Demand Forecasting
Introduction:
❑ Forecast is becoming the sign of survival and the language
of business.
❑It helps an organization to reduce risks involved in
business activities and make important business decisions.
❑The more realistic the forecasts, the more effective
decisions can be taken for tomorrow.
Meaning:
❑ A forecast is a prediction or estimation of future situation which,
by its nature unknown.
❑ It is an objective assessment of future course of action.
❑ Forecast can be both physical as well as financial in nature.
❑ Demand forecasting is different from demand estimation in the
sense that the former predicts about future trend of sale while latter
tries to find out expected present sales level.
Types of Forecasting:
❑ Passive Forecasting
Where prediction about future is based on the assumption that
the firm does not change the course of its action.
❑ Active Forecasting
Where forecasting is done under the condition of likely future
changes in the actions by the firm.
Purpose of Forecasting:
❑ The purpose of forecasting differs depending on the length of
time span - short run and long run forecast.
❑ Short run forecast
Here seasonal patterns are of much importance.
Helps in preparing suitable sales/price policy and proper
scheduling of output in order to avoid over stocking or costly
delays in meeting the orders.
Helps in deciding about necessary modifications in advertising
and sales techniques.
Purpose of Forecasting:
contd….
❑ Long run forecasts
Helps in proper capital planning, saving the wastages in
material, man-hours, machine time and capacity.
❑ Long run forecasting is normally used for ‘new unit’ planning,
expansion of the existing units, planning long-run financial
requirements and man-power requirements.
Scope of Forecasting
❑ Period of Forecast
❑ Levels of Forecast
❑ General Purpose or Specific Purpose Forecasts
❑ Forecasts of Established Products or New Products
❑ Types of Commodity for which Forecast is to be Undertaken
❑ Miscellaneous Factors to be included or not
Scope of Forecasting (contd.)
❑ Period of Forecast
To decide about the length of period for which the forecasting exercise is being taken up.
➢ Short period
➢ Long period
❑ Levels of Forecast
Forecasting may be undertaken at any one of the following levels;
➢ Macro-level forecasting
It is concerned with business conditions over the whole economy. These business conditions
are measured with the help of some appropriate indices like those relating to national income,
industrial production, wholesale prices etc.
Scope of Forecasting (contd.)
➢ Industry- level forecasting
Such forecasts can give indications to a firm regarding the direction in which whole will be
moving.
➢ Firm- level forecasting
A big firm will like to do forecasting of its own product independent of the rest of the firms in
the industry.
➢ Product-line forecasting
It helps the firm to decide which of the product or products should have priority in the
allocation of firms limited resources. eg. Hindustan Lever may like to know whether it should
produce more of Surf or Lux or Dalda.
Scope of Forecasting (contd.)
❑ General Purpose or Specific Purpose Forecasts
➢ Forecast may be classified into (i) general and (ii) specific
Though general forecast is useful for a firm, it will be even more helpful if the general forecast
is broken down into specific forecasts with respect to commodities, areas of sale, domestic and
export markets etc.
❑ Forecasts of Established Products or New Products
Problems and methods of forecasting differ in these two cases. For the established products,
past sale trend and competitive conditions are known, while this is not so for the new products.
Scope of Forecasting (contd.)
❑ Types of Commodity for which Forecast is to be Undertaken
Economists broadly classify goods into;
➢ Capital Goods
➢ Durable Goods
➢ Non-durable Goods
❑ Miscellaneous Factors to be included or not
The forecaster has to decide how much the sociological and psychological factors are going to
enter into the exercise of forecasting
Steps involved in Forecasting:
❑ Identification of Objective
❑ Determining the nature of goods under consideration
❑ Selecting a proper method of forecasting
❑ Interpretation of the results
Methods:
Methods of Demand
Forecasting
Opinion Polling Method Statistical Method
Barometric Regression Simultaneous
Consumers Survey Method Sales Force Experts Opinion Trend Projection Method Equation
Opinion Method Method Method
a. Complete Enumeration Method a. Fitting trend Line by Method
Survey Observation
b. Sample Survey and Test b. Least Square Method
Marketing
c. Time Series Analysis
c. End Use/Input-output
d. Moving Average
e. Exponential Smoothing
Opinion Polling Method
❑ Consumers Survey Method
➢ Complete Enumeration Survey
➢ Sample Survey and Test Marketing
➢ End Use/Input-output method
Thank you
