Demand Forecasting - Impacts and considerations

“Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase.” – Wikipedia

No single forecasting methodology is accurate. Following are some examples of impacts that demand forecasting has on business.

Effect on inventory

Forecasting decisions impact inventory of any company.  

1. If forecasting for demand of products are over estimated, this will result in products laying back in the storage facility.This can result in added costs. If the goods have a short expiry date for example, edible items, this will result in a loss for the company. Also, there may be added costs such as man-power required in moving this unused inventory to another location to make room for new products which are currently high in demand. 
2. Similarly, if forecasting for demand fells short, this will result in shortage in inventory which will further affect the consumer base.

International Forecasting

International Forecasting is really important for a business organization because of the diversity each country has when it comes to preferences and culture.

• For example, IPhone dominates the market in smartphones in China whereas IPhone is still struggling to find a big market share in India.
• Forecasting of such preferences and demands must be taken into account when dealing with international supply chain.

Accuracy of Data:

In today’s world of ever evolving Big Data aspects like consumer behavior patterns have helped in good forecasting of the demand of products. Problem here again is that any new piece of information or data might affect company’s prior forecasting estimations.   

Chapter 4 “Forecasting” from Course Pack states that forecasting depends on how accurate the data is. But the question still remains

    “How much data would you define to be termed accurate?”

References:

1) Chapter 4 : Forecasting – Course Pack

2) http://en.wikipedia.org/wiki/Demand_forecasting