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 input resources.
Periods of Sales forecasting:
The 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.