0508

Problem

As alternative methods for demand forecasting, what is the underlying logic of: (1) time- series and (2) regression or causal methods?

Step-by-step solution

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Step 1/3

The production of goods and services alone depends upon the forecast of demand and sales that could be in the future. There are various approaches that business organizations use for sales forecast. Among those, two primary approaches to forecast sales are named below:

1. Qualitative.

2. Quantitative.

Step 2/3

Demand forecasting is done by obtaining the information through interviews, and by collecting the expert’s opinion. The information gathered from the customers is found to be suitable for the short-term forecasting. Whereas, the information gathered from the opinion of experts are found to be suitable for the long-term forecasting.

The complex statistical methods are the alternative methods for demand forecasting. Some of the complex statistical methods are:

Time-series:

This method does not need any formal knowledge of the market, and need only the time series method. Time-series uses historical data showcase trend and growth rate of sales. The limitation with this method is that it expects the past to repeat in the upcoming future.

Regression:

Regression technique chooses key factors which determine the sales in the past and practice in a mathematical system. The regression method determines the degree of association among the set of variables. The variables are dependent and independent.

Although time-series and regression analysis are the alternative methods of demand forecasting, there involves specific logics in understanding and employing these techniques in their respective aspects. They are summarized below in detail:

Step 3/3

Before using historical data for regression methods, experts must not neglect analysis of economic and industrial factors that may take place in the future market.

Business managers must adopt casual methods where markets exhibit sensitivity and time-series performs better where markets not respond to environmental changes.