DEMAND FORECASTING METHODS:: BUSINESS ECONOMICS:BBA:MBA

 Demand Forecasting Methods/Techniques (BUSINESS ECONOMICS)

There are two methods in which demand forecasting can be done i.e (A) Survey Methods and (B) Statistical Methods.

Survey Methods::

1. Market Research

In this research technique, consumer-specific survey forms are sent in tabular format to get insights that an organization can’t get in general from internal sales. It gives better information about the type of customers and demographic data which will help to target future markets. Market Research helps companies to know their customer base better, intentions to buy products or services, thereby help to estimate the future demand.

2. Sale Force Opinion

This method collects data from sales groups to forecast demand. Salespeople of an organization are close to their customer bases, can generate valuable information on customer needs, behaviour, sales and feedback and can also give information about the competition in markets.

3. Delphi Technique

In Delphi Method, an organization hires a group of external experts, and generates a forecast based on their market knowledge. After this process forecasts are shared among the experts anonymously, hence experts get influenced by each other’s forecasts. Now the experts are asked again to generate a forecast and this process is repeated until all experts reach a near consensus scenario. The process is intended to permit the experts to expand on one another’s information and assessments.

Statistical Methods:

1. Trend Projection

It is the most common demand forecasting technique used by organizations. Trend Projection uses past sales data to project future sales. This technique can be used by organizations with a sufficient amount of past sales data (typically more than 18 to 24 months). The data is arranged in chronological order to form a time series, time series depicts the past trends based on which future market trends can be predicted.

2. Barometric Forecasting Technique

In Barometric Technique, demand is forecasted based on the basis of past events or the events occurring in the present. It is done by analyzing economic indicators such as saving, investment, and income. This method can be implemented even in the absence of past data. For example, if the government plans for a large housing project, this indicates that there would be high demand for construction materials in the future.

3.  Econometric Forecasting Technique

This technique combines past sales data with the factors that influence the demand to create a mathematical formula to predict future demand. It finds the relation between the dependent variable and the independent variables. If only one factor affects the demand it is known as a single variable demand function or simple regression. Whereas if there are multiple factors affecting the demand, it is known as multiple variable demand function or multiple regression.

Regression Equation : Y = a + bX , Y is the forecasted demand.

Conclusion

Demand forecasting helps organizations to make better business decisions. Based on the business requirements, sales data, market research, and economic factors different demand forecasting techniques can be used. It is often detailed, and expertise-driven.

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