2. Demand Forecasting
Definition of demand Forecasting:
It is defined as estimating the feature demand for product and service and
resource. Necessary to produce the output. Estimate the feature demand or
service or resource product commonly referred to sales forecast. The sales forecast
for demand are the starting point for the entire planing in production for a
operation management.
Example: Material planning,man planning, capacity planning, production scheduling
all depend once forecasting.
Forecast are also use to produce profit, revinew, cost, productivity changes price,
energy raw material, interstate and price stock and bond.
3. Demand Behaviour-trend- cycle-
seasonal background.
Many people confuse cyclic behaviour with seasonal behaviour but they
are really quit different. If the fluctuations are not of a fixed frequency
then they are cyclic; if the frequency is unchanging and associated with
some aspects ofe the calendar,then the pattern is seasonal.
1. TREND
A trend exists when there is a long-term increase or decrease in the data. It does
not have to be linear. Sometimes we will refer to a trend as “changing direction”,
when it might go from an increasing trend to a decreasing trend. There is a trend in
the antidiabetic drug sales data shown in Figure 2.2.
4. 2. CYCLE
A cycle occurs when the data exhibit rises and falls that are not of a fixed frequency. These
fluctuations are usually due to economic conditions, and are often related to the “business cycle”.
The duration of these fluctuations is usually at least 2 year.
3.SEASONAL BACKGROUND
A seasonal pattern occurs when a time series is affected by seasonal factors such as the time of the
year or the day of the week. Seasonality is always of a fixed and known frequency. The monthly
sales of antidiabetic drugs above shows seasonality which is induced partly by the change in the
cost of the drugs at the end of the calendar year.
5. STEPS IN FORECASTING PROCESS
The 7 basic steps involved in forecasting:-
1. Determining the purpose an objective and the forecast.
2. Select the item for which forecast are needed.
3. Determine the item horizone for the forecast.
4. Select the forecasting model.
5. Gather and analyse the data needed for the forecast.
6. Prepare the forecast.
7. Monitor the forecast.
6. 2. SHORT RANGE AND LONG RANGE
FORECAST
1. Short range forecast
This forecast time spents upto 1 year it can be even
For monthly or weekly it is used for planning purchasing
Job scheduling, Job assignment and production level.
2. Long range forecast
From generally 3years time spent long and forecast are
Used in new product planning and development, capital
Expendition. A planning for facility location, research and
Development.
7. 3.QUALITATIVE FORECAST METHODS
1. Executive Opinions
The subjective views of executives or experts from sales, production, finance, purchasing, and administration are averaged to generate a forecast about future
sales. Usually this method is used in conjunction with some quantitative method, such as trend extrapolation. The management team modifies the resulting
forecast, based on their expectations.
The advantage of this approach: The forecasting is done quickly and easily, without need of elaborate statistics. Also, the jury of executive opinions may be the
only means of forecasting feasible in the absence of adequate data.
The disadvantage: This, however, is that of group-think. This is a set of problems inherent to those who meet as a group. Foremost among these are high
cohesiveness, strong leadership, and insulation of the group.
2. Delphi Method
This is a group technique in which a panel of experts is questioned individually about their perceptions of future events. The experts do not meet as a group, in order to
reduce the possibility that consensus is reached because of dominant personality factors. Instead, the forecasts and accompanying arguments are summarized by an
outside party and returned to the experts along with further questions. This continues until a consensus is reached.
Advantages: This type of method is useful and quite effective for long-range forecasting. The technique is done by questionnaire format and eliminates the
disadvantages of group think. There is no committee or debate.
Disadvantages: Low reliability is cited as the main disadvantage of the Delphi method, as well as lack of consensus from the returns.
8. 3. Sales Force Polling:
Some companies use as a forecast source salespeople who have continual contacts with customers. They believe that the salespeople
who are closest to the ultimate customers may have significant insights regarding the state of the future market. Forecasts based on
sales force polling may be averaged to develop a future forecast. Or they may be used to modify other quantitative and/or
qualitative forecasts that have been generated internally in the company
The advantages of this forecast are:
It is simple to use and understand.
It uses the specialized knowledge of those closest to the action.
It can place responsibility for attaining the forecast in the hands of those who most affect the actual results.
The disadvantages include: salespeople’s being overly optimistic or pessimistic regarding their predictions and inaccuracies due to
broader economic events that are largely beyond their control.
4. Consumer Surveys:
Some companies conduct their own market surveys regarding specific consumer purchases. Surveys may consist of telephone
contacts, personal interviews, or questionnaires as a means of obtaining data. Extensive statistical analysis usually is applied to
survey results in order to test hypotheses regarding consumer behav
