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Demand Forecasting...

Demand forecasting involves estimating future demand to help with production planning and resource allocation. There are two main approaches: surveys of consumers and experts to understand purchase intentions, and statistical analysis of past demand trends to extrapolate future demand. The objectives of demand forecasting include avoiding overproduction and underproduction by accurately anticipating needs, reducing inventory costs by adjusting purchases according to changing demand, and informing pricing, sales target-setting, expansion planning, financial planning, and manpower decisions. Common demand forecasting methods involve surveys using interviews, opinion polls of experts, and market experiments, as well as statistical techniques that analyze historical demand data trends. Accurately forecasting demand is important for business planning and efficiency.

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187 views

Demand Forecasting...

Demand forecasting involves estimating future demand to help with production planning and resource allocation. There are two main approaches: surveys of consumers and experts to understand purchase intentions, and statistical analysis of past demand trends to extrapolate future demand. The objectives of demand forecasting include avoiding overproduction and underproduction by accurately anticipating needs, reducing inventory costs by adjusting purchases according to changing demand, and informing pricing, sales target-setting, expansion planning, financial planning, and manpower decisions. Common demand forecasting methods involve surveys using interviews, opinion polls of experts, and market experiments, as well as statistical techniques that analyze historical demand data trends. Accurately forecasting demand is important for business planning and efficiency.

Uploaded by

anujjalans
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Demand Forecasting
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Meaning of Demand Forecasting

Demand Forecasting is not a speculative exercise into the
unknown.

Demand forecasting is an estimate of the future demand. It
gives a reliable approximation regarding the possible outcome,
with a reasonable accuracy.

The information regarding future demand is essential for
planning and scheduling production, purchase of raw
materials, acquisition of finance and advertising.

Since, production is based on anticipated future demand,
forecasting enables the firm to produce appropriate quantity of
product. Further, it can avoid over production and
underproduction.
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Objectives/Significance of Demand Forecasting
Demand Forecasting avoids fluctuations in production:

Demand conditions are always uncertain and changing. Accurate
estimation of demand is essential to avoid overproduction and
underproduction.

Demand forecasting reduce cost of inventory:

Demand forecasting helps the firm to adjust purchases of inputs
according to changing demand conditions. This reduces cost of
production.

Demand forecasting helps in pricing decisions:

It is helpful in formulating appropriate pricing policy. When market
conditions are weak, firms should not increase price. When market
conditions are strong, a reduction in price can lead to further
increase in sales.
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Demand forecasting is helpful in setting of sales target:

The marketing managers need to have reasonable sales forecasts in
order to make budget for sales, staff functions and personnel, to plan
appropriate distribution programs, establish overall promotional and
marketing related functions.

Demand forecasting is helpful to plan the expansion of existing units:

It helps in planning of additional capacity expansion for existing units.

Demand forecasting is helpful to plan short-term and long-term financial
requirement:

It enables the firm to raise sufficient funds, in advance. The Finance
manager relies on sales forecasts to determine what the firms cash
flow would be, when the firm should obtain external funds and how
much money required, to prepare firms projected profit and loss
statement and balance sheet for the year ahead.

Objectives/Significance of Demand Forecasting
5
Objectives/Significance of Demand Forecasting
Demand forecasting is helpful in manpower
planning:

It helps firm to take appropriate personnel
decisions that includes recruitment of production
workers, supervisors, maintenance workers,
quality-control analysts, and so on.


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Two Approaches generally followed in demand
forecasting
1. To collect information regarding the intentions of
the consumers by means of market research, survey
and economic intelligence.

2. To use past trends and taking them as a guide and
by extrapolating past trends to estimate future
demand.


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Methods of Demand Forecasting
1. Survey Method and 2. Statistical Method

Under Survey Method, the following techniques are used to conduct
survey among consumers and experts:

A) Direct Interviews
B) Opinion Polls

A) Direct Interviews

(1) Complete Enumeration or census method
(2) Sample surveys
(3) End-use method

B) Opinion Poll Method

(1) Experts Opinion Method
(2) Delphi Method
(3) Market Experiments

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1. Survey Method
A. Direct Interviews:

Direct interviews involves personal interviews of the potential
consumers or selected group of consumers from different
areas. The consumers are interviewed in different
areas/regions to find what quantity of goods that they are
planning to buy.

When all consumers are interviewed, the method is called
complete enumeration method or census method.

When only selected representative consumers are
interviewed, it is known as sample survey.

Under end-use method, the demand forecasting is conducted
through interviews or postal enquiry of end-users of a product.
This method helps to work out the future demand for an
industrial product based on types, colours, categories and
sizes.






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1. Survey Method
B) Opinion Polls

Opinion Poll aims at collecting the opinions of those who
possess knowledge of the market, e.g., sales representatives,
sales executives, professionals marketing experts and
consultants.

1) Experts Opinion Method

There are people who are experts in the field of selling of
goods like wholesalers and retailers. They will be in a position
to tell what consumers would buy.

Sales representatives are in close touch with the consumers.
They are able to know future purchase plans of the consumer,
their reaction to market changes, their response to new
products and demand for competing products.
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1. Survey Method
2) Delphi Method

Delphi method of demand forecasting is an
extension of the simple expert opinion poll
method.

Under the Delphi method, the experts are
provided information on estimates of forecasts of
other experts. The experts may revise their own
estimates in the light of forecasts made by other
experts.
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1. Survey Method
3) Market Experiments

Under this method, firms first select some areas of the
representative markets three or four cities having similar features,
viz., population, income levels, cultural and social background,
occupational distribution, choices and preferences of consumers.

Market experiments are carried out by changing prices,
advertisement expenditure and other explanatory variables in the
demand function, assuming other factors remains constant. The
explanatory variables may be changed over time either
simultaneously in all the markets or in the selected markets.

After such changes are introduced in the market, the consequent
changes in the demand over a period of time are recorded. On the
basis of data recorded, demand elasticity coefficients are computed.
These coefficients are then used to assess the future demand for
the product.

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2. Statistical Method

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