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There are two basic reasons for the need for forecast in any field.
1. Purpose Any action devised in the PRESENT to take care of some contingency accruing out of
a situation or set of conditions set in future. These future conditions offer a purpose / target to be
achieved so as to take advantage of or to minimize the impact of (if the foreseen conditions are
adverse in nature) these future conditions.
2. Time To prepare plan, to organize resources for its implementation, to implement; and complete
the plan; all these need time as a resource. Some situations need very little time, some other
situations need several years of time. Therefore, if future forecast is available in advance, appropriate
actions can be planned and implemented intime.
Lost sales,
Unhappy customers, and
Perhaps allowing the competition to gain the upper hand in the
marketplace.
Grass Roots
Grass roots forecasting builds the forecast by adding successively from the bottom. The assumption
here is that the person closest to the customer or end use of the product knows its future needs best.
Though this is not always true, in many instances it is a valid assumption, and it is the basis for this
method.
Forecasts at this bottom level are summed and given to the next higher level, like district warehouse.
This amount is then fed to the next level, which may be a regional warehouse.
The procedure repeat until it becomes an input at the top level, which, in the case of a manufacturing
firm, would be the input to the production system.
Market Research:
Firms often hire outside companies that specialize in market research to conduct this type of
forecasting. You may have been involved in market surveys through a marketing class. Certainly you
have not escaped telephone calls asking you about product preferences, your income, habits, and so on.
Market research is used mostly for product research in the sense of looking for new product ideas, likes
and dislikes about existing products, which competitive products within a particular class are preferred,
and so on. Again, the data collection methods are primarily surveys and interviews.
Panel Consensus:
In a panel consensus, the idea that two heads are better than one is extrapolated to the idea that a panel of
people from a variety of positions can develop a more reliable forecast than a narrower group.
Panel forecasts are developed through open meetings with free exchange of ideas form all levels of
management and individuals.
The difficulty with this open style is that lower employee levels are intimidated by higher levels of
management. For example, a salesperson in a particular product line may have a good estimate of future product demand but may
not speak up to refute a much different estimate given by the vice president of marketing.
The Delphi technique (which we discuss shortly) was developed to try to correct this impairment to free
exchange.
Historical Analogy:
The historical analogy method is used for forecasting the demand for a product or service under the
circumstances that no past demand data are available.
This may specially be true if the product happens to be new for the organization. However, the organization
may have marketed product(s) earlier which may be similar in some features to the new product.
In such circumstances, the marketing personnel use the historical analogy between the two products and
derive the demand for the new product using the historical data of the earlier 147 product.
The limitations of this method are quite apparent, like questionable assumption of the similarity of demand
behaviours, the changed marketing conditions, and the impact of the substitutability factor on the demand