What is Demand Forecasting?

Demand forecasting is a field of predictive analytics which tries to understand and predict customer demand to optimize supply decisions by corporate supply chain and business management. Demand forecasting involves quantitative methods such as the use of data, and especially historical sales data, as well as statistical techniques from test markets like time series analysis, causal models etc.


The economics of the world is dependent on Supply and Demand. Demand forecasting in simple terms would the demand of a product due to certain circumstances in near future. For example, during the pandemic demand for sanitizers and masks were increased. So with data, you can predict where and when the demand would be high and low. There are some algorithms to do so.

Demand forecasting refers to the future estimation of a product. It is a process of evaluating demand of the product for future.

In other words, It is the process of estimating future course of action. It helps in taking a decision while producing the product.

Demand forecasting is the future prediction of demand for demand and service.

Demand forecasting is the process of making estimations about future customer demand over a defined period, using historical data and other information.
Proper demand forecasting gives businesses valuable information about their potential in their current market and other markets, so that managers can make informed decisions about pricing, business growth strategies, and market potential.
Without demand forecasting, businesses risk making poor decisions about their products and target markets – and ill-informed decisions can have far-reaching negative effects on inventory holding costs, customer satisfaction, supply chain management, and profitability.
There are a number of reasons why demand forecasting is an important process for businesses:

  • Sales forecasting helps with business planning, budgeting, and goal setting. Once you have a good understanding of what your future sales could look like, you can begin to develop an informed procurement strategy to make sure your supply matches customer demand.
  • It allows businesses to more effectively optimize inventory, increase inventory turnover rates and reduce holding costs.
  • It provides an insight into upcoming cash flow, meaning businesses can more accurately budget to pay suppliers and other operational costs, and invest in the growth of the business.
  • Through sales forecasting, you can also identify and rectify any kinks in the sales pipeline ahead of time to ensure your business performance remains robust throughout the entire period. When it comes to inventory management, most eCommerce business owners know all too well that too little or too much inventory can be detrimental to operations.
  • Anticipating demand means knowing when to increase staff and other resources to keep operations running smoothly during peak periods.