Establishing the variation in the forecast accuracy

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Reference no: EM132248086

Using historical data of similar products sold in the previous season and looking at their A/F ratio (actual demand/forecasted demand) is one way of establishing the variation in the forecast accuracy. This method allows us to calculate a mean and standard deviation for a product's forecast based on a forecast given by marketing. For example, marketing thinks we will sell 3,200 Hammer 3/2s.

Using the historical data, we adjust this forecast to:

Expected actual demand for Hammer 3/2 (μ) = 0.9975 × 3,200 = 3,192.

Standard deviation of actual demand (σ) = 0.369 × 3,200 = 1,181.

Explain why this adjustment and information is useful for operations.

Reference no: EM132248086

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