Demand forecasting is an important process of predicting the future demand of the product or service. In other words, it’s the process of estimating the potential demand for a product or service in the future. Here we will discuss Demand Forecasting, all things you need to know
What is Demand Forecasting?
All departments of the business need to have a demand forecasting. This needs an understanding of the business and the market.
Business demand forecasting is a highly challenging work for entrepreneurs and executives. So it needs to be analyzed very carefully.
Demand forecasting not only helps to manage the business better but also shows the road map for the future.
Mostly small business does not focus on the process which is completely wrong. Every business needs to do this to grow their business and make a sustainable business.
Importance of demand forecasting
Demand forecasting is very crucial for every business. It reduces the risk of business activities and helps in making important decisions.
The analysis of demand is very important for any business. In a competitive business environment, it is very crucial.
With the help of demand analysis, you can take the decision like sales, manpower requirement and production, etc.
Demand forecasting is necessary for the global level and domestic level business. It also helps in capital investment and expansion strategy.
Steps in demand forecasting
Demand forecasting is a scientific exercise and various steps are there to determine. Here are the steps.
The objective must be very clear before the process starts. Based on this you can apply various processes and use the tools.
Period of forecasting
The period of the forecasting is broadly classified into two types.
- Short term forecasting:
Short term forecasting is basically done for 6 months to 1 year of time. This type of forecasting helps in supply change management and sales strategy.
- Long-term forecasting casting:
Long term forecasting is done for 2 to 5 years. This helps in taking strategic decisions and business expansion.
It helps the big business and the MSME sectors to make the expansion strategy.
Business merger or actuation depends on the long term forecasting.
Methods of Demand Forecasting
Demand forecasting is an art as well as a science of predicting the demand for a particular product or service in the future.
The prediction is done on the basis of past behavior, current trends, and patterns.
Many demand forecasting methods to forecast the demand. These are the major methods mostly used by the organization
- Executive committee consensus
- Delphi method
- Survey of customers
- Salesforce opinion
- Trend projection method
- Econometric forecasting technique
- Market research
- Box-Jenkins models
Based on the business and the environment-specific method can be used. One or more methods can also combine together to get the results.
Also read: 9 Top businesses that will never fail
Factors Affecting Demand Forecasting
As we have discussed demand forecasting is done on the basis of past behaviors, current trend other aspects. So various factors play an important role while forecasting the demand.
The internal-external factors affect demand forecasting.
The factors like Economy, Technology, Govt. policies, Environment, competitor’s strategy are counted as external factors.
Factors like Employee training, hiring, organization’s financial management, Management decision are considered as internal factors.
Things you must avoid while forecasting.
Do not forecast on less data or sample size.
Do not hire a person who has less understanding of your business to do this work.
Demand forecasting is the most essential to run any successful business. This helps the financial planning, supply chain management, production, hiring, and the overall growth of the organization. Various techniques have been discussed here. This is al about Demand Forecasting, all things you need to know