WILKINS: Demand Forecasting

By Group A-11 Abilash S Devangi Makwana Nachiket Vaidya Narendra Singh Yadav S G Shrinivas

Issues:
Choice of forecasting method Can it be simplified and made more objective and reliable? How to incorporate price promotions in forecasting? How macro economic factors can be incorporated in forecasting? How to forecast sales of new products like Fixed pressure fire valves?

Current Forecasting Methodology

Estimation of average sales per week for the quarter for each product family Step I

Calculation of average number of units sold of each product within a product family per day in a quarter Step II Calculation of proportion of sales of products within a family from data of last quarters Step III Estimation of sales for each product based on the percent of sales of product family Step IV

Calculation of Annual sales forecast for each product within the family Step V

Implications of forecasting methodology

Use:
Estimation of average revenue per product Projection of average gross profit per unit Used by Accounting and finance departments to develop budgets

Implications of inaccurate forecasting:

Under budgeting/ Over budgeting Inaccurate design of promotional schemes Inefficient Inventory management

Conclusions

Demand forecast for the first quarter of 2005

Actual sales of PVB units in first quarter of 2005 was 90% of the forecasted figure Actual sales of fire valve units in first quarter of 2005 was 4% higher than the forecasted figure

Wilkins has been estimating product forecasts based on some qualitative judgments
Lack of objectivity Scope for personal bias

First forecasting is done for product family and then sales are estimated for each product based on assigned plan bill percentages
Subjective judgement at two stages

Recommended forecast methodology

Sales growth to depend on past trend and a macro economic factor Sales to be estimated by using above sales growth Estimate to be product family wise if no new product is being introduced Estimate to be product family wise in case of introduction of a new product

Comparison of forecasts through two methodologies

Since PVBs were used predominantly by the irrigation market segment their sales are expected to be independent of unemployment rate, bank prime loan rate and new construction
14000 12000 10000 8000 Wilkins forecast 6000 4000 2000 0 1 2 3 4 Proposed forecast