What Is Demand Forecasting? And Why It Is Important For Your Business
Demand forecasting, also known as sales forecasting, refers to the process of making estimates about future customer demand over a certain time period. It uses historical data along with other information.
When demand forecasting is correctly implemented, businesses have valuable information about their potential in the current market as well as other markets so managers can make informed decisions about business growth strategies, pricing, and Market potential.
Failing to use demand forecasting puts businesses at risk for making poor decisions about their target markets and products. These ill-informed decisions can have far-reaching effects on customer satisfaction, supply chain management, inventory holding cost, and ultimately profitability.
Reasons Why Demand Forecasting Matters
There are many reasons why demand forecasting is an important process for companies:
- With sales forecasting, businesses have information to assist with planning, goal setting, and budgeting. With a good understanding of what your future sales may look like, it’s possible to build and informs procurement strategy to ensure your supply matches customer demand, at the specific product level.
- Organizations can more effectively optimize their inventory levels, increase inventory turnover rate, and reduce holding costs.
- With sales forecasting, businesses are also able to identify and rectify any issues in the sales pipeline ahead of time to keep business performance study throughout the entire period. In terms of inventory management, most e-commerce business owners know that too little or too much inventory can be detrimental to operations.
- Demand forecasting provides insight into your upcoming cash flow so businesses can more accurately budget payments for suppliers and other operational costs, while still investing in the growth of the business.
- Anticipating demand means knowing when to increased staff and allocate other resources to ensure operations run smoothly during peak activity periods.