Demand forecasting


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Demand forecasting

  2. 2. DEMAND FORECASTING• Forecasting of demand is the art of Predicting demand for a product or a service at some future date on the basis of certain present and past behavior patterns of some related events.• “Demand Forecast is an estimate of sales during a specified future Period which is tied a Proposed marketing plan and which assumes a Particular set of uncontrollable and competitive forces” -Cundiff and still
  3. 3. SIGNIFICANCE OF DEMAND FORECASTING:• Production Planning• Sales Forecasting• Control of business• Inventory Control• Growth and Long Term Investment Programmes• Stability• Economic Planning and policy making
  4. 4. NEED OF FORECASTING:• Need of short term forecasting : -Appropriate production Scheduling -Helping the firm in reducing costs -Determining appropriate price policy -Setting sales Targets and establishing controls & Incentives -Forecasting Short term financial requirements.
  5. 5. • Need of Long Term Forecasting: -Planning of a new unit or expansion of an existing unit -Planning Long term financial Requirements -Planning Man Power Requirements
  6. 6. METHODS OF FORECASTING:• Opinion Polling Method/Qualitative Techniques:In this case , the opinion of the buyers , sales force and experts could be gathered to determine the emerging trend in the market.
  7. 7. The opinion polling methods of demand forecasting areof three kinds:•Consumer survey method:-Complete Enumeration Survey-Sample survey and test marketing-End use method•Sales force Opinion Method•Delphi Technique
  8. 8. • Consumer survey method:The most direct method of forecasting in short run.Surveys are conducted to collect information about future purchase plans of the probable buyers of product.a)Complete Enumeration survey:In this case the firm has to go for a door to door survey.b)Sample survey & Test Marketing:In this method some representative households are selected on random basis as samples & their opinion is taken as the generalized opinion.
  9. 9. • C)End Use method:In this case , demand for Final Product is the end use demand of the intermediate product used in the Production of this final Product.
  10. 10. ii)Sales Force Opinion Method:•Also known as collective Opinion Method.•Instead of consumers the Opinion of consumers issought.•Also referred as grass root approach as it is a bottomup method.iii)Delphi Technique:Also known as expert Opinion method of investigation.Instead of depending upon the Opinions of buyers &salesmen Firms can obtain views of specialist orexperts in their respective fields.
  11. 11. • Statistical or Analytical Methods/Qualitative Techniques:• Trend Projection Method: -Graphical Method -Least Square method -Time series Data -Moving average method -Exponential smoothing
  12. 12. • Barometric method• Regression method• Econometric method
  13. 13. • Trend Projection method:• A firm uses its own data of past yearsregarding its sales in past years.(This data is known as time series of sales.)• A firm can predict sales of the product by fitting trend to the time series of sales.• The trend can be estimated by using any one of the following method:
  14. 14. • Graphical method:• In this case old values of sales for different areas are plotted on graph & a free hand curve is drawn Passing through as many Points as possible.• The direction of this free hand curve shows the trend.
  15. 15. • Least Square Method:• It is based on the assumptions.• In which the past rate of change of the variable under study will continue in the future.• This method is very popular because it is very simple and inexpensive.
  16. 16. • Time series Data/Analysis:• Time series data refers to the data collected over a period of time recording historical changes in price, Income, and other related variables Influencing Demand for the commodity.• Time series analysis relate to the determination of changes in a variable in relation to time.
  17. 17. • Moving Average Method:• {It is the process of computing average of leaving the oldest observation and including the next one.}• In this method the moving average of the sales of the past years is computed.• The computed moving average is taken as forecast for the next year or period.
  18. 18. • Exponential Smoothing:• It is very Popular technique for short run.• It uses weighted average of past data as the basis for forecast.• In this Procedure heaviest weight is to more recent information and smaller weights to observation in the more distant past.• It is effective only when there is randomness and no seasonal fluctuation.
  19. 19. • Barometric Method:• Also known as leading Indicators Forecasting.• NBER of U.S.A. has identified three types of indicators:- i) Leading Indicators ii) Coincidental Indicators iii) lagging indicators.The analyst should establish relationship between the sales of the product & the economic indicators to project the correct sales & to measure to what extent these indicators affect the sales.
  20. 20. • Regression method:• Very common method of forecasting.• In this method a relationship is established between quantity demanded and Independent variables such as Income, Price, prices of the related goods etc.• Once the relationship established, we derive regression equation assuming relation to be linear.• The equation in the form of Y=A+ Bx.• Once the regression equation is derived the value of Y i.e. quantity demanded can be estimated for any value of X.
  21. 21. • Econometric Method:• The econometric model forecasting involves estimating several simultaneous equation.• It is also known as Simultaneous equations method.
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