When you hear about forecasting, it is the act of predicting a trend or future event. If it is applied to determining the demand, it is called demand forecasting or demand estimation. Demand estimation is predicting the customer demand to optimize supply in the future.
Demand estimation is helpful because it can serve as the organization’s guide when it comes to the production process, purchasing of raw materials, managing the funds and deciding the product’s price. A company can forecast the demand through making estimates or seeking consultants/market research.
The essence of business is the demand. Without demand, any business will cease to exist. Forecasting demand has a role to reduce the risks entailed in business. It can also be the determining factor when it comes to making important business transactions or decisions. It is important that you understand the importance of forecasting demand. The importance of forecasting a demand is as follows:
It can help in accomplishing the goals
Before the business is fully operational, goals should be in place. Setting goals should be important because it is the reason why a company or business is built. Forecasting a demand is helpful in the sense that it can make estimates. If the organization is under-delivering it, the forecast will show and from that corrective action plans should be decided.
It can help in the preparation of the budget
Demand estimation can give the stakeholders idea of the costs and expected revenues. It is difficult to present something without numbers especially if it pertains to budget. To give other stakeholders idea of the cost, demand estimation can help.
It can help in the expansion of the business
It doesn’t mean that if the business is good you will start to think about expansion. Think about expansion after gathering figures made by demand estimation. The demand estimation will show if the products have higher demands. If there are higher demands, the organization may plan to expand. If there are lower demands, the organization may cut down the investment.
It can help in stabilizing the production and employment
The demand estimation can help the company decide whether to control production and recruitment or not. It is important that you produce according to the forecast to help minimize waste and decrease expenses of other resources.
It can help in evaluating the performance
You need to make sure that your business is doing well or not. If it is doing well based on its performance, expansion is in order. If it is not, the team will deal with corrective action plans.
It can help with management decisions
Demand estimation can help with management decisions in terms of deciding the capacity of the plant or the requirement of raw materials. It can also help ensure the availability of the capital and labor to be successful.
When dealing with demand estimation, one should know the short-term and long-term objectives because from there a company will decide its approach or methods. The concept is simple but it can make a difference at the end of the day. It is important that you know everything about demand estimation to understand the market.