Demand Forecasting By: Malik Abrar Altaf

 Independent demand items are the only items demand for which needs to be forecast  These items include :  Finished goods and  Spare parts

A Independent Demand (finished goods and spare parts) B(4) C(2) D(2)E(1) D(3)F(2) Dependent Demand (components)

Demand estimates for products and services are the starting point for all the other planning in operations management. Management teams develop sales forecasts based in part on demand estimates. The sales forecasts become inputs to both business strategy and production resource forecasts.

 Demand forecasting means estimation of the demand for the good in the forecast period.  It is a process of estimating a future event by casting forward past data.  The past data are systematically combined in a predetermined way to obtain the estimate of future demand

 How far ahead the long - term forecast goes?  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.  It is important to classify the products as producer goods, consumer durable, or consumer goods & services.  Finally, in every forecast, special factors peculiar to the product & the market must be taken into account.

 Short - term forecasts ; short - term forecasts, involving a period up to twelve months. ( Determining Sales Quotas, Inventory Control, Production Schedules, Budgeting & Planning Cash Flows )  Medium - term forecasts ; medium - term forecasts, involving a period from one to two years. ( Determining rate of maintenance, Schedule of operations, and Budgetary control over expenses ).  Long - term forecasts ; long - term forecasts, involving a period of three to ten years. ( Determining capital Expenditures, Personnel Requirements, Financial Requirements, Raw material Requirements, and the size and scope of R & D Programmes )

 Appropriate production scheduling so as to avoid the problem of over - production & the problem of short supply.  Helping the firm to reducing costs of purchasing raw materials.  Determining appropriate price policy.  Setting sales targets & establishing controls & incentives.  Evolving a suitable advertising & promotion programme.  Forecasting short - term financial requirements.

 Planning of new unit or expansion of an existing unit.  A multi - product firm must ascertain not only the total demand situation but also the demand for different items separately. If a company has better knowledge than its rivals of the growth trends of the aggregate demand and of the distribution of demand over various products, its competitive position would be much better.

 Planning long term financial requirements :  Long term sales forecasts are essential to access long term financial requirements.  Planning Man - power Requirements :  Training and personnel development are long term propositions, taking considerable time to complete.

Survey of Buyer ’ s intentions. Delphi method. Expert Opinion. Collective Opinion. Naive Models.

 Most Direct method of estimating demand in the short run.  Asking Customers, What they are planning to buy for the forthcoming time period – Usually a year.  It is useful when bulk of the sales is made to industrial producers.  Burden of forecasting shifted to customer.  Method Not useful in household customers for several reasons :  Irregularity in customers Buying intentions.  Their inability to foresee the choice when faced with multiple alternatives.

 Delphi method was originally developed at Rand Corporation of the USA, in late 1940’ s by Olaf Helmer, Dalkey and Gordon.  Variant of opinion poll and survey method is Delphi method.  An attempt to arrive at a consensus in an uncertain area by questioning a group of experts repeatedly until the responses appear to converge along a single line.  The participants are supplied the responses to previous questions from others in the group by a coordinator or a leader. The leader provides each expert with the responses of the others including their reasons.

 ( Hunch : An impression that something might be the case )  Ask Experts in the field to provide their own estimates of likely sales.  Experts may be : Executives directly involved in the market Such as Dealers, Distributors, Suppliers or others whose major interest is in the forecast itself such as : Industry Analysts, Specialist Marketing consultants, officers of trade associations etc.