Objectives of Demand Forecasting
Demand forecasting means an estimation of the level of demand that might be
realized in future under given circumstances. These are concerned with the
predictions of demand for products or services to minimize the uncertainties of the
unknown future. These forecasts on demand facilitate in formulating material and
capacity plans and serves as inputs to financial, marketing and personnel planning.
The demand forecast itself may be generated in a number of ways, many of which
depend heavily upon sales and marketing information.
The objectives of demand forecasting are different in case of short run and long run
forecasts.
Short run forecasting
Short run forecasting is usually a period not exceeding one year. The following are
the objectives of short run demand forecasting.

To evolve a suitable production policy: Short term forecasts help the firm to
plan the production so as to avoid the problems of over production and short
supply.

To plan the purchase pf raw materials: The firm’s can plan the purchase of
raw materials at appropriate time to reduce the cost and control inventories.

To plan short term financial requirements: The firms require not only short
term funds for purchase of raw materials and payment of wages, but also
medium term funds for replacement and renewal to maintain productive
efficiency.

To determine appropriate price policy: Short run forecasting helps the firm
to evolve a suitable price policy depending upon the expected market
conditions to maintain consistent sales.

To fix sales targets: Realistic sales targets can be fixed for the salesmen on
the basis of short term demand forecasting. If the targets are too high the
salesmen may fail to achieve them and they will get discouraged. If the targets
are too low the salesmen will achieve the targets so easily that the incentives
will prove meaningless.
Long run forecasting
Long run forecasting is generally for a period exceeding 3 years. The following are
the objectives of long run demand forecasting.

To plan the establishment of a new unit or expansion of an existing unit:
Planning of a new unit or expansion of an existing unit requires an analysis of
the long term demand potential of the products. The competitive strength of
the firm will be greater if it has better knowledge than the rivals of the growth
trends in the economy.

To plan long term financial requirements: Long run forecasts are essential
to assess long term financial requirements. When the funds required for
expansion, modernization and diversification are large, it takes time to make
necessary arrangements for raising sufficient resources through long term
loans and the issue of shares and debentures.

To plan manpower requirements: Long term demand forecasting is useful
for manpower planning. Training and personnel development can be started
well in advance on the basis of estimates of manpower requirements assessed
according to long term demand forecasts.
Credit: Managerial Economics-MGU
MBA- Knowledge Base