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Impact of demand factors



Prepared by :

Dr. K. BARANIDHARAN

PROF.MBASRI SAIRAM INSTITUTE OF TECHNOLOGY

CHENNAI

ENGINEERING ECONOMICS

AND

FINANCIAL ACCOUNTING

Sri Sairam Institute of Technology 2



EngineeringEconomics& Financial

Accounting

Ee fa

310 August 2014



Meaning

• Demand forecasting is an

estimate of sales indollars(rupees) or physical

units for a specifiedfuture period under a

proposed marketing plan.



Forecasting is essentially

an operations research

technique of planning anddecision making: it refers

to making prediction ofany future event.



Categorisation by Time

a.Short-term: period not exceeding a

year.st production decisions of any firm

to avoid over or under production.

Exam: inventory, cost on variable factors,sales target

b. Long-term: 5 to 7 year may extended 10

to 20 years. LTF example: manpowerplanning, capital requirement,

investment decisions.



Categorisation by Level

a.Firm(Micro)level:product byindividual firm, manager view point

to take various important decisions

related to production andmarketing.

b.Economy(Macro) level:forecasting of

aggregate demand (or output) in the

economy as a whole. This helps in various

policy formulations at govt level.



Categorisation by Nature of Goods

a.Consumer Goods:Demand forecasting is

indispensable for cg.for durable cg

demand forecasting can be new

demand or replacement demand forwhich longterm demand forecasting

may be more useful.

Non-durable g demand would vary withincome level, age, gender, occupation.



• B.capital goods: commodity is

demanded for using it either as

a raw material or asintermediary for value addition

in any other good or in thesame good.



Demand ForecastingAccurate demand forecasting is essential for a firmto enable it to produce the required quantities at

the right time and arrange well in advance for thevarious factors of production, viz., raw materials,equipment, machine accessories, labour, buildings,etc.

In a developing economy like India, supplyforecasting seems more important. However, thesituation is changing rapidly.

The National Council of Applied EconomicResearch.



Purposes of forecasting

• Purposes of short-term forecasting

a. Appropriate production scheduling.b. Reducing costs of purchasing raw materials.

c. Determining appropriate price policy

d. Setting sales targets and establishing controls and incentives.

e. Evolving a suitable advertising and promotional campaign.f. Forecasting short term financial requirements.

• Purposes of long-term forecasting

a. Planning of a new unit or expansion of an existing unit.

b. Planning long term financial requirements.c. Planning man-power requirements.

Demand forecasts of particular products form guidelines for

related industries (eg., cotton and textiles). Also helpful at themacro level.

i d d f d l



Forecasting demand for new products – Joel Dean

1. Project the demand for a new product as an outgrowthof an existing old product.

2. Analyse the new product as a substitute for someexisting product or service.

3. Estimate the rate of growth and the ultimate level ofdemand for the new product on the basis of the patternof growth of established products.

4. Estimate the demand by making direct enquiries from theultimate purchasers, either by the use of samples or ona full scale.

5. Offer the new product for sale in a sample market, eg., by

direct mail or through one multiple shop organisation.6. Survey consumers’ reactions to a new product indirectly

through the eyes of specialised dealers who aresupposed to be informed about consumers’ need andalternative opportunities.



Scientific approach to Forecasting

1. Identify and state the objectives of forecasting

clearly.2. Select appropriate method of forecasting .

3. Identifying the variable affecting the demandfor the given product or service.

4. Express these variable in appropriate forms.5. Collect the relevant data.

6. Relationship between dependent andindependent variable, using staticstechniques.

7. Make appropriate assumption to forecast andinterpret results in terms of market share,turnover, size, brands

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