Effective forecasting and judgmental adjustments

An empirical evaluation and strategies for improvement in supply-chain planning

Robert Fildes, Paul Goodwin, Michael Lawrence, Konstantinos Nikolopoulos

Research output: Contribution to journalArticle

170 Citations (Scopus)

Abstract

Demand forecasting is a crucial aspect of the planning process in supply-chain companies. The most common approach to forecasting demand in these companies involves the use of a computerized forecasting system to produce initial forecasts and the subsequent judgmental adjustment of these forecasts by the company's demand planners, ostensibly to take into account exceptional circumstances expected over the planning horizon. Making these adjustments can involve considerable management effort and time, but do they improve accuracy, and are some types of adjustment more effective than others? To investigate this, we collected data on more than 60,000 forecasts and outcomes from four supply-chain companies. In three of the companies, on average, judgmental adjustments increased accuracy. However, a detailed analysis revealed that, while the relatively larger adjustments tended to lead to greater average improvements in accuracy, the smaller adjustments often damaged accuracy. In addition, positive adjustments, which involved adjusting the forecast upwards, were much less likely to improve accuracy than negative adjustments. They were also made in the wrong direction more frequently, suggesting a general bias towards optimism. Models were then developed to eradicate such biases. Based on both this statistical analysis and organisational observation, the paper goes on to analyse strategies designed to enhance the effectiveness of judgmental adjustments directly.
Original languageEnglish
Pages (from-to)3-23
Number of pages21
JournalInternational Journal of Forecasting
Volume25
Issue number1
DOIs
Publication statusPublished - Jan 2009

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Empirical evaluation
Supply chain planning
Supply chain
Demand forecasting
Optimism
Planning process
Forecasting system
Statistical analysis
Planning

Keywords

  • Judgment
  • Forecasting accuracy
  • Forecasting support systems
  • Combining
  • Supply chain
  • Heuristics and biases
  • Practice

Cite this

Effective forecasting and judgmental adjustments : An empirical evaluation and strategies for improvement in supply-chain planning. / Fildes, Robert; Goodwin, Paul; Lawrence, Michael; Nikolopoulos, Konstantinos.

In: International Journal of Forecasting, Vol. 25, No. 1, 01.2009, p. 3-23.

Research output: Contribution to journalArticle

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