Demand Forecasting is a systematic and scientific process of estimating future demands for a product, using various forecasting methods. Forecasting methods differ in terms of:
• Purpose of forecasting
• Data required and available
• Time frame of the demand to be forecasted
Bases on the above criteria, forecasters select the appropriate method of forecasting.
Under this method the forecaster either contacts the potential consumers directly and ask them about their future purchase plan or uses only a sample of the potential customers for direct interview. The former method is used usually for a small sample size where the probable demand can be calculated by adding all the quantities mentioned by the consumer. However, the latter method is used for large number of consumers.
This method is used to gather opinions of people who possess market knowledge, like sales representatives, professional marketing experts and consultants. There are three ways of forecasting through Opinion Poll method:
• Expert-Opinion Method
• Delphi Method
• Market Studies and Experiments
The most common method of business forecasting is concerned with the movement of variables through time. This method requires a long time-series data. It assumes that the factors dependent on the past trends in the variables to be projected will continue to play the same role in the future. While predicting the demand for a product, this method is applied to the long time-series data. Trend projection method includes three techniques broadly:
• Graphical Method
• Least Squares Method
• Box-Jenkins Method
This method was developed to forecast the trend in the overall economic activities. Barometric method of forecasting is used by the meteorologists in weather forecasting. Forecasters use economic indicators to forecast overall trend in business activities.
This method makes use of statistical tools and economic theories in combination to estimate the economic variables and to forecast the significant variables. The econometric model can either be a single-equation regression model or a system of simultaneous equations. Mostly, the regression model serves the purpose.