The forecast tree determines which item/location aggregation combination the engine will forecast at. The engine examines each level in the forecast tree and validates if there is enough sales history data available for forecasting or if the forecast generated have sufficient accuracy at that level. In case the validation fails, the engine moves on to next level and continue with the validation phase until it finds a level where it can generate a forecast. In case the engine ends up forecasting at a higher level of aggregation in the forecast tree, the forecast is split to the lower levels.
Forecast Tree [2/2]
Forecast tree is a system configuration that has a direct bearing on the forecast accuracy. This is one of the first setups that need to be done after careful analysis of the sales history and after discussion with users. The forecast levels should be meaningful to the business users and it is recommended to have between 3 and 6 levels that the engine can traverse and forecast. It is useful for the forecast tree to include the level on which accuracy is measured, if possible.