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Improving Forecast Accuracy can become an obsession, be careful.
I have seen many Supply Chain teams putting in a lot of effort in improving demand forecast accuracy, hoping that it would reduce stockouts as well as surplus inventory in the system. However, despite availability of more comprehensive data, computing power and better models, forecast accuracy hasn’t gone up over many decades.
Should we continue to be obsessed with forecast accuracy improvement?
It is true that forecasting for the replenishment lead time horizon is required for synchronising supplies with demand. However, the assumption that stock mismatches happen due to poor forecasts is worth challenging.
Stock mismatches happen due to a combination of two causal factors – poor forecasts and our inability to respond to changes in demand. I would urge the supply chain leaders to focus more on responding to demand changes. That’s the principle behind Agile Supply Chains.
Agile Supply Chains reduce our dependence on forecast for minimizing stockouts and surplus inventory in the system.