Demand forecasting

Demand forecasting is a difficult exercise. The more commonly used methods of demand forecasting are discussed below : 1. Opinion Polling Method : In this method, the opinion of the buyers, sales force and experts could be gathered to determine the emerging trend in the market. The opinion polling methods of demand forecasting are of three kinds: (a) Consumer’s Survey Method or Survey of Buyer’s Intentions : In this method, the consumers are directly approached to disclose their future purchase plans. I his is done by interviewing all consumers or a selected group of consumers out of the relevant popu­lation. This is the direct method of estimating demand in the short run. Here the burden of forecasting is shifted to the buyer. The firm may go in for complete enumeration or for sample surveys. If the commodity under consideration is an intermediate product then the industries using it as an end product are surveyed. (i) Complete Enumeration Survey : Under the Complete...

There are several limitations of sales forecasting which the production and sales managers should understand and realize. Such limitations are given below: 1. Changes in consumers’ needs, tastes, fashions, etc. In case of a consumer product the change in the needs, tastes, fashion and style of the consumers will affect the sales of the organization. If the commodity is well received by consumers, it will become popular and its sales will go up. Otherwise, the company will fail to achieve its sales forecast targets. To avoid this difficulty, the management must revise its sales estimates from time to time, taking in view the customers’ needs and preferences. 2. Lack of past data For few products, it is very difficult to estimate the correct production sales figures because there is no past sales history. In such cases, management has to rely on such guesswork only. 3. Anticipatory growth element It is very difficult to maintain a steady rate of growth over an extended perio...

Utility of Forecasting : Forecasting reduces the risk associated with business fluctuations which generally produce harm­ful effects in business, create unemployment, induce speculation, discourage capital formation and reduce the profit margin. Forecasting is indispensable and it plays a very important part in the determi­nation of various policies. In modem times forecasting has been put on scientific footing so that the risks associated with it have been considerably minimised and the chances of precision increased. Forecasts in India : In most of the advanced countries there are specialised agencies. In India businessmen are not at all interested in making scientific forecasts. They depend more on chance, luck and astrology. They are highly superstitious and hence their forecasts are not correct. Sufficient data are not available to make reliable forescasts. However, statistics alone do not forecast future conditions. Judgment, experience and knowledge of the particular tra...

There are thus, a good many ways to make a guess about future sales. They show contrast in cost, flexibility and the adequate skills and sophistication. Therefore, there is a problem of choosing the best method for a particular demand situation. There are certain economic criteria of broader applica­bility. They are: (i) Accuracy, (ii) Plausibility, (iii) Durability, (iv) Flexibility, (v) Availability, (vi) Economy, (vii) Simplicity and (viii) Consistency. (i) Accuracy : The forecast obtained must be accurate. How is an accurate forecast possible? To obtain an accurate forecast, it is essential to check the accuracy of past forecasts against present performance and of present forecasts against future performance. Accuracy cannot be tested by precise measure­ment but buy judgment. (ii) Plausibility : The executive should have good understanding of the technique chosen and they should have confidence in the techniques used. Understanding is also needed for a proper interpre...

Forecasts can be of three types, which are explained as follows: 1. Short Period Forecasts: Refer to the forecasts that are generally for one year and based upon the judgment of the experienced staff. Short period forecasts are important for deciding the production policy, price policy, credit policy, and distribution policy of the organization. 2. Long Period Forecasts: Refer to the forecasts that are for a period of 5-10 years and based on scientific analysis and statistical methods. The forecasts help in deciding about the introduction of a new product, expansion of the business, or requirement of extra funds. 3. Very Long Period Forecasts: Refer to the forecasts that are for a period of more than 10 years. These forecasts are carried to determine the growth of population, development of the economy, political situation in a country, and changes in international trade in future. Among the aforementioned forecasts, short period forecast deals with deviation in long pe...

The Demand forecasting process of an organization can be effective only when it is conducted systematically and scientifically. It involves a number of steps :- 1. Setting the Objective: Refers to first and foremost step of the demand forecasting process. An organization needs to clearly state the purpose of demand forecasting before initiating it. Setting objective of demand forecasting involves the following: a. Deciding the time period of forecasting whether an organization should opt for short-term forecasting or long-term forecasting b. Deciding whether to forecast the overall demand for a product in the market or only- for the organizations own products c. Deciding whether to forecast the demand for the whole market or for the segment of the market d. Deciding whether to forecast the market share of the organization 2. Determining Time Period: Involves deciding the time perspective for demand forecasting. Demand can be forecasted for a long period or short p...