Differences in Forecasting Demand for a Product Vs. a Service

Forecasting demand is a critical planning process for all businesses. The more accurate you are when projecting customer demand, the better prepared you are to put the necessary products or people in place to meet it. The process and implications of forecasting product demand are much different from those involved in service demand.

The primary difference in product versus service demand planning is the resources you prepare. With product demand, your goal is to acquire the necessary inventory and have it in place at the point customers want it. With service demand forecasting, your objective is to have the necessary staff in place to deliver the demanded services. Some companies, such as construction businesses, must plan for both product and service demand.

Inflating demand expectations is costly whether dealing with products or people, though the cost factors vary. If you inflate product demand, you risk having to store, manage and handle nonmarketable inventory, which is costly. If you inflate service demand, you may hire full-time employees who remain idle. One advantage with service demand forecasting is that you can hire part-time or temporary workers and release them or send them home early to lower costs. With inventory, you usually have to clearance the excess, attempt to send it back to the supplier or throw it out if it is perishable.

Underestimating demand is a damaging scenario because you risk alienating new or existing customers. With products, customers may become upset if you don't have goods available when they want them. You risk a lost sale and negative marketplace feedback. When you under forecast for service demand, you may be able to bring in part-time, temporary or seasonal workers. However, this process can cause delays in meeting project or service deadlines you set with customers.

Forecasting product demand generally involves collaboration with suppliers. When a retailer projects demand for goods in a given store, it makes purchases from a supplier. When you forecast service demand, you typically manage the supply of or allocation of service workers internally. You schedule workers to perform the services. Some companies rely on independent contractors, which may require you to issue contracts well ahead of project orders. However, you avoid paying salaries to unproductive employees.