Demand Forecasting:
1. An estimate of future demand for the product.
2. It plays a vital role in business decision-making.
3. The survival and prosperity of a business firm depend on its ability to efficiently and adequately meet the consumer's needs.
4. Demand forecasting has an important influence on production planning.
Types of Demand Forecasting:
1. Short-term Demand Forecasting 2. long-term Demand Forecasting
1. Short-term Demand Forecasting: It is a limited period, usually for one year. It relates to sales, purchase, price, and finances taking the firm's existing production capacity.
2. Long-term Demand Forecasting: The business should know that the long-term demand for the product planning of a new plant or expansion of an existing unit depends on long-term demand.
Factors governing Demand Forecasting:
Several factors govern the forecasting process. There are
a) Nature of Demand: Market demand for a particular product or service is not a single number, but several factors function. For instance, higher volumes of sales can be realized with higher levels of advertising or promotion efforts.
b) Types of Forecast: Base on the period under forecast, the demand forecast can be two types:
1) Short-term forecast: A short-range forecast of the total demand for a particular product helps to provide a basis for ordering raw materials, to plan and schedule production activities, to seek short-term finance, and so on.
2) Long-term forecast: A long-term forecast provides information for major strategic decisions that result in the extension or reduction of limiting resources. Long-run forecasts can be an effective basis to allocate necessary long - run finance.
c) Forecasting level: Forecasting may be at the firm level, industry level, national level, or global level.
Firm-level means estimating the demand for the product and services offered by a single firm.
National level means it is worked out based on the level of income and saving of the consumers.
Industry-level means the aggregate demand estimated for all the firms' goods and services constitutes the industry level.
Global level means globalization and deregulation; the entrepreneurs have started exploring the foreign markets for which the global level forecasts are utilized.
d) Degree of Orientation: Demand forecasts can be worked out based on total sales or product/services - wise sales for the given time period. Forecasts in terms of total sales can be viewed as a general forecast. In contrast, product/service - wise or region or customer segment-wise forecast is referred to as a specific forecast.
e) Nature of goods: The goods are classified into producer goods, consumer goods, consumer durables, and services. The patterns of forecasting in each of these differ.
f) New Products: It is relatively easy to forecast demand for established products or products currently in use. If a firm wants to deal in detergents, it can find access to the industry demand for the detergents and each competitor's market share. It is up to this individual new firm and its ingenuity to create its own customer base by pulling the other competitors through strategy.
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