What is Demand Forecasting and Why it is Important?

Demand forecasting is the process of using predictive analysis of historical data to estimate and predict customers’ future demand for a product or service. Demand forecasting helps the business make better-informed supply decisions that estimate the total sales and revenue for a future period of time.

Through demand forecasting, businesses can optimize inventory by predicting future sales by analyzing historical sales data to make informed business decisions about everything from inventory planning and warehousing needs to running flash sales and meeting customer expectations (Lopienski).

Related: The Impact of Trade Agreements on Global Supply Chains

Importance of Demand Forecasting

There is no business without a demand. Businesses cannot make decisions without understanding demand. Demand forecasting is never 100% accurate. There are steps to improve production lead times, increase operational efficiencies, save money, launch new products, and provide a better customer experience.

Preparing Your Budget

Demand forecasting reduces risks, helps increase profits, and makes efficient financial decisions. These financial decisions impact cash flows, allocation of resources, opportunities for expansion, inventory accounting, and operating costs.

Planning and Scheduling Production

Demand forecasting lets you provide the products your customers want when they want them. This requires order fulfillment to be synced up with marketing prior to launching.

Storing Inventory

Demand forecasting inventory purchases and warehousing. This helps companies spend less money on purchase orders.

Contributed by:
Mohammad Musib Khan

What to read next:

What are Sales Forecasting and Demand Management?
What is Cross Docking and It does work?