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Demand Forecasting

Demand forecasting is a systematic process involving anticipation of demand for the commodity or services of a company in the future under certain competitive forces and uncontrollable forces.

According to Evan J Douglas. "Demand forecasting is an estimate of sales during a specified future period based on the proposed marketing plan and a set of particular uncontrollable competitive forces."

Significance of Demand Forecasting:

  • It fulfills the objective or organization and helps in the preparation of the budget.
  • It establishes production and employment in the organization.
  • It helps in expansion or organization and facilities managerial decision.

Objectives of Demand Forecasting:

Short-term Objectives:

  • Production policy
  • Price policy
  • Controlling sales
  • Arranging finance
Long-term Objectives:

  • Determination of production capacity
  • Planning long-term activities

Factors Affecting Demand Forecasting:

  • They can be producer goods, consumer goods or services. It is dependent on information about the availability of substitutes, demand etc.
  • The level of competition affects forecasting as if the level is high, there is a risk of new competitors entering the market, which makes forecasting difficult.
  • Level of technology available with the organization and in the market. The rapid change in technology makes products obsolete.
  • If the country/economy is facing a boom or economic development then there will be an upsurge in demand forecasting.

Steps in Demand Forecasting:

Setting the Objective: It comprises decisions about whether forecast should be done for a single product or an entire line of product, market share of the company etc.

Determination of Time Period: Determining whether the forecast is to be done for a long period or a short period. In the long period, the factors affecting demand change significantly, while in the short-run they remain constant.

Selection of Method of Forecasting: An organization selects a method on the basis of its own data requirements, purpose and the availability of time.

Collection of Data: The organization collects either primary data collects through questionnaires, interviews and observations or secondary data, i.e. which has been published by other organizations.

Estimation of Result: The final result is the estimate of the demand for the stipulated years. The results should be clear and understandable by the management.

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