Accurate demand forecasting is essential for a firm to enable it to produce the required quantities at the right time and arrange well in advance for the various factors of production. The producer can frame a suitable production policy.
The firm can reduce cost of purchasing raw materials. It also enables the firm to adopt suitable price policy. It is on the basis of demand and sales forecasts that arrangements are made for raw materials, equipments, machine accessories, labour and buildings well in advance and at the right time.
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Demand forecasting is very popular in industrially advanced countries. Demand forecasting is bound to become more important with the growing industrialization of the country.
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A firm can maximize its profits only when it produces on the basis of the demand of its products.
There will be no problem of over and under production if the figure of sales forecasts is accurate.
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As it will reduce or have control over costs, the profits will certainly go up. The importance of sales forecasting is much more in large sale or seasonal industries.
On the national level, sales forecasts of particular products may provide guideline for demand forecasts for related industries.
For example, a demand forecasts for cotton text; he may provide an idea of probable demand for textile machinery, ready-made garments, dyestuif industries.
The Government, on the basis of sales forecasts, may decide whether imports are necessary to meet the deficit in the home demand or may provide export incentives for any surplus. Thus, demand forecasts are useful to the firm, industry as also to the government.