Navigate to: Settings > Configuration > Forecast
Definition
Definition
This factor ensures that the computation of forecast offset takes into account the future forecast.
It is used to increase or decrease the forecast offset by considering the future forecast and ranges from 0 to 2, where:
0 has no impact on the offset calculation.
2 has maximum impact on the offset calculation.
Use case
Use case
The Future Weight setting can act to either increase or decrease the offset, depending on how much emphasis you want to place on future forecasts versus historical performance.
When calculating the offset:
A future weight of 0 means only the sales versus historical forecast variance is considered.
A future weight of 2 means only the sales versus future forecast variance is considered.
The default value of 0.5 means the historical forecast variance is mostly considered, offering a balanced approach.
When using this parameter, it is important to determine whether the business has a bias toward over-forecasting or under-forecasting, and whether accumulating excess stock or stocking out will be more detrimental.
Typically, a future weight of 0.5 provides a good balance. However:
If significant changes have been made to your current forecasts, increase the value to 1.0–1.5 so safety stock reacts to discrepancies between historical and current forecasts.
If you want safety stock to be based purely on historical forecasting accuracy, reduce the value to 0.
Explanation
Explanation
➜ Refer to the explanation of Risk and Offset under the Forecast - Risk limits - Maximum offset setting before proceeding.
For values between 0 and 2, the offset calculation uses a weighted blend of historical forecast variance and future forecast variance. As the Future Weight increases, the influence of the future forecast increases while the influence of the historical forecast decreases.
The weighting is applied proportionally, as shown below:
Future Weight | Historical Forecast Contribution | Future Forecast Contribution |
0.0 | 100% | 0% |
0.5 | 75% | 25% |
1.0 | 50% | 50% |
1.5 | 25% | 75% |
2.0 | 0% | 100% |
This means intermediate values do not switch behavior abruptly. Instead, they smoothly transition the offset calculation from being fully historical to fully forward-looking.
Worked Example
Suppose an item has the following characteristics:
• Future forecast: 200 units per month
• Historical forecast: 100 units per month
• Historical sales: 85–290 units per month
The results are as follows:
With a Future Weight value of 0, the offset is calculated as the average sales minus the average historical forecast:
180 - 100 = 80 units offset
With a Future Weight value of 2, the offset is calculated as the average sales minus the average future forecast:
180 - 200 = -20 units offset
The Future Weight parameter specifies the degree to which an increased future forecast should reduce the offset value.
After all, if your forecast has just been increased, the risk of stocking out has already decreased. The question becomes: do you still require a large amount of safety stock to protect against stock-outs?
A Future Weight value of 0 has no impact on the risk calculation, whereas a value of 2 applies the maximum impact.
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