In demand planning, you can’t manage what you don’t measure. Tracking the right metrics is essential for understanding your forecasting performance and making smart decisions across your supply chain.
Let’s break down the most critical metrics, how to calculate them, and why they matter.
Forecast Accuracy
- What It Is: Measures how close your predictions are to actual demand.
- Calculation:
(1 - |Actual - Forecast| / Actual) * 100 - Why It Matters: High accuracy leads to better inventory management and happier customers. Consistently low accuracy signals a need to improve forecasting models or data quality.
Mean Absolute Percentage Error (MAPE)
- What It Is: Percentage error in forecasts.
- Calculation:
MAPE = (Σ |Actual - Forecast| / Actual) / n * 100 - Why It Matters: MAPE lets you compare forecasting performance across products or periods, regardless of scale.
Bias
- What It Is: Shows if you tend to over-forecast or under-forecast.
- Calculation:
Bias = Σ (Forecast - Actual) / n - Why It Matters: Knowing your bias helps adjust forecasting and inventory strategies.
Tracking Signal
- What It Is: The ratio of cumulative forecast error to mean absolute deviation.
- Calculation:
Tracking Signal = Σ (Actual - Forecast) / MAD - Why It Matters: A tracking signal outside -4 to +4 warns of potential bias or shifts in demand patterns.
Inventory Turnover Ratio
- What It Is: Measures how efficiently inventory is managed.
- Calculation:
Inventory Turnover = Cost of Goods Sold / Average Inventory - Why It Matters: Balances stock levels against demand, directly influenced by forecast accuracy.
Fill Rate
- What It Is: The percentage of customer demand met immediately.
- Calculation:
(Total Units Shipped on Time / Total Units Ordered) * 100 - Why It Matters: A high fill rate boosts customer satisfaction but must be balanced against inventory costs.
Forecast Value Added (FVA)
- What It Is: Assesses if each forecasting step adds value.
- Calculation:
FVA = Accuracy after step - Accuracy before step - Why It Matters: Identifies and eliminates non-value-adding steps, streamlining your forecasting process.
Making Metrics Work for You
These metrics are powerful tools, but only if used correctly:
- Context Matters: Metrics should align with your industry, product lifecycle, and strategy.
- Balance: Don’t chase one metric at the expense of others—aim for overall improvement.
- Actionable Insights: Metrics should drive real improvements.
- Regular Reviews: As markets change, so should your metric targets.
Conclusion
Mastering these metrics will elevate your demand planning. They provide the data you need to continually improve your forecasting and supply chain management.
At Demand Planner Pro, we’re experts in implementing and optimizing these metrics. We can help you set up dashboards, set targets, and develop strategies for better outcomes.
Ready to level up your demand planning? Contact us today to see how these metrics can drive your success.