Can I improve forecasting accuracy, by using the promotional program as the basis of the forecast (Statistical forecasting)?

22 Jun 09

The Promax PX statistical modelling engine is used to define both the Baseline and Promotional volumes that are used within all planning areas of the solution. Promax PX will store the Statistical Forecast separately so that an analysis of the Statistical Forecast vs. Manual overwrites can be performed.

The essence of advanced trade promotion management requires an understanding of consumer behaviour under normal conditions and during a promotion.  Normal conditions are generally considered as baseline and it is necessary to be able to de-construct the historical demand data to identify the component that makes up baseline sales.  Promax PX has a number of statistical techniques that assists the planner in identifying and modelling baseline sales.  These techniques deal with a variety of data quality conditions from advanced multi-causal statistical models based on point-of-sale information to user-defined baselines that maybe used for “new” products.

Multiple tools allow the creation of a baseline which includes seasonality and trend to which is added the effect from each promotion.

This technique has proven to give a higher level of forecasting accuracy with the least amount of effort from the users.

Promax presents to the supply chain management a forecast of ex-factory sales which has automatically incorporated the baseline and promotional uplift correctly timed to align with the promotional program.

Promax PX can use multi-causal models to predict the effect of price, catalogue, display or any other causal factor that is available to improve the quality of the uplift prediction.
A company adopting this approach to forecasting can expect significant improvements in forecasting accuracy over those techniques that smooth promotional effect into the baseline prediction.  The extent to which forecast accuracy can be improved is a function of the environment and business process however most Promax customers have received significant improvements in this area.