How can forecasting errors affect the supply chain?

Forecasting errors have a significant impact on the supply chain, primarily because they disrupt the balance between supply and demand. When forecasts are inaccurate, they can lead to either stockouts or excess inventory. Stockouts occur when the demand for a product exceeds the available inventory, leading to lost sales and potentially damaging customer relationships. Conversely, excess inventory ties up capital and storage space, increasing carrying costs and reducing the overall efficiency of the supply chain.

Accurate forecasting is essential to maintain optimal inventory levels, ensuring that the right amount of product is available at the right time. When forecasting errors occur, they can create a ripple effect throughout the entire supply chain, resulting in challenges such as production delays, increased operational costs, and decreased service levels. Therefore, managing and mitigating forecasting errors is crucial for maintaining a responsive and efficient supply chain.