Why forecasts can be inaccurate
The use of inappropriate software - When the used software lacks necessary capabilities, employs inappropriate techniques, or contains mathematical flaws, the forecasts may be quite inaccurate. Forecasts that are wrong can be caused by personal motives and bias. For instance, the management may modify the forecast to reflect their objectives rather than offering an objective best guess.
Commonly used statistical models, like time-series analysis, typically have an error rate, which results in variations from the real data (Lee, 2003). Using a consistent model-the use of the same model and consistent application ensures a standardized format, and thus facilitates the review.
Involving the right people in the forecasting process can improve the accuracy of forecasts. For instance, the management may get people who have market information (Tetlock & Gardner, 2015).
Reviewing forecast by exception. This can be done by using deviation filters to identify the few exceptional products that have unusually high or low trends as compared to others.
Forecasting risks associated with inventory size and location
The bigger the inventory size the larger might be the error margin. Furthermore, big inventory sizes imply that there may be more exceptions than the case when the inventory size is small. There are no forecasting risks associated with the location.
How operations manager minimize these risks
To minimize the risks associated with inventory size, the operations manager must make estimates on future supply and demand. so as to facilitate in deciding the amount of product to put in the market. Accuracy must also be considered when forecasting and accurate and real data must be used in making projections.
References
Lee, J. (2003). Managerial accounting. Santa Fe Springs, CA: Hampton House.
Tetlock, P., & Gardner, D. (2015). Predict the Future: How to Improve the Accuracy of Forecasts. WSJ. Retrieved 27 July 2017, from https://www.wsj.com/articles/predict-the-future-how-to-improve-the-accuracy-of-forecasts-1449245817
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