FAQ on Forecasting

1) How to calculate order cost ?.............................................2

2) How to calculate carrying cost ?........................................2
3) How to apply MAD ( Mean Avg. Deviation) for the safety
stock calculation. ?.................................................................2
4) How to enable Focus forecasting and Statistical
forecasting?............................................................................3
5) How to provide the seasonility index ?..............................5
6) Any other related stuff ?....................................................5
1) How to calculate order cost ?

--- It is the sum of all the administrative costs involved in making the order : viz., the
salary given to the person making the order, the stationeries' cost, postal charges, etc.,.

2) How to calculate carrying cost ?

--- It is the sum of the Freight& handling charges, storage cost ( rent of the storage
godown ) , inventory service cost ( insurance & taxes on the stored goods ) and inventory
risk cost ( due to obsolescence,acts of God, theft..).

Normally it is represented as a percentage of inventory value cost

For more detailed informations, You can refer :

a) http://www.ism.ws/ConfPastandOnlineDaily/ Files/Apr04/BC-ML_Harding.pdf
(Ive attached this pdf document for your reference)
b) http://www.gcrl.ca/english/magicnume.htm

3) How to apply MAD ( Mean Avg. Deviation) for the safety stock
calculation. ?

--refer oracle inventory user guide : page no.636 in 115invug.pdf ( release 11i,May 2003 )

To have Oracle Inventory calculate safety stock based on an existing forecast for the
item:

Navigate to the Safety Stock Update window or choose Reload from the Tools menu in
the Enter Item Safety Stocks window.

Choose Mean absolute deviation (MAD) in the Method field,enter the service level
percentage. This is the desired level of customer service in satisfying the product demand
immediately out of inventory. The higher this value is, the more safety stock quantity
should be carried to provide protection against irregularities or uncertainties in the
demand or the supply of an item.

Enter a value between 50 and 100 as the service level. This represents the probability that
you can fill an order from available inventory. A 90% service level means that on average
you can fill an order immediately 90% of the time.

Logic & formula behind using MAD for Safety stock:

--refer oracle inventory user guide : page no.639 in 115invug.pdf ( release 11i,May 2003 )
If there is sufficient demand and forecast history available, you can use the mean absolute
deviation method, to calculate the Safety stock level. This method compares the forecast
to actual demand to determine forecast accuracy and,therefore, how much safety stock is
required to prevent stockouts. If the forecast has been very accurate in the past, only a
small safety stock is required.

The formula used for calculating the safety stock, in this method :

Safety stock = Z*(1.25*MAD)

Z - is the number from the normal distribution probabilities corresponding to the service
level specified by the user.

MAD - is the mean absolute deviation of the historic forecasts from the actual demand.

4) How to enable Focus forecasting and Statistical forecasting?

i) Generate a Forecast rule stating whether it is a Focus or Statistical forecasting

ii) Generate Forecast

-- inventory responsibility > Planning > Forecast rule

select either Focus Forecasting or the Stastical forecasting

--refer oracle inventory user guide : page no.618 in 115invug.pdf ( release 11i,May 2003 )

DefiningForecastingMethodsandRules

Beforeyoucangenerateafocusorstatisticalforecast,youfirst
defineaforecastruleinOracleInventory.Forecastrulesdefinethe
buckettype,forecastmethod,andthesourcesofdemand.Iftheruleis
astatisticalforecast,theexponentialsmoothingfactor(alpha),trend
smoothingfactor(beta),andseasonalitysmoothingfactor(gamma)are
alsopartoftherule.

DefiningaForecastRule

Youcandefineforecastrulestousewhenloadingforecasts.Defining
forecastrulesincludeschoosingforecastsourceoptions,entering
statisticalforecastparameters,andenteringandadjustinginitial
seasonalityindices.

Todefineaforecastrule:
1.NavigatetotheForecastRuleswindow.
2.Enterauniquenamefortherule.
3.Indicatewhetherthebuckettypeisdays,weeks,orperiods.
4.Determinethetransactiontypestouseasdemandsources.The
quantitiesassociatedwitheachsourceareusedwhencalculating
historicalusage:
SalesOrderShipments:Includessalesorderissuequantities.
IssuestoWIP:IncludesWIPissuequantities.
MiscellaneousIssues:Includesquantitiesissuedwithuserdefined
transactionsources,accountnumbers,and
accountaliases.
InterOrgTransfers:Includesquantitiesissuedtoother
organizations.
5.Indicatetheforecastmethodtouse:

Focus:Usesfocusforecastingalgorithmstoforecastdemandforthe
item.Thisprocedureteststheselecteditemsagainstanumber
offorecastingtechniquesandchoosesthebestone,basedonhistory,as
thetechniquetoforecastfuturedemand.

Statistical:Usesexponentialsmoothing,trend,andseasonality
algorithmstoforecastdemandfortheitem
Ifyouchoosestatisticalforecasting,continuewiththefollowing
steps:
6.Enterthemaximumnumberofpastperiodsuponwhichtobase
theforecast
7.Enterthefactorbywhichtosmoothdemandforeachsuccessive
periodintheforecast.Thislevelsdemandthroughouttheforecast,
reducingdramaticupwardordownwardfluctuations.
Youcanentervaluesfrom0to1.Valuescloserto0givemore
weighttopastdemand;valuescloserto1givemoreweightto
currentdemand.
8.Indicatewhethertobasetheforecastonatrendmodel.
Turningthisoptiononperformssmoothingontheupwardor
downwardtrendindemand.
9.Enterthefactorbywhichtosmooththetrendchangeindemand
fromperiodtoperiod.Thisproducesamorelinearriseorfallin
demandfromperiodtoperiodoverthecourseoftheforecast.
Youcanentervaluesfrom0to1.Valuescloserto1givemore
weighttorecentchangesandtrends.Valuescloserto0givemore
weighttohistoricaltrend.
10.Indicatewhethertobasetheforecastonaseasonalitymodel.
Turningthisoptiononbasestheforecastonaseasonaladjustments
youdefinefortheforecastrule.
11.Enterthefactorbywhichtosmooththeseasonalityindicesyou
definebyperiodforthisforecastrule.Thisproducesamoreeven
patternofseasonaldemandfromperiodtoperiodoverthecourse
oftheforecast.
Youcanentervaluesfrom0to1.Valuescloserto0givemore
weighttopastseasonalindices;valuescloserto1givemoreweight
tocurrentseasonalindices.
12.Enteranindexthatdescribestheseasonalinfluenceontheperiod.
Forexample,2indicatesthatyouexpecttheforecasttodoublein
thatperiodbecauseofseasonalfactors.
13.Saveyourwork.

Todeleteaforecastrule:
Youcandeleteaforecastruleiftherearenoreferencestoit.
Togenerateafocusorstatisticalforecast:
1.NavigatetotheGenerateForecastwindow.
2.IntheParameterswindow,selectaforecastnameandforecastrule.
3.Pickarangeofitemstoforecastfor:allitems,aspecificitem,a
categoryofitems,orallitemsinacategoryset.
4.Selectanoverwriteoption:
AllEntries:Deleteseverythingontheforecastbeforeloadingnew
information.

No:Deletesnothingandaddsnewentriestoexistingentries
duringtheload.Scheduleentriesarenotcombined.Youcanget
multipleforecastentriesforthesameitemonthesameday.

SameSourceOnly:Deletestheentriesthathavethesamesourceas
thoseyouload.Youcanreplaceentriesonthe
forecastthatwerepreviouslyloadedfromthesamesourcewithout
affectingotherentriesontheforecast.

5.Enterastartdateandcutoffdate.
6.ChooseOK.
7.IntheGenerateForecastwindow,chooseSubmit.

5) How to provide the seasonility index ?

To use season-enhanced forecasting, a seasonality index is entered for each calendar

period to indicate how far above or below average is the demand for that particular
period. When entering seasonality indices, consider the value 1 to be the period with
"average" demand. Therefore, a value of 1.5 would indicate that the demand is 50%
higher during that period.
One important note is that the Generate Forecast program normalizes the seasonality
indices before using them in the calculations. Therefore, if all seasonality indices are
entered to be 2, then 2 is considered to be the "average" demand and no seasonal
adjustments are made to the generated forecast.

6) Any other related stuff ?

To know more about the forecasts & formulae used,

refer - Oracle Master Scheduling / MRP and Oracle Supply Chan Planning User Guide,
Release 11i Volume 1, February 2001).

Please see Appendix G Forecasting - This appendix describes forecasts created by

compiling statistical or focus forecasting information.

Also, please refer the attached document on Forecasting for Success: A

Complete Forecasting Guide for Oracle Manufacturing

( This document is available in Oracle Metalink, Doc.ID: 135018.1 )