Demand
estimation
and
forecasting
Group NO - 07
Demand estimation
and forecasting
Group Members (Group No: 07)
[Link] 16MAM5093
[Link] 16MAM4997
[Link] 16MAM5126
[Link] 16MAM5069
[Link] 16MAM4877
[Link] 16MAM4918
[Link] 16MAM4897
[Link] 16MAM4931
Demand estimation
and forecasting
Prima Ceylon (Private) Limited
PCL is the flagship company of Prima Group in Sri Lanka. As the
first company to be established in the island, it focuses on Prima’s
core business which is flour milling service.
In Sri lanka prima group has four main Business Companies ,
Ceylon Grain Elevators PLC
Ceylon agro industries
Prima Lands
Prima Management Service
Demand estimation
and forecasting
Demand estimation
and forecasting
The main focus of Ceylon Agro Industries Limited is the
manufacturing and supply of a range of wheat and poultry
based, value added food products and selected trading
products to the Sri Lankan market while supporting the
growing agricultural sector.
Their core business is divided into five main areas:
• Wheat based products
• Dairy products
• Poultry based products
• Trading products
• Agricultural products
Demand estimation
and forecasting
This is the product we are talking about today. Chicken
meat comes under Agricultural products of prima
company. And then we try to Estimate and forecast the
demand of prima chicken meat packets,
Demand estimation
and forecasting
Why Demand Estimate and Forecast
I think all of you have tried to know about future,
predict future….
SOOO…
What about the company..
They can’t decide their future based on unrealistic
things..
Demand estimation
and forecasting
Because of that the companies need a realistic way to
estimate and forecast their product demand.
therefore,
Demand means outside requirements of a
product or service. In general, forecasting
means making an estimation in the present
for a future occurring event.
Demand estimation
and forecasting
What is it?
It is a technique for estimation of probable
demand for a product or services in the
future.
It is based on the analysis of past demand
for that product or service in the present
market condition
Demand estimation
and forecasting
What is it?
Therefore, in simple words, we can say
that after gathering information about
various aspect of the market and demand
based on the past,
an attempt may be made to estimate future
demand. This concept is called forecasting of
demand.
Demand estimation
and forecasting
For example,
suppose we sold 200, 250, 300 units of product X in the
month of January, February, and March respectively.
Now we can say that there will be a demand for 250 units
approx. of product X in the month of April, if the market
condition remains the same.
Demand estimation
and forecasting
Usefulness of Demand Forecasting
Demand plays a vital role in the decision
making of a business. In competitive market
conditions, there is a need to take correct decision
and make planning for future events related to
business like sale, production, etc. The
effectiveness of a decision taken by business
managers depends upon the accuracy of the
decision taken by them.
Demand estimation
and forecasting
Demand is the most important aspect for
business for achieving its objectives. Many decisions
of business depend on demand like production,
sales, staff requirement, etc. Forecasting is the
necessity of business at an international level as
well as domestic level.
Demand estimation
and forecasting
Following is the significance of
Demand Forecasting:
– Fulfilling objectives of the business
– Preparing the budget
– Taking management decision
– Evaluating performance etc.
Moreover, forecasting is not completely full of proof and
correct. It thus helps in evaluating various factors which
affect demand and enables management staff to know
about various forces relevant to the study of demand
behavior.
Demand estimation
and forecasting
How?
Specifying the demand function
Demand is the quantity of the good that consumers are willing and able to buy
Qd = F(P, Pr, M, T, N…) – Demand function
Qd = Quantity demand from the good
P = Price of the good
Pr = price of related goods ( substitutes or compliments )
M = consumer income
T = taste
N = number of consumers
Demand estimation
and forecasting
There are lot of factors that affect the demand of
prima chicken product.
Such as price of the good, consumer income,
advertising cost.
For an example, we can take consumer income,
normally when the income goes up we increase our
demand.
Likewise we can identify such independent variables
Demand estimation
and forecasting
So the Factors that affect the demand function of
prima chicken are as follow,
Qd = Quantity demand of prima chicken ( in kgs)
P = Price of prima chicken
Pr = Price of related goods ( Nelna chicken )
M = Income of the consumers
N = Number of consumers ( Age 15 – 64 )
Ac = Advertising cost
T = Taste
Ps = psychological factors
Demand estimation
and forecasting
Price of prima chicken (P) – price is one of the main independent variable in
calculating demand.
Price of related good (Pr) – As the substitute we have selected Nelna
chicken
Income of the consumers (M) – income is also another factor that affect the
demand. Due to the unavailability of data we selected this as qualitative
Taste (T) – this is one of the qualitative factor which affect demand. Taste is
based on the consumption
Demand estimation
and forecasting
Number of consumers (N) – we have selected age group from age16 to 64 as they are
the middle age people. This was taken from department of census & statistics
Advertising cost (Ac) – this is one of the major factors that affect the demand, due to
the non access of data we didn’t take this in to calculation
Psychological factors (Ps) – these factors also affect the demand
ex – due to the recent incidents people have increased their demand for prima
chicken
We are only considering quantitative factors to estimate the demand
Demand estimation
and forecasting
Data description
Variable Unit of measurement
Quantity demand of prima chicken Quantity per month
Price of prima chicken LKR
Price of related good ( nelna LKR
chicken )
Number of consumers ( age 15 – In thousands
64 )
Demand estimation
and forecasting
Demand estimation
• We use the sample period from 2016 Q1 to 2018 Q4 which are 12 quarters
• Linear model - Qd = a + bP + cPr + dN ( multiple regression )
• Non linear model - Qd = a + P b + Pr c + N d
Demand estimation
and forecasting
Interpretation of parameters
We use the sample period from 2016 Q1 to 2019 Q4 which are 12 quarters
We used Microsoft excel data analysis tool to analyse the quantity demanded.
We have got a R square value of 0.80, and an adjusted R square value of 0.72.
This means that the 80 % of quantity demand for the prima chicken product
can be determined by the independent variables.
This model has a significance level of 0.003
Demand estimation
and forecasting
Demand estimation
and forecasting
According to our actual data we have got the empirical
demand equation.
Qd = 6156411.41- 10521.55p + 161.59 Pr +765.45N
Independent variable Decision rule Sig value Significant status
Price P value < 0.05 0.0176 significant
Price of related goods P value < 0.05 0.9674 Not significant
No. of consumers P value < 0.05 0.0006 significant
Demand estimation
and forecasting
Demand forecasting
300,000
f(x) = 12778.91x + 129127.59
250,000
200,000
Sales
150,000
100,000 Y-Values
Linear (Y-Values)
50,000
0
0 2 4 6 8 10 12 14
time
Demand estimation
and forecasting
Trend projection
Here we have forecasted sales for the next 4 quarters of 2019
T = a + bt
T = 129128 + 12779t
Demand estimation
and forecasting
Years Time Actual sales Forecasted sales
2016.1 1 84829 133550
2016.2 2 121236 146394
2016.3 3 180178 159238
2016.4 4 253945 172081
2017.1 5 184357 184925
2017.2 6 266770 197769
2017.3 7 220257 210613
2017.4 8 235049 223456
2018.1 9 246784 236300
2018.2 10 234647 249144
2018.3 11 236302 261988
2018.4 12 281932 274831
2019.1 13 287675
2019.2 14 300519
2019.3 15 313362
2019.4 16 326206
Demand estimation
and forecasting
Forecast sheet
Demand estimation
and forecasting
Thought forecasting we can identify the probable outcome in
future.
Therefore it is useful to make decision in term of production,
inventory, pricing etc..
According to the above forecast sheet we can identify that the
sales for the next year is going to be increased.
Overall there have been some fluctuations thought these 3
year.
Demand estimation
and forecasting
Conclusion
In here we have discussed demand and forecasting under the
product of prima chicken.
Then we identified the empirical demand function and the
significant factors which influence the demand, such as price of
goods, number of consumer etc..
Further we have forecasted sales for the four quarters of 2019.
Demand estimation
and forecasting
Reference
Annual bank report from the central bank of Sri Lanka.
Web site – [Link]
Department of census and statistics.
Web site – [Link]
Prima Gampaha branch