Demand forecasting

Forecasting refers to estimating or anticipating

future events. It is an attempt to foresee the
future by examining the past. Thus demand
forecasting means estimating or anticipating
future demand on the basis of past data

Objectives of Demand Forecasting

Short Term Objectives
1. To help in preparing suitable sales and production policies.

2. To help in ensuring a regular supply of raw materials.

3. To reduce the cost of purchase and avoid unnecessary
purchase.
4. To ensure best utilization of machines.
5. To make arrangements for skilled and unskilled workers so
that suitable labour force may be maintained.
6. To help in the determination of a suitable price policy.
7. To determine financial requirements.
8. To determine separate sales targets for all the sales territories.
9. To eliminate the problem of under or over production

Long term Objectives

1. To plan long term production.
2. To plan plant capacity.
3. To estimate the requirements of workers for long
period and make arrangements.
4. To determine an appropriate dividend policy.
5. To help the proper capital budgeting.
6. To plan long term financial requirements.
7. To forecast the future problems of material
supplies and energy crisis.

Criteria of a Good Forecasting

Simplicity and ease of comprehension

Economy
Availabity
Durability
Accuracy
Flexibility
Availability of data

Techniques of demand forecasting

Two methods
Opinion polling method(qualitative method)
Statistical method(quantitative method)

Opinion polling method(qualitative method)

Consumer survey method
Complete enumeration survey
Sample survey and test marketing
End use method

Sales force opinion method(collective opinion

method)
Delphi method

Statistical method(quantitative method)

Trend projection method

Graphical method
Least square method
Time series method
Moving average method
Exponential smoothing

Barometric method (leading indicators forecasting)

Regression method
Econometric method(simultaneous equations
method)

Significance of demand forecasting

Production planning
Sales forecasting
Control of business
Inventory control
Growth and long-term investment programs
Stability
Economic planning and policy making

Limitations of demand forecasting

Change in demand
Consumers psychology
Uneconomical
Lack of experts
Lack of past data