Forecasting reconciliation with a top-down alignment of independent level forecasts

Hierarchical forecasting with intermittent time series is a challenge in both research and empirical studies. The overall forecasting performance is heavily affected by the forecasting accuracy of intermittent time series at bottom levels. In this paper, we present a forecasting reconciliation approach that treats the bottom level forecast as latent to ensure higher forecasting accuracy on the upper levels of the hierarchy. We employ a pure deep learning forecasting approach N-BEATS for continuous time series on top levels and a widely used tree-based algorithm LightGBM for the bottom level intermittent time series. The hierarchical forecasting with alignment approach is simple and straightforward to implement in practice. It sheds light on an orthogonal direction for forecasting reconciliation. When there is difficulty finding an optimal reconciliation, allowing suboptimal forecasts at a lower level could retain a high overall performance. The approach in this empirical study was developed by the first author during the M5 Forecasting Accuracy competition ranking second place. The approach is business orientated and could be beneficial for business strategic planning.