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DEMAND FORECASTING
Demand forecasting means estimation of the
demand for the good in the forecast period.
Methods of Forecasting
Naive Methods --- eye-balling the numbers
Formal Methods --- systematically reduce forecasting errors
time series models (e.g. exponential smoothing)
causal models (e.g. regression)
Focus here on Time Series Models
Assumptions of Time Series Models
There is information about the past
This information can be quantified in the form of data
The pattern of the past will continue into the future
Forecasting Examples
Examples from student projects
Demand for tellers in a bank
Traffic on major communication switch
Demand for liquor in bar
Demand for frozen foods in local grocery warehouse
∑y= ha+b∑x
∑xy=a∑x + b∑x^2
Given Past Data
Year Demand Deviation (x) x2 xy
2007 120 -2 4 -240
2008 140 -1 1 -140
2009 120 0 0 0
2010 150 1 1 150
2011 180 2 4 360
Next Three Year Data
Year Demand Deviation (x) x2 xy
2012 181 3 9 543
2013 194 4 16 776
2014 207 5 25 1035
Experimental Approaches
Customer Surveys are sometimes conducted over
the telephone or on street corners, at shopping
malls, and so forth. The new product is displayed or
described, and potential customers are asked
whether they would be interested in purchasing the
item. While this approach can help to isolate
attractive or unattractive product features,
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”.
TIME SERIES
APPROACHES
SIMPLE MOVING AVERAGE
In a moving average, the forecast would be calculated
as the average of the last “few” observations. If we let M
equal the number of observations to be included in the
moving average, then: