Estimating Demand Uncertainty Using Judgmental Forecasts
Measuring demand uncertainty is a key activity in supply chain planning, but it is difficult when demand history is unavailable, such as for new products. One method that can be applied in such cases uses dispersion among forecasting experts as a measure of demand uncertainty. This paper provides a test for this method and presents a heteroscedastic regression model for estimating the variance of demand using dispersion among experts' forecasts and scale. We test this methodology using three data sets: demand data at item level, sales data at firm level for retailers, and sales data at firm level for manufacturers. We show that the variance of a random variable (demand and sales for our data sets) is positively correlated with both dispersion among experts' forecasts and scale: The variance increases sublinearly with dispersion and more than linearly with scale. Further, we use longitudinal data sets with sales forecasts made three to nine months before the earnings report date for retailers and manufacturers to show that the effects of dispersion and scale on variance of forecast error are consistent over time.
Volume (Year): 9 (2007)
Issue (Month): 4 (April)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George T. Milkovich & Anthony J. Annoni & Thomas A. Mahoney, 1972. "The Use of the Delphi Procedures in Manpower Forecasting," Management Science, INFORMS, vol. 19(4-Part-1), pages 381-388, December.
- Burton G. Malkiel, 1982. "Risk and Return: A New Look," NBER Chapters, in: The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, pages 27-46 National Bureau of Economic Research, Inc.
- Harvey, A C, 1976. "Estimating Regression Models with Multiplicative Heteroscedasticity," Econometrica, Econometric Society, vol. 44(3), pages 461-65, May.
- Werner F. M. De Bondt & William P. Forbes*, 1999. "Herding in analyst earnings forecasts: evidence from the United Kingdom," European Financial Management, European Financial Management Association, vol. 5(2), pages 143-163.
- Norman Dalkey & Olaf Helmer, 1963. "An Experimental Application of the DELPHI Method to the Use of Experts," Management Science, INFORMS, vol. 9(3), pages 458-467, April.
- Christian Terwiesch & Christoph H. Loch, 1999. "Measuring the Effectiveness of Overlapping Development Activities," Management Science, INFORMS, vol. 45(4), pages 455-465, April.
- Morris A. Cohen & Teck H. Ho & Z. Justin Ren & Christian Terwiesch, 2003. "Measuring Imputed Cost in the Semiconductor Equipment Supply Chain," Management Science, INFORMS, vol. 49(12), pages 1653-1670, December.
- Munier, Francis & Ronde, Patrick, 2001. "The role of knowledge codification in the emergence of consensus under uncertainty: empirical analysis and policy implications," Research Policy, Elsevier, vol. 30(9), pages 1537-1551, December.
- Ajinkya, Bipin B & Gift, Michael J, 1985. " Dispersion of Financial Analysts' Earnings Forecasts and the (Option Model) Implied Standard Deviaitons of Stock Returns," Journal of Finance, American Finance Association, vol. 40(5), pages 1353-65, December.
When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:9:y:2007:i:4:p:480-491. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.