What is Demand Forecasting?

Summary

This video covers the fundamentals of demand forecasting, explaining its importance and various methods. It begins by defining demand forecasting as the process of predicting future sales using historical data. The video outlines key steps such as identifying business objectives, categorizing goods, and selecting the appropriate forecasting method. Qualitative and quantitative methods like the Delphi technique, salesforce opinions, and econometric models are discussed. Additionally, it highlights how demand forecasting improves inventory management, operational efficiency, and decision-making. Viewers are encouraged to watch till the end for deeper insights.

Takeaways

• 📊 Demand forecasting is a systematic process for predicting future demand for a specific product.
• 📈 It helps businesses optimize inventory by predicting future sales based on past data.
• 🎯 Step 1: Identify business objectives, such as sales planning and inventory control, to set a clear purpose for forecasting.
• 🛒 Step 2: Determine the nature of the goods (capital goods, consumer durables, or non-durables) to categorize the demand.
• ⏳ Step 3: Define the time period for the forecast (short-term or long-term), with the understanding that demand determinants change over time.
• 🔍 Step 4: Choose the most suitable forecasting method, which can be either qualitative (e.g., Delphi technique) or quantitative (e.g., trend projection).
• 📊 Step 5: Collect and adjust data, either primary (first-hand) or secondary (pre-existing), to support the forecasting method.
• 📉 Step 6: Estimate and interpret the results, usually represented as equations, and compare predictions with actual sales for future adjustments.
• 🛠 Two main types of forecasting methods: qualitative (Delphi technique, salesforce opinion, market research) and quantitative (trend projection, barometric technique, econometric forecasting).
• 🚀 Demand forecasting helps businesses make informed decisions about marketing, production, staffing, and improving customer experience.

Q & A

What is demand forecasting?

Demand forecasting is the systematic process of evaluating future demand for a specific product. It helps businesses predict future sales by analyzing past sales data to make informed decisions regarding inventory planning, production, and meeting customer needs.

Why is demand forecasting important for businesses?

Demand forecasting is important because it helps businesses improve production lead times, enhance operational efficiency, reduce costs, plan inventory, launch new products, and ultimately provide a better customer experience.

What are the main steps in demand forecasting?

The main steps in demand forecasting are: 1) Identification of business objectives, 2) Determining the nature of goods, 3) Determining the time period, 4) Making a choice of forecasting method, 5) Collection and adjustment of data, and 6) Estimation and interpretation of results.

What are the two basic types of demand forecasting methods?

The two basic types of demand forecasting methods are: 1) Qualitative methods, which include techniques such as the Delphi technique, salesforce opinion, and market research, and 2) Quantitative methods, which include trend projection, barometric technique, and econometric forecasting technique.

What is the Delphi technique in demand forecasting?

The Delphi technique involves a group of experts who individually generate demand forecasts. These forecasts are discussed and refined in multiple rounds until a consensus is reached, making it suitable for complex forecasting scenarios.

How does the salesforce opinion method work in demand forecasting?

In the salesforce opinion method, the sales manager collects demand predictions from each salesperson. These inputs are aggregated to form a final demand forecast, which is then reviewed and validated by the management team.

What is the purpose of market research in demand forecasting?

Market research in demand forecasting involves using customer-specific surveys to gather information on preferences, economic data, and potential demand. It is particularly useful for new products with little historical demand data.

When is the trend projection method most effective?

The trend projection method is most effective for businesses that have a large historical sales dataset, typically spanning over 18 to 24 months. It helps in identifying trends and projecting future demand based on past performance.

What is the barometric technique in demand forecasting?

The barometric technique uses statistical analysis of current events to forecast future demand. Forecasters analyze leading, concurrent, or lagging series to predict demand based on existing trends.

What role does econometric forecasting play in demand forecasting?

Econometric forecasting involves using complex mathematical equations and autoregressive models to establish relationships between demand and various influencing factors. These models are used to generate reliable demand forecasts based on historical data.