Question

Discuss any 3 demand forecasting methods and the importance of demand forecasting to management

Answer 1

Demand forecasting is a process which involves forseeing or predicting the demand for goods and services under various uncontrolable situations and competition in the market.

The methods of dmand forecasting are as follows:-

(1) Delphi method:-

This is a very cost effective method. This method is based upon the decision taken by group of experts. In this method the management asks various questions related to the future demand of goods and services to the group of experts on individual basis for their opinion.The questions are asked repeatedly untill and unless an unanimous decision is obtained from them.

For the accuracy in decision making by the experts, they are provided with the research and estimates made by other experts in the group anonymously. This way one expert can give suggestions on another's research and estimate and also he can revise his own decision on the basis of decision of other experts in the group.

(2) Box-Jenkins Method:-

This method of demand forecasting is used to make predictions of demand for goods and services for short term only and not for long term. This method can be applied where there is availability of seasonal data or data for short period of time. For example, this method can be used to forecast the demand for rainy reason for the products like raincoats. umbrellas, etc.

(3) Survey method:-

This method is used very commonly by the management of an organization to estimate future demand for goods and service. In this method, the survey is conducted by the company in which customers are asked about their prefrences on existing goods and services. On the basis of result of such survey, the demand for goods and services are forecasted.

(4) Barometric method:-

In this method, the demand for goods and services is forcasted on the basis of business trends in the market. These business trends can be developed on the basis of various events occured in the past.

For example, when the government declared some infrastructural projects, the demand for goods and services required in that project increases. But this method may not be useful for the new goods and services.

Importance of demand forcasting is as follows:-

As per definition given by Cundiff and Still, Demand forecasting is an estimate of sales during a specified future period based on proposed marketing plan and a set of particular uncontrollable and competitive forces.

By using the methods of demand forcasting, the management of an oganization can plan its business decisions such as; how much raw material is to be bought, which production process is to be used, how to manage funds for raw materials, what will be the price of goods or services, etc.

Demand forcasting also helps the management to work towards reducing the risks which are usually a part of the business activities.

It also helps the management of an organization to make decisions about expansion of the business and also gives an idea about the capital invstment of the organisation.