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SALES FORECAST OPTIMIZATION IN SUPPLY CHAIN MANAGEMENT USING MARKET DATA

ANALYSIS

Ms. Anamika Mittal Enroll. No: 100280723010

Guided By: Mr. Chirag S. Thaker L.D. College of Engineering

16th March, 2012

ABSTRACT
 Enterprises use Supply chain for better performance.  Our aim is to achieve better Sales forecast from analysis of the 

 

Historical data. Different Forecasting Models are discussed and from them which model should be appropriate that can lead to better accuracy We are dealing with the Hybrid Exponential Smoothing Model which is the combination of Exponential smoothing model and Linear Regression analysis. Both models when working separately gives some measurable forecast errors, that is reduced using Hybrid model. Optimization can be performed on selected parameters/services to improve the efficiency

Decrease cost. Scope: Companies which get failure in supply at proper time. Customer satisfaction.INTRODUCTION Aim: To make a Hybrid Forecasting model which Gives better accuracy and sales forecast results. Efficiency. . Objectives: Increase Revenue.

. Information and Finance including : Manufacturer Supplier Wholesaler Retailer Consumer Used to balance supply with sales/demand. taking into considerations different parameters affecting it.Introduction Flow of Materials.

medium term (3months-2years). Price Sales forecasts are used for:  Production. long term(more than two years) . reduce costs Three Types: Demand/Sales. Supply. quarterly and annually. improve efficiency. often weekly. increase customer retention.Sales Forecasting  Process of looking ahead and predicting sales results over a designated      period. finance Differentiation of the sales forecasting procedure can solve the problem of having multiple objectives. sales revenue. monthly. personnel. marketing. Purchasing. It is based on: short term (0-3months).

forecasting sales to a new market  Includes.Forecasting Approaches Qualitative Methods  Used when results can be carried out from opinion. experience.g. judgement  New products  New technology  Involves intuition.  Jury of executive opinion  Delphi method  Consumer market survey Causal Methods: used when it uses dependent and independent variables to forecast the demand from historical data (Population. Multiple Regression . Advertising ) e. experience  E.g.. Linear Regression.

.      Moving average Weighted moving average Exponential Smoothing Trend Projections Naive approach .g.Quantitative Methods Used when situation is ‘stable’ and historical data exists  Existing products  Current technology  Heavy use of mathematical techniques  E. forecasting sales of a mature product  Includes.

Et = Dt .  Forecast error is the difference found by subtracting the forecast from actual demand for a given period. it is important to measure the accuracy of its forecasts.Ft where Et = forecast error for period t Dt = actual demand for period t Ft = forecast for period t .Forecasting Error  For any forecasting method.

|Et | MAD =  n  Mean absolute percent error (MAPE): A measurement that relates the forecast error to the level of demand MAPE = [ |E | / Dt ](100) t n .Measures of Accuracy  Cumulative sum of forecast errors (CFE): A measurement of the total forecast error that assesses the bias in a forecast. CFE = Et  Mean squared error (MSE): A measurement of the dispersion of forecast errors. Et2 MSE =  n  Mean absolute deviation (MAD): A measurement of the dispersion of forecast errors.

+ At-n /n Weighted Moving Average: Yf= w1 At-1 + w2 At-2 + w3 At-3 + …….α) (This Year's Forecast) Linear Regression Analysis: Yf = a + bX ( Regression Line) where. + wn At-n Cyclic Model:  Linear Cyclic Model: Yf = a + bX  Cyclic Forecaster: Yf= a + ucos (2π/N)x + vsin (2π/N)x  Cyclic forecaster with growth : Yf= a + bx + ucos (2π/N)x + vsin (2π/N)x  Quadratic Forecaster : Yf= a + bx + cx2 Exponential Smoothing Model: Y f= α At-1 + (1. Ft-1 = The exponentially smoothed forecast made for the prior period wi = the weight to be given to the actual occurrence for the period t-i Ai = the actual occurrence for the period t-i a= Average of Y actual u= constant of cosine function v= constant of sine function N= Total No. of years/months At-1 = The actual demand in the prior period α = The desired smoothing constant (lies between 0 & 1) Y = b is the slope X = the independent variable  .α) Ft-1  Next Year's Sales = α (This Year's Sales) + (1 .Equations of Existing Forecasting Models     Simple Moving Average: Yf= At-1 + At-2 + At-3 + …….

Snapshots of implemented forecasting models .

Simple Moving Average .

Weighted Moving Average .

Cyclic Linear Forecaster .

Cyclic Forecaster .

Cyclic Forecaster With Growth .

Quadratic Cyclic Forecaster .

Cyclic Seasonal Forecaster .

Cyclic Forecaster Comparison .

Simple Exponential Smoothing Forecasting .

Linear Regression Forecasting .

Combine chart of existing models .

of months/years  Suppose we want to find the forecast value for April-09 : Factor 1 Factor 2 Y : ((Yfa08 – Yaao8) + (Yfm09 – Yam09)) * (2/(N+1)) : (average (Yf08) – average (Ya08)) * (2/(N+1)) : Yam09 + Factor1 + Factor2 . Y new = Value which we want to predict Factor1 = ((Y forecast of previous year same month-Y actual of previous year same month) + (Y forecast of current year previous month .Y actual of current year previous month)) * α Factor2 = (average Y forecast of previous year .average Y actual of previous year) * α α = (2/(N+1)) N= No.Designing New Model  I have named the new model as Hybrid Exponential Smoothing model. Eq. for that: Y new= Y actual of past month and current year + factor1 + factor2 Where.

99229 -13. the sequence of accuracy (from MSE)is as following: WMA > SMA > Exponential smoothing > Regression Analysis > Linear & Quadratic forecaster > Cyclic > Cyclic forecaster with growth 3) Hybrid model is formulated to find better sales forecast compare to the results which are given by Exponential smoothing model and Linear Regression Analysis separately.45825 -8.0376 -0.2279 1067.335 -8.00125 MAPE -3.14918 -0. No 1 2 3 4 5 6 7 8 9 Model 3-month moving average Weighted moving average Linear forecaster Cyclic forecaster Cyclic forecaster with growth Quadratic forecaster Simple exponential smoothing Linear regression analysis Hybrid exponential smoothing model (Expected outcome) MAD -0.CONCLUSION 1) Following conclusion is made based on analysis of calculation of MAD. MAPE and MSE of different forecasting models: Sr.11159 -0.582 818.8611 -16.8463 2) From graphs shown in above slides.00581 MSE 420.20189 -0. I can say that Linear Regression Model gives best results and Exponential smoothing gives results less accurate than that.226 341.3959 419.41737 -3.01307 -0.0376 -0.00065 -0. .542251 -6.8313 985.467 1067.01284 -0.99229 5.114 1385.53305 -2.582 1262. The sequence of accuracy is as following: Linear Regression analysis > Simple Exponential Smoothing > Cyclic > Weighted Moving Average > Simple Moving Average 3) From above Table.

. I have checked that new Hybrid forecasting model gives better results nearly. I will check the feasibility practically and calculate error measures and prove the efficiency of the model.6 and that will help in finding better sales forecast when a person is having more amount of data (in months/years).  There are only individual equations of various forecasting models but no algorithm exists for any of them. so I will make an algorithm for the Hybrid model which will include step by step execution of the equation mentioned in chap.Future Work  I have studied available forecasting models and their equations.

Page no. Chapter-5 Forecasting.33 Dr. Chapter     4 Forecasting. 2000. Ravi Mahendra Gor.76 to 105.51 to 67. Ravishankar. 22. Adam and Ronald J. Page no. Dr. 1999. Chapter-6. Grewal. S.278-290 . “Higher engineering mathematics” Page no.73 to 93. “ Industrial Statistics and Operational management”. Dr. 5th Edition. Forecasting Techniques Michel J. Baker. pg. B. “Industrial Engineering and Management”. “Sales Forecasting”. “Production and Operation Management”.BIBLIOGRAPHY  Book Referred  R. 824 Ex. “Production and Operation Management”. 2008. Chapter-3 Forecasting. 2nd Edition. Paneerselvam. Everette E. Ebert. Page no. 1996.

“A Multi-Phase And Multiple Objectives Analysis Approach For Optimizing Performance of Supply Chain”. SUMMER 1999 .ISSN: 2013-0953. IEEE [3] Jasper Kleuskens. THE JOURNAL OF BUSINESS FORECASTING. Moon and John T. IEEE [4]Errol G. Hangzhou. PAN Xiaohong. Institute of Production Engineering. 2009. Mentzer. ” Vendor managed forecasting: A case study of small enterprise”.” Demand forecasting through categorisation: Development of a demand forecasting support model in a process industry context” . Satish Bansod. WANG Zhengxiao . ”Management of the Supply Chain. Zhejiang University. February 2006. “Improving Salesforce Forecasting”. 2009 – 2(1): 153-175 . IEEE [2] Eva Klemencic. “ Supply Chain Optimization using Multi-Objective Evolutionary Algorithms” [5] JIA Jiangming. IEEE [6] Mark A. ”. Links Referred: [1] Atul Borade.2006. China . JIEM. 310027.Pinto.Case of Danfoss District Heating Business Area”.

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