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

INTRODUCTION
Aim: To make a Hybrid Forecasting model which Gives better accuracy and sales forecast results.

Objectives: Increase Revenue, Customer satisfaction, Efficiency, Decrease cost.

Scope: Companies which get failure in supply at proper time.

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

Sales Forecasting
Process of looking ahead and predicting sales results over a designated

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

Forecasting Approaches
Qualitative Methods
Used when results can be carried out

from opinion, experience, judgement New products New technology Involves intuition, experience E.g., forecasting sales to a new market Includes, 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, Advertising ) e.g. Linear Regression, Multiple Regression

Quantitative Methods
Used when situation is stable and historical data exists Existing products Current technology
Heavy use of mathematical techniques E.g., forecasting sales of a mature product Includes,

Moving average Weighted moving average Exponential Smoothing Trend Projections Naive approach

Forecasting Error
For any forecasting method, it is important to measure

the accuracy of its forecasts. Forecast error is the difference found by subtracting the forecast from actual demand for a given period. Et = Dt - Ft where
Et = forecast error for period t Dt = actual demand for period t Ft = forecast for period t

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 =

Mean absolute deviation (MAD): A measurement of the dispersion of forecast errors. |Et | MAD =

Mean absolute percent error (MAPE): A measurement that relates the forecast error to the level of demand

MAPE =

[ |E | / Dt ](100)
t

Equations of Existing Forecasting Models

Simple Moving Average: Yf= At-1 + At-2 + At-3 + . + At-n /n Weighted Moving Average: Yf= w1 At-1 + w2 At-2 + w3 At-3 + . + wn At-n Cyclic Model: Linear Cyclic Model: Yf = a + bX Cyclic Forecaster: Yf= a + ucos (2/N)x + vsin (2/N)x Cyclic forecaster with growth : Yf= a + bx + ucos (2/N)x + vsin (2/N)x Quadratic Forecaster : Yf= a + bx + cx2 Exponential Smoothing Model: Y f= At-1 + (1- ) Ft-1 Next Year's Sales = (This Year's Sales) + (1 - ) (This Year's Forecast) Linear Regression Analysis: Yf = a + bX ( Regression Line) where, 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 = The desired smoothing constant (lies between 0 & 1) Y = b is the slope X = the independent variable

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

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, 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)) *

Factor2 = (average Y forecast of previous year - average Y actual of previous year) *

= (2/(N+1)) N= No. 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

CONCLUSION
1) Following conclusion is made based on analysis of calculation of MAD, MAPE and MSE of different forecasting models:
Sr. 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 -0.01307 -0.01284 -0.0376 -0.11159 -0.14918 -0.0376 -0.20189 -0.00065 -0.00125 MAPE -3.41737 -3.45825 -8.99229 -13.8611 -16.335 -8.99229 5.542251 -6.53305 -2.00581 MSE 420.3959 419.2279 1067.582 1262.114 1385.467 1067.582 818.8313 985.226 341.8463

2) From graphs shown in above slides, I can say that Linear Regression Model gives best results and Exponential smoothing gives results less accurate than that. The sequence of accuracy is as following: Linear Regression analysis > Simple Exponential Smoothing > Cyclic > Weighted Moving Average > Simple Moving Average 3) From above Table, 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.

Future Work
I have studied available forecasting models and their

equations. 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. 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.6 and that will help in finding better sales forecast when a person is having more amount of data (in months/years).

BIBLIOGRAPHY
Book Referred R. Paneerselvam, Production and Operation Management, Chapter

4 Forecasting, Page no.73 to 93, 2nd Edition, 2008. Dr. Ravishankar, Industrial Engineering and Management, Chapter-5 Forecasting, Page no.51 to 67, 2000. Everette E. Adam and Ronald J. Ebert, Production and Operation Management, Chapter-3 Forecasting, Page no.76 to 105, 5th Edition, 1996. Dr. B. S. Grewal, Higher engineering mathematics Page no. 824 Ex. 22.33 Dr. Ravi Mahendra Gor, Industrial Statistics and Operational management, Chapter-6, Forecasting Techniques Michel J. Baker, Sales Forecasting, 1999, pg.278-290

 Links Referred:

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

THANK YOU!!!