Incentive mismatch occurs when participants’ objectives reward forecasts that serve local interests rather than an unbiased prediction of future demand. The practical question is simple: are people forecasting demand, or quietly creating sales targets and supply plans? section 16.4 section 16.2.3
The mismatch becomes visible when business concerns make positive and negative errors seem unequal. That pressure can bias the forecast toward over- or under-forecasting, weaken trust, and encourage teams to create competing projections. section 16.2.3
Reduce incentive-driven bias by:
- Aligning objectives so forecasters have no reason to skew results in a preferred direction. section 16.4
- Applying the same standard of justification to upward and downward adjustments; questioning only one direction encourages the opposite bias. section 16.2.3
- Balancing stakeholder influence, since a powerful channel, factory, or sales stakeholder can steer the forecast toward local needs. section 16.2.3
- Combining independent contributors with different mindsets and backgrounds so their information sources and biases can compensate for one another. section 16.4
- Leaving service-level targets and safety-stock decisions to inventory planning rather than embedding them in the demand forecast. section 16.2.3
When justification rules create bias
If senior management demands detailed explanations for downward adjustments but accepts upward adjustments without much scrutiny, planners will tend to over-forecast. If an S&OP process insists on explaining historical over-forecasts, planners may become overly conservative instead. section 16.2.3
