Demand forecasting is a technique to predict the demand for a product or service for the future. By examining the past and current data, it’s intelligibly telling you what profit results come off in the future by using the methods of demand forecasting.
No one can forecast with the accuracy; therefore, there are numerous techniques of demand forecasting, and which technique we use it entirely depends on the forecasting process.
The methods of demand forecasting approach two major techniques:
1. Survey Methods:
Under the survey methods, we conduct the question and answer session with consumers and asked about their demand preferences and future purchasing plans it often guides us to the future forecasting demand, This demand forecasting method mainly uses for a brief period of time.
Techniques of the survey methods are discussed below:
i. Expert’s opinion poll:
In this method, the organization approaches the expert’s opinion about the merchandise. Sales executives perform as experts who can identify and evaluate the demand for the commodity in several districts and cities. Sales executives are directly reachable with consumers; therefore, they’re well informed about the consumer’s purchasing plans. They also know the consumer’s viewpoint about the substitutes. They deliver a far better estimation of the demand for the corporation’s commodity. This method of demand forecasting is just about easy and low-cost also.
ii. Delphi technique:
One of the substantial techniques of demand forecasting is a Delphi technique, it is used to keep us informed about what is probably come off within the future by taking a gaggle of experts opinion every expert has authority to offer their opinion, it’s often utilized to gather aggregate knowledge, and therefore, the significant advantage of this procedure is that it’s time and price constructive strategy, this method generally used when the firm wants to get accurate forecast outcomes it’s only possible when experts have absolute knowledge about economics, financial and market conditions.
iii. Market experiment method: During this demand forecasting method, we assemble the necessary information for the current and future interest of items and services. This system goes through consistent with consumer behavior; a market may be a place where forecaster directly estimates the willingness of consumers. Therefore, the forecaster selects some specific areas to think about consumers’ fondness consistent with their taste, culture, income levels, and product’s changing costs, so these results help make future demand forecasting.
2. Statistical Methods:
The Statistical procedure may be a significant demand forecasting method, we utilized this strategy within the long-haul for a commodity and services, it’s meant by chronicled information which we acquire from past financial related reports, and it also conducts cross-sectional information which we gathered by leading meetings with buyers it’s the foremost gainful. One of the dependable and predictable demand forecasting techniques and subjectivity is the least during this method of demand forecasting.
Techniques of statistical methods are discussed below:
i. Trend Projection Method
In this technique of demand forecasting, we accept that future examples will, in general, be augmentations of the previous one so that we will quickly make some useful forecast by studying past behavior. This is often the foremost traditional method of business forecasting; during this procedure, the sales, the forecast is formed through by evaluating past data obtained from past financial statements, and it’s assumed that sales and trends are followed preceding data and past is liable for the longer-term sales and trends. Trend projection strategy incorporates a Graphical method, the Least square method, and the Box-Jenkins method.
ii. Econometrics Method:
The econometric method implies merging the statistical tools with economics theories for preparing healthier forecasting; the econometric method is one of the authentic techniques of demand forecasting. The econometric method includes the Regression method and, therefore, the simultaneous equation method. The regression method is generally used to forecast the demand for a product. This demand forecasting method established the connection between the dependent and independent variables like income and price of a commodity etc. While within the simultaneous equation method, there are two or more dependent variables.
iii. Barometric Method of Demand Forecasting: Under the Barometric method of demand forecasting, we use economic indicators to predict the longer-term. Economic indicators help analyze where the economy is headed towards and help in understanding what outcomes will come off. These indicators of economics are used to forecast the trend within the overall economic activities, and it’s not used to forecast the demand for a product. The barometric method helps to point future outcomes and also because of the present state. This method consists of various indicators, such as Leading indicators, Coincidental indicators, and lagging indicators.
These are the demand forecasting methods. There is no way to obtain an accurate forecast and no particular method for forecasting the demand for any merchandise. We can only improve the effectiveness of the forecast by determining which demand forecast method the finest satisfied our business goal.
BY: AMNA ARIF