Demand Forecasting: Types, Methods, and Why your eCommerce company need it
Demand forecasting is one of the most important processes that enable companies to make effective and appropriate decisions regarding pricing, market potential, and business growth strategies. It is one of the most important steps that come in the stage that precedes the planning process for production and planning for production capacity, through which data is analyzed to reach the right decisions that achieve the goal of production systems. In this article, we will show you all the details about demand forecasting and its importance, and why an e-commerce company needs it and its impact on supply chain and Fulfillment Center.
What is Demand Forecasting?
It is the process through which certain systems are used that help in collecting important data about sales.
With the aim of predicting demand for services or products and forecasting future sales for a company.
By analyzing this data, different companies can make effective and appropriate decisions regarding pricing, market potential, and business growth strategies.
Thus, reaching the right decisions that achieve the goal of production systems, and the process of forecasting demand mainly affects decisions related to storage levels.
Through that process, you can determine the capital needed to finance production operations, as well as your resource needs and overall production plans.
Types of demand forecasting
There are many types of demand forecasting, and in general, there are 3 main types, and each type has its own importance and significance.
There are some companies that depend on one type without the other, due to its suitability to them, and the following are the most important of these types:
1. Negative forecasting of demand
It is one of the most complex types of demand forecasting tools in companies, which is used in certain data about the relationship between economic and social factors and the variables that affect market demand.
2. Qualitative forecasting of demand
It is one of the appropriate types when there is no basic information base available to work on, such as launching a new product in the market.
Technology companies, in particular, rely on qualitative demand forecasting in their business, as one of their most important demand forecasting tools.
3. Demand time series analysis
It is the most used and suitable type for companies that have a large base of information, which can be easily worked through.
This type is particularly helpful in identifying cyclical patterns, seasonal fluctuations, and underlying sales trends.
Demand forecasting methods
Demand forecasting methods vary, and each company uses the appropriate method according to the nature of its activity and business.
The following are the most important demand forecasting methods that companies can use:
1. Forecasting through market research
It is one of the best demand forecasting methods that many companies rely on, especially those that do not have information about previous sales.
This method is based on the use of questionnaires and customer surveys, with the aim of predicting future demand, identifying potential problems, and identifying economic indicators.
2. Forecasting through the sales force
Basically, this method is a combination of the opinions of salesmen, who collect direct feedback, an educated estimate of future sales volume, and forecast demand.
3. Forecasting by projecting direction
This method is suitable for companies that have huge amounts of information for analysis.
And this method requires that the information on historical or previous sales extend from half a year to at least two years.
On the other hand, this method is used to construct a time series that presents future sales and demand based on past sales.
4. Forecasting by the barometric method
This method is not feasible for long-term demand forecasting, as it makes predictions by analyzing economic and statistical indicators.
5. Forecasting through econometrics
This method is used with other variables in order to understand the relationship between demand itself and the factors affecting demand.
This type of demand forecasting is not suitable for start-up companies or those that do not have much experience in the field or market in which they operate.
6. Forecasting through Delphi Technology
This method is based on the opinions of experts, and the final decision is unanimous on a unified decision, knowing that its defect is the presence of human bias in the decisions.
7. Forecasting through regression
This method is based on establishing a relationship between the independent variable and the dependent variable.
And then contributing to proving or not accepting hypotheses. On the other hand, this method is suitable for financial planning operations.
Why your eCommerce company needs demand forecasting
Demand forecasting is one of the most important analytical methods needed by e-commerce companies, through which they can estimate future sales.
Thus, it enables e-commerce companies to plan stock levels, avoiding cases of overstock or understock.
This benefits e-commerce business owners in avoiding additional costs, as well as better meeting customer needs.
How forecasting affects your supply chain and fulfillment
There is a significant positive impact of demand forecasting on supply chain management and fulfillment.
As it helps companies make appropriate decisions about inventory planning and inventory.
Thus helping companies avoid possible losses, as well as providing the right products in the right quantities to customers.
Demand forecasting also contributes to providing more accurate inventory numbers throughout the supply chain, thus reducing the incidence of overstocks or out of stocks.
