DEMAND FORECASTING FOR CABLES:

A CASE STUDY IN ECONOMIC ANALYSISThe market research department of M/S Bengal Cable Co., Calcutta, was entrusted with demand for cables of the company. It was felt that the pace of industrialization, power development and building activity considerably influences the demand for cables. Cables are used for different purposes such as power transmission, industrial and house wiring. The Bengal Cable Co. is exclusively engaged in the manufacturing of cables required by industry and housing.

While many factors such as rate of building activity, purchasing power, etc., are important in determining the demand for cables, it was felt that the most of the demand for cables could be explained in terms of growth of power consumption in the country. Since for industry and buildings, cables are a must, the price factor was not considered as the significant variable in determining the demand for cables. After all, this product has no substitute.

The market research department of the company developed a model relating to All- India cables sales (industrial and housing) to the peak demand for power in the country. The analysis based on the time series data has shown a strong correlation between all-India cables sales and the peak demand for the corresponding year. The estimating equation is as follows:

Y t =1173+28.5Xt where

Y t = annual cable sales (in thousand coils) for all-India in year t

X t = peak demand in million KW in year t

R2 =0.94

The Central Electricity Authority of the Government of India has estimated the peak demand for the year 2010 as 98.5 million KW, taking into account the likely industrial and building growth and the availability of power on all-India basis. As there are no marked seasonal fluctuations, it is considered proper to assume uniform monthly cable sales throughout the year. It is estimated that Bengal Cables s market share in 2012 will be about 20 per cent.

QUESTIONS

1. Find out the all-India cable sales for the year 2010 and monthly estimated sales of Bengal Cables Co.

2. The price factor was not considered important in forecasting all-India demand for cables. Will the same be true in estimating the demand for the companys cables?

3. Suppose the market share of the company during the previous two years was 10 and 15 per cent respectively. Do you agree with the companys forecast of having a market share of 20 per cent?