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PRESENTED BY: RAVI MEENA
Demand in economics means effective demand, that is one which meets with all its three crucial characteristics; desire to have a good, willingness to pay for that good & ability to pay for that good.
In absence of any of these three characteristics, there is no demand.
It is a process of estimating a future event by casting forward past data. Demand forecasting means estimation of the demand for the good in the forecast period. . The past data are systematically combined in a predetermined way to obtain the estimate of future demand.
It is important to classify the products as producer goods. Should the forecast be general or specific? Problems & methods of forecasting are usually different for new products from those for products already well established in the market. or consumer goods & services. Finally. . in every forecast. special factors peculiar to the product & the market must be taken into account. How far ahead the long-term forecast goes. consumer durable.
Helping the firm to reducing costs of purchasing raw materials. Forecasting short-term financial requirements.Purpose of short-term forecasting Appropriate production scheduling so as to avoid the problem of over-production & the problem of shortsupply. . Setting sales targets & establishing controls & incentives. Evolving a suitable advertising & promotion programme. Determining appropriate price policy.
Planning of a new unit or expansion of an existing unit. . taking considerable time to complete. As planning for raising funds requires considerable advance notice. A multi-product firm must ascertain not only the total demand situation. long –term sales forecasting are quite essential to assess long-term financial requirements. Planning man-power requirements. Planning long-term financial requirements. but also the demand for different items separately. Training & personnel development are long-term propositions.
Long-term forecasts. short-term forecasts. Medium-term forecasts. involving a period from one to two years. long-term forecasts. medium-term forecasts. involving a period up to twelve months. involving a period of three to ten years. . Short-term forecasts.
demand forecasts are still not too accurate. There is a greater emphasis on sophisticated techniques such as using computers. . However. New products forecasting is still in infancy. Better kind of data & improved forecasting techniques have been developed. More firms are giving importance to demand forecasting than a decade ago. Forecasts are usually broken down in monthly forecasts. in spite of application of newer & modern techniques.
Demand forecasts are necessary since the basic operations process. they must anticipate and plan for future demand so that they can react immediately to customer orders as they occur. most manufacturers "make to stock" rather than "make to order" – they plan ahead and then deploy inventories of finished goods into field locations . takes time. Most firms cannot simply wait for demand to emerge and then react to it. moving from the suppliers' raw materials to finished goods in the customers' hands. In other words. Instead.
and distribution. and when they desire. Customers are assumed to be able to order what. . The firm may be able to influence the amount and timing of customer demand by altering the traditional "marketing mix" variables of product design. where. Most of the procedures are intended to deal with the situation where the demand to be forecasted arises from the actions of the firm’s customer base. pricing. promotion.
2) EXPERIMENTAL APPROACHES: When an item is "new" and when there is no other information upon which to base a forecast. we can use that understanding to develop a demand forecast. is to conduct a demand experiment on a small group of customers 3) RELATIONAL/CAUSAL APPROCHES: There is a reason why people buy our product. If we can understand what that reason (or set of reasons) is. 4) TIME SERIES APPROACHES: A time series is a collection of observations of well-defined data items obtained through repeated measurements over time. .1) JUDGEMENTAL APPROACHES: The essence of the judgmental approach is to address the forecasting issue by assuming that someone else knows and can tell you the right answer.
. we might poll or sample our customer base to estimate demand for a coming period. Surveys. Alternatively. For example. we might gather estimates from our sales force as to how much each salesperson expects to sell in the next time period. This is a "bottom up" approach where each individual contributes a piece of what will become the final forecast.
In a “Jury of Executive Opinion”. As an alternative to the "bottom-up" survey approaches. consensus methods use a small group of individuals to develop general forecasts. a group of executives in the firm would meet and develop through debate and discussion a general forecast of demand. A more formal consensus procedure. for example. called “The Delphi Method”. .
. A second questionnaire is then distributed to the panel. The answers are collected. and re-distributed to the panel. processed. and the process is repeated until a consensus forecast is reached. Each expert reflects on the gathering opinion. making sure that all information contributed by any panel member is available to all members. but on an anonymous basis. In this technique. a panel of disinterested technical experts is presented with a questionnaire regarding a forecast.
and so forth. While this approach can help to isolate attractive or unattractive product features. The new product is displayed or described. at shopping malls. and potential customers are asked whether they would be interested in purchasing the item. experience has shown that "intent to purchase" as measured in this way is difficult to translate into a meaningful demand forecast. . This falls short of being a true “demand experiment”. Customer Surveys are sometimes conducted over the telephone or on street corners.
and they do not constitute true “demand experiments” because no purchases take place . Here a small group of potential customers are brought together in a room where they can use the product and discuss it among themselves. Consumer Panels are also used in the early phases of product development. Panel members are often paid a nominal amount for their participation. these procedures are more useful for analyzing product attributes than for estimating demand. Like surveys.
market penetration. including advertising. The idea is to choose a relatively small. The total marketing plan for the item. is "rolled out" and implemented in the test market. and measurements of product awareness. Test Marketing is often employed after new product development but prior to a full-scale national launch of a new brand or product. yet somehow demographically "typical" market area. and market share are made. promotions. reasonably isolated. . and distribution tactics.
. their household identity is captured along with the identity and price of every item they purchased. Scanner Panel Data procedures have recently been developed that permit demand experimentation on existing brands and products. Panel members agree to submit information about the number of individuals in the household. and so forth. a large set of household customers agrees to participate in an ongoing study of their grocery buying habits. Whenever they buy groceries at a supermarket participating in the research. their ages. In these procedures. household income.
. More elaborate systems involving sets of simultaneous regression equations can also be attempted. such as discrete choice models and multiple regression. Econometric models. Input-output models estimate the flow of goods between markets and industries. they are used mainly in large-scale macro-economic analysis and were not found useful in logistics applications. These models ensure the integrity of the flows into and out of the modelled markets and industries. These advanced models are not generally applicable to the task of forecasting demand in a logistics system.
) to help determine product life cycle trends in the demand pattern." "mainstream buyers. Their strength lies in their ability to account for many time lag effects and complicated dependent demand schedules. Life cycle models look at the various stages in a product's "life" as it is launched. These techniques examine the nature of the consumers who buy the product at various stages ("early adopters. and some consumer goods facing short product life cycles. There is little theory to building such simulation models." "laggards." etc. fashion. Such models are used extensively in industries such as high technology. Simulation models are used to model the flows of components into manufacturing plants based on MRP schedules and the flow of finished goods throughout distribution networks to meet customer demand. . and phases out. matures.
at t = 7: Z’8= (Z7+Z6+Z5) /3 . for example. if we let M=3. then: Z’t+1 =1/M ∑i=t+M-1 Zi For example.SIMPLE MOVING AVERAGE In a moving average. the forecast would be calculated as the average of the last “few” observations. we have a "three period moving average". If we let M equal the number of observations to be included in the moving average. and so.
T 1 2 3 4 5 6 7 Z 98 110 100 94 100 92 96 M=2 M=3 M=4 M=5 M=6 M=7 104 105 97 97 96 103 101 98 95 101 101 97 100 99 99 8 9 10 102 105 96 94 99 104 96 97 101 96 98 99 96 97 99 99 97 98 99 99 98 .
A popular way to capture the benefit of the weighted moving average approach while keeping the forecasting procedure simple and easy to use is called exponential smoothing. we make a forecast for the next period by forming a weighted combination of the last observation and the last forecast: Z’ t+1 =aZt +(1-a)Zt . the “exponentially weighted moving average”. In its simple computational form. or occasionally.
or “smoothing constant”. Values of α are restricted such that 0 < α < 1. “smoothing factor”. Where α is a parameter called the “smoothing coefficient”. The choice of α is up to the analyst. α can be interpreted as the relative weight given to the most recent data in the series. . In this form.
K. 15th edition.15k www.com/marketing/deman d-forecasting. Managerial economics.nationalanalysts. Jan 2000 Sultan chand & son.asp . R.L.netmba. New Delhi.com/economics . & Maheshwari.L. www. Varshney.
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