Q. 3) What is Demand Forecasting? Briefly review the methods of Demand Forecasting? Ans.

3) Demand Forecasting is the method of predicting the future demand for the firms product. It is guess or anticipation or prediction of what is likely to happen in the future. Forecast can be done for several things. It is based on the experience. Q3. Demand forecasting is an attempt to foresee the future by examining the past .Business firms can estimate and minimize the future risk & uncertainty through forecasting &forward planning .It is an essential tool in developing new products scheduling production determining necessary inventory levels&creating a distribution system . Its essence is estimating future events acc to the past patterns and applying judgement to those projections .Virtually all types of national & intl organisations Govt ,social &business engage in some type of demand forecasting the goal of course is better mgt ability to plan &control operations churches try to predict future revenues from members contributions to develop reasonable budgets. School administrators use Enrolment forecasts to determine faculty sizes, supplies &classroom requirements .Demand forecasting is a crucial activity for planning survival &growth of a corporate unit. Demand forecasts may be passive or active the former predict the future demand by extrapolating the demands of the previous years in the absence of any action by the firm Here the things are assumed to continue the way they have been in the past these forecasts are used only to assess the impact of new policies on the market while the latter estimate the future scenario inclusive of own future actions &strategies of the firm itself These forecasts are more meaningful as they take into account the likely changes in the relevant variable in estimating future demand here the firm manipulates the demand by changing price,product quality etc.Demand forecasts methods vary acc to whether they apply to a large aggregate such as the whole economy(macro forecasts)or to a component of this aggregate such as an industry or a co. (micro forecasts) a frequent practice is to translate forecasts of overall levels into industry forecasts by trade associations &to use this in turn to generate co. forecasts.However small firms cannot afford these sophisticated techniques .

Methods of demand forecasting : The imp. Of selecting the right type of forecasting method cannot be overstated however the choice is complicated bcoz each situation might require a different method mgt. should be aware of the factors favoring one method over another in a given demand forecasting situation in some cases mgrs are interested in the total demand for a product service in other circumstances the projection may focus on the firms probable mkt share forecasts can also provide inft. on the product mix major decisions in large business houses are generally based on forecasts on some type in some cases the forecasts may be little more than an intuitive assessment or value judgement of the future by those involved in the decision .Thus no forecasting method is suitable for all situations.Selection of a forecasts has to be appropriate to the situation that is objective, urgency data availability ,nature of the product etc. The firm can afford acurracy level required. Forecasting Methods

Survey Methods

Statistical Methods

Consumer S.M

Collective opinion method

Market experiment method

Time series Analysis

Regression analysis

Graphical

Semi-average Moving average

Least square

Survey methods : Under this approach are conducted about the intentions of the consumers (individuals, firms or industries) opinion of experts or of mkt .Under census survey, all consumers\ experts mkts are surveyed.While in sample survey a selected subset of them are surveyed and through their study, inferences abt the whole popln. are drawn .These methods are usually suitable for short-term forecast due to volatile nature of consumers intentions.New products demand forecasting also makes use of survey approach,as data availability problem is overcome through surveys of consumers.

Consumer Survey Method: Surveys of managerial plans can be one of the impt. Methods of forecasting .The rationale for conducting such surveys is that plans generally form the basis for future actions by using this method, a firm can ask consumers what & How much they are planing to buy it at various prices of the product for the forthcoming time period, usually a year. If the product happens to be a consumer good the consumers are firms or industries using that product the survey may involve a complete enumeration of all consumers of the given product, whose demand is to be forecasted. Collective Opinion Method: Under this method(also called sales- force polling), salesman or experts are required to estimate expected future demand of the product in their respective territories &sections the rationale of this method is that salesman, being the closest to the customers, are likely to have the most intimate feel of the market i.e customer reaction to the product of the firm &their sales trends the estimates of individual salesman are averaged or consolidated to find out the total estimated sales the final sales forecast would emerge after these factors are being taken into account.This method is known as the collective opinion method, as it takes advantage of the collective wisdom of the salesmen,departmental heads like prod.mgr sales.mgr etc&the top executives. Market Experiments Method: Under this method, the main determinants of the demand of a product like prices, advt, product design, packaging,etc are identified. These factors are then varied separately over different markets or time periods holding other factors constant. The effect of the experiment on consumer behaviour is studied under actual or controlled mkt conditions which is used for overall forecasting purpose. Statistical methods: These methods make use of historical data as a basis for extrapolating quantitative relationships to arrive at the future demand pattern and trends. The data a may also be analyzed through econometric models. These are used for long term forecasting and for products for larger levels of aggregation. They are based on scientific base of estimation which are logical, unbiased and proven to be useful. Time series analysis: It is an arrangement of statistical data in a chronological order, i.e. in accordance with its time of occurrence. It reflects the dynamic pace of steady movement of a phenomenon over a period of time. Most of the variables in business, economic and commerce be it a series related to price, production, consumption, projects,sales, etc. at all time series data spread over long period of time. Graphical Methods: This method gives the basic tendency of a series to grow, decline or remain steady over a period of time. This method is useful in forecasting population, demand etc.where the future is not too much different from average of the past. Theperiod time in the trend analysis is always long; but the concept of trend does not include short time oscillations and fluctuations. Semi Average Method: According to this method the date is divided into two parts preferably with the same number of years. The averages of the first and second part are calculated

separately. These averages are called semi averages which are plotted as points against middle point of the respective time period covered by each part. Moving Averages Method: This is a very simple and flexible method of measuring trend which consists of obtaining a series of moving averages of successes overlapping groups of the time series. The averaging process smoothens out fluctuation as well as the ups and down in the given data. Least square method:The principle of least squares provides us an analytical tool to obtain an objective fit to the trend of the given time series. Most of the data relating to economic and business time series conform to definite laws of growth or decay. Thus, in such situation, trend fittings will be most reliable way of forecasting. Regression Analysis:This is also a popular method of forecasting among the economists. It is a mathematical analysis of the average relation between two or more variables in terms of original units of the data. Here the data analysis should be based on logic of economic theory. Demand Forecasting of New Products:Projecting demand of new products is different from those of established products. This requires an intensive study of the economic and competitive characteristics of the product. Product Life Cycle Analysis:Many products ar distinct when it degenerates over the years into a common product. Innovation of a new product and its degeneration into a common product is termed as Life Cycle of a Product. The forecaster must identify the phase of product cycle at which the industry is operating at the time of prediction. Test Markting:Under test marketing the product is introduced in selected area often at different prices. Th number of area selected depends on the representatives and cost of marketing. The selected area must have an average competition, presence of chain of departmental stores, optimum size of population, etc. The duration of testing depends upon the average purchase period, the competitive situation and cost of testing. Survey of Consumer Intention: This method involves interviewing the consumer by sending questionnaires to elicit replies so as to make short term prediction of demand. Samples may be given for this purpose. This method is most useful when bulk of the sales is made to industrial producers. Here the burden of forecasting is shifted to consumer. Evolutionary Approach: The demand for a new product may be projected as an outgrowth and evolution of an existing old product. This approach is useful when the new product is nearly an improvement of an existing product. Growth Curve Approach: Roll of growth and demand for new product may be estimated on the basis of pattern of growth of some existing substitute established product.