Nirmal Rayon Ltd

Topics: Capacity utilization, Estimator, Regression analysis Pages: 2 (468 words) Published: September 20, 2011
Problem/Issue: The MD of Nirmal Rayon has to decide whether to expand the capacity to 7500 tonnes. The MD wants to get reliable volume forecast for the next ten few years to make the decision. Situation Analysis:

i)Textile Industry: The volume forecast has been calculated using chain ratio method. The estimates given by consultant have taken the following assumptions which seem valid: a)Per capita consumption – Keeping the past scenario in mind, the estimate of 14.5 meters seems pretty reasonable b)Population growth – The population growth data is taken roughly around 2% per annum which is also reasonable enough c)Decrease in total % share of cellophane owing to new technological developments - With the anticipation of new technology development in this area, the demand for cellulose based film is bound to decrease. But still the basis for decrease in total % share of cellophane from 74% in 1972 to 64% in 1977 is not clear. Overall consultants’ estimates match Planning commission’s estimate. ii)Cigarettes Industry: There are below mentioned flaws in the estimation: a)The production is greater than the installed capacity

b)No cause-effect relationship between cigarette production and time c)Replacement by a cheaper paper-polyethylene laminate has been neglected d)Decrease in demand due to labor strikes cannot be forecasted through regression analysis Taking a conservative approach and taking excise duty and cheaper products in mind, it should be reasonable to take a 50% as wrapping proportion for the year 1977 instead of 55%. Based on this the forecast for this industry would come out to be 2106 tonnes (84240 x 0.05 x 0.5). iii)Confectionery - The growth rate of unorganized sector is tipped to be 5% but calculation done with 6%. Figures of total cellophane not matching with formula:- (0.8*organized + 0.05*unorganized) * 0.04 * .15 which comes out to be 676.855 tonnes. iv) Pharmaceutical – The following flaws in the estimation of demand....
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