Starjournal Quotation Brüggen, Alexander, Grabner, Isabella, Sedatole, Karen. 2021. The Folly of Forecasting: The Effects of a Disaggregated Demand Forecasting System on Forecast Error, Forecast Positive Bias, and Inventory Levels. Accounting Review.


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Abstract

Periodic demand forecasts are the primary planning and coordination mechanism within organizations. Because most demand forecasts incorporate human judgment, they are subject to both unintentional error and intentional opportunistic bias. We examine whether a disaggregation of the forecast into various sources of demand reduces forecast error and bias. Using proprietary data from a manufacturing organization, we find that absolute demand forecast error declines following the implementation of a disaggregated forecast system. We also find a favorable effect of forecast disaggregation on finished goods inventory without a corresponding increase in costly production plan changes. We further document a decline in positive forecast bias, except for products whose production is limited owing to scarce production resources. This implies that disaggregation alone is not sufficient to overcome heightened incentives of self-interested sales managers to positively bias the forecast for the very products that an organization would like to avoid tying up in inventory.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Accounting Review
Citation Index SSCI
WU Journalrating 2009 A+
Starjournal Y
Language English
Title The Folly of Forecasting: The Effects of a Disaggregated Demand Forecasting System on Forecast Error, Forecast Positive Bias, and Inventory Levels
Year 2021
Reviewed? Y
DOI https://doi.org/10.2308/tar-2018-0559
Open Access N

Associations

People
Grabner, Isabella (Details)
External
Brüggen, Alexander (Maastricht University, Netherlands)
Sedatole, Karen (Emory University, United States/USA)
Organization
Institute for Strategy and Managerial Accounting IN (Details)
Grabner (Details)
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