DEMAND FORECASTING

STATISTICAL METHODS Superior method of demand estimation Scientific method (based on dependent & independent variable) Estimates are more reliable Estimation involves small cost

Following 3 techniques:1. trend projection method 2. 3.

TREND PROJECTION METHOD It is used under the assumption that the factors responsible for the past trends in the variable to be projected will continue to play their past in future in the same manner & to the same extent .

Following three techniques:1. Graphical method 2. Fitting trend equation / least square method 3. Box-jenkins method

(b) Fitting trend Equation Extension of graphical method Using statistical techniques following types:(a) linear trend (b) exponential trend (c) box-junkins method

Linear trend When a line seriesdata reveals a rising trend in sales then a straight line trend equation of the following form is fitted:s=a+bT S= annual sales T = time (years) a&b = constant

Exponential trend When sales have increased over the past years at a increasing rate or at a costant percentage rate , then trend equation used is : Y = ae^bT Y is sales , T is time Limitations:- 1.assumptions that past trend will follow again 2. cannot be used for short term estimates.

Box-jenkins method 1. Used only for short term predictions 2. Only for monthly or seasonal variations recurring with some degree of regularity example:- sale of greeting cards in december last week

ECONOMETRIC METHODS In this method, statistical tools are combined with the economic theories to estimate economic variables and to forecast the intended economic variables. The forecasts made through econometric methods are much more reliable than those made through any other method. This method can be described briefly by two basic methods 1. Regression method 2. Simultaneous equation method

Regression methods Regression analysis is the most popular method of demand estimation. This method combines economic theory and statistical techniques of estimation. In this demand function, the quantity to be forecasted is a dependent variable and the variables that effect or determine the demand are called independent or explanatory variables. Example: the demand of tunics depend on the social culture and the seasonal changes. Here, the demand of tunics is dependent variable and social culture and seasonal changes are independent variables.

REGRESSION METHOD

SINGLE OR BIVARIATE REGRESSION TECHNIQUE

MULTI-VARIATE REGRESSION TECHNIQUE

Single or bivariate regression technique: In single regression technique only one variable is taken in consideration for the forecasting. And in bivariate regression technique only two variable are taken in consideration. Multi variate regression technique: The multi variate regression equation is used where demand for a commodity is deemed to be the function of many variables or in cases in which the number of explanatory variables is greater than one.

Simultaneous Equations Model Simultaneous equations model is a complete and systematic approach to forecasting. This technique uses mathematical and statistical tools. Simultaneous equation model allows the forecaster to take into account the simultaneous interaction between dependent and independent variables. The variables included are: 1. Endogenous variables 2. Exogenous variables

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ADITYA UPADHYAY LATIKA KATAYAL P SHIVRAM SHAH TWINKLE