Supply Chain Glossary - A

Supply Chain Glossary - A

average forecast error

1) The arithmetic mean of the forecast errors. 2) The exponentially smoothed forecast error. See: bias, forecast error.

One-half the average lot size plus the safety stock, when demand and lot sizes are expected to be relatively uniform over time. The average can be calculated as an average of several inventory observations taken over several historical time periods; e.g., 12-month ending inventories may be averaged. When demand and lot sizes are not uniform, the stock level versus time can be graphed to determine the average.


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