Demand Forecasting
Objectives (Importance) of Demand Forecasting
Demand forecasting is an inseperable part of a modern day business management. The business houses spend large amounts of money on demand forecasting. The importance of Demand Forecasting arises from out of the objectives served by it. The prominent objectives can be described as follows 1. Planning production :- In a modern economy, the production of any commodity is uindertaken in anticipation of demand. The firm produces in advance and keeps the product ready. It is displayed and advertised so as to attract buyers. If the quantity sold is less than the quantity produced, the firm will go into a loss. On the other hand, if the quantity produced is less than what is demanded, the producer misses the chance of producing more, selling more and earning more. Hence, every firm makes an attempt to forecast demand and produce accordingly. If the producer anticipates a demand for X units of the commodity, he will arrange to produce X units or a little more. Thus, the chances of making a profit depends upon the accuracy of demand forecasting. 2. For Ordering Inputs :- This is an extension of the first objective. After ascertaining the quantity of the commodity likely to be demanded, the producing firm can calculate the quantities of the different inputs which it will require for producing the fixed commodity. It is necessary to order the inputs well in time that enables the producer to get the inputs at proper prices. If the inputs are purchased in excess quantities, the producer will have to store them – that will increase the cost of storage and perhaps a deterioration in the quality of the commodity. If the quantities of the inputs purchased are less than required, the production programme may be held up. Hence, demand forecasting is the base on which the producer takes decisions about the quanitities of the inputs to be purchased. 3. To arrange for working capital :- A firm requires working capital for
Demand forecasting is an inseperable part of a modern day business management. The business houses spend large amounts of money on demand forecasting. The importance of Demand Forecasting arises from out of the objectives served by it. The prominent objectives can be described as follows 1. Planning production :- In a modern economy, the production of any commodity is uindertaken in anticipation of demand. The firm produces in advance and keeps the product ready. It is displayed and advertised so as to attract buyers. If the quantity sold is less than the quantity produced, the firm will go into a loss. On the other hand, if the quantity produced is less than what is demanded, the producer misses the chance of producing more, selling more and earning more. Hence, every firm makes an attempt to forecast demand and produce accordingly. If the producer anticipates a demand for X units of the commodity, he will arrange to produce X units or a little more. Thus, the chances of making a profit depends upon the accuracy of demand forecasting. 2. For Ordering Inputs :- This is an extension of the first objective. After ascertaining the quantity of the commodity likely to be demanded, the producing firm can calculate the quantities of the different inputs which it will require for producing the fixed commodity. It is necessary to order the inputs well in time that enables the producer to get the inputs at proper prices. If the inputs are purchased in excess quantities, the producer will have to store them – that will increase the cost of storage and perhaps a deterioration in the quality of the commodity. If the quantities of the inputs purchased are less than required, the production programme may be held up. Hence, demand forecasting is the base on which the producer takes decisions about the quanitities of the inputs to be purchased. 3. To arrange for working capital :- A firm requires working capital for