demand forecasting edited

8/4/2019 Demand Forecasting Edited

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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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demand forecasting edited

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