
by MAD and MSE criterion.
1. MSE (Mean Square Error)
N
t 1
( At Ft ) 2
MSE (11)
N 1
2. MAD (Mean absolute deviation)
1
N
MAD t 1
At Ft (12)
N
Where At is the actual amount and Ft is the
forecasting amount, respectively.
Step 9: Repeat step 6~8 for the same data
The GELM model will offer the best predicted
results then measure the accuracy of those results. We
will do some statistical tests (paired t-test) on
obtained results of the sigmoidal activation
function, sine activation function and hardlim
activation function.
Figure1: Outline of present study
Figure 2 shows the framework and non-linear
transformation of the GELM network that
incorporates input layers, hidden layers and output
layers. Generally, GELM model in practical
applications will divide the raw data into a training
set and a testing set. The training set is used for
for measuring the model predictive ability. The
training process for determining the function is
determined by using the linking arc weights of the
depends on the number of hidden nodes. The input
data should provide strong representative after the
GRA and opinions according to expert knowledge.
Figure 2: The framework and non-linear
transformation of the GELM network
3.5 The Properties of the GELM Forecasting
Model of the Retail Industry
The GELM forecasting model combined Grey
relation analysis (GRA) and Extreme learning
machine (ELM) methodologies. The GRA in the grey
system is an important problem-solving method that
is used when dealing with the similarity measures of
complex relations. The main purpose of GRA in the
proposed hybrid-forecasting model is to realize the
relationship between two sets of time series data in
relational space [25]. The Grey relational grade
(GRG) is a globalized measure adopted for GRA. It is
used to describe and explain the relation between two
sets. If the data for the two sets at all individual time
points were the same, then all the relational
coefficients would equal one. The great GRG
between two sets, the closer the relationship between
the sets are. The higher GRG of the candidate data
sets would be the delegates as the input data sets of
the GELM model for enhancing the predict ability.
Owing to the learning speed of the feedforward
neural network is far slower than required and it has
been a major bottleneck in practical application for
past decades. This study applied ELM for
single-hidden layer feed-forward neural networks that
randomly chooses hidden nodes and analytically
determines the output weights of the networks. The
major property of the ELM can abandon the slow
gradient-based learning speed and parameters tuned
iteratively algorithms that are extensively used to
train neural network then provide good generalization
forecasting performance at extremely fast learning
speed.
The limitation of the purposed GELM
forecasting model is that lacks to consider the
influence of the financial crisis, free trade agreement,
F. L. Chen and T. Y. Ou: Constructing a Sales Forecasting Model by Integrating GRA and ELM 113

consumers behavior and advertisements. Besides, it

is more suitable regarding the mature product's
forecast but not the new announcement product on
the market.

4. EXPERIMENT RESULTS
AND DISCUSSIONS
In operational management in the retail
industry, it is indispensable to forecast the further
Figure 3: The sale quantities of the target brand
demand and place orders at various times of the day.
If the system can offer more accurate prediction
As we know, many factors will affect consumers
functions that can assist managers to cater for the
behavior in the actual retail industry. Among those
demand of customers and reduce scraped quantities
factors that would be described include how to select
of fresh food. Using the GELM model to predict sales
the most influential indices by using the analytical
amounts can increase the accuracy in the proposed
methodology to be the input data of the ELM model
system. The procedures of the experiments and the
as below. After normalizing the raw data and
results are described sequentially in the following
calculating the GRG of each index. The expert
subsections.
selected three factors with higher GRG to be the input
This study compared the GELM forecasting
data of the multivariate time series model and ELM
model with the multivariate statistical forecasting
model. The GRG of each factor is shown in Table 1.
methods such as the GARCH model, the
The selected factors will represent the more
Back-Propagation Network (BPN) as well as the
influential in the sales amounts of fresh food. The
GBPN and the GMFLN model by forecasting 120
three selected factors are W, TAs and TBS.
days sales. The GBPN model integrates the GRA and
Back-Propagation Networks and the GMFLN model
4.2 Experiment Results
integrate the GRA and Multilayer Functional Link
The experimental algorithms of the GARCH,
Networks. The GARCH model is built by E-view and
GBPN, GMFLM, and GELM import the same data
the simulation of relative BPN model are conducted
sets including three indices (W, TAs and TBS )
in MATLAB running on an ordinary notebook with a
selected by GRA and the last 7 days lagged data.
1.4 GHz CPU and 760MB RAM.
4.2.1 GARCH Forecasting Model
4.1 Data Collection and Analysis
Bollerslev [8] proposed the GARCH
Well-known retailers and a government
(Generalized ARCH) conditional variance
organization in Taiwan provided the initial data that
specification that allows for a parsimonious
can be separated into three different groups. Firstly,
parameterization of the lag structure. In analyzing the
the target store collected the daily sales data and price
time series model, several suitable models could
of 960ml containers of milk. The total numbers of the
explain the input data. We adopt two statistics to be
data was 334 as shown in Figure 3. We also collected
the criterions for choosing the best statistical
the sales amounts of other two different brands and
forecasting model.
their prices respectively. Ordinarily, the sales price
1. AIC (Akaikes Information Criterion)
would not be a fixed number, as it will be adjusted
Akaike [2] provided the following criterion to
due to many reasons such as promotion, the hot/cold
evaluate the fitness of the proposal statistical models.
season or some specific activities. Secondly, the sales
(Data set fitted by P parameters of the statistics
data was also obtained from two neighboring stores.
models.)
Those neighboring stores are in the same distribution
area. Stores were close to each other and they
serviced the same customers. We also collected the AIC(P)= n Ln( a2 ) 2 P (13)
sales amounts and price data from other stores.
Thirdly, the Central Weather Bureau provided the 2. SBC (Schwartzs Bayesian Criterion)
local weather records. Schawrtz [28] provided the similar criterion to
evaluate the fitness of the statistical models.

SBC(P)= n Ln( a2 ) P Ln(n) (14)

The best GARCH forecasting model will use

the same time series data and three indices (W, TAs
114 International Journal of Electronic Business Management, Vol. 9, No. 2 (2011)

and TBS) to predict the 120 days demand. After +0.06524TAs + 0.06403TBS-0.81732 t-1+
examining AIC(-0.75645) and SBC(-0.60712) the 0.93919 t-2-0.69544 t-3+0.14682 t-5+ t
best adapted model is described below. t~N(0, 2t)
2t0.02877-0.09753 2t-2 (15)
yt=0.83341yt-1-0.84852yt-2+0.79288yt-3+0.37308Wt

Table 1: The GRG of collected data

I. Data from target store II. Data from neighboring two stores
Target Brand GRG Target Brand in Neighboring A GRG
Sales amount TS Sales amount TAS 0.7560
Price TP 0.6232 Price TAp 0.6843
Competitive Brand 1 Competitive Brand 1in Neighboring A
Sales amount C1S 0.6786 Sales amount C1AS 0.7109
Price C1P 0.6935 Price C1Ap 0.6233
Competitive Brand 2 Competitive Brand 2 in Neighboring A
Sales amount C2S 0.6716 Sales amount C1BS 0.7322
Price C2P 0.6896 Price C1Bp 0.6571
Target Brand in Neighboring B
III. Weather data Sales amount TBS 0.7567
Weather records W 0.7737 Price TBp 0.6056
Competitive Brand 1in Neighboring B
Sales amount C1BS 0.6985
Price C1Bp 0.7012
Competitive Brand 2 in Neighboring B
Sales amount C2BS 0.7345
Price C2Bp 0.7021

4.2.2 GBPN Forecasting Model
Generally, the BPN is a typical type of artificial
neural networks model, which is a class of
generalized non-linear nonparametric model that was
inspired by studies of the brain and nervous system.
BPN is composed of several layers of input, hidden
and output nodes. It is a challenge to develop
appropriate size of BPN model for combining the
available data in the training data and the testing data.
The structure size of the model depends on the
number of input nodes and the number of hidden
nodes. There are no systematic reports on the
decision of input and hidden nodes. Different input
and hidden nodes have a significant impact on the
learning and prediction ability of the network.
As mentioned before, the purpose of GRA is to
realize the relationship between two sets of time
series data in a relational space. In the GBPN model,
the input nodes of the neural network are usually the
past, lagged observations and more influential factors
that will affect the sales amounts, and the output node
is the real sales data. We expect to obtain an
applicable GBPN forecasting model that has
generalization and good forecasting capability.
networks [12]. It is composed of one or two hidden
layers that have competent continuous function in a
theoretical time-series. In the analogous models, the
hidden nodes are used to capture the non-linear
structures. Making the decision for how many hidden
nodes should be used is another difficult issue in the
neural network forecasting model construction
process. In practice, the numbers of hidden nodes
were chosen through experiments or by
trial-and-error without any theoretical basis to guide
the decision.
Some theories suggest that more hidden nodes
can increase the accuracy in approximating a
functional relationship but it still causes the
over-fitting problem. This problem is more likely to
happen in the GMFLN model than in other statistical
models. The over-fitting problem solution is to find a
parsimonious model that fits the data well. Another
way to tackle the over-fitting problem is to divide the
time series into three sets; training, testing and
validation [21]. The first two sets are used for model
building and the last is used for model validation or
evaluation. The best GMFLN model is the one that
gives the best results in the predicting set.

4.2.3 GMFLN Forecasting Model 4.2.4 GELM Forecasting Model

The MFLN incorporates basic input nodes, The learning speed of ELM is faster than other
logarithmic input nodes, and exponential input nodes traditional classic gradient-based learning algorithms.
in the input layer for improving the forecasting ability This advantage has already been recognized in many
and reducing the learning cycle time of the nervous further studies. In order to obtain higher prediction
F. L. Chen and T. Y. Ou: Constructing a Sales Forecasting Model by Integrating GRA and ELM 115

accuracy, we designed the experiments with different
activation functions for the number of hidden nodes.
In the GELM forecasting model, we compare the
accuracy with sigmoidal activation function, and
hardlim activation function in the different numbers
of hidden nodes. The numbers of hidden nodes are
selected from the 20, 50, 100 and 200. The GELM
forecasting model will use the same time series data
and three indices (W, TAs and TBS) to predict the
120 days demand.
Table 2 shows the training time of GELM,
GBPN and GMFLM. The GELM learning algorithm
spent 0.3705s CPU time with the Sigmoidal
activation function and 200 hidden nodes. The
traditional gradient-based learning algorithm as
GBPN and GMFLN cost too much training time
compared with GELM.

Table 2: Training time of different algorithms

GELM GBPN GMFLM
Activation function
Sigmoidal Sine Hardlim
(Sig.) (Sin.) (Har.)
20 0.0100 0.0100 0.0100
Hidden 50 0.0200 0.0200 0.0200
50 11.573 50 4.216
nodes 100 0.0801 0.0701 0.0801
200 0.3705 0.3805 0.3805

Table 3 shows the performance of the GELM
forecasting model in different activation functions
and hidden nodes. The more hidden node has a better
ability to predict the sales amounts. The best
forecasting results have MAD of 0.07039 and MSE
of 0.00907 with sigmoidal activation function and
200 hidden nodes.
In the GELM model, the input weights and
hidden biases are randomly chosen and the output
weights are analytically determined by using the
Moore-Penrose generalized inverse. In order to
compare training time and performance with different
activation functions we tested 30 times each run and
did some statistical tests (paired t-test) on obtained
results to examine the statistically significant
difference. The paired t-test is a widely used method
to examine whether the average difference of
performance between two methods over various data
sets is significantly from zero. If the p-value
generated by a paired t-test is lower than the
significant level (0.05) that indicate the difference
between the two methods.

Table 3: Performance of different activation functions and hidden nodes

Hidden nodes
Activation function Criterion 20 50 100 200
MAD 0.13192 0.13032 0.11908 0.07039
Sigmoidal (Sig.)
MSE 0.03027 0.02789 0.02221 0.00907
MAD 0.15315 0.14177 0.12049 0.07691
Sine (Sin.)
MSE 0.04030 0.03113 0.02442 0.01000
MAD 0.14310 0.12870 0.11234 0.07264
Hardlim (Har.)
MSE 0.03548 0.02581 0.02126 0.00998

Table 4 shows the training time of the GELM
with different activation functions and different
hidden nodes. There is no significant difference when
the numbers of hidden nodes are 20 and 50. When
hidden nodes are 100, the training time of the hardlim
activation function is significantly different between
sigmoidal and sine activation function. But the
sigmoidal and sine activation function have no
difference. When hidden nodes are 200, these three
activation functions have significant differences. The
hardlim activation function is better than the
sigmoidal activation function and the sigmoidal
activation function is better than the sine activation
function. Table 5 shows the MAD of GELM within
different activation functions and different hidden
nodes. The p-value in sigmoidal and sine
activation function is always lower than 0.05, which
means there is a significant difference between these
two activation functions and the performance of the
sigmoidal activation function is always better than the
sine activation function. The hidden nodes are 20, 50
and 100, the p-value in the sigmoidal and the hardlim
activation function are lower than 0.05, the sigmoidal
activation function is significantly better than hardlim
activation function. The hidden nodes are 20, 100 and
200, the p-value in the sine and the hardlim activation
function are lower than 0.05, the hardlim activation
function is significantly better than sine activation
function.
116 International Journal of Electronic Business Management, Vol. 9, No. 2 (2011)

Table 4: Paired t-test of training time between different activation function

Paired Differences
Hidden Paired 95% Confidence Interval of
nodes Methods Mean StDev the Difference t P values
Lower Upper
Sig.Sin. 0.00020 0.00142 -0.00033 0.00073 0.77 0.448
20 Sig.Har. 0.00000 0.00158 -0.00059 0.00059 0.00 1.000
Sin.Har. -0.00020 0.00110 -0.00061 0.00021 -1.00 0.326
Sig.Sin. -0.00000 0.00455 -0.00170 0.00170 0.00 1.000
50 Sig.Har. 0.00000 0.00643 -0.00240 0.00240 0.00 1.000
Sin.Har. 0.00000 0.00643 -0.00240 0.00240 0.00 1.000
Sig.Sin. -0.00200 0.00610 -0.00428 0.00028 -1.80 0.083
100 Sig.Har. 0.00400 0.00498 0.00214 0.00586 4.40 0.000*
Sin.Har. 0.00600 0.00498 0.00414 0.00786 6.60 0.000*
Sig.Sin. -0.00090 0.01062 -0.01297 -0.00503 -4.64 0.000*
200 Sig.Har. 0.01702 0.01647 0.01087 0.02317 5.66 0.000*
Sin.Har. 0.02602 0.01306 0.02115 0.03089 10.92 0.000*

Table 5: Paired t-test results of predicting between different activation function in MAD
Paired Differences
Hidden Paired 95% Confidence Interval of
nodes Methods Mean StDev the Difference t P values
Lower Upper
Sig.Sin. -0.00735 0.00756 -0.01017 -0.00452 -5.32 0.000*
20 Sig.Har. -0.00272 0.00435 -0.00434 -0.00110 -3.43 0.002*
Sin.Har. 0.00463 0.00832 0.00152 0.00773 3.05 0.005*
Sig.Sin. -0.00538 0.00971 -0.00901 -0.00176 -3.04 0.005*
50 Sig.Har. -0.00413 0.00925 -0.00758 -0.00068 -2.45 0.021*
Sin.Har. 0.00125 0.01081 -0.00278 0.00529 0.64 0.530
Sig.Sin. -0.00837 0.00620 -0.01068 -0.00605 -7.40 0.000*
100 Sig.Har. -0.00378 0.00466 -0.00552 -0.00203 -4.43 0.000*
Sin.Har. 0.00459 0.00737 0.00184 0.00733 3.42 0.002*
Sig.Sin. -0.00485 0.00532 -0.00684 -0.00286 -4.99 0.000*
200 Sig.Har. 0.01204 0.04376 -0.00430 0.02838 1.51 0.143
Sin.Har. 0.01689 0.04478 0.00017 0.03361 2.07 0.048*

Table 6 shows the MSE of GELM within
different activation functions and different hidden
nodes. The p-value in sigmoidal and sine
activation function are always lower than 0.05, which
means there is a significant difference between these
two activation functions and the performance of
sigmoidal activation function is always better than
sine activation function. The hidden nodes are 50 and
100, the p-value in sigmoidal and hardlim is are
lower than 0.05, the sigmoidal activation function is
significantly better than hardlim activation function.
The hidden nodes are 20 and 200, the p-value in
sine and hardlim activation function are lower
than 0.05, the hardlim activation function is
significantly better than sine activation function.
From above results, the sigmoidal activation function
has significant differences between the sine activation
function. But, there is no significant difference
between sigmoidal vs. hardlim or sine vs.
hardlim.
4.3 Discussion
Table 7 presents the results of different
forecasting models. The best GARCH model has
MAD of 0.13876 and MSE of 0.03191. The best
forecasting result of GBPN model has MAD of
0.09837 and MSE of 0.01979. The best forecasting
result has MAD of 0.08911 and MSE of 0.01883. The
best GELM model has MAD of 0.07039 and MSE of
0.00907. The GELM forecasting model we proposed
has the smallest predicting errors and the learning
speed is extremely faster than others.
F. L. Chen and T. Y. Ou: Constructing a Sales Forecasting Model by Integrating GRA and ELM 117

Table 6: Paired t-test results of predicting between different activation function in MSE
Paired Differences
Hidden Paired 95% Confidence Interval of
nodes Methods Mean StDev the Difference t P values
Lower Upper
SigSin -0.00321 0.00316 -0.00439 -0.00203 -5.56 0.000*
20 SigHar -0.00051 0.00174 -0.00116 0.00014 -1.62 0.116
SinHar 0.00269 0.00072 0.00122 0.00417 3.74 0.001*
SigSin -0.00184 0.00329 -0.00307 -0.00061 -3.07 0.005*
50 SigHar -0.00176 0.00280 -0.00280 -0.00071 -3.43 0.002*
SinHar 0.00009 0.00375 -0.00131 0.00149 0.13 0.900
SigSin -0.00213 0.00250 -0.00306 -0.00120 -4.67 0.000*
100 SigHar -0.00138 0.00167 -0.00020 -0.00075 -4.52 0.000*
SinHar 0.00075 0.00246 -0.00016 0.00167 1.68 0.104
SigSin -0.00083 0.00106 -0.00123 0.00044 -4.29 0.000*
200 SigHar 0.00168 0.00578 -0.00047 0.00384 1.60 0.121
SinHar 0.00252 0.00597 0.00029 0.04750 2.31 0.028*

Table 7: The compared results of different forecasting models

Model Type MAD MSE Training Time
Statistical time series model GARCH 0.13876 0.03191
GBPN 0.09837 0.01979 11.573
Artificial neural network model GMFLN 0.08911 0.01883 4.216
GELM 0.07039 0.00907 0.3705

5. CONCLUSIONS gradient-based algorithms, such as stopping

Recently, many researches and industrial
managers are interested in applying data mining and
artificial intelligence algorithms to deal with routine
problems. Sales forecasting plays a more and more
important role in operating management of
commercial enterprises especially in the retail idustry.
In this paper, we present a relatively novel neural
network methodology, Grey relation analysis
integrated with extreme learning machine (GELM) to
construct a forecasting model for fresh food. The
proposed GELM model includes several major
characteristics as following:
(1) This study applied GRA, which is a
problem-solving method that used when dealing
with similarity measures of complex relations.
The main purpose of GRA in this model is to
realize the relationship between two sets of time
series data in the relational space and sieve out
the more influential factors as the input data to
the ELM.
(2) The learning speed of GELM is extremely fast
than GBPN and GMFLN. The learning phase of
GELM can be completed less than a second
within different activate functions and hidden
nodes.
(3) The proposed GELM has better generalization
performance than the gradient-based algorithms
such as GBPN and GMFLN.
(4) The GELM method can avoid many harmful
issues that happened in the traditional
criteria, local minima, improper learning rate and
over-fitting problems.
(5) The GELM tends to reach the solutions
straightforward without trivial issue and looks
much simpler than most feed-forward neural
networks algorithms.
The experiment results demonstrated the
effectiveness of the GELM was superior to other
forecasting models. In summary, this research would
provide the following contributions in practical
forecasting problems in the retail industry.
(1) Influential factor selections
The Grey relation analysis (GRA) is able to
identify the appropriate factors for forecasting future
values. These influential factors can elucidate and
incorporate into the input data.
(2) Forecasting efficiency
The efficiency of GELM is better than other
GBPN or GMFLN methods. For the demand of fresh
food fluctuates usually, the faster learning speed can
provide timely and frequent forecasting results for the
managers reference. When hidden nodes are bigger,
the learning speed of the hardlim activation function
is better than the sigmoidal activation function and
the sigmoidal activation function is better than the
sine activation function.
(3) Forecasting performance
This research applies many forecasting models
to be the compared benchmark. According to the
results, the GELM model has the smallest MAD and
MSE than GARCH, GBPN, and GMFLN models.
118 International Journal of Electronic Business Management, Vol. 9, No. 2 (2011)
Therefore, GELM is a valid and effective forecasting
tool that can be further applied in similar field for
applications.
Examining the performance with different
activation functions by a paired t-test, the sigmoidal
activation function has significant differences with
the sine activation function in MAD and MSE
criterions.
In this paper, our experiments have
successfully demonstrated the GELM can be well
employed in sales forecasting for the retail industry.
It not only provides smaller predicting errors but also
improves the training speed more than other
forecasting models. Future research will focus on the
different temperature levels of fresh food in the retail
industry and improve the stability and learning speed
of the GELM model.
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ABOUT THE AUTHORS
Fei-Long Chen is a Professor of Industrial
Engineering and Engineering Management at
National Tsing-Hua University (NTHU), Hsinchu,
Taiwan. He received the B.S. degree in Industrial
Engineering from National Tsing-Hua University,
Taiwan, in 1982, and the M.S. and Ph.D degrees in
Industrial Engineering from Aubrun University, USA,
in 1988 and 1991. respectively. His currently research
interests include statistical process control, total
quality management, 6-sigma, engineering data
analysis, enterprise integration, enterprise resource
planning, and global logistics management. Currently
he is temporally transferred to Liteon Corp. and
serves as the Dean of IE Acodemy.
Tsung-Yin Ou is currently a Ph.D. candidate in the
Department of Industrial Engineering and
Engineering Management at National Tsing Hua
University, Taiwan. He received his B.S. degree at
National Chiao Tung University and M.S. degree at
Tunghai University in Tai Chung. He is also an
engineer of IE Department in China Steel Corporation,
Taiwan. His research interesting includes Data
Mining, Operation Management and ERP.
(Received September 2009, revised December 2009,
accepted December 2009)
120 International Journal of Electronic Business Management, Vol. 9, No. 2 (2011)

APPENDIX
Appendix 1 Appendix 2
Moore-penrose Generalized Inverse Minimum Norm Least-square Solutions of
The resolution of a general linear system General Linear System
Ax y , where A may be singular and may even For general linear system Ax y , we say that
not be square, can be made very simple by the use of x is a least-square solutions if
Moore-Penrose generalized inversed [29].
Definition 1: A matrix G of order n m is the Ax y min x Ax y where |||| is a norm in
Moore-penrose generalized inverse matrix A of order
m n , if Euclidean space (15)

AGA A, GAG G, ( AG ) T AG, (GA)T GA (14)

For the sake of convenience, the

Moore-Penrose generalized inverse matrix A will be
denote by A
F. L. Chen and T. Y. Ou: Constructing a Sales Forecasting Model by Integrating Gra and Elm 121

*

101

GELM






GELM
GARCHGBPNGMFLNGELM
(activation function)

*d927810@oz..nthu.edu.tw