Sales forecasting

Forecasting accuracy

Forecast accuracy

Forecast accuracy health check

The forecast accuracy health check can vary in content depending on the type of business and the data that is available. A review of methods and procedures can be carried out together with an analysis of the levels of forecasting accuracy that are being achieved in the current sales forecasting system. Forecasts can be checked for overall bias or seasonal bias. In a full analysis, a forecast simulation can be set up using a powerful sales forecasting database in order to compare the forecast accuracy thus achieved with that from existing methods. The health check is often the main component in the first stage of a sales forecasting improvement programme.

Case study on forecast accuracy analysis

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Importance forecast accuracy measurement

Measurement of forecast accuracy is important for the calculation of safety stock, to ensure that the sales forecasting system is under control and to investigate problems in the supply chain.  That is three good reasons for accuracy measurement - and against each reason can be assigned a number of suitable methods.

A range of measures can be used including simple summaries, exception reports, alert lists, error distributions and SKU average accuracy reports. Appropriate KPIs for forecast accuracy should be developed and these need to be challenging but realistic. They should be based on analysis, not on wishful thinking. 

Careful consideration of seasonality is important. The use of unreliable seasonal patterns derived at a very detailed level will often serve to reduce forecast accuracy rather than improve it. It is often useful to calculate seasonality at a broad level, then utilise it for the lower level detail, but care is needed.

Forecast accuracy and bias

A detailed analysis of forecasting accuracy and the way the errors are distributed reveals a great deal about the well-being of the sales forecasting system. Sales forecasts should not be biased i.e. persistently too high or too low.  Control charts can be set up to ensure the sales forecasting system is under control.

The forecast accuracy that can be achieved is different for every business and varies with the level of detail at which it is measured . Regular monitoring against appropriate KPIs is vital to ensure a direction of continual improvement.

• Sales forecasting process improvement
• Weather sensitivity and price sensitivity analysis
• Sales forecasting training courses