Academic journal article The Journal of Business Forecasting

Answers to Your Forecasting Questions

Academic journal article The Journal of Business Forecasting

Answers to Your Forecasting Questions

Article excerpt

[Q] Do you have any estimate of the average number of SKUs managed by a forecaster?

[A] How many SKUs a forecaster can manage effectively depends on how much forecast error a company can afford (the larger the error a company can afford, the larger the number of SKUs a forecaster can handle, and vice versa); how difficult and easy it is to forecast (the more difficult to forecast, the less number of SKUs the forecaster can manage); at what level of aggregation the forecasts are prepared (the higher the level of aggregation forecasts are prepared, at the family level for example, the more SKUs can be handled); whether or not any criterion is used, ABC classification, for example, to allocate time to different SKUs (the more SKUs can be managed if the forecaster pays most attention only to those that are high in value and more difficult to forecast); and the type of technology available to gather and analyze data, and generate forecasts (the more sophisticated the technology, the more SKUs can be managed). Table 1 gives the result of surveys conducted by IBF in 2007. One thing is clear: The forecaster manages more SKUs in larger companies than in smaller companies.

[Q] How do you calculate the dollar value of 1-percent improvement in forecast accuracy?

[A] It is difficult to monetize every benefit we derive from the improvements in forecasting. The largest use of operational forecasts is in the supply chain. So, one way of estimating the benefit of !-percentage improvement in a forecast is to determine how much it would cost if you over-forecast by 1 percent in terms of holding additional inventory, warehousing excess inventory, shrinkage, obsolescence, and discount that has to be offered to dispose of extra inventory. …

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