Calculating MAPE - special cases: Obsolete Stock
When calculating MAPE what is recommended when actuals are positive but forecast is 0 (for example when clearing obsolete stock)? Can you make the forecast match the actual quantity so as not to penalize the forecaster for something that was not forecastable. Is this the correct way to measure these scenarios?
Our recommendation is to exclude the Obsolete Skus from measurement and in computing the aggregate MAPE as a performance measure for the planner or for the Sales Manager responsible. Clearing obsolete stock is a supply management activity not a demand forecasting activity.
Demand Plans are externally focused and are a representation of what the market wants. The obsolescence of stock may be a result of inferior demand forecasting in the past but has nothing to do with the demand for such stock in the current period. In essence, there is no demand for that stock – either it is sold for scrap or just donated.
Making the Forecasted quantity match the actual demand for such obsolete stock will have a downside as well. This will artificially inflate the forecast performance of the planner on a weighted basis and hence hide poor forecasting on active open stock items.
For example, you sell 25K units of active SKU for which you forecasted only 5K. Then you have 100K of obsolete stock you sell. Under your measure the MAPE will result in a 16% error or an 84% accuracy. In reality the MAPE on your active SKU is 80% or 20% accuracy. The 100% accuracy on the obsolescence is a manufactured number but wrongly aggregates to influence the divisional MAPE.
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