Glossary
Actual Demand
Tags: Glossary
The known demand for a specific product is based on customer orders and open production orders. Once an order is shipped or production is completed, the specific demand quantity will become usage. Actual demand should be netted against any forecast for the same period. This means that as orders are received, they are considered to be part of an earlier forecast, and forecasts should be considered as satisfied.
What is Actual Demand?
Actual demand refers to the real and tangible demand for a particular product. It is determined by customer orders and open production orders. When a customer places an order for a product, or when a production order is initiated, it becomes a part of the known demand.
Once an order is shipped to the customer or the production is completed, the specific demand quantity is considered as usage. In other words, it represents the actual quantity of the product that has been consumed or utilized.
In the field of logistics, it is important to understand and analyze the actual demand for a product. This information helps businesses in various ways, such as inventory management, production planning, and forecasting.
One key aspect of actual demand is its relationship with forecasts. Forecasts are estimates of future demand based on historical data, market trends, and other relevant factors. As orders are received and production is completed, they are considered to be part of an earlier forecast. This means that the forecasts should be adjusted or updated to reflect the actual demand.
Netting the actual demand against the forecast for the same period is crucial. By doing so, businesses can accurately assess the accuracy of their forecasts and make necessary adjustments. It also helps in avoiding overstocking or understocking of products, which can lead to financial losses or missed sales opportunities.
For example, let's say a company forecasts a demand of 100 units of a product for a specific month. However, during that month, they receive orders for 80 units and produce an additional 20 units. The actual demand for that month would be 100 units (80 units from customer orders + 20 units from production). Since the actual demand matches the forecasted demand, the company can consider their forecast as satisfied.
In conclusion, actual demand is the real and measurable demand for a product based on customer orders and production. It should be netted against the forecast to assess its accuracy and make necessary adjustments. Understanding and managing actual demand is crucial for effective logistics and supply chain management.