DEMAND FORECASTING 1

• DEMAND FORECASTING 1
  OPERATION MANAGEMENT
  MEANING AND DEFINITION

1.     PLANNING IS AN INTEGRAL PART OF MANAGER’S JOB. IF UNCERTAINTY EXIST IN THE FUTURE PLANNING, IT WILL BE DIFFICULT TO PLAN EFFECTIVELY. FORECAST HELP MANAGERS REDUCE UNCERTAINTY AND HELP IN DEVELOPING MEANINGFUL PLANS.

2.     A FORECAST IS THE ESTIMATE ABOUT FUTURE. FORECAST HELP MANAGERS TO DETERMINE IN THE PRESENT WHAT COURSE OF ACTION THEY WILL TAKE IN FUTURE.

3.     FORECASTING IS DEFINED AS ESTIMATING THE FUTURE DEMAND FOR PRODUCTS AND SERVICES AND THE RESOURCES NECESSARY TO PRODUCE THESE OUTPUT,

4.     FORECASTING IS THE ART AND SCIENCE OF PREDICTION FUTURE EVENTS, NOT MERE GUESS WORK. IT IS THE PREDICTION ABOUT FUTURE ON SOME RATIONAL DATA

• NEED OF DEMAND FORECASTING

1. NEW  FACILITY PLANNING:-LONG RANGE PLANNING IS REQUIRED FOR SETTING UP NEW FACILITY,NEW PRODUCTS ETC
2. PRODUCTION PLANNING:-PLANNING OF PRODUCTION ACCORDING TO DEMAND
3. WORKFORCE SCHEDULING:-SHORT RANGE FORECAST ARE NEEDED TO ENABLE MANAGERS TO HAVE THE NECESSARY LEAD TIME TO ARRANGE THE WORKFORCE
4. FINANCIAL PLANNING:-SALES FORECAST HELP FINANCE MANAGERS TO PREPARE BUDGET TAKING CONSIDERATION THE CASH INFLOW AND CASH OUTFLOW

• CLASSIFICATION OF THE FORECASTING ON TIME HORIZONS

1. SHORT RANGE FORECAST: HAS A TIME SPAN UP TO ONE YEAR.IT COULD BE MONTHLY OR WEEKLY. USED FOR PLANNING PURCHASING,JOB SCHEDULING,WORKFORCE LEVELS,JOB ASSIGNMENT AND PRODUCTION LEVELS
2. MEDIUM RANGE FORECAST:- HAS A TIME SPAN FROM 3 MONTHS TO 3 YEARS. USED IN SALES PLANNING,BUDGETING,CASH BUDGETING
3. LONG TERM FORECAST:- GENERALLY THREE YEARS OR MORE IN TIME SPAN. LONG TERM FORECASTING USED IN NEW PRODUCT PLANNING AND DEVELOPMENT,CAPITAL EXPENDITURE PLANNING AND PLANNING FOR FACILITY LOCATION OR EXPANSION AND RESEARCH AND DEVELOPMENT

• TYPES OF FORECASTS

1. TECHNOLOGICAL FORECAST:-RATES OF TECHNOLOGICAL PROGRESS
2. ECONOMIC FORECAST:-STATEMENTS OF EXPECTED BUSINESS CONDITIONS PUBLISHED BY GOVERNMENT AGENCIES. THESE FORECAST ADDRESS THE BUSINESS CYCLE BY PREDICTING INFLATION,MONEY SUPPLIES,GROSS NATIONAL PRODUCT.
3. DEMAND FORECAST:-PROJECTION OF DEMAND FOR A COMPANY’S PRODUCT OR SERVICES. ALSO CALLED SALES FORECAST BECAUSE IT GIVE THE EXPECTED LEVEL OF DEMAND FOR A COMPANY ‘S PRODUCTS FOR SOME DEFINED FUTURE PERIOD. PRODUCTION PLANNING,MANPOWER PLANNING AND FINANCIAL PLANNING IS DONE ON THE BASIS OF IT

• ELEMENTS OF GOOD FORECAST

1. THE FORECAST SHOULD BE TIMELY
2. ACCURATE AND DEGREE OF ACCURACY IS KNOWN
3. RELIABLE
4. SHOULD BE EXPRESSED IN MEANINGFUL UNITS
5. PERMIT OBJECTIVE ANALYSIS
6. FORECASTING TECHNIQUES SHOULD BE SIMPLE

• OBJECTIVES OF DEMAND FORECASTING
• SHORT RANGE OBJECTIVES:

1. FORMULATION OF PRODUCTION STRATEGY: MATERIAL REQUIREMENT,OPTIMUM UTILIZATION OF PLANT AND EQUIPMENT,PLANNING THE LABOUR AVAILABILITY
2. FORMULATION OF PRICING POLICY
3. PLANNING AND CONTROL OF SALES
4. FINANCIAL PLANNING

• MEDIUM OR LONG RANG OBJECTIVES:-

1. LONG RANGE PLANNING FOR PRODUCTION CAPACITY
2. LABOUR REQUIREMENT
3. RESTRUCTURING THE CAPITAL STRUCTURE

• STEPS IN THE FORECASTING PROCESS

1. DETERMINE THE PURPOSE OF THE OBJECTIVE OF FORECAST
2. SELECT THE ITEMS FOR WHICH FORECAST ARE NEEDED
3. DETERMINE THE TIME HORIZON FOR THE FORECAST
4. SELECT THE METHODS
5. COLLECT AND ANALYZE  THE DATA NEEDED FOR THE FORECAST
6. PREPARE THE FORECAST
7. MONITOR THE FORECAST

• FORECASTING TECHNIQUES
• QUALITATIVE METHODS

1. JURY OF EXECUTIVE OPINION
2. SALES FORCE COMPOSITE METHODS
3. MARKET RESEARCH METHODS
4. DELPHI METHODS

• QUANTIATIVE METHODS

1. TIME SERIES METHODS
2. CAUSAL METHODS

1. TREND PROJECTIONS
2. LINEAR REGRESSION ANALYSIS

• QUALITIATIVE METHODS
• JURY OF EXECUTIVE OPINION:-OPINIONS OF A SMALL GROUP OF HIGH LEVEL EXECUTIVES ARE TAKEN.
• MERITS:-BASED ON EXPERIENCE AND CAN BE USED FOR TECHNOLOGICAL,DEMAND FORECASTING

1. DISADVANTAGES:-DIFFICULT TO GET CONSENSUS OPINION OF SEVERAL EXPERTS
2. GETSS OUT OF CONTROL
3. COSTLY

• SALES FORCE COMPOSITE METHODS:-ALSO KNOWN AS POOLED SALES ESTIMATE, EACH SALES PERSON ESTIMATE WHAT SALES WILL BE IN HIS OR HER TERRITORY. REVIEWING THE ESTIMATES AND THEN THEY ARE COMBINED TO GET OVERALL RESULTS
• MERITS:-AS THE SALES PEOPLE ARE CLOSE TO THE CUSTOMERS
• DEMERITS:-INDIVIDUAL BIASEDNESS WILL AFFECT
• SALES PEOPLE MAY NOT BE ABLE TO JUDGE THEM APPROPRIATELY

• MARKET RESEARCH METHODS:-CONSUMER SURVEY METHODS. DATA IS COLLECTED BY CONDUCTING A CONSUMER SURVEY.
• DISADVANTAGE:0 NOT POSSIBLE TO CONTACT EVERY CUSTOMER,TIME AND MONEY CONSUMING
• DELPHI’S TECHNIQUE

1. BASED ON A DISCUSSION BY GROUP OF EXPERTS
2. THE TECHNIQUE CONSISTS OF SEVERAL ROUNDS OF INDIVIDUAL AND ANONYMOUS QUESTION TO EACH EXPERTS FOLLOWED BY A GROUP DISCUSSION AFTER EVERY ROUND. AND PARTICIPANTS TO REFLECT AND ADJUST THEIR OPINION. PROCESS IS USUALLY REPEATED UNTIL A CONSENSUS IS ACHIEVED
3. AN ALTERNATIVE IS TO SEND OUT A SERIES OF QUESTIONNAIRE. A WRITTEN SUMMARY OF ALL RESPONSES IS DISTRIBUTED TO EVERY ONE AFTER EACH ROUND

• STEPS

1. CHOOSE A FACILITATOR
2. IDENTIFY YOUR EXPERTS
3. DEFINE THE PROBLEM
4. ROUND ONE QUESTION
5. ROUND TWO QUESTIONS
6. ROUND THREE
7. ACT ON YOUR FINDING

• EVALUATION
• MERITS

1. SIMPLE TO CONDUCT
2. USED WHERE QUANTITATIVE DATA IS NOT POSSIBLE
3. RELIABLE FORECAST
4. INEXPENSIVE

• DEMERITS

1. NOT SCIENTIFIC
2. BIASED
3. SUBJECTIVE