Improving forecasting performance by employing the Taguchi method

To satisfy the volatile nature of today s markets, businesses require a significant reduction in product development lead times. Consequently, the ability to develop precise product sales forecasts is of fundamental importance to decision-makers. Over the years, many forecasting techniques of varying capabilities have been introduced. The precise extent of their influences, and the interactions between them, has never been fully clarified, although various forecasting factors have been explored in previous studies. Accordingly, this study adopts the Taguchi method to calibrate the controllable factors of a forecasting model. An L9(3 ) inner orthogonal array is constructed for the controllable factors of data period, horizon length, and number of observations required. An experimental design is then performed to establish the appropriate levels for each factor. At the same time, an L4(2 ) outer orthogonal array is used to consider the inherited parameters of forecasting method as the noise factors of Taguchi method simultaneously. An illustrated example, employing data from a power company, serves to demonstrate the thesis. The results show that the proposed model permits the construction of a highly efficient forecasting model through the suggested data collection method. 2005 Elsevier B.V. All rights reserved.