Explain The Steps / Process of Demand Forecasting In Detail?

• The objective of demand forecasting is achieved only when forecast is made systematically and scientifically and when it is fairly reliable.
• The Following steps are generally taken to make systematic demand forecasting

1. SPECIFYING THE OBJECTIVE
2. DETERMINING THE TIME PERIOD
3. SELECTING METHOD FOR DEMAND FORECASTING
4. COLLECTION OF DATA & DATA ADJUSTMENT
5. ESTIMATION & INTERPRETATION OF RESULTS

SPECIFYING THE OBJECTIVE

• The objective or purpose of demand forecasting should be clearly specified. The objective may be in terms of 
• Short term or Long term Demand
• The overall demand for a product or for firm's own product
• The whole or only a segment of the market for its product
• Firm's market share
• The objective of demand forecasting should be determined before the process of forecast is started

DETERMINING THE TIME PERIOD

• Depending on the firm's objective, demand may be forecast for short term i.e. for next 2-3 years or for a long period
• In demand forecasting for a short period of 2-3 years, many determinants of demand can be taken to remain constant or not to be change significantly.
• In the long run, however, demand determinants may change significantly. Therefore, the time perspective of demand forecasting must be specified.

SELECTING METHODS FOR DEMAND FORECASTING

• There are number of methods available to forecast the demand.

• However, all methods are not suitable for all kinds of demand forecasting because the purpose of forecasting, data requirement of a method, availability of data and time frame of forecasting very from method to method.

• The demand forecasting has therefore to choose a suitable method keeping in view his purpose and requirements.

• The choice of forecasting method is generally based on purpose, experience and expertise of the forecaster. it depends also to a great extent on the availability of required data

• The choice of suitable methods saves not only time and cost but also ensures reliability of forecast to a great extent.

COLLECTION OF DATA & DATA ADJUSTMENT

• Once methods demand forecasting is decided, next step is to collect required data-primary or secondary or both.
• The required data is often not available in the required mode. In that case, data needs to be adjusted- even message, if necessary- with the purpose of building data series consistent with data requirement.
• Sometimes the required data has to be generated from the secondary sources.

ESTIMATION & INTERPRETATION OF RESULTS

• As mentioned above, the availability of data often determines the method and also the trend education to be used for demand forecasting.
• Once required data is collected and forecasting method is finalized, the final step in demand forecasting is to make the estimate of demand for the predetermined years or the period.
• Where estimates appear in the form of education, the results must be interpreted and presented in a usable form.