Machine Learning, Demand Forecasting And The Peril Of Circular Reasoning

Another problem is that the more granular the forecast – SKU at store level by week, for example – the higher the forecast error tends to be. "For sure, the greater degree of error in the store-level forecast, the greater the impact on the lost sale calculation," Fenwick said. "However, even if we hit a 70% accuracy measure, we're still capturing 70% of the potential lost demand in the store due to stock outs. Which, from a forecasting perspective, is a lot better than capturing zero lost demand. As the saying goes, 'if you only forecast to sales, you'll only ever stock to … what you sold.'"