Product Market Cyclicality Exerts a Powerful Influence on a Car Assemblers Sales, and Value Added - Essay Example

? Management Essay Product market cyclicality exerts a powerful influence on a car assembler’s sales, value added, cash flow and profit performance. Discuss using an extended example The Automotive industry is an important source of employment and transportation for millions of people. Automotives industry includes an huge collection of vehicles for example comfort cars, traveler cars, dedicated vehicles, motorcycles, scooters, mopeds, and off-road vehicles. Not only this it also contains automobile machinery and vehicle-care products, accessories, environment friendly and safety tools, garage and repair equipment, sample and colorant, grease & lubricants, machines deal with gasoline, wheels, and much more. Travelling and transportation of goods farther and faster than before are made possible only by automobile. It has unbolted wide scope and market for commerce and trade. The automobile industry directly influences the economies and wealth of many countries around the world. The manufacture of automobile uses great quantities of iron, steel, aluminum, and natural rubber. Moreover several other industries such as energy, security, assurance, roadway design and civil productions support the automobile industry. All these industries are cyclical businesses. The business environment is improving nowadays. As requirement increases, revenues go up and similarly with this, the companies come across it worth their time and money to practice capacity building plans. The Product market is one in which products are sold to companies instead of to customers. The product market comprises of items like raw materials, machines, and tools and is concerned with acquisition by company for their own use which may consecutively be used to produce items for the customer market. Cyclical is something that happens periodically, i.e. on a regular basis. Cyclicality is a very common frequent subject matter in the field of investment. Cyclicality is something that many small business owners may face. Stocks cyclicality generally means that stocks follow the common macroeconomic circumstances. A cyclical stock is one that characteristically implements fine when the economy is excellent and performs badly when the economy is fragile. Cyclicality is defined in a dictionary as “of or denoting a business or stock whose income, value, or earnings fluctuate widely according to variations in the economy or the cycle of the seasons” So far small business holders can only take action in order to reduce cyclicality and strengthen their income streams. A business can be moved into black by becoming creative, flexible, and open to new challenges. A business holder can take charge and make sure her firm's success by presenting new services, promoting skillfully, or practicing new personal speculations. The automobile industry is a powerfully cyclical industry. For the macro-economy, its performance is frequently a lead indicator. It is very perceptive to causes, for instance product raw material input pricing (metals, plastic, glass etc), interest rates (most sales are economized, and the automobile businesses has high operational resources requirements), energy pricing, etc. As the industry goes down, the value-chain also goes downward with it. The automotive market is extremely cyclical. It depends on customer expenditures mainly and to a certain extent on purchaser sales inducements. The consumer demand for automobiles and automotive production is unfavorably affected by economic factors, for instance rising fuel costs. This could also adversely influence our overall sales and overall revenues. If automotive sales and production is declined; it would cause a possible decline in sales to vehicle manufacturers, and the result of this situation is a decline in results of operations and economic condition and hence in business. In the past, due to modification in common financial conditions and customer inclination, the automotive industry has been illustrated by periodic fluctuations, among other things, in overall requirement for vehicles. Generally due to these fluctuations the corresponding result is fluctuations in demand for products and goods. A risk that is demonstrated by the extremely cyclical environment of the automotive industry is outside the control or management and that cannot be correctly forecasted (Woodworth, 1967). Market cyclicality occurs in both established and up-and-coming and promising markets. These markets have to be flexible in order to manage and deal with the up and downs. Various processes, methods, actions and measures already have been established by manufacturers in mature markets to increase flexibility. On the other hand, for the capital-intensive manufacturing industry or business in particular, market cyclicality still continues to be present massive challenges for just internally-focused approaches and policies for example flexible employment associations, unpredictability and inconsistencies of fixed costs or fractal industry concepts and ideas (Woodworth, 1967). It is essential to observe outside the company itself with the aim of attaining additional flexibility. Inter-company collaboration, premeditated agreements, flexible associations or practical organizations and businesses, all these can assist company to turn out to be more flexible. Access to the resources, information and expertise of external partners can be presented by the in- and outsourcing of different processes. Consecutively this may assist a company to respond more promptly to market changes, instead of relying on internal resources only. For example, a virtual business or organization has the advantage that even though it is apparent as single company, in reality it consists of a group of different companies. Similar to this concept, virtual factories furthermore present chances to assemble flexible networks that can manage with unstable manufacture quantities (Woodworth, 1967). Nevertheless, a small amount of these concepts will complete in the rising markets. For that reason industries have to put into action processes that have earlier been successful and doing well in the established markets. There is little importance for industries to put into practice complete plans and policies because of the present expansion and growth rates in promising markets, but expansion cannot maintain its astonishing speed forever. Moreover manufacturers should not overlook the supply chain, serving all parties to be further conscious of requirement changes and to respond properly. For both markets, additionally, manufacturers have to be intelligent to perfectly anticipate and comprehensively investigate market style and demand changes. Possessing and organizing a business is a duty. But the work can become a lot easier by correct sales estimation. Primarily, they can help with four essential business management tasks: get a profit, resources cash, programmed manufacture (or service deliverance) and supervise inventory and control. Getting a profit is converted into easier by projecting a sale with some accuracy. It is due to management can grasp fixed cost to heights that permit a satisfactory profit, if near-term profits heights can be predictable with several level of assurance. There is no job more significant than guaranteeing the business has the cash it desires to meets up its responsibilities and continue in the black. Sales are the most important source of cash. The source of fluctuations in cash flow is fluctuations in sales cause. If fluctuations can be predictable, the owner-manager will be provided the chance to cover up underperformance in the most cost-effective and low-risk approach and place superfluous to make use in the most suitable and highest-yield approach. Supreme challenges of such of the business owner’s are locating manufacture, record and employment levels. End of goods or to be unsuccessful to convey as guaranteed and profits is vanished. However overproduce, over purchase or overstaff, and profit and cash flow receive a hit. Correct sales anticipation formulates each of these jobs and responsibilities easier. Economic Value Added is one of the most functional performance measurements to report for the ways in which production value can be added or lost (Woodworth, 1967). Economic Profit is another expression for this metric. Value Added is a routine amount that associates straightforwardly with the inherent worth of the business. Value Added is increased if latest resources are spent and makes more than the price of resources and capital is dissociated from the business if it does not cover the rate of resources (Woodworth, 1967). In order to meet programmed economic requirements, The Cash Flow Statement helps the business owner to prepare and manage the flow of profits. The information demonstrated in the Cash Flow Statement furthermore supports lenders and shareholders in shaping a company's economic strength. Investor value can be improved by enhancing the level of cash flows that is more cash, particularly by rising revenues and lessening costs by those marketing measures that can occupy considerable expenses in the short run. Prominently, sales/profits growth can be openly connected to marketing actions while the association linking promotion and firm value can be piercing. For example, automobile improvements that is approachable to unmet consumer requests in definite sections, which have resulted in considerable profits enhancement for those companies. Marketing investments can enhance shareholder value by speeding up the delivery of cash flows it means faster cash. High-fixed cost industries that depend on quick turnovers to economize their functions are particularly affected by this. The faster pace of customer-value producing marketing projects virtual to competition is influenced by the increase rate of cash flows. As an example, cash flow stream is step up when products are increased more rapidly as a consequence of marketing projects, and are accepted faster by the consumers, with the marketing resources for instance consumer evenhandedness and brand equality helping to accelerate profits production. The companies that investigate as high-performance businesses be obligated their achievement to extraordinarily lean and low-cost functions. All have struggled more effectively than their peers to expand the customer-centric competence that also exemplifies high performance in this industry. REFERENCE: WOODWORTH, G. W. (1967). The management of cyclical liquidity of commercial banks. Boston, Bankers Pub. Co. Read More