Chapter 4

Demand forecasting
Demand forecasting is a combination of two words; the first one is
Demand and another forecasting. Demand means outside requirements of
a product or service. In general, forecasting means making estimation in
the present for a future occurring event. 
Demand Forecasting is the process in which historical sales data is used
to develop an estimate of an expected forecast of customer demand. To
businesses, Demand Forecasting provides an estimate of the amount of
goods and services that its customers will purchase in the foreseeable
future. It is a projection/ prediction made on the basis of relevant logical
assumptions, of the volume likely to be product transported and sold.
Objectives of Demand Forecasting

 Sales planning
 Production planning
 Adequate purchasing of materials
 Framing proper policies
 Enable to make sound plans
 Reducing inventory cost
 Reducing warehousing cost
 Tracking overall performance
 Effective labor management
Approaches to Forecasting
 Top-Down Approach- Top-down forecasting is a method of
estimating a company’s future performance by starting with high-
level market data and working “down” to revenue. This approach
starts with the big picture and then narrows in on a specific
company.
 Bottom-Up Approach- Bottom-up forecasting is a method of
estimating a company’s future performance by starting with low-
level company data and working “up” to revenue. This approach
starts with detailed customer or product information and then
broadens up to revenue. 
Forecasting methods/ Forecasting Techniques
 Quantitative Technique
 Qualitative Technique
Qualitative Forecasting Methods

 Jury of executive (opinions of small groups are taken into

consideration to forecast demand)
 Consumer survey method (efforts are made to collect data from
customer directly)
 Assessment by sales personnel (sales representative gives
estimate)
 Naïve approach (comparison is made on current and past data)
 Delphi method (relates to panel of expert)
Quantitative Technique

 Time series method (based on assumption that future will be

similar to past)
[Moving average, exponential smoothing, extended smoothing]
 Casual technique (based on hypothesis)
Features of Demand Forecasting
Criteria for Demand Forecasting
Thank You