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Demand Forecasting: Best Meaning, Definitions, Types
Meaning
Demand Estimation occupies an important place in Business Organizations. This view can be optimistic or pessimistic based on intuition. Estimates can be of a physical and financial nature and used for planning. Demand estimation/forecast predicts future demand for a product. In other words, it refers to predicting probable demand for a product or service based on past events.
Demand forecasting is a process in which companies can estimate the future market demand for their products. The objectives of demand forecasting are to forecast market demand for a particular product, determine the sales for a particular period, forecast new product introduction and control inventory usage. Demand forecasting involves mathematical modeling and statistical analysis of historical data obtained from previous periods.
While there is no ideal way to Find what consumers will want to buy in the future, there are many ways of finding the demand of customers. Using demand estimation methods, you can estimate how many goods will produce and how many services will provide in the future. It is also possible to determine whether expansion is possible.
Definition (Evan J. Douglas)
“Demand estimation is define as the process of finding values for demand in future time periods.”
Definition (Cundiff and Still)
“Demand forecasting is an estimate of sales during a specified future period based on the proposed marketing plan and a set of particular uncontrollable and competitive forces.”
Definition (Prof. Philip Kotler)
“The company (sales) forecast is the expected level of company sales based on a chosen marketing plan and assumed marketing environment”
Types of Forecasting
Short-Term Forecasts:
Refer to the forecasts, which are for one year and based on the knowledge of the experienced employees. Short-term forecasts are important for determining the company’s Production, policy, price policy, credit policy, and distribution policy.
Long-Term Forecasts:
Refer to the forecasts for the next 5-10 years, which base on scientific study and statistical techniques. Forecasts help in decisions on the introduction of a new product, corporate development, or the need for more funds.
Steps of Demand Forecasting
- The first step in demand forecasting is to identify the factors that will impact demand. This includes internal factors like production capacity and marketing efforts, as well as external factors like economic conditions and competitor activity.
- The next step is to gather data that can be used to predict demand. This data can come from a variety of sources, including sales data, customer surveys, and data from market research firms.
- Once the data has been gathered, it needs to be analyzed to identify trends and patterns. This analysis can be done using Statistical methods or machine learning Algorithms.
- The results of the analysis are then used to create a forecast of future demand. This forecast can take the form of a simple trend line or a more complex model that takes into account many variables.
- The final step is to track actual Demand and compare it to the forecast. This helps to identify any errors in the forecast and to update the model for future forecasting periods.
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