[Q] How do you calculate the dollar value of 1-percent
improvement in forecast accuracy?
[A] It is difficult to monetize every benefit we derive
from the improvements in forecasting. The largest use of
operational forecasts is in the supply chain. So, one way
of estimating the benefit of 1-percentage improvement in
a forecast is to determine how much it would cost if you
over-forecast by 1 percent in terms of holding additional
inventory, warehousing excess inventory, shrinkage,
obsolescence, and discount that has to be offered to dispose
of extra inventory. On the other hand, if you under-forecast
by 1 percent, how much loss you would incur because of
stock-out, and increase in production and expediting costs.
All these can be easily estimated. I won’t be surprised if that
number comes to millions of dollars.