In reality, demand forecasts are not accurate. We have been told that the forecast for clear plastic has a MAD of 608 while the forecast for lack plastic has a MAD of 786. We can thus evaluate the standard deviation of forecast error as 1.25MAD and use this information to obtain the standard deviation of forecast error for the aggregate forecast.
How should this error in demand forecasts be handled? How should the aggregate plan be adjusted?
Copyright 2001, Sunil Chopra