The Importance of Forecast Accuracy in the Demand Planning Cycle

Forecast accuracy

Demand planning strikes the balance between having sufficient stock levels to meet demand without having surplus as the end goal. But figuring out the quality of your forecast requires accurate data. In other words, the way in which you test the quality of your forecast is to calculate its forecast accuracy.

What is forecast accuracy?

The deviation, or margin of error, between the actual demand figures and the forecasted result in the demand plan. By finding out the forecast accuracy, you can factor this into your future demand plans and make the relevant adjustments. 

Demand planners use the forecast accuracy stats to:

1. Mitigate future risks

Firstly, the quantitative result of calculating the forecast accuracy provides a good estimation of the quality of your past forecasts. This means you can factor in risks in your forecasts and determine how uncertain a forecast is for future business periods. It also means you can proactively adjust your inventories, labour management and increase safety stock levels to cover the uncertain periods in your demand plans.

2. Prioritize questionable forecasts

Secondly, If the margin of forecast accuracy is high, you can identify this and focus particular attention to monitor future demand and stock levels to correct for smaller future deviations.

3. Refine and improve forecast accuracy

Thirdly, if you continue to have high rates of deviation, it’s likely that you need to correct the demand plan techniques, look at new technologies, or assess the quality of the data you’re using as a foundation of your demand plan.

Finally, One of the best ways to ensure this accuracy is leveraging automation technology. The functionality will automatically calculate the forecast errors. But in order to implement an automated approach you’ll need to ensure your data and cross functional collaboration is in order in the system. Also, effective demand planning will assist your business to foresee challenges and react accordingly.

Want to know more about Demand Planning? Check out our other resources:

What is demand planning

The demand planning cycle

Why is Demand Planning important?

Roles and responsibilities of Demand Planning

Arnaud Hedoux
Arnaud joined QAD DynaSys in 1997 as an International Business Developer in charge of Spanish market development. Arnaud currently serves as Marketing Director, where he is responsible for brand management and awareness, lead generation programs, marketing communications, public and analyst relations, content marketing, social media as well as marketing operations and global events. Arnaud is a member of the football team of the Council of Europe. He is also passionate about art, cooking, wine and international culture. Arnaud is an avid world traveler, he spent two years in Morocco, five years in Peru, five years in Saudi Arabia, and one year in Spain. Arnaud is married and has two children.