In forecasting, what is the Mean Absolute Deviation (MAD) used for?

Mean Absolute Deviation (MAD) is a statistical measure used to quantify the accuracy of a forecasting model. It calculates the average absolute differences between predicted values and actual outcomes, allowing businesses to assess how closely their forecasts align with reality. By using MAD, companies can evaluate the reliability of their forecasts over time, which is crucial in making informed decisions related to inventory management, production scheduling, and demand planning.

In the context of forecasting, accuracy is vital as it influences how well a company can meet customer demand without overstocking or understocking. A lower MAD indicates a more accurate forecast, which helps in optimizing resource allocation and improving overall supply chain efficiency. This focus on forecast accuracy distinguishes MAD from measures that might pertain to profit margins, supplier performance, or sales variability, as those aspects address different areas of operational management rather than the effectiveness of forecasting models.