A manager needs to develop an early warning system that includes: 1. Macroeconomic warning signals 2. End-user information 3.customer sales forecasts 4. Critical Costs
Managing through the Business Cycle
| Steps | Description |
|---|---|
| macroeconomic warning signals | The early warning system should include indicators for the overall economy and the relevant industry. |
| end-user information | For example, a bottle manufacturer should watch sales of beer and soft drinks. A fabric manufacturer should watch apparel sales. |
| consumer sales forecast | A company should also monitor its own clients. A manager should break out sales reports by product groups, regions, and customers to trace major surprises in sales. |
| critical cost | The companies that need pay the closest attention to costs are usually manufacturers, utilities, and contractors with with significant exposure to one or two raw materials with typically volatile prices. |
Warning signs are picked up from the system which can identify a broad-based slowdown in economic activity. Indicators can be a manager watching the news, or can hire a professional economist. Being able to understand how recessions begin and being able to forecast a slowdown can help a business prepare for a downturn in sales. A consensus forecast helps provide statistics about the economy and fluctuations in the market.
Companies need to watch proximate influences on consumer spending so they understand how much of the intermediate goods are being consumed and then make a decision on how much to purchase. Companies need to keep track of their buying ability and the levels of their end users.
A system that manages both the current sales and expectations of future sales is needed for the monitoring system. Understanding the source of a sales growth or decline can help determine whether a new trend is occurring or whether the change is just a temporary aberration. In the early warning system, a persistent bias is not necessarily a problem. The early warning report should track changes in the pipeline forecast from one month to another. managers also need to keep track about sales slowdowns in the monitoring system.
Manufacturers, contractors, and utilities are the companies that need to keep an eye on costs. It is good to discuss in the warning system that any cost that is a large portion of operating expenses and has a history of sharp changes can go upward or downward.
Keeping an open mind to evidence of changing conditions can help managers forecast the economy.The longer a manager examines the data, the easier it is for them to separate the signal from the noise. Basically understanding the statistical data, just like Alan Greenspan, can be the key to success for others who merged themselves into the economy.
Explain each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:
Explain the terms in your own words briefly.
Businesses can have seasonal sales in the products that they provide for consumers. Calculating the different seasons and what consumers are spending during a specific duration of time can help managers make a decision when to begin selling products. For example, home upgrades in the summer and food-activity during harvest time.
Describe the characteristics of the following events briefly.