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The
target for forecast accuracy is matter of company
policy and historical data. Normally it should be at
least between 80% and 90%. It is necessary to keep
the forecast accuracy as high as possible.
Inaccuracy is directly impacting the sales of the
company.
For
example, if the forecast for the product B was 100
cases in may, consider the following two scenarios.
1.)
Sales was 75 cases, the accuracy was 75%. This means
that 25 cases is left at the end of the month in the
warehouse. This may lead to potential write off if
the product expires.
2.)
Sales was 125 cases, the accuracy was 75%. Since
supply chain was planning to cover the demand as it
was forecasted, the stock out occurred. The company
lost potential sales and profit.
The
alternative solution for covering potential
stock-outs is increasing of safety stock. Still,
significant increase of safety stock is leading to
blocking of working capital and potential write off
if the sales is significantly below forecast.
Proper
planning of sales forecast is of crucial importance
for the company,
in order to avoid write offs and lost sales due to
stock-out.
Recommended
Reading:
Forecasting
Methods: Cross Functional Forecasting
Demand
Forecasting
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