Sales forecasting

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1. SALES FORECASTING

2. Sales Forecasting is a projection of the expected customer demand for products or services at a specific company, for a specific time horizon, and with certain underlying assumptions.

3. Forecasting can be used for… Strategic planning (long range planning) Finance and accounting (sales budgets and cost controls) Marketing (sales quotas, new products) Production and operations WHY SALES FORECASTING IS IMPORTANT?

4. Many types of forecasting models that differ in complexity and amount of data & way they generate forecasts : Forecasts are rarely perfect Forecasts are more accurate for grouped data than for individual items. Forecast are more accurate for shorter than longer time periods. Principles of Forecasting 1

5. External Factors Relative state of the economy Direct and indirect competition Styles or fashions Consumer earnings Weather Political Conditions Factors affecting Sales Forecasting Internal Factors Labor problems Inventory shortages Working capital shortage Price changes Production capability shortage New product lines

6. 2 TYPES OF FORESCASTING

7. Economic forecasts Predict a variety of economic indicators, like money supply, inflation rates, interest rates, etc. Technological forecasts Predict rates of technological progress and innovation. Demand forecasts Predict the future demand for a company’s products or services. Types of Forecasting

8. TYPES OF FORECASTING METHODS

9. Qualitative methods: These types of forecasting methods are based on judgments, opinions, intuition, emotions, or personal experiences and are subjective in nature. They do not rely on any rigorous mathematical computations. Quantitative methods: These types of forecasting methods are based on mathematical (quantitative) models, and are objective in nature. They rely heavily on mathematical computations.

10. QUALITATIVE FORECASTING METHOD 1

11. Most widely used Method of combining and averaging views of several executives regarding a specific decision or forecast. Leads to a quicker (and often more reliable) result without use of elaborate data manipulation and statistical techniques. Executive Opinion Method Merit: This method is simple and quick . Detailed data are not needed. Demerit: It is not based on factual data . More or less, the method rests on guess-work, and may lead to wrong forecasts.

12. Process includes asking customers about their intentions to buy the company’s product and services Questionnaire may contain other relevant questions Market Survey Merit: First hand information is possible . User’s intention is known. Demerit: Customer’s expectation cannot be measured exactly . It is difficult to identify actual buyers . The method is costly . Buyers may change their buying decisions.

13. Also known as “Grassroots Approach” Individual salespersons forecast sales for their territories Individual forecasts are combined & modified by the sales manager to form the company sales forecast. Best used when a highly trained & specialized sales force is used. Sales Composite Survey Merit: Specialized knowledge is utilized . Salesmen are confident and responsible to meet the quota fixed. Demerit: Success depends upon the competency of salesmen. The estimation may be unattainable or may to too low for the forecasts as the salesmen may be optimistic or pessimistic .

14. Process includes a coordinator getting forecasts separately from experts, summarizing the forecasts giving the summary report to experts who are asked to make another prediction; the process is repeated till some consensus is reached Delphi Method Merit: Forecasting is quick and inexpensive . It will be more accurate . Specialized knowledge is utilized. Demerit: The success of forecasting depends upon the competency of experts. It may not be reliable .

15. QUANTITATIVE FORECASTING METHOD 2

16. Assumes information needed to generate a forecast is contained in a time series of data. It looks at past patterns of data and attempt to predict the future based upon the underlying patterns contained within those data. Assumes the future will follow same patterns as the past. Time-Series Models Merit: No guess-work creeps in . The method is simple and inexpensive. Specialized knowledge is utilized. Demerit: ‘Market is dynamic’ is not considered . No provision is made for upswings and downswings in sales activities .

17. Time Series Components

18. Gradual upward or downward movement over time . Date taken over a period of years. Trend Component

19. Sales are often effected by swings in general economic activity as consumers have more or less disposable income available. Cyclical Component

20. It is a distinguished pattern to sales caused by things such as the weather, holidays, local customs and general consumer behavior. Seasonal Component

21. The Erratic events-Random Variations in data caused by change and unusual situations. Irregular / Random Variation

22. (often called causal models) assume that the variable being forecasted is related to other variables in the environment. They try to project based upon those associations. Associative Models Merit: C an evaluate the impact of changes in other variables. Demerit: Difficult to identify other variables. Require historical data on all variables of the model. Depend on the future values of the other variables.

23. Sufi Legend: The Lost Horse

24. A man who lived on the northern frontier of China was skilled in interpreting events. One day for no reason, his horse ran away to the nomads across the border. Everyone tried to console him, but his father said, "What makes you so sure this isn't a blessing?" Some months later his horse returned, bringing a splendid nomad stallion. Everyone congratulated him, but his father said, "What makes you so sure this isn't a disaster?" Their household was richer by a fine horse, which the son loved to ride. One day he fell and broke his hip. Everyone tried to console him, but his father said, "What makes you so sure this isn't a blessing?“ A year later the nomads came in force across the border, and every able-bodied man took his bow and went into battle. The Chinese frontiersmen lost nine of every ten men. Only because the son was lame did father and son survive to take care of each other. Truly , blessing turns to disaster, and disaster to blessing: the changes have no end, nor can the mystery be fathomed.

25. Thank You!  PRESENTED BY: JEHRA MAE SEVILLANO