Individual Paper Logistic and Supply Chain Management

ANDI GUNAWAN

Forecasting Analysis in PT Indofood CBP Sukses Makmur Tbk

1. Introduction

Forecasting is the thought of a measure, such as, the demand for one or several products
in the coming period. In essence, forecasting is only an estimate, but by using certain
techniques, forecasting becomes more just an estimate. Forecasting can be said to be a
scientific estimate. Every decision-making of the situation in the future, then there must be a
prediction that underlies the decision making.
In production activities, forecasting is carried out to decide the amount of demand for a product
and is the first step in the production planning and control process. The purpose of forecasting
in production activities is to reduce uncertainty, so that an estimate is obtained that is close to
the real situation.
Forecasting objectives viewed by time consist of:
1. Short Term
Determines the quantity and timing of the item into production. Usually it is daily or
weekly and determined by Low Management.
2. Medium Term
Determine the quantity and time of production capacity. Usually it is monthly or quarterly
and is determined by Middle Management.
3. Long Term
Plan the quantity and time of production facilities. Usually it is annual, 5 years, 10 years,
or 20 years and determined by Top Management.
 Good forecasting has several important criteria, including accuracy, cost, and
convenience. The explanation of these criteria is as follows:
1. Accuracy
The accuracy of a forecast is measured by the results of the habit and consistency of the
forecast. Forecasting results are said to be biased if the forecasting is too high or too low
compared to the actual reality. Forecasting results are said to be consistent if the size of the
forecast error is relatively small. Forecasting that is too low will result in a shortage of
inventory so that consumer demand cannot be met immediately, as a result the company
may lose customers and profit in sales. Forecasting that is too high will result in an
accumulation of goods / supplies, so that a lot of capital is wasted. The accuracy of
forecasting results plays a role in balancing the ideal supply.
2. Cost
The cost required in making a forecast depends on the number of items being predicted, the
length of the forecasting period, and the forecasting method used. The selection of the
forecasting method must be in accordance with the available funds and the level of
accuracy desired, such as important items will be forecast by a simple and inexpensive
method. This principle is an adoption of Pareto law (ABC analysis).
3. Convenience
The use of forecasting methods that are simple, easy to make, and easy to apply will provide
benefits for the company. It is useless to use sophisticated methods but cannot be applied
to company systems due to limited funds, human resources, and technological equipment.
4. Precision
The first goal in demand forecasting is to obtain forecasting results with a high degree of
accuracy. There are two measures used in evaluating the accuracy of forecasting, namely
bias and consistency. Deviation occurs when the results of the forecast show continuously
high or low numbers. Consistency relates to the size or size of the error.
5. Response
The forecasting system must be stable in the sense that the forecasting results do not show
wild fluctuations due to excessive random factors. On the other hand, if the actual level of
demand changes, the forecast must also show the changing forecast results.
6. Simplicity
The simpler method of forecasting is always more desirable than the complicated method
because it will be easier to design, use and understand. If difficulties occur with the use of
 a simple method, it will be easier to trace the problems involved and make improvements.
However, the best choice is to be in accordance with the intended use.

In this case study, I will calculate the forecast for instant noodle production at
PT Indofood CBP Sukses Makmur to estimate production needs in 2020 and what steps can
be taken to meet these needs.

2. Company Profile

PT. Indofood CBP Sukses Makmur Tbk. (“ICBP”) is an established and leading producer
of branded consumer products, with main business activities including instant noodles, dairy,
snacks, food seasonings, nutrition and specialty foods and beverages. In order to support its
main business activities, ICBP also runs a packaging business that produces both flexible and
cardboard packaging.

ICBP offers a wide selection of everyday solutions for consumers of all ages and market
segments, through more than 40 ICBP product brands. Many of these brands are prominent
brands with significant market positions in Indonesia, and have earned the trust and loyalty of
millions of consumers over the years.

Supported by the extensive distribution network of the parent company, most of

the ICBP products are available throughout the archipelago, and ICBP can also meet market
demands in a timely and efficient way. Operational activities are carried out by more than 50
factories spread across various main areas in Indonesia, helping ICBP to be closer to demand
and to ensure the freshness of ICBP products in the market. In addition, ICBP products have
also been present in more than 60 countries in the world.

Vision

The vision of PT Indofood CBP Sukses Makmur Tbk. is “The Leading Consumer Good
Company”.

Mission

▪ To continuously Innovate, focusing on Consumers’ needs, delivering great Brands with

unparalleled Performance
▪ To deliver quality products which are loved by consumers
▪ To continuously improve our people, processes and technologies
▪ To contribute to the welfare of the society and environment in a sustainable manner
▪ To continuously improve stakeholders’ values

Award

▪ Halal Award 2012

▪ Innovative Nutrition Food Product Appreciation Award 2012
▪ Indonesia Best brand Award 2012
▪ Indonesia Customer Satisfaction Award 2012
▪ Indonesia Best Brand Award 2012
▪ Indonesia Original Brands Award 2012

Certification

▪ ISO 14001:2004 (Environmental Management System)

▪ SMK3 (Occupational Health and Safety Management)
▪ HACCP ISO 22000:2005 (Hazard Analytical Critical Control Points, Food Safety
Management System)
▪ OHSAS 18001:2007 (International Occupational health and Safety Management Standard)
▪ ISO 17025:2008 (Laboratory Management System)
▪ SNI (Indonesian National Standard)
▪ Halal (Halal Assurance by Indonesian Council of Ulama)
▪ GMP (Good Manufacturing Practices)
▪ ISP 9001:2008 (Quality Management Systems)
▪ PROPER (Performance Rating n Relation to Environmental Management)
▪ AIB (International Consolidated Standards for Food safety)

3. Problem Identification

Global consumption of instant noodles in 2018 grew 3.52% to 103.62 billion packs,
meaning that around 280 million servings of noodles are consumed every day. The world
consumption of instant noodles per capita is 13.6 packs. Indonesia is in second place with a
consumption of 12.54 billion packs. Then India is in third place with consumption of 6 billion
packs and Japan in fourth place with consumption of 5.78 billion packs. China was recorded as
the world's largest instant noodle consuming country in 2018. According to data from the
World Instant Noodles Association (WINA), consumption of instant noodles in mainland
China and Hong Kong reached 40.25 billion packs.
 According to the annual report of PT Indofood CBP Sukses Makmur Tbk (ICBP), in the
last 5 years, sales of instant noodles have always increased by more than 5%, except in 2015.
With the increasing sales increase, the Company needs to forecast production needs in 2020
and prepare strategies to meet these production targets.

4. Problem Analysis

In this paper, the sales forecast in 2020 will be forecast using the Time Series Forecast
Model - Linear Trend Forecast. Trend can be estimate using simple linear regression to fit a
line to a time series.

𝑌 = 𝑏0 + 𝑏1 𝑥

Where,

Y = forecast or dependent variable

x = time variable

b0 = intercept of the line

b1 = slope of the line

Instant noodle production from 2014 to 2019 is shown in the table below.

Year Demand
2014 15.262.000.000
2015 15.606.000.000
2016 16.248.000.000
2017 16.159.000.000
2018 17.133.000.000
2019 18.231.000.000

Table 4.1 Instant noodle production ICBP 2014 - 2019 (based on ICBP Annual Report)
From the data above, we will decide the trend line and forecast for the 2020 period.

Year Period (X) Demand (Y) X2 XY

2014 1 15.262.000.000 1 15.262.000.000
2015 2 15.606.000.000 4 31.212.000.000
2016 3 16.248.000.000 9 48.744.000.000
2017 4 16.159.000.000 16 64.636.000.000
2018 5 17.133.000.000 25 85.665.000.000
2019 6 18.231.000.000 36 109.386.000.000
∑X = 21 ∑Y = 98.639.000.000 ∑X 2 = 91 ∑XY = 354.905.000.000

Table 4.3 Linear trend forecast calculation

𝑛∑(𝑋𝑌) − ∑𝑋 ∑𝑌
𝑏1 =
𝑛∑𝑋 2 − ( ∑𝑋)2

6 (354.905.000.000) − 21 (98.639.000.000)
𝑏1 =
6 (91) − (21)2

6 (354.905.000.000) − 21 (98.639.000.000)
𝑏1 =
6 (91) − (21)2

58.011.000.000
𝑏1 = = 552.485.714
105

∑𝑌 − 𝑏1 ∑𝑋
𝑏0 =
𝑛

98.636.000.000 − 552.485.714 (21)

𝑏0 =
6

87.036.800.000
𝑏0 = = 14.506.133.333
6

The trend line is,

𝑌 = 𝑏0 + 𝑏1 𝑥

𝑌 = 14.506.133.333 + 552.485.714 𝑥
To forecast the demand for period 7 (year 2020), we substitute x = 7 into the trend equation
above.

Forecast for period 7 = 14.506.133.333 + 552.485.714 (7) = 18.373.533.333 packs.

Year Actual Forecast Error

2014 15.262.000.000 15.058.619.048 1,33%
2015 15.606.000.000 15.611.104.762 0,03%
2016 16.248.000.000 16.163.590.476 0,52%
2017 16.159.000.000 16.716.076.190 3,45%
2018 17.133.000.000 17.268.561.905 0,79%
2019 18.231.000.000 17.821.047.619 2,25%
2020 18.373.533.333

Table 4.3 Result linear regression forecast

Simple Linear Regression Forecast

20.000.000.000
18.000.000.000
16.000.000.000
14.000.000.000
12.000.000.000
10.000.000.000
8.000.000.000
6.000.000.000
4.000.000.000
2.000.000.000
-
2013 2014 2015 2016 2017 2018 2019 2020 2021

Actual Forecast

Average error = 1,4%

5. Conclusions and Recommendation

Based on the results of calculations using the Linear Trend Forecast method, noodle sales
growth increased by 0.78% from the previous year with a total need of 18,373,533,333 packs
with an error margin of 1.4%. From these data, the increase in demand is still relatively small
compared to previous years. By utilizing the current resources, it should be able to meet
existing demand needs.
 However, if you look at the data on global noodle consumption in the previous year,
which grew 3.52% to 103.62 billion packs, meaning that around 280 million portions of
noodles are consumed every day, ICBP's chances in the global market are still very high. The
collaboration with Pinehill Company Limited facilitates ICBP's path to reach the global
market. ICBP has 49% ownership of Pinehill Company Limited which has primarily engaged
in the manufacturing of instant noodles in Saudi Arabia, Nigeria, Turkey, Egypt, Kenya,
Morocco and Serbia, using the "Indomie" trademark under the licensing agreement with
PT Indofood Sukses Makmur Tbk, the parent entity of the Company.
Seeing the enormous long-term opportunity, it needs to focus on conquering the global
market, ICBP can make the decision to acquire all the ownership of Pinehill Company
Limited. The advantage and disadvantage of this decision are as follows.
Advantage:
▪ Increased noodle production and sales
▪ Increased revenue
▪ Company names are increasingly recognized by the world
▪ The company is mature so that management is good
Disadvantage:
▪ Need large capital in the acquisition process
▪ Due to lack of KAS, the acquisition will use loan funds so that it will increase the
company's liability burden.

6. Reference
Principles of Supply Chain Management by Wisner Tan Leong
www.indofoodcbp.com
Word Instance Noodle Association
Annual Report ICBP 2017
Annual Report ICBP 2018
Annual Report ICBP 2019