7.2 Industry Demand Analysis

The Industry Demand Analysis will help the Marketing and Production Departments understand future demand. Marketing can use the total demand for each segment as it creates forecasts (see 8 Forecasting). Production can use the results when making capacity buy and sell decisions.

You will need the Segment Analysis reports (pages 5 - 9) of The Capstone Courier for Round 0 and the Industry Conditions Report.

At the top of each Segment Analysis page you will find a box called Statistics. On Form 2, copy the Total Industry Unit Demand number for each segment into the Demand cell for Round 0. Next, copy the Next Year’s Growth Rate, which is also in the Statistics box, into the Rate cell.

Multiply the Round 0 demand by the growth rate and add the result to the Round 0 demand. This will give you a close approximation of Round 1 demand. Copy this number into the Demand cell for Round 1.

If you prefer, you can use the following shortcut. For example, assume the Traditional growth rate is 9.2%. Convert the percentage to a decimal:

Traditional Segment Growth Rate = 9.2% = 0.092

Add 1 to the decimal:

1 + 0.092 = 1.092

Multiply the Round 0 Traditional demand by 1.092. This will give you a close approximation of Total Industry Demand for Round 1.

Remember, the demand numbers are in thousands! For example, if the Round 0 Total Industry Unit Demand for the Traditional segment reads 7,387, the Traditional Segment demanded 7,387,000 units.

While you can calculate the demand for Round 1 from the information on hand, future growth rates are unknown. Can you predict the market size for Rounds 2 to 8? No. On the other hand, you need something for planning purposes to address critical questions like, “How much production capacity will we need in the future?” “How much money do we need to raise?” “Which segments are most attractive for investment?”

Planners address this type of issue with scenarios. Typically there are three– worst case, average case, and best case. The average case assumes that the current growth continues into the future indefinitely. Worst case assumes a lower growth rate. Best case a higher growth rate. The truth will unfold as the simulation progresses. Next year’s growth rate is published in the Courier on each Segment Page in the Statistics box.

For your purposes, complete Form 2 with the “average” scenario. Assume the Round 1 growth rates will continue into the future unchanged. This will give you some idea for potential market size. If you have time, try a worst case and best case scenario. For worst case assume, say, half the growth rate. For best case assume, say, 1.5 times the growth rate. (Consider developing a simple spreadsheet for this purpose.)

Form 2: Demand Analysis