Steps in Forecasting of Demand
The following steps are involved in forecasting demand for new product in market.
1. Determining the objectives
The first step in this regard is to consider the objectives of sales forecasting carefully.
2. Period of forecasting
Before taking up forecasting, the company has to decide the period of forecasting — Whether it is a short-term forecast or long-term research.
3. Scope of forecast
The next step is to decide the scope of forecasting— Whether it is for the products, or for a particular area or total industry or at the national/international level.
4. Sub-dividing the task
Sub-dividing the task into homogeneous groups, according to product, area, activities or consumers. The figure of sales forecasting shall be the sum total of the sales forecasts of all the groups.
5. Identify the variables
The different variables or factors affecting the sales should be identified so that due weightage may be given to those different factors.
6. Selecting the method
Appropriate method of sales forecasting is selected by the company taking into account all the relevant information, purpose of forecasting and the degree of accuracy required.
7. Collection and analysis of data
Necessary data for the forecast are collected, tabulated, analyzed and cross-checked. The data are interpreted by applying the statistical or graphical techniques, and then to draw necessary deductions there from.
8. Study of correlation between sales forecasts and sales promotion plans
Making the forecast reliable, the sales promotion plans such as advertising, personal selling and other sales programmes should be reviewed. A study of correlation between sales forecasts and sales promotion plans should be made in order to establish their role in promoting the sales.
9. Competitors activities
Volume of sales of a company is largely affected by the activities of competitors and, therefore, the forecaster must also study the competitors’ activities, policies, programmes and strategies.
10. Preparing final sales forecasts
The preliminary sales forecasts figure should be reviewed and final sales forecast figures should be arrived at after making all adjustments.
11. Evaluation and adjustments
The figures of final sales forecasts form the basis for the operations of the company in the next period. The actual sales performance in the forthcoming period should be reviewed and evaluated from time to time viz, monthly, quarterly, half-yearly or yearly and so on. The forecast figures should be revised in the light of difficulties experienced during actual performance. At the end of the forecast period, actual performance should be reviewed and rectified while forecasting the demand for the next period.
The following 11 steps are involved in forecasting demand.
- Determining the objectives
- Period of forecasting
- Scope of forecast
- Sub-dividing the task
- Identify the variables
- Selecting the method
- Collection and analysis of data
- Study of correlation between sales forecasts and sales promotion plans
- Competitors activities
- Preparing final sales forecasts
- Evaluation and adjustments