CPIM Practice Exam

Which of the following would be considered a forecasting error?

1. The total demand over multiple periods

2. The percentage difference between forecasted and actual demand

3. The cumulative forecast value

4. The actual demand recorded

The correct answer is: The percentage difference between forecasted and actual demand

The percentage difference between forecasted and actual demand is considered a forecasting error because it quantifies how far off a prediction is from reality. This metric is crucial for understanding the accuracy of forecasting models. By calculating the percentage difference, organizations can assess the reliability of their forecasts and make necessary adjustments to improve their prediction methods. Evaluating forecasting errors can help in refining future forecasts and minimizing discrepancies in supply chain planning. In contrast, the total demand over multiple periods refers to the actual demand experienced, which does not indicate any error but rather represents a set of data. The cumulative forecast value is also not an error; it is merely a sum of the forecasted figures over a certain timeframe. Actual demand recorded is simply the reality of what was experienced, without any reference to the forecast, and therefore, does not represent an error. Understanding forecasting errors is vital for supply chain management as it directly impacts inventory management, production planning, and overall operational efficiency.