Final answer:
Forecasting future demand helps avoid overproduction and underproduction, leading to better financial management and customer satisfaction. It considers various economic factors, including inflation, oil prices, and market confidence to plan effectively.
Step-by-step explanation:
Future demand should be forecasted to avoid overproduction and underproduction. Accurately predicting future demand is essential for businesses to ensure that they produce neither too much nor too little of their products. Overproduction can lead to excess inventory, which ties up capital and may result in discounted sales that reduce profits. Conversely, underproduction can result in lost sales opportunities and dissatisfied customers who might turn to competitors. Forecasting demand helps businesses avoid these scenarios, maintain balance in supply and demand, and respond effectively to market changes.
Factors such as rising inflation, a rise in oil prices, and changes in consumer and business confidence due to events like a stock market collapse can all influence future demand. Additionally, external economic factors like the natural rate of unemployment and rapid growth of exports can also have an impact. By considering multiple variables, businesses can better anticipate and plan for future demand, aligning production and supply chain operations accordingly to avoid unnecessary complications or financial losses.