Knowledge Base

Calculating Demand Forecast Accuracy

This presentation describes the process of evaluating demand forecast accuracy, the pros and cons of different forecast accuracy metrics, the mechanics of each metric, and the time-lag with which accuracy should be measured. Some companies refer to forecast error as Demand Plan Error (DPE). So it is useful to keep in mind that demand forecast error (DFE) and DPE refer to the same thing and Demand Forecast Accuracy is the complement of Forecast or Plan Error. DFA = 1 - DFE.

Forecast Bias is an important component to identify when evaluating the quality of demand forecasts. This presentation also features a method to identify and track forecast bias. Using these measures of forecast accuracy and bias, a precise safety stock calculation can be made. Here, we review some scientific methods of setting safety stock strategies that are dependent on the history of forecast accuracy by SKU. 

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