The Demand forecasting process of an organization can be effective only when it is conducted systematically and scientifically.
1. Setting the Objective:
Refers to first and foremost step of the demand forecasting process. An organization needs to clearly state the purpose of demand forecasting before initiating it.
Setting objective of demand forecasting involves the following:
1. Deciding the time period of forecasting whether an organization should opt for short term forecasting or long-term forecasting
2. Deciding whether to forecast the overall demand for a product in the market or only for the organizations own products
3. Deciding whether to forecast the demand for the whole market or for the segment of the market
4. Deciding whether to forecast the market share of the organization
2. Determining Time Period:
Involves deciding the time perspective for demand forecasting. Demand can be forecasted for a long period or short period. In the short run, determinants of demand may not change significantly or may remain constant, whereas in the long run, there is a significant change in the determinants of demand. Therefore, an organization determines the time period on the basis of its set objectives.
3. Selecting a Method for Demand Forecasting:
Constitutes one of the most important steps of the demand forecasting process Demand can be forecasted by using various methods. The method of demand forecasting differs from organization to organization depending on the purpose of forecasting, time frame, and data requirement and its availability. Selecting the suitable method is necessary for saving time and cost and ensuring the reliability of the data.
4. Collecting Data:
Requires gathering primary or secondary data. Primary‘ data refers to the data that is collected by researchers through observation, interviews, and questionnaires for a particular research. On the other hand, secondary data refers to the data that is collected in the past; but can be utilized in the present scenario/research work.
5. Estimating Results:
Involves making an estimate of the forecasted demand for predetermined years. The results should be easily interpreted and presented in a usable form. The results should be easy to understand by the readers or management of the organization.