The document discusses demand forecasting, emphasizing its significance for managerial decisions such as inventory management, cost control, and capacity planning. It outlines various forecasting techniques including survey methods (like consumer surveys and expert opinions) and statistical methods (such as trend projection and econometric methods). Key points include the accuracy of forecasts being higher for aggregated data and shorter time periods, along with the challenges associated with accurate demand prediction.

1. r
Demand Forecasting

2. Introductio
n
⚫A forecast is an estimate of future demand & provides the
basis for a number of managerial decisions like:
Inventory management
Pricing
Financial requirement
Supply chain management
Capacity planning/operations
⚫Good forecasting provides reduced inventories, costs, &
stockouts, & improved production plans & customer
service

3. Demand Forecasting:
Purpose
⚫Production Scheduling: in order to have a proper schedule of
production so as to check over and under production.
⚫Cost Control: if future demand is estimated with accuracy cost
can be minimized by purchasing raw materials at lower price in
advance.
⚫Sales Target: Sales targets can be fixed based on the demand
scenario.
⚫Advertising Policy Decision: cold drinks are advertised more
in summer than winter.
⚫Inventory Management: inventory has a cost. Hence, proper
inventory can be planned depending on the demand forecast.
⚫Long Term Planning: like capacity augmentation,
building new plant, hiring etc.

4. Demand Forecasting: Important
points
⚫Purpose of Forecast: The purpose of forecast
determines the choice of technique and accuracy
required.
⚫Level of Forecast: There are three levels
usually- firm, industry, and macro level
⚫Time Horizon of Forecast: The forecasting
can be done for short, intermediate and long
period.
⚫Unit of Forecast: individual product or aggregate.

5. Common Characteristics of
Forecasting
1. Forecasts are rarely perfect
2. Forecasts are more accurate for aggregated data than for
individual items
3. Forecast are more accurate for shorter than longer time
periods.
4. Forecast are more accurate for industry rather than firm.

6. Techniques of Demand
Forecasting

7. Demand Forecasting: Survey
Methods
⚫Survey Methods: These methods are highly subjective and
usually used for short term forecasting. They can be further
classified as:
1. Consumer survey
2. Opinion Poll

8. Demand Forecasting: Survey Methods
⚫ Consumer Survey: Under this method a list of potential buyers would be
drawn and each buyer will be approached and asked about their buying plans.
This method is ideal and it gives firsthand information, but it is costly and
difficult to conduct. This may be undertaken in three ways:
i. Complete Enumeration – In this method, all the consumers of the product
are interviewed.
ii. Sample survey - In this method, a sample of consumers is selected for
interview. Sample may be random sampling or non random.
iii. End-use method – The demand for the product from different sectors such as
industries, consumers, export and import are found out.

9. Demand Forecasting: Survey
Methods
⚫Opinion Poll Methods: Under this methods the experts opinion is
used to forecast the demand. The main techniques can be put under two heads:
i. Expert opinion
ii. Market Studies
⚫The important expert opinion methods are:
1. Opinion Survey method: This method is also known as Sales- Force
–Composite method. Under this method, the company asks its salesmen to submit
estimate for future sales in their respective territories. This method is more
useful and appropriate because the salesmen are more knowledgeable about their
territory.

10. Demand Forecasting: Survey
Methods
2. Experts’ Opinion Poll: In this method, the experts on the
particular product whose demand is under study are requested to
give their ‘opinion’ or ‘feel’ about the product. These experts, dealing
in the same or similar product, are able to predict the likely sales of a
given product in future periods under different conditions based on
their experience. If the number of such experts is large and their
experience-based reactions are different, then an average- simple or
weighted –is found to lead to unique forecasts.

11. Demand Forecasting: Survey
Methods
3. Delphi Method: It is a sophisticated statistical method to
arrive at a consensus (a general agreement). This method
employs a panel of experts in different locations who
independently fill out a series of questionnaires. However,
the results from each questionnaire are provided with the
next one, so each expert then can evaluate this group
information in adjusting his or her responses next time. The
process is repeated until the responses converge to along a
single line.

12. Demand Forecasting: Survey
Methods
⚫Market Studies: Under this method a representative market is
elected and the product is sold by varying price,
advertisement etc. It can be of several types. It is mostly used
for new products and is called test marketing.

13. Demand Forecasting: Statistical
Methods
⚫It is used for long term forecasting. In this method,
statistical and mathematical techniques are used to
forecast demand. This method is relies on past data. This
includes three methods:
i. Trend Projection
ii. Barometric Methods
iii. Econometric Methods

14. Demand Forecasting: Statistical
Methods
1.Trent projection method: Under this method, demand is
estimated on the basis of analysis of past data. This method
makes use of time series (data over a period of time). Here
we try to ascertain the trend in the time series. Three
techniques can be used to project the trend:
i. Graphical method
ii. Fitting Trend Equations
iii. Box Jenkins Method

15. Demand Forecasting: Statistical
Methods
2.Barometric method: This consists in discovering a set
of series of some variables (indicators) which exhibit a
close association in their movement over a period or time.
The indicators can be of 3 types:
a) Leading indicators
b) Coincidental indicators
c) Lagging indicators
For example, the sale of tractors can be forecasted by the
movement of agricultural income (AY series). The
movement of AY is similar to that of ST, but the movement
in ST takes place after a year’s time lag compared to the
movement in AY
.

16. Demand Forecasting: Statistical
Methods
3. Econometric methods: These methods combine
economic theories with mathematics and statistics to
estimate the demand. It is mainly of two types:
i. Regression methods: it can be bivariate or multivariate
ii. Simultaneous equation models: This means
the
development of a complete economic model which will
explain the behaviour of all variables which the
company can control.