You manage a U.S. based company that makes #2 pencils that sell in a highly competitive market (your pencils are considered a standardized commodity by your customers). Your marketing data predicts that in the upcoming year overall industry production will fall by at least 5% because some of your U.S. competitors cannot continue to compete with foreign suppliers and plan to cease production, but market demand will rise at least 4%. How, if at all, should you alter your production plans for the coming year? Explain.
To determine how you should alter your production plans for the upcoming year, you need to consider the changes in industry production and market demand. Here's a step-by-step process to help you make an informed decision:
1. Analyze the current market conditions: Understand the current state of the market, taking into account factors like competition, customer preferences, and pricing dynamics. Determine how these variables will impact your company's position.
2. Assess the predicted changes in industry production: If industry production is expected to fall by 5%, some of your competitors will cease production due to competition from foreign suppliers. This could create an opportunity for your company to capture a larger market share.
3. Evaluate the forecasted rise in market demand: The predicted rise in market demand indicates a potential increase in customer orders. Consider the reasons for this increase, such as changing customer preferences or increased product usage. Assess how this demand growth aligns with your company's production capacity.
4. Review your company's production capabilities: Assess your current production capacity and any potential bottlenecks or limitations in meeting increased demand. Consider factors like machinery, labor, raw material availability, and production lead times.
5. Identify potential opportunities and challenges: Analyze the possible outcomes considering both the change in industry production and the rise in market demand. Determine the potential opportunities to gain market share due to reduced competition and evaluate the challenges that may arise from increased demand.
6. Consider the financial implications: Evaluate the financial impact of changing your production plans. This includes considering factors such as production costs, potential revenue increase, potential losses from excess inventory, and any necessary investments in production capacity.
7. Decide on production alterations: Based on your analysis, consider the trade-offs between adjusting your production plans and continuing with the existing strategy. Determine whether it is advantageous to increase production to meet the expected rise in demand, or if it is more beneficial to maintain current production levels and potentially capitalize on decreased competition.
Ultimately, the decision to alter your production plans will depend on the specific circumstances of your company and industry. It is essential to carefully evaluate the market conditions, predicted changes, and your company's capabilities to make an informed decision about production alterations for the upcoming year.