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Term Paper on Demand Forecasting | Economics

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Here is a compilation of term papers on ‘Demand Forecasting’ for class 11 and 12. Find paragraphs, long and short term papers on ‘Demand Forecasting’ especially written for school and college students.

Term Paper on Demand Forecasting


Term Paper Contents:

  1. Term Paper on the Meaning of Demand Forecasting
  2. Term Paper on the Objectives of Demand Forecasting
  3. Term Paper on the Process of Demand Forecasting
  4. Term Paper on Demand Forecasting Techniques
  5. Term Paper on the Importance of Demand Forecasting
  6. Term Paper on the Benefits of Effective Demand Forecasting
  7. Term Paper on Demand Estimation and Demand Forecasting

Term Paper # 1. Meaning of Demand Forecasting:

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Demand forecasting is the process of determining what products are needed where, when, and in what quantities. It can be a significant source of competitive advantage by improving cost structure and customer service levels, and decreasing backorders and lost sales. The goal of forecasting is to minimize the error between the forecast and the actual demand.

A demand forecast means estimation of the demand for the good in question in the forecast period. The importance of demand or sales forecasting to business planning can hardly be overemphasized. Good production and sales planning require forecasts of the business conditions and their relation to demand.

Demand forecast means estimation of the demand for the product in question for the forecast period. For genuine forecasts, the forecast period is a future period and they are referred to ex-ante forecasts. The forecasts for present and past period, which are carried out to test and reliability of the predicting model, are called ex-post forecasts.

Demand forecasts may be attempted for the total market as well as for market segments. Similarly firm demand and industry demand are forecast. Demand forecasts are also classified into active and passive forecasts. Active forecasts consider the likely changes in the relevant variables in future in estimating the future demand.

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Passive forecasts refer to the estimation of future demand if things continue the way they have been in the past. Thus, it is clear that it is the active forecasts that are more meaningful, though passive forecasts assess the impact of new policies on the market. Forecasts can broadly be classified into two categories- Passive forecasts and Active forecasts.

Passive forecasts predict the future situation based on the assumption that the firm need not change the course of its action and active forecasts estimate the future situation under the condition of likely future changes in the actions by the firm.

For example, if Tata Tea takes no policy action to influence its future sales, the estimation of sales may be called a passive sales forecast. On the other hand, if the company formulates and takes strategic decisions and actions to influence the future sales, it will be terms active forecasts.

Demand forecasting is also the foundation of a company’s entire logistics process. It supports other planning activities such as capacity planning, master production scheduling (MPS), inventory planning, and even overall business planning.

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In general, a business would be interested in both passive and active forecasts. Often business firms like to forecast the sensitivity of their demand taking in to account changes taking place in a host of their alternative policy variables like sales at different prices of the product itself, prices of substitutes and complements, at varying advertisement expenditure, at quality and design variations, etc.

A successful forecasting strategy includes selecting the appropriate forecasting technique.

A successful forecasting strategy includes:

1. Sales and operations planning (S&OP) process.

2. Enabling software.

3. Using different forecasting techniques for different products.

4. Forecasting customer demand versus actual shipments.

5. Tracking forecast error and other performance measurements.

6. Involvement of sales and marketing in the forecasting process.


Term Paper # 2. Objectives of Demand Forecasting:

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The short term and long term objectives of demand forecasting may be described as follows:

a. Short Term:

1. Helps in reducing costs of raw materials and control inventories.

2. Make arrangements for short terms financial requirements, such as working capital for day-to-day requirements.

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3. Establish targets and to provide incentives to sales force.

4. Make arrangements for appropriate promotional efforts such as advertising and sales campaign etc.

5. Formulate pricing policies for achieving desired results.

6. Demand forecasting assists in production planning and scheduling operations to avoid overproduction and underproduction.

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b. Long Term:

The following are the important long-term objectives of demand forecasting:

1. Frequently, the objective of forecasting is to predict demand.

2. Forecasts can also provide information on the proper product mix.

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3. Long term demand forecasting tries to achieve the objective of ascertaining future demand for the product so that the firm can plan for new units, new projects, new plants, expansion of existing scale of operations.

4. Demand forecasting is also significant for preparing plans for long-term financial requirements and take steps for arranging these finances.

5. Demand forecasting helps the firm in planning for long- term human resource planning with training programs well in time for future expansion programs and also for adapting itself to new products likely to come up in the market.

6. It also helps in developing different processes if there is going to be a heavy growth in the demand for the product.

7. Forecasting is an important management activity. Major decisions in large businesses almost always are based on forecasts of some type. In some cases, the forecast may be little more than an intuitive assessment of the future by those involved in the decision. In other cases, the forecast may have required deliberate effort.


Term Paper # 3. Process of Demand Forecasting:

The process of demand forecasting involves the following steps to have an efficient forecast of demand:

1. Identification of Objective:

It is very essential to be clear about the objective of the forecast. The purpose of demand forecast may be the estimation of one or more than one aspect like volume of sales, price determination, sales planning, inventory management etc. The approach will difference in accordance with the problem undertaken for the forecast.

2. Nature of Goods:

In this step the nature of goods for which the exercise of forecast is undertaken must be clearly determined. Commodities have different demand patterns according to their nature. The goods may be capital, consumer goods, durable or perishable consumer goods. The determination of nature of goods will assist in identifying the approach of forecasting exercise and in determining the variable to be considered for forecasting.

3. Appropriate Technique of Forecasting:

The objective of forecasting, type of data available, the period for which the forecast is to be made, etc. aid in selecting the appropriate technique of forecasting.

4. Interpretation of Results:

The preparation of forecasts is not enough. Interpretation of results is of equal importance. Efficiency of a forecast depends, to a large extent, upon the efficiency in the interpretation of its results. It is also significant that the forecasts are frequently revised in the light of changing business environment and other factors that were supposed to remain constant.


Term Paper # 4. Demand Forecasting Techniques:

Broadly speaking, there are two approaches to demand- forecasting – Survey method and Statistical method. They are further sub-divided into various methods. The former obtains information about the consumers’ intentions by conducting consumers’ interviews, through collecting experts’ opinion. The latter using past experience as a guide and by extrapolating past statistical-relationships suggests the level of future demand.

Survey methods are found appropriate for short term forecasting or demand estimation, while statistical methods are more appropriate for long term demand forecasting or business and economic forecasting. Either of the methods may be used for forecasting demand for existing products, but the demand for new products, in the absence of any historical data, must be forecast through the survey method only.

Collaborative Forecasting:

Many firms have moved beyond the integration of their internal logistics processes and decision-making and have begun to focus on the close integration of logistics processes with their trading partners both backwards and forwards in the distribution channel. This inter-organizational logistics focus has come to be called Supply Chain Management.

In Supply Chain Management, firms attempt to improve the efficiency of their logistics efforts through joint, cooperative efforts to manage the flow of goods in a “seamless”, organic way throughout the channel. Each firm attempts to share useful data and to coordinate all important logistics decisions.

One logistics process that could benefit dramatically from this kind of cooperation is demand forecasting. Many firms are now working on cooperative forecasting techniques, and this general idea has come to be called collaborative forecasting.

Demand for New Items:

New product introductions present a special problem in that there is no historical time series available for estimating a model. As issue is not only the estimation of the sales at every future period but also, for example, estimates of the time it takes to reach certain volumes.

In this and other contexts where there is no reliable historical time series or when there are reasons to believe that future patterns will be very different from historical ones, qualitative methods and judgment are used. Unfortunately, many market research procedures, which are based on questionnaires and interviews of potential customers, notoriously over-estimate the demand since most respondents have no stake in the outcome.

Data can also be collected from marketing and sales personnel, who are in touch with customers and can have an intuition regarding the demand for some products. Other sources of informed opinions are channel partners, such as distributors, retailers, and direct sales organizations.

Significance of Demand Forecasts:

Several organizations and individuals attempt demand forecasts. The planning authorities at the national level undertake forecasts for the demands for all major goods and services in the economy for the next five years. The industry organizations forecast the demand for their industrial products and firms in their corresponding brands.

Researchers undertake forecasts of all kind, including the worldwide forecasts. International organizations like World Bank, International Monetary Fund, United Nation’s Organizations and Asian Development Bank also conduct different kinds of forecasts.

In particular, forecasts are required to plant future production and thereby future needs for various resources, including manpower, raw materials and funds. Unless the future demand is known well in advance there may not be enough time to plan and execute the production to meet that demand. And if demand is not met, firms may not be able to attain their objectives. To avoid the situations of over-production and under-production accurate demand forecasts are essential.


Term Paper # 5. Importance of Demand Forecasting:

Forecasting product demand is crucial to any supplier, manufacturer, or retailer. Forecasts of future demand will determine the quantities that should be purchased, produced, and shipped. Demand forecasts are necessary since the basic operations process, moving from the suppliers’ raw materials to finished goods in the customers’ hands, takes time. Most firms cannot simply wait for demand to emerge and then react to it. Instead, they must anticipate and plan for future demand so that they can react immediately to customer orders as they occur.

In other words, most manufacturers “make to stock” rather than “make to order” – they plan ahead and then deploy inventories of finished goods into field locations. Thus, once a customer order materializes, it can be fulfilled immediately – since most customers are not willing to wait the time it would take to actually process their order throughout the supply chain and make the product based on their order. An order cycle could take weeks or months to go back through part suppliers and sub-assemblers, through manufacture of the product, and through to the eventual shipment of the order to the customer.

Firms that offer rapid delivery to their customers will tend to force all competitors in the market to keep finished goods inventories in order to provide fast order cycle times. As a result, virtually every organization involved needs to manufacture or at least order parts based on a forecast of future demand.

The ability to accurately forecast demand also affords the firm opportunities to control costs through leveling its production quantities, rationalizing its transportation, and generally planning for efficient logistics operations.

In general practice, accurate demand forecasts lead to efficient operations and high levels of customer service, while inaccurate forecasts will inevitably lead to inefficient, high cost operations and/or poor levels of customer service. In many supply chains, the most important action we can take to improve the efficiency and effectiveness of the logistics process is to improve the quality of the demand forecasts.


Term Paper # 6. Benefits of Effective Demand Forecasting:

Effective demand forecasting will help your business reach its goals. From the customer’s perspective, having your goods available when they want them will satisfy their needs. From the business’s perspective, revenue will increase since lost sales are minimized. Also, your business’s cost structure will improve due to more efficient use of capital. The company’s income statement, balance sheet, and cash flow statement can all be positively influenced by effective demand forecasting.

In addition to the raw financial benefits, other advantages to improved performance in demand forecasting include:

1. Improved customer service levels.

2. Fewer backorders and lost sales.

3. Less inventory investment in safety stock.

4. Improved production planning processes.

5. Earlier recognition of market place trends.


Term Paper # 7. Demand Estimation and Demand Forecasting:

A business firm needs to know the demand for its product. The existing firm must know current demand, say, over a month or a half year or a year for its product not only to avoid the conditions of underproduction and overproduction but also determine its pricing and promotional policies, etc. so that it is able to secure optimum sales or maximum profit. Such information about the current demand for a firm’s product is called Demand Estimation.

Demand estimation may be defined as the process of finding current values of demand for various values of prices and other determining variables. Demand estimation for a firm’s product is for a short period.

The firms may not be much interested in short term estimation. They may be interested in production planning, new product development, long term financial investment for expansion or in new schemes or long term human resource requirements. These decisions have effects over a long period of time. These plans may have long gestation period and a high degree of uncertainty.

For example, large steel plants require ten to fifteen years for construction. It is, therefore, necessary to forecast demand five year, ten year or even more hence and so on. This is known as demand forecasting. Demand forecasting may be defined as the process of finding values for demand in future time periods. Demand forecasting is for a long period. Demand forecasting is also known as Business forecasting.


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