All business organizations aim at profit maximization. It should cautiously monitor the demand conditions for its product. It should also forecast or estimate the changes in demand in future. A forecast or estimation of future demand for the product is known as demand forecasting. Usually every business organization predicts a number of interrelated forecasts. As because the future is uncertain, these forecasts may not be hundred percent accurate. But every organization tries to get the forecasts as accurately as possible. In Managerial Economics, demand forecasting achieved a prominent place.
Demand forecasting has a huge importance in business planning and in managerial economics. A precise demand forecasting aids the organization in many ways. It makes the organization able to produce the requisite quantities at the proper time. It aids to organize the different factors of production well in advance. It aids an organization to estimate the upcoming demand for its finished products and plan its production. Sales forecast is the base for planning. All phases of the operations of the organization depend on sales. For instance, some managerial functions like procurement, cash budgets, inventory plans, production plan, etc. will be formulated based on sales forecasts. Demand forecast has a vast popularity in industrially developed countries. The demand conditions are always uncertain than the supply conditions in developed countries. It is getting importance in developing countries also.
Organizations which offer quick and on-time delivery of their products to their customers will tend to dominate all competitors in the market. So, every firm involved in the market needs to produce its products based on a forecast of future demand. The ability to precisely forecast demand, affords the organization opportunities to control costs through leveling its production quantities, rationalizing distribution, and efficient logistics operations. Inaccurate forecasts will certainly lead to inefficient, high cost logistic operations and poor levels of customer service. Managerial function will be questionable if it fails to produce and supply the products at least cost.