Is it possible to make future predictions? Most economists, stock traders, meteorologists, and of course, fortune tellers, make their living in that manner. Astute eCommerce companies are also joining in the fun and attempting to forecast demand to predict the future. Let us examine the diverse types of demand forecasting, as well as demand forecasting methods, advantages, uses, and more.
Six Types of Demand Forecasting
There are many ways to conduct demand forecasting; to get the most precise, complete picture of upcoming sales, you might even think about using more than one of these six methods:
1. Forecasting Passive Demand
Utilizing historical sales data to forecast future sales data does not require statistical techniques or analysis of economic trends. Therefore, even though this makes passive data forecasting simple, it only benefits companies that have a wealth of historical data.
Only businesses that want steady sales growth rather than rapid sales growth should use the passive model, which relies on the premise that this year’s sales data will be like last year’s sales data.
2. Forecasting Active Demand
Startup businesses and organizations that are expanding quickly frequently use active demand forecasting. In addition to considering aggressive growth strategies like marketing or product development, the active approach also considers the industry’s overall competitive environment, which includes the economic outlook, market growth projections, and other factors.
3. Forecasting Near-term Demand
To guide the day-to-day, short-term demand forecasting looks at a brief window of time (e.g., it may be used to look at inventory planning for a Black Friday promotion). Managing a just-in-time (JIT) supply chain or a constantly changing product lineup can also benefit from it. Most companies, though, will only combine it with longer-term projections.
4. Demand Long-Term Forecasting
To identify and plan for seasonality, annual patterns, and production capacity, long-term demand forecasting is done for a period longer than a year. A long-term forecast is like a blueprint; by looking further into the future, businesses can concentrate on determining the growth trajectory of their brands, developing their fulfillment marketing strategy, scheduling capital investments and expansion plans, and more to get ready for future demand.
5. Forecasting Macro- and Micro-Demand
At the macro level, demand forecasting considers external factors that affect business, such as the economy, competition, and consumer trends. Understanding these forces enables companies to do things like forecast upcoming financial difficulties or shortages of raw materials, identify opportunities for product or service expansion, and more. Even if your business prioritizes stability over growth, keeping an eye on outside market forces can keep you informed about potential problems that could affect your supply chain.
Demand is still external at the micro level, but it focuses on the specifics of one industry or customer group (for example, projecting demand for organic peanut butter among millennial parents in Austin, Texas).
6. Forecasting Internal Demand
Internal capacity is a constraint on business growth. For example, if you predict that customer demand will triple over the next three years, does your company can meet that demand? Internal forecasting allows for identifying all operational needs that could impact future sales. For instance, demand forecasting in human resources could help determine the number of new employees needed over the next three years to maintain operations and meet customer demand.
Conclusion
Sales or demand forecasting is a wonderful way to foresee what customers will want from your business in the future so you can make sure there is enough inventory and resources to meet that demand. With forecasting, you can cut costs for inventory and other operations without sacrificing effectiveness or quality. It guarantees that you have what it takes to effectively manage demand spikes when they occur.
