Forecasting

1. Compare and contrast at least three of the methods used to determine demand.
2. How do you design a forecasting process?
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Various methods used to determine demand:

Simple Sales Analysis and Forecasting Method:

Past sales can be used to forecast future demand. Past sales are broken into:

Trend analysis: used for long-term forecasting; obtained by curve-fitting past sales with either linear or non-linear regression.

Cycle analysis: used for intermediate range forecasting; up and down swings in sales.

Seasonality analysis: used for short-term forecasting; hourly, weekly, monthly, quarterly, etc sales patterns.
The main advantage of this method is that it easy to use. The disadvantage is that it is based on past behavior and does not include new company, competitor or macroeconomic developments. Historical data used in the analysis may not hold true for future as it does not incorporate new developments and trends which may arise in the future.

Microeconomic Statistical Time-Series Analysis:

Sales numbers from several time periods are correlated to one or several factors such as price, advertising, market share, competitor price demographics, product life stage, etc. Regression analysis and curve fitting is then used to predict future demand.

The advantage of this method is that it includes relevant strategy as well as competitor and macroeconomic trends. The disadvantage is that the outcome may be biased because of important variables being left out, variables not being completely independent, new competitive actions not being included.

Delphi Method or Expert Opinions:

This method gathers information from industry experts until a consensus is reached about where the market is headed. The advantage of this method is that the information comes from the sources most involved with the market and thus represents the most accurate information available. The disadvantage of the Delphi method is the risk of competitive bias and a tendency toward known information.

Impact scenarios:

High probability trends are identified and analyzed for their impact on other trends. This yields several scenarios of …