Forecasting and Performance: Conceptualizing Forecasting Management Competence as a Higher-Order Construct

This note empirically validates forecasting management competence (FMC) as a higher-order construct based on four underlying sets of practices: internal integration, forecasting process quality, effective use of advanced systems, and evaluation of forecasting. The results from a partial least squares structural equation model support FMC as a significant driver for three outcomes: forecast accuracy, cost reduction, and delivery performance, thereby establishing predictive validity. The study provides insights to the relative effectiveness of the four sets of forecasting practices constituting FMC. A mediator–moderator analysis shows that forecast accuracy is not a mediator or a moderator between FMC and the other two outcome variables of cost reduction and delivery performance. This indicates that in addition to effective demand forecasting practices, other processes such as sales and operations planning (S&OP) are also important for translating the benefits of effective forecasting to realize favorable business outcomes. A multigroup analysis shows that the impact of the four practice elements on the three performance outcomes also differs based on specific business contexts.