|
Why do you measure accuracy/error as forecast-actual
/ actual and not over forecast?
Historically Sales groups have been comfortable using forecast
as a denominator, given their culture of beating their sales plan.
Since most of the demand planning evolved from Sales function,
MAPE was also measured this way. So this was mostly cultural.
In such a scenario, Sales/Forecast will measure Sales attainment.
For example, sales of 120 over 100 will mean a 120% attainment
while the error of 20% will also be expressed as a proportion
of their forecast. So it was more of a convenience for Sales Management.
However, more scientifically, the denominator is designed so
that it will control functional bias in the forecasting process.
Since Supply Chain is the customer of the forecast and directly
affected by error performance, an upward bias by Sales groups
in the forecast will cause high inventories. So if Demandplanning
reports into the Sales function with an implicit upward bias in
the forecast, then it is appropriate to divide by the Actual Sales
to overcome this bias. Using Actuals is also ideal because it
is not under the control of the forecaster. If we use forecast
as the denominator, the forecaster can improve accuracy marginally
by consistently over-forecasting.
But there is a trend in the industry now to move Demandplanning
functions into the Supply Chain. If Supply Chain is held responsible
for inventories alone, then it will create a new bias to underforecast
the true sales. If MAPE is using Actuals, then you can improve
forecast accuracy by under-forecasting while the inventories can
be managed below target.
|