Assignment Nos.

5
Estimating and Forecasting Demand

Please answer the following questions and submit on the deadline date.

1. Is it necessary to follow the steps in demand forecasting. Why or Why Not?

Please support your answer with examples.

What is demand forecasting? There are many internal and external threats facing
a company, such as high competition, technological failure, labor strife, inflation,
recession, and changing government laws. Therefore, under the conditions of
risk and uncertainty, most of an organization's business decisions are made. By
assessing the market or sales potential for its goods and services in the future, a
company may lessen the adverse effects of risks. Demand forecasting is a
systemic approach that involves predicting potential demand for an organization's
goods and services under a range of uncontrollable and competitive powers. In
the management of an organization, demand plays a crucial role. It allows a
company to manage risks inherent in business operations and make major
business decisions. Besides this, demand forecasting offers an insight into the
capital expenditure and expansion decisions of the company. Is it necessary to
follow the steps in demand forecasting because it will help the business in
decision making. Every business unit begins with such pre-decided targets. The
forecasting of demand helps to achieve these targets. A company estimates the
present demand in the market for its goods and services and moves forward to
achieve the objectives set. For instance, a company has set a target of selling 50,
000 units of its goods. The company will carry out market forecasting for its
goods in such a situation. If the demand for the goods of the company is low,
corrective steps would be taken by the organization so that the set goal can be
achieved. It plays a key role in budgeting by forecasting expenditures and
projected revenues. For example, a company has estimated that 10, 00, 00 units
will be the demand for its product, which is priced at Rs . 10. The overall
estimated revenue will be 10 * 100000 = Rs. 10, 00, 000 in such a situation. In
 this way, demand forecasting helps companies to manage their budget. It can will
also help in budgeting for the company because when the economist didn’t follow
the steps in demand forecasting it may cause wrong decisions for the company.
Demand forecasting helps a company to monitor its operations in manufacturing
and recruiting. Development according to the expected demand for goods helps
to prevent the wasting of an organization's capital. This further allows a company
to employ human capital as needed. For instance, if a company expects the
demand for its goods to increase, it will opt for additional labor to meet the
increased demand. By following steps of demand forecasting it will also help in
expanding the organization. It means that demand forecasting helps to decide on
the expansion of the organization's market. If the anticipated demand for goods is
greater, then the business will intend to expand further. On the other hand, if the
demand for products is expected to decline, the company may reduce its
investment in the company. For me the major benefit of following the steps, it
really helps to make important decisions, such as to determine the capacity of the
factory, to determine the raw material requirement and to ensure the availability
of labor and capital. Lastly, it assists in the making of corrections. For example, if
the demand for the goods of a company is lower, by improving the quality of its
products or spending more on advertising, it may take corrective steps to
increase the level of demand.

2. Cite business scenarios on the limitations and possibilities of demand forecasting

in decision-making. Explain.

The limitations of demand forecasting, first, changes in consumer’s desires,

preferences, fashions and etc. In the case of a consumer product, the shift in
consumer desires, preferences, fashion and style will impact the organization’s
sales. If the product is well received by customers, it will become popular and its
revenue will increase. Otherwise, the business would fail to fulfill its revenue
forecast goals. In order to avoid this obstacle, management must update its
revenue forecasts from time to time, taking into account the needs and desires of
customers. For example, the trendy fashion for women before is off shoulder tops
but then now the trendy tops is crop tops and fitted tops. This shift can’t predict
by demand forecasting. Next is, lack of past data. For few goods, since there is
no previous sales background, it is very difficult to estimate the right production
sales figures. Management just has to depend on such guesswork in such
situations. Anticipatory growth is also one of the limitations. A steady rate of
growth over an extended period of time is very hard to sustain. When planning
revenue forecasts, the probable rate of growth should be considered. The last
limitation that I know is psychological factors. It is difficult to predict the
psychological variables of consumers. They may suddenly move from being
optimistic to worrying about the future. For instance, a rumor of an imminent war,
for example, will produce a large demand for consumable goods.

References:

https://blog.arkieva.com/demand-forecasting/

https://www.businessmanagementideas.com/economics/demand-
forecasting/demand-forecasting-meaning-and-importance/8236

https://www.shipbob.com/blog/demand-forecasting/

https://mymbaguide.com/demand-forecasting-methods-requirements-limitations/