Demand Forecasting
By: Malik Abrar Altaf
Independent demand items are the
only items demand for which needs
to be forecast
 These items include:

 Finished goods and
 Spare parts
Independent Demand
(finished goods and spare parts)
Dependent Demand
A
(components)
C(2)
B(4)
D(2)
E(1)
D(3)
F(2)
Demand estimates for products and
services are the starting point for all the
other planning in operations management.
Management teams develop sales forecasts
based in part on demand estimates.
The sales forecasts become inputs to
both business strategy and production
resource forecasts.



Demand forecasting means estimation
of the demand for the good in the
forecast period.
It is a process of estimating a future
event by casting forward past data.
The past data are systematically
combined in a predetermined way to
obtain the estimate of future demand

How far ahead the long-term forecast goes?

Should the forecast be general or specific?

Problems & methods of forecasting are usually different
for new products from those for products already well
established in the market.

It is important to classify the products as producer
goods, consumer durable, or consumer goods & services.

Finally, in every forecast, special factors peculiar to the
product & the market must be taken into account.

Short-term
forecasts;
short-term
forecasts,
involving a period up to twelve months.
(Determining Sales Quotas, Inventory Control, Production
Schedules, Budgeting & Planning Cash Flows)

Medium-term forecasts; medium-term forecasts,
involving a period from one to two years.
(Determining rate of maintenance , Schedule
operations , and Budgetary control over expenses).

of
Long-term
forecasts;
long-term
forecasts,
involving a period of three to ten years.
(Determining
capital
Expenditures,
Personnel
Requirements,
Financial
Requirements,
Raw
material
Requirements, and the size and scope of R&D Programmes)

Appropriate production scheduling so as to avoid the
problem of over-production & the problem of short
supply.

Helping the firm to reducing costs of purchasing raw
materials.

Determining appropriate price policy.

Setting sales targets & establishing controls &
incentives.

Evolving a suitable advertising & promotion programme.

Forecasting short-term financial requirements.

Planning of new unit or expansion of
an existing unit.
 A multi-product
firm must ascertain not
only the total demand situation but also
the demand for different items separately.
If a company has better knowledge than
its rivals of the growth trends of the
aggregate demand and of the distribution
of demand over various products , its
competitive position would be much
better.


Planning long term financial requirements:
 Long term sales forecasts are essential to
access long term financial requirements.
Planning Man-power Requirements:
 Training and personnel development are
long term propositions , taking considerable
time to complete .
•Survey of Buyer’s intentions.
•Delphi method.
•Expert Opinion.
•Collective Opinion.
•Naive Models.

Most Direct method of estimating demand in the short run.

Asking Customers ,What they are planning to buy for the
forthcoming time period –Usually a year.

It is useful when bulk of the sales is made to industrial
producers.

Burden of forecasting shifted to customer.

Method Not useful in household customers for several reasons:
 Irregularity in customers Buying intentions.
 Their inability to foresee the choice when faced with multiple
alternatives.




Delphi method was originally developed at Rand
Corporation of the USA, in late 1940’s by Olaf
Helmer,Dalkey and Gordon.
Variant of opinion poll and survey method is Delphi
method.
An attempt to arrive at a consensus in an uncertain
area by questioning a group of experts repeatedly until
the responses appear to converge along a single line.
The participants are supplied the responses to previous
questions from others in the group by a coordinator or
a leader. The leader provides each expert with the
responses of the others including their reasons.

(Hunch: An impression that something might be the case)

Ask Experts in the field to provide their
own estimates of likely sales .

Experts may be: Executives directly
involved in the market Such as Dealers ,
Distributors, Suppliers or others whose
major interest is in the forecast itself
such as : Industry Analysts, Specialist
Marketing consultants, officers of trade
associations etc.