03 SOM 2017 Demand Supply - Forecasting and Planning 1X SV 21 Jun 17 Release

Service Operations Management
Session III: June 21, 2017

Demand-Supply Management 1) Forecasting and Planning
Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Confidential and Proprietary 1
Management
Pieces of the Workforce Management Puzzle
2. Demand 4. Real Time

1. Forecasting 3. Scheduling
Requirements Management
Analysis of Estimated staff Planned roster Management and

historical volume, by interval of staff by interval actions taken to
AHT or required to to meet the adjust for real
transaction handle the estimated time performance
handle time, and forecasted demand (Volume, AHT,
shrinkage to transaction load requirements Absenteeism,
determine future (inbound, Adherence, etc.)
volume patterns outbound, non-
phone)
Goal: Planning and taking action to improve Service Level and

maximize Utilization of resources (reduce Costs)

Management
What Happens When There is a Mismatch?
Service Level (% customers answered within 30 sec) by Interval
Data for a Utility Services Company in Malaysia for one Month
Contact Volume (Absolute Act) Service Level (Absolute Act)
500 100.0%
450 90.0%
400 80.0%
350 70.0%
300 60.0%
250 50.0%
200 40.0%
150 30.0%
100
There are specific intervals missing SL 20.0%
although the overall staffing is high and SL
50 10.0%
for the month or day is meeting
0 0.0%
12:00 PM
10:00 PM
7:00 AM
9:30 AM
2:30 PM
5:00 PM
7:30 PM
10:00 AM
10:30 AM
11:00 AM
11:30 AM
12:30 PM
10:30 PM
7:30 AM
8:00 AM
8:30 AM
9:00 AM
1:00 PM
1:30 PM
2:00 PM
3:00 PM
3:30 PM
4:00 PM
4:30 PM
5:30 PM
6:00 PM
6:30 PM
7:00 PM
8:00 PM
8:30 PM
9:00 PM
9:30 PM
Management
Reasons of Inconsistent Performance
Required Headcount (FTE) vs Scheduled (Forecasted)

Utility Services in Malaysia, One Month data
Full Time Equivalents (Absolute For) Full Time Equivalents (Absolute Req)
100
90
While reviewing one
months schedules, several
80
days showed a similar
70 pattern with 3 distinct
60
under-staffed events.
These also coincided with
FTE
50
poor SL performance by
40 interval
30
20 1. Dip in staff at 10:30am

2. Under-staff between 1-2pm
10
3. Less staff in the evening post 6pm
0
7:00 AM
7:30 AM
8:00 AM
8:30 AM
9:00 AM
9:30 AM
12:00 PM
12:30 PM
10:00 PM
10:30 PM
11:00 PM
3:00 PM
10:00 AM
10:30 AM
11:00 AM
11:30 AM
1:00 PM
1:30 PM
2:00 PM
2:30 PM
3:30 PM
4:00 PM
4:30 PM
5:00 PM
5:30 PM
6:00 PM
6:30 PM
7:00 PM
7:30 PM
8:00 PM
8:30 PM
9:00 PM
9:30 PM
Management
Why Does This Happen?
Not forecasting demand Incorrect scheduling

Not forecasting correctly High over staffing or under staffing
Not taking actions on the Inflexible rules of scheduling
forecasted demand well in time Not taking actions when things
Wrong assumptions in headcount change in real time
requirement calculations Not taking actions on time

Management
1. Forecasting Basics
a) Forecasting in Services using

Time Series Methods

Management
What & How Far to Forecast?
What does a Service Operation need to forecast?
Transaction volumes
Arrival patterns
Handle times
Shrinkages

Management
Building a Forecasting Model

Management
Forecast Techniques
Forecast techniques could be broadly classified under the following

categories:
Time Series Causal

Qualitative
(Univariate) (Multivariate)
Future Values Future Values Future Values
= f(Past = f(Past = f(Judgment
Values) Values, other and opinions)
variables)

Management
Forecasting Techniques
Time Series Methods Causal Methods Qualitative Methods
Moving Averages Multiple Regression Panel Consensus

Exponential Econometric Sales Force
Smoothening/ Cyclical Composite
Winter-Holts Multivariate ARIMA Delphi method
Classical State Space Historical Analogy
Decomposition Relevance Trees
Vector
Fourier Series Autoregression Market Research
ARIMA (Box- Input/output models Expert Systems
Jenkins)
Artificial Neural
Multimodal Networks
Simulation
Genetic Algorithms

Management
What Does Time Series Mean?
The primary premise in which the time series data

forecasting techniques work is that the past values
contain information about what will occur in the future
And given that the past observations would be a combination of
both random error terms and actual information on the
underlying pattern the technique of SMOOTHING is likely to
reduce these random errors

Management
Exercise #1
Plotting the Time Series

We are plotting data over time for a response variable. And we would
be keen to evaluate what is the pattern of the plotted data over time.
We could expect to view for patterns such as:
Level
Trend
Seasonality
What are the possible combinations of the above components and how
does the time series in each case look like?
Just the level (L)
Level and a trend component (L + T)
Level and a seasonality (L + S)
Levels with a trend and seasonality (L + T + S)

Management
Demand Side Fluctuations
The demand side fluctuations

are seen by:
Months of the year: usually
called Seasonality
Week of the month: E.g. Last
week of every month (payroll
processing)
Day of the week: E.g. Low on
Sat-Sun, very high on Monday
Hour of the day: Peak, lean and
prime intervals
Special Seasons: Festivals,
Christmas, financial year ends
Special Reasons: Virus attack,
promotions etc.

Management
Month of Year Seasonality

Management
Day of Week Patterns

Confidential and Proprietary Source: COPC Inc., 2014 15
Management
7:30 - 8:00 PM
16
7:00 - 7:30 PM
6:30 - 7:00 PM
Generally, the intra-day arrival pattern becomes fairly predictable.
6:00 - 6:30 PM
Fridays
5:30 - 6:00 PM
5:00 - 5:30 PM
4:30 - 5:00 PM
Thrusdays
4:00 - 4:30 PM
Hour of Day Patterns
Example of hourly patterns
3:30 - 4:00 PM
3:00 - 3:30 PM
Wednesdays
Why is this important?

2:30 - 3:00 PM
2:00 - 2:30 PM
1:30 - 2:00 PM
Tuesdays
1:00 - 1:30 PM
12:30 - 1:00 PM
12:00 - 12:30 PM
Mondays

11:30 - 12:00 PM
11:00 - 11:30 AM
10:30 - 11:00 AM
Confidential and Proprietary

10:00 - 10:30 AM
9:30 - 10:00 AM
9:00 - 9:30 AM
8:30 - 9:00 AM
900
800
700
600
500
400
300
200
100
0
NUMBER OF CALLS OFFERED PER 1/2 HOUR
Management
Interval Level Volume Forecasting
Forecast: 39,000
Mon Tue Wed Thu Fri Sat
Interval %Distribution 21.00% 17.25% 17.25% 17.25% 17.25% 10.00%
07:00 0.34% 28 23 23 23 23 34
07:30 0.52% 43 35 35 35 35 66
08:00 1.16% 95 78 78 78 78 89
08:30 1.69% 139 114 114 114 114 113
09:00 2.14% 175 144 144 144 144 128
09:30 2.40% 196 161 161 161 161 153
10:00 2.90% 238 195 195 195 195 172
10:30 3.26% 267 219 219 219 219 187
11:00 3.66% 300 246 246 246 246 217
11:30 4.01% 329 270 270 270 270 216
Etc.
20:00 2.63% 215 177 177 177 177
20:30 2.50% 205 168 168 168 168
21:00 2.03% 166 136 136 136 136
21:30 1.52% 124 102 102 102 102
22:00 1.25% 102 84 84 84 84
22:30 1.18% 97 79 79 79 79
23:00 0.86% 70 58 58 58 58
23:30 0.68% 56 46 46 46 46
Total 8,190 6,728 6,728 6,728 6,728 3,900
Confidential and Proprietary Source: COPC Inc. 17
Management
Forecasting Methods in Time Series page 1 of 2
1. Moving Average Methods:

a. Simple Moving Averages (MA): simply takes a certain number
of past periods and add them together; then divide by the
number of periods
MAt+1 = [Dt + Dt-1 + ... +Dt-n+1] / n
b. Weighted Moving Average (WMA):

Weighted MA(3) = w1.Dt + w2.Dt-1 + w3.Dt-2
where the weights are any positive numbers such that:
w1 + w2 + w3 = 1.
c. Moving Average with Trend

Management
Moving Average Techniques
Averaging Approaches:
90
Simple Average
(90 + 93 + 95 + 94 + 98) / 5 = 94 93
Moving Average 95
(95 + 94 + 98) / 3 = 95.6
94
Weighted Average
98
(98x.5) + (94x.3) + (95x .1) + (93x.05) + (90x.05) = 95.85

Management
Exercise #2
Exercise: Forecasting with Moving Average
Actual Forecast Forecast Differences Differences

Month
Volume SMA2 SMA3 SMA2 SMA3
Sep-16 1200
74% 69%
Oct-16 1000
Nov-16 1350
Dec-16 850
Jan-17 1100 1100 0
Feb-17 700 1175 1183 475 483
Mar-17 1350 1100 1067 250 283
Apr-17 1400 975 1100 425 300
May-17 1250 900 883 350 367
Jun-17 900 1025 1050 125 150
Jul-17 1375 1150

Management
Forecasting Methods in Time Series page 2 of 2
2. Smoothing Methods:
a. Exponential Smoothing:
Only when there is Level
Ft+1 = Dt + (1 - ) Ft
b. Holt's Method (Double Exponential):

Non-seasonal, but has Level and Trend
Finds Level component and Trend component separately, then adds
c. Holt-Winters' Forecasting:
Multiple Seasonality with Trend
Finds Level, Trend and Seasonality components separately, then
combines.
This is only introduction to the terms; the
actual methods are not covered in this course

Management
Possible Scenarios and Forecasting Techniques
Level Level + Trend Level + Level + Trend +

Seasonality Seasonality
Simple Average Double Time Series Triple Exponential
Exponential Decomposition Smoothing
Smoothing (Winter Holts
(Holts Method) Method)
Moving Averages ARIMA ARIMA Time Series

(2 MA, 3 MA, 6 Decomposition
MA, 13 MA etc.)
Weighted Moving ARIMA
Average
Single Exponential
Smoothing

Management
b) Understanding Historical
Volume Patterns and Normalization

Management
Before Using Time Series
Volume - Program A ( Jan 2007 to Jan 2009)
Need to identify the following: 5000000

4500000
Is the time series normal? Are

Process Change
4000000
3500000
3000000
there Outliers? 2500000
Outliers / Special Causes
2000000
Are there special causes for 1500000
1000000
variation? Will these remain in 500000

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
future? Months
Is the time series Stationary? Volume - Program A

5000000
There are multiple ways of 4500000

2007 2008 2009
4000000
finding this Run Charts, 3500000

Special Causes
3000000
Control Charts, Early Warning 2500000

2000000
Indicators or simply Eyeballing 1500000

1000000
500000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Management
Exercise #3
Eyeballing Historical Data

July
S M T W T F S
1 2 3 4
5281 4212 3610 0
5 6 7 8 9 10 11
209 5900 5531 5407 5488 5420 1110
12 13 14 15 16 17 18
910 5892 5587 3921 5512 5536 1212
19 20 21 22 23 24 25
951 5932 5590 5484 5541 5598 1231
26 27 28 29 30 31
993 6073 5712 5533 5591 5713

Management
Understanding Patterns in Time Series
August
S M T W T F S
1
1230
2 3 4 5 6 7 8
987 6003 5622 5530 5583 5640 1240
9 10 11 12 13 14 15
1013 6048 5684 5550 5598 5661 1232
16 17 18 19 20 21 22
1008 6085 5662 4582 5610 5709 1258
23 24 25 26 27 28 29
1036 6109 5706 5613 5634 5733 1290
30 31
1049 6115
Management
Understanding Patterns in Time Series
September
S M T W T F S
1 2 3 4 5
5783 5601 5255 4343 421
6 7 8 9 10 11 12
621 3212 6214 5698 5711 5769 1321
13 14 15 16 17 18 19
1036 6157 5819 4723 5703 5812 1198
20 21 22 23 24 25 26
1048 6203 5822 5730 5741 5827 1353
27 28 29 30
1091 6296 5863 5728

Management
Exercise #4
Exercise: Forecast Daily Volumes

Week Mon Tue Wed Thu Fri Total
Beginning:
Sept 5 0 727 638 535 472
Sept 12 725 616 560 510 444
Sept 19 719 652 560 544 500
Sept 26 715 690 515 501 506
Average: 720 653 545 518 483 2,919
% Day of 0.247 0.224 0.187 0.177 0.165

Week
Predicted 765 694 580 549 511 3,100
Volume

Management
Tracking Variation Over Time Run Charts
A Run chart, as the name suggests, typically is a plot which runs across the
time or sequence of time periods
A normal pattern for process in control is one of randomness. If only common

causes of variation exist in your process, the data will exhibit random behavior.
Why use Run Charts?

To study observed data for trends or patterns over a specified period of time
To focus attention on truly vital changes in the process
To track information for predicting trends
To understand variation of process
To compare a performance measure before and after implementation of a solution
To detect trends ,shifts, and cycles in the process

Management
Run Charts
Run charts show

Run Chart for C4 history and trends of
84
variation
74
After change, they
64 show whether
C4
54
improvement is
permanent
44
X-axis is time or
34
observation order
10 60 110 160
Observation The middle line is
the median.
Number of runs about median: 29.000 Number of runs up or down: 104.000
Expected number of runs:
Longest run about median:
83.497
51.000
Expected number of runs:
Longest run up or down:
109.667
5.000 Requires at least 25
Approx P-Value for Clustering: 0.000 Approx P-Value for Trends: 0.146
Approx P-Value for Mixtures: 1.000 Approx P-Value for Oscillation: 0.854 data points.

Management
What is a Run?
A run is a series of point on the same side as the median.
A run can be any length from one point to many points.

Too few or too many runs are important signals of special causes --
They indicate something in the process has changed.
Typical special causes identified:

Clusters
Oscillations
Mixtures
Trends

Management
Exercise #5
Typical Data for Drawing Run Charts
Sr. Date Time per transaction Sr. Date Time per transaction
15 16-Dec 364.1
1 02-Dec 344.0
16 17-Dec 370.0
2 03-Dec 355.3
17 18-Dec 320.2
3 04-Dec 327.8
18 19-Dec 299.6
4 05-Dec 330.7
5 06-Dec 333.9 19 20-Dec 285.7
6 07-Dec 336.8 20 21-Dec 264.0
7 08-Dec 330.0 21 22-Dec 251.6
8 09-Dec 347.3 22 23-Dec 269.3
9 10-Dec 350.5 23 24-Dec 280.8
10 11-Dec 329.5 24 25-Dec 266.8
11 12-Dec 328.1 25 26-Dec 241.8

12 13-Dec 323.3 26 27-Dec 271.2
13 14-Dec 319.5 27 28-Dec 259.8
14 15-Dec 316.9 28 29-Dec 269.4

Management
Run Chart Example

Management
Run Chart Decision Table
Run about the median: Number of consecutive points on

the same side of the median.
Runs up or down: Number of consecutive points moving

in the same direction.
Run Chart Decision Table:
Too few Runs Too many Runs
About the median Clusters Mixtures

Up or Down Trends Oscillations
Management
Other Techniques: Control Charts for Finding Outliers
Call Volume - Outlier Analysis

Actual Average Avg +Stdev Avg - Stdev
60000
The weeks identified seem to be far
out on either sides of the mean so
55000
they might need to be normalized
50000
45000
40000
35000
30000
20-Feb-17
20-Mar-17
17-Apr-17
02-Jan-17
09-Jan-17
16-Jan-17
23-Jan-17
30-Jan-17
06-Mar-17
13-Mar-17
27-Mar-17
03-Apr-17
10-Apr-17
24-Apr-17
06-Feb-17
13-Feb-17
27-Feb-17
01-May-17
08-May-17
15-May-17
22-May-17
29-May-17
Management
c) Causal Methods for Forecasting

Management
Influence of External Factors on Future Volumes
Forecasting starts, but does not end, with gathering and understanding the historical
data
Historical data is massaged to reflect expected Arrival Patterns
Take the massaged Arrival Pattern and modify based on expectations, such as:
External factors (e.g., general
Customer Growth, loyalty Marketing Campaigns
economy, competitive changes)
Take the historical AHT and modify based on expected changes in products,
processes, mix of staff, etc.
Modified Past to Reflect Predicted Future

Confidential and Proprietary Source: COPC Inc. 37
Management
Exercise #6
Using Causality for Forecasting
Month Volume of quotes sent out Volume of sales receipts
Jan-16 7642 3801

Feb-16 8156 4078
Mar-16 10200 5401
Apr-16 4406 2193
May-16 6738 3409
Jun-16 7148 3514
Jul-16 7336 3858
Aug-16 6856 3918
Sep-16 6886 4433
Oct-16 7583 3781
Nov-16 7648 3813
Dec-16 7590 3786
Jan-17 4381 (expected)

Management
Correlation Between Two Data Sets
Relationship Between Run Charts

Sales receipts Quotes sent out
12000
There seems to be some relationship
between Sales Receipts and Quotes,
10000 however the strength of relationship can
be analyzed using Regression
Sales receipts and Quotes Sent
8000
6000
4000
2000
0
Jan/13 Feb/13 Mar/13 Apr/13 May/13 Jun/13 Jul/13 Aug/13 Sep/13 Oct/13 Nov/13 Dec/13 Jan/14

Management
How to Draw Scatter Plot Sample
As in any case, a scatter plot can be drawn if two data sets are expected to
correlate, like in case of Customer Satisfaction and Resolution (FCR):
70%
Weeks CSAT FCR
y = 1.2762x - 0.2452
1 45% 55% 65% R = 0.9472
2 54% 60% 60%
3 55% 62% CSAT 55%
4 65% 69%
50%
5 60% 67%
45%
6 58% 66%
40%
7 57% 65% 50% 55% 60% 65% 70%
FCR
8 62% 67%

Management
Scatter Plot for Forecasting of Quotes vs Receipts
Scatter Plot of Sales and Quotes

11000
Forecast for January:

10000
Y = 1.6131 * (4381) + 1167.7
Forecast = 8235
9000
8000 Forecast for quotes for January

Quotes Sent
y = 1.6131x + 1167.7
R = 0.8203
7000
6000
5000 Expected receipts for January
4000
1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000
Sales Receipts

Management
Which Forecasting Model to Choose?
This will depend on the model that gives good accuracy:
47500 Client Forecast
45000
42500
21%
Model Forecast
40000
8%
37500
Actual
35000
32500
30000
Productivity
27500
opportunity
of 13%
25000
3/15 3/17 3/19 3/21 3/23 3/25 3/27 3/29 3/31 4/2 4/4 4/6 4/8 4/10 4/12 4/14

Management
Summary of Forecasting Stage
What to Forecast?
Volume
Arrival Pattern
Handle time
Shrinkage (Attrition, Unplanned Absenteeism and Non-adherence)
When to forecast consider the planning cycles

Track Forecast Accuracy and use the forecasting method that
gives the most accurate forecasts
Based on the forecasts, the next step is to calculate the
demand requirement (headcount planning)

Management
Capacity Planning and Demand
Requirement Calculations

Management
What is the Purpose of Capacity Planning?
Demand
Forecasting Requirement Capacity
Calculations Planning
Forecasted Workload
Customer Volume calculations Calculate Headcount
Arrival Pattern of Consider expected Requirement
customers Service Level goals Compare with
Handling Time per Add Shrinkage buffer expected resources
customer
If required, plan for
hiring and training

Management
Simple Capacity Planning Example
How many staff are needed to handle expected volume of 800

documents if average time per document is 360 seconds and
the centre has about 4 hours to handle these documents
before the end of the day; considering 12% shrinkage?
Volume = 800 documents
APT (Average Processing Time) = 6 mins
Workload = 800 * 6 = 4800 mins
In 4 hours, FTE = 4800 / 240 mins = 20 FTEs
Total HC required = 20 / (1 12%) = 22.7 or 23 people

Management
Exercise #7
Capacity Planning: Another Example
You are supposed to get some work from a client / business

unit. The service provided is customer service for payment
related calls that need to be serviced from your center.
What data do you need to do a draft sizing estimate?
Demand Side: Average weekly volume = 47464 calls
10% of these are cold transferred back to the client
Average Talk Time + Hold Time per call = 185 sec

After-Call Wrap Time (ACW) per call = 20 sec
Supply Side: 7.5 hours a day, 5 days, 80% resource efficiency

Management
Management

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Service Operations Management

Session III: June 21, 2017

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

2. Demand 4. Real Time

Analysis of Estimated staff Planned roster Management and

Goal: Planning and taking action to improve Service Level and

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Required Headcount (FTE) vs Scheduled (Forecasted)

20 1. Dip in staff at 10:30am

Not forecasting demand Incorrect scheduling

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

a) Forecasting in Services using

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

What does a Service Operation need to forecast?

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Forecast techniques could be broadly classified under the following

Time Series Causal

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Time Series Methods Causal Methods Qualitative Methods

Moving Averages Multiple Regression Panel Consensus

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

The primary premise in which the time series data

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Plotting the Time Series

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

The demand side fluctuations

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Example of hourly patterns

Why is this important?

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Confidential and Proprietary

1. Moving Average Methods:

b. Weighted Moving Average (WMA):

c. Moving Average with Trend

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Exercise: Forecasting with Moving Average

Actual Forecast Forecast Differences Differences

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

b. Holt's Method (Double Exponential):

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Level Level + Trend Level + Level + Trend +

Moving Averages ARIMA ARIMA Time Series

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Need to identify the following: 5000000

Is the time series normal? Are

variation? Will these remain in 500000

Is the time series Stationary? Volume - Program A

There are multiple ways of 4500000

finding this Run Charts, 3500000

Control Charts, Early Warning 2500000

Indicators or simply Eyeballing 1500000

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Eyeballing Historical Data

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Service Operations 2017, Shreekant Vijaykar. All rights reserved.

Exercise: Forecast Daily Volumes

Sept 12 725 616 560 510 444

Sept 19 719 652 560 544 500