Demand forecasting is essential for a firm to enable it to produce the required quantities at the right time and proper arrangements of all factors of production (Land, Labour, Capital, and Organisation). Demand Forecasting helps a firm to assess the probable demand for its products and plan its production accordingly.

1. Demand Forecasting
Dr. M.Madhavan

2. INTRODUCTION
• Demand forecasting is essential for a firm to enable it to produce
the required quantities at the right time and proper arrangements
of all factors of production (land, labour, capital and
organisation).
• Demand Forecasting helps a firm to assess the probable demand
for its products and plan its production accordingly.

3. TYPES OF DEMAND FORECASTING
Demand
Forecasting
Long - TermShort – Term

4. LONG TERM
• Period : Covering a period of 5, 10 or even twenty years.
• Concerned with : Long term operations extending or reducing the
limits of resources .
• Purpose :
• Planning of a new unit or expansion of an existing unit
• Planning long term financial requirements.
• Planning manpower requirements.
•

5. Short - Term
• Period : Up to 1 yr
• Concerned with : Under short term forecast day today operation
within the climate of resources currently available.
• Purpose :
• Evolving suitable production policy (avoid over
production & short supply) and controlling the
inventory. It leads to reduce the cost of
purchasing raw materials.
• Determining appropriate price policy.
• Setting sales targets and establishing control
and incentives.
• Forecasting short-term financial requirements.

6. LEVELS OF DEMAND FORECASTING
Demand forecasting may be under taken at 3 different levels.
• Macro - Levels
• It is concerned with business conditions over the whole economy measured by
an appropriate index of industrial production, national income or expenditure.
• Industrial Levels
• It is prepared for different Individual Industries to forecast the demand for their
product. ex., Sugar Industry, textile industry, etc.,
• Firm Level
• It is more important in managerial point of view. In this level the forecasting
can be done for individual firms. For example BPL TV wants to forecast the
demand for their product they can conduct the research for their product only.
Even then they have to compare position of other brands.

7. TECHNIQUES OR METHODS OF DEMAND
FORECASTING
• Survey Technique
• It is most traditional method for estimating demand is the survey of buyers’
intentions, taste and preferences (analysis of consumer behaviour). In this
method the researcher should prepare a separate questionnaire, which
contains various questions.
• Trend Projection Method
• This method is perhaps the simplest and sometimes a reliable first hand
indicator of future demand. In the case of old methods, historical data on
sales in different time periods are available. Then data can be arranged
into a time series and when plotted, a trend line can be fitted. With the
help of the trend line the researcher can predict the demand.

8. TECHNIQUES OR METHODS OF DEMAND
FORECASTING (Contd … … … )
• iii) Improved Statistical Techniques
• There are various statistical techniques and Econometric models are
available to forecast the demand. In the regression technique, the analysis
first decides the demand hypothesis, that is the factor that influences the
demand for a product. This may be a simple linear relation or and
exponential type of relation (e.g.)
• D =  + y
• Where,
• D = Quantity Demanded
•  &  = all to be estimated
• y = may be price or income

9. TECHNIQUES OR METHODS OF DEMAND
FORECASTING (Contd … … … )
• Economic Indicators
• This approach is based on demand forecasting on certain
economic indicators e.g.,
• The details of construction contract sanctioned on the particular
year for the demand for building material says cement, bricks,
etc.,
• Personal income for the demand of consumers goods,
• Agricultural income for the demand of agricultural inputs,
implements, fertilizers, etc.,
• Automobile registrations for the demand of car accessories ,
petrol, etc.,

10. TECHNIQUES OR METHODS OF DEMAND
FORECASTING (Contd … … … )
• Controlled Experiments
• Under this method, an effort is made to vary separately
certain determines of demand. Which can be
manipulated. E.g. changes in the price level, changes in
the pattern of the product, etc. Suppose the producer
wants to modify the price of his product, he can increase
the price of the product in a sample market. In this
method the producer can understand the demand
variation by fixing different price level in different market
places.

11. Demand forecasting for new products
• Projects the demand for the new product as amount growth of the
existing and old products
• Analysis the new product as a substitute for some existed product or
service
• Estimate the rate of growth and the ul5timate level of demand for the
new product on the basis of the pattern of growth of established product
• Estimate the demand by making direct enquiries from the ultimate
purchasers, either by the use of samples or on a full scale.
• Offer the new product for sale in a sample market. E.g., by direct mail
or through one multiple shop organisation
• To some extent, the method of forecasting demand for and established
product can be applied for new products.

12. CRITERIA OF GOOD FORECASTING METHOD
• Accuracy
• The Accuracy of the forecasts measured not only by
the percentage of times. It is correct but also by
evaluating how closely its forecast changed,
particularly, changes in direction.
• Simplicity and ease of comprehension
• Management must be able to understand and have
confidence on the techniques used. Hence simple
techniques should be recommended.

13. CRITERIA OF GOOD FORECASTING METHOD
(Contd … … … )
• Economy
• The object her is in the economic consideration of
balancing the benefit from increased accuracy against
the extra cost of providing improved forecasting.
• Availability
• The techniques employed should be able to produce
meaningful result quickly.
• Maintenance of timeliness
• The forecast should be capable of being maintained
on an up to date basis.

14. Thank You
manimadhavan@gmail.com
manimadhavan@gmail.com
9865210146