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'''#REDIRECT [[Demand forecasting#Calculating demand forecast accuracy''']] is{{R thefrom process of determining the accuracy of forecasts made regarding customer demandmerge}} for{{R ato product.section}}
==Importance of forecasts==
Understanding and predicting customer demand is vital to manufacturers and distributors to avoid stock-outs and maintain adequate inventory levels. While forecasts are never perfect, they are necessary to prepare for actual demand. In order to maintain an optimized inventory and effective supply chain, accurate demand forecasts are imperative.
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==Calculating the accuracy of supply chain forecasts==
Forecast accuracy in the supply chain is typically measured using the [[Mean absolute percentage error|Mean Absolute Percent Error]] or MAPE. Statistically [[Mean absolute percentage error|MAPE]] is defined as the average of percentage errors. Most practitioners, however, define and use the MAPE as the Mean Absolute Deviation divided by Average Sales. This is in effect a volume weighted MAPE. This is also referred to as the MAD/Mean ratio.
==Calculating forecast error==
The forecast error needs to be calculated using actual sales as a base. There are several forms of forecast error calculation methods used, namely [[Mean percentage error|Mean Percent Error]], [[Root mean squared error|Root Mean Squared Error]], [[Tracking signal|Tracking Signal]] and [[Forecast bias|Forecast Bias]].
==Simple methodology for MAPE==
An alternate methodology to calculate forecast error is to add the sum of the absolute errors and divide by either the forecast or the realized quantity.
== See also ==
*[[Demand forecasting]]
*[[Optimism bias]]
*[[Reference class forecasting]]
==References==
Hyndman, R.J., Koehler, A.B (2005) [http://www.robjhyndman.com/papers/mase.pdf " Another look at measures of forecast accuracy"], Monash University.
==External links==
* [http://www.demandplanning.net/documents/dmdaccuracywebVersions.pdf Mechanics of calculating forecast accuracy]
* [http://home.ubalt.edu/ntsbarsh/Business-stat/otherapplets/MeasurAccur.htm Forecast Accuracy Calculations]
* [http://www.DemandPlanning.net Demand Planning.Net Resource]
* [http://www.forecastworldindex.com Indices Forecast]
[[Category:Supply chain management]]
[[Category:Statistical forecasting]]
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