Explain Demand Forecasting


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Forecasting

The following are different types of forecasts:

  • Demand Forecast
  • Supply Forecast
  • Price Forecast

 

Demand Forecast involves determining the firm’s demand for an item. This includes current and projected demand, inventory status and lead time.

Supply Forecast involves collection of data about current suppliers and producers, aggregate projected supply situation and technological and political trends which might affect supply.

Price Forecast is based on information gathered and analyzed about demand and supply. It provides a prediction of short term and long term prices and the underlying reasonsJor those trends.

 

Further, forecast can be classified as:

  • Short Term Forecast
  • Intermediate Term Forecast
  • Long Term Forecast

 

Long Term Forecast usually covers more than three years are used for strategic or long term planning.

Intermediate Term Forecast usually range from one to three years and address budgeting issues and sales plans.

Short Term Forecast is more important for the operational logistics planning process. They project demand into next several mo4h 4pf one year or slightly more than one year.

 

Demand Forecasting

 

Forecasting product demand is crucial to any supplier, manufacturer, or retailer. Forecasts of future demand will determine the quantities that should be purchased, produced, and shipped. Demand forecasts are necessary since the basic operations process, moving from the suppliers’ raw materials to finished goods in the customers’ hands, takes time. Most firms cannot simply wait for demand to emerge and then react to it. Instead, they must anticipate and plan for future demand so that they can react immediately to customer orders as they occur.

Firms that offer rapid delivery to their customers will tend to force all competitors in the market to keep finished good inventories in order to provide fast order cycle times. As a result, virtually every organization involved needs to manufacture or at least order parts based on a forecast of future demand. The ability to accurately forecast demand also affords the firm opportunities to control costs through leveling its production quantities, rationalizing its transportation, and generally planning for efficient logistics operations. In general practice, accurate demand forecasts lead to efficient operations and high levels of customer service, while inaccurate forecasts will inevitably lead to inefficient, high cost operations and/or poor levels of customer service. In many supply chains, the most important action we can take to improve the efficiency and effectiveness of the logistics process is to improve the quality of the demand forecasts.

Forecasting is a problem that arises in many economic and managerial contexts, and hundreds of forecasting procedures have been developed over the years, for many different purposes, both in and outside of business enterprises.


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