Navigate to Settings > Configuration > Forecast
Definition
Definition
This factor ensures that the computation of forecast offset takes into account the future forecast. Used to increase or decrease the forecast offset by considering the future forecast and ranges from 0 to 2, with 0 having no impact on the offset calculation and 2 having maximum impact.
Use case
Use case
The future weight can act to either increase or decrease the offset.
When calculating the offset:
A future weight of 0 means only the sales vs historical forecast variance is considered.
A future weight of 2 means only the sales vs future forecast variance is considered.
The default future weight of 0.5 means the historical forecast variance is mostly considered.
When using these parameters, it is important to determine whether the business has a bias towards over or under forecasting and whether accumulating excess stock or stocking out will be more detrimental.
Typically, a future weight of 0.5 offers a good balanced approach. However, if wholesale changes have been made to your current forecasts, it may be appropriate to increase the setting to 1 to 1.5 so that safety stock can react to the discrepancy between historical forecasting and today’s forecasts. Alternatively, if you want safety stock to be purely based on historical forecasting accuracy, you can reduce the value to 0.
Explanation
Explanation
Refer to the explanation of risk and offset in the explanation section under Maximum offset before proceeding.
Suppose an item has a future forecast of 200 units a month.
It has a historical forecast of 100 units a month.
It has historical sales ranging from 85 units a month to 290 units a month.
With a Future weight value of 0, the offset can be calculated as the average sales less the average historic forecast over 12 months. 180 - 100 = 80 units offset
With a Future weight value of 2, the offset can be calculated as the average sales less the average future forecast over 12 months. 180 - 200 = -20 units offset
The future weight parameter is used to specify to what extent you’d like to have an increased future forecast reduce the offset value. Afterall, you have just increased your forecast and reduced your chances of stocking out. Do you still require a large amount of safety stock to help you against stocking out?
A future weight value of 0 has no impact on the risk calculation whereas a value of 2 has maximum impact.