Demand forecasting – it sounds like a mouthful, but the essence of it is rather simple. It refers to the process of making guesses about future customer demands using data and other gathered information. When demand forecasting is done well, it gives a business valuable information about how it is doing, not only in the current market, but also in other potential markets, which allows business managers to make better and more informed decisions regarding everything, from pricing to market potential.
What Makes It Important
Without demand forecasting, businesses are at a high risk of making poor decisions regarding things, such as their products or even their target markets, and the consequences of these decisions can be far-reaching, affecting everything, from profitability to customer satisfaction. Meanwhile, with demand forecasting, businesses have the opportunity to optimize their inventories, which can do many things for them, even reducing holding costs and increasing turnover rates. Businesses that would like an insight into their upcoming cash flow can have that chance and by anticipating demand, business managers have the opportunity to make better decisions on when to add on staff members or use more resources to help operations run more smoothly.
Types of Demand Forecasting
There are three essential types of demand forecasting. In situations where there isn’t a lot of data to work with, qualitative forecasting is used. This might occur with a new business or in situations in which a new product is about to be launched onto the market. A time series analysis is typically used when there is plenty of historical data available to work with, which allows you to identify patterns, trends and fluctuations in demand. The causal model also uses historical data but focuses on other factors, such as competitors and economics, into account.