Engineering economics

Demand Forecasting Methods

Forecasting
Predict the next number in the pattern:
a) 3.7, 3.7, 3.7, 3.7, 3.7, ?

b) 2.5, 4.5, 6.5, 8.5, 10.5, ?

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5, ?

Forecasting
Predict the next number in the pattern:
a) 3.7, 3.7, 3.7, 3.7, 3.7,

3.7

b) 2.5, 4.5, 6.5, 8.5, 10.5,

12.5
9.0

c) 5.0, 7.5, 6.0, 4.5, 7.0, 9.5, 8.0, 6.5,

What is Forecasting?
Process of predicting a future event based on historical data Educated Guessing Underlying basis of all business decisions
Production Inventory Personnel Facilities

INTRODUCTION
In modern business, production is often made in anticipation of demand. Anticipation of demand implies demand forecasting. Forecasting means expectations about the future course of development.

Demand forecasting

Statistical methods Survey method

Non statistical methods

Time series

Market experiments

Regression

Trend projection

Complete survey

Sample survey Simulated marketing

Graphical

Delphi survey

Opinion survey Test marketing

Meaning of Demand Forecasting

Demand forecasting means expectations about the future course of the market demand for the product.

NON-STATASTICAL METHOD
SURVEY METHOD MARKET EXPERIMENTS

SURVEY METHOD
The survey is the most direct approach to demand forecasting in the short run. It may be a sample survey or a census inquiry. A census inquiry means the inquiry of the entire universe or population.

The three variants of the survey method

The consumer survey method. The collective method. Delphi method.

The Consumer Survey

A sample survey of the consumers may be undertaken questioning them about what they are planning or intending to buy. Drawbacks of the consumer Survey method This method is expensive. It is time consuming.

The Collective Opinion

Under the collective opinion method the salesmen have to report to the head office their estimates of expectations of the sales in the territories. The opinion method is cheaper and easy to handle, it is time consuming also. Drawback High element of bias of the reporting agency.

Delphi method
Olaf helmer originated the Delphi method in the late 1940s.Delphi method is used for conducting opinion poll or survey. Under this method, the group of experts are repeatedly questioned for their opinion or comments on some issues and their agreements and disagreements are clearly identified.

Forecasting During the Life Cycle

Introduction Growth Maturity Decline

Qualitative models - Executive judgment - Market research -Survey of sales force -Delphi method Sales

Quantitative models - Time series analysis - Regression analysis

Time

MARKET EXPERIMENTATION
Market experiments may be conducted to make certain specific observations. The two types of market experimentation Experimentation in laboratory. Test marketing.

EXPERIMENTATION IN LABORATORY
It is also referred to as the consumer clinic method. In this method, a consumer clinic or small laboratory is formed by creating an artificial market situation.

TEST MARKETING
In this method a market experiment is performed under actual market conditions. First a choice of the market for experiments is made and is segregated from the rest.

Statistical Methods
Once market demand data are collected by the marker survey or form the sales records of the firm demand forecasting can be possible from such a information. The Statistical methods Time Series Data. Trend Projections. Regression Analysis.

TIME SERIES
Time series data refers to data collected over a period of time recording historical changes in price, income and other relevant variables influencing demand for the commodity.

TREND PROJECTIONS
A time series analysis of sales data over a period of time is considered to serve as a good guide for sales or demand forecasting. Trends refer to the long term persistent movements of data in one direction upward or downward.