The company believes the industry will be more diplomatic about adding capacity
Symptom: The company believes that the industry will be more diplomatic and careful in adding capacity, despite high utilization rates.
Implications for the market:
Diplomacy is unlikely; capacity is likely to be readily available to customers.
Even in the most manufacturing-intensive industries there remains substantial cash contribution and returns from marginal sales.
As an industry runs low on capacity new capacity will come on stream because most companies will invest on the basis of marginal rather than full cost returns.
The internal debate will shift from the full cost return on the additional investment to the opportunity cost risk of losing the customer relationship.
Usually, the marketing and sales functions will win this battle and convince the company to add capacity to support the customer demand.
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Perspectives: Conclusions we have reached as a result of our long-term study and observations.