Describe the basic characteristics of forecasts that managers should be aware

Question

What will be an ideal response?

Answer 1

Answer: Companies and supply chain managers should be aware of the following characteristics of forecasts:
1. Forecasts are always wrong and should thus include both the expected value of the forecast and a measure of forecast error. Thus, the forecast error (or demand uncertainty) must be a key input into most supply chain decisions. An estimation of demand uncertainty is unfortunately often missing from forecasts, resulting in estimates that vary widely among different stages of a supply chain that is not forecasting collaboratively.
2. Long-term forecasts are usually less accurate than short-term forecasts; that is, long-term forecasts have a larger standard deviation of error relative to the mean than short-term forecasts.
3. Aggregate forecasts are usually more accurate than disaggregate forecasts, as they tend to have a smaller standard deviation of error relative to the mean. The greater the degree of aggregation, the more accurate the forecast.
4. In general, the further up the supply chain a company is (or the further they are from the consumer), the greater the distortion of information they receive. One classic example of this is the bullwhip effect, where order variation is amplified as orders move further from the end customer. As a result, the further up the supply chain an enterprise exists, the higher the forecast error. Collaborative forecasting based on sales to the end customer can help enterprises further up the supply chain reduce forecast error.