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A Summary on Demand Forecasting
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What is Demand Forecasting?Demand Forecasting:
MEANING:
Demand forecasting is the systematic process to evaluate future demand for a specific product.
It allows businesses to examine sales scientifically over upcoming weeks, months, and years to
know exactly how much stock to order and hold at any given time period.
With the help of demand forecasting, businesses can:
• Enhance inventory by predicting future sales from analyzing past sales data
• Make proper business decisions about everything from inventory planning and
warehousing needs to running flash sales and meeting customer demands
We can define demand forecasting as the method of using historical sales data to evaluate
future customer demand. There are several steps involved in demand forecasting:
• Identification of business objectives: Initially, we should know the aim of forecasting.
Demand forecasting should have a clear purpose, considering factors like composition
and quantity of demand for goods, cost to be quoted, sales planning, and inventory
control.
• Determining the nature of goods: Different goods have their own special demand. For
example, capital goods, consumer durables, and nondurables goods. We should estimate
in which category our goods fall.
• Determining the time period: Based on the target, the demand forecast can either be
for the next two to three years (short term) or a long term. While forecasting demand for
a short term, we can assume many determinants of demand to remain unchanged or do
not change significantly. But in the long term, the elements of demand may transform.
Thus, it is necessary to define the time period.
• Making a choice of method of forecasting: After setting of aim and time perspective,
the method for implementing the forecast is selected. There are various methods of
demand forecasting categorized under survey or qualitative methods and statistical or
quantitative methods. The forecaster must choose the method that best suits his
requirement.
• Collection and adjustment of data: After deciding the method, the next step is to
collect the needed data, which may be primary or secondary or both. Primary data are
the firsthand data that no one has collected before, while secondary data are the data
that are already available.
• Estimation and interpretation of results: After collecting the required data, we finalize
the demand forecasting method. The last step is to evaluate the demand for the
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