Demand Forecasting

Gaurav Jain(FT11125)

GROUP 9
Vaishali Singh (FT11370)
Kiran Muley (FT11425)
Nirmaan Parekh (FT11436)
Porag Dutta (FT11438)
Pravin Patil (FT11440)
Rachna Saini(FT11443)
Vanshika (FT11471)
 Problem
◦ Identification of a forecasting techniques which can
predict the demand for existing and new products.
 Issues
◦ Ease of using forecasting process
◦ Reliability of the sales forecast
◦ Impact of occasional price promotions
◦ Use of economic information to facilitate forecasts
◦ Methods to forecast demand of new product
 Wilkins deals in two products PVB and fire
valves, the two products have distinct
demand patterns and hence their forecasting
methods should be different.
Demand Pattern for PVB Demand Pattern for Fire Valve
140,000 700

120,000 600

100,000 500

80,000 400

60,000 Series1 300 Series1

40,000 200

20,000 100

0 0
1 3 5 7 9 11 13 15 1 3 5 7 9 11 13 15
 The demand data for PVB valve displays trend
and seasonality so we use Winter’s model
(Trend and seasonality corrected exponential
smoothing) to forecast future demand.
 Summary of results
◦ Forecast for 1st Quarter’2005 = 45,182 units ,
current forecasting methods yield forecast value of
53,560 units. Actual sales = 48,159 units
◦ MAD = 3,346 units, MAPE = 5.33
140,000

120,000

100,000

80,000
Demand
60,000 Forecast

40,000

20,000

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Graph of demand v/s forecast using winters model

 Standard Deviation
S.N Forecasting Method MAD MAPE
of forecast error
1 Three Period Moving Average 105 27% 128
2 Four Period Moving Average 102 26% 128
Weighted Avg. 1
3 97 27% 122
(70%,20% and 10%)
Weighted Avg. 2
4 101 26% 122
(50%,30% and 20%)
5 Holts Model 93 24% 118
Summary of results
By using holt’s model - Forecast for 1st Quarter’2005 = 310 units
,current forecasting methods yield forecast value of 559 units.
Actual sales = 580 units
MAD = 93 units, MAPE = 24 %
700

600

500

400
Demand

300 Forecast

200

100

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Graph of demand v/s forecast using holts model

 Product – Fire Valves
 Dependent Variable – Quarterly sales
 Predictor Variables
◦ Unemployment Rate
◦ Bank Prime Loan Rate
◦ Housing starts
 Results of regression Analysis
◦ Regression between Quarterly sales and Unemployment Rate
 R2 = 0.35
 Adjusted R2 = 0.29
◦ Regression between Quarterly sales and Bank Prime Loan Rate
 R2 = 0.09
 Adjusted R2 = 0.00
◦ Regression between Quarterly sales and Housing starts
 R2 = 0.10
 Adjusted R2 = 0.02

 The values of R2 tells us that the percentage of fluctuation in

the dependent variable, Quarterly sales explained by the
predictor variables - Unemployment Rate, Bank Prime Loan
Rate and Housing starts is low hence we discard causal
forecasting for predicting demand of fire valves.
 The minimum sample size data required for
conducting regression analysis is 25, since the
regression was conducted on sample size of 13,
the relationship between the dependent variable
and predictor variables needs to be re-checked
 Relationship with other predictor variables such as
advertising expense, price promotions and other
economic indicators should be established to check
if they account for fluctuation in the dependent
variable, Quarterly sales.
 Winter’s model (Trend and seasonality corrected
exponential smoothing) is appropriate to forecast
PVB valves
 The values of a & b should be modified at specified
intervals to represent the actual trend and
seasonality effects when error increases.
 The values of a & b should be modified during
discounts, moreover causal elements should be
taken into consideration to avoid bull whip effect.
 Qualitative methods should be used along with
time series or causal forecasting for predicting
demand for new products, in this case the fire
valves.