What is the Tracking Signal in forecasting?

The Tracking Signal is a valuable tool in forecasting that specifically measures the performance of a forecasting model. It is calculated as the ratio of cumulative forecast errors to the Mean Absolute Deviation (MAD). This calculation allows businesses to assess how consistently their forecasts are deviating from actual outcomes over time.

When the Tracking Signal is within a predetermined range, it indicates that the forecasting model is functioning well. A positive or negative signal can signal a need for adjustment in forecasting methods. Hence, this ratio becomes a critical aspect of monitoring forecast accuracy and identifying trends that might suggest the need for corrective actions.

The other options focus on related but distinct concepts. The sum of forecast errors over time would provide a raw figure but lacks the context of SCALE provided by the MAD. Similarly, while the measure of forecast accuracy is a pertinent topic, it does not specify how the Tracking Signal quantifies that accuracy. Lastly, the average of forecast deviations, while related to understanding errors, does not reflect cumulative performance over a horizon like the Tracking Signal does. Ultimately, understanding the Tracking Signal's formula and its implications for forecast evaluation is crucial for effective supply chain management and production planning.