It is a general phenomenon that a retailer understands the need to forecast demand before selecting any supplier. Some of the common questions a retailer would have are: “What are the benefits of forecasting?”, “How much money do I save?”, “Can I do business without forecasting?”

In practice, retailers calculate demand on sales based on the pattern of the previous day or this month’s demand is calculated based on demand for the same month last year. However, in reality, we hear retailers complain about situations like out of stock or overstock following the idea outlined above.
Demand forecasting directly helps a retailer achieve optimized revenue, better product replenishment, understand business drivers, quantify seasonality, and promote consistent communication with other departments.

It is usually determined by multiple factors such as the current trend, time of year, consumer preferences, competitive prices, promotional campaigns, etc. It helps us understand, quantify, and statistically derive demand values ​​with high confidence. To be simple, it is about defining the demand with a minimum amount of risk associated with it.

For example, demand for an item is likely to increase if a competitor raises the price or if we promote the item in a weekly newsletter. The resulting increase in sales reflects a change in demand as a result of consumers’ response to external stimuli. Regardless of the stimuli, these forces must be factored into planning and managed within the demand forecast.

However, the goal of forecasting in retail is to generate forecasts that are accurate, unbiased, and can reasonably be expected to do so consistently. In addition, there still needs to be a realistic assessment of the likely accuracy of the forecasts and consideration of other strategies that can be used with the forecasts to better solve the business problem.