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Demand forecasting

Last updated August 24, 2023

What is demand forecasting?

Demand forecasting is a systematic process of predicting future customer demand for products or services based on historical data, market trends, and other relevant information. It plays a crucial role in , production planning, and overall business strategy.

Why is demand forecasting important?

Demand forecasting holds significant importance for several reasons:

  • Inventory management: Accurate demand forecasts guide businesses in determining the right inventory levels to meet customer demand without overstocking or risking .
  • Scenario planning: Forecasting allows businesses to assess different demand scenarios, enabling proactive decision-making in response to changing market conditions.
  • New production introduction: Forecasts aid in assessing market potential and demand for new products before they are introduced.

In essence, demand forecasting helps businesses align their operations, resources, and strategies with expected customer demand.

How is it different from ‘demand planning’?

Demand forecasting is the process of predicting future customer demand. It focuses on quantifying the expected quantity of products that customers will purchase in the future. The primary goal is to provide an estimate of future demand to guide inventory management, production planning, and procurement decisions. It involves statistical analysis and modeling to project demand figures.

, on the other hand, is a broader process that goes beyond simply predicting future demand. It involves the formulation of strategies and plans to meet that forecasted demand effectively. Demand planning takes the forecasted demand as input and involves making decisions about how to fulfill that demand, taking into account various factors.