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Time Series Models: Zeeshan Khan

The document discusses time series models for demand forecasting. It describes different forecasting horizons including long, medium, and short term. Short term forecasting is quantitative and uses methods like time series models to forecast demand, staffing levels, and inventory. Time series models assume past patterns will continue into the future. The document provides examples of time series components like trends, cycles, and seasons. It also discusses forecasting techniques like moving averages that smooth time series data by taking the average of past periods.

Uploaded by

Malik Yasir
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© © All Rights Reserved
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Download as PPT, PDF, TXT or read online on Scribd
58 views

Time Series Models: Zeeshan Khan

The document discusses time series models for demand forecasting. It describes different forecasting horizons including long, medium, and short term. Short term forecasting is quantitative and uses methods like time series models to forecast demand, staffing levels, and inventory. Time series models assume past patterns will continue into the future. The document provides examples of time series components like trends, cycles, and seasons. It also discusses forecasting techniques like moving averages that smooth time series data by taking the average of past periods.

Uploaded by

Malik Yasir
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Demand Forecasting:

Time Series Models

Zeeshan Khan

Key Terms
Fore

Casting

Back

Casting

Interpolation

Forecasting Horizons

Long Term
5+ years into the future
R&D, plant location, product planning
Principally judgement-based

Medium Term
1 season to 2 years
Aggregate planning, capacity planning, sales forecasts
Mixture of quantitative methods and judgement

Short Term
1 day to 1 year, less than 1 season
Demand forecasting, staffing levels, purchasing, inventory levels
Quantitative methods

Short Term Forecasting:


Needs and Uses

Scheduling existing resources


How many employees do we need and when?
How much product should we make in anticipation of demand?

Acquiring additional resources


When are we going to run out of capacity?
How many more people will we need?
How large will our back-orders be?

Determining what resources are needed


What kind of machines will we require?
Which services are growing in demand? declining?
What kind of people should we be hiring?

Types of Forecasting Models

Types of Forecasts
Qualitative --- based on experience, judgement, knowledge;
Quantitative --- based on data, statistics;

Methods of Forecasting
Naive Methods --- eye-balling the numbers;
Formal Methods --- systematically reduce forecasting errors;
time series models (e.g. exponential smoothing);
causal models (e.g. regression).
Focus here on Formal Methods
Simulation method

Assumptions of Time Series Models


There is information about the past;
This information can be quantified in the form of data;
The pattern of the past will continue into the future.

Characteristics of Forecast

Forecasts are always wrong thus cater for the measure


of forecast error
100-1900
900-1100

Long term forecasts are usually less accurate than


short term forecasts.
Telenor sales targets (10days)

Aggregate forecasts are usually more accurate than


disaggregate forecast.
Overall company>department>group of companies

Father up the supply chain of a company is from the


customer, the greater is the distortion.
Bull whip effect

Time Series
What is a time series?
a collection of data recorded over a period of time (weekly,
monthly, quarterly)
an analysis of history, it can be used by management to make
current decisions and plans based on long-term forecasting
Usually assumes past pattern to continue into the future

Components of a Time Series

Secular Trend the smooth long term direction of a


time series
Cyclical Variation the rise and fall of a time
series over periods longer than one year
Seasonal Variation Patterns of change in a time
series within a year which tends to
repeat each
year
Irregular Variation classified into:
Episodic unpredictable but identifiable
Residual also called chance fluctuation and
unidentifiable

Cyclical Variation Sample Chart

Seasonal Variation Sample Chart

Secular Trend Home Depot Example

Secular Trend EMS Calls Example

Secular Trend Manufactured Home


Shipments in the U.S.

Forecasting

The Moving Average Method

Useful in smoothing time series to see its trend


Basic method used in measuring seasonal
fluctuation
Applicable when time series follows fairly linear
trend that have definite rhythmic pattern

1
F

(n
D

D
)
t
1
ti
t

1
t

it
1

n
Simple Moving Average

Forecast Ft is average of n previous observations or


actuals Dt :

Note that the n past observations are equally weighted.


Issues with moving average forecasts:

All n past observations treated equally;


Observations older than n are not included at all;
Requires that n past observations be retained;
Problem when 1000's of items are being forecast.

Simple Moving Average

Include n most recent observations


Weight equally
Ignore older observations

weight
1/n

...

today

Moving Average
Internet Unicycle Sales

n=
3

450
400
350

Units

300
250
200
150
100
50
0
Apr-01

Sep-02

Jan-04

May-05

Oct-06

Feb-08

Month

Jul-09

Nov-10

Apr-12

Aug-13

Moving Average Method - Example

Three-year and Five-Year Moving


Averages

Time-Series Data

Numerical data obtained at regular time intervals


The time intervals can be annually, quarterly, monthly, weekly, daily,
hourly, etc.
Example:

Year:

2000 2001 2002 2003 2004

Sales:

75.3

74.2

78.5

79.7

80.2

Time-Series Plot
A time-series plot is a two-dimensional
plot of time series data

the vertical axis measures


the variable of interest

the horizontal axis


corresponds to the time
periods

Moving Averages
Used

for smoothing
A series of arithmetic means over time
Result dependent upon choice of L (length of period for
computing means)
Last moving average of length L can be extrapolated one
period into future for a short term forecast
Examples:
For a 5 year moving average, L = 5
For a 7 year moving average, L = 7
Etc.

Example: Annual Data


Year
1
2
3
4
5
6
7
8
9
10
11
etc

Sales
23
40
25
27
32
48
33
37
37
50
40
etc

Assignment # 3
MONTH

Demand

Month

Demand

January

89

July

223

February

57

August

286

March

144

September

212

April

221

October

275

May

177

November

188

June

280

December

312

Sales vs. Smoothed Sales

Fluctuations have
been smoothed

NOTE: the smoothed value

in this case is generally a


little low, since the trend is
upward sloping and the
weighting factor is only .2

Linear Trend Forecasting


Estimate a trend line using regression analysis
Year

Time
Period
(X)

Sales
(Y)

1999
2000
2001
2002
2003
2004

0
1
2
3
4
5

20
40
30
50
70
65

Use time (X) as the


independent variable:

Y mX b
In least squares linear, non-linear, and
exponential modeling, time periods are
numbered starting with 0 and increasing
by 1 for each time period.

Linear Trend Forecasting

(continued)

The linear trend forecasting equation is:

Year

Time
Period (X)

Sales (Y)

1999
2000
2001
2002
2003
2004

0
1
2
3
4
5

20
40
30
50
70
65

Yi 21.905 9.5714 Xi

Linear Trend Forecasting

Year

Time
Period (X)

Sales (y)

1999
2000
2001
2002
2003
2004
2005

0
1
2
3
4
5
6

20
40
30
50
70
65
??

(continued)

Forecast for time period 6:

21.905 9.5714 (6)


Y
79.33

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