What is demand forecasting and where does it work best?

Demand forecasting or demand planning is an approach that attempts to forecast or predict what demand for a product or service will be in the future. This could be done at a short-term horizon, over the next few days or weeks, or a long-term horizon, like the next few months.

This forecast of demand can then be used to drive key aspects of the business, like stock planning and ordering, the timing of promotions, and staff scheduling. Traditionally, demand forecasting has relied heavily on past sales performance and knowledgeable individuals to make these predictions. However, this is now being augmented through the use of machine learning approaches, real-time economy data, and behavioural insights. These approaches which combine ‘man and machine’ can substantially reduce forecast errors for both short- and long-run demand planning, which in turn improves business efficiency, profitability and customer experience.