Companies would not know how much product they should produce for a particular period, how much budget they should have for the coming season and what quantity of stock they should stock for the fiscal year. The latest Demand planning and forecasting softwares are capable of considering several factors, and thus companies can make use of several different forecasting methods based on thier needs. Accurate demand forecasting gives you an estimation of how much revenue they can earn in the coming year.
What is Demand Forecasting?
Demand forecasting estimates the demand for a particular product over a definitive period. Forecasting considers past historical data, market trends, seasonality, promotional events, etc. A blend of production orders and forecasted sales is generally utilized for representing demand, and the more data you have, the more accurate the forecasts will be.
Applying the correct demand forecasting method is essential for companies to avoid situations of overproduction and underproduction. For conducting a scientific demand forecast, analysts should gather, examine, and interpret information and choose a method and type of forecast.
Factors Influencing Demand Forecasting
Various factors influence demand, and that need to be considered before forecasting. Let us have a look at the various aspects that impact demand significantly.
- Competition – When a competitor company enters or leaves the market, it considerably impacts demand, and demand can drop or rise to the extreme. If a new company starts selling the same products, the existing businesses might suffer due to competition. In contrast, if a company starts performing poorly, the competitors would be at an advantage as the consumers would move to them.
- Economy – Economic conditions have a significant impact on demand planning and forecasting. If an economy goes through a recession or depression, the demand for luxury goods falls, and the demand for affordable, generic products rises.
- Kinds of Goods – Different services and products have different demand forecasting. Forecasting demand for goods with a short shelf life should be accurate. Otherwise, many products would be wasted, whereas the demand for subscription boxes can be estimated correctly as the same quantity is shipped to customers every month.
- Seasonality – Demand changes with seasons, and a business might have a peak season when sales would increase, and during the off-season, the sales would be steady or dwindle.
- Geography – Where your customers are located and where you produce and store the goods can impact the inventory. Thus, it is essential to select a geographic location strategically so that shipping costs can be saved. Your business should deal in products for which the demand is high in the particular state.
Demand Forecasting Methods
There are various methods of creating forecasts. Listed below are five methods that can be used for demand forecasting:
- Market Research
Market research demand forecasting depends on data from consumer surveys. It takes time to do surveys and tabulate data, but the efforts provide fruitful results. This method can offer meaningful insights you cannot obtain from internal sales data. You can conduct this research or study constantly. Market research can offer an accurate idea about your customer, and the surveys can gather demographic data that would assist in improving your marketing efforts. Market research benefits startup companies as they are just starting to know their customers.
- Delphi Method
The Delphi method utilizes the expertise of professionals on the forecast results. This method needs deploying outside experts and a skilled facilitator. This can be done by sending a questionnaire to a team of experts, and you can create a synopsis of the responses and communicate it with the panel. This method is repeated through various rounds. The responses of every round are shared anonymously and impact the set of responses. The process is completed when the team arrives at a consensus.
This method enables you to gather the opinion of professionals having expertise in different fields, and the anonymous responses allow everyone to give unbiased opinions. There is no need for a physical presence, and thus experts from all over the world can be consulted. The process enables you to develop each other’s knowledge and opinions.
- Sales Force Composite
The sales team provides feedback for forecasting consumer demand. The sales personnel maintain close contact with the consumers and get feedback and customer opinions. Thus, they can provide useful information on product trends, customer desires and competitor activity. This process gathers the sales division and the executives and managers and develops the forecasts as a group.
- Trend Projection
Trend projection utilizes historical sales data for estimating your future sales. It is the simplest demand forecasting method, and it is essential for adjusting future projections to consider fluctuations. For instance, you might have experienced a sudden spike in demand in the previous year as your product had been promoted on a television show, but it is not likely to be the same in the future. When using the trend projection method, you should consider unusual aspects of the historical data. The best demand forecasting software considers all the aspects for better forecasting.
This method merges sales data with information on external forces that influence demand. You may use a mathematical formula for estimating future demand, and the econometric method accounts for relationships with economic factors.
Fountain9 is one of the companies that provides the best demand forecasting software powered by artificial intelligence. The software considers several factors that influence demand. The software collects and analyses the sales data to generate accurate demand forecasting reports. It helps businesses maintain an optimal inventory stock level and effectively meet consumer demand.