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Abstract: Forecasting accuracy drives the performance of inventory management. This study is to investigate
and compare different forecasting methods like Moving Average (MA) and Autoregressive Integrated Moving
Average (ARIMA) with Neural Networks (NN) models as Feed-forward NN and Nonlinear Autoregressive
network with eXogenous inputs (NARX). Data used to forecast is acquired from inventory database of Panasonic
Refrigeration Devices Company located in Singapore. Results have shown that forecasting with NN offers better
performance in comparison with traditional methods.
Keywords: ARIMA, Forecasting, Inventory, Neural Networks, Safety Stock
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International Journal of Engineering Business Management, Vol. 1, No. 2 (2009) pp. 19-24
International Journal of Engineering Business Management, Vol. 1, No. 2 (2009)
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C. A. Mitrea, C. K. M. Lee and Z. Wu: A Comparison between Neural Networks and Traditional Forecasting Methods: A Case Study
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International Journal of Engineering Business Management, Vol. 1, No. 2 (2009)
Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
INV LV 2118 1939 1842 1804 1796 1921 2229 2504 2632 2551 2386 2200 2086 2036 1992 1962 1952
Training set
2118 1939 1842 1804 1796 1921 2229 2504 2632 2551
1939 1842 1804 1796 1921 2229 2504 2632 2551 2386
1842 1804 1796 1921 2229 2504 2632 2551 2386 2200
1804 1796 1921 2229 2504 2632 2551 2386 2200 2086
Table 3. Training sample for P2 Fig. 10. Performance analyses for NARX P1
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C. A. Mitrea, C. K. M. Lee and Z. Wu: A Comparison between Neural Networks and Traditional Forecasting Methods: A Case Study
Fig. 11. Graphical representation of Error for P1 Fig. 12. Graphical representation of Error for P2
For a better validation of the NN models, we have also • Collect more inventory data.
predicted the inventory levels for weeks 9 and 13, with • Validate the NN models to forecast with PRD
Moving Average (MA) and ARIMA. The results are manager’s comments.
displayed in Table 4. • Refine the proposed model for better performance.
The error represents the difference between the predicted
value in week 9 and the actual value for P1 which is 2632 6. Acknowledgment
(Figure 11). Results for P2 (2086) are displayed in Table 5
We would like to express our sincere gratitude and
and Figure 12.
appreciation to Mr Phua, the main manager responsible
5. Discussion for inventory at PRD Company, for his time, unmeasured
patience and advices throughout this entire process.
In this study we have investigated the architectures of
NN used to forecast demands in inventory management, 7. References
and analyzed inventory level of PRD Company with the
Aburto, L. & Weber R. (2007) Improving supply chain
purpose of selecting an appropriate NN model to increase
management based on hybrid demand forecasts
the forecasting accuracy. Two types of NN, FFNN and
Applied Soft Computing, 7(1), pp. 136-144
NARX, have been trained. A comparison with the
Amin-Naseri, M.R.& Rostami Tabar B (2008) Neural
traditional methods (MA and ARIMA) has been made.
Networks Approach to Lumpy demand forecasting
In the first case (4.1) best result is obtained using a NARX
for Proceeding of International Conference on
NN, the difference between actual value and predicted
Computer and Communication Engineering, pp.1378-
value for week 9 is 148. For the second case (4.2) best
1382, ISBN: 978-1-4244-1691-2 Kuala Lumpur, May
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obtained using a NARX NN. In PRD case a NN approach IEEE Publisher, MD, USA
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management can be improved for a better efficiency. IEEE Press, pages 146-154.
The ability of the NN to learn is proportional to the Bengio, Y. Frasconi P. & Simard P. (1993) The problem of
number of the training samples. In PRD Company case, learning long-term dependencies in recurrent
the inventory data available is on five months, which networks. Proceedings of IEEE International Conference
makes NN training very difficult. Therefore we have used on Neural Network, pp. 1183-1188ISBN: 0-7803-0999-5,
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International Journal of Engineering Business Management, Vol. 1, No. 2 (2009)
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