Improving Forecast Accuracy by

Optimizing Statistical Forecasting Results

Usha Dasari, PhD - Ascend Performance Materials
Gijoy Mathew - Cognizant Technology Solutions
 Learning Points

Review best practices in Statistical Forecast modeling

Discuss forecast accuracy improvement by using Multi-

level Forecast runs

Review continuous improvement of Forecasting

Accuracy
 Agenda

Overview

Ascend

Supply Chain Management Process Overview

Why Statistical Forecasting?

Implementation Approach

Continuous Improvement Plan

Q&A
ASCEND - Markets
 ASCEND – Supply Chain

5 Manufacturing Plants

46 Warehouses

13 Sub Contractors

100 + Shipping Points
Products

Plastics

Chemicals

Polymers & Fibers
Supply Chain Planning – Process Overview

SAP Systems
SAP ECC
SAP SCM (DP/PPDS)
SAP CRM
 Why Statistical Forecasting?

Statistical forecasting can be very helpful in managing Ascend’s make-

to-stock planning scenario

Forecast accuracy at SKU level is essential to maintain Optimal
Inventory Levels and improve On-Time-Delivery

Ability to analyze historical data at various planning levels & tracking
Signal Analysis with the help of Excel tools

Combining Bottom-Up & Top-Down methods with proper dis-
aggregation mechanisms to help improve forecast accuracy

Forecast accuracy measurement reports considering various error
factors and lead times
 Implementation Approach

Data analysis of the product group and product

Forecast modeling approach at various levels of data

Forecast model selection using APO-DP and Excel for analysis

Select the best-fit model for each data element using “Tracking
Signal” methodology

Apply the best-fit model, first at the product level, followed by at

product group level for appropriate ratio of disaggregation

Publish the Statistical Forecast in APO-DP

Measurement of Forecast Accuracy

 Improvement Path

Continuous Improvement
using Forecast accuracy
3
analysis and action plan
development

Best model selection

2 using Excel Tools

Historical Data
1 Analysis/Data Patterns
 Data Analysis

Identification of Historical Data Pattern

Analyze for patterns like Trend, Seasonality,
Availability of history of sales
Constant, Random etc.
Pareto analysis

Pattern analysis - Trend,
seasonality etc.

Pattern same at Product

group and Product level
No Yes

Bottom Up & Top Down Forecasting Top Down Forecasting

Initial forecasting at Product level to Forecasting at Product group
capture variation followed by forecast level and disaggregate based
run at product group level on last 6 months of history

Identify the History Pattern at Various Levels of the Data

 Data Analysis

Historical Data Pattern

3500000 600000
3000000 500000
2500000
400000
2000000
300000
1500000
200000
1000000
500000 100000
0 0
200911
201001
201003
201005
201007
201009
201011
201101
201103
201105
201107
201109
201111
201201
201203
201205
201207
201209

200911
201001
201003
201005
201007
201009
201011
201101
201103
201105
201107
201109
201111
201201
201203
201205
201207
201209
Product Group Level Product Level

Pattern at product group level is NOT similar to product level

• Step 1 :Forecasting happens at product level and data is aggregated to
product group level.
• Step 2 : Forecasting is carried out at product group level and data is
disaggregated based on statistical forecast values of step 1
 Forecast Modeling Approach

Statistical Forecast is run in APO-DP with

Large data sample is available,
Auto Model strategy (system provides Exponential
Values have equal weight & is not No
the best model fit and provides logs for Smoothing
Horizontal exponentially decreasing
various factors)

No
Yes

Both trend test and

seasonal test negative Yes
Horizontal or
Random
Moving Average
Forecast runs using different
models and extract output
No Random Crostons Model for analysis in spreadsheet

Check for seasonality, Trend
Both trend test and
Yes
Trend and Holts-Winters etc. at product level
seasonal test positive Seasonal Method

Analyze the log of the
No forecast run for different
parameters values
Only trend test is
positive
Yes Trend Holts Model
Iterative approach to find the
lowest MAPE value
No

Seasonal Pattern Winters Method

Selection of Statistical Forecasting Model

 Forecast Model Selection

Several iterations to arrive

at the lowest MAPE by
adjusting the forecast
parameters (α, β, Ɣ)

Test for model validity using
“Tracking signal” test.

Finalize the Forecast Model Parameters

 Multi-level Forecasting Process

Forecasting model selection with relevant parameters for product

and product group

Forecast run first at product level to capture the SKU level

disaggregation based on history, followed by Product group level
such that the SKU level disaggregation ratio is maintained

Publish Statistical Forecast

 Forecast Accuracy Analysis

Forecast Accuracy reporting using appropriate lag

Multi-level forecast Accuracy analysis

Improve forecast accuracy and provide more visibility to various

intricate challenges with demand forecasting

Observing the market demand indicators, economy, sales etc. in

statistical forecast correction

Comparison of Statistical forecast with the existing Sales forecast

showed an improvement of 19% (both compared to sales history)
 Continuous Improvement Plan

User trainings/User involvements in Forecast model/parameter

selection

Optimize the history load and realignment processes

After achieving credibility, use statistical forecast as the base for

sales forecast

Alerts, tolerance levels for sales forecast in comparison with

statistical forecast
Q&A
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SESSION CODE: 4113

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