The demand forecast It consists of evaluating the future sales of one or more products, during a specific period of time. To make a forecast you need to access the manufacture of a budget or sales project, and from there make the following projections or budgets.
By calculating or forecasting future sales growth, you can calculate the amount of production, how much the costs will increase, and the cost effectiveness, how many workers need to be hired, among other things. In this way, it will be possible to control better, increase coordination, reduce risks and everything that is necessary to perform an excellent planning.
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In this article you will find:
Demand Forecasting Approaches
During practice, companies use two types of approaches which are:
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Qualitative demand forecasting approach
This type of approach presents:
1. Consult the sales force
This technique forecasts the demand by consulting each one of the sellers in relation to the estimation of future demands that will then have to be reviewed, since they are usually optimal and conservative.
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2. Consumer Market Surveys
Is survey provides the perception and opinion of various people to gather data for a specific objective. Mostly the objective is related to the forecast of demand, the promotion of new products or services and the perception of the client in front of an element and its competition.
3. Consensus groups
These are people who transmit their opinion in relation to a certain topic that induces a decision making. It can be applied through a meeting where various hierarchical levels of the company participate where consultations are made and then align the responses of all participants.
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4. Executive Opinion Jury
It is a technique widely used when acting quickly when promoting new products in the market, it is based on experience and technical knowledge of the company's high command levels, thus reaching an agreement in order to forecast the demand.
5. Delphi method
It is defined as the process that coincides with experts who seek to obtain a consensus on a particular problem.
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Quantitative demand forecasting approach
In this approach are:
1. Simple average
It is mostly used if seasonality is not detected in the demand, it is a simple method to do and very useful, since it provides stability to the demand over time.
2. Weighted average
This method facilitates the calculation of the selected forecasts with the greatest weight for the elements considered. This gives more importance to the trend and successful results.
3. Simple exponential smoothing
It is a method that does not require a large volume of historical data on demand, since each time it is perform the forecast calculations, the previous observation is removed and replaced by demand recent.
4. Double exponential smoothing
In this method, a delta smoothing is assigned that has the function of reducing the error that appears between the forecast and the actual demand.
5. Linear regression
It is a technique that forecasts demand, because it has the ability to group a variable that is dependent with another that is independent by means of a linear equation.
Steps to be followed to carry out a Demand Forecast
In order to make a demand forecast, it is necessary to take into account the following steps:
- Establish the objective and use of the forecast.
- Choose the aspects to be forecast such as the unit of measures to be used, the number of sales and income, etc.
- Calculate the time horizon of the forecast, everything will depend on the management of the function of the company and its product.
- Choose forecasting models, these can be qualitative or quantitative judgment methods.
- Collect data necessary for forecasting, such as surveys, sales records, and revenue counting.
- Make the forecast depending on the model, that way the procedure will be different.
- Certify and carry out the result, thus avoiding mistakes. It is very important to do checks afterwards between the actual demand and that which has already been forecast, this will confirm how well it is doing.
How to make a Demand Forecast?
A demand forecast is based on the projection of future sales in order to provide various cost estimates and sales approximation among other things.
By knowing each other, this will allow the company to have a small inventory that is sufficient to achieve a certain supply during sales and thus, product shortage will be avoided.
To be able to make a sales forecast that leads to a better production control and reduce sales risks, some methods such as the following can be applied:
Historical record analysis
This method needs to make a study of previous sales and based on them, focus on a project that assumes the monthly growth and stability of the product. To use this procedure, it is important that the company already has time executing its operations, this will allow an analysis to be carried out for an advantageous sale time.
Study of potential demand
This study is the maximum possibility of demand for offers similar to that of companies within a given market, this allows this method to assess the amount of the total that will be ordered according to own limitations such as working capital, supply and maximum production capacity and investments in marketing.
Market research
In this method, demand will be predicted by means of a market study, since in this system it is necessary to conduct surveys of potential customers, interview the competition and make some visits to similar businesses with the intention of making the average calculations of customers and consumption.
