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2 CM Joshi
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2 {orecasting is the process of making

predictions about future general economic
and market conditions such as demand for a
product or products as a basis for decision
making by businesses or policy makers.

2 Demand forecasting, thus, refers to

estimation of projected demand for a product
in future.
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CONCEPTUAL ISSUES
  
 
 
 



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Levels of forecasting
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{IRM LEVEL è ales, cost and expenses

INDUSTRY è
ndustry as a whole or

LEVEL è product manf. by the indu.

MACRO èNational income growth

LEVEL èEmployment
 
 

2 Short Term (0 to 3 months): for

inventory management and scheduling.
2 Medium Term (3 months to 2 years):
for production planning, purchasing,
and distribution.
2 Long Term (2 years and more): for
capacity planning, facility location, and
strategic planning.
IMPORTANCE O{
{ORECASTING
O   |
 


. Helps sales forecasting.

. Helps in inventory control.



. Helps in product planning.

. Reduces Uncertainty.
. Helps in better economic planning at the
national level.
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2 Demand forecasting for a short period entails
estimating demand for the firm¶s product in
the next few months.
n such forecasts,
seasonal patterns are of prime importance.
2 {orecasting for long period entails estimating
demand for some years hence. Thus,
knowledge regarding general business
trends, changes in consumers¶ incomes,
expansion programmes of rivals etc. are all
important.
 
  

{orecasts are almost always wrong.
Every forecast should include an
estimate of the forecast error.
The greater the degree of
aggregation, the more accurate the
forecast.
Long-term forecasts are usually less
accurate than short-term forecasts.
{ORECASTING
TECHNIQUES
 
 


QUALITATIVE TECHNIQUES QUANTITATIVE TECHNIQUES

EXPERT SURVEY STATISTICAL

OPINION METHOD METHOD

SAMPLE CENSUS
SURVEY METHOD
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2 Educated guess intuitive hunches
2 Executive committee consensus
2 Delphi method
2 urvey of sales force
2 urvey of customers
2 Market research scientifically conducted surveys
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2 Under this method, PROCESS

salesmen are required
to estimate expected
future DD of the Data collected by Ms
product in their
respective territories.
RT
LE Reviewed by Dept. Heads
2 alesmen have the
most intimate feel of the
market.
Reviewed by Top Executives
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2 Traced back to the Greek times.

2 PROCESS: An attempt to arrive at a consensus in an

uncertain area is made by questioning a group of experts
repeatedly. The process is moderated by a co-coordinator.

2 MERITS: [1] Less expensive & [2] Opinions of the experts

can be gathered at one place.

2 DEMERTIS: [1] A tedious method, [2] Depends upon the skill

and insight of the experts and [3] Subjective
Omm|
2 ample method
å {ew consumers surveyed and results generalized
å Less Expensive but unreliable
2 Census method
å lmost all consumers surveyed
å Expensive but highly reliable
Quantitative Method
 
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2  time series is a set of numbers where the

order or sequence of the numbers is
important, e.g., historical demand
2 nalysis of the time series identifies patterns
2 nce the patterns are identified, they can be
used to develop a forecast.

 
 
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2 Trends are noted by an upward or
downward sloping line.
2 Cycle is a data pattern that may cover
several years before it repeats itself.
2 easonality is a data pattern that repeats
itself over the period of one year or less.
2 Random fluctuation (noise) results from
random variation or unexplained causes.
 O
   


2 Linear regression analysis establishes a
relationship between a dependent variable
and one or more independent variables.
2
n simple linear regression analysis there is
only one independent variable.
2
f the data is a time series, the independent
variable is the time period.
2 The dependent variable is whatever we wish
to forecast.
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2 Regression Equation
This model is of the form:
D = a + bt
D = dependent variable
t = independent variable
a = y-axis intercept
b = slope of regression line
mOm#|Om

CLCULTE THE LUE { a & b

With the help of the formula

a = ™D/n
b= ™tD /™t2
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2 ccuracy

2 Durability

2 {lexibility

2 vailability
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2 Demand forecasting uses past data to predict

future values of variables like sales, demand,
cost, profit etc.
2
t is essential part of every managers¶
decision making process.
2 Demand forecasting methods are of two
types: qualitative and quantitative.