TECHNIQUES OF DEMAND
DAMAND FORECASTING refers to prediction
and estimation of a future situation under
Accurate demand forecasting is essential for a
firm to enable it to produce the required
quantities at the right time and arrange well in
advance for the various factors of production,
viz., raw materials, equipment, machine
accessories, labour, buildings, etc.
What is demand forecasting
Forecasting customer demand for products
and services is a proactive process of
determining what products are needed
where, when, and in what quantities.
Consequently, demand forecasting is a
Demand forecasting is also the foundation
of a company’s entire logistics process. It
supports other planning activities such as
capacity planning, inventory planning, and
even overall business planning.
Factors involved in Demand Forecasting
How far ahead?
a. Long term – eg., petroleum, paper, shipping. Tactical decisions. Within the limits
of resources already available.
b. Short-term – eg., clothes. Strategic decisions. Extending or reducing the limits of
2. Undertaken at three levels:
b. Industry level eg., trade associations
c. Firm level
3. Should the forecast be general or specific (product-wise)?
4. Problems or methods of forecasting for “new” vis-à-vis “well established”
5. Classification of products – producer goods, consumer durables, consumer
6. Special factors peculiar to the product and the market – risk and
uncertainty. (eg., ladies’ dresses)
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
e. Evolving a suitable advertising and promotional
f. Forecasting short term financial requirements.
• Purposes of long-term forecasting
a. Planning of a new unit or expansion of an existing
b. Planning long term financial requirements.
c. Planning man-power requirements.
Methods of demand forecasting
1. Collective opinion
2. Survey of buyers’ intentions
3. Delphi method
4. Expert opinion
5. Market experimentation method
COLLECTIVE OPINIONS METHOD
OPINIONS FROM MARKETING & SALES
SPECIALISTS ARE CONSIDERED.
COMBINES EXPERTISE OF HIGHER LEVEL
MANAGEMENT & SALES EXECUTIVES.
THE RATIONALE IS SALESMAN, BEING CLOSET
PRATIK CHAUDHARY (07)
1. Simple – no statistical techniques.
2. Based on first hand knowledge.
3. Quite useful in forecasting sales of new
1. Almost completely subjective.
2. Usefulness restricted to short-term
3. Salesmen may be unaware of broader
EXPERTS OPINION METHOD
• PANEL OF EXPERTS IN SAME FIELD WITH
EXPERIENCE & WORKING KNOWLEDGE.
• COMBINES INPUT FROM KEY INFORMATION
• EXCHANGE OF IDEAS AND CLAIMS.
• FINAL DECISION IS BASED ON MAJORITY OR
CONSENSUS, REACHED FROM EXPERT’S
• can be undertaken easily without the use of elaborate
• No danger of a “group-think” mentality.
• JUDGEMENTAL BIASES
• Involves using vivid or accessible events as a
basis for the judgment.
Law of small numbers
• People expect information obtained from a
small sample to be typical of the larger
It consists of an effort to arrive at a consensus
in an uncertain area by questioning a group
of experts repeatedly until the results
appear to converge along a single line of the
issues causing disagreement are clearly
PANEL OF EXPERTS IS SELECTED.
2 TO 3 CYCLES ARE UNDERTAKEN.
FORECASTS ARE REVISED UNTIL A
CONSENSUS IS REACHED BY ALL.
1. Facilitates the maintenance of anonymity of the
respondent’s identity throughout the course.
2. Saves time and other resources in approaching a large
number of experts for their views.
1. Panelists must be rich in their expertise, possess wide
knowledge and experience of the subject and have an
aptitude and earnest disposition towards the
2. Presupposes that its conductors are objective in their
job, possess ample abilities to conceptualize the problems
for discussion, generate considerable thinking, stimulate
dialogue among panelists and make inferential analysis
of the multitudinal views of the participants.
MARKET EXPERIMENTATION METHOD
• INVOLVES ACTUAL EXPERIMENTS & SIMULATIONS.
• PROXIMITY WITH CONSUMERS MAKES INFORMATION
• INFORMATION FROM INTERACTIONS BETWEEN SALES
PERSONNEL & CUSTOMERS IS USED FOR FORECASTING.
• BEST USED IF SALES PERSONNEL ARE HIGHLY SPECIALISED
AND WELL TRAINED.
• USES KNOWLEDGE OF THOSE CLOSEST TO THE
• HELPS ESTIMATING ACTUAL POTENTIAL FOR
• PROVIDES FEEDBACK FOR IMPROVING
CUSTOMIZING & OFFERING MADE TO CUSTOMERS.
• METHOD IS VERY EXPENSIVE.
• RESULTS ARE MAY NOT BE APPLICABLE TO
UNCONTROLLED LONG TERM CONDITIONS OF THE
Survey of buyers’ intentions
• EMPLOYS SAMPLE SURVEY TECHNIQUES FOR
• DATA IS COLLECTED FROM END USERS OF
GOODS - CONSUMER, PRODUCER,MIXED.
• DATA PORTRAYS BIASES AND PREFERENCES
• IDEAL FOR SHORT AND MEDIUM TERM
DEMAND FORECASTING, IS COST EFFECTIVE
• HELPS IN APPROXIMATING FUTURE
REQUIREMENTS EVEN WITHOUT PAST DATA.
• ACCURATE METHOD AS BUYERS NEEDS AND
WANTS ARE CLEARLY IDENTIFIED & CATERED
• MOST EFFECTIVE WAY OF ASSESSING
DEMAND FOR NEW FIRMS
• People may not know what they are going to
• They may report what they want to buy, but
not what they are capable of buying
• Customers may not want to disclose real