Demand Forecasting

DEMAND FORECASTING TECHNIQUES

By: ASMITA

DEEPIKAEKTAATUL

DEMAND FORECASTING• Demand forecasting means

estimation of the demand for the good in the forecast period.

• It is a process of estimating a future demand using past data, experience of the top management and other forecasting techniques

• The past data is systematically combined in a pre-determined way to obtain the estimate of future demand.

Importance of Demand Forecasting

• Demand forecasts are necessary since the basic operations process, moving from the suppliers' rawmaterials to finished goods in the customers' hands,takes time.

• Most firms cannot simply wait for demand toemerge and then react to it.

• Instead, they must anticipate and plan for future demand so that they can react immediately to customer orders as they occur. In other words, most manufacturers "make to stock" rather than "make to order" – they plan ahead and then deploy inventories of finished goods into field locations

Demand Forecasting

Qualitative Techniques

Quantitative Techniques

JUDGEMENTAL METHODS OF DEMAND FORECASTING

Qualitative/ Judgmental Demand Forecasting

Techniques

Jury/Panel of Executive Opinion

Sales force Composite Analysis

Delphi Method

DELPHI METHOD

Each member of the panel writes answers to the questions

Answers of the panel are summarized and returned to the members of panel

Each member of the panel either maintains or reevaluates his/her forecast

ADVANTAGES:• Reduces effects of group think on decision

making process• Bias is minimized

DISADVANTAGES:• Time consuming• Expensive• Used mostly for long term strategic level

forecasts

The Delphi TechniqueCase Study: “Managing Heritage Tourism”

• Follow-up study to a mail-based survey of 300 managers of heritage attractions

• Delphi used to explore some intriguing issues in greater depth

• Survey asked respondents if theywere willing to be involved in afollow-up study

• Panel members recruited fromamong those who said ‘yes’

The Delphi Technique• 17 panel members

Heritage management consultant 2Local authority officer 2Heritage organisation officer 2Historic property manager 6Academic 3Museum officer 2

• Three topic areas? What should be the major priorities in the mission of

heritage attractions?? What factors are most likely to influence your admission

pricing policy over the next decade? What should be the funding priorities of major heritage

organisations such as the National Trust and English Heritage?

The Delphi Technique• The Rounds

> Round 1 – establish themes> Round 2 – assess themes and place in rank order> Round 3 – assess ranking and re-rank

• Example – Heritage attraction missionSecond RoundThird Round ChangeConservation 1 1 -Accessibility 2 2 -Finance 3 4 ↓Education 4 3 ↑ Quality5 5 -Relevance 6 6 -Recreation 7 7 -Local Community 8 8 -

The Delphi Technique

Panel membership

Round: 1 2 3Heritage management consultant 2 1 1

Local authority officer 2 2 1Heritage organisation officer 2 1 1Historic property manager 6 4 1

Academic 3 1 1Museum officer 2 2 1

Total: 17 11 6

Jury or Panel of Executive Opinions

What it means in the context of demand forecasting technique?

• It means that forecasting shall be done by a panel of experts-perhaps senior corporate financial executives-prepare individual forecasts based on information made

available to all of them.

How it works?The subjective views of executives or experts from sales, production, finance, purchasing, and administration are averaged to generate a forecast about future sales.

Jury MethodAdvantages• Easily done, very quick• Does not require

elaborate statistics• Utilizes collective wisdom

of the top people• Useful for new and

innovative products• Complements other

quantitative methods of demand forecasting such as trend extrapolation

Disadvantages • Produces aggregate

forecasts• Expensive• Disperses responsibility

for forecast• Group dynamics operate

- high cohesiveness, strong leadership, and insulation of the group

Example of Jury or expert panel opinion method

• Wilkins, A Zurn Company• Forecasts are based on the plant manager's,

sales/marketing manager's, and inventory manager's knowledge of

- Competitive strategies- Industry trends- Sales history• They use the jury method in conjunction with

linear regression and time series analysis

SALES FORCE COMPOSITE METHOD

SALESFORCE COMPOSITE METHOD

• Each salesperson estimates in his/her territory how much quantity or value existing and potential customers will buy of each of the companies product or service

SALESFORCE COMPOSITE METHOD

ADVANTAGES• Done by salespeople who

are closest to the customers

• Good knowledge about the customers competitors, product

• Detailed estimate broken down by customer, product, territory possible

• Quick and inexpensive• Simple to use and

understand.

DISADVANTAGES• Sales forecast can be

pessimistic or optimistic

• Sales people may deliberately underestimate the demand

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