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Demand forecasting is a critical process that combines art and science to predict future demand for products or services, utilizing data-driven insights. It involves analyzing historical sales, market trends, and external factors, employing both qualitative and quantitative methods, including advanced technologies like AI and machine learning. Accurate forecasts support strategic decision-making in production planning, inventory management, pricing strategies, marketing, and supply chain optimization.

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18 views14 pages

DF in

Demand forecasting is a critical process that combines art and science to predict future demand for products or services, utilizing data-driven insights. It involves analyzing historical sales, market trends, and external factors, employing both qualitative and quantitative methods, including advanced technologies like AI and machine learning. Accurate forecasts support strategic decision-making in production planning, inventory management, pricing strategies, marketing, and supply chain optimization.

Uploaded by

chakrabortyindesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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NAME : INDESH CHAKRABORTY

ROLL NO: 7
SUBJECT: MANAGERIAL ECONOMICS
TOPIC: CONCEPT OF DEMAND
FORECASTING
ASSIGNED BY Dr. RUPAM
MUKHERJEE
Demand Forecasting

 Demand forecasting is both an art and a science,


enabling businesses to anticipate future demand
for their products or services with precision. By
leveraging data-driven insights, companies can
make informed decisions, optimize resource
allocation, and swiftly adapt to shifting market
dynamics.
 Effective demand forecasting involves analyzing
historical sales patterns, assessing market trends,
and considering key external factors such as
economic conditions, consumer behaviour, industry
disruptions, and competitor strategies. Advanced
forecasting models may also incorporate emerging
technologies like artificial intelligence (AI) and
machine learning (ML) to enhance accuracy and
adaptability.
Accurate demand forecasts drive strategic decision-
making across various business functions, including:

 Production Planning – Ensuring optimal output to meet


demand without overproduction or shortages.
 Inventory Management– Balancing stock levels to reduce
holding costs while maintaining product availability.
 Pricing Strategies– Adjusting prices dynamically based on
anticipated demand and market conditions.
 Marketing & Advertising – Tailoring promotional campaigns
to align with demand fluctuations.
 Supply Chain Optimization – Enhancing coordination with
suppliers and logistics partners to improve efficiency.
Key Features of Demand Forecasting

 Data-Driven Analysis – Relies on historical sales data, market trends, and


external factors to predict future demand accurately.

 Short-Term & Long-Term Forecasting – Can be applied for immediate


operational needs (short-term) or strategic business planning (long-term).

 Qualitative & Quantitative Approaches – Combines statistical models,


machine learning, and expert judgment to improve accuracy.

 Market Sensitivity – Adjusts predictions based on changes in consumer


preferences, economic conditions, and competitor activities.

 Seasonality & Trend Consideration – Identifies recurring demand patterns


influenced by seasons, festivals, or economic cycles.
MAJOR DEMAND FORECASTING TECHNIQUES

 Demand forecasting is crucial for businesses to predict future


sales and optimize operations. Below is a detailed explanation of
qualitative and quantitative methods used for demand forecasting.
 . Quantitative Methods
 These methods use statistical and mathematical models to analyze
past data and predict future demand.

A .Expert Opinion (Delphi Method)


 - A structured communication process where experts provide
demand estimates.
 - Conducted in multiple rounds; experts revise their opinions
after seeing anonymous feedback from others.
 - Helps remove biases and reach a consensus.
 - Commonly used for new products or uncertain markets.
B . Market Research (Survey Method)

- Directly collecting consumer opinions


through surveys, interviews, or focus groups.
- Useful for understanding customer
preferences, demand drivers, and emerging
trends.
- Effective for launching new products or
entering new markets.
C . Sales Force Opinion

- Sales representatives interact with


customers daily and provide valuable
insights.
- Their predictions on future demand are
aggregated and analyzed.
- Useful in industries with frequent customer
interactions, such as retail and B2B markets.
D . Consumer Panels

- A group of selected consumers provides


ongoing feedback on their purchasing
behaviour.
- Tracks changes in demand over time and
helps identify seasonal trends.
- Often used in FMCG (Fast-Moving
Consumer Goods) industries.
Quantitative Methods

 These methods use statistical and mathematical


models to analyze past data and predict future
demand.

A. Time Series Analysis


 This method assumes that historical demand patterns
will continue in the future. It includes:

Moving Average
 - Calculates the average demand over a specific time
period.
 - Smoothens fluctuations and identifies trends.
 - Example: A 3-month moving average takes the
average demand of the last three months to predict
the next month’s demand.
Exponential Smoothing

 - Assigns more weight to recent data while considering past


trends.
 - Helps in short-term forecasting.
 - Example: A company predicting next month’s demand based on
recent sales while slightly considering older trends.

ARIMA (Auto-Regressive
Integrated Moving Average)
 - A complex statistical model that analyzes past data, trends, and
seasonality to make accurate predictions.
 - Widely used in finance, economics, and supply chain
management.
B . Causal Models (Econometric Models)

- These models examine the relationship


between demand and external factors such as
price, advertising, economic indicators, and
competition.
- Example: A car company forecasting
demand based on fuel prices, income levels,
and interest rates.
C. Regression Analysis

- Uses independent variables (e.g., marketing


spend, population growth, pricing) to predict
demand.
- Example: A clothing brand analyzing how
advertising spend affects sales
D. Machine Learning Algorithms

- Advanced AI-based models analyze large


datasets and detect patterns.
- Includes methods like neural networks,
decision trees, and random forests.
- Example: An e-commerce platform using
machine learning to forecast demand based
on past sales, user behaviour, and seasonality.

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