It is the activity of estimating the
Quantity of the product or service
that consumers will purchase. Past
experience is analysed and demand
forecasting is done on this basis.
All forecast are built on :
What people say:-
Involves Surveying the opinions of buyeror those
close to them.
What people do:-
Putting the product into a test market to measure
What People have done :
Involves analysing records of past buying behaviour
or using time series analysis or statistical demand
TYPES OF DEMAND FORECASTING
Passive demand forecasting: The demand of the previous years is
extrapolatedand future demand is predicted on the basis. The impact
of new policies on Dand can be analysed with this method.
Active demand forecasting: In this type the future demand is
estimated by taking into account the impact of new policies and
impact of its own plans and actions. This Type is considered better
than passive forecasting.
Firm level demand forecasting: When the demand for the product of
an individual firm is forecasted it is called firm level or micro
Industry level demand forecasting: When the demand for the product
of an entire industry is estimated it is termed as industry level
National level demand forecasting: It refers to the
estimation of demand at the macro level i.e estimation of
future demand for all goods produces in the economy.
Short term demand forecasting:If demand is forecasted
for less than a year it is known as short term demand
forecasting. It is useful to the business form for variety of
purposes like price determination, determination of sales
Long term forecasting: When demand forecasting is
related to 5 years or more,it is said to be long term
forecasting.It helps in diversification, financial
Medium term forecasting: If demand is forecasted for a
period of one to five years,it is included under medium
term forecasting. It is useful to plan promotional
expenditure,modify designs and to bring quality
METHODS OF DEMAND FORECASTING
A) Survey method:
(a)census survey method: under this method all the consumers of a
product are questioned about the product it’s quality it’s type,etc. The
future plans for the product, their reactions to changes in the price of
the product, design, advertisement,etc are ascertained. This information
this collected is analysed classified and tabulated. This is an expensive
and time consuming process. When the number of consumers is large,this
method cannot be used .
(b)sample survey method:An Alternative to the census method is the
sample survey method. From a large group of consumers, some of them
are selected at random And they are interviewed about the demand for a
product in future. This information is then processed and used for
forecasting. This method is a Simple one and it is less time consuming
and less expensive. To get good results,the sample selected should be
representative of the population and should be selected at random to
(B)Expert opinion method: In this method the opinion of experts are taken
into account to predict the future demand for a product. The experts may be
from within the organisation or hired from outside.Different methods are used
to obtain experts opinion. One popular method is the Delphi technique. This
methodsl involves the opinion of 3-4 experts.Each expert will be asked to give
his opinion about the future demand. Then the opinion of other experts will
be revealed to them and their view in reviewing their opinion in light of the
comments from other experts will be obtained.
(C)Sales force opinion : Another method is to obtain the opinion is the sales
force . The sales people are the ones who actually deal with the market and
hence their opinion is sought. The opinion of all the sales people are summed
up and then the information is used for forecasting. It is cheaper and easy to
do. The problem is that the sales force may be biased.
Market experimentation: This method is also used by firms for demand
forecasting sometimes survey method does not give the expected results. It is
of two types namely test marketing and controlled experimentation. Under
test marketing a particular area or region is selected. A new product will be
introduced in this area and the behaviour of the consumers about the product
will be judged. Under controlled experimentation a sample of the consumers
for a product is selected and are asked to visit the nearby shopping store
where various brands of the product will be displayed .
CHARACTERISTICS OF A GOOD
FORECASTING METHOD !
Simplicity is an important characteristic of a good demand
forecasting method. It should be easy to use and comprehend.
Accuracy is the next attribute. The method which can give the
most accurate results is said to be the most reliable one. Past
results of the method are ascertained and on that basis
accuracy is determined and analysed.
Economy is another feature for demand forecasting method .
Any method which involves least cost and at the same time
gives good results is said to be the best method.
The ability to give quick results is another requirement for a
good method. If the method involves too many complexities,
then it will not be preferred by business firms.
A good demand forecasting method should be flexible and it
should be possible to adapt itself according to the requirement.
While remaining flexible, it should be able to give quick results
according to the requirements and at all times.
Planning: For the planning formulation of sales policy, price
policy,etc forecasting is absolute necessary. Even for planning
at the national level demand forecasting is used . It helps in
fixing targets for saving, investment,etc. In short the future
growth and diversification of a business firm depends upon
SIGNIFICANCE OF DEMAND
Fulfilling objectives: Every business unit starts with certain pre-determined
objectives Demand forecasting helps in fulfilling these objectives.An
organization estimates the current demand and services in the market.
Preparing the budget: It plays a crucial role in making budget by estimating
costs and expected revenues.For instance the demand for the product is
priced at RS 10/-would be 100000 units , the total revenue will be 10× 100000
units = RS 1000000 /-.In this way demand Forecasting helps organizations to
prepare their budget .
Expanding Organizations : Demand forecasting helps in deciding about the
expansion of the business of the organization.If the expected demand for
products is higher , then the organisation may plan to expand , if the demand
of a product is expected to fall , the organization may cut down the
investment in the business.
Taking management decisions : Helps in making critical
decisions such as deciding the plant capacity, determining
the requirement of raw material and ensuring the
availability of Labour and capital .
Evaluating performance: It helps in making corrections.For
example if the demand for an organization’s product is
less,it may take corrective actions and improve the level
of Demand by enhancing the quality of its products or
spending more on advertisements .
Helping the government: It enables the government to
import and export activities and plan international trade.
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