Forecasts can be generated through mathematical models, which use historical data by qualitative methods, such as management experience or expert opinion or even a combination of both.Some of the questions we seek to answer when making such predictions are “when”, “where”, and “how much”.
It is important to note that predictions are not targets, but rather estimates of what will happen. Forecasting results aid businesses in planning their decision making. Therefore, a good demand forecasting process needs to produce good estimates. How important is Demand Forecasting?ĭemand Forecasting is an important activity that influences companies from different segments, such as: retail, consumer goods, pharmaceutical industry, automotive electronics, heavy machinery among others.ĭemand forecasting is used for business planning, as every plan involves estimates about this type of forecast. Thus, the predictions are of importance, as they enable managers to plan more assertive activities toward the strategic goals of the business. It is also useful for the tactical and strategic process of companies.
Managers and decision makers utilize demand forecasts on their daily activities. These predictions can also be used as inputs for the sales and marketing teams to create insights into demand generation and organize their actions.īusinesses, in general, need to make forecasts about their products to prepare an effective plan in both short and long term. With that in mind, demand forecasts are crucial for companies, as they affect inventory planning, logistical planning, production planning, cash flow planning, hiring decisions, purchasing decisions, among others. Poor or absent forecasting can lead to bad decisions. So, without good demand forecasting, businesses would be poorly preparing themselves for the future events. Benefitsīetter forecasts can result in better service levels, customer retention, cost savings, waste reduction (excess inventory and unsold products). In addition, the need for emergency production to meet unexpected demand is relieved, because, with predictions, companies can plan and make decisions that allow a better response. Not being prepared for the demand can cause incalculable losses, such as the reduction in market share.
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