Demand Forecasting
A technique in which we estimate the probability of demand for a product or service in the future is known as Demand Forecasting .
Purpose of Demand Forecasting :- The purpose of demand forecasting is to find a business's potential demand so that managers can make accurate decisions about pricing , business growth and market potential .
Significance of demand forecasting :-
1- Demand Forecasting is used to decide the number of salesmen required to achieve the sales objective.
2- Demand Forecasting is used for determination of sales territories .
3- Demand Forecasting used to determine how much production capacity to be built up.
4- Demand Forecasting used for determining the pricing strategy .
5- Demand Forecasting used to decide the channels of distribution and to take physical distribution decision .
6- Demand Forecasting used to decide to enter a new market or not .
7- Demand Forecasting used to preparing the budget .
8- Demand Forecasting used to taking management decision .
9- Demand Forecasting used to evaluating performance .
10- Demand Forecasting used to fulfilling objectives of the business .
Scope of Demand Forecasting :- The scope of demand forecasting forecasting depends upon the operated area of the firm , forecasting can be at an international level if area of operation is international .
On the other hand if the area of operation is in local market then the forecasting will be of local market. For example if a company supplies its products on the international level then the forecasting will be at the international level.
Types of Demand Forecasting
There are two categories of demand forecasting -
1- Based on Economy
2- Based on the time period
1- Based on Economy
2- Based on the time period
1- Based on Economy :- On the basis of economy demand forecasting are of three types -
(i)- Macro level forecasting
(ii)- Industry level forecasting
(iii)- Firm level forecasting
(i)- Macro level Forecasting :- That demand forecasting which is based on the index of industrial production (IIP) , national income and general level of employment is known as macro level forecasting .
(ii)- Industry Level Forecasting :- The demand forecasting which deals with the demand for industry's production as a whole is known as industry level forecasting .
For example - Demand Forecasting of cement in India .
(iii)- Firm Level Forecasting :- The demand forecasting which deals with the demand for a particular firm's product is known as firm level forecasting .
For example - Demand forecasting of Birla cement .
2- Based on time period :- On the basis of time period demand forecasting are of two types -
(i)- Short - term forecasting
(ii)- Long - term forecasting
(i)- Short - term Forecasting :- THe demand forecasting which has a time period upto one year is known as short - term forecasting .
Use of Short - term forecasting -
* How much inventory of a particular product should be carried next month ?
* How much of each product should be scheduled for production next week ?
* How much of each raw material should be ordered for delivery next week ?
* How much workers should be scheduled to work on regular time basis and on overtime basis next week ?
* How many maintenance workers should be scheduled to work next weak ?
(ii)- Long - term Forecasting :- The demand forecasting which has the time period of two or more than two years is known as long term forecasting .
Use of long term forecasting :-
* Long - term forecasting used to select a production processing scheme.
* Long - term forecasting used to select a product design .
* Long - term forecasting used to select a plane to supply scarce materials .
* Long - term forecasting used to select a long range production capacity plane .
* Long - term forecasting used to select a long range financial plan for acquiring funds .
* Long term forecasting used to build new buildings and purchase new materials .
* Long term forecasting used to develop new sources of materials .
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