Demand forecasting errors in industrial context: Measurement and impacts

It is important to know the impacts that sales forecast errors have on the supply chain. Knowing the role of forecasting and the impacts of forecast errors creates a basis for defining a realistic target for forecast accuracy, identifying the most important customers and/or products to be forecasted, and finding a suitable way to measure forecasting performance. This paper provides a case study about assessing the impacts of sales forecast errors. The analysis steps include defining the planning flow and the role of sales forecasts in production planning and inventory management and analyzing the characteristics of sales forecasting errors of a company. The case company is a large process industry company that seeks out to improve the accuracy of their sales forecasts and to improve control over the inventory policy decisions of different sales divisions. This case study points out some managerial problems that companies run into when demand forecasting is applied in an industrial context. One of the problems is the insufficiency of traditional error measures. The problem is analyzed and an alternative measurement practice is presented.