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Popular software packages have forecast alert monitors. Each
software may term it differently:
1. Manugistics calls them lists
2. APO and Dematra call them as alerts
An overworked demand planner typically plans in the order of
1000+ skus each month. That is where these alerts come in handy.
You set a pre-determined alert based on the condition meeting
a threshold……. Voila! As soon as the month-end job
runs and re-creates the models, the alerts kick in and do their
job.
You get a report, perhaps emailed to you at night comprised of
all those items that exceeded your threshold. Then your job becomes
a tad easier. You walk in to the office with your day planned
out thinking to yourself:
“I am going to address those 45 SKUs that show a MAPE above
30% first, then address the next 100 that are above 20%”.
Typically the alerts are set using a comparison of new model
values to the in-sample historical values. In essence, they address
the model fit issue and alert you to specific situations where
the models are insufficient or just plain wrong. Quite possibly,
the history may have an anamoly as well.
Now ironically I have seen many planners complain that they are
getting too many alerts from the software making them practically
not very useful. One planner mentioned that his system was spitting
out 9000 alerts for a total of 1000 skus?!
This only underscores the importance of thresholds and correct
definitions. If you note this cardinal rule, then you will be
well on your way to leveraging the exception capabilities of your
software:
1. Automated alert measures can only be set for relative performance
meausres – MPE, MAPE, or RMSE relative to Average demand,
not for absolute measures such as MAD.
2. The settings are just as good as your understanding of the
business – the thresholds have to be reasonable in comparison
to historical standards.
Also remember that Alerts can be used for another important monthly
activity: comparing the difference between two successive forecast
runs. DemandPlanning.Net calls it the Delta ratio. Perhaps you
are interested in all items where the forecast delta is 25% or
above!
Until next time,
Mark C
Please contact us for additional
questions and consulting inquiries.
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