Forecasting Strategy for Power Tool Industry - Assignment Example

Forecasting for Power Tool Industry 0 Introduction: Power tool industry is one of the major industries which is expected to grow at an annual rateof 5 - 6 percent through 2007 due to acceleration of in the economic activity and rising demand for cordless tools. Demand is also likely to increase by the increase in the activities of infrastructure-building projects and rising living standards in developing regions. The world power tool market is estimated at $ 20 billion and that of the US market is estimated at $ 15 billion. With this background this paper proposes a strategic forecast for Able Corporation Inc for its power tool production and marketing. 2.0 Strategies Adopted by Major Players of the Industry: This part of the paper describes the strategies being adopted by different major players of the industry to retain their respective market shares in the industry and also to achieve further growth. 2.1 Black and Decker: For the year 2006 the sales performance of Black & Decker was disappointing due to slow down of the US Economy. The strategies of the company to drive themselves in to future success are; Innovation, Structural Cost Improvements, Cash Generation and Stewardship of Capital. The 'Innovation to end-users' was the critical strategy for this company. The company's 'new-product machine' was the innovative solution of the company which enabled them to achieve extremely loyal end-users as well as benefited their distribution partners to serve a broad range of channels. The company's product vitality index remains above 35 percent. While reducing costs of manufacturing and selling and general administration costs filled the cost improvement and cash generation strategies, the acquiring of Vector products Inc manufacturing consumer power portable products and the buyback of the shares represented their strategy of stewardship of capital. (Black & Decker 2006 Annual Report) 2.2 Makita: This company places its strength on the industry leadership in battery and charger technology with its LXT Lithium-Ion battery and charger system. The first cordless drill was introduced by the company nearly 30 years ago. Manufacturing innovative cordless tools with designs to allow the users all the convenience cordless offers without sacrificing the power or efficiency of a corded tool is the key strategy for this company. The advancement achieved in motor technology is also another key strength. (Makita web site) 2.3 Bosch: With over 1000 different products this company offers a broad product range catering to the building trade, industry and do-it-yourselfers. Wide product range is the key strength of this company. The company has also made its presence felt in the cordless power tools with its products like cordless screw drivers, piercing saws and hammer drills. The long-term strategy of Bosch is to generate approximately half of their sales in the Americas and Asia and the other half in the European market. Diversification is the central theme of the strategic objective of Bosch to make the company less vulnerable to fluctuations in individual industries. (Bosch Home Page) 2.4 Porter Cable The key strength of Porter cable is their range of products which meets different range of customers. They manufacture tools for every customer; new home construction to building maintenance and from farms to major wood-working. Similarly they supply to all classes of customers from professionals to casual weekenders. Power, agility, responsiveness and perfect performance is at the root of the porter cable's product strength. With a view to take the strategic advantage of marketing, Pentair Inc the owner of Porter Cable tools had agreed to sell all its tools brands to Black & Decker. (Porter Cable Home page) 3.0 Developing a Strategic Forecasting for Able Corporation: There can be no strategic planning without forecasting. The ultimate objective of strategic planning is to determine what the company should be in the future; what markets to compete in, with what products, to be successful and grow. To answer these questions the company needs to know what new products its customer will want, how much of these products customers will want and the level of quality, technological advancement and other features that will be expected in power tools. With the available economic indicators the following forecasting may be suggested for the Able Corporation in the Power Tool Industry. 3.1 Market Segments: Power tool market consists of products like circular Saws, drills, routers, reciprocating saws, planes and hammer drills. Approximately 80 percent of the power tools sold are corded and the balance 20 percent cordless. Though pricing wise both are equally placed, the cordless segment has a higher growth rate of 10 percent as against the corded tools which has a growth of only 3 percent. Ease of use and portability are attributed as reasons for the enhanced growth. Technological advancement of the battery technology is at the root of the growth of the cordless tools. Although the growth is estimated to remain at 10 percent for a foreseeable future, there is the threat of disruptive advancements in battery technology to hamper the growth potential. On the basis of an analysis of the available indicators it may be suggested that Able Corporation should increase its research and development to increase its strength in the cordless market segment which shows high growth potential in the near future. 3.2 Products of the Industry: Able Corporation is operating in the US power tool market. An analysis of the US power tool market indicates that the market is comprised of Professional and Consumer products. A professional tool is defined by high reliability, high durability and enhanced features. These products are supposed to withstand the rough daily use the tools are put to by the tradesmen like carpenters, wood-workers and plumbers in the discharge of their daily functions. The professional tools involve more manufacturing costs. However such tools fetch higher prices yielding better margins than the consumer tools. A consumer tool on the other hand is not expected to be as durable as a professional tool and will also have lesser features primarily used by do-it-yourself people who are amateurs in using the power tools. Such tools are being used occasionally for doing odd jobs around the home which are not too professional. 3.3 Channels of the Industry: Power tool industry divided into consumer and industrial channels. Professional tools are sold in consumer and industrial channels, whereas the consumer tools are sold exclusively in consumer channels since the consumer tools cannot be used by the professionals. The power tool industry is witnessing a decline of 5 percent in the industrial channel during the last 5 years and no growth is estimated for the next 5 years. While the industrial channel represents 45 percent of the total tools market, this channel is also fragmented. The products are also priced high. As against the industrial channel the consumer channel has shown a high percentage of growth at 20 percent per year over the past five years and is expected to grow at 5 percent per year for the next five years. This growth rate is the result of consumer power tools being sold in the bigger retail chain stores like Wal Mart. Because of the competitive prices being offered by these stores than the prices offered by industrial channel, professionals have also started buying their tools requirements from these consumer channels and this has resulted in 60 percent of all the professional end users buying their tools from consumer channels. This rate is expected to increase in the future. 4.0 Conclusion: From the foregoing information about the power tool industry, the strategic forecasting for Able Corporation is to concentrate on: Development of more varieties of cordless tools by constant research and development to beat the competitors since the cordless tools occupy the major segment of the industry Manufacture of higher percentage of cordless power tools as against the corded tools to capture a higher market share Able Corporation has to use more of consumer channel than the industrial channel as the consumer channel is having a high growth potential. Though there will be a pressure on the prices, the company should try to use the retail stores channel for sales as there is every chance that more and more professionals will start buying their requirements through this channel. References: 1. Black & Decker 2006 Annual Report http://www.bdk.com/06report/ 2. Makita web site Best-in-Class-Engineering http://www.makita.com/co_why_best.htm 3. Bosch Home Page http://www.bosch.com/content/language2/html/2252.htm http://www.bosch.com/content/language1/downloads/Magazin_07_en_Druckversion.pdf 4. Porter Cable Home Page http://www.portercable.com/index.aspe=269 Read More