Sales Forecast Optimization: Ensemble and Time Series Comparison
Tamara Dallegrave 1
Marcus Silva1
Daniel Neto1
Paulo Brasil1
Edson Filho1
Wylliams Santos1
1Escola Escola Politécnica de Pernambuco, Universidade de Pernambuco, Recife, Brasil. E-mail: tldad@ecomp.poli.br
DOI: 10.25286/repa.v6i5.2153
Esta obra apresenta Licença Creative Commons Atribuição-Não Comercial 4.0 Internacional.
Como citar este artigo pela NBR 6023/2018: DALLEGRAVE, T.; SILVA, M.; NETO, D.; FILHO, E.; SANTOS, W. Sales Forecast Optimization: Ensemble and Time Series Comparison. Revista de Engenharia e Pesquisa Aplicada, Recife, v.6, n. 5, p. 110-119, Novembro, 2021.
ABSTRACT
To ensure competitive advantage, companies seek solutions that allow them to optimize the management of their resources. Sales forecasting is the process of organizing and analyzing information in a way that allows estimating how sales will be. In this context, decision support systems can be allies to explore scenarios based on historical data. This is an essential and inexpensive way for every company to increase its profits, decrease its costs, and achieve greater flexibility to change. The objective of this study is to analyze a sales database to predict the amount of sales. Thus, this research aims to compare the Ensemble and Time Series (ARIMA) forecasting methods in order to find the most optimized model for the proposed problem. The preliminary results of this study showed inconclusive results with 5% significance that there was a change in performance between the two approaches.
KEYWORDS: Data mining; Sales Predictions; Time series forecasting;
With the increasingly competitive business environment, companies seek to improve their operations, so that profit is optimized to reduce waste. To manage efficiently requires effective planning, for this, it is necessary to have a perspective of the future conditions in which the company will operate, and how the elements that condition this perspective relate to each other [1].
To ensure competitive advantage, companies rely on systems that allow them to expect how resources should be used. These systems make it possible to extract information through large volumes of data to provide insights. Thus, data mining helps in the extraction of information from the database, being a great ally in planning corporate strategies, having the ability to promote in managers a more adequate understanding of the current situation of the company, thus allowing through insights the generation of strategies to increase sales, as well as determining the direction to be followed [2].
Sales is the core activity from a business process. Companies record and document every transaction as a cycle in financial management. Sales transaction data histories can be used to predict the possibility of sales transactions that will occur in the future [3]. companies have invested in decision support systems to explore scenarios based on the historical data of their transactions.
Sales prediction is the process of organizing and analyzing information in a way that makes it possible to estimate how sales will be [2]. Thus, information technology is transforming the way businesses are conducted. Data mining for sales prediction is utilized for capturing the tradeoff between customer demand satisfaction and inventory costs. An essential and inexpensive way for each company to augment their profits, decrease their costs, and achieve greater flexibility to changes [4].
1.1 OBJETIVES
The objective of this study is to analyze the sales database to predict the number of sales. This research uses a data mining-based approach for sales prediction. In this way, this study proposes an improvement in financial management.
1.2 JUSTIFICATION
Currently, sales transaction data histories are used to predict the possibility of sales transactions that will occur in the future. However, this financial management has no assertive predictability. Therefore, the identification of relevant attributes and correlations for sales prediction becomes a fundamental factor for competitive advantage. Decision-making systems help companies to augment their profits, decrease their costs, and achieve greater flexibility to changes [4].
1.3 NEGATIVE SCOPE
It is not the objective of this study to generate a sales prediction application or integration for the company's use, nor will we impose the use of the metrics obtained or put them into practice to validate the results obtained during the study.
2.1 DATA MINING
Decision making based on experience and intuition alone is not always sufficient for solving complex problems. One solution to this problem is the use of data mining algorithms to assist in the decision-making process [5]. Data mining can be understood as the process of analyzing large amounts of data in order to find patterns, correlations, and anomalies to predict outcomes that, given the volume of data, would not be easily discernible by human reason alone.
The data mining process takes place in several steps, as a kind of filtering, so that in the end only the information that really matters remains. The steps of this process can be summarized in: 1) Business Understanding, 2) Data Selection, 3) Data Cleaning, 4) Data Modeling, 5) Process Evaluation, and 6) Execution. It is through these steps that data mining surveys large volumes of data and relates them in a useful way, thereby capturing the information relevant to the user's objectives.
The general data mining techniques can be summarized into five: Classification (consists of dividing data into categories and the most commonly used algorithms for this purpose are decision trees, regression and neural networks); Estimation (is estimation of a probable value, compared to preexisting data and neural network and regression algorithms can be used); Prediction (is the evaluation of a future data, taking historical data and behavior as a parameter, and neural network, decision trees and regression algorithms can be used); Cluster Analysis (aims to form groups of elements that are more homogeneous among themselves, and is performed by specific statistical algorithms, neural networks, and genetic algorithms), and Affinity Analysis (seeks to recognize patterns of concomitant occurrence of certain events in the analyzed data, using association rules most of the time) [6].
2.1.1 Algorithms
In this research, some data mining algorithms were selected and will be described below:
· Linear Regression: model that considers the connection of responses to the variable to be a linear function of some parameters, and this is done to ensure generalization - giving the model the ability to predict outputs for inputs it has never seen before.
· Ridge CV: also known as L2, it’s a model fit method used to analyze any data that suffers from multicollinearity. This technique discourages overfitting the data in order to decrease its variance. As the L2 penalty is disproportionately larger for larger coefficients, Ridge regularization causes correlated features to have similar coefficients.
· Support Vector Regression (SVR): supervised learning algorithm used to predict discrete values that seeks to find a best-fit line. A best-fit line is the hyperplane that has the maximum number of points. A big benefit of using SVR is that it is a non-parametric technique.
· LSTM: is a special kind of recurrent neural network (RNN), which can remember information for much longer time periods and can capture complex, nonlinear relationships due to its recurrent structure and gating mechanisms that regulate the information flow into and out of the cell, and its large capacity to deal with sequential data. Contrary to the classical neural networks, LSTM has feedback connections that enable the processing of input sequences of arbitrary length and is commonly preferred in classifying, processing and making predictions based on time-series data [7]. It means that LSTM is a good approach to use for sales forecasting. That is the reason why this was one of the algorithms choosed.
· ARIMA: is a combination of A.R. and M.A. models, along with differencing. In Autoregressive models (A.R.), predictions are based on past values of the time-series data, and in Moving Average models (MA), prior residuals are considered for forecasting future values. The model is generally favored for its flexibility to various types of time-series data and its predicting accuracy [8]. For this reason, this was one of the techniques selected to execute the sales forecasting.
2.1.2 Ensemble Methods
Ensemble methods are a technique that use multiple learning algorithms and combine them to achieve improved results on the predictive performance. Unlike other techniques that will find a single model to make predictions for a specific problem in a space with multiple hypotheses, ensembles will combine a - finite - set of alternative models for that. This combination of multiple models allows the elimination of variance, and because of that, increasing the accuracy of predictions.
The ensemble methods are divided into two categories: sequential ensemble techniques, which generate base learners in a sequence; and parallel ensemble techniques, which generate base learners in a parallel format. The first one promotes dependence between the base learners, while the second one, independence.
The most popular ensemble methods are (i) boosting, (ii) bagging and (iii) stacking. (i) Boosting is a technique that learns from mistakes made by the previous predictor, in order to make better predictions. (ii) Bagging will improve the results of the model through decision trees, reducing variance; and (iii) Stacking, a technique that allows a training algorithm to ensemble other similar learning algorithm predictions. The effectiveness of these methods, throughout the years, has been proved undeniable, including in the improvement of predictive models for sales forecasting [9].
2.2 SALES FORECASTING
Sales forecasting consists of the calculation or the sequence of steps that the decision maker performs, based on a sales history and understanding of the consumer, in order to predict the results of their sales.
The forecast gives insight into how a company should manage its workforce, resources and cash flow, and also helps enterprise planning and decision-making regarding operations, marketing, sales, production and finances in an effective way. It also increases the commercial competitive advantage, as decision makers will make the best choices using the information obtained through its mechanism.
A sales forecasting mechanism allows the organization to improve market growth with greater revenue generation, and to create one with a high level of accuracy and reliability is one of the biggest challenges. To achieve this, data mining techniques are very effective in turning huge volumes of data into useful information for sales forecasts [10].
2.2.1 Coupons Sale
Wholesale and retail consumers normally, when making a purchase, get the change from their purchase in return in bills and/or coins. The case study discussed here handles shopping change differently. When buying a certain product in a store, the change received by the customer will be provided as a complement through a virtual coupon, which represents the change for a certain sale. In this way, the customer will be getting his change in a virtual score format, being able to compete for prizes, in which the higher the score, the greater are the chances of winning. In this context, sales are represented by this additional change, which can vary between R$0.10 and R$10.00.
2.2.2 Times Series Forecasting
A time series is a collection of observations made sequentially over time. The order of the data is a fundamental characteristic of this type of data since the dependency between them is used for analysis and modeling [11]. Time series analysis (TSA) refers to methods that analyze the characteristics of the data, to extract useful statistics from them. Time series forecasting is often used to predict future expected values of the data to be recorded. Time series analysis has the undoubted advantage of being simple and effective, since the pertinent outcomes can often be interpreted intuitively [12].
As mentioned earlier, the company does not use its daily, monthly, and yearly sales prediction based on the many variables that can affect the sales quantity, such as store location, the day, month and time of the sale, the value of the sales coupon, among others. This directly affects the accuracy of the sales quantity in a given period, which can hinder decision-making on various aspects of the company.
In this context, the study developed by Xiaodan, Yu, Zhiquan, Qi, and Yuanmeng, Zhao, in 2013, proposes to use the sales forecast, but to avoid excessive printing of magazines and newspapers, based on previous sales data [10]. Thus, variables such as the type of store where the newspapers and magazines are located, demographic data regarding the area where the store is located, among others, are used. To perform predictability, the SVR (Support Vector Regression) technique was used, which has the objective of finding a function that matches the input data with the smallest possible error. This method was used under the assertion that forecasting techniques such as multiple regression and linear regression suffer from overfitting problems [13].
A study developed by Passari uses the approach of artificial neural networks and their techniques to forecast retail sales. This work aims to use ANNs to create individualized sales forecast models, that is, to analyze each product individually [10]. Also, this research uses ANNs to detect relationships among variables that impact the store sales volume (per product), which is directly related to sales forecasting. Several other techniques are mentioned, especially time series, but artificial neural networks are the main focus.
Another research by Zadeh, Sepehri and Farvaresh applies intelligent sales forecasts for drug distribution companies. In this specific case, the sales forecasting mechanism proves to be quite effective as the products of this industry quickly perish and the quality of these products directly affects human health and life. The objective of this study was to provide an accurate sales forecast model for auxiliary companies, especially pharmaceutical companies, in order to predict the sale of products and avoid costs caused by stock loss and customer loss due to lack of products. As a main contribution a research, hybrid neural networks were carried out to let linear ANN model the linear components and let nonlinear ANN model the nonlinear components and then merge the results from both linear and nonlinear models, as well as, adding a new method of product grouping that makes use of past sale data in the prediction of sales and also helps gain more accuracy in the predictions [4].
Another recent study considered different machine-learning approaches for time series forecasting. This research quotes regression approaches for sales prediction that gives better results than time series methods. Their research provides improvement in accuracy on the validation and on the out-of-sample data sets using an ensemble method. The use of a stacking approach makes it possible to take into account the differences in the results for multiple models with different sets of parameters [9].
3.1 DATABASE DESCRIPTION
The database provided was exported from sales data from the company points program, it has over 1.5 million entries and is composed of two tables, the first being the sales table and the second a table with data from the establishment where the sale was executed, where we filtered only the city and the state.
Each entry in the sales table corresponds to a sale made at a POS (point of sale), which in this case corresponds to one of the cash registers of the several commercial establishments that are part of the program.
For data privacy reasons, the commercial establishments where the sales were made had their data encrypted and are identified through an ID. In addition, the base is composed of the value of the coupon purchased by the customer, the date and time of the purchase, as well as the city and state in which the establishment is located, the mentioned fields can be seen in Picture 1.
Picture 1 - Database Fields.
FIELD |
DESCRIPTION |
TYPE |
RANGE |
RetailerID |
Establishment Identifier
|
Int |
single value |
POS_ID |
POS Identifier |
Int |
single value |
PaymentType |
Payment Method |
String |
Cash or Credit card |
Price |
Sale value
|
Decimal |
0.10 - 10.0 |
Timestamp |
Year, month, date and time of sale |
Datetime |
2018-05-16 2021-07-15 |
City |
City of the establishment where the sale was made |
Text |
12 Cities |
State |
State of the establishment where the sale took place |
Text |
2 States (MS and SP) |
Year |
Year of sale |
Int |
2018 - 2021 |
Month |
Month of sale |
Int |
January - December |
Weekday* |
Weekday of sale |
Text |
Monday - Sunday |
Day* |
Day of sale |
Int |
0 - 31 |
Hour** |
Hour of sale |
Int |
0 - 24 |
*some stores are not open on sunday
**some stores are closed at 10pm
Source: The authors.
3.2 DESCRIPTIVE DATA ANALYSIS
Data analysis was performed to detect patterns or correlations that might suggest clues for determining relevant attributes within the project database. Python programming language was used to accomplish this process, both in determining summary measures and in visualizing the data.
The variables selected for this analysis were historical data: Numerical variables: date and time sales; and Nominal variables: location (city, state).
Summary measures, including mean, among others, are presented in Picture 2.
Picture 2 - Measures of the variable Price (sales value).
VARIABLE |
PRICE |
Type |
decimal |
Occurrence |
1.801735 x 10^06 |
Average |
1.432785 |
Std |
1.161206 |
Source: The authors.
Regarding the variable 'hour', its absolute and relative frequencies were also analyzed. This analysis was performed so that the hours were divided into periods of the day, that is, morning, afternoon and evening. Picture 3 shows the distribution of the number of sales according to the period of the day. The night period was not considered because there is no record of sales in this interval.
Picture 3 - Measures of the variable Price (sales value).
Day period (h) |
Absolute Frequency |
Relative Frequency |
6-12 |
737174 |
0.40914 |
13-18 |
832072 |
0.46181 |
19-24 |
232489 |
0.12903 |
Source: The authors.
Figure 1 allows the indication of the number of sales per month from 2018 to 2021. By analyzing the data, we observed that the first year had a lower number of sales due to the fact that it was an unstable time for the solution with a lower number of stores. Worth to mention that the second semester has a large number of sales due to the end of year holiday season. Also, we identify that the number of sales increased with each year observed, as well as that the highest occurrence of sales took place on Saturdays and Fridays, while the lowest number of sales occurred on Sunday. Friday and Saturday are the days that we identify the highest sales numbers, generally 15% to 20% higher than the other weekdays. And Sunday is usually 50% higher than Saturday, because many stores are closed.
Figure 1 - Distribution of sales in each year
Source: The authors.
Figure 2 presents a histogram of the analysis about the values of change that are most frequently purchased according to their price range in Brazilian Real (BRL).
Another important measure for analyzing quantitative variables is the scatter plot. By analyzing the database, it is possible to identify two quantitative measures: the sales quantity and the sales value. That way, a relationship is created between the sales price and its respective recurrence. This is important to identify whether there is a linear relationship between these two variables.
Figure 2 - Histogram of price values
Source: The authors.
The data analysis identified that the majority of sales are concentrated in values between R$1 and R$2. It is also possible to conclude that there is a small recurrence of the values above R$2, appearing to be an almost constant distribution. Another observation, some outliers that are found in the amount close to R$10 and R$5. Figure 2 shows the results obtained. Also, it is possible to conclude that there is a symmetrical distribution of data, with a small variation in the months of May, June and July. Furthermore, it is possible to notice that although the prices of the tickets acquired are mostly between R$1 and R$2, there is a large occurrence of outliers, varying between R$2 and R$10. This concludes that most outliers are concentrated between R$8 and R$10.
3.3 EXPERIMENTAL METHODOLOGY
The methodology of this work was carried out according to the steps described below:
· Step 1: Selection of models to be used for sales forecasting. Before running the algorithms, it is necessary to select hyperparameters and also divide the database.
It is worth mentioning that initially the holdout method was chosen with the division of training (70%) and test (30%) mass. However, this method has the disadvantage that the data can be very biased in the selection of data for training and, therefore, the high training accuracy does not mean a generalization of learning. And that generates bad results when the model is used with real data. To solve this problem, the cross-validation method was used. This method trains and tests the model with all available data to avoid variance and, thus, ensure more robust results. The disadvantage of this method is the high computational cost, however as in this research we have a small database, this was not considered critical to the point of excluding the use of this method.
· Step 2: Represents the choice of metrics for evaluating the performance of the data obtained. For this, the MSE and the RMSE were chosen. Both are indicated in problems where predictions that are too far from the real increase the value of the measure, which makes it an excellent evaluation metric for problems when large errors are not tolerated, such as in the case of price projections.
Therefore, these two error metrics are described below:
Mean squared error (MSE): The mean squared error is commonly used to check the accuracy of models and gives greater weight to the biggest errors, since, when calculated, each error is individually squared and, after that, the mean of these square errors is calculated.
Root-mean-square error (RMSE): is the measure that calculates "the root mean square" of errors between observed (actual) values and predictions (hypotheses) [14].
· Step 3: Comparison of techniques for forecasting optimization. In order to analyze the obtained results, Five algorithms were chosen with two distinct approaches: the time series prediction and the ensemble method. These techniques were chosen because they are widely used in various problems and because they are easy to implement.
· Step 4: Hypothesis tests for statistical validation of the results found. In this phase each method will be compared with the ensemble method to check if there is improvement of performance or not.
4.1 RESULTS
To validate the results obtained between all the analyzed methods the RMSE metric was used as shown in Table 1.
Table 1 - Performance Comparison
|
LSTM |
ARIMA |
LR |
SVR |
RCV |
ENS. |
RMSE |
0.99 |
0.104 |
0.131 |
03139 |
0.137 |
0.136 |
Source: The authors.
· LSTM: One of the approaches used for sales forecasting was the LSTM neural network. This network was implemented using a 4-layer network, with 50 neurons each, each one with a 20% dropout. As an LSTM, we are considering the previous 7 days to perform the current forecast. In addition, the model has a configuration of 150 epochs of the neural network and a batch size of 32. As a result, Figure 3 shows a graph of LSTM prediction forecast vs the real.
Figure 3 - LSTM forecast vs real
Source: The authors.
· ARIMA: The ARIMA model was implemented because it is widely used in problems with sales forecasting. In the proposed model, the Grid Search technique was used in order to obtain the best possible parameters for ARIMA. As a result, it was found that the best combination of hyperparameters was (6,1,2). In this combination, the model managed to behave well, being able to predict some peaks. Furthermore, by normalizing the data, an RMSE of 0.1047 was found, demonstrating a good forecast result as shown in Figure 4.
Figure 4 - ARIMA forecast vs real
Source: The authors.
· LR: Linear regression is one of the existing classic models that was used to forecast sales. For linear regression, a Grid Search was also implemented, aiming at the optimization of parameters. After that, it was verified that the parameters that best fit with the LR were: ‘fit_intercept’ false, number of jobs equal to 1, and ‘normalize’ also false. As this is a time series, to carry out the division between training and database testing, it was necessary to keep the 'shuffle' parameter (responsible for randomizing the data) as false. Through this configuration, it was possible to obtain a reasonable model, but one that cannot predict certain sales peaks. The RMSE can be found in Table 4 and the result graph in Figure 5.
Figure 5 - LR forecast vs real
Source: The authors.
· SVR: The SVR technique was also implemented using Grid Search, to obtain the best possible parameters. In this approach, the ‘shuffle’ parameter also remained false. In addition, the best configuration found was with the following parameters: 'C' being 10; 'epsilon' being 0.0001; ‘gamma’: 1 and finally, the ‘kernel’ parameter being linear. It was possible to observe that the model is able to predict behaviors that are repeated and reasonably predicts some sales peaks as can be noticed in Figure 6. The RMSE of this technique is shown in Table 4.
Figure 6 - SVR forecast vs real
Source: The authors.
· RIDGE: Another technique that was used was the Ridge. To obtain the best possible parameters, a Grid Search was also implemented. From that, the following configuration was obtained: 'alpha' being 0.6; 'fit_intercept' being False and the parameter 'solver' being 'sag'. The Ridge model was successful in predicting some peaks and dips in sales; in general, this technique was able to make a good prediction on the behavior of the time series, as shown in Figure 7. Table 1 also shows the RMSE obtained.
Figure 7 - RCV forecast vs real
Source: The authors.
· Ensemble method: The method used was the mean Ensemble method. That means that the three smaller RMSE algorithms were used as input to the Ensemble as shown in Table 4. These three techniques were combined to compose a mean, and this was used as the final result for the combination of these three algorithms. So, the top three techniques were: LR (Linear Regression), SVR (Support Vector Machine) and Ridge, the model was able to reasonably predict the peaks as can be seen in Figure 8.
Figure 8 - Ensemble forecast vs real
Source: The authors.
· Hypothesis tests: an inquiry method about the veracity of a statement, associated with maximum risk of error. In other words, by definition a hypothesis test is a rule decision to accept or reject a hypothesis, based on the information provided by the data collected in a sample and, therefore, involves a risk of claiming something wrong [15]. The use of hypothesis tests to assess the significance of differences between the results of the classical algorithms before and after the ensemble as a means of determining whether they helped increase the performance of the prediction algorithm.
After performing the hypothesis tests comparing the algorithms, it was verified that the H0 hypothesis was accepted. This means that the result was inconclusive, that is, there is no statistical evidence with a significance of 5% that there was an improvement using Ensemble.
4.2 DISCUSSIONS
The work developed in 2013 by Xiaodan, Yu, Zhiquan, Qi, and Yuanmeng, Zhao demonstrates an approach using Support Vector Regression to forecast magazine sales, in order to avoid unnecessary prints. In this context, the work used SVR as it states that multiple and linear regressions can cause overfitting in the model. In fact, SVR was a good strategy for the problem addressed, as it showed good results. However, the time series approach has not been developed. Therefore, perhaps the use of time series models is advantageous for this problem, as applied in this article, which presented more satisfactory results.
Regarding the work developed by Passari, it is clear that the intent was to generate models to forecast sales of individual products. In addition, his research uses artificial neural networks to detect the relation between variables that impact product sales, allowing him to make a prediction with greater assertiveness. Thus, the work proposed here did not use this approach to verifying variables that may impact sales, which can be considered as a future work using neural networks to detect possible behaviors related to sales.
On the work done by Zadeh, Sepehri and Farvaresh, three different approaches were used to predict medical drug sales. The first approach used an ARIMA model to forecast time series; the second approach presented a hybrid neural network to forecast the series through average sales of previous drugs, for each one; the third approach used a hybrid neural network for time [4]. Through this work, it was possible to see that the use of hybrid neural networks increases the accuracy of predictions, as it is able to model non-linear patterns. The present work does not use hybrid neural networks to model non-linear behaviors, which can be considered a disadvantage.
5 CONCLUSIONS
With an increasingly competitive business environment, companies are looking to improve their operations so that profit is optimized to reduce waste. Companies have invested in decision support systems to explore scenarios based on the historical data of their transactions. This way, these systems make it possible to extract information through large volumes of data to provide insights.
In this work, the ensemble model was chosen to combine prediction algorithms in order to improve the performance of predictors. This research presented the proposed ensemble model that used the averages of the classical algorithms to improve performance, but this approach did not obtain the expected result. In fact, this approach had very similar results as classical models independently.
This research shows really similar results for times series forecasting and ensemble method for optimizing sales forecasts. Also, it is worth noting that all methods applied in this research obtained a gain up to 6% of precision compared to the current technique used by Azure Company for sales forecasting.
As future work, a comparison with a trainable ensemble model is planned in order to obtain better results than the proposed approaches in this article. Another possible future work is the use of neural networks to more accurately obtain non-linear behaviors and possibly observe the relationship between variables that may impact sales. Regarding the ARIMA model, a possible improvement of the model can be done using the SARIMA models, which are useful models for databases with seasonal behavior. In addition, another important technique will be to train the database with previous years and predict future years.
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