Forecasting is a technique to find an estimate
of sales in a specific market during a specified
future period. It is necessary for an
organization to plan according to future demands
of the market. The organization will plan their
production on the basis of future demand.
Importance of Forecasting:
Production – The production of a product will be
planned according to its demand.
Purchasing – It will tell whether some new machines,
tools need to be purchased. It will also tell the amount of raw material
needs to be purchased for future demand.
Human Resources – It projects the number of manpower
required for the future demands.
Finance – Forecasting will show the amount of
finance required to attain the set goals.
Research and Development
– Some product is to be added in the production line or whether the
existing product needs modification.
Marketing – It will show the revenue which can be
expected and how much is the budget for advertising of the product. This
can help you to reach new customers.
Objectives of sales forecasting:
To set the sales target
– The primary purpose of sales forecasting is to establish sales
performance goals for the organization. To get the real and accurate
picture of sales, forecasting should be first made for small region and
then for large territories.
To maintain inventory – An accurate sales forecasting
helps in estimating the amount of raw materials required for future
goals. It helps in keeping the inventory up for peak periods.
To regulate manpower requirement
– Appropriate manpower is required for continuous production. A good
manpower policy is needed to prevent the shortage of manpower.
To decide plant capacity
– On the basis of sales forecasting the organization can plan the plant
with output of desired capacity.
To predict expenses – It helps in predicting the
expenses and planning budget. It is also useful in preparing credit
policy of the company. It is also required for uninterrupted supply of
Periods of Sales forecasting:
period depends upon the purpose for which it is to be made. The
forecasting can be classified on the basis of time period
Long range forecasting
– It is generally a period of from 1 to 5 years but can go from 10 to 15
years in some cases.
Medium range forecasting
– The forecasting is from 3 months to 1 year.
Short range forecasting
- The period can be one week, two weeks or a couple of months.