Methods of demand forecasting are important when estimating the future demand for a particular product. There are multiple methods of demand forecasting have been identified. However, only a few methods are been used in practical scenarios.
Out of all the methods of demand forecasting available, selecting the best type for the business is highly important for the business. Then the business has to decide the method that needs to be used to create the demand forecast. Below mentioned are the four most used demand forecasting methods.
01. Statistical Method
Statistical demand forecasting is considered a cost-effective and reliable demand forecasting method. It completely depends upon the historical data. When using data for this analysis method, three important characteristics are considered.
– good quality
– Necessary amount of history
– the type of data used as inputs to the statistical engine
The statistical method can be employed to forecast demand in two ways.
– Trend Projection
This is considered the easiest method of demand forecasting. The business uses the past data to identify the sales pattern throughout the time and predict the future demands based on the past sales patterns. When using past data the business should make sure to remove any irregular data.
– Regression Analysis
This method of demand forecasting enables business organizations to explore, identify and analyze the relationships between different variables related to the business functions. Those variables can be identified as sales, email signups, conversions, etc. By analyzing each variable, the available resources are allocated in order to maximize sales and profit.
02. Salesforce composite method
This method is also known as the ”Collective opinion” method of sales forecasting. According to this method, the business adds up the individual sales agents’ sales forecasts in their respective sales territories. It can be considered as a bottom-up sales approach where the employee level contributes to the demand forecast of the company.
The collected data from the sales agents are consolidated at different levels of the business organization and used to develop overall demand forecasting for the product. Since the sales agents have a better understanding of the sales and the customer behavior in their region, the collected data are considered accurate to generate an overall demand forecast.
03. Market research method
From all the methods of demand forecasting, this method is considered as one that mainly focuses on customer surveys as a demand forecasting tool. Surveys can be physical or online. In the modern business world, online surveys take a better and most effective approach when obtaining customer opinions about a product. Online surveys make it easy to target the customer audience and data analysis can be done with less time consumption.
Using surveys, forecasters can gain many valuable insights about the product as well as the changes that should be done to increase sales and profits. It will help to create a better picture about the customer perception and their expectation from the product and make necessary changes to production as well as marketing departments of the business organization.
04. Delphi Method
This is a demand forecasting method that uses the opinion of industry experts to build the forecast. This is done by assembling a panel of industry experts and sending a questionnaire to each expert in the panel. The collected results from each questionnaire are summarized by a facilitator and the summarized details are again given back to each panel member. Then the panel re-question their forecasts and revise their previous answers in order to improve the accuracy. This is revising and correcting is done for several rounds until the panel is satisfied with the forecasting.
Since the forecast is done by industry experts, this method is considered more informed and accurate.