Businesses face a lot of uncertainty. Most companies are required to make important decisions under risky and unstable circumstances. There are many outside factors, such as economic health and government actions, that can have a stark impact on the success of a business or product. For example, If you’re in the oil industry and the government decides to institute a carbon tax, your business could be in trouble. One of the ways companies combat risks and the many factors out of their control is using demand forecasting. Demand forecasting is a mathematical and systematic approach to analyzing the demand for a service or product under a future set of conditions.
Demand Forecasting: A Closer Look
In its most pure form, demand forecasting seeks to find the value and demand for goods or services in future time periods. Businesses rely on this essential technique for planning all details of their supply chains and business models. Using this analytic approach, businesses are able to purchase an accurate quantity of materials, manage their budgets, and set a competitive price for their products. Most companies rely on a combination of consultants and forecasting software for accurate demand insight.
The Importance of Demand Forecasting in Business
Without demand forecasting, it would be impossible for businesses to mitigate risks and combat uncertainty. Additionally, demand forecasting plays a fundamental role in assessing expansion objectives and important business decisions.
How Demand Forecasting Helps Businesses Meet Objectives
Most businesses set preliminary business objectives in the form of sales and expansion goals. A company will assess the current demand in its niche market and design a business plan to meet certain benchmarks. For example, if a company has the goal of selling 100 units of its products, it would use demand forecasting to assess the achievability of that goal. If demand forecasting predicts that the demand forecasting is low due to a recession, the company might increase its marketing to achieve its original goal.
Demand Forecasting and Expanding Businesses
Companies can also use demand forecasting practices to help expand their business. If the analysis shows that the demand for their service is up, companies can adjust production to expand their revenue.
Businesses today have more tools than ever before to make strategic decisions. Although risk and uncertainty will always be present, companies can use demand forecasting to intimately understand how to expand their business and meet sales objectives. Consultants and forecasting software are great ways to optimize the information this technique can provide.