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    Increased bullwhip in retail: A side effect of improving forecast accuracy with more data?

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    Publication type
    Journal article
    Author
    Wellens, Arnoud, P.
    Boute, Robert
    Udenio, Maximiliano
    Publication Year
    2023
    Journal
    Foresight: The International Journal of Applied Forecasting
    Publication Issue
    68
    Publication Begin page
    25
    Publication End page
    30
    
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    Abstract
    Can there be side effects of improved forecast accuracy? In this study of the Belgian food retailer Colruyt Group, we show how adding explanatory variables (such as promotions, weather forecasts, national events, etc.) increases forecast accuracy compared to methods using only historical sales data. Furthermore, when using these sales forecasts to determine inventory levels and order decisions in a numerical experiment, we see that these more accurate forecasts require less inventory to maintain a target service level, indicating that more accurate predictions may reduce stockouts and operational costs related to high inventories. These are expected findings. We also found the use of explanatory variables makes the sales forecasts (and consequently the replenishment) more responsive towards changes in customer demand patterns. This creates a higher bullwhip effect regarding the variability of the supermarket’s replenishment orders -- a less desirable outcome of more accurate forecasting using explanatory variables.
    Keyword
    Retail Forecasting, Inventory Simulation, Bullwhip Effect
    Knowledge Domain/Industry
    Operations & Supply Chain Management
    URI
    http://hdl.handle.net/20.500.12127/7164
    Other links
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4320911
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