Demand forecasting estimates future product or service demand over a defined period using historical, commercial and external information. The forecast guides purchasing, production, staffing, inventory and cash planning, but it is an estimate rather than a guaranteed order.
Which inputs can inform a forecast?
- Historical sales or consumption
- Seasonality and promotional calendars
- Open orders, pipeline and customer commitments
- Price, channel and product changes
- Lead times and supply constraints
- Market, weather or economic signals
How is a simple forecast calculated?
A three-period moving average uses the mean of the last three comparable periods. If monthly demand was 900, 1,050 and 1,200 units, the next-month baseline is (900 + 1,050 + 1,200) ÷ 3 = 1,050 units.
Illustrative forecast adjustment
| Calculation step | Units | Reason |
|---|---|---|
| Three-month baseline | 1,050 | Moving average |
| Approved promotion uplift | +210 | 20% × 1,050 |
| Expected stockout loss | −60 | Constrained supply estimate |
| Planning forecast | 1,200 | 1,050 + 210 − 60 |
The assumptions should be documented and compared with actual demand after the period closes.
Forecast vs. sales target
A forecast is the best current estimate of likely demand. A target is the result the business wants to achieve. Treating a target as a forecast can cause excess stock, missed service levels or distorted capacity plans.
How is accuracy measured?
Common measures include absolute error, percentage error, bias and forecast value added. The metric should suit the product volume and aggregation level; percentage error can be misleading when actual demand is very low or zero.
