Demand forecasting

Demand forecasting

Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market.


Necessity for forecasting demand

Often forecasting demand is confused with forecasting sales. But, failing to forecast demand ignores two important phenomena.[1] There is a lot of debate in demand-planning literature about how to measure and represent historical demand, since the historical demand forms the basis of forecasting. The main question is whether we should use the history of outbound shipments or customer orders or a combination of the two as proxy for the demand.

Stock effects

The effects that inventory levels have on sales. In the extreme case of stock-outs, demand coming into your store is not converted to sales due to a lack of availability. Demand is also untapped when sales for an item are decreased due to a poor display location, or because the desired sizes are no longer available. For example, when a consumer electronics retailer does not display a particular flat-screen TV, sales for that model are typically lower than the sales for models on display. And in fashion retailing, once the stock level of a particular sweater falls to the point where standard sizes are no longer available, sales of that item are diminished.

Market response effect

The effect of market events that are within and beyond a retailer’s control. Demand for an item will likely rise if a competitor increases the price or if you promote the item in your weekly circular. The resulting sales a change in demand as a result of consumers responding to stimuli that potentially drive additional sales. Regardless of the stimuli, these forces need to be factored into planning and managed within the demand forecast.

In this case demand forecasting uses techniques in causal modeling. Demand forecast modeling considers the size of the market and the dynamics of market share versus competitors and its effect on firm demand over a period of time. In the manufacturer to retailer model, promotional events are an important causal factor in influencing demand. These promotions can be modeled with intervention models or use a consensus to aggregate intelligence using internal collaboration with the Sales and Marketing functions.


No demand forecasting method is 100% accurate. Combined forecasts improve accuracy and reduce the likelihood of large errors. Reference class forecasting was developed to reduce error and increase accuracy in forecasting, including in demand forecasting.[2][3]

Methods that rely on qualitative assessment

Forecasting demand based on expert opinion. Some of the types in this method are,

Methods that rely on quantitative data

Ex post studies of demand forecasts

Ex post studies compare actual with predicted outcomes of forecasts. Such studies generally find demand forecasts to be highly inaccurate. For instance, a statistically valid study of demand forecasts in 210 large public works projects, led by Oxford University professor Bent Flyvbjerg, found that for rail projects the average demand (passenger) forecast was overestimated by a full 106 percent. For roads, half of all demand (vehicle) forecasts were wrong by more than 20 percent; a fourth of forecasts were wrong by more than 40 percent.[4]

See also


  1. ^ Forecasting Demand(Aug 05, Oracle Retail
  2. ^ Flyvbjerg, Bent (2008) "Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice.", European Planning Studies, 16 (1), 3-21
  3. ^ Armstrong, J.S; Green, K.C. (2005) "Demand Forecasting: Evidence-based Methods". In: Luiz Moutinho and Geoff Southern (Eds) Strategic Marketing M.anagement: A Business Process Approach
  4. ^ Flyvbjerg, Bent, Mette K. Skamris Holm, and Søren L. Buhl, 2005, "How (In)accurate Are Demand Forecasts in Public Works Projects? The Case of Transportation." Journal of the American Planning Association, 71, (2), 131-146.

Wikimedia Foundation. 2010.

Игры ⚽ Поможем решить контрольную работу

Look at other dictionaries:

  • demand forecasting — noun (in marketing) finding out what the demand for a product, etc will be at various selling prices so as to discover at which price the greatest profit will be made • • • Main Entry: ↑demand …   Useful english dictionary

  • demand forecasting — /dɪ mɑ:nd ˌfɔ:kɑ:stɪŋ/ noun estimating what demand would exist at various prices, used as a method of calculating prices …   Marketing dictionary in english

  • Demand sensing — is a next generation forecasting method that leverages new mathematical techniques and near real time information to create an accurate forecast of demand, based on the current realities of the supply chain. The typical performance of demand… …   Wikipedia

  • Demand Solutions — Type Supply chain management software Founded 1985 Headquarters St. Louis, Missouri United States Area served Americas, EMEA, Asia Pacific Key peo …   Wikipedia

  • Demand chain — The Demand chain is that part of the value chain which drives demand. Contents 1 Concept 2 Demand chain challenges 3 Linking demand and supply chains 4 Demand chain …   Wikipedia

  • Demand management — See also: Energy demand management Demand management is a planning methodology used to manage forecasted demand. Contents 1 Demand management in economics 2 Demand management in business 3 See also …   Wikipedia

  • Forecasting — is the process of estimation in unknown situations. Prediction is a similar, but more general term. Both can refer to estimation of time series, cross sectional or longitudinal data. Usage can differ between areas of application: for example in… …   Wikipedia

  • Demand articulation — is a concept developed within the scientific field of innovation studies which serves to explain learning processes about needs for new and emerging technologies.[1] Emerging technologies are technologies in their early phase of development,… …   Wikipedia

  • Demand chain management — is aimed at managing complex and dynamic supply and demand networks.[1] (cf. Wieland/Wallenburg, 2011) Demand chain management is the management of upstream and downstream relationships between suppliers and c …   Wikipedia

  • Demand Chain Management — (DCM) ist das Management der Beziehungen zwischen Lieferanten und Kunden um die Nachfrage der Kunden durch die Supply Chain bestmöglich und zu den geringstmöglichen Kosten zu erfüllen. Der Begriff Demand Chain Management bedeutet insoweit… …   Deutsch Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”