Moving Beyond Forecast Accuracy

In supply chains, even fast-moving items that show consistent monthly demand and high forecast accuracy can exhibit erratic and intermittent behavior when analyzed on a daily level. This makes achieving high service levels a top priority, rather than focusing solely on forecast accuracy as a retrospective metric. Supply chains are about fulfilling orders efficiently, with forecast accuracy being a byproduct of effective planning, rather than the primary goal.

Intermittent or lumpy demand, characterized by high variability and skewed distributions, poses significant challenges. Traditional deterministic demand and inventory models often underperform in this context, leading to performance gaps, manual interventions, and exacerbating the bullwhip effect. As a result, inventory misalignment occurs, and business goals remain unmet.

The solution lies in mastering the complete demand behavior—understanding variability, frequency, and order line size distributions. Accurately modeling the shape of demand distributions, without taking convenient shortcuts, leads to precise demand and inventory planning. This approach minimizes manual overrides, eliminates the bullwhip effect, and boosts confidence in the planning process.

Instead of focusing on forecast accuracy, mastering the full probability distributions of demand and inventory across various scenarios allows supply chains to achieve unprecedented efficiency and service level excellence, even in a world of lumpy demand. Explore probabilistic planning with us.

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