Operations

Management
Forecasting
 Outline
 Global Company Profile: Tupperware
 What is Forecasting?
Forecasting Time Horizons
The Influence of Product Life Cycle

 Types of Forecasts
 The Strategic Importance of Forecasting
Human Resources
Capacity
Supply-Chain Management

 Seven Steps in the Forecasting System

 Outline - Continued
 Forecasting Approaches
Overview of Qualitative Methods
Overview of Quantitative Methods
 Time-Series Forecasting
Decomposition of Time Series
Naïve Approach
Moving Averages
Exponential Smoothing
Exponential Smoothing with Trend Adjustment
Trend Projections
Seasonal Variations in Data
Cyclic Variations in Data
 Outline - Continued
Associative Forecasting Methods: Regression
and Correlation Analysis
Using Regression Analysis to Forecast
Standard Error of the Estimate
Correlation Coefficients for Regression Lines
Multiple-Regression Analysis

Monitoring and Controlling Forecasts

Adaptive Smoothing
Focus Forecasting

Forecasting in the Service Sector

 Learning Objectives

When you complete this chapter, you should be able

to :
 Identify or Define:
 Forecasting
 Types of forecasts
 Time horizons
 Approaches to forecasts
 Learning Objectives - continued
When you complete this chapter, you should be
able to :
 Describe or Explain:
Moving averages
Exponential smoothing
Trend projections
Regression and correlation analysis
Measures of forecast accuracy
 Forecasting at Tupperware
Each of 50 profit centers around the world is
responsible for computerized monthly, quarterly,
and 12-month sales projections
These projections are aggregated by region,
then globally, at Tupperware’s World
Headquarters
Tupperware uses all techniques discussed in
text
 Three Key Factors for Tupperware
The number of registered “consultants” or sales
representatives

The percentage of currently “active” dealers (this

number changes each week and month)

Sales per active dealer, on a weekly basis

 Tupperware - Forecast by
Consensus

Although inputs come from sales, marketing,

finance, and production, final forecasts are the
consensus of all participating managers.
The final step is Tupperware’s version of the
“jury of executive opinion”
 What is Forecasting?

 Process of predicting a Sales will

future event be $200
Million!
 Underlying basis of
all business decisions
 Production
 Inventory
 Personnel
 Facilities
 Types of Forecasts by Time Horizon

Short-range forecast
Up to 1 year; usually less than 3 months
Job scheduling, worker assignments

Medium-range forecast
3 months to 3 years
Sales & production planning, budgeting

Long-range forecast
3+ years
New product planning, facility location
Short-term vs. Longer-term Forecasting
 Medium/long range forecasts deal with more
comprehensive issues and support
management decisions regarding planning and
products, plants and processes.
 Short-term forecasting usually employs different
methodologies than longer-term forecasting
 Short-term forecasts tend to be more accurate
than longer-term forecasts.
 Influence of Product Life Cycle

Stages of introduction and growth require longer

forecasts than maturity and decline
Forecasts useful in projecting
 staffing levels,
 inventory levels, and
factory capacity

as product passes through life cycle stages

 Strategy and Issues During a
Product’s Life
Introduction Growth Maturity Decline
Best period to Practical to change price Poor time to change image, Cost control
increase market share or quality image price, or quality critical
R&D product Strengthen niche Competitive costs become
engineering critical critical
Company Strategy/Issues

Defend market position

Drive-thru restaurants Fax machines
3 1/2”
CD-ROM Floppy disks
Sales
Station
Internet wagons
Color copiers

HDTV

Product design and Forecasting critical Standardization Little product differentiation

development critical Product and process reliability Less rapid product changes - Cost minimization
Frequent product and process more minor changes
Competitive product
design changes Over capacity in the
OM Strategy/Issues

improvements and options Optimum capacity industry

Short production runs Increase capacity Increasing stability of
process Prune line to eliminate
High production costs Shift toward product focused
items not returning good
Limited models Enhance distribution Long production runs margin
Attention to quality Product improvement and
cost cutting Reduce capacity
 Types of Forecasts
Economic forecasts
 Address business cycle, e.g., inflation rate, money
supply etc.
Technological forecasts
 Predict technological change
 Predict new product sales

Demand forecasts
 Predict existing product sales
 Seven Steps in Forecasting
Determine the use of the forecast
Select the items to be forecast
Determine the time horizon of the forecast
Select the forecasting model(s)
Gather the data
Make the forecast
Validate and implement results
 Product Demand Charted over 4
Years with Trend and Seasonality
Seasonal peaks Trend component
Demand for product or service

Actual demand
line

Average demand
over four years
Random
variation
Year Year Year Year
1 2 3 4
 Actual Demand, Moving Average,
Weighted Moving Average
35 Weighted moving average
30
Actual sales
25
Sales Demand

20
15
10
Moving average
5
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month
 Realities of Forecasting

Forecasts are seldom perfect

Most forecasting methods assume that there is
some underlying stability in the system
Both product family and aggregated product
forecasts are more accurate than individual
product forecasts
 Forecasting Approaches
Qualitative Methods Quantitative Methods
 Used when situation is  Used when situation is
vague & little data exist ‘stable’ & historical data
 New products exist
 New technology  Existing products
 Involves intuition,  Current technology

experience  Involves mathematical

 e.g., forecasting sales on techniques
Internet  e.g., forecasting sales of
color televisions
 Overview of Qualitative Methods
 Jury of executive opinion
Pool opinions of high-level executives, sometimes augment
by statistical models
 Sales force composite
Estimates from individual salespersons are reviewed for
reasonableness, then aggregated
 Delphi method
Panel of experts, queried iteratively

 Consumer Market Survey

Ask the customer
 Jury of Executive Opinion
 Involves small group of high-level managers
 Group estimates demand by working together
 Combines managerial experience with statistical
models
 Relatively quick
 ‘Group-think’
disadvantage

© 1995 Corel Corp.

 Sales Force Composite

 Each salesperson projects

Sales
their sales
 Combined at district &
national levels
 Sales rep’s know
customers’ wants
 Tends to be overly
optimistic
© 1995 Corel Corp.
 Delphi Method
Iterative group
process Decision Makers
(Sales?)
3 types of people (Sales will be 50!)
Staff
Decision makers
(What will
Staff sales be?
Respondents survey)

Reduces ‘group-think’
Respondents
(Sales will be 45, 50, 55)
 Consumer Market Survey
How many hours
 Ask customers about will you use the
purchasing plans Internet next week?
 What consumers
say, and what they
actually do are often
different
 Sometimes difficult to
answer
© 1995 Corel
Corp.
Overview of Quantitative Approaches

Naïve approach
Moving averages Time-series
Exponential smoothing Models

Trend projection

Associative
Linear regression models
Quantitative Forecasting Methods
(Non-Naive)
Quantitative
Forecasting

Time Series Associative

Models Models

Moving Exponential Trend Linear

Average Smoothing Projection Regression
 What is a Time Series?
 Set of evenly spaced numerical data
 Obtained by observing response variable at regular time
periods
 Forecast based only on past values
 Assumes that factors influencing past and present will continue
influence in future
 Example
Year: 1993 1994 1995 1996 1997
Sales: 78.7 63.5 89.7 93.2 92.1
 Time Series Components

Trend Cyclical

Seasonal Random
 Trend Component
Persistent, overall upward or downward pattern
Due to population, technology etc.
Several years duration

Response

Mo., Qtr., Yr. © 1984-1994 T/Maker Co.

 Seasonal Component

Regular pattern of up & down fluctuations

Due to weather, customs etc.
Occurs within 1 year

Summer
Response
© 1984-1994 T/Maker Co.

Mo., Qtr.
 Cyclical Component
Repeating up & down movements
Due to interactions of factors influencing economy
Usually 2-10 years duration

Cycle
Response


Mo., Qtr., Yr.
 Random Component

Erratic, unsystematic, ‘residual’ fluctuations

Due to random variation or unforeseen events
Union strike © 1984-1994 T/Maker Co.

Tornado

Short duration &

nonrepeating
 General Time Series Models

Any observed value in a time series is the

product (or sum) of time series components

Multiplicative model
Yi = Ti · Si · Ci · Ri (if quarterly or mo. data)

Additive model
Yi = Ti + Si + Ci + Ri (if quarterly or mo. data)
 Naive Approach

 Assumes demand in next

period is the same as demand
in most recent period
 e.g., If May sales were 48, then
June sales will be 48
 Sometimes cost effective &
efficient

© 1995 Corel Corp.

 Moving Average Method
 MA is a series of arithmetic means
 Used if little or no trend
 Used often for smoothing
 Provides overall impression of data over time
 Equation

MA   Demand in Previous n Periods

n
 Moving Average Example
You’re manager of a museum store that sells
historical replicas. You want to forecast sales
(000) for 1998 using a 3-period moving average.
1993 4
1994 6
1995 5
1996 3
1997 7

© 1995 Corel Corp.

 Moving Average Solution
Time Response Moving Moving
Yi Total Average
(n=3) (n=3)
1995 4 NA NA
1996 6 NA NA
1997 5 NA NA
1998 3 4+6+5=15 15/3 = 5
1999 7
2000 NA
 Moving Average Solution
Time Response Moving Moving
Yi Total Average
(n=3) (n=3)
1995 4 NA NA
1996 6 NA NA
1997 5 NA NA
1998 3 4+6+5=15 15/3 = 5
1999 7 6+5+3=14 14/3=4 2/3
2000 NA
 Moving Average Solution
Time Response Moving Moving
Yi Total Average
(n=3) (n=3)
1995 4 NA NA
1996 6 NA NA
1997 5 NA NA
1998 3 4+6+5=15 15/3=5.0
1999 7 6+5+3=14 14/3=4.7
2000 NA 5+3+7=15 15/3=5.0
 Moving Average Graph

Sales
8 Actual
6
Forecast
4
2
95 96 97 98 99 00
Year
 Weighted Moving Average Method

Used when trend is present

 Older data usually less important
Weights based on intuition
 Often lay between 0 & 1, & sum to 1.0
Equation
Σ(Weight for period n) (Demand in period n)
WMA =
ΣWeights
 Actual Demand, Moving Average,
Weighted Moving Average
35 Weighted moving average
30
Actual sales
25
Sales Demand

20
15
10
Moving average
5
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month
 Disadvantages of
Moving Average Methods

Increasing n makes forecast less

sensitive to changes
Do not forecast trend well
Require much historical
data © 1984-1994 T/Maker Co.
 Exponential Smoothing Method

Form of weighted moving average

Weights decline exponentially
Most recent data weighted most

Requires smoothing constant ()

Ranges from 0 to 1
Subjectively chosen

Involves little record keeping of past data

 Exponential Smoothing Equations

 Ft = At - 1 + (1-)At - 2 + (1- )2·At - 3

+ (1- )3At - 4 + ... + (1- )t-1·A0
 Ft = Forecast value
 At = Actual value
  = Smoothing constant

 Ft = Ft-1 + (At-1 - Ft-1)

 Use for computing forecast
 Exponential Smoothing Example
You’re organizing a Kwanza meeting. You want
to forecast attendance for 2000 using
exponential smoothing
( = .10). The1995 forecast was 175.
1995 180
1996 168
1997 159
1996 175
1999 190
© 1995 Corel Corp.
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, F t
Time Actual
( α = .10)
1995 180 175.00 (Given)
1996 168 175.00 +
1997 159
1998 175
1999 190
2000 NA
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, F t
Time Actual
( α = .10)
1995 180 175.00 (Given)
1996 168 175.00 + .10(
1997 159
1998 175
1999 190
2000 NA
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, Ft
Time Actual
(α = .10)
1995 180 175.00 (Given)
1996 168 175.00 + .10(180 -
1997 159
1998 175
1999 190
2000 NA
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, Ft
Time Actual
(α = .10)
1995 180 175.00 (Given)
1996 168 175.00 + .10(180 - 175.00)
1997 159
1998 175
1999 190
2000 NA
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, Ft
Time Actual
(α= .10)
1995 180 175.00 (Given)
1996 168 175.00 + .10(180 - 175.00) = 175.50
1997 159
1998 175
1999 190
2000 NA
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, F t
Time Actual
( α = .10)
1995 180 175.00 (Given)
1994 168 175.00 + .10(180 - 175.00) = 175.50
1995 159 175.50 + .10(168 - 175.50) = 174.75
1996 175
1997 190
1998 NA
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, F t
Time Actual
(α = .10)
1995 180 175.00 (Given)
1996 168 175.00 + .10(180 - 175.00) = 175.50
1997 159 175.50 + .10(168 - 175.50) = 174.75
1998 175 174.75 + .10(159 - 174.75)= 173.18
1999 190
2000 NA
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, F t
Time Actual
(α = .10)
1995 180 175.00 (Given)
1996 168 175.00 + .10(180 - 175.00) = 175.50
1997 159 175.50 + .10(168 - 175.50) = 174.75
1998 175 174.75 + .10(159 - 174.75) = 173.18
1999 190 173.18 + .10(175 - 173.18) = 173.36
2000 NA
 Exponential Smoothing Solution
Ft = Ft-1 + ·(At-1 - Ft-1)
Forecast, F t
Time Actual
(α = .10)
1995 180 175.00 (Given)
1996 168 175.00 + .10(180 - 175.00) = 175.50
1997 159 175.50 + .10(168 - 175.50) = 174.75
1998 175 174.75 + .10(159 - 174.75) = 173.18
1999 190 173.18 + .10(175 - 173.18) = 173.36
2000 NA 173.36 + .10(190 - 173.36) = 175.02
Exponential Smoothing Graph

Sales
190 Actual
180
170 Forecast
160
150
140
93 94 95 96 97 98
Year
 Forecast Effects of
Smoothing Constant 

Ft =  At - 1 + (1- )At - 2 + (1- )2At - 3 + ...

Weights
= Prior Period 2 periods ago 3 periods ago
 (1 - ) (1 - )2

= 0.10 10% 9% 8.1%

= 0.90 90%
 Forecast Effects of
Smoothing Constant 

Ft =  At - 1 + (1- ) At - 2 + (1- )2At - 3 + ...

Weights
= Prior Period 2 periods ago 3 periods ago
 (1 - ) (1 - )2

= 0.10 10% 9% 8.1%

= 0.90 90% 9%
 Forecast Effects of
Smoothing Constant 

Ft =  At - 1 + (1- ) At - 2 + (1- )2At - 3 + ...

Weights
= Prior Period 2 periods ago 3 periods ago
 (1 - ) (1 - )2

= 0.10 10% 9% 8.1%

= 0.90 90% 9% 0.9%
 Choosing 

Seek to minimize the Mean Absolute Deviation (MAD)

If: Forecast error = demand - forecast

 forecast errors
Then: MAD 
n
 Comparison of Forecasts

Exponential smoothing +
40
35 Actual Demand Trend
Product Demand

30
25
20
15
10
Exponential smoothing
5
0
Jan Feb Mar Apr May Jun Jul Aug Sep
Month
 Least Squares

Actual Deviation
observation
Values of Dependent Variable

Deviation Deviation

Deviation
Deviation Point on
regression
Deviation line
Deviation

Yˆ  a  bx
Time
 Actual and the Regression Line
180
160
Y = 56.70+ 10.54X
140
120
Demand

100
80
60 Actual demand
40
20
0
0 2 4 6 8 10
Time
 Linear Trend Projection Example
You’re a marketing analyst for Hasbro Toys. You
gather the following data:
Year Sales (Units)
1995 1
1996 1
1997 2
1998 2
1999 4
What is the trend equation?
Linear Trend Projection Forecasting
Model

You’re a marketing analyst for Hasbro Toys. Using coded

^
years, you find Yi = -.1 + .7Xi.
Year Sales (Units)
1995 1
1996 1
1997 2
1998 2
1999 4
Forecast 2000 sales.
 Linear Regression Model

Shows linear relationship between dependent &

explanatory variables
Example: Sales & advertising (not time)

Y-intercept Slope

^
Yi = a  b X i
Dependent Independent (explanatory)
(response) variable variable
Linear Regression Equations
Equation: Ŷi  a  bx i

n
 x i y i  nx y
Slope: b  i n
 x i  nx 
i 

Y-Intercept: a  y  bx
 Computation Table

2 2
Xi Yi Xi Yi X iY i
2 2
X1 Y1 X1 Y1 X1Y 1
2 2
X2 Y2 X2 Y2 X2Y 2
: : : : :
2 2
Xn Yn Xn Yn X nY n
2 2
Σ Xi ΣYi Σ Xi ΣYi Σ X iY i
 Interpretation of Coefficients

Slope (b)
Estimated Y changes by b for each 1 unit increase in X
 If b = 2, then sales (Y) is expected to increase by 2 for each 1
unit increase in advertising (X)

Y-intercept (a)
Average value of Y when X = 0
 If a = 4, then average sales (Y) is expected to be 4 when
advertising (X) is 0
 Correlation

Answers: ‘how strong is the linear relationship

between the variables?’
Coefficient of correlation Sample correlation
coefficient denoted r
 Values range from -1 to +1
 Measures degree of association

Used mainly for understanding

Sample Coefficient of Correlation

n n n
n  x i yi   x i  yi
r i  i  i 
 n   n   n   n  
n  x i    x i   n  yi    yi  
 i   i     i   i   
 Coefficient of Correlation and
Regression Model
Y r=1 Y r = -1
Y^i = a + b X i
Y^i = a + b X i
X X

Y r = .89 Y r=0

Y^i = a + b X i Y^i = a + b X i
X X
Guidelines for Selecting Forecasting
Model
You want to achieve:
No pattern or direction in forecast error
^
Error = (Yi - Yi) = (Actual - Forecast)
Seen in plots of errors over time

Smallest forecast error

Mean square error (MSE)
Mean absolute deviation (MAD)
 Forecast Error Equations
Mean Square Error (MSE)
n
2
 (y i  ˆy i ) 2
 forecast errors
MSE  i 1 
n n

Mean Absolute Deviation (MAD)

n
 | y i  ŷ i |
 | forecast errors |
MAD  i  
n n
 Selecting Forecasting Model
Example
You’re a marketing analyst for Hasbro Toys. You’ve forecast sales with a
linear model & exponential smoothing. Which model do you use?

Actual Linear Model Exponential

Smoothing
Year Sales Forecast Forecast (.9)
1995 1 0.6 1.0
1996 1 1.3 1.0
1997 2 2.0 1.9
1998 2 2.7 2.0
1999 4 3.4 3.8
 Linear Model Evaluation
^
Year Yi Yi Error Error2 |Error|
1992 1 0.6 0.4 0.16 0.4
1993 1 1.3 -0.3 0.09 0.3
1994 2 2.0 0.0 0.00 0.0
1995 2 2.7 -0.7 0.49 0.7
1996 4 3.4 0.6 0.36 0.6
Total 0.0 1.10 2.0
MSE = Σ Error2 / n = 1.10 / 5 = .220
MAD = Σ |Error| / n = 2.0 / 5 = .400
 Exponential Smoothing Model
Evaluation
^
Year Yi Yi Error Error2 |Error|
1995 1 1.0 0.0 0.00 0.0
1996 1 1.0 0.0 0.00 0.0
1997 2 1.9 0.1 0.01 0.1
1998 2 2.0 0.0 0.00 0.0
1999 4 3.8 0.2 0.04 0.2
Total 0.3 0.05 0.3
MSE = Σ Error2 / n = 0.05 / 5 = 0.01
MAD = Σ |Error| / n = 0.3 / 5 = 0.06
 Exponential Smoothing Model
Evaluation
Linear Model:

MSE = Σ Error2 / n = 1.10 / 5 = .220

MAD = Σ |Error| / n = 2.0 / 5 = .400

Exponential Smoothing Model:

MSE = Σ Error2 / n = 0.05 / 5 = 0.01
MAD = Σ |Error| / n = 0.3 / 5 = 0.06
 Tracking Signal

Measures how well the forecast is predicting

actual values
Ratio of running sum of forecast errors (RSFE)
to mean absolute deviation (MAD)
Good tracking signal has low values

Should be within upper and lower control limits

Tracking Signal Equation

RSFE
TS 
MAD

n
 y i  ŷ i 
 i 
MAD

 forecast error

MAD
 Tracking Signal Computation
Mo Fcst Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90
2 100 95
3 100 115
4 100 100
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10
2 100 95
3 100 115 Error
Error==Actual
Actual--Forecast
Forecast
==90
90--100
100==-10
-10
4 100 100
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10
2 100 95
3 100 115 RSFE==Errors
RSFE Errors
==NA
NA++(-10)
(-10)==-10
-10
4 100 100
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10
2 100 95
3 100 115 Abs
AbsError
Error==|Error|
|Error|
==|-10|
|-10|==10
10
4 100 100
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10 10
2 100 95
3 100 115 Cum |Error|==|Errors|
Cum|Error| |Errors|
==NA
NA++1010==10
10
4 100 100
5 100 125
6 100 140
 Tracking Signal Computation

Mo Forc Act Error RSFE Abs Cum MAD TS

Error |Error|
1 100 90 -10 -10 10 10 10.0
2 100 95
3 100 115 MAD==|Errors|/n
MAD |Errors|/n
==10/1
10/1==10
10
4 100 100
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10 10 10.0 -1
2 100 95
3 100 115 TS
TS==RSFE/MAD
RSFE/MAD
==-10/10
-10/10==-1
-1
4 100 100
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10 10 10.0 -1
2 100 95 -5
3 100 115
4 100 100 Error
Error==Actual
Actual--Forecast
Forecast
==95
95--100
100==-5
-5
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10 10 10.0 -1
2 100 95 -5 -15
3 100 115
4 100 100 RSFE==Errors
RSFE Errors
==(-10)
(-10)++(-5)
(-5)==-15
-15
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10 10 10.0 -1
2 100 95 -5 -15 5
3 100 115
4 100 100 Abs
AbsError
Error==|Error|
|Error|
==|-5|
|-5|==55
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10 10 10.0 -1
2 100 95 -5 -15 5 15
3 100 115
4 100 100 Cum Error==|Errors|
CumError |Errors|
==10
10++55==15
15
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10 10 10.0 -1
2 100 95 -5 -15 5 15 7.5
3 100 115
4 100 100 MAD==|Errors|/n
MAD |Errors|/n
==15/2
15/2==7.5
7.5
5 100 125
6 100 140
 Tracking Signal Computation
Mo Forc Act Error RSFE Abs Cum MAD TS
Error |Error|
1 100 90 -10 -10 10 10 10.0 -1
2 100 95 -5 -15 5 15 7.5 -2
3 100 115
4 100 100 TS
TS==RSFE/MAD
RSFE/MAD
==-15/7.5
-15/7.5==-2
-2
5 100 125
6 100 140
 Plot of a Tracking Signal
Signal exceeded limit

Tracking signal
Upper control limit
+

0
MAD

Acceptable range

-
Lower control limit

Time
 Tracking Signals
160 3
140 Forecast
2

Tracking Singal
Actual Demand

120
100 1
80 0
60 Actual demand
-1
40 Tracking Signal
20 -2
0 -3
0 1 2 3 4 5 6 7
Time