Discuss statistical methods of demand forecasting.
Answers
Answered by
0
Demand forecasting is the art as well as the science of predicting the likely demand for a product or service in future. This prediction is based on the past behavior patterns and the continuing trends in the present. Hence, it is not simply guessing the future demand but is estimating the demand scientifically and objectively. Thus, there are various methods of demand forecasting which we will discuss here.
Methods of Demand Forecasting
There is no easy or simple formula to forecast the demand. Proper judgment along with the scientific formula is needed to correctly predict the future demand for a product or service. Some methods of demand forecasting are discussed below:
1] Survey of Buyer’s Choice
When the demand needs to be forecasted in the short run, say a year, then the most feasible method is to ask the customers directly that what are they intending to buy in the forthcoming time period. Thus, under this method, the potential customers are directly interviewed. This survey can be done in any of the following ways:
Complete Enumeration Method: Under this method, nearly all the potential buyers are asked about their future purchase plans.
Sample Survey Method: Under this method, a sample of potential buyers is chosen scientifically and only those chosen are interviewed.
End-use Method: It is especially used for forecasting the demand of the inputs. Under this method, the final users i.e. the consuming industries and other sectors are identified. The desirable norms of consumption of the product are fixed, the targeted output levels are estimated and these norms are applied to forecast the future demand of the inputs.
Hence, it can be said that under this method the burden of demand forecasting is on the buyer. However, the judgments of the buyers are not completely reliable and so the seller should take decisions in the light of his judgment also.
The customer may misjudge their demands and may also change their decisions in the future which in turn may mislead the survey. This method is suitable when goods are supplied in bulk to industries but not in the case of household customers.
Collective Opinion Method
Under this method, the salesperson of a firm predicts the estimated future sales in their region. The individual estimates are aggregated to calculate the total estimated future sales. These estimates are reviewed in the light of factors like future changes in the selling price, product designs, changes in competition, advertisement campaigns, the purchasing power of the consumers, employment opportunities, population, etc.
The principle underlying this method is that as the salesmen are closest to the consumers they are more likely to understand the changes in their needs and demands. They can also easily find out the reasons behind the change in their tastes.
Therefore, a firm having good sales personnel can utilize their experience to predict the demands. Hence, this method is also known as Salesforce opinion or Grassroots approach method. However, this method depends on the personal opinions of the sales personnel and is not purely scientific.
3] Barometric Method
This method is based on the past demands of the product and tries to project the past into the future. The economic indicators are used to predict the future trends of the business. Based on the future trends, the demand for the product is forecasted. An index of economic indicators is formed. There are three types of economic indicators, viz. leading indicators, lagging indicators, and coincidental indicators.
The leading indicators are those that move up or down ahead of some other series. The lagging indicators are those that follow a change after some time lag. The coincidental indicators are those that move up and down simultaneously with the level of economic activities.
4] Market Experiment Method
Another one of the methods of demand forecasting is the market experiment method.
Methods of Demand Forecasting
There is no easy or simple formula to forecast the demand. Proper judgment along with the scientific formula is needed to correctly predict the future demand for a product or service. Some methods of demand forecasting are discussed below:
1] Survey of Buyer’s Choice
When the demand needs to be forecasted in the short run, say a year, then the most feasible method is to ask the customers directly that what are they intending to buy in the forthcoming time period. Thus, under this method, the potential customers are directly interviewed. This survey can be done in any of the following ways:
Complete Enumeration Method: Under this method, nearly all the potential buyers are asked about their future purchase plans.
Sample Survey Method: Under this method, a sample of potential buyers is chosen scientifically and only those chosen are interviewed.
End-use Method: It is especially used for forecasting the demand of the inputs. Under this method, the final users i.e. the consuming industries and other sectors are identified. The desirable norms of consumption of the product are fixed, the targeted output levels are estimated and these norms are applied to forecast the future demand of the inputs.
Hence, it can be said that under this method the burden of demand forecasting is on the buyer. However, the judgments of the buyers are not completely reliable and so the seller should take decisions in the light of his judgment also.
The customer may misjudge their demands and may also change their decisions in the future which in turn may mislead the survey. This method is suitable when goods are supplied in bulk to industries but not in the case of household customers.
Collective Opinion Method
Under this method, the salesperson of a firm predicts the estimated future sales in their region. The individual estimates are aggregated to calculate the total estimated future sales. These estimates are reviewed in the light of factors like future changes in the selling price, product designs, changes in competition, advertisement campaigns, the purchasing power of the consumers, employment opportunities, population, etc.
The principle underlying this method is that as the salesmen are closest to the consumers they are more likely to understand the changes in their needs and demands. They can also easily find out the reasons behind the change in their tastes.
Therefore, a firm having good sales personnel can utilize their experience to predict the demands. Hence, this method is also known as Salesforce opinion or Grassroots approach method. However, this method depends on the personal opinions of the sales personnel and is not purely scientific.
3] Barometric Method
This method is based on the past demands of the product and tries to project the past into the future. The economic indicators are used to predict the future trends of the business. Based on the future trends, the demand for the product is forecasted. An index of economic indicators is formed. There are three types of economic indicators, viz. leading indicators, lagging indicators, and coincidental indicators.
The leading indicators are those that move up or down ahead of some other series. The lagging indicators are those that follow a change after some time lag. The coincidental indicators are those that move up and down simultaneously with the level of economic activities.
4] Market Experiment Method
Another one of the methods of demand forecasting is the market experiment method.
Similar questions
English,
7 months ago
English,
7 months ago
Social Sciences,
1 year ago
Hindi,
1 year ago
Science,
1 year ago