Demand Forecasting

SCMS Bengaluru
 What is Demand Forecasting
• Predictions of future demand for a firm’s
product or products
• Forecasts are necessary for
– Preparing of a budget
– Stabilizing of employment and production
– Expansion of firm
Objectives of Demand Forecasting
• Objectives of Demand Forecasting can be
divided into:
– Short term objectives
– Long term objectives
 Short Term Objectives
• Production Policy
• Short term Finance Management
• Pricing Policy
• Achieving Sales target
• Advertising and promotion activities
 Production Policy
• Helps in managing pap between the demand and
supply of the product.
• Helps in estimating the requirement of raw
material
• It further helps in maximum utilization of
resources
• Requirement of human resource
 Short term Finance Management
• The financial requirement depends on the
production
• Hence, demand forecasting helps in ensuring
there is required liquidity in the organization
to meet the regular expenses and continue
the production activities
 Pricing Policy
• Pricing is one of the most important objectives
of demand forecasting.
• Price of its products depends on the demand
for the product.
• Hence, firms need to forecast the demand to
see how they can change the price of their
products.
 Achieving Sales target
• Achieving the sales target is extremely
important for any firm
• Demand forecasting helps in setting new sale
target that will be challenging for the sales
team
• This will help in improving sales and entering
new markets
 Advertising and promotion activities
• Demand forecasting helps in deciding the
need for advertising and promotion activities
• The sales for a product depend on the
advertising and promotion activities.
• These have to be decided and strategically
utilized to maximize sales
 Long Term Objectives
• Production Capacity
• Diversification of business
• Long term finance management
• Determination of Expansion path
• Training of Man power
 Production Capacity
• In the long term the firm will definitely want
to increase its production capacity
• For this they have to estimate how the
demand for their product is going to change in
the future
• They also need to consider change in taste &
preferences over time.
 Diversification of business
• In addition to producing the current products
it is also important for businesses to diversify
their business to minimize the risk.
• This requires them to understand their
advantages and the future requirements for
which demand forecasting is extremely
important
 Long term finance management
• In order to meet the requirements of
increasing production capacity or diversify
their business the firms need to undertake
huge investments.
• This requires them to plan and approach the
best option to raise funds in order to save
cost, wherein demand forecasting helps.
 Determination of Expansion path
• The expansion path is important for any firm
as it shows how they would grow in the
business.
• Demand forecasting helps in determination of
the expansion path and make decisions based
on facts to achieve the objective
 Training of Man power
• With changing time there is also a change in
the knowledge requirement of the man power
in an organization.
• Demand forecasting helps in training and
upgrading the man power as per the
requirement.