The Impact of Forecast Errors in Multistage Production Systems

  • Larry Ritzman
  • Barry King
Conference paper


In their pioneering work on aggregate production planning, Holt, Modigliani, and Simon (1955) and Bowman (1963) demonstrated that forecast errors can significantly increase manufacturing costs. Without having a perfect forecast, total costs increased by 10 percent. More recent work on the cost of forecast errors goes beyond the simplifying assumptions of a single product and single homogeneous work force. Forecast errors are being studied in the more realistic multistage manufacturing setting where parent-component relationships exist and there are capacitated work stations. However, the results to date imply that the impact of forecast errors depends on the manufacturing environment. The purpose of this paper is to find out more about these contingencies in realistic manufacturing settings, thereby adding to the growing literature base on how forecast errors affect manufacturing performance.


Forecast Error Safety Stock Forecast Variance Percent Special Material Requirement Planning 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Biggs, Joseph R., “Heuristic Lot-Sizing and Sequencing Rules in a Multistage Production-Inventory System,” Decision Sci. 10, 1 (January 1979), 96–115.CrossRefGoogle Scholar
  2. Biggs, Joseph R. and William M. Campion, “The Effect and Cost of Forecast Error Bias for Multiple-Stage Production-Inventory Systems,” Decision Sci. 13, 4 (October 1982), 570–584.Google Scholar
  3. Bowman, E. H., “Consistency and Optimality in Managerial Decision Making,” Management Sci. 9, 2 (January 1963), 310–321.CrossRefGoogle Scholar
  4. De Bodt, Marc A. and Luk N. Van Wassenhove, “Cost Increases Due to Demand Uncertainty in MRP Lot Sizing,” Decision Sci. 14, 3 (July 1983), 345–361.CrossRefGoogle Scholar
  5. Holt, Charles C., Franco Modigliani, and Herbert A. Simon, “A Linear Decision Rule for Production and Employment Scheduling,” Management Sci. 2, 1 (October 1955), 10–30.CrossRefGoogle Scholar
  6. Krajewski, Lee J., Barry E. King, Larry P. Ritzman, and Danny S. Wong, “Kanban, MRP, and Shaping the Manufacturing Environment,” Management Sci. 33, 1 (January 1987), 57–75.CrossRefGoogle Scholar
  7. Lee, T.S. and Everett E. Adam, Jr., “Forecasting Error Evaluation in Material Requirements Planning (MRP) Production Systems,” Management Sci. 32, 9 (September 1986), 1186–1205.CrossRefGoogle Scholar
  8. Lee, T.S., Everett E. Adam, Jr., and Ronald J. Ebert, “An Evaluation of Forecast Error in Master Production Scheduling for Material Requirements Planning Systems,” Decision Sci. 18, 2 (Spring 1987 ), 292–307.Google Scholar
  9. Malhotra, Manoj K. and Larry P. Ritzman, “Resource Flexibility Issues in Multistage Manufacturing,” Decision Sci. 21, 4 (Fall 1990 ).Google Scholar
  10. Sharma, Deven, “Manufacturing Strategy: An Empirical Analysis,” Unpublished Ph.D. dissertation, The Ohio State University, 1987.Google Scholar
  11. Ritzman, Larry P., Barry E. King, and Lee J. Krajewski, “Manufacturing Performance - Pulling the Right Levers,” Harvard Business Rev. 84, 2 (March–April 1984 ), 143–152.Google Scholar
  12. Wemmerlov, Urban, “Comments on ‘Cost Increases Due to Demand Uncertainty in MRP Lot Sizing’: A Verification of Ordering Probabilities,” Decision Sci. 16, 4 (Fall 1985), 410–419.Google Scholar
  13. Wemmerlov, Urban, “The Behavior of Lot-Sizing Procedures in the Presence of Forecast Errors,” Journal of Operations Management. 8, 1 (January 1989), 37–47.CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin · Heidelberg 1991

Authors and Affiliations

  • Larry Ritzman
  • Barry King

There are no affiliations available

Personalised recommendations