A unique index with the explicit cost related to forecast

Abstract

Purpose The present paper aims to draw an attention towards the inclusion of forecast related costs. Its main purpose is to initiate a new line of research/practice including the forecasting expenditure. Design/methodology/approach After a relevant review of supply chain/procurement/production planning related literature, it has been observed that the existing work lacks an explicit inclusion of the cost concerned with forecast. The increased cost of forecasting is expected to enhance the forecasting accuracy. At a higher level, product family is considered for the analysis. However, a basic unit of analysis is always a single item production/procurement situation. Therefore, this situation has been discussed analytically with the use of the fundamental equations and an explicit inclusion of forecasting cost for the first time in the relevant literature. Numerous practical applications have been discussed at strategic and operational level. A framework is also presented for future research in this area. Findings A specific contribution of the present paper is an approach towards a unique index for relative forecasting expenditure. The suggested index will be useful for comparison purpose. Also, it can be used as a benchmark that can be improved in future. Practical implications The case is explained when cycle time is invariant after discussing the other potential applications. Usefulness of the proposed methodology and the index is discussed for the business organizations operating independently or in the supply chains. Originality/value On the basis of the forecast, a production or procurement plan is generated in many of the industrial or business situations. In the context of supply chain/production/inventory management, focus is more on demand forecasting techniques or generation of the forecasts in the existing literature. However, the increased costs concerning forecasts are expected to provide more accurate prediction. Therefore, the originality lies in an inclusion of forecast related costs.