UNIVERSITY OF ECONOMIC AND LAW

Course

INTERNATIONAL LOGISTICS
(LOGISTICS QUỐC TẾ)

Instructor: Dr. Nguyễn Duy Quang

Email: [email protected]
2024

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CHAPTER 2. FORECASTING IN LOGISTICS

Contents
 Forecasting characteristics
 Forecasting methods
 Time-series forecasting models
 Forecasting errors
 Forecasting issues

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FORECASTING CHARACTERISTICS

Source: foxbusiness.com Vrije Universiteit Amsterdam

FORECASTING CHARACTERISTICS

 Forecast is always inaccurate  should include expected

value and measure of error
 Long-term forecasts are less accurate than short-term
forecasts
Trumpet of Doom
Forecast Error Range over Time

Percentage
Forecast 0
Error

0 Time Until Forecast Event

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FORECASTING CHARACTERISTICS

 Aggregate forecasts are more accurate than disaggregate

forecasts
 Law of Large Number: As volume increases, relative
variability decreases
 The farther up the supply chain, the greater the distortion of
information

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FORECASTING METHODS

 Qualitative: primarily subjective; rely on judgment and

opinion
 Time series: use historical demand only
 Causal: use the relationship between demand and some
other factors to develop forecast
 Simulation
o Imitate consumer choices that give rise to demand
o Can combine time series and causal methods

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FORECASTING COMPONENTS (TIME SERIES)

Observed demand (O) =

Systematic component (S) + Random component (R)
 Systematic component: expected value of demand
o Level: current deseasonalized demand
o Trend: growth or decline in demand
o Seasonality: predictable seasonal fluctuation
 Random component: The part of the forecast that deviates
from the systematic component
 Forecast error: difference between forecast and actual
demand
 Naïve Techniques & Averaging Techniques Vrije Universiteit Amsterdam
MOVING AVERAGE

A t-1 + A t-2 + A t-3 +...+A t- n

Ft =
n

Ft = Forecast for the coming period

n = Number of periods to be averaged
A t-1 = Actual occurrence in the past period for up to
“n” periods

 Used when demand has no observable trend or

seasonality

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MOVING AVERAGE

Week Demand 3-Week 6-Week

1 650 F4=(650+678+720)/3
2 678 =682.67
3 720 F7=(650+678+720
4 785 682.67 +785+859+920)/6
5 859 727.67 =768.67
6 920 788.00
7 850 854.67 768.67
8 758 876.33 802.00
9 892 842.67 815.33
10 920 833.33 844.00
11 789 856.67 866.50
12 844 867.00 854.83

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MOVING AVERAGE

950
900
850
800
Demand
Demand

750
3 Week
700
6 Week
650
600
550
500
1 2 3 4 5 6 7 8 9 10 11 12
Week

fewer n  more responsive  more accurate

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SIMPLE EXPONENTIAL SMOOTHING FORECAST

FFtt == FFt-1
t-1
+
+ (A
(A t-1
t-1
-
- F
F )
t-1)
t-1

Where :
Ft  Forecast value for the coming t time period
Ft - 1  Forecast value in 1 past time period
At - 1  Actual occurance in the past t time period
  Alpha smoothing constant

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SIMPLE EXPONENTIAL SMOOTHING FORECAST

Week Demand Question: Given the weekly

1 820 demand data, what are the
2 775 exponential smoothing
3 680
forecasts for periods 2-10
4 655
using alpha = 0.10 and alpha
5 750
= 0.60?
6 802
7 798 Assume F1=D1
8 689
9 775
10

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SIMPLE EXPONENTIAL SMOOTHING FORECAST

Week Demand 0.1 0.6

1 820 820.00 820.00
2 775 820.00 820.00
3 680 815.50 793.00
4 655 801.95 725.20
5 750 787.26 683.08
6 802 783.53 723.23
7 798 785.38 770.49
8 689 786.64 787.00
9 775 776.88 728.20
10 776.69 756.28

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SIMPLE EXPONENTIAL SMOOTHING FORECAST

850

800

750
Demand
Dem and

700
0.1
650
0.6
600

550

500
1 2 3 4 5 6 7 8 9 10
Week

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TREND-ADJUSTED EXPONENTIAL SMOOTHING FORECAST

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TREND-ADJUSTED EXPONENTIAL SMOOTHING FORECAST

Assume that the forecast of Period 1 is 27 units and its

trend is 0. Alpha= 0.3; Beta= 0.6. The actual demand of
Period 1 turned out to be 30 units.
1. Calculate the forecast of Period 2.
2. The actual demand of Period 2 is 34 units. Calculate
the forecast of Period 3.

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LINEAR REGRESSION

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LINEAR REGRESSION

Month Demand
1 8
2 12
3 25
4 40
5 50
6 65
7 36
8 61
9 88
10 63
11 ?
12 ?
13 ?

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TREND-CORRECTED EXPONENTIAL SMOOTHING (HOLT’S MODEL)

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TREND-CORRECTED EXPONENTIAL SMOOTHING (HOLT’S
MODEL)

Japan National Tourist Organization has reported a constant

increase in number of visitors to Japan during the last ten
years. For example, the number of visitors to Japan from other
Asian countries during the period of 2002–2007 has been
3,417,774; 3,511,513; 4,208,095; 4,627,478;
5,247,125; and 6,130,262 annually. Forecast the number of
visitors for 2008 using trend-corrected exponential smoothing
with Alpha = 0.1, Beta = 0.2.

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TIME SERIES WITH SEASONALITY (WITHOUT TREND)

1. Compute the average historical demand each season

2. Compute the average demand over all months
3. Compute a seasonal index for each season (Step 1/
Step 2)
4. Estimate next year’s total annual demand
5. Estimate demand for each month in the next year
(Step 4/n * Step 3)

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TIME SERIES WITH SEASONALITY (WITHOUT TREND)

Month Year 1 Year 2 Year 3

Jan 80 85 105
Feb 70 85 85
Mar 80 93 82
Apr 90 95 115
May 113 125 131 Year 4’s forecast: 1,200 units
Jun 110 115 120
Jul 100 102 113
Aug 88 102 110
Sep 85 90 95
Oct 77 78 85
Nov 75 82 83
Dec 82 78 80
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TIME SERIES WITH SEASONALITY (WITHOUT TREND)

140

120

100

80

60

40

20

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Year 1 Year 2 Year 3

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TREND- AND SEASONALITY-CORRECTED EXPONETIAL
SMOOTHING (WINTER’S MODEL)

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TREND- AND SEASONALITY-CORRECTED EXPONETIAL
SMOOTHING (WINTER’S MODEL)

1. De-seasonalize demand
2. Run linear regression to estimate level and trend
3. Estimate seasonal factors
4. Calculate the forecast for any period

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FORECAST ERRORS

e t = A t  Ft
Where :
et  Forecast error for period t
At  Actual demand for period t
Ft  Forecast for period t

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FORECAST ERRORS

Mean Squared Error Mean Absolute Deviation (MAD)

n
n
|e |
e 2
t MAD  t 1
t

MSE  t 1 n
n

Mean Absolute Percentage Error (MAPE)

100 n et
MAPE  
n t 1 At

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SELECTING THE SMOOTHING CONSTANT

Period Demand Simple exponential smoothing forecast:

1 180  Alpha = 0.1
2 168  Alpha = 0.5
3 159  Forecast of Period 1 = 175
4 175  Which alpha is preferred?
5 190 Hints: MSE and MAD
6 205
7 180
8 182

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TRACKING SIGNAL

e t
TS  t 1
MAD

If TS [6, 6]  There is bias in the forecast

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TRACKING SIGNAL

3.0
2.5
Period Demand Forecast 2.0

1 90 100 1.5

2 95 100 1.0
0.5
3 115 100
0.0
4 100 110 -0.5
0 1 2 3 4 5 6 7

5 125 110 -1.0

6 140 110 -1.5
-2.0
-2.5

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FORECASTING REMARKS

 No single technique works best in every situation

 Should use more than one forecasting method
 Factors to consider: cost, accuracy, the data availability
& software, time needed to gather & analyze data
 The higher the accuracy, the higher the cost

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FORECASTING PROCESS

 Determine purpose of forecast

 Establish a time horizon
 Select a forecasting technique
 Obtain, clean, and analyze data
 Make a forecast
 Monitor the forecast

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COLLABORATIVE PLANNING, FORECASTING, AND REPLENISHMENT (CPFR)

A business practice that combines the intelligence of

multiple partners in the planning and fulfillment of
customer demand
 Cases of CPFR:
o Retail event collaboration
o DC replenishment collaboration
o Store replenishment collaboration
o Collaborative assortment planning

Source: VICS (2004)

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