Here, forecasting plays a key role as its accuracy drives inventory, hence supply chain efficiency and return on assets.
Accurately forecasting product demand is probably the single most important and most challenging measure of a company’s supply chain proficiency.
* It is necessary to check the accuracy of past forecasts against present performance and of preset forecast against future performance. Some comparisons of the model with what actually happens and of the assumptions with what is borne out in practice are more desirable.
*The larger the number of items involved, the more accurate the forecasts. Because of the statistical law of large numbers, the size of forecasting errors decreases as the number of items being forecast increases and vice versa.
*Another factor is the elasticity of demand. The more in-elastic the demand, the more accurate the forecasts. Therefore, the demand for necessities can be forecast with a higher degree of accuracy than that for non-necessities and demand for non-durable goods with a higher degree of accuracy than for durable.
*Also, as many supply chain practitioners have experience, it is usually possible to accurately estimate total demand three months in advance, while it is virtually impossible to forecast precisely on which day or even during which week a particular customer order will arrive.
Forecast accuracy
