CPIM Practice Exam

What does the tracking signal help assess in forecasts?

1. The consistency of the forecasting method

2. The ratio of forecast bias to forecast accuracy

3. The ratio of cumulative deviations to mean absolute deviation

4. The deviation of forecasts from historical data

The correct answer is: The ratio of cumulative deviations to mean absolute deviation

The tracking signal primarily assesses the ratio of cumulative deviations to mean absolute deviation. This measurement is crucial in evaluating the performance of a forecasting method. A tracking signal helps determine if a forecasting process is producing forecasts that are systematically biased high or low, or whether they are relatively accurate and consistent over time. When the ratio of cumulative deviations (the sum of forecast errors) to mean absolute deviations (the average of absolute errors) yields a signal close to zero, it indicates that the forecast is performing well; deviations from actual demand are minimal. Conversely, large values of the tracking signal may suggest that the forecasting method is not functioning optimally and may require adjustment. Understanding the tracking signal is vital for organizations aiming to maintain accurate forecasts in their supply chain operations. This method provides management with insights into whether to continue using a specific forecasting approach or to seek improvements.