By Rahul Renju Shiny Rony Reshmi

Demand Forecasting is the activity of estimating the quantity of a product or service that consumers will purchase.

 Right volume of output Appropriate price Future expansion of business

 Managerial experience is the key factor used in this technique of demand forecasting Opinions of a small group of high level managers are pooled and together they estimate demand The group uses their managerial experience to reach at a favourable decision Sometimes in some cases it also combines the results of statistical models

 Opinions are collected from the expert salesmen as regards the likely sales in the future period Expert salesmen are required to estimate expected sales in their respective areas on the basis of their personal judgment through close interaction with customers and past experience Estimates further reviewed by the top executives to eliminate bias of optimism or pessimism This method is also called Reaction Survey Method

MERITS:Simplicity:-less use of stastical techniques Cost efficient More realistic in nature since based on first hand information DEMERITS:Highly subjective in nature Subjected to personal prejudices and bias opinions Data may be vague

 Variant of opinion survey method A panel of experts are identified where an expert could be a decision maker, an ordinary employee, or an industry expert. Each of them will be asked individually for their estimate of the demand. Next step involves providing them with the responses of the other experts An expert may or may not revise his previous opinion Process is repeated till consensus of opinion is obtained Issues causing disagreement are clearly defined

 All the consumers or a selected group of customers are asked about their purchasing plans and their projected buying behaviour Major assumption is that future course of demand depends partly on the attitude and expectations of the consumers However sellers personal judgements also crucial.

 Complete enumeration method:-all interview of all consumers of the product are taken into consideration Sample survey method:-a few consuming units of the total consuming units are taken into consideration End-use method:-Helps to find use-wise or sector wise demand forecasts of a product

More scientific Cost effective

Used when past data is available

Trend projection method
Arrangement of values of a variable in chronological order of days, weeks, months, years.

Assumption: past trend is likely to continue.

Secular trend Seasonal trend Cyclical trend. Random trend

Components of time series may be written in additive or multiplicative form Y= T+ S+C+R Y= T.S.C.R

Graphical Method Least Squares Method/ Algebraic Method

Auto Regressive Intergrated Moving Average Method

 Simple Reliable

Can be used only when past data is available Cannot be used for new products Based on the assumption that past trend will continue

Most of the series do not show a continous trend, some increase and decrease. These variations are smoothened Moving Average Method Forecasts based on demand values during recent past Applicable to a time series that does not have any pronounced behavioural pattern of fluctuations

Improved version of simple moving average method Forecasts based on weights of the most recent observations

Like Barometer Indicate Pressure, It indicates or alerts changes in economic conditions.

It is used for overall economic conditions not for specific firm.

The methodology used is usage of Macro indicators. Central Idea to construct an Index of Economic Indicators and to forecast trends. Some of indicators are Leading Indicators, Coincident series ,Lagging Series etc.

It aligns Macro with Micro Economics

Correct Choice of Indicator is Difficult.

Less costly as it depends on past data

May not apply for long term forecasting.

 Econometrics is the Branch which has Economics ,Mathematics and Statistics mingling together. The main concept is, it apply statistical tools on economic theories to estimate economic variables. These economic variables are used to forecast demand. This method is more reliable as it deal with causal relations.

Regression Analysis.

Simultaneous Equations Method. Method of Moments Generalized Method of Moments (GMM), Bayesian methods, Two Stage Least Squares(2SLSS) Three Stage Least Squares (3SLSS).

 It relates a dependent variable to one or more independent variables in form of a linear equation. It is the most popular quantitative method.

Its modelling is that it will make a cause effect relation by estimating parameters in the regression equation.
Simple (or Bivariate) Regression Analysis. Nonlinear Regression. Multiple Regression.

 Multicollinearity. Autocorrelation.

Heteroscedasticity.
Specification Errors. Identification Problem

 It incorporates mutual dependence among variables. SEM model consists of Endogenous Variables. Exogenous variables. Structural Equations. Definitional Equations

Change in fashion Consumers Psychology Uneconomical Lack of Experts Lack of past data