Why is forecasting necessary?

Better Allocation of Resources and Capacity Planning

With a more accurate estimate of expected customer orders, organizations can source and acquire only
the necessary raw materials. It also helps to streamline the production

Streamlining Inventory

A good demand forecast reduces the Bullwhip effect by providing more accurate figures for inventory
throughout the supply chain.

Boost Customer Satisfaction

A happy customer is one who receives the products they have ordered on time. Demand forecasting
enables shorter lead times and more efficient distribution.

Plan Sales Strategies

Demand forecasting helps to create a better sales strategy for existing products and for newly developed
product .They also provide crucial data used to make decisions in purchasing, pricing, and promotion of
current and new products.

Better Supplier and Purchase Terms

As mentioned before, demand forecasting guides the push processes such as raw material planning,
purchasing, manufacturing, and inbound logistics. This means, for the purchasing managers, prompt
purchase plans which can be shared with suppliers early. The result is better relationships with suppliers
and leverage to negotiate better terms with suppliers.

Reducing Uncertainty

Uncertainty is a negative factor and makes decision-making very difficult, causes delays, and affects
stakeholder confidence. Demand forecasting can eliminate uncertainty and helps in decision making

Q) What is qualitative forecasting?

Qualitative forecasting is an estimation methodology that uses:

Jury of execution opinion based on the opinion and the judgment of consumers and experts and
managers

The Delphi method is a forecasting process framework based on the results of several rounds of
questionnaires sent to a panel of experts from inside as well as from outside of the organization.

In sales force composite method each regional salesperson provides his/her sales estimate

In consumer survey method a market research is conducted from customers regarding their future
purchasing plans