Professional Documents
Culture Documents
Submitted By:
Shreya
PGFB1144 PGDM 2011-13
Page | 1
SHREYA PGFB1144
DEMAND FORECASTING
Introduction
A Demand Forecasting is the prediction of what will happen to the companys existing product sales. Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. It involves techniques including informal methods such as educated guesses, the use of historical sales data or current data from test market .Demand forecasting is also used in making pricing decision ,in assessing future capacity requirement and also in making decision on whether to enter a new market or not. Determination of demand forecast is done through the following steps1. Determine the use of the forecast 2. Select the items to be forecast 3. Determine the time horizon of the forecast 4. Select the forecasting model 5. Gather the data 6. Make the forecast validate and implement the result
Page | 2
SHREYA PGFB1144
Page | 3
SHREYA PGFB1144
3. EXPERT OPINION a) Maruti gathers information from industry experts about where is headed market. b) Advantage of this method is that the information comes from the sources most involved with the market. 4. PAST SALES ANALYSIS a) It is done by collecting the past sales recorded in different region by Maruti all over India. b) Different statistical analytical test are performed to forecast the demand.
5. POS SYSTEM: Maruti uses software called POS (Point on sale) system. a) It contains the entire database maintained by Maruti. b) With the help of this software they forecast demand. Finally demand forecasted using past sales analysis and survey done by Maruti are compared with demand forecasted by dealers compared from all over India and if the demand forecasted varies by 5-10% more or less, production is carried out more or less, accordingly If variation is large, estimation is reconsidered.
Page | 4
SHREYA PGFB1144
Page | 5
SHREYA PGFB1144
2. Better customer service: McDonalds earlier used to make special orders for customers while dishing out pre cooked burgers from the inventory to most customers. Hence such special orders were dreaded by the staff and used to freak them out. The staff, now after introduction of the JIT system, is more calm and composed and offers better service to the customers. This higher customer service is subject to the ability to produce faster burgers.
Jaipuria Institute of Management, Noida Page | 6
SHREYA PGFB1144
McDonalds are able to handle the demand a lot better. They dont have to waste time in calculating the estimated sales hour by hour and maintain an inventory.
3. Better Costs: The holding costs for the raw material like bread, beef, cheese, chicken is fairly high because of their spoilage costs. Under the old system, McDonalds used to maintain a high inventory leading to faster orders but this resulted in a lot of unsold food because of the low shelf life of non-vegetarian items after being cooked. The food was then forced to be sold at a higher price to cover up for the losses in scrapping unsold food. This resulted in lower costs to McDonalds.
4. Better Raw Material Handling: With the new system, McDonalds does not need to procure the raw materials in bulk advances. This reduces daily expenses considerably and ensures fresh and high quality raw material all the time. High holding costs and low ordering costs were the factors that drove the Just in Time system to the market. The ability to lower the operating costs makes JIT a highly feasible solution. It has also led them to reduce drastically the safety costs. Safety time exists due to variability in demand and variability in lead times from suppliers. JIT helps reducing the lead times and hence safety stock. JIT provides for an attractive and cost cutting mechanism but it is very important to weigh the risks and analyze the associated consequences that might happen. A very fast burger making technology makes JIT a viable option for McDonalds but this might not be the case in other organizations and they might face problems in handling bulk orders through JIT system.
Page | 7