Demand forecasting is similar to weather forecasting, except instead of predicting the weather, you are trying to predict retail trends to have an accurate amount of stock on hand. No business likes to have too much merchandise stored that isn’t moving or selling. It is not cost efficient or profitable. Trying to predict trends over long periods time is more difficult than in the short term due to variable market trends.
Demand forecasting in retail is used for short-term estimation of customer demand for goods and services. Additionally, predictive forecasting would vary from different types of businesses. A farmer may include previous drought patterns to consider the success of certain crops to where an electronics supplier would rely more on marketing research based on popular tech items that people are currently interested in.
Some popular methods for collecting this data include:
1. Test markets to check demands for certain goods or services
2. Looking at previous year’s sales trends in a particular market
3. Looking at competitors’ earnings in the same field of business
When looking at demand forecasting it is also important to consider factors such as turnover rates, risk assessments, capital expenditure, and profit margins. Based on the specific needs of a particular business, a customized model should be developed. You can also visit this site for more insight and tips on this topic: https://www.stitchlabs.com/learning-center/what-is-demand-forecasting-in-retail/.
Another important point to keep in mind is, the more accurate and extensive your data records are, the better the outcome of predicting future trends. This includes up-to-date inventory data, month to month sales and losses, over-head costs as well as changes in shipping costs and supplier rates. Economic data can be an integral part of your forecasting as well. Studying patterns in weather, recent consumer spending power, employment rates, and the general climate of the economy plays an important role as well. There are computer programs that can interpret a large amount of data accurately and create graphs to show where more money should be spent or retracted.
There are many different types of demand forecasting. A few that are most used are Qualitative forecasting. Used more for a new product or service where not much data is available. Expert opinions are used as well as marketing research are used to form quantitative estimations on demand. Another form is Predictive Analytics. This process uses a mathematical approach. This includes data from recent and historical trends, studying profit numbers and periods of high and low sales. The Delphi Method of forecasting is a way of surveying experts anonymously. Rounds of surveys are provided to experts until a general consensus is met. There are other methods besides what we mentioned, and it is important to find the right one for your type of business.
Implementing forecasting into your business plans can attribute to growth and longevity. This can be an integral and important tool in your arsenal for a successful business year after year. Although demand forecasting can help to improve sales, it is not foolproof. There is no exact science that can fully predict how a business will go any given year. With the right tools in place, you can set yourself apart from the competition and hopefully save your company some money while improving profits.