DEMAND FORECASTING

Presenting by - P.JOEL PRAKASH

What is demand Forecasting ?“PREDICTIONS ARE USUALLY DIFFICULT,

ESPECIALLY ABOUT THE FUTURE”Prediction or estimation of a future situation,

under given conditions.Classified into categories: (i) Passive forecasts

(ii)Active forecasts

Important aid in effective and efficient planningIt is backbone of any business

Importance of demand forecasting

Crucial to manufacturer ,wholesaler, retailerBusiness decisionsPlanning for future finished goodsaccurate demand forecasts lead to efficient

operations and high levels of customer service

Improve quality & effectiveness of product

Factors determining demand forecasting

Time factor Level of forecasting General or Specific forecasting Problems & methods of forecasting Classification of goods Knowledge of different market conditions

Levels of Demand Forecasting1) Micro Level- Demand forecasting by

individuals business firm for forecasting the demand for its product.

2) Industrial Level- Demand estimate for the product of the industry

3) Macro Level- Aggregate demand forecasting for industrial output at the national level- it is based on the national income/ aggregate expenditure of the company.

Types of Forecasts by Time Horizon

Short–range Forecast•Usually < 3 months

Medium-range Forecast•3 months to 2 year

Long-range Forecast•2 years

Quantitative methods

Qualitative methods

Approach of forecasting

Qualitative

Quantitative

FORECASTING

Qualitative Forecasting approachObtaining information on likes and dislikes of

the consumers

It is short term forecasting

Demand forecasts for new products

Qualitative Forecasting approachI. Consensus approach

Expert Opinion method Forecasting the demand

on base of opinion of several experts who are more relevant to that area of interest

Delphi methodIt is a systematic, interactive

forecasting method which relies on a panel of experts

Complete Enumeration survey methodComplete survey on all the consumers for commodityEx: 1.Indians addicted to smartphones, says survey2. About 70 percent students today own smart phones in cities, according to a survey by software services firm TCSBy these survey many young entrepreneurs came forward and setting up there own business

Survey approach

Sample Survey Method:

Only few consumers are selected and there views are collected

Ex: samples of Maggie from different shops of city are collected for testing

End-User Survey Method:Focus on forecasting the demand on intermediary goodsEx: Cement use for construction of houses, buildings, hotels, etc

Sales Force Opinion Survey MethodEmployees of Company who are the part of sales & marketing teams are asked to predict the demand

Quantitative ForecastingForecast of future demand is based on past

data & extrapolating it to make the forecast of future levels.

It is long-term forecasting

Demand forecast for existing products can be made by these method accurately

Levels of Approach in Quantitative forecasting

Trend Projection approachSecular-Trend method: Change occurring

consistent over period of time Ex: Sales of PC’S increases over a year

Seasonal-Trend Method: Seasonal variation of the data within a year Ex: raincoats are dependent of weather

Cyclical-Trend Method: Demand for the product that may have a tendency to recur in a few years. Ex: Changes in BSE

Barometric approachThis type of approach is constructs an index of relevant economic indicators and forecast future trends on the basis of these indicators. These indicators are leading indicators tells us where we are headingcoincident indicators tells us where we are lagging indicators tells us where we lagging behind Commonly Used indicators:-(1) Gross National Income.(2) Employment(3) Agriculture Income(4) Bank Deposits etc.(5) Industrial Production(6) Construction contracts awarded for building materials.(7) Personal Income.

Andrew Carnegie the famous industrialist used to estimate the future of steel by counting the no of chimneys emitting smoke in Pittsburg

Ex:In 2001, Gujarat earthquake all constructions are collapsed while rebuilding the cement became the leading indicators

Economic approachIt is on basics of systematic analysis of economic relationships by combing economic theory with mathematical & statistical toolsRegression method: To develop the functional relationship & analyze the values of dependent variables with those of one or more in dependents variables

Plain biscuits

Savory Biscuits

Filled Biscuits

Sales of biscuit by category

Simultaneous Method:Incorporates mutual dependences among variables. Ex: demand forecasts on electricity based on many factors

Forecasting LimitationsChange in fashion

Consumer’s Psychology

Uneconomical

Lack of Experts

Lack of past data