bonddonraj
Par 100 posts (V.I.P)
Q-1. What is Sales Forecasting? Explain various methods of sales forecasting. How the right technique of sales forecasting is selected.
Ans.
Sales Forecasting means to predict the future expected sales of the product in the market on the basis of previous sales and prevailing market conditions. It is the central part of the strategic planning process. It may be either short-run to decide the various production schedules or long-run to plan the expansion of the plant.
Sales Forecast literally means sales predictions. Any industry needs to predict future sales time to time to plan their production of a particular model or for unit expansion and for many more factors. Sales Forecasting can be done by different methods depending on the factors that can affect sales volume.
Top-Down Approach : This approach is also been called as breaking down approach. In this approach, sales forecast is being done at corporate level or at strategic business unit level. Steps followed in this approach are as follows:
1. This approach starts with a forecast of general economic conditions. It includes a forecast of gross national product along with projection of consumer and wholesale price index, interest rates, unemployment level, government expenditures, etc.
2. Estimate the industry’s total market potential for a product category.
3. Determine the current market share of the company.
4. Forecast sales for the product.
5. Use the sales forecast for operational planning and budgeting.
Bottom-Up Approach : This approach is also known as build up approach. In this approach it is simply asked from the sales people what they are expected to sell in the coming period or even they can do the customer survey to know what they are expected to buy. Then these forecasts for different sales people are summed up to give the complete sales forecast. Usually a buying – intentions questionnaire is mailed or completed in telephonic interview with the prospective customers. It is useful reliable for small period of 6 months or even longer. It can be very accurate over the short run.
Criteria for selection of a suitable forecasting method :
Comprehensibility : Basic method must be thoroughly understood by the forecaster to have sufficient confidence in the estimates to use them. Complicated techniques that can be understood by statistician never find credibility among sales executive.
Accuracy : The forecasting method must provide sufficiently accurate results. An accuracy within the limits of 10% are considered acceptable by most of the sales forecasters. Timeliness : It must generate forecast in time to be useful. Complex techniques take long time to get prepared. So, the managers who require results quickly can resort to quicker, perhaps less accurate estimates.
Availability of information : All forecasting method primarily depends on amount and quality of information available to the organisation.
Qualified Personnel : Personnel to participate in any aspect of forecast must be fully qualified for the job. Highly skilled people are advisable to develop an accurate forecast.
Flexibility : The sales forecasting method should be flexible enough to adopt the changing conditions. Flexibility can be achieved by monitoring the actual sales and comparing them with forecasted sales. Deviations indicated by the results guide for the revised forecast.
Costs and Benefits : Benefits arrived at from these forecast must be more than the cost incurred on making these forecasts.
Conclusion : Sales Forecasting gives an idea about the future sales so as to plan our future strategies. Depending on the various factors governing, it can be done on various methods. The sales forecasting method chosen must be comprehensible to decision makers, flexible, sufficiently accurate and appropriate to the available database.
Ans.
Sales Forecasting means to predict the future expected sales of the product in the market on the basis of previous sales and prevailing market conditions. It is the central part of the strategic planning process. It may be either short-run to decide the various production schedules or long-run to plan the expansion of the plant.
Sales Forecast literally means sales predictions. Any industry needs to predict future sales time to time to plan their production of a particular model or for unit expansion and for many more factors. Sales Forecasting can be done by different methods depending on the factors that can affect sales volume.
Top-Down Approach : This approach is also been called as breaking down approach. In this approach, sales forecast is being done at corporate level or at strategic business unit level. Steps followed in this approach are as follows:
1. This approach starts with a forecast of general economic conditions. It includes a forecast of gross national product along with projection of consumer and wholesale price index, interest rates, unemployment level, government expenditures, etc.
2. Estimate the industry’s total market potential for a product category.
3. Determine the current market share of the company.
4. Forecast sales for the product.
5. Use the sales forecast for operational planning and budgeting.
Bottom-Up Approach : This approach is also known as build up approach. In this approach it is simply asked from the sales people what they are expected to sell in the coming period or even they can do the customer survey to know what they are expected to buy. Then these forecasts for different sales people are summed up to give the complete sales forecast. Usually a buying – intentions questionnaire is mailed or completed in telephonic interview with the prospective customers. It is useful reliable for small period of 6 months or even longer. It can be very accurate over the short run.
Criteria for selection of a suitable forecasting method :
Comprehensibility : Basic method must be thoroughly understood by the forecaster to have sufficient confidence in the estimates to use them. Complicated techniques that can be understood by statistician never find credibility among sales executive.
Accuracy : The forecasting method must provide sufficiently accurate results. An accuracy within the limits of 10% are considered acceptable by most of the sales forecasters. Timeliness : It must generate forecast in time to be useful. Complex techniques take long time to get prepared. So, the managers who require results quickly can resort to quicker, perhaps less accurate estimates.
Availability of information : All forecasting method primarily depends on amount and quality of information available to the organisation.
Qualified Personnel : Personnel to participate in any aspect of forecast must be fully qualified for the job. Highly skilled people are advisable to develop an accurate forecast.
Flexibility : The sales forecasting method should be flexible enough to adopt the changing conditions. Flexibility can be achieved by monitoring the actual sales and comparing them with forecasted sales. Deviations indicated by the results guide for the revised forecast.
Costs and Benefits : Benefits arrived at from these forecast must be more than the cost incurred on making these forecasts.
Conclusion : Sales Forecasting gives an idea about the future sales so as to plan our future strategies. Depending on the various factors governing, it can be done on various methods. The sales forecasting method chosen must be comprehensible to decision makers, flexible, sufficiently accurate and appropriate to the available database.
