Forecasting -3

Static Trend and Seasonality

Ardavan Asef-Vaziri
Chapter 7
Based on Supply Chain Management
Demand ForecastingChopra and Meindl
in a Supply Chain

Ardavan Asef-Vaziri

Trend and Seasonality; Static

Characteristics of Forecasts

Forecasts are rarely perfect because of

randomness.
Beside the average, we also need a measure of
variations Standard deviation.
Forecasts are more accurate for groups of items
than for individuals.
Forecast accuracy decreases as time horizon
increases.
Ardavan Asef-Vaziri

Trend and Seasonality; Static

Forecasting Methods
Qualitative: primarily subjective; rely on judgment and
opinion
Time Series: use historical demand only
Static
Adaptive

Causal: use the relationship between demand and some

other factor to develop forecast

Simulation
Imitate consumer choices that give rise to demand
Can combine time series and causal methods
Ardavan Asef-Vaziri

Trend and Seasonality; Static

Components of an Observation
Observed demand (O) =

Systematic component (S) + Random component (R)

Level (current deseasonalized demand)

Trend (growth or decline in demand)

Seasonality (predictable seasonal fluctuation)
Systematic component: Expected value of demand
Random component: The part of the forecast that deviates
from the systematic component

Ardavan Asef-Vaziri

Trend and Seasonality; Static

Example: Tahoe Salt

Forecast demand for the next four quarters.
Year
2000
2000
2000
2001
2001
2001
2001
2002
2002
2002
2002
2003
Ardavan Asef-Vaziri

Quarter Demand
2
8000
3
13000
4
23000
1
34000
2
10000
3
18000
4
23000
1
38000
2
12000
3
13000
4
32000
1
41000

45000
40000
35000
30000
25000
20000
15000
10000
5000
0
0

9 10 11 12 13

Trend and Seasonality; Static

Static Methods
Systematic component = (level + trend)(seasonal factor)
Ft+l = [L + (t + l)T]St+l

= forecast in period t for demand in period t + l

L = estimate of level for period 0

T = estimate of trend
St = estimate of seasonal factor for period t
Dt = actual demand in period t
Ft = forecast of demand in period t
Ardavan Asef-Vaziri

Trend and Seasonality; Static

Static Methods

Estimating level and trend

Estimating seasonal factors

Ardavan Asef-Vaziri

Trend and Seasonality; Static

Estimating Level and Trend

Before estimating level and trend, demand data
must be deseasonalized

Deseasonalized demand = demand that would

have been observed in the absence of seasonal
fluctuations
Periodicity (p)
the number of periods after which the seasonal cycle

repeats itself
for demand at Tahoe Salt p = 4
Ardavan Asef-Vaziri

Trend and Seasonality; Static

Seasonalized Time Series; Odd p

W
1

D
M
T
W
R
F
M
T
W
R
F
M
T
W
R
F
M
T
W
R
F

Ardavan Asef-Vaziri

Y
16.2
12.2
14.2
17.3
22.5
17.3
11.5
15.0
17.6
23.5
14.6
13.1
13.0
16.9
21.9
16.1
11.8
12.9
16.6
24.3

Y
30.0
25.0
20.0
15.0

10.0
5.0
0.0
1

11 13 15 17 19

W D
Y
1 M 16.2
T 12.2
W 14.2 =(D3+D4+D5+D6+D7)/5
R 17.3
F 22.5
2 M 17.3
T 11.5
W 15
R 17.6
F 23.5
3 M 14.6
T 13.1
W 13
R 16.9
F 21.9
4 M 16.1
T 11.8
W 12.9
R 16.6
F 24.3

Trend and Seasonality; Static

Seasonality Indices; Odd p

W
1

1.
2.
3.

D
M
T
W
R
F
M
T
W
R
F
M
T
W
R
F
M
T
W
R
F

Y
16.2
12.2
14.2
17.3
22.5
17.3
11.5
15
17.6
23.5
14.6
13.1
13
16.9
21.9
16.1
11.8
12.9
16.6
24.3

=(D3+D4+D5+D6+D7)/5
=(D4+D5+D6+D7+D8)/5
=(D5+D6+D7+D8+D9)/5
=(D6+D7+D8+D9+D10)/5
=(D7+D8+D9+D10+D11)/5
=(D8+D9+D10+D11+D12)/5
=(D9+D10+D11+D12+D13)/5
=(D10+D11+D12+D13+D14)/5
=(D11+D12+D13+D14+D15)/5
=(D12+D13+D14+D15+D16)/5
=(D13+D14+D15+D16+D17)/5
=(D14+D15+D16+D17+D18)/5
=(D15+D16+D17+D18+D19)/5
=(D16+D17+D18+D19+D20)/5
=(D17+D18+D19+D20+D21)/5
=(D18+D19+D20+D21+D22)/5

W D Y
1 M 16.2
T 12.2
W 14.2
R 17.3
F 22.5
2 M 17.3
T 11.5
W 15.0
R 17.6
F 23.5
3 M 14.6
T 13.1
W 13.0
R 16.9
F 21.9
4 M 16.1
T 11.8
W 12.9
R 16.6
F 24.3

16.48
16.7
16.56
16.72
16.78
16.98
16.44
16.76
16.36
16.22
15.9
16.2
15.94
15.92
15.86
16.34

W
R
F
M
T
W
R
F
M
T
W
R
F
M
T
W

14.2
17.3
22.5
17.3
11.5
15.0
17.6
23.5
14.6
13.1
13.0
16.9
21.9
16.1
11.8
12.9

16.48
16.7
16.56
16.72
16.78
16.98
16.44
16.76
16.36
16.22
15.9
16.2
15.94
15.92
15.86
16.34

In front of each number I have an average.

Averages do not contain seasonality. They are seasonality free data.
I can compare each day with the average of the 5 closest days and find the
seasonality of that day

Ardavan Asef-Vaziri

Trend and Seasonality; Static

10

Seasonality Indices; Even p

Year

Quarter

Demand

2000

8000

2000

13000

2000

23000

2001

34000

2001

10000

2001

18000

2001

23000

2002

38000

2002

12000

2002

13000

2002

32000

2003

41000

(8000+13000+23000+34000)/4 =1950 But put it where

(13000+23000+34000+10000)/4=20000 But put it where

Ardavan Asef-Vaziri

Trend and Seasonality; Static

11

Seasonalized Time Series; Even p

Q12
Q13

8000

13000

=(C1+C2+C3+C4)/4

Q14
Q21

Q12
Q13
Q14
Q21
Q22
Q23
Q24
Q31
Q32
Q33
Q34
Q41

Q13
Q14

34000

8000

13000

23000

34000

10000

18000

23000

38000

12000

10

13000

11

32000

12

41000

Ardavan Asef-Vaziri

13000

23000

=(C2+C3+C4+C5)/4

23000

Q21
Q22

4
5

=(C1+C2+C3+C4)/4
=(C2+C3+C4+C5)/4
=(C3+C4+C5+C6)/4
=(C4+C5+C6+C7)/4
=(C5+C6+C7+C8)/4
=(C6+C7+C8+C9)/4
=(C7+C8+C9+C10)/4
=(C8+C9+C10+C11)/4
=(C9+C10+C11+C12)/4

Q14
Q21

23000

34000

=(C3+C4+C5+C6)/4

34000
10000

Q22
Q23

10000

18000

Q21
Q22

34000

10000

=(C4+C5+C6+C7)/4
Q23
Q24

18000

23000

=(C1+2*(C2+C3+C4)+C5)/8
=(C2+2*(C3+C4+C5)+C6)/8
=(C3+2*(C4+C5+C6)+C7)/8
=(C4+2*(C5+C6+C7)+C8)/8
=(C5+2*(C6+C7+C8)+C9)/8
=(C6+2*(C7+C8+C9)+C10)/8
=(C7+2*(C8+C9+C10)+C11)/8
=(C8+2*(C9+C10+C11)+C12)/8

Trend and Seasonality; Static

12

Seasonalized Time Series; Even p

Q12
Q13
Q14
Q21
Q22
Q23
Q24
Q31
Q32
Q33
Q34
Q41

8000

13000

23000

34000

10000

18000

23000

38000

12000

10

13000

11

32000

12

41000

Ardavan Asef-Vaziri

=(C1+2*(C2+C3+C4)+C5)/8
=(C2+2*(C3+C4+C5)+C6)/8
=(C3+2*(C4+C5+C6)+C7)/8
=(C4+2*(C5+C6+C7)+C8)/8
=(C5+2*(C6+C7+C8)+C9)/8
=(C6+2*(C7+C8+C9)+C10)/8
=(C7+2*(C8+C9+C10)+C11)/8
=(C8+2*(C9+C10+C11)+C12)/8

19750
20625
21250
21750
22500
22125
22625
24125

Trend and Seasonality; Static

13

Deseasonalizing Demand
t p / 2

p is Odd Dt ( Di ) / p
i t p / 2

D
( t p / 2 ) 1

p is Even Dt [ Dt p / 2 Dt p / 2 2( Di )] / 2 p

i ( t p / 2 ) 1

For the example, p = 4 is even. For t = 3:

D3 = {D1 + D5 + 2Sum(i=2 to 4) [Di]}/8
={8000+10000+2(13000+23000)+34000)}/8 = 19750

D4 = {D2 + D6 + 2Sum(i=3 to 5) [Di]}/8

={13000+18000+2(23000+34000)+10000)}/8 = 20625
Ardavan Asef-Vaziri

Trend and Seasonality; Static

14

Deseasonalizing Demand
Then include trend

Dt = L + tT
where Dt = deseasonalized demand in period t
L = level (deseasonalized demand at period 0)
T = trend (rate of growth of deseasonalized demand)
Trend is determined by linear regression using deseasonalized

demand as the dependent variable and period as the independent

variable (can be done in Excel)

Ardavan Asef-Vaziri

Trend and Seasonality; Static

15

Linear Regression on the Deseasonalized Demand

3
4
5
6
7
8
9
10
Ardavan Asef-Vaziri

19750
20625
21250
21750
22500
22125
22625
24125

Data/Data Analysis/Regression

Trend and Seasonality; Static

16

Liner Regression
L = 18,439 and T = 523.81
Ft = 18,439 + 523.81 t

Demand

Replace t with 1,2, 3, .., 12

45000
40000
35000
30000
25000
20000
15000
10000
5000
0

Dt

Dt-bar

1 2 3 4 5 6 7 8 9 1011 12
Period

Ardavan Asef-Vaziri

Trend and Seasonality; Static

17

Final Estimation of the Seasonal Factors

Use the previous equation to calculate
deseasonalized demand for each period
St = Dt / Dt = seasonal factor for period t
In the example,

D2 = 18439 + (524)(2) = 19487

D2 = 13000

S2 = 13000/19487 = 0.67

The seasonal factors for the other periods are

calculated in the same manner
Ardavan Asef-Vaziri

Trend and Seasonality; Static

18

Final Estimation of the Seasonal Factors

Q12
Q13
Q14
Q21
Q22
Q23
Q24
Q31
Q32
Q33
Q34
Q41

t
1
2
3
4
5
6
7
8
9
10
11
12

Ardavan Asef-Vaziri

Dt RegDesDems
8000
18963
13000
19487
23000
20010
34000
20534
10000
21058
18000
21582
23000
22106
38000
22629
12000
23153
13000
23677
32000
24201
41000
24725

Seas
0.42
0.67
1.15
1.66
0.47
0.83
1.04
1.68
0.52
0.55
1.32
1.66

SeasIndx
0.47
0.68
1.17
1.66
0.47
0.68
1.17
1.66
0.47
0.68
1.17
1.66

Q1
Q2
Q3
Q4

1.66
0.47
0.68
1.17

Trend and Seasonality; Static

19

Estimating the Forecast

Using the original equation, we can forecast the next

four periods of demand:

F13 = (L+13T)S1 = [18439+(13)(524)](0.47) = 11868

F14 = (L+14T)S2 = [18439+(14)(524)](0.68) = 17527

F15 = (L+15T)S3 = [18439+(15)(524)](1.17) = 30770

F16 = (L+16T)S4 = [18439+(16)(524)](1.67) = 44794
Ardavan Asef-Vaziri

Trend and Seasonality; Static

20