Improve Forecast Accuracy by Measuring Forecasting Errors

  • by Shreekant W. Shiralkar, Global Head, SAP Analytics CoE, Tata Consultancy
  • January 1, 2006
Learn how implementing Business Add-In (BAdI) /SAPAPO/SDP_FCST4 enables you to store the results of each forecast run in the system along with the forecasting errors. Analysis of these errors helps you to improve the forecast results and thereby improve the forecast accuracy.
Key Concept
SAP Advanced Planner and Optimizer (APO) Demand Planning has an SAP Business Information Warehouse (BW) component that stores and maintains the information used for generating the demand plan. For instance, demand history for the prior 24 months is used to forecast the next three months. A forecasting run is the execution activity in SAP APO that generates forecasting results. The forecasting run results differ based on the parameters used in the execution process. The exponential smoothing factor is an example of one of the parameters. With exponential smoothing, the values from more recent periods have an exponentially greater impact on the forecast numbers than the values from the older part of the demand history.
For mid- to senior-level executives who play an important role in their companies’ supply chain activities and for specialists who develop and monitor sales forecasts, schedules, and budgets, one of the biggest challenges is to continuously improve the accuracy of demand forecasts.

SAP Advanced Planner and Optimizer (APO) has two univariate statistical forecasting modes: interactive, which is online, and background. Background forecasting does not store forecast results, leaving no way to measure or analyze forecasting errors. As most of the planners using SAP APO know, results of the forecasts executed in the interactive mode are available in the system. Unfortunately, the standard way in which interactive mode displays results is impractical unless the dataset is relatively small and you can afford to re-execute the forecasting run multiple times.

There is hope, however. I’m going to show you a way to use reports generated in SAP Business Information Warehouse (BW) to make forecast results analysis in either mode effective and painless. Instead of having no saved results with which to work (in background mode) or toggling manually (in interactive mode), you’ll analyze the results with a BW report. You’ll identify quickly which parameter values are generating the best forecast results.

First, I will give some background on the basics and a description of the usual, toggle-intensive forecasting comparison available in the system for runs done in the interactive mode. If you are familiar with that information, you may want to skip to the section, “Normal Forecast Comparison in Interactive Mode.”

Shreekant W. Shiralkar

Shreekant W. Shiralkar is a senior management professional with experience on leading and managing business functions as well as technology consulting. He has authored best selling books and published many white papers on technology. He also holds patents for innovations. Presently he is global head of the SAP Analytics Centre of Excellence at Tata Consultancy.

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