Demand Forecasting

Dr. Bijit Debbarma

Background
• The producer of some goods or any other decision-making
authority or the government must keep in view the existing
level of demand for the product in question and estimate the
prevalent gap between demand and supply.
• The decision maker, whether a firm or a state planning
agency, must not only estimate the present level of demand
but also forecast the demand for a future date.
• Demand forecasting is also one of the techniques to minimize
the risk and uncertainty
Concept of Demand Forecasting
• Forecasting of demand is the art of predicting demand for a
product or a service at some future date on the basis of
certain present and past behaviour patterns of some related
events.
• According to Philip Kotler:- “ The Company sales forecast is the
expected level of company sales based on a chosen marketing
plan and assumed marketing environment.”
Features of Demand Forecasting
1. Demand forecasting is based on past data and present
positions.
2. Demand forecasting may be monetary or physical.
3. Demand forecasting gives basis to future planning.
4. Demand forecasting is made for a certain period.
5. Future sales and profit estimate can be made by demand
forecasting
Importance of Demand Forecasting
1. Importance for the producers.
2. Importance for policy makers and planners.
3. Importance for estimating financial requirements.
4. Utility for determination of sales target & incentive.
5. Importance for regular supply of labour and raw material is
made possible by demand forecasting.
6. Production planning is possible with the help of demand
forecasting.
7. Use for other groups of the society researchers, social
workers and other who have a futuristic approach.
Scope of Demand Forecasting
1. Purpose of demand forecasting.
2. Nature of product.
3. Miscellaneous factors- socio-psychological factors, degree of
competition impact of risk and uncertainity
Methods of Demand Forecasting
• Expert Opinion Method:- Under this method the researcher
identifies the experts on the commodity whose demand
forecast is being attempted and probes with them on the likely
demand for the product in the forecast period.
• Survey Method:- According to this method a few consumers
are selected and their views on the probable demand are
collected.
• Enumeration Survey Method:- Under this technique either
consumers are divided in several groups on the basis of
income, caste, sex, education or any other variable or they may
be divided according to geographical regions.
Methods of Demand Forecasting
• Sample Survey Method:- Under this method only a few
consumers who are representative of entire population are
selected and their views on the probable demand are collected.
• Trend Projection Method: A firm which has been in existence
for some time will have accumulated considerable data on
sales pertaining to different time periods. Such data when
arranged chronologically yield time series. Time series
relating to sales represent the past pattern of effective demand
for a particular product.
 Demand Forecasting Process
1. Specifying the objectives- The person or agency assigned the task of
forecasting the demand must specify the purpose for which demand forecasts
are being made.
2. Selection of Appropriate Method-Once the purpose of demand forecasting
has been specified, we must select the methods which will be used for the
purpose.
3. Collection of Appropriate Data-The quality and adequacy of data will
determine the quality of our results and their reliability. As far as possible, data
must be collected by experienced persons.
4. Estimation and Interpretation of results- Having collected the relevant data
we have to compile them and obtain results manually or with the help of
computers. These results must be interpreted and their correspondence with the
objective examined.
5. Evaluation of the Forecasts- If the method or model used in demand
forecasting has objectivity; we may expect to receive good results. Yet the result
so obtained must be verified by persons having professional acumen and
expertise.