What is Demand Forecasting?
Summary
TLDRThis 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
- đ Demand forecasting is a systematic process for predicting future demand for a specific product.
- đ It helps businesses optimize inventory by predicting future sales based on past data.
- đŻ Step 1: Identify business objectives, such as sales planning and inventory control, to set a clear purpose for forecasting.
- đ Step 2: Determine the nature of the goods (capital goods, consumer durables, or non-durables) to categorize the demand.
- âł Step 3: Define the time period for the forecast (short-term or long-term), with the understanding that demand determinants change over time.
- đ Step 4: Choose the most suitable forecasting method, which can be either qualitative (e.g., Delphi technique) or quantitative (e.g., trend projection).
- đ Step 5: Collect and adjust data, either primary (first-hand) or secondary (pre-existing), to support the forecasting method.
- đ Step 6: Estimate and interpret the results, usually represented as equations, and compare predictions with actual sales for future adjustments.
- đ Two main types of forecasting methods: qualitative (Delphi technique, salesforce opinion, market research) and quantitative (trend projection, barometric technique, econometric forecasting).
- đ 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.
Outlines
đ Introduction to Demand Forecasting
This paragraph introduces the video, outlining key topics such as the concept of demand forecasting, steps involved, methods, and its importance. It defines demand forecasting as a process that helps businesses predict future product demand based on past sales data. Demand forecasting is essential for optimizing inventory and making informed business decisions on inventory planning, sales strategies, and customer demand.
đŻ Steps in Demand Forecasting
The paragraph elaborates on the steps involved in demand forecasting. Step 1 is identifying business objectives, which includes understanding the purpose of forecasting. Step 2 is determining the nature of goods, categorizing them as capital goods, consumer durables, or non-durables. Step 3 is determining the time period for the forecast, which can be short-term or long-term. Step 4 is choosing the appropriate forecasting method, which can be qualitative or quantitative. Step 5 involves data collection and adjustment, followed by Step 6, which focuses on estimating and interpreting results.
đ Demand Forecasting Methods
This section introduces the two main types of demand forecasting methods: qualitative and quantitative. Qualitative methods include the Delphi technique, where experts collaborate to generate forecasts, and salesforce opinion, where salespeople provide input based on their regions. Quantitative methods include the trend projection method, useful for businesses with extensive historical sales data, the barometric technique, which uses statistical analysis to predict future demand, and econometric forecasting, which involves complex equations to assess the relationship between demand and influencing factors.
đ Importance of Demand Forecasting
The paragraph highlights the critical role demand forecasting plays in business success. It helps companies make informed decisions about marketing, production, staffing, and more. While not always 100% accurate, demand forecasting improves efficiency, reduces lead times, and enhances customer satisfaction. Businesses can use it to save money, launch new products, and respond effectively to market demand. The video encourages viewers to explore additional resources like other videos or downloadable PDFs for a deeper understanding.
Mindmap
Keywords
đĄDemand Forecasting
đĄSales Data
đĄQualitative Methods
đĄQuantitative Methods
đĄDelphi Technique
đĄInventory Planning
đĄTrend Projection Method
đĄEconometric Forecasting
đĄBarometric Technique
đĄMarket Research
Highlights
Introduction to demand forecasting: understanding its significance in evaluating future demand for a product.
Demand forecasting allows businesses to manage inventory effectively by predicting future sales based on historical data.
Importance of demand forecasting: helps in inventory planning, warehousing needs, running flash sales, and meeting customer demands.
Step-by-step breakdown of demand forecasting process: from identifying business objectives to evaluating results.
Explanation of short-term versus long-term demand forecasting: short-term forecasts assume stable determinants, while long-term forecasts account for changing elements.
Key factors in demand forecasting: the composition and quantity of demand, cost, sales planning, and inventory control.
Choosing the appropriate method of demand forecasting based on the nature of goods and forecast timeline.
Two broad categories of demand forecasting methods: qualitative (Delphi technique, market research) and quantitative (trend projection, econometric forecasting).
The Delphi technique: a structured method where experts iteratively refine their forecasts until a consensus is reached.
Sales force opinion method: forecasts are generated by aggregating inputs from salespersons about their respective regions and product categories.
Market research method: uses customer-specific surveys to capture potential demand, useful for new products with little historical data.
Trend projection method: suitable for businesses with extensive sales data history, typically over 18-24 months, to identify patterns.
Barometric technique: forecasts future demand by analyzing current events through statistical series (leading, concurrent, or lagging).
Econometric forecasting technique: utilizes complex equations and mathematical models to capture the relationship between demand and influencing factors.
Benefits of demand forecasting: improves production lead times, operational efficiency, cost savings, and enhances customer experience.
Transcripts
in this video
you are going to learn demand
forecasting
topics i have discussed are what is
demand forecasting
steps in demand forecasting demand
forecasting methods
and why is demand forecasting important
let's start the video
demand forecasting is the systematic
process to evaluate future demand for a
specific
product it allows you to examine the
sales
scientifically over upcoming weeks
months and years
so that you know exactly how much stock
to order and hold at any given time
period
with the help of demand forecasting
businesses can enhance inventory by
predicting future sales from analyzing
past
sales data to make proper business
decisions about everything from
inventory planning and warehousing needs
to running flash sales and meeting
customer demands
we can define demand forecasting as the
method of using historical sales data to
evaluate future customer demand
steps in demand forecasting
step 1 identification of business
objectives
initially we should know about the aim
of forecasting
demand forecasting should have a clear
purpose
evaluation of factors like composition
and quantity of demand for goods
cost to be quoted sales planning and
inventory control
etc done in the identification stage
step 2 determining the nature of goods
different goods have their own special
demand
for example capital goods consumer
durables
and non-durables goods we should
estimate in which category our goods
fall
step 3 determining the time period
based on the target set the demand
forecast can either be for the short
term
say for the next two to three years or a
long term
while forecasting demand for a short
term we can assume many determinants of
demand to remain unchanged
or do not change significantly but in
the long term
the elements of demand may transform
thus it is necessary to define the time
step 4 making a choice of method of
forecasting
after setting of aim and time
perspective the method for implementing
the forecast is selected
there are various methods of demand
forecasting categorized under survey or
qualitative methods
and statistical or quantitative methods
the forecaster must choose the method
that best suits his requirement
i have discussed the different methods
of forecasting later in this video
so watch the video till the end
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step five collection and adjustment of
data
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after deciding the method the next step
is to collect the needed data
which may be primary or secondary or
both the primary data
are the first-hand data that no one has
collected before
while the secondary data are the data
that are already available
last step is estimation and
interpretation of results
after collecting the required data we
finalize the demand forecasting method
the last step is to evaluate the demand
for the predefined period
generally the estimates appear as
equations
and the result is interpreted and
represented in an easy and accessible
form
at last you require to comparing what
you predicted
to actual sales which can help you adapt
your next
forecast
now come to demand forecasting methods
there are two basic types of demand
forecasting methods
qualitative methods and quantitative
methods
examples of qualitative methods are the
delphi technique
salesforce opinion market research
examples of quantitative methods are
trend projection method
barometric technique econometric
forecasting technique
let's discuss each technique separately
the delphi technique a group of experts
is appointed to produce a demand
forecast
each expert is suggested to generate a
forecast of their elected specific
segment
after the initial forecasting round each
expert
reads out their forecast and every
expert influences another expert
a consequent forecast is again produced
by all experts
and the process is repeated until all
experts achieve a near agreement
scenario
sales force opinion the sales manager
asks for inputs of predicted demand from
every salesperson in their team
each salesperson evaluates their
respective region
product categories and serves their
individual customer demand
eventually the sales manager aggregates
all the demands
and sets up the final version of the
demand forecast
after management's opinion
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market research in the market research
method
customer-specific surveys are used to
generate
possible demand such surveys are
generally question based that directly
seek personal
analytical preference and economic
information from end customers
this type of technique could be useful
for products that have little to no
demand history
trend projection method we can
effectively deploy the trend projection
method for businesses
with a large sales data history of
typically over 18 to 24 months
this historical data sets up a time
series which illustrates the past sales
and projected demand for a specific
product category under normal conditions
biographical plotting method or the
least square method
barometric technique the barometric
technique of demand forecasting is based
on recording events in the present
to forecast the future forecasters use
statistical analysis like leading series
concurrent series
or lagging series to make the demand
forecast
econometric forecasting technique
econometric forecasting uses auto
regressive
integrated moving average and complex
mathematical equations
to create relationships between demand
and factors
that affect the demand an equation is
developed
and fine-tuned to assure a reliable
historical representation
finally the projected values of the
influencing variables are introduced
into the equation
to make a forecast
let's move on to why is demand
forecasting important
without a thorough understanding of
demand businesses aren't capable of
making the right decisions about
marketing spend
production staffing and more
though it will never be 100 accurate
forecasting demand can help you improve
production lead times
increase operational efficiencies save
money
launch new products and provide a better
customer experience overall
if you want to know what is forecasting
check the video in the i button
if you want to read in details about
demand forecasting or download the pdf
go through the link in the description
you can support my work by liking the
video and subscribing to my channel
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