Incorporating macroeconomic leading indicators in tactical capacity planning

Sagaert, Yves R. and Kourentzes, Nikolaos and De Vuyst, Stijn and Aghezzaf, El-Houssaine and Desmet, Bram (2019) Incorporating macroeconomic leading indicators in tactical capacity planning. International Journal of Production Economics, 209. pp. 12-19. ISSN 0925-5273

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Tactical capacity planning relies on future estimates of demand for the mid- to long-term. On these forecast horizons there is increased uncertainty that the analysts face. To this purpose, we incorporate macroeconomic variables into microeconomic demand forecasting. Forecast accuracy metrics, which are typically used to assess improvements in predictions, are proxies of the real decision associated costs. However, measuring the direct impact on decisions is preferable. In this paper, we examine the capacity planning decision at plant level of a manufacturer. Through an inventory simulation setup, we evaluate the gains of incorporating external macroeconomic information in the forecasts, directly, in terms of achieving target service levels and inventory performance. Furthermore, we provide an approach to indicate capacity alerts, which can serve as input for global capacity pooling decisions. Our work has two main contributions. First, we demonstrate the added value of leading indicator information in forecasting models, when evaluated directly on capacity planning. Second, we provide additional evidence that traditional metrics of forecast accuracy exhibit weak connection with the real decision costs, in particular for capacity planning. We propose a more realistic assessment of the forecast quality by evaluating both the first and second moment of the forecast distribution. We discuss implications for practice, in particular given the typical over-reliance on forecast accuracy metrics for choosing the appropriate forecasting model.

Item Type:
Journal Article
Journal or Publication Title:
International Journal of Production Economics
Additional Information:
This is the author’s version of a work that was accepted for publication in International Journal of Production Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Journal of Production Economics, 209, 2018 DOI: 10.1016/j.ijpe.2018.06.016
Uncontrolled Keywords:
?? forecastingleading indicatorsinventorycapacity planningbusiness, management and accounting(all)economics and econometricsmanagement science and operations researchindustrial and manufacturing engineering ??
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Deposited On:
26 Jun 2018 07:34
Last Modified:
26 Apr 2024 02:15