demand forecasting

11/25/2014 abhishek1235010004@gmail.com 1

abhishek 1235010004 @gmail.com

Demand Forecasting

Demand forecasting

is the activity of

estimating the

quantity of a product

or service that

consumers will

purchase. It involves

techniques, such as guesses, and quantitative methods,

such as the use of historical sales data.

All good forecasts are built on one of the three information bases:

What people say?

What people do?

What people have done?

Forecasting

Q. Predict the next number in the pattern:

a) 3.7, 3.7, 3.7, 3.7, 3.7,

b) 2.5, 4.5, 6.5, 8.5, 10.5,

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5,

Types of Forecasts by Time Horizon

Short–range Forecast

• Usually < 3 months

Medium-range Forecast

• 3 months to 2 year

Long-range Forecast

• 2 years

Quantitative methods

Qualitative methods

Methods of Demand Forecasting

Opinion Polling Method

Expert Opinion Method

Sales Force opinion survey

method

Consumers Survey

Methods

Complete Enumeration

Survey methodSample Survey

methodEnd Use Survey

Method

Statistical Method

Trend Projection

Barometric Techniques

Econometric Techniques

Regression Method

Simultaneous equation method

Two approaches –

1) Expert’s opinion or by

conducting interviews with

consumers. suitable for

short-term forecasting.

2) Use past experience using

statistical technique. Suitable for long-term forecasting

There is no easy method for a manager to predict the future.

Economists and statisticians have developed several methods.

Also known as Delphi Method.

Experts are requested to give their ‘opinion’ or ‘feel’

about the product.

Sales Force Opinion Survey Method

Also known as collective

opinion method.

Instead of consumers,

the opinion of the

salesmen is considered.

It is easy and cheap.

Useful in forecasting sales

of new product.

Consumers Survey Method

The burden of forecasting

is shifted to the buyer.

Direct method of estimating

the demand in short run.

Complete Enumeration Survey

Door-to-door survey for forecast period.

Limitation is that it requires lots of resources, manpower and time.

Sample Survey

Some representative

households are selected

on random basis as

sample and their opinion

is taken.

This sample truly

represents the

population.

This method is less

costly.

End Use Survey Method

The demand of the final product is the end user demand of the intermediate product used in the production of this final product .

Statistical Method

Viewing the problem with an external point of view.

Trend Projection

It is a instrument

measuring changes.

“the future can be

predicted from certain

happenings in present”

Commonly Used indicators:-(1) Gross National Income.(2) Employment(3) Agriculture Income(4) Bank Deposits etc.(5) Industrial Production(6) Construction contracts awarded for building materials.(7) Personal Income.

Regression Method

Simultaneous Equation Method

Sales Force opinion survey

method

Consumers Survey

Methods

Complete Enumeration

Survey methodSample Survey

methodEnd Use Survey

Method

Statistical Method

Trend Projection

Econometric Techniques

Regression Method

Simultaneous equation method

Trend Projection Method

Graphical Method

Semi-Average method

Moving Average

Least Square Method

Straight Line Trend

Parabolic Trend

Exponential Trend

Graphical Method

Demand in next period is the same as demand in most recent period

May sales = 48 →

Usually not good

June forecast = 48

Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

Straight Line Method

It is a mathematical method of determining trend.

The straight line obtained by this method is called line of best fit.

It is difficult to select the type of trend to be fitted.

It is a time consuming method.

Simple Moving Average

Assumes an average is a good

estimator of future behavior.

–Used if little or no trend

–Used for smoothing

Q. Suppose you’re manager in Amazon’s electronics department. You want to forecast iPods sales for months 4-6 using a 3-period moving average.

Month Sales (000) Moving Average

1 4 NA

2 6 NA

3 5 NA

4 3 (4+6+5)/3=5

5 7 4.667

Semi-Average Method

The given data is divided into 2 groups preferably with same no. of yr.

It is simple to understand then the other models such as moving, method of least square.

It is an objective method. Everyone will get the same answer by this Method.

It always assumes the straight line relationship the plotted points regardless of the fact.

Since it is based on the arithmetic mean, limitations of arithmetic mean shall automatically apply.

Exponential Smoothing

It is the most popular forecasting method.

It is very simple in application and in addition, the past data required is limited to just the last period’s actual demand and its forecast.

Ft+1 = Ft + a(At - Ft)

Ft+1 = Forecast value for time t+1

At = Actual value at time t

a = Smoothing constant

11/25/2014abhishek1235010004@gmail.com30

Has a small error

thank YOU

demand forecasting

consumers survey method

easy method

expert opinion method

end use survey method

delphi method

collectiveopinion method

door survey

methods of demand forecasting

Economy & Finance

demand forecasting

demand forecasting

demand forecasting

demand forecasting the context of demand forecasting the

demand forecasting