Demand forecasting if done properly, gives valuable information to businesses about the current potential of the market. That being said, let’s first understand what decision forecasting is in simple terms:
What is demand forecasting?
Making estimations about the future demand from customers based on historical data and other required information is called demand forecasting. It helps the managers to make calculated decisions about business growth strategies, market potential, and pricing. Demand forecasting is very essential for businesses to avoid the risk of poor decisions regarding target products and markets.
Demand forecasting is crucial for several reasons like optimizing inventory and reducing holding costs. It is also important for increasing turnover rates, providing detailed insights into the upcoming flow of cash, and human resource management in terms of recruiting staff and others to keep operations functioning smoothly during peak periods.
For companies in the retail industry, who cater to a highly dynamic target audience, forecasting the demand and market trends could prove to be a tricky task,” says an industry expert from Infiniti.
Three popular demand forecasting methods
Qualitative demand forecasting method
The techniques of qualitative forecasting are used at a time when there is a scarcity of a lot of data. For example, in the case of a new business or in the case of newly launched products in the market. In such cases, demand forecasting is done by using other qualitative tools like market research, opinions of experts in the field, and comparative analyses. Such demand forecasting methods are generally used in areas like that of technology, where the upcoming products may be unprecedented, and it becomes very difficult to assess the interest of customers’ beforehand.
Time cycle analysis
If the historical data for a product or service and its trends are available, businesses can use this approach of time cycle analysis to forecast the demand. It helps to identify fluctuations in demand based on season, sales trends, and cyclical patterns. This method is used by businesses who have experience of several years and have sufficient data to work from and have a relatively set trend or patterns.
Method of seasonality and trends together
Seasonality means a change in demand for specific times like festivals and holidays whereas trends have no specific time and can occur due to the complete shift in consumers’ behavior. Both demand forecasting methods can be used to better plan the management of inventory, operational process, and marketing efforts. This can ultimately help your business to grow by leaps and bounds. So, demand forecasting is undoubtedly a good way to anticipate what the customers are expecting from your business in the future and also helps in inventory preparation to meet the demand.
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