Managerial Economics for Multinational company

                      Abstract

According to the subject “Managerial Economic” we are advised to carry out a detail analysis about economic applications based on a multinational company. Therefore we have selected Holcim (Lanka) Ltd to our group assignment.

Initially under the introduction of the organization and industry background we discussed general details about the Holcim (Lanka) Ltd. There we included vision, mission, goals and objectives of the company, industry analysis using “Porters five forces”, environment analysis, and agency problem of Holcim and Marketing department details

Under the methodology, we discussed the following. Market structure of the cement industry and its competitive behavior. We found several management theories practicing in the company such as value chain, sustainable development, waste management, SWOT analysis, product quality management and reporting structure, corporate governance and management systems. After that we did a comprehensive analysis about demand and supply theory of Holcim (Lanka) Ltd.

Under the problem background we analyzed in detail demand forecasting techniques and demand estimation techniques. We estimated Holcim (Lanka) Ltd demand using quantitative methods as well as qualitative methods and we used demand forecasting techniques also in our analysis. Reasons of using those techniques. Strengths and weaknesses of estimation and forecasting techniques. With that analysis on demand data of Holcim Company we could identify several trends and patterns in demand, impact of various variables on demand etc…

Finally we made number of recommendations based on our findings in our analysis which would to useful to face those situations in the organization.

Therefore this report consists of all our findings, observations, analysis and final recommendations under each of sub topics.  So we believe   this report will give better understanding about the above factors of Holcim (Lanka) Ltd.

Introduction of the organization and industry background

Holcim (Lanka) Ltd is one of leading cement manufacturing firm in Sri Lanka. Holcim is a multinational company where the stakeholders are spread all over the world. It is the only one cement manufacturing plant in Sri Lanka. So this has led to gain competitive advantage for Holcim. Holcim has started as a public company in 1969. And then it was called as Sanstha. After it privatized the name changed as Holcim.

Mainly Holcim (Lanka) Ltd is involving the construction field. Holcim’s core business includes the manufacturing and distribution of cement. They do productions, processing and distribution of ready mix concrete, aggregates such as crushed stone, gravel and sand. The Holcim Company also offers consulting, research, trading, engineering and other services.

Nowadays Holcim (Lanka) Ltd as a leading cement supplier in Sri Lanka plays a vital role for the construction works in Sri Lanka.

Corporate objectives of Holcim (Lanka) Ltd

Vision

Our vision is to provide foundations for society’s future.

Mission

Our vision is to be the world’s respected and attractive company in our industry - creating value for our stakeholders.

Some of Goals and objectives

Continually set the highest standards of customer satisfaction in our industry.

Secure the strongest competitive position in our markets.

Partner with suppler to deliver value for cost procurement for the group and our customers.

 Be recognized as an employer of first choice.

Empower our employers and integrate them fully into our global network.  

Industry Analysis for Holcim (Lanka) Ltd

For the industry analysis Porter’s 5 forces model can be used. Under this model it analysis 5 factors which affects to industry rivalry.

Threat of new entrants.    

In Sri Lanka the threat of new entrants for a cement industry is low. The main reason for that is the barrier to entry. Such as,

High capital cost – initial establishment cost is high.

High rules and regulations – the government has imposed several rules and regulations regarding the factory processors, dispose wastage etc.

Threats of substitutes.

The substitutes for the cement are less. But there can be identified few substitutes such as clay, and the blocks made by grass etc. But still the trust of the customers is achieved by the cement.

Bargaining power of customers.

In the Sri Lankan market the bargaining power of customers for cement has become less. Because the product differentiation relates to cement is low. But there can be identified somewhat differentiation in cement. But it is also done by Holcim. Holcim has developed 2 types of cement other than the normal cement. They are Holcim Supiri and Holcim Pedereru. But overall customers have to buy what is at market. So the bargaining power of customers is less.

Bargaining power of suppliers.

The barging power of Holcim is high. Because in the market there is a few number of cement suppliers and higher number of customers. Therefore the bargaining power of suppliers is high.

Rivalry among existing firm.

There is a huge rivalry among existing firms because this is an oligopolistic market. Few suppliers are in the market such as Ambuja, Tokyo Super, Singha Cement, Ceylinco L&T, Mitsui etc. Mainly the rivalry is seen via the advertisements carried out.

Environmental Analysis for the Holcim (Lanka) Ltd

For that, PEST analysis can be used. The application of the factors for Holcim is as follows.

Ø  Political factors – government has imposed several rules and regulation to implement when establishing, processing and disposing the manufactured items.               

Ø  Economic factors - If the economy is good and the people have high disposable income there is a tendency to increase the constructions. Also in the present situation so many constructions are carried out. Eg. Hambanthota Harbour, developments in North and East provinces etc.

Ø  Social and cultural factors - If the company does a negative influence to the                                   social norms, values and culture it has to face the resistance from the stakeholders.

Ø  Technological - if the relevant technology is available and the technological feasibility is in Sri Lanka will lead to convenience of doing business by Holcim (Lanka) Ltd.

Agency relationship between managers and the shareholders.

Due to a separate of ownership and control there can be occurred conflicts between the interest of the owners and the manager’s goals. The owners hope is to maximize shareholder wealth. And management hopes other interests such as job security. This can be called as the agency problem between the shareholders and the managers. Under that shareholder becomes as the principal and manager becomes as the agent. For an instance the manager can do the unethical things to protect his job security. But according to shareholders perspective this can causes to ruin the value of the business and the value of the shareholders. Therefore to avoid these conflicts the shareholders can make formal agreements with the managers.

Holcim (Lanka) Ltd – Marketing Division

We have selected the marketing department in Holcim (Lanka) Ltd for our assignment. The marketing department is responsible for demand management, customer satisfaction, enhancement of sales, etc.

First we would like to say due to be a multinational company the regional office is giving the targets to achieve by the Holcim (Lanka) Ltd. These targets are included in the business plan of them which consists of all the functional objectives and targets.

Goals and objectives of the marketing department

Be recognized as a dealer of first choice.

Continually enhance the customer satisfaction.

Empower our dealers and integrate them fully into our global network.

Selectively grow our word wide presence of companies.

Demonstrate our commitment to grow sales.

Be the most recommended brand in our industry.

Arrange activities to increase our market share.

Identify customers’ needs, wants and obstacles.

Existing strategies of Holcim (Lanka) Ltd

According to our collected information regarding the marketing activities of Holcim (Lanka) Ltd mainly they perform several activities to attract their customers and to retain their customers.

When considering about their existing strategy we could identify, they do product differentiation in the industry. It can be seen Holcim has not segmented the industry but they use differentiated products in the market. This situation is explained by the Porter’s Generic strategy. It is as follows;

                                               

                                                      

 Competitive advantage

                                                   Low cost                                      Differentiation

Cost leadership	Differentiation
Cost focus	Differentiation focus

Broad target

Narrow target 

Also it can be seen they use some quadrants of Ansoff matrix. Mainly they do product development. It means they have developed new products to the existing market such as Holcim Supiri for concretes and Holcim Pedereru for mason works. Further Holcim globally enters in to new markets with its existing products which is market development.

Strategies used for marketing mix.

When considering their marketing mix the retail price of Holcim per 50Kg packet is around Rs: 720.00. And they give discounts to its whole sellers.

Distribution of the Holcim cement is mainly done through their own transportation system. Eg. Trains, Lorries. Mainly they do that through whole sellers and retail sellers.

And when considering the product cement, it involves highly valued brand name. The product is given to the market as 50Kg packets. And Holcim produces cement to the large scale constructions according to the concrete mix requirement. Further there can be seen product differentiation as Holcim Supiri, Pederaru, in retail market. And Ready Mix HB and Ready Mix LB to the industry sales.

Holcim (Lanka) Ltd do its promotions through the advertising. Also they maintain their own website to inform their stakeholders. Further they give sponsorship to the events.

Holcim (Lanka) Ltd can use following strategies other than their existing strategies.

However it can be said that the strategies which uses by the Holcim Lanka Ltd for marketing is effective to a greater extent. But if they can follow below strategies they can do marketing effectively.

It is better to use differentiation in the industry rather than move in to another quadrant of the generic strategy. Otherwise it may causes to stick in the middle. However, they can move to cost focus, because segmentation and focus on cost will be benefited more on them. They can use occupation as segmented variable and after that proper targeting and positioning should be done.

In addition, they can use BCG matrix to understand the product status in its life cycle.

						Dog

 

I               G             M         D

According to the life cycle the Holcim product (cements) are at the stage of maturity.  So now, the product has become as a cash cow. In a cash cow the growth of the market is less, but the market share is high. So in this maturity stage Holcim product should do differentiation and should do aggressive strategies to capture the existing market.  Also they have to do new product developments. Because after this stage the decline of the existing product will be happen.

Further Holcim Lanka Ltd can do following strategies for their marketing mix.

They can reduce their prices. Also they can give more discounts on its whole selling.

Further they can use their own outlets to distribute its products.

Also Holcim Lanka ltd can do workshops and exhibitions for the purpose of promotions.

When considering its product it can be made as 10kg packets. Then it will cause for convenient of lower income people to do their works. Also it is better to enhance the quality of the packaging of the cement packet. It means the user cannot keep the cement for long time after using the cement once. Therefore by enhancing the package it causes to long last the cement. Especially they have to market new products such as cement mixing without sand and aggregates. Because already competitors have enter to that market.

Methodology

Under the methodology we discuss few aspects of Holcim (Lanka) Ltd such as market structure of the industry, management theories that practices within the company, demand and supply theory of Holcim etc.

 Market structure of Holcim (Lanka) Ltd

When considering the market of cement manufacturing, we can identify the few key players. They are; Mitsui cement, Sinha cement, Nippon cement, Holcim cement, Tokyo super cement, Ceylinco L&T etc. Therefore this industry/market can be identified as an “Oligopoly market”.

Because there can be seen few key players in an oligopoly market. They are more dependent on each other. That means, when one manufacturer does some change regarding the product pricing, the other players do not hesitate to follow that. Otherwise there is a huge probability to go customer to a competitor. Therefore we can identify “price rigidity” in the oligopoly market structure.

The following graph represents the profit maximization of oligopoly market structure.

 

In an oligopoly market there are huge barriers to entry and exit. When considering cement industry in Sri Lanka, there are legal and government barriers such as how to establish cement plant, how to treat the chemicals etc. Further capital barriers, difficult to access to extraction of limestone are there.

Further there is lack of information. Because information likely to be protected by copyrights and trade secrets.

Also there can be seen differentiated products. But every competitor is tiring to depend on each other. However these oligopoly firms are price makers due to this heterogeneity of products and power of few suppliers.

In oligopoly market structure, there are some homogeneous producers get together to make "cartels". Cartels means, group of firms that agree either formally or informally to set prices and output levels of particular products among the members. Eg OPEC. But we can’t see the cartels for cement industry in Sri Lanka.

Theories related to Management

Holcim group’s overall business strategy is based on three pillars. They mention it like this,

“The Group’s strategy is based on three pillars: concentrating on the core business, geographical diversification and balancing local business responsibility and global leadership. These principles have proved themselves in good and bad economic times alike”

When concentrating on Sri Lanka’s cement market we can see Holcim is the market leader of local cement market continuously during last years with according to their strategy “global leadership” as above said. This position was maintained through value addition to products, services and the external environment, investments in safety and our continued emphasis to complying with global best practices and standards.

Their value chain is like this.

Sustainable development

Sustainable development remains at the core of their business fundamentals and is built on the vision of providing foundations for society’s future. At Holcim Lanka, sustainability is an inclusive ownership process that involves the full participation of all stakeholders, a process which involves building long term relationships with their stakeholders to ensure their sustainability and their own.

Their sustainability platforms 

Product Quality Management and Reporting Structure

Furthering their promise in delivering a quality product to relevant stakeholders, a new product quality management and reporting structure has introduced in the latter half of 2008. Continuous alignment that takes into account customer feedback systems is utilized effectively within this structure with a central quality committee and two quality circles also established to further streamline the process. The quality circles disseminate customer complaints relating to product and bag breakages, which after lengthy analysis would find solutions via preventive and corrective measures to work towards a zero customer complaint scenario. The two quality circles report to the Central Quality Committee every two months.

Corporate Governance and Management Systems

As a value-oriented enterprise, Holcim Lanka recognizes the significance of effective corporate governance in order to promote corporate fairness, transparency and accountability to all stakeholders. The Board of Directors comprises eight directors who are responsible for implementing effective governance in order to discharge its duties towards stakeholders, manage business risks and uphold the company’s reputation. The Executive Committee, consisting of the CEO and 08 Vice Presidents, reports to the Board of Directors. This includes key findings of risk analysis and the mitigating measures taken.

The Organizational Regulations, in line with the Company’s Articles of Association, clearly set out the organization structure of the Board of Directors and the Executive Committee, and governs the tasks and powers conferred on the company’s corporate bodies. In addition, a Legal & Compliance function has been put in place to assist the board and the management to comply with applicable laws, regulations and processes of Holcim Lanka according to its policy manual and Holcim Group standards such as accounting rules.

Waste Management

To ensure that sustainability aligns with development, Geocycle strives to convert waste which no longer has commercial value into alternative fuels with synergized values and benefits. Geocycle also deals with the immense problem of massive hazardous waste generated by industrialists, who earlier had no means or options to manage that waste in an environmentally-friendly manner.

Geocycle ensures sustainable development by achieving two objectives. Firstly, providing complete solutions to industrial customers who require a solution to the industrial waste generated and secondly, to enhance conservation of fossil fuels by using the waste as an alternative fuel in the cement manufacturing process.

With this, Geocycle guarantees reduction of greenhouse gases, as CO2 emissions will also decrease when production of fossil fuel is minimized.

“Holcim Lanka gets first ever license to co-process scheduled waste

With the environmental authorities accepting the use of the cement kilns for industrial waste co-processing, Geocycle met the highest environmental standards and was awarded the first-ever Environmental Protection License (EPL) for co-processing ‘Scheduled Waste’ in Sri Lanka. EPL allows Geocycle to enhance its service provision to a variety of industries and to make its kilns available for co-processing a range of industrial waste varieties. The EPL also covers activities such as collection, transportation, handling and storage of scheduled wastes. Hazardous waste needing prescribed treatment techniques are categorized as ‘Scheduled Waste’ and include oil, ink, dye, heavy metal, pharmaceutical waste, medical wastes, paint and lacquer sludge. Facilities for disposal of this waste needs to meet special environmental standards”

S.W.O.T Analysis for HOLCIM Company in Sri Lanka.

Even though Sri Lanka is a small country, Sri Lanka has a broader business environment for cement industry. We can classify the business environment into two categories.

1.      Internal Environment ( the environment which is controllable)

2.      External Environment ( the environment which is uncontrollable)

SWOT analysis is the best way to analyze the business environment. Strengths and Weaknesses can be identified when we analyzed the internal environment and Opportunities and Threats can be identified in the external environment.

Strength for HOLCIM Cement in Sri Lanka.

ü  More than 15000 employees are working.

ü  Employees have good knowledge and experience of the field and a good employee recruitment system.

ü  The company can produce diversified cement.

ü  The company has a good distribution system.

ü  Their core competency relies on concrete production

Weakness for Holcim cement

ü  Non availability of differentiated products in their product portfolio.

ü  Even though it has passed 4 years the 30 years’ war, they unable to establish enough distribution strategies in Eastern and North provinces.

ü  Holcims’ price is little bit higher than the competitors.

Opportunities for HOLCIM Cement

ü  After 30 years war there has been started a lot of constructions in Eastern and North provinces.

ü  In the present, Concrete is the material that used most often in construction of road   instead of tar.

ü  There are a lot of small scale businesses which involve in producing concrete decorative items, concrete chairs, concrete bricks etc…

ü  Concrete sticks are increasingly used to build rail way tracks in the present.

ü  Government policy of every person should have their own house.

ü  Difficulty in entering into Cement industry due to a large amount of initial capital.

Threats for HOLCIM Cement

ü  There are number of competitors in Sri Lanka. (Ambuja, Tokyo Super, Singha Cement, Ceylinco L&T, Mitsui etc.

ü  Competitors also having differentiated products catering different requirements.

ü  Various environmental rules and regulations which have imposed on cement industry by the government.

                                                                   

Background of the Problem

Demand and supply of Holcim (Lanka) Ltd is the main area that we critically analysed out of the four areas given. We have done detailed analysis regarding demand estimation and demand forecasting  

Demand and Supply Theory

Holcim (Lanka) Ltd is in the industry of construction. Mainly to survive in the industry it is important to satisfy the customer needs. Therefore it is the primary responsibility to cater to the demand of the Holcim cement. Therefore demand forecasting and estimation comes to front when deciding the demand of the Holcim cement. Therefore according to our company visit Holcim is doing its estimation and forecasting in long term and short term.

Mainly when considering their long term estimation and forecasting they calculate forecasted data up to 5 years. To do that they consider political situation and government policies of Sri Lankan. Because new projects are happen with the peacefulness of the country. Eg Hambanthota harbour.

Quantitative estimations

Firstly we will look at what are the quantitative estimations that they are practicing. Mainly they use regression analysis.  They told us that they use their own multiple regressions analysis model to their estimation.

Basically they use GDP of construction, population, interest rate (Average Weighted Lending Rate), inflation rate as their regression variables. Because they decide what will be their demand according to the GDP construction amount. Also they decide when increasing the population, what will be the construction amount. They use statistical and senses departmental values to determine the population. But they told us they are not more dependent on the information of department because the senses have calculated in 2001originally.

Further they highly considered interest rates for housing loans and inflation for the multiple regressions analysis model. They use the model called ANOVA to determine the R² of the model.

Regressions model that Holcim (Lanka) Ltd use to determine the whole industrial cement volume requirement in Sri Lanka. That is:

They told that they are getting 80% as R². Mainly they hope 90% R² as their model solution. For their regression analysis they use the variable such as GDP of construction, inflation and interest rates. By using those variables multiple regression analysis determines the whole volume needed by the construction industry.

After that they allocate the total demand according to their capacity among the cement manufacturers in Sri Lanka. By estimating the volume of Holcim further they subdivide that demand to their 5 brands of cement.

This is an example of volume estimation Holcim cement.

For short term, the estimating and forecasting are carried out frequently by the Holcim (Lanka) Ltd. They estimate even for two weeks or for a week etc. They take following quantitative techniques mainly for the short term forecasting.

Quantitative estimation methods.

Other than regression analysis they use quantitative estimation methods. They have identified the concept which is called townshiftment. Under that they believe the town side people are moving to the village and make urbanize there. So they determine what will be the future demand of Holcim cement due to townshiftment.

Further they have a database of every project which will carry out in Sri Lanka until 2016. Therefore they determine their estimates and forecast according to that.

Mainly their data collection sources are the research agencies. They use following research agencies information for the estimation purposes. Eg Frontier research, NDB research, IMF, EIU.

Forecasting techniques

Also they use forecasting techniques such as barometric forecasting which determines the leading indicator. According to them they have identified a trend where there is a high demand for the industrial cement and due to that there could be a retail demand in future because if the infrastructure buildings are developed in that area, leads to move the people to that area which leads to increase the retail cement market. .

Eg

Highway construction project, now the people are moving to that areas to settle down so retail cement demand is more.

Maththala Airport construction cause to increase industrial usage and due to that development the urbanization will happen where the people are moving to that area. (Increase retail cement usage)

Further as a qualitative forecasting technique they cover all outlets of Holcim (Hardware shops) to get the feedbacks. They consider the education level of dealers, and take information regarding what is the most selling cement etc. Also they use influential people to promote their products. Such as engineers, masons, concrete gang people etc.

Reasons why they are using such a method in demand estimation and forecasting

According to their opinion they told that regression analysis is accurate and it gives more analytical information to the users. Because by the regression analysis it gives the information that how much explains by Y to changes of X. Also they can use more variables to multiple regressions model than linear regression analysis.

Also they use barometric forecasting which gives them more forecasting ability because of the leading indicator. As an example they consider industrial constructions as leading indicator for the retail constructions.

Strength and weaknesses of demand forecasting and estimation techniques.

Multiple Regression model

Weakness - They will face several problems when determining the variables to the regression model. Because they can identify several variables which determine the volume. So to find the perfect variable to get an accurate figure they have to do trial error and find the best one according to the solution

Strengths - It can provide more analytical solution to make decisions.

Barometric forecasting.

Strengths – it leads to get more accurate forecasting due to leading indicator.

Weakness – due to unpredictable reasons the forecasting may become wrong although the company forecasted according to the leading indicator.

Information from dealers

Strengths- Voice of the customers is come to the business.

Weakness- The accuration of the information is dough full.

Information till 2016 collection (Data base)

Strengths- Easy for demand forecasting.

Weakness- This can be varying according to the time.

Suggestions - Other possible demand forecasting methods.

1). Time-Series analysis.

We suggest them to use Time-Series analysis for their forecasting. Because time series analysis is one of most appropriate method for demand forecasting. When we asked about time series implementation of Holcim (Lanka) Ltd they told us that they are not implementing it because they cannot get the relevant data needed for the time series analysis and it needs huge amount of data.

2). Exponential Smoothing.

Also they told that exponential smoothing is not practiced. Because both time series and exponential smoothing need a lot of data. But we suggest that exponential smoothing to perform by the Holcim (Lanka) ltd.

Analysis and Findings

The organization we have selected to carry out the assignment is “Holcim (Lanka) Ltd”. There we were required to identify a managerial issue and analyze it with relevance to the theories we learnt in our subject. In doing so, initially we conducted a formal interview with the financial manager of the Holcim Lanka and got the necessary information regarding their sales, occupancy ratios etc. Further, we browsed internet and found statistical data related to their company and industry.

With the use of above mentioned methodologies we were able to recognize an inherent managerial problem to the Holcim Lanka related to Demand Forecasting. We figured out that there exists no proper method in forecasting the demand for the hotel. It seems that the hotel is short sighted with regard to making a constructive analysis and forecasting demand into their future. When the manager was asked to present us with the statistical data relevant to demand forecast, it was salient that they are at the moment not much focused towards following a strategic approach to set demand related objectives into the future.

Demand Forecasting can be defined as the attempt of an organization to decide how much of each product to be produced. There are mainly two objectives of Demand Forecasting; reducing the risk or uncertainty in the short term and making effective planning in the long term. There exist mainly two techniques in demand forecasting; quantitative and qualitative. Under qualitative forecasting there are several methods available such as surveys, opinion polls, market experiments, Delphi method etc. Quantitative forecasting includes Time series analysis, Trend projection, Smoothing techniques etc. however, which forecasting method a company ought to select would depend on cost of preparing forecast, lead time in decision making, time period in forecast, level of accuracy required, quality availability of data, level of complexity etc.

The main reasons behind not having a well-established method to determine the future demand can be listed as follows. The management seems to be less encouraging towards demand forecasting that their focus has been diverted mainly towards coming up with strategies to cop up with the high competition in the industry. Also, the company lacks the necessary skills and competencies not only to make a well balanced forecast but also to make a strategic insight into the forecasts and take long term productive decisions. In addition, their attitude towards Demand Forecasting is such that it’s time consuming, costly exercise that puts up an additional burden on the workers but ultimately generates no value. This thinking is backed by the unawareness of the benefits that an organization would receive from a sound demand forecasting. However, it can be said that less tendency to use demand forecasting to make economic decisions is a common feature among the companies operating in the Tourism Industry. The competition among the rivalries is so high in that industry and the focus automatically moves towards winning the competition.

.

For our analytical purpose, we have collected data regarding tons of cement demand during the period of 2010-2012.

Quarters	Time	Demand Quantity
2010-1	1	295000
2010-2	2	330000
2010-3	3	305000
2010-4	4	334000
2011-1	5	360000
2011-2	6	380000
2011-3	7	365000
2011-4	8	380000
2012-1	9	382000
2012-2	10	400000
2012-3	11	380000
2012-4	12	408000

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.919669627
R Square	0.845792223
Adjusted R Square	0.830371445
Standard Error	14921.77349
Observations	12
ANOVA
	Df	SS	MS	F	Significance F
Regression	1	1.22E+10	1.22E+10	54.84757	2.3E-05
Residual	10	2.23E+09	2.23E+08
Total	11	1.44E+10
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	299848.4848	9183.717	32.65001	1.71E-11	279385.9	320311.1	279385.9	320311.1
Time	9241.258741	1247.821	7.405915	2.3E-05	6460.939	12021.58	6460.939	12021.58

Trend Projection

Constant rate of change

St = So + bt
St = 299848.5+9241.259t

S 13 =299848.5+9241.259 * 13 = 419984.867

S 14 =299848.5+9241.259 *14 =429226.126

S 15 =299848.5+9241.259 * 15 = 438467.385

S 16 = 299848.5+9241.259 *16 = 447708.644

In Trend Projection it is assumed that there exists a linear relationship in demand forecasts. But in the case of cement industry we cannot see such a relationship. Therefore we have to adjust seasonal variations to our forecasting.

 Seasonal variations

Ratio to trend method

	Forecast value	Actual Value	Ratio
2010-1	309089.8	295000	0.954415189
2011-1	346054.8	360000	1.040297664
2012-1	383019.8	382000	0.997337474

Seasonal Adjustment = (0.954415+1.040298+0.997337)/3 =  0.997350109 Time Forecast value Actual Value Ratio 2010-2 318331 330000 1.036656813 2011-2 355296.1 380000 1.069530456 2012-2 392261.1 400000 1.019728951 Seasonal adjustment = (1.036656813+1.069530456+1.019728951)/3=1.041972074 Time Forecast value Actual Value Ratio 2010-3 327572.277 305000 0.931092224 2011-3 364537.313 365000 1.001269245 2012-3 401502.349 380000 0.946445272 Seasonal Adjustment = (0.931092224+1.001269245+0.946445272)/3 = 0.959602247 Time Forecast value Actual Value Ratio 2010-4 336813.536 334000 0.991646607 2011-4 373778.572 380000 1.016644689 2012-4 410743.608 408000 0.993320388 Seasonal Adjustment = (0.991646607+1.016644689+0.993320388)/3 = 1.000537228 Seasonal Adjusted Forecast Quarter Trend forecast for each quarter Seasonal Adjustment Seasonal Adjusted Forecast 2012-1 419984.867 0.997350109 418871.953 2012-2 429226.126 1.041972074 447241.6365 2012-3 438467.385 0.959602247 420754.2879 2012-4 447708.644 1.000537228 447949.1655

Smoothing Techniques

Moving Average Forecast

Quarters	time	Demand Quantity	three quarter MA Forecast	A-F	(A-F)2
2010-1	1	295000
2010-2	2	330000
2010-3	3	305000
2010-4	4	334000	310000	24000	576000000
2011-1	5	360000	323000	37000	1369000000
2011-2	6	380000	333000	47000	2209000000
2011-3	7	365000	358000	7000	49000000
2011-4	8	380000	368333.3333	11666.6667	136111111.1
2012-1	9	382000	375000	7000	49000000
2012-2	10	400000	375666.6667	24333.3333	592111111.1
2012-3	11	380000	387333.3333	-7333.3333	53777777.78
2012-4	12	408000	387333.3333	20666.6667	427111111.1
2013-1			396000
					5461111111

RMSE= √∑ (A_t – F_t)

                        n

            = 24633.11031

Quarters	time	Demand Quantity	Five quarter MA Forecast	A-F	(A-F)2
2010-1	1	295000
2010-2	2	330000
2010-3	3	305000
2010-4	4	334000
2011-1	5	360000
2011-2	6	380000	324800	55200	3047040000
2011-3	7	365000	341800	23200	538240000
2011-4	8	380000	348800	31200	973440000
2012-1	9	382000	363800	18200	331240000
2012-2	10	400000	373400	26600	707560000
2012-3	11	380000	381400	-1400	1960000
2012-4	12	408000	381400	26600	707560000
2013-1	13		390000
					6307040000

RMSE =30016.75722

Since three quarter Moving average has least RMSE value of 24633.11031, it is better to use for forecasting.

Exponential Smoothing

Quarters	time	Demand Quantity	Forecasted value with 0.3	A-F	(A-F)2
2010-1	1	295000	88500	206500	42642250000
2010-2	2	330000	99000	231000	53361000000
2010-3	3	305000	91500	213500	45582250000
2010-4	4	334000	100200	233800	54662440000
2011-1	5	360000	108000	252000	63504000000
2011-2	6	380000	114000	266000	70756000000
2011-3	7	365000	109500	255500	65280250000
2011-4	8	380000	114000	266000	70756000000
2012-1	9	382000	114600	267400	71502760000
2012-2	10	400000	120000	280000	78400000000
2012-3	11	380000	114000	266000	70756000000
2012-4	12	408000	122400	285600	81567360000
2013-1	13

RMSE= 7.6877031E+11

Quarters	time	Demand Quantity	Forecasted value with 0.5	A-F	(A-F)2
2010-1	1	295000	147500	147500	21756250000
2010-2	2	330000	165000	165000	27225000000
2010-3	3	305000	152500	152500	23256250000
2010-4	4	334000	167000	167000	27889000000
2011-1	5	360000	180000	180000	32400000000
2011-2	6	380000	190000	190000	36100000000
2011-3	7	365000	182500	182500	33306250000
2011-4	8	380000	190000	190000	36100000000
2012-1	9	382000	191000	191000	36481000000
2012-2	10	400000	200000	200000	40000000000
2012-3	11	380000	190000	190000	36100000000
2012-4	12	408000	204000	204000	41616000000

RMSE = √243595319/12  =

Since forecasted value with 0.3 has least RMSE value of 4134.78, it is better to use for forecasting.

Conclusion

Through this analysis we could gained a lot of knowledge about the practices of Holcim (Lanka) Ltd. As an overall, the corporate objectives of the Holcim (Lanka) Ltd such as their vision, mission, goals and objectives, industry analysis, agency problem, marketing department details and so on.

And then we identified the demand estimating and forecasting existing techniques of Holcim cement and we proposed what they can use other than that technique. And also we did calculations based on the demand data we could gather. From that we could gather a great pool of knowledge.

However by this assignment we got a lot of knowledge and experience to our lives. Therefore we would like to give or heartiest gratitude to Mrs. Vishaka Gunasekara who is our lecturer of the subject Managerial Economics.

Next we would give our special gratitude to the Human Resource Manager Mr. Prasad Piyadigama and Mr. Chinthaka Thuduwewaththa at Holcim (Lanka) Ltd who gives the relevant information about related topics.

Also we would like to thank Head of the Department of Marketing and the Department of Marketing which gave contribution to make our effort success.

References

Managerial Economics – Applications, Strategy, and Tactics, James R. Mc Guigan, R. Charles Moyer, Frederick H. De B.Harris, Eight Editions, 1999

Marketing-Practices and Principles, Ralph E. Mason, Patricia Mink Rath, Stewart W. Husted, Richard L. Lynch.1995

www.holcim.lk

Annexure

Cement	Price
Holcim Supiri	720
Holcim Pederaru	720
Ambuja	690
Mahaweli merine	700
Tokyo masionery	710
Tokyo Portland	710
Ceylinco L&T	690
Singha	690
Nippon	700