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What is demand forecasting and how can it help your business?

Demand forecasting is the process by which the future requirement for any product or service is estimated. Providing the suppliers, a heads-up on the demand forecast helps in matching the demand and supply and also in reducing the system-wide inventory.

By using demand forecasting, a business can predict the future demand for a specific product or service using past sales data and other information. Demand forecasting is a valuable business tool with which a business can understand the potential sale a company can make in the future. It is helpful for the management to make informed decisions about various business functions such as market potential, pricing and growth.

Without proper demand forecasting, it is difficult for a business to make decisions about the target market, customers, and various other business functions. Ill-informed decisions that are not driven by data can potentially damage a company's prospects over the long term. For instance, a business will incur higher costs across areas such as inventory holding, supply chain management and customer satisfaction.

Demand forecasting can either be qualitative, time series, or causal. Qualitative forecasting is usually used for relatively new businesses that do not have enough data to work with. Time series analysis is used for companies that have enough historical data. This type of analysis can also account for seasonal fluctuations and cyclical patterns. The causal model uses specific information that is affecting demand in the market such as historical data.

Demand forecasting can help ascertain the future cash flow, the budget required to pay suppliers, and other operational costs related to a business. The ability to anticipate future demand correctly also provides the required lead time to a company to ascertain the staffing requirements and ensure that the operations are running smoothly, even during peak cycles.

Learn more about GEP’s demand forecasting software.

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