13 Apr 2023

Top 7 Factors Affecting Demand Forecasting

The simple practicality of supply & demand measures a business's performance. The greater the demand, the greater the resources, capital & inventory are required. And, if the orders are delivered on time, along with an impressive revenue statement, an organization gets better customer experience metrics, leading to a stronger market hold. Industries, irrespective of scale, ensure their supply chain is better optimized by employing a demand forecasting process. By definition, demand forecasting is a predictive matrix that works on a company’s historical data to analyze the foreseeable requirement of a particular product in a marketplace. While it is as accurate as the processes come, it is essentially driven by the factors which drive the calculation behind the scenes.

Table of Contents

  • Factors Influencing Demand Forecasting
  • Customer Seasonal Demand
  • Market Competition
  • Pricing of the Product
  • Types of Goods
  • Geographical Preference
  • Technological Advancement
  • Inaccurate Data Trend

What Are the Factors Affecting Demand Forecasting?

So, for an enterprise to gather the analytics that eventually helps its operations, it has to bear in mind the validated factors involved in forecasting decisions. Here, we list the potential factors affecting demand forecasting which directly influence an organization's production plans.

1. Customer Seasonal Demand

Often, we have seen a considerable increase in demand during festival seasons. Customer inquiries for a product usually rise multiple-fold during a specific time of the year. Such cyclic boom in an industry is quite common & businesses usually prep themselves by filling up their inventory to the max. While this approach might be a hit & miss based on the sales recorded, a comprehensive framework will involve determinants of seasonality to make forecasting decisions that will directly impact supply chain processes from raw material procurement to production to scale of the deliveries. An organization factoring in user requirements opens itself to multiple marketing opportunities, eventually leading it to hold good ground in sales figures.

2. Market Competition

The industry is filled with many players, and the same competition pushes an establishment to be proactive & retain the majority of the market percentage when the opportunity arises. Demand also gets affected by how many enterprises react to the customer's request. This inadvertently leads to a minute operational space, especially for new entrants who are at the initiation of their business. In such cases, forecasting gets heavily affected as it's wrought with risk and runs more on hope than data.

3. Pricing of the Product

Pricing done well for an item can be one of its major attractions to its potential user base, and in simpler terms, it is one of the best marketing strategies to catalyze an appeal for manufactured goods. Demand forecasting for new products gets its initial momentum in how a company strategizes its cost. Much of it also concerns the region's economics, whose target group mean earning is generally the principal deciding factor. Such factors governing demand forecasting can make or break the future of a new launch, as its acceptance is driven by how exactly its price appeals to first-time users.

4. Types of Goods

Every commodity under-planning stage requires an entirely independent demand estimation framework. Different products, be they perishable or solid goods, have various estimating measures from short-term to long-term. The nature of the commodity subsequently creates the consumption pattern amongst the users, which has a cascading effect on what eventually will be the company's production guidelines.

5. Geographical Preference

Every geographical area acts as a unique calling card for any venture to bring itself up to speed with the popularity of its product & acquisitions of new end users. A supply chain functioning too gets immensely benefitted if the promise of a prospective business in an area further lays out the storage location, shipping cost & potential delivery time. With such an outline done beforehand, forecasting methods can predict the perfect requisites for an enterprise to manufacture the goods which is a hit amongst the masses. A zonal study including headcount & mean income collaborates as an essential factor of demand forecasting.

6. Technological Advancement

Every decade or so, we have seen the influence of technology on how business-as-usual activities are conducted. Such advancement overhauls the modus operandi of any operation and beckons time from a stakeholder's perspective. Technological innovations, when tested & applied on a mass scale, can render the current operations stack less valid. In such crunch scenarios, demand forecasting for a product becomes extremely challenging & a shot in the dark for a business.

7. Inaccurate Data Trend

Estimating demand for an object, whether quarterly, half-yearly, or annually, requires an organization to work on correct operational data. A siloed database repository will factually lay out incorrect indications about the product's reception during its run time. Thus, it becomes imperative for management to make sure that the lack of relevant statistics doesn't hamper the astuteness of demand forecasting software.

For a production house to be scalable, efficient, robust, and capable enough to make the most of presented opportunities, it needs a demand estimating tool which aids the management in making better-informed decisions which leads it to revenue-generating business. 3SC's agile demand forecasting process provides the required analytical insight, which helps you sideline imprecision & chart out a course that gives you the edge over the competitors.

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