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ByRahul
Renju
Shiny
RonyReshmi
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Demand Forecasting is the activity of estimatingthe quantity of a product or service that
consumers will purchase.
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Right volume of output
Appropriate price
Future expansion of business
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Managerial experience is the key factor usedin this technique of demand forecasting
Opinions of a small group of high level
managers are pooled and together theyestimate demand
The group uses their managerial experience to
reach at a favourable decision Sometimes in some cases it also combines the
results of statistical models
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Opinions are collected from the expert salesmenas regards the likely sales in the future period
Expert salesmen are required to estimate
expected sales in their respective areas on thebasis of their personal judgment through closeinteraction with customers and past experience
Estimates further reviewed by the top executives
to eliminate bias of optimism or pessimism This method is also called Reaction Survey
Method
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MERITS:-
Simplicity:-less use of stastical techniques
Cost efficient
More realistic in nature since based on first hand
information DEMERITS:-
Highly subjective in nature
Subjected to personal prejudices and bias
opinions Data may be vague
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Variant of opinion survey method
A panel of experts are identified where an expert could bea decision maker, an ordinary employee, or an industryexpert.
Each of them will be asked individually for their estimate ofthe demand.
Next step involves providing them with the responses ofthe other experts
An expert may or may not revise his previous opinion
Process is repeated till consensus of opinion is obtained Issues causing disagreement are clearly defined
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All the consumers or a selected group of
customers are asked about their purchasing
plans and their projected buying behaviour
Major assumption is that future course of
demand depends partly on the attitude and
expectations of the consumers
However sellers personal judgements also
crucial.
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Complete enumeration method:-all interview
of all consumers of the product are taken into
consideration
Sample survey method:-a few consuming
units of the total consuming units are taken
into consideration
End-use method:-Helps to find use-wise or
sector wise demand forecasts of a product
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More scientificCost effective
Used when past data is available
Trend projection method
Arrangement of values of a variable in chronological order of days, weeks, months, years.
Assumption: past trend is likely to continue.
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Secular trendSeasonal trend
Cyclical trend.
Random trendComponents of time series may be written in additive or multiplicative form
Y= T+ S+C+R
Y= T.S.C.R
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Graphical Method
Least Squares Method/ Algebraic Method
Auto Regressive Intergrated Moving Average Method
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Simple
Reliable
Can be used only when
past data is available
Cannot be used for new
products
Based on the
assumption that pasttrend will continue
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Most of the series do not show a continous trend, some increase and decrease.These variations are smoothened
Moving Average Method
Forecasts based on demand values during recent past
Applicable to a time series that does not have any pronounced behavioural patternof fluctuations
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Improved version of simple moving average methodForecasts based on weights of the most recent observations
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Like Barometer Indicate Pressure, It indicates or alerts changes in economic
conditions.
It is used for overall economic conditions not for specific firm.
The methodology used is usage of Macro indicators.
Central Idea to construct an Index of Economic Indicators and to forecast trends.
Some of indicators are Leading Indicators, Coincident series ,Lagging Series etc.
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It aligns Macro with Micro
Economics
Less costly as it depends on past
data
Correct Choice of Indicator is
Difficult.
May not apply for long term
forecasting.
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Econometrics is the Branch which has Economics ,Mathematics andStatistics mingling together.
The main concept is, it apply statistical tools on economic theoriesto estimate economic variables.
These economic variables are used to forecast demand.
This method is more reliable as it deal with causal relations.
Regression Analysis.
Simultaneous Equations Method.
Method of Moments
Generalized Method of Moments (GMM),
Bayesian methods, Two Stage Least Squares(2SLSS)
Three Stage Least Squares (3SLSS).
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It relates a dependent variable to one or more independent variables in form of a
linear equation.
It is the most popular quantitative method.
Its modelling is that it will make a cause effect relation by estimating parameters in
the regression equation.
Simple (or Bivariate) Regression Analysis.
Nonlinear Regression.
Multiple Regression.
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Multicollinearity.
Autocorrelation.
Heteroscedasticity.
Specification Errors.
Identification Problem
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It incorporates mutual dependence among
variables.
SEM model consists of
Endogenous Variables.
Exogenous variables.
Structural Equations.Definitional Equations
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Change in fashion
Consumers Psychology
Uneconomical
Lack of Experts
Lack of past data
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