Definition
Forecast hierarchy reconciliation adjusts a collection of forecasts so their totals obey the relationships between levels. For example, SKU forecasts should sum to their category forecast for the same period and measure. This arithmetic consistency is called coherence. It does not by itself establish that the forecasts are accurate.
Why It Matters
- Separate planning models can produce incompatible numbers for teams making related buying and capacity decisions.
- Without a shared aggregation structure, a category total and its SKU plans can imply different volumes.
- A Commerce Intelligence OS can use a coherent planning view to connect decisions across levels while keeping uncertainty visible.
How It Works
- Define the hierarchy and an additive target such as units within a compatible product group. Align horizons, units, and category membership before reconciling.
- Produce base forecasts and preserve their versions. Compare a simple bottom-up approach with reconciliation methods appropriate to the available data.
- Evaluate candidate methods over historical forecast origins at the levels relevant to operations. Check the resulting totals as well as forecast errors.
- Record the chosen method and review catalog changes before each run. Keep business targets, inventory constraints, and human overrides identifiable rather than silently labeling them demand forecasts.
Ecommerce Example
Context: Illustrative example: two SKU forecasts are 40 and 50 units, but an independently produced category forecast is 100 units.
Recommended move: A bottom-up baseline gives a coherent category forecast of 90 units. Other methods may adjust several levels; compare their historical performance before choosing.
Why it matters: The example exposes a ten-unit planning disagreement without asserting which forecast is closest to future demand.
iKawn Framework
Structure
Use the iKawn ontology framework to specify aggregation relationships.
Compare
Expose incompatible forecasts used by different commercial workflows.
Reconcile
Maintain a documented coherent planning view.
Evaluate
Review accuracy and operational suitability separately from arithmetic consistency.
Concise Summary
Coherent forecasts add up across a defined hierarchy. Reconciliation solves that consistency problem; forecast quality still needs evaluation.