Methods of Demand Forecasting

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One of the best predictors of future trends is past behaviors and this is especially true when it comes to demand forecasting.

Providing businesses with robust, actionable knowledge is not only the hallmark of a leading business but also is a necessity in these increasingly competitive times.

In other words, firms that master the art and science of demand forecasting will have a marked edge over other market players.

We’ll outline some of the major contours of demand forecasting as well as briefly explain how each is applied in practice.

Quantitative Methods of Forecasting

The major difference between quantitative and qualitative methods of forecasting demand is that one involves intuition and a broad range of elements in its analysis while the other relies upon numbers and historical analytical data.

As you can probably imagine, quantitative demand forecasting involves the latter. One way to do this is called trend projection wherein an analyst uses past data to project into the future what the business’ demand will look like.

This analysis simulates historical conditions as a proxy for future events. Barometric projection methods use the current moment in the economy to draw projections for future market behaviors.

Key elements in this analysis will include not only the firm in question’s historical data but the overall market as well as the broader economy. Econometric methods of demand projection use factors that impact demand for a certain item in order to project what current or future demand for that item might be.

Qualitative Methods of Forecasting

Qualitative methods of forecasting, as outlined above, rely upon experiential input and a more holistic process than pure data. A popular method utilized by many firms is the Delphi method wherein each member of a decision-making group conducts his or her own research to come to a conclusion. The group discussion of the issue leads to the formation of a consensus decision and plan of action.

Another method utilized by large sales teams is the sales force method wherein various levels of sales managers request input from downstream employees. This input includes data about past sales as well as individual projections for the future.

All of these inputs are then synthesized into a larger recommendation for decision-making managers. Finally, the market research method involves polling, questioning, and testing of a segment of the market base for data.

Product Demand Forecasting

Product demand forecasting models rely upon what is called the lifecycle of the product in order to project what future demand might be for it. A very data-intensive approach, product demand forecasting now utilizes sophisticated artificial intelligence and computer tools to help managers and executives make timely, robust market decisions.

Forecast and Demand Planning

While linked, these two phenomena are actually separate mechanically. Forecasting involves the use of data to predict future behaviors while the planning side of things is the implementation and adjustment of those predictions based upon current market forces and business needs. Working together, these two things help produce a company’s general future direction with regard to production and strategy.