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Demand Forecasting

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Demand Forecasting

1. 1. Demand Forecasting <ul><li>Forecasting is predicting the future </li></ul><ul><li>Why forecast demand? </li></ul><ul><li>Methods </li></ul><ul><li>1 Opinion-based or Experimental </li></ul><ul><li>Time Series Analysis </li></ul><ul><li>Barometric Forecasting </li></ul>
2. 2. Opinion based or Experimental Methods <ul><li>Delphi Surveys Market </li></ul><ul><li>Experiments </li></ul><ul><li>Delphi method: based on experts’ opinion </li></ul><ul><li>Surveys: surveys of investment plans or consumer plans </li></ul><ul><li>Market Experiments: collecting data from a test market </li></ul>
3. 3. Time Series Analysis <ul><li>Trend Exponential </li></ul><ul><li>Projections Smoothing </li></ul>
4. 4. Trend Projection Graphic Statistical Seasonal curve fitting curve fitting variation
5. 5. Graphic curve fitting: the trend is projected graphically
6. 6. Statistical Curve Fitting <ul><li>Constant Rate of Change: Y t = Y 0 + b t </li></ul><ul><li>Constant Percentage Rate of Change: </li></ul><ul><li>Y t = Y t – 1 (1 +g ) </li></ul><ul><li> Y t = Y 0 (1 +g ) t </li></ul><ul><li>  ln Y t = lnY 0 + t ln (1 +g ) </li></ul>
7. 7. Seasonal Variation in Time Series <ul><li>Ratio-to-trend approach: </li></ul><ul><li>The forecasts are adjusted with average of </li></ul>
8. 8. Exponential Smoothing <ul><li>F t = α Y t + (1 - α ) F t – 1 </li></ul><ul><li>F t : Forecast of Period t </li></ul><ul><li>Y t : Actual observation at period t </li></ul><ul><li>α : smoothing constant </li></ul><ul><li>α should minimize the sum of squared forecast error = ∑ ( Y t – F t ) 2 . </li></ul>
9. 9. Barometric Forecasting <ul><li>Indicator Series : when one series is correlated with another one then the second one is called the indicator of the first one. </li></ul><ul><li>Coincident Indicator : when both the series moves together </li></ul><ul><li>Leading Indicator : when the indicator series moves ahead of the other one </li></ul>
10. 11. <ul><li>Composite Index : when there are more than one indicators then composite index is prepared as a weighted sum of all the leading indicators </li></ul><ul><li>Diffusion Index : it is computed as a percentage of those indicators which are increasing </li></ul>