DEMAND FORECASTING

INTRODUCTION

FORECASTING:-It means expectation about the future

course of development, forecasting also means predicting the
future well in advance.

DEMAND FORECASTING:- Demand forecasting is the tool

to scientifically predict the likely demand of the product in
future.
 CATEGORIES

1.Micro level- it means demand forecasting at individual

firm business.

2. Industry level- demand for the product in an industry as a

whole.

3. Macro level- refers to forecasting of aggregate demand in

the economy.
 SIGNIFICANCE OF DEMAND
FORECASTING
Production Planning

Sales Forecasting

Control of Business

Inventory Control

Growth and Long term Investment Programs

Economics Planning and Policy Making

 HORIZONS OF DEMAND
FORECASTING:

SHORT-TERM LONG-TERM
FORECASTING FORECASTING

(Period Less than a Year) (Period More than a Year)

 PURPOSE OF
SHORT-TERM DEMAND FORECASTING
Evolving a Sales
Policy

Determining Price
Policy

Evolving a Purchase
Policy

Fixation of Sales
Targets

Determining Short-
Term Financial
Planning
 PURPOSE OF
LONG-TERM DEMAND FORECASTING

Long-Term Financial
Business Planning Manpower Planning
Planning
CRITERIA OF A GOOD
FORECASTING METHOD
Joel Dean (1976) lays down the following criteria

Accuracy

Simplicity Ease of Comprehension

Economy

Availability

Maintenance of Timeliness
 FORECASTING TECHNIQUES

FORECASTING TECHNIQUES

QUALITATIVE QUANTITATIVE

EXPERT OPNION METHOD CONSUMER SURVEY METHOD TIME SERIES METHOD REGRESSION METHOD
 EXPERT OPINION SURVEY

GROUP DISCUSSION
invented by OSBORN in 1953. In this process decisions are made
by the panel of experts with the help of positive & negative
brainstorming.

DELPHI METHOD
invented by OLAF HELMER of RAND corporation in 1940. in
this method opinions are taken by experts without their face to face
interaction with the help of questionnaires of repeated rounds to
rectify the previous mistakes in answers.
 MERITS

Decisions are enriched with experts

experience
No need to spend more time & resources

Useful for the new product in market

 DEMERITS

Involved Experts may be biased

Risk of loss of confidential information to rival

firms by experts
 CONSUMER SURVEY

Complete Enumeration Survey

Sample Survey

Sales force Opinion Survey

 COMPLETE ENUMERATION SURVEY

Forecasting is based on the complete survey of

all the consumers of the commodity.

• Advantages
Accurate
Simple
Based on data

• Disadvantages
Time consuming
Expensive
 SAMPLE SURVEY

FORECASTING IS BASED ON THE SAMPLE OF FEW

CONSUMERS OF THE COMMODITY.

ADVANTAGES
QUICK
SIMPLE
EXCELLENT RESULT
LESS COSTLY

DISADVANTAGES
NOT A TRUE REPRESENTATION
CHOICE OF SAMPLE
 SALES FORCE OPINION SURVEY

Forecasting is based on the opinion of employees and sales

team of the company.

Advantages
Quick and Easy
Simplest
Excellent result
Less costly

Disadvantages
Misleading
Biased
 TIME SERIES

Values of variable collected & Recorded in

chronological order.

It is a statistical tool to predict the future

The values of the variables depend upon the

past data

It describes the pattern of the past data and its

behavior.
 SECULAR TREND

Data
Secular Trend

X
O
Time
 SEASONAL TREND

80
70
60
50
40
30
20
10
0
J F M A M J J A S O N D J F M A M

Demand for wollen chloths

Demend for Rain coats
CYCLICAL VARIATIONS

Prosperity

Prosperity Recession
Normal

Recovery
Depression

O X

Phases of business cycle

 RANDOM EVENT

They do not follow a pattern

They occur randomly

Irregular movements which are completely

unpredictable

This irregular fluctuations are caused by in time series

are caused by events such as war, strikes, famines &
floods, epidemics etc.
 REGRESSION METHOD
British biometrician Sir Francis Galton(1822-1911)

Def: Regression analysis is a mathematical measure of

the average relationship between two or more variables in
terms of the original units of the data.

Two types of variable

dependent variable

independent variable
 REGRESSION EQUATION
Y=a+bX

Y=Value Being forecasted

a= Constant value

b =co-efficient of regression

X= independent variable
 NO. OF CARS BOOKED
No. of salesmen 5 8 6 8 9 3 5 4 6 6
No. of cars booked 132 160 148 156 168 102 142 98 152 142

180
160
140
120
100
80
60
40
20
0
5 8 6 8 9 3 5 4 6 6 10
 OBTAINING REGRESSION
EQUATION
X Y XY X2 Y2 • a=72.5
5 132 660 25 17424
• b=11.25
8 160 1280 64 25600
6 148 888 36 21904
8 156 1248 64 24336 • Y=72.5+11.25X
9 168 1512 81 28224
• Putting X=10
3 102 306 9 10404
5 142 392 25 20164
4 98 392 16 9604 • We get Y=185
6 152 912 36 23104
6 142 852 36 20164
60 1400 8760 392 200298
 NO. OF CARS BOOKED
No. of salesmen 5 8 6 8 9 3 5 4 6 6 10
No. of cars booked 132 160 148 156 168 102 142 98 152 142 185

200
180
160
140
120
100
80
60
40
20
0
5 8 6 8 9 3 5 4 6 6 10
 MERITS

It produces reliable and accurate results

Besides generating the forecast, it also explains the
economic phenomenon

DEMERITS
The method uses complex calculations.
It is costly and time consuming
It requires the use of some other forecasting technique for
estimating the value of the casual variables
 LIMITATIONS OF DEMAND
FORECASTING
Change in Fashion

Consumer’s Psychology

Uneconomical

Lack of Experts

Lack of Past Data

THANK YOU