Certified Supply Chain Professional (CSCP) Practice Exam

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What does a negative MAD value imply?

Demand forecast is perfectly accurate
Demand will be less than forecast
Demand meets forecast exactly
Forecast demand is significantly higher

The correct answer is: Demand will be less than forecast

A negative Mean Absolute Deviation (MAD) value indicates that the demand forecast is underestimated relative to actual demand. In essence, when MAD is calculated, it measures the average magnitude of the errors in a set of forecasts, without considering their direction. However, by convention, MAD is always reported as a non-negative value, because it's based on absolute values of the differences between forecasted and actual demands. If the question refers to a hypothetical situation where MAD is negative due to the way it is being presented or interpreted, it would imply that actual demand has consistently exceeded forecasts. Therefore, such a negative value would suggest that the forecasting model is not accurately predicting demand and instead is leaning towards underestimating it, indicating that demand will indeed be less than what has been forecasted. This understanding reflects a deeper insight into the relationship between forecasting inaccuracies and actual demand patterns, helping in identifying areas for improvement in forecasting methodologies.