Demand forecasting is the process of predicting the quantity of goods and services that will be demanded by consumers at a future point in time. It is an important tool in optimizing business profitability through efficient supply chain management. Demand forecasting methods are divided into two major categories, qualitative and quantitative methods. Qualitative methods are based on expert opinion and information gathered from the field. This method is mostly used in situations when there is minimal data available for analysis such as when a business or product has recently been introduced to the market. Quantitative methods, however, use available data and analytical tools to produce predictions. Demand forecasting may be used in resource allocation, inventory management, assessing future capacity, and making decisions about product direction, pricing, company expansion, and hiring. There are several types of demand forecasting, including:
-
Statistical forecasting: This method uses historical data to identify patterns and trends in demand and then uses that information to predict future demand.
-
Causal forecasting: This method looks at the relationship between demand and other factors, such as economic indicators, to predict future demand.
-
Judgmental forecasting: This method relies on expert opinion and intuition to predict future demand.
-
Demand sensing: This method uses real-time data to predict short-term demand.
-
Collaborative forecasting: This method involves collaboration between different departments or organizations to predict future demand.
-
Event-driven forecasting: This method predicts demand based on specific events, such as holidays or promotions.
Demand forecasting is important because it helps businesses make informed decisions about inventory management, production planning, and resource allocation. Accurate demand forecasting can help businesses avoid stockouts, reduce waste, and improve customer satisfaction.
