How do you measure the impact of demand forecasting on your management outcomes?

1 Accuracy and Error

One of the most important metrics to measure the impact of demand forecasting is accuracy, which indicates how close your forecasted demand is to the actual demand. Accuracy can be measured by various methods, such as mean absolute deviation (MAD), mean absolute percentage error (MAPE), or mean squared error (MSE). These methods calculate the average or total deviation or error between your forecast and the actual demand, and help you identify the sources and magnitude of your forecasting errors. A high accuracy means a low error, and vice versa.

2 Bias and Variance

Another metric to measure the impact of demand forecasting is bias, which indicates whether your forecast is systematically overestimating or underestimating the actual demand. Bias can be measured by the mean forecast error (MFE), which is the average of the differences between your forecast and the actual demand. A positive MFE means a positive bias, or overforecasting, while a negative MFE means a negative bias, or underforecasting. Bias can affect your inventory levels, costs, and customer service. A low bias means a balanced forecast, and vice versa.

Variance is a metric that indicates the variability or dispersion of your forecast errors. Variance can be measured by the standard deviation of the forecast errors, which shows how much your errors deviate from the average error. A high variance means a high uncertainty and unpredictability of your demand, which can affect your planning and scheduling. A low variance means a consistent and stable forecast, and vice versa.

3 Efficiency and Effectiveness

Efficiency and effectiveness are metrics that measure the impact of demand forecasting on your operational and strategic outcomes. Efficiency measures how well you use your resources, such as time, money, labor, and equipment, to meet your demand. Efficiency can be measured by various indicators, such as inventory turnover, fill rate, service level, cost per unit, or productivity. These indicators show how fast, reliable, and economical your transportation processes are, and how they match your demand. A high efficiency means a high resource utilization and optimization, and vice versa.

Effectiveness measures how well you achieve your goals and objectives, such as customer satisfaction, profitability, market share, or competitive advantage. Effectiveness can be measured by various indicators, such as customer retention, customer loyalty, net profit margin, return on investment, or market share. These indicators show how satisfied, loyal, and profitable your customers are, and how you perform against your competitors. A high effectiveness means a high goal attainment and performance, and vice versa.