Objectives Of Demand Forecasting
Objectives of demand forecasting : Demand forecasting has a great importance and purpose in business planning. An accurate demand forecasting helps the company in number of ways. It helps the company to produce the required quantities of products at the right time and to arrange the various factors of production in advance. It also helps a company to estimate the future demand for its products and plan its production.The purposes or objectives of demand forecasting vary according to the type of forecasting.
The purposes of short-term demand forecasting are different from those of long term demand forecasting. However, the objectives of demand forecasting In Business Economics are discussed below:
Purposes or objectives of short-term demand forecasting :
1. Production policy : Short-term demand forecasting is used to evolve a suitable production policy which can avoid the problems of over production and short supply:
2. Expenditure pattern : It helps the firm in purchasing. Knowledge of near future economic conditions help the firm in reducing costs of purchasing raw materials and controlling inventory.
3. Sales policy : Demand forecasting helps the firm in evolving a suitable sales policy.
4. Price policy : Sales forecasting is useful in determining pricing policy. When the market conditions are expected to be weak, the firm can avoid an increase in price and vice-versa.
5. Sales targets, controls and incentives : Short term demand forecasting is used to set sales targets and for establishing controls and incentives.
6. Financial requirements : It is useful in forecasting short term financial requirements. Cash requirement depends on production and sales levels. Hence sales forecasts help the firm to make arrangements for necessary funds well in advance.
Purposes or objectives of long term demand forecasting :
1. New unit or expansion: Long term demand forecasting helps in planning of a new unit or expansion of an existing unit of a business organization.
2. Financial requirements: It is useful in long term financial planning. Long-term sales forecast is necessary to estimate long term financial requirements.
3.Man power planning : Long term demand forecasting enables the firm to make arrangements for training and personnel development. Demand forecasting is also useful to the Government in determining import and export policies.