How does a "demand forecast" utilize historical data?

A demand forecast uses historical data to analyze past trends and patterns in product usage, customer orders, or market behavior to make informed predictions about future inventory needs. By examining data such as sales figures, seasonal trends, and customer demand, a company can anticipate what products will be needed in the future and in what quantities. This data-driven approach allows organizations to stock appropriate levels of inventory, minimizing the risk of overstocking or stockouts. Accurate demand forecasting is essential for efficient supply chain management, ensuring that resources are allocated effectively to meet customer demands.

The other options do not align with the purpose of demand forecasting; they either imply negative outcomes or misunderstandings of how forecasts should be applied in inventory management.