Demand refers to a desire and willingness to pay for goods along with an ability to pay. Demand forecasting estimates future demand by analyzing past data in a systematic way. The purpose of short-term forecasting includes appropriate production scheduling, reducing material costs, determining prices, and setting sales targets. Long-term forecasting helps with expansion planning, determining product demand, and assessing financial and personnel requirements. Forecasts can be short-term up to 12 months, medium-term from 1-2 years, or long-term from 3-10 years. Demand forecasting is important because production and delivery take time, so firms must anticipate demand to react to customer orders immediately.

1. Demand Demand is one which meets with all its characteristics; desire to have good, willingness to pay for that goods & ability to pay for that goods.

2. Demand Forecasting Demand forecasting means estimation of the demand for the good in the forecast period. It is process of estimating a future event by casting forward past data. The past are systematically combined in a predetermined way to obtain the estimate of future demand.

3. Purpose of forecasting Purpose of Short term forecasting Appropriate production scheduling so as to avoid the problem of over production and the problem of short supply. Helping the firm to reducing costs of purchasing of raw materials. Determining appropriate price policy. Setting sales targets and establishing controls and incentives. Evolving a suitable advertising and promotion programme

4. Purpose of long term forecasting Planning of new unit or expansion of an existing unit. A multi product firm must ascertain not only the total demand situation, but also the demand for different items separately. Planning long term financial requirements. As planning for raising funds requires considerable advance notice, longterm sales forecasting are quite essential to assess long term financial requirements. Planning manpower requirements. Training & personnel development are long term propositions, taking considerable time to complete.

5. Length of forecast Short-term forecast: Short-term foercast, involving period up to twelve months. Medium term forecast: Medium-term forecasts, involving a period from one to two years. Long-term forecasts: long term forecasts, involving a period of three to ten years.

6. Importance of demand forecasting Demand forecasts are necessary since the basic operations process, moving from the supplier’s raw materials to finished goods in the customers’ hands, takes time. Most firms can not simply wait for demand to emerge and then to react to it. Instead, they must anticipate and plan for future demand so that they can react immediately to customer order as they occur. In other words, most manufacturers “make to stock”rather than “make to order” – they plan aheadand then deploy inventories of finished goods into field location.