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Concept
Demand forecasting
Summary
Demand forecasting refers to the process of predicting the quantity of goods and services that will be demanded by consumers at a future point in time. More specifically, the methods of demand forecasting entail using predictive analytics to estimate customer demand in consideration of key economic conditions. This 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 in order to produce predictions. Demand forecasting may be used in resource allocation, inventory management, assessing future capacity requirements, or making decisions on whether to enter a new market.
Demand forecasting plays an important role for businesses in different industries, particularly with regard to mitigating the risks associated with particular business activities. However, demand forecasting is known to be a challenging task for businesses due to the intricacies of analysis, specifically quantitative analysis. Nevertheless, understanding customer needs is an indispensable part of any industry in order for business activities to be implemented efficiently and more appropriately respond to market needs. If businesses are able to forecast demand effectively, several benefits can be accrued. These include but are not limited to, waste reduction, optimized allocation of resources, and potentially large increases in sales and revenue.
Elaborating on the above, some of the reasons why businesses require demand forecasting include:
Meeting goals - Most successful organisations will have pre-determined growth trajectories and long-term plans to ensure the business is operating at an ideal output.
Official source
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