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DEMAND FORECASTING OF PRODUCER DURABLE GOODS

Capital goods are defined as those goods which help in further production of goods. Capital goods include factory buildings, machinery, equipment, tools etc. In other words, demand for a capital good is a derived demand, which will depend upon the profitability, level of capacity utilization and wage rates in the industries using the capital good. Moreover, demand for a capital good is of two kinds: Replacement demand New Demand

In economics, a durable good or a hard good is a good that does not quickly wear out, or more specifically, one that yields utility over time rather than being completely consumed in one use. Within the economy, durable goods are made for consumers as well as producers. Examples of consumer durable goods include automobiles, furniture, appliances, jewelry, and books. Producer durable goods consist mainly of equipment and machinery

1. How far ahead both long-term (5, 10, 20 years) and shortterm(upto 1 year)may be considered. Short-term forecast provides information for tactical decisions; it is concerned with day-to-day operations within the limits of resources currently available. Long-term forecast provides informatiion for major strategic decisions; it is concerned with extending or reducing the limits of resources. 2. Demand forecasting may be undertaken at three levels:Macro-level taking into account the whole economy and based on index of industrial production, national income or expenditure. Assumptions for business forecasts are based on such data Industry level prepared by trade associations. Firm-level very important from managerial point of view.

3. Should the forecast be General or Specific. The firm may find a general forecast useful, but it usually needs to be broken down into commodity/ product-wise forecasts and forecasts by areas of sale. 4. Whether forecasting is to be done for New Products or existing products.Problems and methods of forecasting are different for new products and for well established products. 5. Classification of products: It is important to classify products as producer goods, consumer durables or consumer goods and services.This is because economic analysis indicates different patterns of demand for each of these categories

6. Special Factors (uncertainty) peculiar to the product: Nature of the competition. How far the situation is complicated; what are the chances of error of inaccuracy arising because of using factors which are not easily measurable. Political developments such as elections. Sociological factors such as womens dresses.

Purpose of Forecasting-Short-term forecasting


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Appropriate production scheduling so as to avoid problem of overproduction and the problem of short-supply. Production schedules are geared to expected sales. Cost reduction in raw materials purchase, inventory control by determining future resource requirements. Determining appropriate pricing policy avoiding increase in a weak market and reduction in bull market. Setting sales targets appropriately and establishing controls and incentives. Evolving suitable advertising and promotional program. Forecasting short-term financial requirements cash requirements depends on sales level and production operations. As it involves delay in arranging for additional funds, sales forecasts enable arrangement of funds well in advance.

Purpose of long-term forecasting


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Planning of a new unit or expansion of an existing unit. This requires analysis of long-term potential of all the products of the firm. Planning long-term financial requirements Long-term sales forecasts are quite essential for organizing long-term financial requirements as arranging funds involves considerable time and effort. Planning man-power requirements. Training and personnel development are long-term propositions. These take time and can be started well in advance on the basis of estimates of man-power requirements assessed based on sales forecasts. 4. At macro level demand forecasts helps govt. in determining import-export policy as well as taxation policy.

Significance of Demand Forecasting


Demand forecasting is very essential in Production Planning Sales Forecasting Control of Business Inventory Control Growth and Long-term Investment programmes Stability Economic Planning and Policy Making

The following information is needed for estimating capital goods demand:


Growth possibilities of the industries using the capital goods. The extent of excess capacity in the industry using the producers good. The forecast of demand for the good which the producers good help in producing. The existing stock of the producers good. The age distribution of the existing stock of producers good. The rate of obsolescence The availability of funds and cost of funds to the firms using the producers good. The nature of tax provisions on re-equipment The prices of substitutes and complementary goods The market structure within which the producers good operates.

L&T manufactures, markets and provides service support for critical construction and mining machinery surface miners, hydraulic excavators, aggregate crushers, loader backhoes and vibratory compactors; supplies a wide range of rubber processing machinery and injection moulding machines; and manufactures and markets industrial valves and allied products and a range of sophisticated application-engineered welding alloys

E&C achieved net Segment Revenue of 12424 crore for the quarter ended December 31, 2011 registering a y-o-y growth of 26%. Execution of various ongoing projects is on schedule. During the quarter, the Segment secured orders totaling to 15283 crore with International orders constituting 10 % of the total order inflow. The Order Book of the Segment stood at a healthy 143341 crore as at December 31, 2011. With focused execution and efficient project management, the Segment recorded Operating Margin at 11.5% during the quarter ended December 31, 2011 vis--vis 11.6% for the corresponding quarter of the previous year.

The quarter witnessed project deferments, aggressive competition, slow reform process and sharp rupee depreciation. The recent increase in IIP numbers and easing of inflationary pressures, however, reflect some positive developments. The Company is leveraging on its leadership position to fully exploit the available domestic opportunities. Emerging prospects in the Hydrocarbon and Infrastructure sectors in preferred overseas markets mainly in the Middle East and South East Asian countries are also being targeted. The Company is optimistic about its success in these markets in the near to medium term.

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