21-Woelfl-SCOR Demand Planning - A Revolutionary Method To Do Manufacturing Demand Forecasting With SVM - Support Vector Machines

A Revolutionary Method to do
Manufacturing Demand Forecasting

with SVM - Support Vector Machines
Dr. Thomas Wölfl, TM3 Software
© 2010 Supply Chain Council. ALL RIGHTS RESERVED. | < filename > | Slide 1 | 25 October 2010
Agenda
1. Demand planning
2. Methods for demand forecasting
3. Artificial intelligence and machine learning
4. Support vector machines (SVM)
5. Example and results
Demand Planning
• Improve the accuracy of forecasts

• Goal: Improve production scheduling or inventory stocks
Manufacturer Party 1 Party 2

End-Customer
[Carbonneau et al., 2007]
• Each party in the supply chain does some processing on

the demand signal
Demand Planning
• Forecasting based on past demand
• Data Mining:
• Use of statistical tools
• Experience of market experts
Demand Planning
• Forecasting based on partner forecasts
• Combine forecasts:
• Use of data tools
• Experience of market experts
Demand Planning
• Combine both ways:

• Use past demands
• Use customer forecasts
• Add external information influencing demand

• Market figures, seasonal factors, …
• Learn the experience of maket experts
Use Artifical Intelligence (AI) and

Machine Learning (ML) technology
Agenda
1. Demand planning
Methods for demand planning
• Methods based on past demands:
• Naive Forecast
• Average
• Auto Regressive Moving Average (ARMA)
• Multiple Linear Regression
• …
Forecasting Methods
• Example: Demand of a certain article during the last year
Real demand
Forecasting Methods
• Demand forecast using

Auto Regressive Moving Average (ARMA)
Real demand Forecast for the next period: 75 pieces

ARMA forecast
• Problem: ARMA parameter selection

Forecasting Methods
• Demand forecast using

Modified Auto Regressive Moving Average (ModARMA)
Real demand Forecast for the next period: 54 pieces

ModARMA forecast
Agenda
1. Demand planning
Machine Learning
• Discipline of Artificial Intelligence (AI)
• Machine Learning (ML): An algorithm automatically

learns in order to make accurate predictions based on
past observations (Rob Schapire)
• Applications:
› Face detection: find faces in images
› Disease diagnosis: detect cancer in blood count
› Spam filtering
› Fraud detection
› Weather prediction
› …
Machine Learning
• Image classification example: Training
Class 1
Class 2
Class 3
Features of
training
Class 4 data
Class 5 Untrained
ML-Algorithm
Class 6
Given: training images and their categories
[Verbeek, 2009]
Machine Learning
• Image classification example: Testing
Class 3
Trained Classification
ML-Algorithm result
What are the categories

of these test images?
Machine Learning
• Image classification example: Testing
Class 4
Trained Classification
ML-Algorithm result
What are the categories

of these test images?
Machine Learning
• ML-Regression: Similar to classification, but the output

has the form of one or more real numbers
• Learns a function (e.g. the demand function)
• Example: predict gas mileage of a car based on number

of cylinders or doors, weight, horsepower, year, etc.
[Verbeek, 2009]
Machine Learning
• Machine Learning methods:

› Decision Trees
› Bayesian Networks
› Neuronal Networks
› …
› Support Vector Machines
Agenda
1. Demand planning
Support Vector Machines
• SVM-Demo: Credit ranking classification
• Input Variables:
› Net income of a person
› Living space / area of flat
• Classification:
› Good credit score
› Middle credit score
› Bad credit score
-t 2 -c 100 -g 100
Support Vector Machines
• SVM-Demo: Regression for demand forecasting
• Input Variables:
› Average demand of last period
› Forecast of this period
› Seasonal factor
› …
• Regression:
› Learn the demand function
-s 3 -t 2 -c 10 -g 1000 -p 0
Support Vector Machine
• SVM concept: Learn a separating „borderline“ between

the given data
Good credit score
Bad credit score
Income
Living Space
• Which borderline to use?
Good credit score

Bad credit score
Income
Living Space
• Select the borderline which maximizes the marign!
Good credit score

Bad credit score
Income
Margin
Width B
Margin
Width A
Living Space
• What to do now? Good credit score

Bad credit score
Income
Living Space
• Use a non-linear separation function

• Add a new feature: living space, income, age
Age
Income
Income
Living Space Living Space
Agenda
1. Demand planning
SVM demand forecasting
Car sales forecast
Real sales Traditional ARMA SVM forecast

figures forecast
[Wu, 2009]
SVM demand forecasting – key facts
• SVM is a field-proven method, e.g. used in

› medical informatics
› it-security
• SVM filters outliers and noise in demand data
• SVM handles multiple dimensions (features), large amount of

input data and non-linear relations
• Experiments show that SVM has a better forecast quality

(MAPE) then traditional methods
• SVM forecast quality is easy to measure: compare forecast

with historical data
Thomas.Woelfl@tm3-software.com
DEMAND FORECASTING WITH SVM -

SUPPORT VECTOR MACHINES
• SVM-Regression: Learn the demand function
Demand
Time

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A Revolutionary Method to do

Manufacturing Demand Forecasting

2. Methods for demand forecasting

3. Artificial intelligence and machine learning

4. Support vector machines (SVM)

5. Example and results

• Improve the accuracy of forecasts

Manufacturer Party 1 Party 2

• Each party in the supply chain does some processing on

• Forecasting based on past demand

• Forecasting based on partner forecasts

• Combine both ways:

• Add external information influencing demand

• Learn the experience of maket experts

Use Artifical Intelligence (AI) and

2. Methods for demand forecasting

3. Artificial intelligence and machine learning

4. Support vector machines (SVM)

5. Example and results

• Methods based on past demands:

• Example: Demand of a certain article during the last year

• Demand forecast using

Real demand Forecast for the next period: 75 pieces

• Problem: ARMA parameter selection

• Demand forecast using

Real demand Forecast for the next period: 54 pieces

2. Methods for demand forecasting

3. Artificial intelligence and machine learning

4. Support vector machines (SVM)

5. Example and results

• Discipline of Artificial Intelligence (AI)

• Machine Learning (ML): An algorithm automatically

• Image classification example: Training

• Image classification example: Testing

What are the categories

• Image classification example: Testing

What are the categories

• ML-Regression: Similar to classification, but the output

• Example: predict gas mileage of a car based on number

• Machine Learning methods:

› Support Vector Machines

2. Methods for demand forecasting

3. Artificial intelligence and machine learning

4. Support vector machines (SVM)

5. Example and results

• SVM-Demo: Credit ranking classification

• SVM-Demo: Regression for demand forecasting

• SVM concept: Learn a separating „borderline“ between

• Which borderline to use?

Good credit score

• Select the borderline which maximizes the marign!

Good credit score

• What to do now? Good credit score

• Use a non-linear separation function

Living Space Living Space

2. Methods for demand forecasting

3. Artificial intelligence and machine learning

4. Support vector machines (SVM)

5. Example and results

Real sales Traditional ARMA SVM forecast

• SVM is a field-proven method, e.g. used in

• SVM filters outliers and noise in demand data