The document discusses different types and methods of demand forecasting. It describes short term and long term demand forecasting. It also outlines various survey methods like opinion surveys, expert opinions, Delphi method, and consumer interviews. It then discusses various statistical methods like time series analysis, barometric techniques, regression, and correlation for demand forecasting.
The document discusses different types and methods of demand forecasting. It describes short term and long term demand forecasting. It also outlines various survey methods like opinion surveys, expert opinions, Delphi method, and consumer interviews. It then discusses various statistical methods like time series analysis, barometric techniques, regression, and correlation for demand forecasting.
The document discusses different types and methods of demand forecasting. It describes short term and long term demand forecasting. It also outlines various survey methods like opinion surveys, expert opinions, Delphi method, and consumer interviews. It then discusses various statistical methods like time series analysis, barometric techniques, regression, and correlation for demand forecasting.
The document discusses different types and methods of demand forecasting. It describes short term and long term demand forecasting. It also outlines various survey methods like opinion surveys, expert opinions, Delphi method, and consumer interviews. It then discusses various statistical methods like time series analysis, barometric techniques, regression, and correlation for demand forecasting.
Demand Forecasting Introduction The information about the future is essential for both new firms and those planning to expand the scale of their production. Demand forecasting refers to an estimate of future demand for the product. It is an ‘objective assessment of the future course of demand”. In recent times, forecasting plays an important role in business decision-making. Demand forecasting has an important influence on production planning. It is essential for a firm to produce the required quantities at the right time. It is essential to distinguish between forecasts of demand and forecasts of sales. Sales forecast is important for estimating revenue cash requirements and expenses. Demand forecasts relate to production, inventory control, timing, reliability of forecast etc. However, there is not much difference between these two terms. Types of demand Forecasting Based on the time span and planning requirements of business firms, demand forecasting can be classified in to 1. Short-term demand forecasting and 2. Long – term demand forecasting.
1. Short-term demand forecasting: Short-term demand forecasting is limited to short periods, usually for one year. It relates to policies regarding sales, purchase, price and finances. It refers to existing production capacity of the firm. Short-term forecasting is essential for formulating is essential for formulating a suitable price policy. If the business people expect of rise in the prices of raw materials of shortages, they may buy early. This price forecasting helps in sale policy formulation. Production may be undertaken based on expected sales and not on actual sales. Further, demand forecasting assists in financial forecasting also. Prior information about production and sales is essential to provide additional funds on reasonable terms. 2. Long – term forecasting: In long-term forecasting, the businessmen should now about the long-term demand for the product. Planning of a new plant or expansion of an existing unit depends on long-term demand. Similarly a multi product firm must take into account the demand for different items. When forecast are mode covering long periods, the probability of error is high. It is vary difficult to forecast the production, the trend of prices and the nature of competition. Hence quality and competent forecasts are essential. Prof. C. I. Savage and T.R. Small classify demand forecasting into time types. They are 1. Economic forecasting, 2. Industry forecasting, 3. Firm level forecasting. Methods of forecasting Several methods are employed for forecasting demand. All these methods can be grouped under survey method and statistical method. Survey methods and statistical methods are further subdivided in to different categories.
1| Mohammad Imran Managerial Economics& Financial Analysis
1. Survey Method: Under this method, information about the desires of the consumer and opinion of exports are collected by interviewing them. Survey method can be divided into four type’s viz., Option survey method; expert opinion; Delphi method and consumers interview methods. A. Opinion survey method: This method is also known as sales-force composite method (or) collective opinion method. Under this method, the company asks its salesman to submit estimate of future sales in their respective territories. Since the forecasts of the salesmen are biased due to their optimistic or pessimistic attitude ignorance about economic developments etc. these estimates are consolidated, reviewed and adjusted by the top executives. In case of wide differences, an average is struck to make the forecasts realistic. This method is more useful and appropriate because the salesmen are more knowledge. They can be important source of information. They are cooperative. The implementation within unbiased or their basic can be corrected. B. Expert opinion method: Apart from salesmen and consumers, distributors or outside experts may also e used for forecasting. In the United States of America, the automobile companies get sales estimates directly from their dealers. Firms in advanced countries make use of outside experts for estimating future demand. Various public and private agencies all periodic forecasts of short or long term business conditions. C. Delphi Method: A variant of the survey method is Delphi method. It is a sophisticated method to arrive at a consensus. Under this method, a panel is selected to give suggestions to solve the problems in hand. Both internal and external experts can be the members of the panel. Panel members one kept apart from each other and express their views in an anonymous manner. There is also a coordinator who acts as an intermediary among the panelists. He prepares the questionnaire and sends it to the panelist. At the end of each round, he prepares a
2| Mohammad Imran Managerial Economics& Financial Analysis summary report. On the basis of the summary report the panel members have to give suggestions. This method has been used in the area of technological forecasting. It has proved more popular in forecasting. It has provided more popular in forecasting non-economic rather than economic variables. D. Consumers interview method: In this method the consumers are contacted personally to know about their plans and preference regarding the consumption of the product. A list of all potential buyers would be drawn and each buyer will be approached and asked how much he plans to buy the listed product in future. He would be asked the proportion in which he intends to buy. This method seems to be the most ideal method for forecasting demand. 2. Statistical Methods: Statistical method is used for long run forecasting. In this method, statistical and mathematical techniques are used to forecast demand. This method relies on post data. a. Time series analysis or trend projection methods: A well-established firm would have accumulated data. These data are analyzed to determine the nature of existing trend. Then, this trend is projected in to the future and the results are used as the basis for forecast. This is called as time series analysis. This data can be presented either in a tabular form or a graph. In the time series post data of sales are used to forecast future. b. Barometric Technique: Simple trend projections are not capable of forecasting turning paints. Under Barometric method, present events are used to predict the directions of change in future. This is done with the help of economics and statistical indicators. Those are (1) Construction Contracts awarded for building materials (2) Personal income (3) Agricultural Income. (4) Employment (5) Gross national income (6) Industrial Production (7) Bank Deposits etc. c. Regression and correlation method: Regression and correlation are used for forecasting demand. Based on post data the future data trend is forecasted. If the functional relationship is analyzed with the independent variable it is simple correction. When there are several independent variables it is multiple correlation. In correlation we analyze the nature of relation between the variables while in regression; the extent of relation between the variables is analyzed. The results are expressed in mathematical form. Therefore, it is called as econometric model building. The main advantage of this method is that it provides the values of the independent variables from within the model itself.
Shaik Mohammad Imran MBA, M.COM, (PhD)
|Assistant Professor , Dept of Management Studies |Gates Institute of Technology -Gooty |Anantapur District Pin : 515401 Cell No.9948536442
3| Mohammad Imran Managerial Economics& Financial Analysis
