4. Examine methods for forecasting demand of a new product and estimating profitability.
R/ The different forecasting methods can be divided in two categories.
1. Qualitative methods: these types of methods are usually based on the opinion of people, some of these methods are:
* Executive committee consensus: develop medium-long forecast by asking a group of knowledgeable executives their opinions with regard to future values of the items being forecasted. * Dolphin method: involves a group of experts who eventually develop a consensus; they usually make long range forecasts for future technologies or future sales of a new product. * Sales force composite: sales people are a good source of information with regard to customers’ future intentions to buy the new product. * Customer surveys: by using a customer survey, a company can base its demand forecast on the customers’ purchasing plans.
2. Quantitative methods: These methods forecast demand levels based on analysis of historical time series. Quantitative methods are used to estimate future demands as a function of past data; appropriate when past data are available. The method is usually applied to short-intermediate range decisions.
* Forecasts based on historical data: these methods are probably the simplest ones to deploy and can be accurate over the short term. * Naive methods: these are the most cost-effective and efficient objective forecasting model. For stable time series data, this approach says that the forecast for any period equals the previous period's actual value. * Moving average: An indicator frequently used in technical analysis showing the average value of a security's price over a set period. Moving averages are generally used to measure momentum and define areas of possible support and resistance. * Exponential smoothing: is a technique that can be applied to time series data, either to produce smoothed data for presentation, or to make...
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