Question

Patsy Ltd. produces ice-cream and would like to accurately forecast sales so that it can meet the demands of customers. In order to plan properly, the Operations Manager would like to forecast sales for the next 4 months and would need your assistance. Identify the quantitative techniques covered in this course. Choose any two techniques, describe them and use them to demonstrate how you will forecast sales for the next 4 months. [15 marks] Show how you will measure the accuracy of the quantitative forecast

Answer 1

ANS :

For forcasting sales of ice-cream for the next 4 months , quantitative techniques will be very useful but before going to the two techniques first of all it is necessary to know about quantitative techniques.

Quantitative techniques can be understood as a collection of mathematical and statistical tools that are used to provide powerful means of analysis using quantitative data for effective decision making in business. These tools help businesses in taking effective business decision and hence result in optimum utilization of limited resources.Now accurate sales forecasts enable companies to make informed business decisions and predict short-term and long-term performance. Companies can base their forecasts on past sales data, industry-wide comparisons, and economic trends and in this our two technoiques will be very helpful.

The major two quantitative methods of forecasting of sales for the next 4 mopnths are discussed below:

1. Test Marketing:

Test marketing is one of the popular methods for measuring consumer acceptance of new products. The results from a test market are extrapolated to make predictions about future sales. Companies select a limited number of cities with populations which are representative of the target customers in terms of demographic factors that include age, income, lifestyle and shopping behaviour.A product is made available at the retail outlets and the features are highlighted either through in-store promotion or through a small advertising campaign. Then the performance of the product is tracked through consumer research and modifications before taking it for a national launch.

2. Time Series Analysis:

In time series analysis, it is important to collect relevant past data for future projects. Time series analysis is a series of techniques that make forecasts based on past patterns of data. These data are collected, observed, and recorded at regular intervals of time. These methods are useful when the market forces are somehow stable and the market shows least erratic behaviour. Actions taken by the firm and the competitor’s move are not taken into account.

In a time series, time is the most important factor because the variable is related to time. The sales managers can undertake time series analysis in four ways. The changes that have occurred as a result of the general tendency of the data to increase or decrease are known as secular movements.Changes that have taken place during a period of 12 months as a result of change in climate, weather conditions, and festivals are termed as seasonal variations. Changes that have taken place as a result of booms and depressions are called cyclical variations. Changes that have taken place as a result of such unpredictable forces as floods, earthquakes, famines, etc. are classified as irregular or erratic variations.

In contrast, a time-series analysis is a versatile and more-accurate forecasting method. A time series is a time-ordered sequence of observations measured at consecutive points in time or over different periods, such as every hour, day, week, month or year.

The following four types of sales variations are separately analyzed:

(a) Long-term trends

(b) Business cyclical movements

(c) Seasonal variations

(d) Irregular and casual fluctuation

After the analysis, different time series mathematical models are formed; assumed values are applied with each of the models, to arrive at sales forecasts.

Advantages:

(a) This method compels the forecaster to consider the underlying trends, cycles, and seasonal variations in the sales.

(b) It takes into account the particular repetitive or continuing patterns exhibited by the sales in the past.

(c) It provides a systematic means of making quantitative projections.