# Methods of Demand Forecasting

Submitted By tanvirtalha
Words 2994
Pages 12
Broadly speaking, there are two approaches to demand forecasting. Survey method and Statistical method are further sub-divided into various methods.

The former obtains information about the consumers’ intentions by conducting consumers’ interviews, through collecting experts’ opinions. The later using past experience as a guide and by extrapolating past statistical- relationships suggests the level of future demand. Survey methods are found appropriate for short term forecasting or demand estimation, while statistical methods are more suitable for long term demand forecasting or business and economic forecasting. Either of the methods may be used for forecasting demand for existing products, but the demand for new products, in the absence of any historical data, must be forecast through the survey method only. Under survey methods surveys are conducted about the consumers’ intentions, opinions of experts, survey of managerial plans, or of markets. Data obtained through these methods are analyzed, and forecasts on demand are made. These methods are generally used to make short-run forecast of demand.
Survey methods are further sub-divided in to:
Consumers’ Survey and Experts’ Opinion and
Survey of Managerial Plans.
A. Consumers’ Survey:
Consumers’ survey involves direct interview of the potential consumers who are contacted by the interviewer and asked how much they would be willing to buy a given product at different prices. Consumers’ survey may take any form as:
Complete Enumeration
Sample Survey, or End-Use Method
1. Complete Enumeration Method:
In complete enumeration survey, all the consumers of the product are contacted and asked to indicate their plans to purchasing the production in question for the forecast period. The demand forecast for the total census consumption is obtained simply by adding the intended demand of all...

### Similar Documents

#### Bus140

...The type of forecasting method used depends entirely whether the supply chain is continuous replenishment or not. Question 1 options: | 1) | True | | 2) | False | Hide Check my answer | | Time Series Methods | ------------------------------------------------- Question 2 The Delphi method generates forecasts based on informed judgments and opinions from knowledgeable individuals. Question 2 options: | 1) | True | | 2) | False | Hide Check my answer | | Components of Forecasting Demand | ------------------------------------------------- Question 3 The larger the mean absolute deviation (MAD) the more accurate the forecast. Question 3 options: | 1) | True | | 2) | False | Hide Check my answer | | Forecast Accuracy | ------------------------------------------------- Question 4 A gradual, long-term up or down movement of demand is called a trend. Question 4 options: | 1) | True | | 2) | False | Hide Check my answer | | Components of Forecasting Demand | ------------------------------------------------- Question 5 Sharing demand forecasts with supply chain members has resulted in an increased bullwhip effect. Question 5 options: | 1) | True | | 2) | False | Hide Check my answer | | The Strategic Role of Forecasting | ------------------------------------------------- Question 6 The demand behavior for skis is considered cyclical. Question 6 options: | 1) | True | | 2) | False | Hide Check my......

Words: 1179 - Pages: 5

#### Ch. 7scm

...CHAPTER SEVEN Discussion Questions 1. What role does forecasting play in the supply chain of a build-to-order manufacturer such as Dell? Although Dell builds to order, they obtain PC components in anticipation of customer orders and therefore they rely on forecasting. This forecast is used to predict future demand, which determines the quantity of each component needed to assemble a PC and the plant capacity required to perform the assembly. 2. How could Dell use collaborative forecasting with its suppliers to improve its supply chain? Collaborative forecasting requires all supply chain partners to share information regarding parameters that might affect demand, such as the timing and magnitude of promotions. Dell could share with their components suppliers all of the promotions, e.g., holiday, back-to-school, etc., they have planned. These suppliers could, in turn, notify their suppliers of discrete components that a spike in demand is anticipated. These demand forecasts for end items determine the demand for components and coupled with knowledge of fabrication times, allows all members of the supply chain to provide the right quantity at the right time to their customers. 3. What role does forecasting play in the supply chain of a mail order firm such as LL Bean? LL Bean has historically operated almost exclusively in a make-to-stock mode and with very few exceptions, stocked products that did not go out of style as rapidly as many other......

Words: 1495 - Pages: 6

#### Demand Estimation and Forecasting

...Managerial Economics Sat. 11:00 – 14:00 Demand Estimation and Forecasting Facilitators : Mr. John Michael G. Favila Mr. Jose Miguel G. Catan Learning Objectives * Identify a wide range of Demand Estimation and Forecast Methods. * Understand the nature of Demand Function * Understand that the Demand Estimation and Forecasting is all about minimizing risk. Demand Estimation and Demand Forecasting; distinguished. * Demand Estimation attempts to quantify the link between the level of for a product and the variables which determines it whereas the Demand Forecasting simply attempts to predict the level of sales at some particular future date. 7 stages of Demand Estimation 1. Statement of a Theory or Hypothesis : This usually comes from a mixture of economic Theory and previous empherical studies. 2. Model Specification : This means determining what variables should be included in the demand model and what mathematical form or forms such a relationship should take. 3. Data Collection : Gathering necessary information. a. Cross-sectional data : Provide information on a group opf entities at a given time. b. Time-serie data: Provide information on the entity over time. i. Quantitative: Data that are expressed in nominal in either ordinal or cardinal. ii. Qualitative: Expressed in categories. 4. Estimation of Parameters : This means computing the value of the coefficient...

Words: 1676 - Pages: 7

#### Mat 540 Models

...FORCASTING METHODS Math 540 Quantitative Methods Professor: Forecasting Methods Outline Strategic Role of Forecasting in the Corporate World of Business Components of Forecasting Demand Time Series Method Forecasting Accuracy Regression Methods Benefits of Forecasting Benefits of forecasting Forecasting can help you make the right decisions, and earn/save money. Here are a few examples. Define better sale strategies If a product is declining, maybe it is a good idea to consider stop producing it. But maybe not: maybe it is just your sales that are declining, but not your competitor's? In this case, is there a chance that you can get your market share back? Forecasting techniques provide answers to these questions – vital questions to your business. Size your inventories optimally Time is money. Room is money. So what you want to do is use all means at your disposal in order to reduce your stocks – without experiencing any shortages, of course. Forecasting Components Short-Range Forecast Daily operations Medium-range Forecast Used from anywhere from a month up to 1 year Long-range Forecasting More strategic and for over a year Forecast Patterns Trend A gradual long-term up or down movement of demand Random variations Unpredictable movements in demand that follow no pattern Cycle An up and down repetitive movement in demand Seasonal pattern An up and down repetitive movement within a trend occurring......

Words: 657 - Pages: 3

#### Discussion Board Forecasting

...Explanation Forecasting is defined as actively predicting a future event or condition, Many forecasting decision or methods or informal such as a gut feeling or intuition, recent experiences, rule of thumb, advice from a friend or friends, or a combination but some use models and math mathematical methods. Since forecasting informal methods can be highly subjective, those utilized by government or business need to be more formal as informal approaches may problematic and untainted. More systematic methods are often employed as business and government forecasting approaches need to be made in the interest of the public, community or business (McCalman, 2012) This topic was chosen for academic as well professional interest as correct and accurate forecasting can serve as great cost saving methods or revenue generator for an organization. Article Review & Comparison McCalman defines forecasting as the prediction of future events comparing both informal and formal methods both in business and government. The most informal method or formalization discussed by McCalman is forecasting based on most recent observation. Systematic forecasting existing at the opposite extreme uses data and mathematical methods used largely or restricted forty years ago to experts with large computing power. As time has progressed the systematic methods not only utilized technology and data but statistical information and statistical software programs, which has opened forecasting up......

Words: 1624 - Pages: 7

#### Forecasting Assignment

...Forecasting Assignment Name University of Phoenix Operations Management – MGT 554 Instructor Date Forecasting Assignment Forecasting assists managers (companies) to help predict future demand. Demand management is important because companies can increase value or productivity and reduce costs. Chase, Jacobs, & Aquilano (2005) state, “the purpose of demand management is to coordinate and control all sources of demand so the productive system can be used efficiently and the product delivered on time” (p. 512). When a manager is choosing a forecast method, the manager must analyze the cost of doing the forecast and the opportunity cost of using inaccurate data. In addition, Chase, et al. (2005) state “the manager must look at the following factors: (1) Time horizon to forecast, (2) Data availability, (3) Accuracy required, (4) Size of forecasting budget, and (5) Availability of qualified personnel ( p. 518). This paper will compare and contrast three forecasting methods (Delphi Method, Box Jenkins Technique, and Econometric Models) used by managers to help predict future demand as well as explain how the National Basketball Association (NBA) uses forecasting methods to forecast demand under conditions of uncertainty. The Delphi method is a qualitative technique. Chase, et al. (2005) defines qualitative techniques as “subjective or judgmental and are based on estimates and opinions (p. 513). The Delphi method according to Chase et al., is when a group of experts......

Words: 1586 - Pages: 7

#### Merriwell Bag Company

...CASE Merriwell Bag Company Merriwell Bag Company is a small, family owned corporation located in Seattle, Washington. The stock of the company is equally divided among five members of the Merriwell family (husband, wife, and three sons), but the acknowledged leader is the founder and patriarch, Ed Merriwell. Ed Merriwell formed the company 20 years ago when he resigned as a mill supervisor for a large paper manufacturer. Ironically, the same manufacturer formed a container division five years ago and is presently one of Merriwell’s competitors. Company Strategy The family attributes the success of Merriwell Bag Company to the fact that it has found a market niche and has no “serious” competition. Merriwell supplies stock bags to many small chain stores scattered over a wide geographical area. It ships the bags directly to small regional warehouses or drop ships directly to the individual stores. The family reasons that the large bag manufacturers cannot profitably provide service to accounts on that small of a scale. In fact, Ed Merriwell formed the business with one second-hand bagging machine to provide bags for a small discount store chain and a regional chain of drug stores. These two organizations have grown tremendously over the years, and Ed Merriwell proudly points out that the Bag Company has grown with them. Today, these two original clients are Merriwell’s largest customers. The Merriwell family does not want its business to be......

Words: 1094 - Pages: 5

#### Sales and Market Potential

...business. There exist different methods of market analysis available to the retailer. No single tool or method could guarantee the success of a new business but it helps, with more information gather the better your chances of success. Marketing Potential is the total amount of product customers will purchase in a specified period and Sales potential is the maximum percentage of market share a firm can expect for a product. Analyzing the market potential for your goods or services is an important step to decide whether to start a new business or expand an existing one. Although there exist several methods to estimate market size based on averages, there is no such thing as a sure or real estimate, but it can improve the management of risk of locating a retail business, Determining Market and Sales Potential There are no shortage of uses for market and sales potential estimates. Among the most popular: • Deciding whether to enter a new market. • Determining markets with the greatest potential for the sales force. • Determining the number of salesmen, reps, or distributors needed to  adequately cover an area. • Identifying boundaries for sales territories. • Establishing quotas for the sales force. • Checking the effectiveness of the sales force. • Deciding whether to invest in a new product. • Use in a business or turnaround plan. • Determining share of market. • Use in a growth plan. There are many methods to estimate market and sales......

Words: 1073 - Pages: 5

#### M&L Case Study

...formalized approach to forecasting? The potential benefits for M&L manufacturing are: * Proper production planning in future of two of its most valuable and profitable product lines; * Fewer stock-outs in retail stores; * Less uncertainty with regard to unexpected orders and production failures; * Proper inventory management and control over the stock levels; * Better knowledge regarding which products to continue selling and discontinue selling. Q2. Prepare a weekly forecast for the next four weeks of each product. Briefly explain why you chose the methods you used. Product 1 The demand for product one has risen over the period of 14 weeks which depicts that demand can be expected to rise further in the coming four weeks. The pattern can be illustrated using a line graph, as shown in figure 1, below. Based on the shape of the graph, it can be stated that, except for the unusual order of 90 units in the seventh week, the demand has risen over the period in a rising trend. Because of the size of the order the graph gets put off from an otherwise linear pattern of the rising demand. In order to forecast demand of Product, the following features of the demand of the product need to be noted: * The demand has risen steadily over the period of 14 weeks; * The slight deviation in between has been caused by an unusual order which is not expected in future sales. The forecasting method most suited to the nature of the demand of Product 1 is......

Words: 873 - Pages: 4

...Student Computer Purchase Program Case Study Pamela Hurdle Dr. Vargha Azad Quantitative Methods MAT 540 December 11, 2009 Case Study 2 Table of Contents Title Page 1 Table of Contents 2 Abstract 3 Case Information 4 Case Study 5-9 Conclusion 10 Reference 11 Case Study 3 Abstract Case problem, “The University Bookstore Student Computer Purchase Program” will forecast the bookstore use of computer demand for the next fall semester. It will show the history of computer purchased and the projected demand for the upcoming semester. It will also show the effectiveness of staff and production. They are operating on a very small profit margin. Case Study 4 Case Study Case Problem: The University Bookstore Student Computer Purchase Program Bernard Taylor in this chapter gives us the understanding of how to use forecasting to predict the future of demand of business for our entities. Forecasting is the prediction of what will occur in the future. We can forecast any aspect of life. Mathematically and through management, we can forecast the guideline of decision making for our entities and everyday living. There are many different aspects of forecasting. Short range forecast envisages the near future. It usually do not surpass a few months. A medium......

Words: 750 - Pages: 3

#### Product vs. Service Supply Chain

...inventory strategies to deliver quality end results to consumers. Supplying a service or a product impacts forecasting and resourcing decisions in different ways. The objectives of the service industry remain similar to the manufacturing industry, fulfilling wants or demands of customers are impacted by the strategies that organizations choose to follow. In the manufacturing industry, raw material, work in progresses, sub-components and finished goods are stored at the company’s expense to meet the demands of its customers. Stock that is held to meet demands is also knows as cycle stock. An example may be a company who purchases coffee from a supplier. The coffee that is supplied is used every day; therefore the company may want to purchase a month’s worth of coffee that will satisfy their demand for roughly thirty days. To avoid any uncertainties in demand as well as shortages or delays, a safety stock can be purchased in addition. Although this scenario sounds ideal, situations do not always turn out to be perfect. One thing that can be a problem with supplying too much coffee to this company would be an issue of quality in the coffee. Keeping coffee stored away and unused for too long may cause the coffee to become stale and unsatisfying. In addition, a variety of associated costs and good customer service are a few challenges that may arise when dealing with variable demands. In the service industry, although products may be intangible, they are ultimately vital in......

Words: 956 - Pages: 4

#### Electronic Procurement

...QUESTION TWO (i) Human resources forecasting involves projecting labor needs and the effects they’ll have on a business. Human Resource department forecasts both short and long term staffing needs based on projected sales, office growth, attrition and other factors that affect a company’s need for labor. Potential human resource requirement is to be estimated keeping in view of the organisation's plans over a given period of time. It involves estimating the future human resource requirement of right quality and right number. Human Resource Forecasting provides Various benefits to the organisation like; * Production and Scheduling Human resource forecasting plans for labor needs change as sales rise and fall. For that human resources manager should keep in close touch with sales manager to be aware of any spikes or declines in sales that affect labor needs. This prevents falling behind on order fulfillment or paying idle workers. A simple example of labor forecasting is a restaurant that has nights with many bookings and large parties and other nights when few diners make reservations. The manager forecasts the restaurant’s wait staff, bar and kitchen needs. * Succession Human resources forecasting helps to avoid long-term holes in staffing needs by keeping on top example employees might be retiring, leaving or asked to leave. Using that information, Human Resource managers plans to fill holes with internal staff or prepares for a quick recruiting effort. *......

Words: 1421 - Pages: 6

#### Oscm390 Week 4 Questions

...Week 4 Questions Pg. 249 1.) The difference between supply chain management and demand management is the area of focus for the business. Supply Chain management, manages the life cycle of the product production from supplier to customer. In other words from purchasing , through production and to logistics.In Demand management, the company manages the customer needs to design, price, market, distribute and determine the amount of products to produce. This allows the company to create or mange demand of set products. 2.) Big Mac - people need food - food sourced - transport - food production - transport - restaurant stocked - food prep and cook - food delivery to customer Gasoline - machines require gasoline - oil sourced - transport - oil stored - transport - oil arrives at stations for storage - oil disbursed as customers come Auto Repair - car breaks - mechanic sourced - transport - mechanic provides repair - customer comes back to get auto Text book - information needed - textbook written - published - printed - distributed - sold – read 3.) Supply chain management is important to study because it involves the management of processes that not only is internal processes but also requires the integration and coordination of materials moving in and out of the supply chain to meet customer needs. 4.) Lead time plays an important part of the supply chain performance. Lead time is the time it takes to deliver a product from the time......

Words: 1399 - Pages: 6

#### Associative and Time Series Forecasting

...Forecasting Models: Associative and Time Series Forecasting involves using past data to generate a number, set of numbers, or scenario that corresponds to a future occurrence. It is absolutely essential to short-range and long-range planning. Time Series and Associative models are both quantitative forecast techniques are more objective than qualitative techniques such as the Delphi Technique and market research. Time Series Models Based on the assumption that history will repeat itself, there will be identifiable patterns of behaviour that can be used to predict future behaviour. This model is useful when you have a short time requirement (eg days) to analyse products in their growth stages to predict short-term outcomes. To use this model you look at several historical periods and choose a method that minimises a chosen measure of error. Then use that method to predict the future. To do this you use detailed data by SKU's (Stock Keeping Units) which are readily available. In TSM there may be identifiable underlying behaviours to identify as well as the causes of that behaviour. The data may show causal patterns that appear to repeat themselves – the trick is to determine which are true patterns that can be used for analysis and which are merely random variations. The patterns you look for include: Trends – long term movements in either direction Cycles - wavelike variations lasting more than a year usually tied to economic or political......

Words: 1499 - Pages: 6