Demand Forecasting

1. ETHIRAJ COLLEGE FOR WOMEN (Autonomous)
Chennai – 600 008
Prepared by
R.Mythili
ASSISTANT PROFESSOR
BUSINESS ECONOMICS

2. DEMAND FORECASTING
INTRODUCTION
• Demand forecasting is essential for a firm to enable it to produce the required quantities at the
right time and arrange well in advance for the various factors of production, viz., raw materials,
equipment, machine accessories, labor, buildings, etc. Forecasting helps a firm to assess the
probable demand for its products and plan its production accordingly. In fact, forecasting is an
important aid in effective and efficient planning. It can also help management in reducing its
dependence on chance.Demand forecasting is also helpful in better planning and allocation of
national resources. Demand forecasting is very popular in industrially advanced countries where
demand conditions are always more uncertain than the supply conditions. In developing
countries, however, instead of the demand, supply is often the limiting factor. High prices and
black markets point to supply bottlenecks.
TYPES OF
DEMANDFORCASTING

3. TYPES OF DEMAND FORECASTING
LONG TERM
Long term demand forecasting
predicts the next one year to four
years of customer demand. Long
term forecasting is primarily
based on market research and
sales data.Experts advise that this
forecasting type should be viewed
as more of a general roadmap
because projections are likely to
change over such a long period of
time.
SHORT TERM
Short term demand forecasting
only estimates customer demand
for the upcoming three months to
one year. Short term demand
forecasting applies real time sales
data to adjust customer demand
projections that may otherwise be
outdated if a long term projection
was previously used

4. SCIENTIFIC APPROACH
The Null Hypothesis for ForecastingIn forecasting we are fond of elaborate systems and processes, with more touch points
and human engagement. We tend to believe that the more sophisticated our models and the more engaging our processes,
this will result in better forecasts. But do we ever pause to test this belief?If we approach business forecasting like a
scientist, we would ask whether any of our forecasting efforts are having a beneficial effect. Do our statistical models result
in a better forecast? Do our analyst overrides make it better still? Are other participants (like sales, marketing, or finance)
providing further improvement?
CRITERIA FOR CHOICE OF GOOD FORCASTING
1. LONGEVITY OR DURABILITY
2. ACCEPTABILITY AND SIMPLICITY
3. AVAILABILITY
4. PLAUSIBILITY AND POSSIBILITY
5. ECONOMY
6. YIELDING QUICK RESULTS
7. MAINTENANCE OF TIMELINES

6. survey method
demand forecasting involves direct interview of the
potential consumers. Consumers are simply contacted
by the interviewer and asked how much they would be
willing to purchase of a given product at a number of
alternative product price levels.
Opinion survey
The opinion poll methods make demand estimation by
using opinions of those who possess knowledge of the
market, such as professional marketing experts and
consultants, sales representatives and executives
EXPERT OPINION
The technique simply assumes that some people have
more knowledge than others about a certain topic; and if
you collect this knowledge from a group of experts, the
results will definitely exceed the outcomes collected
from one expert

7. Delphi method
A group of experts generate a demand forecast based on their expertise & knowledge. This forecast is presented to a different
group within the company for interpretation. After multiple rounds of interpretation, the forecast passes on to the decision-
makers of the organization.
Consumer Interview method
The consumer are contacted personally to know about their plans and preference regarding the consumption of the product.
A list of all potential buyers would be drawn and each buyer will be approachedand asked how much hplans to buy listed
product in future
complete enumeration
In this method where all members of the whole population are measured; · by sampling, where only a proportion of members
of the whole population are measured. Fisheries data usually collected by complete enumeration include vessel registers and
infrastructure data.
Sample survey
The field of sample survey methods is concerned with effective ways of obtaining sample data. The three most common
types of sample surveys are mail surveys, telephone surveys, and personal interview survey
Simple method
This method used to know the buyer's likely consumption of the product, his future buying plans and likely the market
share of the company is called as end use method.

8. Moving averages
❑This method id based on the assumption that the future is the
average of past achivements
❑The main issue in moving averages is determining the ideal numbers
of periods to include the averages

9. Expontential smoothing
❑ In the technique of moving averages all time periods are weighted equally
❑This satisfied by exponential soo,yhing by giving more weight to the recent
observation and decreasing weigths to the plder values

10. Barometric technique
❑Under biometric method present events are used to product the directions of
change in future
❑This is done with the help of economic and statistical indicators

11. Regression and correlation method
• In regression method, the
demand function for a product is
estimated where demand is
dependent variable and
variables that determine the
demand are independent
variable
• Correlation is another method of
sales forecasting. Correlation
looks at the strength of a
relationship between two
variables

12. Forecasting demand of new products
1. The Evolutionary approach in forecasting demandThe principle behind this approach is that the demand for
a new product is only an outgrowth and evolution of the existing product.
2. Substitute approach in forecasting demandBy this the new product is analyzed as a substitute for the old
existing product or service.
3. Growth curve approach in forecasting demandThe estimates of rate of growth and ultimate level of
demand for the new product will be established on the basis of some growth patterns of an already
established product.
4. Opinion Poll approach in forecasting demandUnder this, the demand for the new product will be estimated
by making direct enquiries from the ultimate consumers.
5 . Sales Experience approach in forecasting demandAccording to Sales experience approach method, samples
of new products shall be offered in a sample market to forecast demand. This is done through distributive
channels like departmental stores or cooperative society, etc.,
6. Vicarious approach in forecasting demandThrough vicarious approach method, the reaction of the
customer towards new product can be found out indirectly through the specialized dealers who are able to
judge the needs, tastes and preferences of customers.

13. Features of good forecasting method
1. PlausibilityThe management should have good understanding of the technique
chose and they should have confidence in the technique adopted
2. SimplicityThe method chosen should be of simple nature or ease of
comprehension by the executives.
3. EconomyCost is a primary consideration which should be weighed against the
importance of the forecasts to the business operation
4. AvailabilityImmediate availability of data is a vital requirement in forecasting
method.