Question

What is demand forecasting ?

Hint:

In simple terms, demand forecasting is an 'educated prediction' of future sales. It's the process of looking into the future to guide the decisions you make today.

Answer 1

Demand forecasting is the process of making scientific and systematic estimations of the future demand for a product or service. It is a crucial business practice that involves predicting the quantity of goods or services that customers are likely to purchase during a specific future period under a given set of conditions.
It is not just a simple guess but is based on the analysis of past and present data and trends. The key aspects of demand forecasting include:

Basis of Prediction: It relies on historical data (like past sales figures), market research, and analysis of economic indicators (like GDP growth, inflation, consumer confidence).

Time Period: Forecasts can be made for different time horizons:
Short-term: Up to one year, useful for production planning, inventory management, and pricing policies.
Medium-term: One to three years, useful for budgeting and financial planning.
Long-term: More than three years, essential for strategic decisions like capacity expansion, diversification, and long-term investment.

Techniques: Various qualitative (e.g., expert opinion, Delphi method) and quantitative (e.g., time series analysis, regression analysis) techniques are used.

The primary purpose of demand forecasting is to help management make informed decisions regarding production planning, inventory control, resource allocation, financial planning, and overall business strategy, thereby reducing risk and uncertainty.