Chapter-3

Anu Devassy.
Forecasting Demand
Forecasting involves the use of quantitative
and qualitative tools for estimating and
predicting future demand.

For products
For services and
The resources needed to produce these
products and services
Survival and profitability of organisations
for the long run depends on accurate forecast

Even though absolute accuracy is not

possible, it can provide vital information for
strategic, tactical and operational planning.
 Components of Forecast
 6 major forecast components

 Base demand – is the average of sales over a

given time period
 Seasonal Component – This refers to the
repeated pattern of increase and decrease in
demand over a period of time
 Trend Component – refers to the long term
pattern of movement of demand over a
period of time.

The trend may be:

 Positive
 Negative
 Neutral
 Cyclic Component – refers to the changes in
the demand patterns, which exist for more
than one year.

Changes could be :

 Upward movement or
 Downward movement
 Promotional Component – refers to the
changes in the demand that occur due to the
promotional campaigns undertaken by the
firm.

 Irregular Component – refers to all those

variations in demand that cannot be
attributed to any of the above five factors.
 Demand Forecasting Process
1. Understand the objective of Forecasting
2. Integrate Demand Planning and Forecasting
3. Identify major factors that influence the
demand forecast.
4. Understand and identify customer segments
5. Determine the appropriate forecasting
techniques.
 Forecasting Methods
Types of Forecasting Techniques
Summary of Forecasting Methods
 Selecting a Forecasting Method
The selection depends on

1) Time span
2) Data availability
3) Cost and Accuracy
 Selecting a Forecasting Method
The selection depends on

1) Time span
2) Data availability
3) Cost and Accuracy
 Measures of Forecasting Error
Mainly 4 measures

 Mean Absolute Deviation (MAD)

 Mean Square Error (MSE)
 Mean Forecast Error (MFE)
 Mean Absolute Percentage Error (MAPE)
 Chapter-4

Allocating Resources to Strategic

Alternatives
Objective :
 Proper allocation of resources – like materials ,
machinery and equipments , manpower, cash
and capital funds etc.
 Constrained optimization models are mainly
used- either to maximize or minimize.
 Linear Programming is one of the most
important constrained optimization models.
Problems
L.P.P
• formulation
• Graphically
• Simplex method

Transportation Problem
• MWCR
• LCEM
• VAM
• MODI
• SSM