It turns out, however, that assessing the accuracy of the forecast can be an equally challenging task. Nobody would say that getting accurate and timely forecast is easy. If sustainability is a number-one priority, grocer can minimize food wastage.ĭemand forecasting is a barebone of every retailer's business: it is essential for managing supply chain, planning sales, and shaping customer loyalty. If routinely running low on items is an issue, retailer may consider optimizing for lost sales or cases of out-of-stocks.
Facing overstock, grocer may optimize for the number of write-offs or costs of markdowns. What metrics to choose, totally depends on retailers' priorities. In order to be efficient, forecasting metrics should be aligned with business ones. The same should be true for retail: grocers' business is run on turnover and on-shelf availability, customer loyalty and store traffic, and not abstract statistical metrics. All these metrics have one thing in common – they are aligned with the business tasks and metrics. Search engines, for example, use dozens of different metrics to measure the quality of search results, personalization, advertising, etc. Seeking for the answer, we turned our attention to other industries that work with big amounts of data. As MAPE and WAPE are not enough to measure the quality of the forecast, other metrics should be added to the equation. However, simulations look reassuring.Since standard metrics don't account for it, retailers cannot really manage the way forecasts affect their business. Here is a plot where we simulate "sales" by rolling $n=8$ six-sided dice $N=1,000$ times and plot the average sMAPE, together with pointwise quantiles: fcst 1$ will lead to a larger EsAPE than $\hat=1$ seems to be a little tedious. We also looked at various flavors of MAPE and wMAPE, but let's concentrate on the sMAPE here. In case it is interesting, we wrote a little paper (see also this presentation) once that explained how minimizing percentage errors can lead to forecasting bias, by rolling standard six-sided dice. And hope that your predictive posterior is not misspecified too badly. (I'd be interested in being proven wrong.) I'd assume you will need to simulate. I don't think there is a closed-form solution to this question.
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