I have a few doubts regarding the concept of "Lags" in forecasting.
Let T0, T1, T2... be the time periods, with T0 being the current time period. "Row 2" in the attached Excel gives the forecast generated in time period T0 for the next month onwards, T1, T2...
After time period T0 gets over, and we reach time period T1, the forecast is again generated for time periods T2, T3, and so on. "Row 3" in Excel gives us this.
The "Actual" sales observed in each time period are given by "Row 8", highlighted in Green.
"Lag 1" signifies the forecast for the next immediate Time period. So forecast generated in "T0" for "T1"; forecast generated in "T1" for "T2" and so on. The same is highlighted in a shade of yellow and the successive snapshots are in "Row 10".
"Lag 2" signifies the forecast for 2 Time periods from now. So forecast generated in "T0" for "T2"... and the successive snapshots are in "Row 11" highlighted in light blue.
Likewise for "Lag 3" and "Lag 4".
Let us consider a company, and let us assume "Lag 4" is used for the procurement of Raw Materials.
"Lag 3" is used for Manufacturing.
"Lag 2" is used for dispatching to the DCs.
"Lag 1" is used for replenishing the stores.
So if we are in "T0", Lag 4 forecast = 420 units, and we will procure raw material worth this.
After 1 time period elapses, we are in "T1" and we would manufacture for "410" forecast for the time period "T4" (Lag3). (What would happen to the 10 units worth of Raw Material that will not be manufactured?)
When we come to T2, we will have to dispatch 500 (Lag2), so if we only made 410 in the previous step, how do we get the extra 90 units?
When we come to T3, we have to send 430 (Lag1) to stores. If we got 500 from the previous step what happens to the 70 units? If we only got 410 (as Lag3 was 410 and we assume we manufacture and send the same to the DCs), we still fall short by 20 units.
My question is at every step the forecast for a particular time period ("T4") changes whenever we move from "T0" to "T1", "T1" to "T2". So where do we get the additional units from in each stage if forecast at say Lag2 (500)> Lag3 (410) or conversely what happens to excess material if "Lag 4(420) > Lag3 (410)"
For each lag we have,
Error = (Forecast-Actuals)
Accuracy = {1-[Abs(Error)/Actuals]}
The same has been computed in the Excel file. Please let me know if my understanding is correct.
Link for the Excel file
Copy and paste the entire link in a new window (do not click directly on the link as it does not seem to redirect correctly)
https://1drv.ms/x/s!AmdAMe2CGp70kgXFYSnCr0-SHoEV?e=prEmbD