CHAPTER 5:-Demand Forecasting

Definition:-

“Forecasting is a projection / prediction made, on the basis of relevant logical assumptions, of the volume likely to be produced, transported and sold”.

Forecasting Methods:-

1)      Qualitative Methods

a)      Jury of executive methods

b)      Consumer Survey Method

c)       Assessment by Sales Personnel

d)      Naïve Approach

e)      Delphi Method

The Delphi method is a systematic, interactive forecasting method which relies on a panel of expert. The experts answer questionnaires in two or more rounds. After each round, a facilitator provides a small summary of each experts forecasts from the previous round as well as the reasons they provided for their judgments. Thus, experts are encouraged to revise their earlier answers in light of the replies of other members of their panel. It is believed that during this process the range of the answers will decrease and the group will coverage towards the “correct” answer.

2)  Time Series Method

a)   Simple average: Simple average forecasting uses an average of the most recent period’s sales. The average may contain any number of previous time periods. Generally one, three, four and twelve-period averages are common.

 Months Actual Forecast January 4200 – February 4300 – March 4350 – April – 4283

b)  Weighted average method: This is more logical since recent data is given more weightage than older data. Averaging over long period can give greater smoothing effects.

 Months Weights Sales Weighted Sales January 2 4200 8400 February 3 4300 12,900 March 5 4350 21,750 Total 10 43050 Weighted forecast for April 43050 .  . = 10

c)      Exponential Smoothing: Exponential smoothing is a concept implying estimation of future sales on a weighted average of previous demand and forecast levels. The new forecast is an aggregate outcome of older forecasts made adding to it actual level of sales realized.

Ft = dt-1+ (1- ἄ) ft -1

3)  Casual Technique

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