Measuring Forecast Accuracy in a Pharmacy

Read this article where forecasting approaches, along with a hybrid forecasting method are covered. What types of data can a company use in quantitative forecasts?

Literature Review

Hybrid Forecasting Method

A third forecasting model is a hybrid of qualitative and quantitative methods of forecasting. This combination allows the use of hard data (historical data) and soft data (decision maker's intuition experiences, emotions, values and judgment) to predict more accurate forecasts. The combination process is dependent on the accuracy of performance forecasting a firm aims to achieve by either minimizing the Mean Square Error (MSE) of the resulting forecasts or combining forecasts to attain a simple average of the different forecasts used in the combination. Combining forecasts therefore, tends to even-out uncertainties within the different forecasts used, but erratic changes in market rivalry could render this method less accurate. As useful as combining forecasting methods to generate more accurate forecasts is, it is pertinent to understand that application depends largely on the level of demand. In more demand volatile settings like Nigerian business environment where there is frequent changes of business indicators, combination of qualitative and quantitative methods of forecasting may not adequately predict future sales, so therefore, application of quantitative demand forecasting method(s) to determine future sales of retail pharmacy outlet is recommended. This decision is validity by study.

A combination of simple structured forecasting methods such as simple moving average, exponential smoothing and least squared method were used to analyse past twelve (12) months sales data of a pharmacy in this study. Researches on time series forecasting argues that predictive performance increases through combined forecasting techniques. Bunn and Taylor got considerable improvements in accuracy when they combined judgmental forecasting method with a statistical method. Hibon and Evgeniou's study is of the opinion that selecting among combinations is less risky than selecting among individual forecasts. It was on these premises that a combination of simple quantitative forecasting methods was selected for this study. The performance of forecasting methods varies according to the accuracy measures being used. Therefore, estimating the performance of forecasting methods involves the application of some accuracy performance measures.