Running Head: DEMAND FORECAST 1

Demand Forecast

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Demand Forecast

Business organizations often encounter several external and internal risks, including

inflation, high competition, economic recession, change in government policies, and labor unrest.

However, these organizations can lower the impacts of risks by defining the prospects of future

demand for their services and products through demand forecasting. Demand forecasting, as

such, refers to the estimation of demand during a particular period grounded on a marketing plan

and competitive and uncontrollable forces. It attempts to comprehend and predict a consumer’s

behavior, thus optimizing supply decisions through business management and corporate supply

chain. Therefore, demand forecasting enables organizations to make different business decisions

such as deciding the price of products, managing funds, purchasing raw materials, and planning

the production process.

A business that lacks demand forecasting will make poor decisions regarding its target

market and products (Suganthi & Samuel, 2012). Furthermore, this would lead to misinformed

managerial choices that negatively affect their customers’ satisfaction, profitability, and overall

supply chain management. Demand forecasting is essential because it aids business organizations

in the formulation of production policies. It also assists in covering the gap between a product’s

supply and demand. Demand forecasting enables business managers to estimate the number of

raw materials required in the future to sustain a consistent supply of raw materials. It also aids in

the maximization of the utilization of resources. This is because operations in the organization

are prearranged according to forecasts. Additionally, demand forecasting helps a business

organization efficiently optimize inventory, improve their turnover rates and lower any holding

costs towards a commodity (Suganthi & Samuel, 2012). Therefore, the demand forecasting
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process is crucial in any business that targets increasing profitability and meeting customers’

demands.

Crucial elements when creating a demand forecast

Business organizations, including distributors and wholesalers, entirely depend on

demand to make profits for their business. Companies usually spend ample time altering their

business strategies, evaluating data, and analyzing previous sales to maximize profits and

enhance sustainability. Therefore, some elements are crucial in formulating demand and are

discussed below.

a) Relevant merchandise history

Past product data is the backbone for predicting future trends. Similarly, data on sales

obtained from previous dates can act as a predictor of future sales. However, not all data is

relevant to demand to forecast. Business analysts must select the suitable period and vital

statistics to predict the demand. An individual who chooses outdated data unrelated to modern-

day needs is likely to formulate an inaccurate forecast. Similarly, the same scenario could occur

if the business institution gathers inadequate information to generate a demand forecast. In

demand forecasting, while sales-based data illustrates how sales were at a particular time,

demand-based data shows the actual potential in a market. However, to develop a consistent

estimate, business organizations should utilize demand-based data. With such data, the business

organization can analyze the demand for a product against time. Therefore, business

organizations must effectively build a demand forecast with relevant product history, sales data,

and inventory data to predict future trends.

b) Internal trends
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Internal trends are traits determining the consumption of a commodity on the foundation of

historical data. Business organizations must build into their demand forecasts an estimation of

causal impacts from interior trends. The trends involve factors such as slow turnover, fixed

capital, seasonal market due to product type. These trends help reflect patterns of sales of a

particular product. Sales patterns sometimes rise during specific periods and fall during other

periods (GMDH, 2021). These patterns aid business organizations in optimizing their business

depending on those patterns. For instance, in the summertime, winter products will rarely sell.

With demand forecasting, it is vital to choose the relevant techniques and models for predicting

sales patterns. Also, it is crucial to understand which design is essential to the business. Selecting

the wrong method would influence the accuracy of the forecast. Failure to comprehend the

pattern may lead to fixed capital, slow turnover, loss of sales, and dissatisfied customers. The

best approach to demand forecasting is time series decomposition. The model is appropriate

because it consists of components built for a specific trait of a sales pattern.

c) External trends

External trends are less predictable, more challenging to incorporate into the

demand forecast, and often compel corporate organizations to re-forecast. Therefore,

business organizations that re-forecast and address the fluctuating external trends such as

changing political climate or an economic recession are more likely to be successful.

Because of the economy, the business should mention occasional economic boosts and

unexpected crises (GMDH, 2021). Business organizations must quickly identify aspects

that may influence demand, including new events, natural catastrophes, and other

unanticipated issues. For this to happen, the organizations must have a principal source of
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all their data to develop a precise forecast and become accustomed to varying market

situations to meet the demands of their customers.

d) Events and promotions

Several promotions and events have a considerable influence on the future demand of a

commodity. An occasion such as Christmas, for instance, generates additional sales during that

period at a smaller margin. Also, time-bound promotions such as Black Friday aid in increasing

the sales of that product. The increase in sales is part of the prediction, or else the targets would

not be met. Business organizations can utilize this information in the creation of a demand

forecast. It is crucial to generate a good forecast for those events to complete the set goals.

Therefore, business organizations have to analyze previous events to formulate an accurate

forecast.

Operational data issues

Business organizations often face significant issues when collecting quality and

consistent data for demand forecasting. To generate methods to improve data collection

processes, it is relevant to recognize the barriers to collecting operational data. Inconsistent data

collection standard is one of the barriers to collecting operational data (WIPFLI, 2018). Failure

to utilize a standardized method of collecting data may influence the data being collected and

thus provide inaccurate information, thus leading to erroneous forecasts. When gathering

operational data for the demand forecast, one key issue that business organizations must

deliberate on is the reliability and validity of the data. While validity focuses on ensuring that a

business organization collects the correct operational data, reliability focuses on the consistency

of the data. To measure the level of reliability of the data, business organizations must consider
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repeatability from several measurements. A valid and reliable operational data ensures the

creation of an accurate demand forecast. Another critical issue that business organizations must

reflect on when collecting operational information for the demand forecast is the accuracy of the

data. The data collection method that provides the most accurate results must be considered

when collecting data. Therefore, these key considerations will create a demand forecast that

enables data-driven business decisions based on future sales potential, inventory levels, and

purchase trends to maximize revenue.

Market response model in the demand forecast

Market response models have been generated to assist in forecasting and planning. The

primary reason why market response plays a crucial role is that they help perform tasks for the

managers (Hanssens et al., 2005). They analyze sales of a particular product. All organization

wants to realize and forecast their performance and how it is affected by several issues. Market

response models help define specific performance measures of significance including, sales,

earnings, and levels of planning. Therefore, I would use a market response model to recognize

certain factors that affect the performance measure, for instance, competition and market mixing.

Marketing response models also help pervade planning with logic and discipline (Hanssens et al.,

2005). Meaningful forecasts depend on market response models to avail data to be analyzed.

Marketing response models help business operations segment customers and forecast their

lifetime value for direct aiming purposes.

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References

GMDH. (2021). 4 Crucial Elements of Demand Planning in 2021. GMDH.

https://gmdhsoftware.com/demand-planning/

Hanssens, D. M., Leeflang, P. S. H., & Wittink, D. R. (2005). Market response models and

marketing practice. Applied Stochastic Models in Business and Industry, 21(4-5), 423–

434. https://doi.org/10.1002/asmb.584

Suganthi, L., & Samuel, A. A. (2012). Energy models for demand forecasting—A review.

Renewable and Sustainable Energy Reviews, 16(2), 1223–1240.

https://doi.org/10.1016/j.rser.2011.08.014

WIPFLI. (2018). The Top 5 Forecasting Problems Your Business May Face — and How to

Tackle Them - Wipfli. Www.wipfli.com. https://www.wipfli.com/insights/articles/mad-

aa-the-top-5-forecasting-problems-your-business-may-face-and-how-to-tackle-them