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Demand Forecasting

Demand forecasting is important for business planning and involves estimating future demand levels. It is done using various methods like survey methods, statistical methods, and time series analysis. Time series analysis uses past sales data to identify trends and predict future demand. Regression analysis identifies relationships between variables like past sales and factors influencing sales. Barometric methods use leading economic indicators to anticipate short term changes. Accurate demand forecasting allows businesses to plan production, purchasing, pricing and financial requirements.

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47 views21 pages

Demand Forecasting

Demand forecasting is important for business planning and involves estimating future demand levels. It is done using various methods like survey methods, statistical methods, and time series analysis. Time series analysis uses past sales data to identify trends and predict future demand. Regression analysis identifies relationships between variables like past sales and factors influencing sales. Barometric methods use leading economic indicators to anticipate short term changes. Accurate demand forecasting allows businesses to plan production, purchasing, pricing and financial requirements.

Uploaded by

Manas1996
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Demand Forecasting

By:
Manas Dutt
Whats Forecasting All About?
From the March 10, 2006 WSJ:

Ahead of the Oscars, an economics professor, at the request of Weekend


Journal, processed data about this year's films nominated for best picture
through his statistical model and predicted with 97.4% certainty that
"Brokeback Mountain (2005) would win. But it didnt. Last year, the
professor tuned his model until it correctly predicted 18 of the previous 20
best-picture awards; then it predicted that "The Aviator" would win; "Million
Dollar Baby" won instead.
Sometimes models tuned to prior results don't have great predictive powers.
Demand Forecasting

Forecasting:
Demand:
1. Looking into future
Demand means our
events.
desire for a commodity
2. Planning to reduce
supported by the
uncertainty.
ability and willingness
3. Prediction
to pay for it. It is the
4. Forecast/ Estimate of a
quantity of a
future situation.
commodity that we
are willing to buy at a
given price or given
time.
Demand Forecasting
Demand Forecasting refers to an estimate of future level of demand.
Foremost step in business planning.
Forecasting is an estimation of the demand that may be realized in
the future under given circumstances.
Important to Sales
It is impossible to predict the future, yet every business concern
needs demand forecasting for planning.
Demand forecasting is a continuous process.
Types of Demand Forecasting based on time
period

Long Term
Forecasting Short Term
Forecasting
Short Term Forecasting
Extends to a period of up to one year.
Useful for taking ad-hoc decisions and day to day decisions of concern.
Short Term Forecasting is undertaken for the following purposes:
1. Evolving a suitable production and sales policy.
2. Helping purchase planning to reduce the cost of operation.
3. To determine appropriate price policy.
4. Fixing the sales target.
5. Establishing control and creating incentives.
6. To determine the financial requirements.
Long Term Forecasting
Covers a period ranging from 5 to 20 years.
Useful for taking major decisions.
Purpose:
1. Planning the establishment of a new unit or expanding the existing
unit
2. Long term financial planning
3. Man-power planning
Steps in Forecasting

1. Identification of objective:
What needs to be forecast?
Level of detail, units of analysis & time horizon required
2. Determining the nature of the good under consideration:
What data is available to evaluate?
Identify needed data & whether its available
3. Selecting a proper method of Forecasting
Select and test the forecasting model
Cost, ease of use & accuracy
Generate the forecast
Monitor forecast accuracy over time (Interpretation of results)
Survey Methods are suitable for
Forecasting Methods short-term forecasting and
forecasting demand of a new
product.

Statistical Methods are useful


for long term forecasting.
Survey Methods

Experts Opinion Method/ Delphi Method:


1. Used to assess short term demand
2. Experts in a particular product are required to give their opinion on
the future sales of a firm during a given period.
3. Under this method, outside experts are appointed. They are
supplied with all kinds of information and statistical data.
Survey Methods
Consumer Interview Method:
1. Method may be applied to all the potential customers or a sample of potential
customers
2. Further divided into three categories:
Complete Enumeration Method:
Under this method, all potential customers are interviewed in a particular city or a region
Sample survey method or the consumer panel method:
Under this method, different cross sections of customers that make up the bulk of the
market are carefully chosen. Only such consumers selected from the relevant market
through some sampling method are interviewed or surveyed.
End Use or Input Output Method:
Under this method, the sale of the product under consideration is projected on the basis of
demand surveys of the industries using the given product as an intermediate product.
Barometric

Time Series/ Regression


Trend &
Method Correlation

Statistical
Method
Trend Analysis
It is considered an aspect of the analysis of time series data.
Time series data refers to the values of a variable arranged
chronologically by days, weeks, months, quarters of years.
Most frequently used forecasting method
Relies on past data and sales
Long standing firms can obtain sales data from sales department
New firms can obtain data from other firms in the same business.
Time Series Data Analysis Model
We try to predict the
future by looking back at
the past
Demand for Mercedes AMV
Convertibles

Actual demand (past sales)


Predicted demand
Predicted
demand
looking at
six months
Time
Jan Feb Mar Apr May Jun Jul Aug
Trend Analysis :
Regression Method
Statistical Method to forecast demand
Estimation or prediction of the unknown value of one variable (y)
from the know value of another variable (x).
This method makes use of statistical and econometric techniques to
identify the relationship between the variables.
Independent and dependent variable are identified and
extrapolations are made.
Least squares method is generally used
Used to estimate future
Regression Analysis
Barometric Method
Improvement over the trend method
Used to anticipate short term changes in economic activity
Or turning points in business cycles
Uses index of leading economic indicators
Disadvantage: Very difficult to find leading indicator and can only be
used for short term forecasting.
Importance of Demand Forecasting
Effective decision making
Use of scientific techniques
Primary role of economist as economics is all about predicting market
demand
Thanks for putting up with me!
Keep trippin!
-Bob Marley

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