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DEMAND FORECASTING TECHNIQUES
By: ASMITA
DEEPIKAEKTAATUL
DEMAND FORECASTING• Demand forecasting means
estimation of the demand for the good in the forecast period.
• It is a process of estimating a future demand using past data, experience of the top management and other forecasting techniques
• The past data is systematically combined in a pre-determined way to obtain the estimate of future demand.
Importance of Demand Forecasting
• Demand forecasts are necessary since the basic operations process, moving from the suppliers' rawmaterials to finished goods in the customers' hands,takes time.
• Most firms cannot simply wait for demand toemerge and then react to it.
• Instead, they must anticipate and plan for future demand so that they can react immediately to customer orders as they occur. In other words, most manufacturers "make to stock" rather than "make to order" – they plan ahead and then deploy inventories of finished goods into field locations
Demand Forecasting
Qualitative Techniques
Quantitative Techniques
JUDGEMENTAL METHODS OF DEMAND FORECASTING
Qualitative/ Judgmental Demand Forecasting
Techniques
Jury/Panel of Executive Opinion
Sales force Composite Analysis
Delphi Method
DELPHI METHOD
Each member of the panel writes answers to the questions
Answers of the panel are summarized and returned to the members of panel
Each member of the panel either maintains or reevaluates his/her forecast
ADVANTAGES:• Reduces effects of group think on decision
making process• Bias is minimized
DISADVANTAGES:• Time consuming• Expensive• Used mostly for long term strategic level
forecasts
The Delphi TechniqueCase Study: “Managing Heritage Tourism”
• Follow-up study to a mail-based survey of 300 managers of heritage attractions
• Delphi used to explore some intriguing issues in greater depth
• Survey asked respondents if theywere willing to be involved in afollow-up study
• Panel members recruited fromamong those who said ‘yes’
The Delphi Technique• 17 panel members
Heritage management consultant 2Local authority officer 2Heritage organisation officer 2Historic property manager 6Academic 3Museum officer 2
• Three topic areas? What should be the major priorities in the mission of
heritage attractions?? What factors are most likely to influence your admission
pricing policy over the next decade? What should be the funding priorities of major heritage
organisations such as the National Trust and English Heritage?
The Delphi Technique• The Rounds
> Round 1 – establish themes> Round 2 – assess themes and place in rank order> Round 3 – assess ranking and re-rank
• Example – Heritage attraction missionSecond RoundThird Round ChangeConservation 1 1 -Accessibility 2 2 -Finance 3 4 ↓Education 4 3 ↑ Quality5 5 -Relevance 6 6 -Recreation 7 7 -Local Community 8 8 -
The Delphi Technique
Panel membership
Round: 1 2 3Heritage management consultant 2 1 1
Local authority officer 2 2 1Heritage organisation officer 2 1 1Historic property manager 6 4 1
Academic 3 1 1Museum officer 2 2 1
Total: 17 11 6
Jury or Panel of Executive Opinions
What it means in the context of demand forecasting technique?
• It means that forecasting shall be done by a panel of experts-perhaps senior corporate financial executives-prepare individual forecasts based on information made
available to all of them.
How it works?The subjective views of executives or experts from sales, production, finance, purchasing, and administration are averaged to generate a forecast about future sales.
Jury MethodAdvantages• Easily done, very quick• Does not require
elaborate statistics• Utilizes collective wisdom
of the top people• Useful for new and
innovative products• Complements other
quantitative methods of demand forecasting such as trend extrapolation
Disadvantages • Produces aggregate
forecasts• Expensive• Disperses responsibility
for forecast• Group dynamics operate
- high cohesiveness, strong leadership, and insulation of the group
Example of Jury or expert panel opinion method
• Wilkins, A Zurn Company• Forecasts are based on the plant manager's,
sales/marketing manager's, and inventory manager's knowledge of
- Competitive strategies- Industry trends- Sales history• They use the jury method in conjunction with
linear regression and time series analysis
SALES FORCE COMPOSITE METHOD
SALESFORCE COMPOSITE METHOD
• Each salesperson estimates in his/her territory how much quantity or value existing and potential customers will buy of each of the companies product or service
SALESFORCE COMPOSITE METHOD
ADVANTAGES• Done by salespeople who
are closest to the customers
• Good knowledge about the customers competitors, product
• Detailed estimate broken down by customer, product, territory possible
• Quick and inexpensive• Simple to use and
understand.
DISADVANTAGES• Sales forecast can be
pessimistic or optimistic
• Sales people may deliberately underestimate the demand
Thank You