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Demand Forecasting

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					  TECHNIQUES OF DEMAND
FORECASTING (CONVENTIONAL
        METHODS)
      Demand Forecasting

DAMAND FORECASTING refers to prediction
and estimation of a future situation under
given constraints.
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
customer–focused activity.
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
          resources.
     2. Undertaken at three levels:
a.    Macro-level
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”
      products.
5. Classification of products – producer goods, consumer durables, consumer
      goods, services.
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
     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.
     Methods of demand forecasting
        (conventional methods)

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
 TO CUSTOMER

                         PRATIK CHAUDHARY (07)
ADVANTAGES
1. Simple – no statistical techniques.
2. Based on first hand knowledge.
3. Quite useful in forecasting sales of new
   products.

DISADVAGES
1. Almost completely subjective.
2. Usefulness restricted to short-term
   forecasting.
3. Salesmen may be unaware of broader
   economic changes
    EXPERTS OPINION METHOD
• PANEL OF EXPERTS IN SAME FIELD WITH
  EXPERIENCE & WORKING KNOWLEDGE.
• COMBINES INPUT FROM KEY INFORMATION
  SOURCES.
• EXCHANGE OF IDEAS AND CLAIMS.
• FINAL DECISION IS BASED ON MAJORITY OR
  CONSENSUS, REACHED FROM EXPERT’S
  FORECASTS.
ADVAVNTAGES
• can be undertaken easily without the use of elaborate
  statistical tools.
• No danger of a “group-think” mentality.

LIMITATIONS
• JUDGEMENTAL BIASES
Availability heuristic
• 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
  population
            DELPHI METHOD

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
  defined.
PANEL OF EXPERTS IS SELECTED.

2 TO 3 CYCLES ARE UNDERTAKEN.

FORECASTS ARE REVISED UNTIL A
 CONSENSUS IS REACHED BY ALL.
Advantages
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.
Limitations
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
    participants.
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
  COLLECTED RELIABLE.
• INFORMATION FROM INTERACTIONS BETWEEN SALES
  PERSONNEL & CUSTOMERS IS USED FOR FORECASTING.
• BEST USED IF SALES PERSONNEL ARE HIGHLY SPECIALISED
  AND WELL TRAINED.
ADVANTAGES
• USES KNOWLEDGE OF THOSE CLOSEST TO THE
  MARKET.
• HELPS ESTIMATING ACTUAL POTENTIAL FOR
  FUTURE SALES.
• PROVIDES FEEDBACK FOR IMPROVING
  CUSTOMIZING & OFFERING MADE TO CUSTOMERS.
LIMITATIONS
• METHOD IS VERY EXPENSIVE.
• RESULTS ARE MAY NOT BE APPLICABLE TO
  UNCONTROLLED LONG TERM CONDITIONS OF THE
  MARKET.
   Survey of buyers’ intentions
• EMPLOYS SAMPLE SURVEY TECHNIQUES FOR
  GATHERING DATA.
• DATA IS COLLECTED FROM END USERS OF
  GOODS - CONSUMER, PRODUCER,MIXED.
• DATA PORTRAYS BIASES AND PREFERENCES
  OF CUSTOMERS.
• IDEAL FOR SHORT AND MEDIUM TERM
  DEMAND FORECASTING, IS COST EFFECTIVE
  AND RELIABLE.
ADVANTAGES
• HELPS IN APPROXIMATING FUTURE
  REQUIREMENTS EVEN WITHOUT PAST DATA.
• ACCURATE METHOD AS BUYERS NEEDS AND
  WANTS ARE CLEARLY IDENTIFIED & CATERED
  TO.
• MOST EFFECTIVE WAY OF ASSESSING
  DEMAND FOR NEW FIRMS
LIMITATIONS

• People may not know what they are going to
  purchase.
• They may report what they want to buy, but
  not what they are capable of buying
• Customers may not want to disclose real
  information
THANK YOU

				
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