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FORECASTING
Opening case
In recent years, unilever china in its business
strategy responded very closely to the complex
needs of consumer in china. The Chinese consumers
have typical preferences with typical taste and local
needs. Modern buyers have also become quality
conscious .
By studying the demand pattern in Chinese economy,
unilever develop a portfolio of brands of its product-
considering traditional Chinese outlook and trend of
technological improvements in the country.
Opening case
With its joint venture and large scale consolidation
in 1999, the company brand folio contained a mix
of global and local brands.
Dove, lux, ponds are the global brands of unilever
promoted and managed in china. Unilever’s
expertise and resources are extended to the
development of local brands
In short, unilever china sought to balance the
global and local market segments in satisfying the
distinct demand composition of the consumers.
Introduction
Forecasting Planning is the most important
function of managing.
Planning is thinking before doing. It is done to
minimize the risks arising out of an uncertain
future.
The risks associated with uncertain future can
be negated if one tries to make reasonable
assumptions about the course that the future is
likely to take.
Such an estimation of the future situation is
known as forecasting.
Demand Forecasting
Demand forecasting essentially involves
ascertaining the expected level of
demand during the period under
consideration.
reasonable judgment of future based on
scientific background
Cant be 100 % precise
Reliable approximation regarding the
possible outcome.
Level of Demand Forecasting
Micro level :
forecasting by individual business firm
Industry Level:
demand estimate for the product of the
industry , related to market demand
Macro level :
Aggregate demand for the industrial
output by the nation
Significance of Demand Forecasting
Product planning
Sales forecast
Control of business
Inventory control
Growth and long term investment
programmes
Stability
Economic planning and policy making
Short term and long term Forecasting
Short term demand forecasting
Evolving a sales policy
Determining price policy
Purchase policy
Fixation of sales target
Short term financial planning
Long term
Business planning
Manpower Planning
Long term financial planning
Stages in Forecasting Demand
Specification of objective(s)
Selection of appropriate technique
Collection of appropriate data
Estimation and interpretation of results
Evaluation of the forecasts
FORECASTING TECHNIQUES
Accuracy
Least possible cost
Minimum use of other resources
Choice of technique depends on-
Urgency and Availability of data
classification of Forecasting Techniques
Qualitative techniques
Obtain information about the likes and
dislikes of consumers.
Suited for short term demand
forecasting.
Demand forecasts for new products can
be made only by qualitative technique.
Quantitative Techniques
Forecast future demand by using quantitative
data from the past and extrapolating it to make
forecasts of future levels.
This is suited for long term demand forecasting.
Forecasts for new products, for which no past
data is available, cannot be made by
quantitative techniques as extrapolation is not
possible.
Demand for existing products can be forecast
by using this method also.
Sources of Data Collection
Primary data :
Original in character which are collected
for the first time for the purpose of
analysis
Secondary data:
Obtained from someone else record.
Already in existence in recorded or
published form
Secondary Data Sources
Official publication from central and state
government
– annual survey of industries, economic
survey, census on India
Economic journals
– stock exchange directory, economic and
political weekly
Official publication from reserve bank of India
Annual report on currency and finance
DIFFERENT TYPES OF QUALITATIVE TECHNIQUES
Quite accurate
Simple to use
Not affected by personal biases
Disadvantages
Costly
Time consuming
Difficult and impossible to survey all the
consumers
Open to faulty recording and wrong
interpretation
Can be used only for products with
limited consumers
Consumers Sample Survey
Miniature form of complete enumeration
method
Producers
To allocate various factors of production
for maximization of profit
To plan for expansion of scale of
operations
Policy makers and planners
To formulate economic policies through
planning commission for allocating
resources
To ensure adequate supply of inputs for
achieving the objectives of industrial policy,
import export policies, credit policy, public
distribution system and other related
policies Other groups of the society
Useful to researchers, social workers
and others with futuristic approach
Test marketing
Prod( 150 155 165 152 174 150 174 175 160 180
000).
2. Semi – average methods
Time series is divided in two equal parts,
separate arithmetic mean is calculated
for each part.
Values are plotted to obtain trend line
Case 1 : when no is even
Profit(0 20 22 27 26 30 29 40
00)
3. Moving average method
Widely used method
Case 1 : odd period moving average say
3 , 5 , 7 years
Year 1981 1982 1983 1984 1985 1986 1987
Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
Sale 7 8 9 11 10 12 8 6 5 10
s
(cror
e)
4. Least square method
Best method of fitting trend
Mathematical method obtained in such a
way the 2 conditions are fulfilled
1. ∑(Y-Yc)=0, sum of deviations of
actual values of Y and computed trend
values is zero
2. ∑(Y-Yc)²=least sum of square of
deviations is least.
Fitting straight line trend
Y=a+bX,
Y = trend values
X= Unit of time
a is Y intercept
b is slope
∑Y=Na+b∑X
∑XY=a ∑X +b∑X²
Fit a straight line (using 1978
as year of origin), obtain trend
values
Year 1979 1980 1981 1982 1983 1984
Prod. 5 7 9 10 12 17
Consumption level Method
Estimated on basis of coefficient of
income elasticity and price elasticity of
demand
Income elasticity
D*=D(1+M*em)
D*- projected per capita demand
D- per capita Demand
M*- % change in per capita income
Em- income elasticity of demand
Suppose the income elasticity of
demand for chocolates is 3 . In the year
1995, per capita income is 500$ and per
capita annual demand for chocolates is
10 million in a city .
It is expected that in the year 2000 per
capita income will increse by 20% .
Calculate the projected demand for
2000.
For Price elasticity
D*= D(1+P*.e)
D*- projected demand
D- present demand
P*- % change in price
E- price elasticity of demand
Present market demand for a commodity X is
2000 kg at Rs. 10 per kg. its price elasticity is
2. suppose price declines to 5, then the
expected change in demand is :