This document discusses various demand forecasting methods. Demand forecasting is predicting future demand based on past patterns. It is important for production planning, sales forecasting, inventory control, and other business and economic decisions. Forecasting methods include qualitative techniques like opinion polling and quantitative techniques like statistical analysis. Opinion polling involves consumer surveys, sales force opinions, or expert panels. Statistical methods include trend projection, regression analysis, and econometric modeling to establish relationships between demand and influencing factors.
2. DEMAND FORECASTING
• Forecasting of demand is the art of Predicting
demand for a product or a service at some future date
on the basis of certain present and past behavior
patterns of some related events.
• “Demand Forecast is an estimate of sales during a
specified future Period which is tied a Proposed
marketing plan and which assumes a Particular set of
uncontrollable and competitive forces”
-Cundiff and still
3. SIGNIFICANCE OF DEMAND
FORECASTING:
• Production Planning
• Sales Forecasting
• Control of business
• Inventory Control
• Growth and Long Term Investment Programmes
• Stability
• Economic Planning and policy making
4. NEED OF FORECASTING:
• Need of short term forecasting :
-Appropriate production Scheduling
-Helping the firm in reducing costs
-Determining appropriate price policy
-Setting sales Targets and establishing controls &
Incentives
-Forecasting Short term financial requirements.
5. • Need of Long Term Forecasting:
-Planning of a new unit or expansion of an existing
unit
-Planning Long term financial Requirements
-Planning Man Power Requirements
6. METHODS OF FORECASTING:
• Opinion Polling Method/Qualitative
Techniques:
In this case , the opinion of the buyers , sales force and
experts could be gathered to determine the emerging
trend in the market.
7. The opinion polling methods of demand forecasting are
of three kinds:
•Consumer survey method:
-Complete Enumeration Survey
-Sample survey and test marketing
-End use method
•Sales force Opinion Method
•Delphi Technique
8. • Consumer survey method:
The most direct method of forecasting in short run.
Surveys are conducted to collect information about
future purchase plans of the probable buyers of
product.
a)Complete Enumeration survey:
In this case the firm has to go for a door to door survey.
b)Sample survey & Test Marketing:
In this method some representative households are
selected on random basis as samples & their opinion
is taken as the generalized opinion.
9. • C)End Use method:
In this case , demand for Final Product is the
end use demand of the intermediate product
used in the Production of this final Product.
10. ii)Sales Force Opinion Method:
•Also known as collective Opinion Method.
•Instead of consumers the Opinion of consumers is
sought.
•Also referred as grass root approach as it is a bottom
up method.
iii)Delphi Technique:
Also known as expert Opinion method of investigation.
Instead of depending upon the Opinions of buyers &
salesmen Firms can obtain views of specialist or
experts in their respective fields.
11. • Statistical or Analytical Methods/Qualitative
Techniques:
• Trend Projection Method:
-Graphical Method
-Least Square method
-Time series Data
-Moving average method
-Exponential smoothing
13. • Trend Projection method:
• A firm uses its own data of past yearsregarding its
sales in past years.(This data is known as time series
of sales.)
• A firm can predict sales of the product by fitting trend
to the time series of sales.
• The trend can be estimated by using any one of the
following method:
14. • Graphical method:
• In this case old values of sales for different areas are
plotted on graph & a free hand curve is drawn
Passing through as many Points as possible.
• The direction of this free hand curve shows the trend.
15. • Least Square Method:
• It is based on the assumptions.
• In which the past rate of change of the variable under
study will continue in the future.
• This method is very popular because it is very simple
and inexpensive.
16. • Time series Data/Analysis:
• Time series data refers to the data collected over a
period of time recording historical changes in price,
Income, and other related variables Influencing
Demand for the commodity.
• Time series analysis relate to the determination of
changes in a variable in relation to time.
17. • Moving Average Method:
• {It is the process of computing average of leaving the
oldest observation and including the next one.}
• In this method the moving average of the sales of the
past years is computed.
• The computed moving average is taken as forecast for
the next year or period.
18. • Exponential Smoothing:
• It is very Popular technique for short run.
• It uses weighted average of past data as the basis for
forecast.
• In this Procedure heaviest weight is to more recent
information and smaller weights to observation in the
more distant past.
• It is effective only when there is randomness and no
seasonal fluctuation.
19. • Barometric Method:
• Also known as leading Indicators Forecasting.
• NBER of U.S.A. has identified three types of indicators:- i)
Leading Indicators
ii) Coincidental Indicators
iii) lagging indicators.
The analyst should establish relationship between the sales of
the product & the economic indicators to project the correct
sales & to measure to what extent these indicators affect the
sales.
20. • Regression method:
• Very common method of forecasting.
• In this method a relationship is established between
quantity demanded and Independent variables such as
Income, Price, prices of the related goods etc.
• Once the relationship established, we derive
regression equation assuming relation to be linear.
• The equation in the form of Y=A+ Bx.
• Once the regression equation is derived the
value of Y i.e. quantity demanded can be
estimated for any value of X.
21. • Econometric Method:
• The econometric model forecasting involves
estimating several simultaneous equation.
• It is also known as Simultaneous equations method.
