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DEMAND FORECASTING

Demand forecasting in supply chain management refers to the process of demand planning, or
predicting the demand of materials to ensure you can deliver the right products and in the right
quantities to satisfy customer demand without creating a surplus. Forecast error can result in
creating a surplus, which is both wasteful and costly.

TYPES OF DEMAND FORECASTING METHODS

The quantitative forecasting method, also known as passive demand forecasting, is used when
there is existing historical data on specific products and a pre-established demand. Passive demand
forecasting requires the use of mathematical formulations and data sets like financial reports, sales,
revenue figures, and website analytics.

The qualitative method, or active demand forecasting, on the other hand, relies on emerging
technologies (such as machine learning), pricing and availability changes, product lifecycle, product
upgrades and, most importantly, the intuition and experience of those planning the forecast.

Demand Forecasting Techniques

Within the sphere of qualitative and quantitative forecasting, there are several different demand
forecasting method options you can use:

 Collective Opinion, which leverages the knowledge and experience of a company’s sales
team to aggregate historical data on customer demand.
 Customer Survey Method, which provide key information on customer expectations,
desires, and needs. This data is useful for creating a sales forecast but is harder to predict
actual demand.
 The Barometric Method, is an active demand forecasting method that involves using
economic indicators to predict trends and measure current, past, and future activity.
 The Expert Opinion Method, which involves soliciting expert advice from external
contractors to determine future activity.
 The Market Experiment Method, which utilizes market experiments carried out under
controlled conditions to inform retailers on consumer behavior.
 The Statistical Method, is a demand forecasting method that allows a company to identify
and analyze the relationships between different variables, establish performance history
over time, identify trends and extrapolate potential future trends.
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HOW TO FORECAST DEMAND

 Collect the Right Data

 Adjust for Variables
 Document Sales and Demand Trends
 Budget, Purchase, and Allocate Accordingly