Price Forecasting

Price Forecasting

Forecasting is essential for sound functioning as well as the survival of any firm. Through forecast of demand, we evaluate the factors in the environment which influence the operations of the firm and formulate annual plans. In materials management, too, forecasting is a vital and inescapable aspect. We forecast the requirements of various materials and their prices, and based on these forecasts we formulate the materials budget, cash flows, inventory levels, etc.

Forecasting techniques discussed below will try to reduce the subjectivity; however, one can consider all factors which influence the price. Some of these factors cannot be quantified and Delphi techniques can be used to take care of such intangible factors
All forecasting techniques depend on the manner in which the basic data is collected, evaluated and used for their reliability. The data collection depends upon factors such as classification, reliability, accuracy, source, end use and cost. It also depends upon whether the data is required for programmed or non programmed decisions.

Approaches

Many techniques are available in forecasting. Each firm will have to carefully assess its data processing facilities, skills and the operating environment so as to select a
technique that is most suitable. In inventory systems, factors which influence forecasting are the number of items involved, the nature of their markets, and the data handling
system. Techniques which are normally used are moving averages methods, exponential smoothing, regression analysis, etc. Sometimes Delphi technique is used for long-term forecasts. Basic issues, such as forecasting technique, forecast time detail, and review frequency must be finalised in consultation with top management.

Price Forecasting Techniques One of the important activities in materials management is the forecasting of prices of materials to be procured.

The forecast of material prices forms the basis of purchase budgeting, product costing, stocking policies, etc.
Materials Research provides the basic infrastructure and information for the forecast of prices. The research ac-
tivity helps in predicting some sudden changes in prices due to environmental causes. Executive brain-storming sessions can also help anticipate sudden price changes. How-ever, even without any observable environmental cause, prices do rise and they need to be forecasted on the basis of statistical analysis. This statistical analysis for price forecasting is valid only for random changes in prices and any observable causes for their variations have to be accounted for by applying suitable correction factors to the statistical
forecast.