A manager needs to develop an early warning system that includes macroeconomic warning signals, end-user information, customer sales forecasts, and 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. |
These are warning signs that can help a manager and business to understand a potential economic downturn. This is done typically by looking at forecasts, but you must be careful because forecasters can be very optimistic and very pessimistic with their views. The best way is to find forecasts that take the average of a bunch and show their finding there such as Blue Chip Economic Indicators. Understanding when a recession or downturn allows you to prepare and take it on without suprise resulting in the ability to endure such downturn.
End user information is very simple in these terms. Companies need to monitor the last part of their supply chain to get a gauge on how much they should produce, if they need new or more equipment, etc. If a company is making making bottles they need to watch the sales of soda, beer, etc of who they sell these bottles to. The general rule is to whatch the end user of your product. These forecast can be expensive but well worth it, because it allows you to not over produce or under produce and lose customers along the way.
This is a system that keeps in touch with the customers of the firm. This is to report the sales and expectation of future sales to management. By using these reports a manager can find any change in total sales and determine new trends in the companies sales. The most useful reports have a high level summary by major products produced and sold. These reports and breakdowns must be used when new products or territories are added.
Not all companies should include the costs element in their early warning system, but companies such as manufacturers, contractors, etc must use this in their early warning system. If your company is dominated by one or a few major items that are subject to price change, putting cost in the early warning system allows you to withstand changed in these operating expenses.
The biggest weakness a manager can have is the perception that things will always go as expected and this is because things nearly never go as expected. Having an early warning system implemented into your business allows you to forecast the economy and understand when a downturn or upturn is brewing. Being well prepared is the name of this game when it comes to success and this is one step to stay prepared.
Explan 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.
Most all businesses have seasonal sales which is when they are most profitbale. For example jewelry around Christmas time, food sales during harvest, etc. Seasonal patterns must be considered when examining data and can be taken into account through 12 month percentage changes, graphing methods, or by formal seasonal adjustment.