- Forecast inaccuracy has a cost for transportation.
- We quantify the cost of forecast inaccuracy with our expedited transportation costs calculator.
Introduction to the Quantification of Forecast Inaccuracy
The background as to the overall topic of forecast inaccuracy cost estimation is explained in this article. However, this article contains the calculator for one of the costs associated with forecast inaccuracy, which is the cost of expedited transportation.
See our references for this article and related articles at this link.
Why Quantifying Transportation Costs from Forecast Error is Important
Transportation costs are not a commonplace where companies look for savings from forecasting. If you spend time talking to directors of transportation, one of their number one complaints is that they are asked to deliver materials quickly, but are not given enough time to do so. This is because the shipping patterns are far less stable than they could be — and a big part of the reason for this is forecast inaccuracy. So while forecast error related transportation costs are not known, or attempted to be quantified, they really should be. This is because as long as the costs remain hidden, there will be less incentive to invest in the forecasting technology and process. In my experience, companies are willing to accept quite high costs which are directly traceable to forecast inaccuracy to keep from investing in improving the forecast. However, if companies knew the real costs of their forecast inaccuracy, they would invest in improving it. Bu the familiar refrain is that they don’t know what these costs area.
The Calculation of Inbound and Outbound Transportation Costs
Transportation is one of the areas where the costs of forecast error are very effectively hidden. Forecast error affects the transportation budget on both the inbound and outbound side. This is because forecast error caused the company to pay for expedited incoming material and packaging as well as for outbound transportation to customers. This calculator can be used to estimate the costs of forecast error related transportation costs for both inbound and outbound transportation. However, the inbound and outbound calculations should be performed separately – as they will each have their input values.
Note: The fields below start off with default values, however all but the final field — which is the output field, can be changed. The output field continually updates based upon the input fields – and there is no button to hit to get the output field to update.