The Life Cycle Analysis is based on the procedure that every category of product has a certain marketable life period. There are definite stages in the life cycle of a product and they are:
1. Product development
2. early introduction
3. Rapid growth
4. Steady state
5. Decline and death.
Depending upon the type of the product the life span will vary; also the relative time spans for each of the stages of life will vary. By an analysis of the life cycle of a product, and noting the stage in which a product exists at a time, one can forecast the demand for the item in the future.
Delphi method of opinion gathering and analysis:
For a new product or service, the Delphi method, consisting of systematic gathering, analysis and convergence of expertsâ€™ opinions, is very useful. This method occupies an important place in technology forecasting, which in itself is a very vital aspect of forecasting as we are living in an age of speed.
End use analysis:
End use analysis, as the term indicates, thoroughly considers all the different uses to which a product will be put and traces the entire chain of uses in order to arrive at a forecast. Still, this may be a limited approach since it considers only the demand side picture and not the supply side picture. Secondly, it does not consider explicitly the various other economic factors influencing the demand of a product.
Market Surveys and similar techniques:
Market Surveys, Consumer Opinion Studies, and the like feedback important information regarding changing consumer tastes and preferences for a product or a service. Some of these studies may consist of behavioral research and therefore, may give more insight into the psychological motives behind the consumersâ€™ purchase of a product or a service. These are also good forecasting techniques but they do not take into account other external factors such as government licensing policies, credit policies, state of the economy, competitors in the market.
In addition to the above, a lot of information can be gathered through the government records such as the National Plan Documents, the National Industrial Policy documents, and various other statistical information supplied by the Central and State governments.
A complete Forecasting Program for a Company:
A total forecasting program may, therefore, consist of the following:
1. Observing and listing important external factors and studying the cultural, social, political and international atmosphere; getting data from the government, academic research institutions and other industries. The above are the non-controllable factors for the company.
2. Gathering information regarding internal company policies and their effects on the demand. Design changes, quality changes, sales changes, technology changes etc., have all to be taken into account.
3. After gathering the external and internal information, it will be necessary to analyze the data to establish various relationships and the relative effect of each of the factors on the final demand. This is where the time series analysis, multiple regression analysis, input-output analysis, consumer surveys, technology forecasting etc will be of much use. The objective is to find out o established a mosaic of relationships, a template for deducing the future from available data.
One has to remember also that not all the data is quantitative and much of it is also qualitative. For instance, aspects such as the political atmosphere, either national or international, or the social forces operating cannot be quantified. Even consumer surveys provide more of qualitative information than quantitative information. Yet all these information are of importance, depending upon the situation.
4. Various scenarios have to be constructed, assuming certain feasible happening in the external environment and various alternative internal organizational policies. Models are there to help the forecasters, but they cannot give a ready made solution. Forecasters should not seek solutions by one model.
5. Now the forecast should be operationally applied. This can be done by breaking it down on the basis of the number of product-lines (when we say product-lines, this also includes the â€˜service productsâ€™ for the service industry), the types of customers, the various management polices, etc. The various scenarios derived earlier must be compared in light of the operational feasibility. For example, there must be enough capacity to produce enough profits. A Break-Even Analysis might indicate as to what is operationally feasible and what is not. The sales forecast translated into operations planning, materials planning, financial planning and personnel planning will give more information regarding feasibility in these various functions. The idea here is to determine what is feasible internally, and what is profitable, from to total volume of forecast sales. Such an analysis may result in changing the internal business environment suitably.
6. After the various feasibilities have been studied the forecast becomes really usable. After using the forecast or as the forecast is being used, the forecast errors are monitored regularly. The reasons for the deviations should also be investigated regularly. The future forecast or the forecast techniques can then be modified to take into account the changed condition, if any.