Business managers need various forecasts. They need to forecast demand, supply, price, profit, cost and investment. A more emphasis can’t be given on the importance of demand or sales forecast. Sales is the primary source of revenue. Thus sales forecast is required for the production plan, inventory plan and profit plan.
Support for people, materials, machines, money and finance is needed for production. Manpower planning, working capital management and financial planning—all sales depend on forecasts.
Thus demand forecast for the corporate plan is important.
It should be noted that in general the objective of the forecast is not to provide accurate future data with accurate accuracy, its aim is to bring out the limit of future-related possibilities only under the given estimates. In other words, it’s not the real future but the ‘potential future’ that we make through forecasts. Such forecasts do not end, but help you to reduce the degree of future risks and uncertainties so you can make operational business policy decisions and action from there. When you don’t forecast, you’re just assuming that business situations are going to repeat themselves. It’s unrealistic because changes in the dynamic world are natural. It may not be possible to accurately guess the nature of dynamic changes, but through a set of forecasts you can try to ‘estimate’ them. The forecast is a step towards that type of ‘estimate’; this is an estimate of reality in a way. This is a kind of incentive practice to design a potential future situation of the business. If the potential situation comes close to the real situation, that means the forecast is reliable. If you don’t have a trustworthy forecast about demand, all your business plans will be inexpensive. The aim of the sales forecast is to guide business policy decisions. Without forecast, the plan ahead by a corporate unit will be directionless…
The forecast is carried out for both the long-term and short-term. In short-term forecast, seasonal patterns have highly importance. This kind of forecast helps to prepare suitable sales policy to avoid over-stocking or order delay completing. Long-term forecasts are helpful in proper capital planning. Long-term plan helps save material, human hours and a waste of capacity. Long-term forecasts are required to develop suitable production policy, control the list and cost of raw goods, determine the appropriate price policy and plan the future financial needs.