Demand Forecasting: Definition, Benefits, and How to Calculate It

Knowing future needs or demand trends is one way for companies to become more competitive in the market. This can be done by analyzing historical data and creating demand forecasting.

To make demand forecasting results more accurate, companies need complete and structured data management. This process is generally carried out by implementing technology such as inventory software since operational data management is collected centrally and accurately.

Definition of Demand Forecasting

Demand Forecasting is the process of estimating the amount of demand for a product or service during a specific future period. This process uses historical data, market trends, and analysis of various factors that affect demand, such as seasonality, economic trends, consumer behavior, and market conditions.

The main purpose of demand forecasting is to provide accurate predictions to help companies plan production, inventory management, and marketing strategies.

Benefits of Demand Forecasting

Accurate demand forecasting provides several benefits for companies in managing warehouses. Here are some of the benefits of demand forecasting:

Optimizing Inventory Management

By knowing the estimated amount of market demand, companies can determine the right amount of stock. This helps companies prevent the risk of overstocking or stockouts in the warehouse.

Production Efficiency

For manufacturing companies, knowing the number of products needed to meet demand is crucial. This allows companies to prepare production planning optimally, improve cost efficiency, and maximize resources.

Better Cost Utilization

Demand forecasting helps allocate costs optimally so warehouse operations run smoothly. In addition, demand forecasting minimizes risks associated with excess or insufficient inventory.

Better Decision-Making

Demand forecasting provides accurate data for better business decision-making. With proper demand analysis, companies can take strategic actions to increase profits.

Improved Service

Accurate demand forecasting affects a company’s ability to fulfill orders. The ability to meet orders will impact customer satisfaction and build loyalty.

How to Calculate Demand Forecasting

There are several ways to calculate demand forecasting accurately. The difference in these methods depends on the company’s data and objectives. Here are some common formulas for calculating demand forecasting:

Moving Average

This method calculates demand forecasting using historical demand data to predict future demand by computing a moving average. Formula:

Moving Average = Previous Period Demand / Number of Periods

Linear Regression

This method uses the linear relationship between independent variables (e.g., time) and dependent variables (e.g., demand) to forecast demand. Formula:

𝑌 = 𝑎 + 𝑏𝑋

Where Y is the estimated demand, X is the time period, a is the intercept, and b is the slope of the regression line.

Autoregressive Integrated Moving Average (ARIMA)

Used for more complex time series data. This method combines autoregressive elements, integration, and moving average to provide demand forecasting.

Market Survey

Uses data from consumer or industry expert surveys to understand market demand trends. From the collected survey data, companies can classify feedback into concise and general categories.

Sales Force Composite

Similar to market surveys, this method forecasts demand by analyzing data from the sales team who directly interact with customers to predict future demand.

The Role of Inventory Software in Demand Forecasting

Inventory software greatly helps the demand forecasting process to produce accurate reports. This is because the software can manage demand and stock data in real-time. Here are some important roles of inventory software:

1. Inventory software can collect warehouse management and demand data in real-time, allowing companies to monitor and analyze demand changes.

2. With accurate demand forecasting, inventory software can automate stock reordering, reducing the risk of stockouts or overstocking.

3. Inventory software provides reports and analyses related to demand trends, stock levels, and monitors all warehouse activities, which is useful for company decision-making.

As one of the companies providing Inventory Software, Prieds offers technology that can be configured according to business needs, such as optimizing warehouse management and improving demand forecasting accuracy through hardware and software integration. Various features of Prieds Inventory Software can help companies run warehouse management more optimally.

You can learn more about accurate demand forecasting with inventory software by consulting with the expert team. Get a system equipped with complete features, top-level security, and ease of use tailored to your company’s needs with Prieds.