Demand forecasting

Definition

Estimating how much of a product or service customers will want in future periods, using past demand, known events and judgement.

Why it matters

Stock, production, staffing and purchasing plans all start from the demand forecast, so its errors spread through the business.

Where it is used

Supply chain planning, sales and operations planning and budgeting. Used by demand planners, supply chain managers, production planners and FP&A analysts.

How to calculate it

Not a single formula. A simple method is the moving average: forecast for next period = average demand of the last n periods.

Worked example

Raket Parts B.V. thermal spacers, units ordered: June 2025 742, July 831, August 728. A three-month moving average forecasts September at (742 + 831 + 728) / 3 = 767 units. Actual September orders were 1,031, so the forecast was 264 units (26%) short. A simple average reacts slowly when demand jumps.

Raket Parts B.V. is a fictional company created for Insyt.

Definitions vary. Methods range from moving averages to statistical and machine learning models, at different levels (product, family, customer). Check how your organisation calculates it.