Email
sinha.rk.dr@gmail.com
Forecast Accuracy as a KPI can lead to wrong behaviour. Beware!
Many businesses use Forecast Accuracy (FCA) as a KPI for their Demand and Sales teams. However, the implications are rarely thought through and these can be quite profound.
Let’s see how the sales teams can improve their FCA, generally measured as wMAPE. Their actual sales for the month have to be closer to the forecast they provided last month. Absolute deviations matter at each SKU level.
If an SKU is experiencing low consumer demand, they would try to push it to the distributors and sometimes to the wholesale and retailers by offering certain incentives. Such an action has an adverse impact on product freshness, working capital as well as profits.
On the other hand, if an SKU is experiencing high demand, they could throttle supplies and try to push some of the current month’s orders to the next month. Such an action would adversely impact product availability, revenue as well as profits.
An easy way to curtail such wrong behaviours is to do away with FCA as a KPI.