Demand Forecasting using Qualitative & Quantitative methods

After gathering data from the primary and secondary sources, the analysts then attempt to
forecast the demand levels in the future. The tools that are available for forecasting can be
divided into three broad categories, which are explained in detail below:
Qualitative Methods
These methods rely on experts who try to quantify the level of demand from the available qualitative data.
The two most widely followed methods are:
Jury of execution opinion method: Opinions of a group of experts is called for and these are then
combined to arrive at the estimated demand.
Delphi Method: In this method a group of experts are sent questionnaires through mail. The
responses received are summarised without disclosing the identities. Further mails are sent for
clarification in cases of extreme views. The process is repeated till the group reaches to a
reasonable agreement.
Quantitative Methods
These methods forecast demand levels based on analysis of historical time series. The important
methods in this category are:
Trend projection methods
These methods involve determining the trend of consumption based on past consumption and project
future consumption by extrapolating this trend. The trend relations may be represented in one of the
following ways:
Linear relationship Y
t
= a + b t
Exponential relationship Y
t
= a e
bt

Polynomial relationship Y
t
= a
0
+ a
1
t + a
2
t
2
++ a
n
t
n

Cobb Douglas relationship Y
t
= a t
b

In the above relationships Y
t
represents the demand for the year t, a and b are constants.
Exponential smoothening method
In this method, forecasts are modified whenever errors are observed. For example, if the forecast value
for the year t, F
t
, is less than the actual value for the year S
t
, the forecast value for the year F
t+1
is set
more than F
t
. In general,
F
t+1
= F
t
+ e
t

a Smoothening parameter (value lies between 0 and 1) ; F
t+1
Forecast for the year t+1


e
t
error in the forecast for the year t = F
t
- S
t

Moving Average Method
According to this method, the forecast for the next period represents a simple or weighted
arithmetic average of the last few observations.