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Attempts to predict the overall level of future demand rather than looking at specific linkages.

Demand forecasting is predicting the future demand for the firms product. Ex: how the demand of a product is likely to be in next 2 years

Planning and scheduling production Acquiring the factors of production Planning the provision for finances Planning advertisements Planning for optimal pricing strategy of the product

Demand forecasting is classified into three broad categories: Qualitative Method Time Series Projection Method Casuals Method

These methods rely essentially on the judgment of experts to translate qualitative information into quantitative estimates. The important qualitative methods are: Jury of Executive Method Delphi Method

Jury Of Executive Method This method, which is very popular in practice, involves soliciting the opinions of a group of managers on expected future sales and combining them into sales estimate. Delphi Method This method is used for eliciting the opinions of a group of experts with the help of a mail survey.

These methods generate forecasts on the basis of an analysis of the historical time series. The important time series projection methods are: Trend Projection Method Exponential Smoothing Method. Moving Average Method

The trend projection method involves Determining the trend of consumption by analysing past consumption statistics, and, Projecting future consumption by extrapolating the trend. When the trend projection method is used, the most commonly employed relationship is the linear relationship.

In exponential smoothing, forecasts are modified in the light of the observed errors. If the forecast value for year t, , is less than the actual value for year t, , the forecast for the year t+1,, is higher than . If >, is set lower than.

As per the moving average method of sales forecasting, the forecast for the next period is equal to the average of the sales for several preceding periods.

More analytical than the preceding methods, causal methods seek to develop forecasts on the basis of causeeffect relationship specified in an explicit, quantitative manner. The Important Causal Methods Are: Chain Ratio Method Consumption Level Method End Use Method Base Diffusion Model Leading Indicator Method Econometric Method

The potential sales of a product may be estimated by applying a series of factors to a measure of aggregate demand. The chain ratio method uses a simple analytical approach to demand estimation. However, its reliability is critically dependent on the ratios and rates of usage used in the process of determining the sales potential. While some of these ratios and rates of usage may be based on objective proportions, others will have to be subjectively defined.

Useful for a product which is directly consumed. This method estimates consumption level on the basis of elasticity coefficients. The important ones being the income elasticity of demand and the price elasticity of demand.

Suitable for estimating the demand for intermediate products. The end use method, also called the consumption coefficient method

Developed by Frank Bass, the bass diffusion model seeks to estimate the pattern of sales growth for new products, in terms of two factors: p: The coefficient of innovation. It reflects the likelihood that a potential customer would adopt the product because of its innovative features. q: The coefficient of imitation. It reflects the tendency of a potential customer to buy the product because many others have bought it. It can be regarded as a network effect.

Leading indicators are variables which change ahead of other variables, the lagging variables. Hence, observed changes in leading indicators may be used to predict the changes in lagging variables. For example, the change in the level of urbanisation (a leading indicator) may be used to predict the change in the demand for air conditioners (a lagging variable).

An econometric model is a mathematical representation of economic relationship(s) derived from economic theory. The primary objective of econometric analysis is to forecast the future behaviour of the economic variables incorporated in the model.

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