Analyze the data for your client company’s industry and answer the following questions.
How much have sales in the industry declined in the recession? What’s the worst that has happened in the past? During the recession Comptus industry sales fell about 15.9 percent in fourth quarter 2008 and at it’s worst in 2009 was down 27 percent by second quarter 2009. The 27 percent was the worst that has happened in the past.
Does the industry go into recession before, at the same time, or after the national economy goes into recession? If earlier or later, how many months of difference is there? The industry is very complex with its relation to recessions. It typically stays above the economy when recessions start however it takes a very sharp downturn suprpassing the falling of the economy about 3-4 months on average before the recession hits it’s worst and most negative downturn.
Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months? The industry recovers from a recession before the national economy. It does this on average by about 3 months or a quarter.
How long does the industry typically take to recover from a recession? The industry falls and recovers extremely rapidly from it’s worst to the start of recovery is about 3-4 months and to full recovery takes approximately 6 months or two quarters. ## Grappone
Read the client’s response to the questionnaire. How can your client build flexibility into the business? Refer back to the textbook, if necessary.
Comptus has a smart strategy with shedding excess employees keeping only the amount they need to successfully operate. They also have a good supply of vendors with outsourcing when they are busy and using their own production abilities to manufacture inhouse in downturns. However this may not build up enough good will when the economy returns to normal and they may not be the vendors main choice anymore. Comptus is smart with their plan and my critique would just be less reliant on either outsourcing or in house produstion. Although they already have a good balance I would continue to build that balamnce and build that relationship with its outsourcing vendors while trying to focus more on inhouse operations so eventually that outsourcing network will no longer be needed even in good times in the economy.
| Question | Response from the company |
|---|---|
Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years. How does your company plan for a downturn? |
Our liquidity is a major focus when we are preparing for a downturn as well as our inventory levels. Cash is king in terms of getting through a downturn. You also need great relationships with your lenders – you hope they will stick with you when times get tough. |
| Question | Response from the company |
|---|---|
Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years. How does your company plan for a downturn? |
The bank builds up loss reserves, conducts expense reviews, tries to maximize yield on assets, looks to sell less profitable assets, e.g. low yielding loans. The bank also conducts various annual stress tests and scenario analyses to identify potential problems that could arise during an adverse economic event. Corrective action is taken to mitigate these risks if the exposure is outside of acceptable ranges. |
| Question | Response from the company |
|---|---|
Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years. How does your company plan for a downturn? |
Our staffing is very light, and we utilize outsourcing when we are busy. In a downturn we can return to in house production. |