Knowledge Base

How do you define True demand for forecasting?

This presentation attempts to define true demand and describes a method to establish demand proxies using shipment history or the customer order stream.

An important building block to creating an accurate demand plan is the accuracy of your demand history. Since the purpose is to forecast all unconstrained customer demand in the future, we need to define and collect a history of true demand.

Since demand itself is unobservable, we use a proxy such as history of shipments or customer orders to measure demand. In this paper, we examine the demand components of observed shipment history and customer order stream. We illustrate the arguments in favor and against using these measures as a proxy for true demand and suggest some methods to address the corrections.

In practice, it is an even split of using shipments versus customer orders for forecasting purposes.