Demand Business Forecasting - Coursework Example

Assignment: Report Topic: Demand Forecasting Student’s Name: Course Code: Date of Submission: Introduction Business organizations operate in environments full of internal and external uncertainties which include failure of technology, inflation, fluctuations in the labour market, economic crunch, high competition and political instability. Hence business plans are formulated amidst all these. Organizations can overturn these uncertainties and risks by predicting the future demand or sales of its products and services otherwise what is commonly referred to as demand forecasting. Demand forecasting is thus an ordered process that entails predicting the demand for the products and services of an organization in future in the midst of uncontrollable factors (Nitisha 2013). It is a process of finding values of demand of products and services in future time periods. According to Moon (2013), demand forecasting is the organization’s best guess about the trend the customer demand will exhibit in the future time periods. Demand forecasting helps the organization to be better placed for future market conditions as information gathered from the process of forecasting will be able to provide answers to such questions as what will be the profit in the coming period? what will the demand of given products and services look like in the future? among others (Hart, Rasner and Lukosvova 2012). This report will report on the importance of demand forecasting, its relevance to supply chain management at strategic, tactical and operations levels. It was also give findings on challenges and issues in demand forecasting as well as the benefits associated with demand forecasting to an organization. Importance of demand forecasting In most cases when firms face difficulties in their operations they tend to attribute those predicaments to poor or no forecasting at all. This wouldn’t be far from the truth. Demand forecasting is an integral part in any business organization. One of the reasons as to why demand forecasting is that through forecasts firms become aware of the probable demand. Firms are made aware of the amount of products and services that will be required in the near future and thus gather the necessary resources required to make sure that such amounts are available in the future (Hussain 2010). When the demand forecasting is done accurately it helps the firm to produce only the required quantities of goods and services and enables the firm to also plan well in advance for the various factors of production. In essence it enables the firm to have in place a suitable production policy. Forecasting determines the amounts that should be produced, purchased and shipped (Caplice 2003). Demand forecasting is also a very important undertaking as it helps the firm to gauge its labor requirements in the future. It thus can as well forecast future recruitment. Through demand forecasting the firm is made aware of how many employees are needed in the future so it can embark on the selection and recruitment process of the laying off process (Hussain 2010). Demand forecasting data are utilized by firms to estimate future capacity requirements and thus prepare well in advance for the same (McNamara 2013). Because the demand for commodities and services vary from month to month, the firm might be required to scale up or down the workforce through overtime, reassignment, layoffs or new recruitments. In the faculty of resource allocation and investment, demand forecasting is also important. Demand forecasting reveals new avenues to generate income from and thus informs the decision of the organization to venture into new markets. It also reveals the enterprises that are likely to rake in more in terms of returns and thus informs the decision of the management to allocate more resources to such enterprises (Hussain 2010). Investing in the right enterprises ensures that resources are not wasted by investing them in enterprises that won’t create value to the money invested thus demand forecasting ensures that the right amount of resources are invested in the right ventures (Chopde 2014). Demand forecasting is very important since it ensures customer satisfaction and satisfied customers will develop confidence in such firms in delivering on time and meeting their needs whenever they arise. That results in the retention of customers. Producing finished goods takes time, hence demand forecasting becomes necessary and ensure goods are ready whenever the customer needs them ensuring that customers’ needs are met. This production of goods well in advance was informed by demand forecasting (Caplice 2003). Thus demand forecasting leads to high levels of customer satisfaction. Demand forecasting also indicates to such aspects of importation. Through the demand forecasting data the government is able to tell whether the domestic production will be enough to meet the projected demand and if not, then arrangements are made well in advance to import some of the products or services from outside to take care of the extra demand. And if there will be a surplus in production, then the government can come in and facilitate the export of the same through the provision of export incentives (McNamara 2013). Demand forecasting also informs organizations when it comes to setting prices for the commodities and services. Projected future demands will inform firms in coming up with prices of their commodities and services (Chopde 2014). Demand forecasting is important in that the estimate of future demand for a given commodity indicates the demand for other products. Relevance of demand forecasting to supply chain management In supply chain management, demand forecasting is very important at all levels, including strategic, tactical and operations levels. Strategic relevance of demand forecasting has to do with long term and large plans for the organization for future oriented, competitive success and it entails allocation of the firm’s resource in achieving long term goals (Rothwell and Kazanas 2003). In strategy demand forecasting helps the firm to set goals and objectives. The forecasting statistics guide the firm in formulating attainable and more realistic goals. Forecasts can be used by the firm as benchmarks for separating achievable goals from those that are not achievable (Polat 2008; Triantis 2013). Strategic decisions normally concentrate on making the business gain an edge in the competitive market. Demand forecasting enables the firm in general to make strategic decisions such as introduce a new product into the market since from the forecasts indicate the one in the market has become obsolete (Francis 2014). For instance, when suppliers were shifting from using diskettes to compact discs the suppliers were informed by statistics from demand forecasting. Another strategic decision dependent on demand forecasting data include when a firm wants a new manufacturing process, or wants to plunge into a new distribution channel (Francis 2014). Demand forecasting is also relevant to supply chain management in that it helps the firm to know the how much to produce, how much to produce and when to produce such amount so the data can help the firm to strategically put in place a production policy for the firm that will make it gain a competitive advantage in the market (McNamara 2013). Demand forecasting also helps managers in the supply chain to make production, procurement and logistical plans as the data contained in the forecasts point out the requirements of the mentioned areas in the future. The data are also relevant to the same managers in that it helps in make financial plans for the firm using the forecasts as guidelines (Institute of Business Forecasting 2005). Forecasting data are also helpful when it comes to government making decisions concerning imports and exports (McNamara 2013). Demand forecasting statistics are also very relevant when it comes to tactical and operational decisions. Tactically the firm uses the data gathered from demand forecasting to make short term decisions. Demand forecasting helps the firm to improve the qualities or quantities if the forecasts show that the fall in demand is due to such factors. This makes the firm to take action and improve demand levels (Nitisha 2013). Through the use of the same data firms are able to make purchase decisions on quantities of raw material required as well as helping in the setting of prices of their products or services. Demand forecasting is also important as it helps firms to regulate its sales. It aids in the establishment of sales targets for different regions as well as in the formulation of budgets (Nitisha 2013). Operations management is a very important aspect within the firm. Enough information is required for the better management of productive systems and planning and controlling of daily business operations (Schonsleben 2010). Demand forecasting is thus relevant in the day to day management of operations within the firm. Through forecasting data the supply chain capacity is enhanced so the products get to the consumers on time in the right mix. Challenges and Issues in Demand Forecasting Forecasting is multifaceted and since demand cannot be gauged by a single prediction, it covers multiple time periods, many geographical areas, several products, and multiple customer groups (Robeson and Copacino 1994). Hence the challenging exercises of demand forecasting. In a business environment service propositions and products change on a regular basis. With increased sales promotions coupled with the introduction of new products and services into the market relying on data from past behaviours and happenings may not be appropriate and effective in predicting future demand (Voudouris et al. 2008). Another challenge of demand forecasting is the difficult experienced when deciding which of the collected is relevant since during demand forecasting plenty of data is gathered so deciding which is relevant to the immediate context becomes hard and challenging (Voudouris et al. 2008). Varying organisational culture and geographical localities pose additional challenges to demand forecasting. Case in point being when similar approaches are used to forecast demand of the same commodity in two different regions and one ends up getting different results. Because firms and localities are not homogenous carrying out conclusive demand forecasting becomes challenging (Voudouris et al. 2008). There are several forecasting methods that one can choose from in attempting to forecast demand. Selecting the most appropriate method for the exercise poses enormous difficulties (Voudouris et al. 2008). And in some cases the information collected may be interpreted wrongly and hence wrong decisions in terms of supply are made resulting in huge losses. Thus, there is also the challenge of breaking down the collected information to make an actionable meaning. Benefits of Demand Forecasting to an organisation Accurate demand forecasting is very beneficial to any organisation that is in the business of making profit. It helps the firm to have a better financial planning. Forecasting helps the firm to ensure that it has enough resources to clear its bills as this was projected in the forecasting. And if bills are paid on time the firm avoids penalties and escapes the tendency of relying on credits thus avoid paying interest (Ashe-Edmunds 2015). There is also the benefit of improved human resource management. Using forecasting data the firm re-organises its staff and prepares for the projected demand. Thus, forecasting helps to improve staffing within the organization. Also forecasting data benefits the organisation in that it points out to the firm the times that it needs to carry out intensive sales promotions and when to go low on advertisements (Ashe-Edmunds 2015). Demand forecasting also helps the firm to manage its production and satisfy its customers. With accurate demand forecasting the firm is guided to spread its production in making sure that customers get the products whenever they need them (Ashe-Edmunds 2015). Demand forecasting helps organizations avoid losses which could otherwise could be incurred if resources were arbitrarily put into production without any future estimates, thus firms tend to carry out forecasting to avoid unforeseen losses. Conclusion In conclusion, planning for the future in any organization is very essential and pertinent because the success of any organization is in close association with the firm’s capability to foresee its future, relying on past events and using the same information to put in place plans to deal with likely future scenarios. Demand forecasting helps firms to order their production process, plan their finances and human resources as well as experience a reduction in the keeping of inventories. Accurate demand forecasting helps the organization to keep the minimum unwarranted spending, plan production and staffing and hence avoid missing lucrative opportunities. Data derived from demand forecasting helps in informing how resources are distributed within the firm and when price changes are necessary. So no matter the nature of the business one is engaged in or what one does, it is prudent and wise to have in place some form of future predictions on which a plan is built. References Ashe-Edmunds, S 2015, The advantages of accurate forecasting, viewed 17 April 2015, http://smallbusiness.chron.com/advantages-accurate-forecasting-60830.html Caplice, CG 2003, Demand forecasting: The importance of demand forecasting, viewed 17 April 2015, http://www.myoops.org/cocw/mit/NR/rdonlyres/Engineering-Systems- Division/ESD-260JFall2003/08F26A35-E698-4FC6-8AC6- 1B7445F1CE04/0/l2_3demfcastpmas.pdf Chopde, S 2014, Importance of demand forecasting, viewed 17 April 2015, http://learneconomicsonly.blogspot.com/2014/02/importance-of-demand-forecasting.html Francis, A 2014, Forecasting for strategic planning, viewed 17 April 2015, www.mbaknol.com/strategic-management/forecasting-for-strategic-planning/ Hart, M, Rasner, J and Lukosvova, X 2012, Demand forecasting significance for contemporary process management of logistics systems, Tomas Bata University Press, Zlin. Hussain, T 2010, Engineering economics, University Science Press, New Delhi. 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