Factors Affecting Stock Changes

Press, Volume CVII, Issue 31530, 18 November 1967, Page 9

Factors Affecting Stock Changes

On the basis of a survey of overseas manufacturers it seems that sales forecasts or orders are more important than expected changes in raw material prices in their effect on stocks held by manufacturers.

As part of its investigation into the causes of wool price fluctuations the Wool Marketing Study Group had a survey made of 263 manufacturing firms in Belgium, Britain, France, Germany, Italy and the United States, and a pilot survey to test questionnaires put to manufacturers also covered an additional 25 firms.

The group found that the evidence was sufficiently strong to conclude that in the wool textile industry raw materials were the most important element of selling price, but it did not necessarily follow that price changes of raw wool had an important effect. The importance of changes in raw wool prices on selling prices was generally agreed, but the Italians did not reflect this so markedly. While 57 per cent of those approached in that country agreed, the remainder said that changes in raw wool prices had little or no effect on selling prices.

Most manufacturers said that stability in raw wool prices would be welcome. This was especially so among purchasers of wool.tops and wool yam. A group, which in-

eluded merchants, was, however, fairly divided on this subject Some Germans preferred to accept the risks of price fluctuations, and from America came the opinion that small, fluctuations were good for trade, and that it was an advantage to conceal prices paid for Wool from competitors.

A further observation of the group from these investigations was that expected changes in raw material prices were considered a less important factor affecting manufacturers’ stocks than sales forecasts or orders.

Most firms established stocks on the basis of sales forecasts or orders from customers. The tendency was for manufacturers in the early stages of the wool textile chain to rely on sales forecasts. The preference for basing stock holdings on orders from customers became stronger as the product manufactured neared a more finished form. Hosiery and carpet manufacturers tended to be an exception and relied on sales forecasts. The group says that there is no simple relationship between manufacturers’ stocks and prices or expected prices of raw wool, but the preliminary indications that price expectations are less important than expectations about mill activity as determinants of manufacturers’ stocks is an important finding. But a more rigorous examination of this question was required. It is pointed out that this survey relates only to manu-

facturers’ stocks. Merchants’ stocks appeared to be of considerable size and importance and it might well be that merchants were influenced more by price expectations and might, therefore, be much more sensitive to price change. On the extent to which manufacturers altered their fibre mix as a result of price changes, the report says that the indication was that very little substitution took place unless prices changed more than 10 per cent The report notes that while ’firms wish to produce standard products with as little change to the productive process as possible, wide fluctuations in prices might force costly changes, however reluctantly they were taken. About two-thirds of those approached did not answer the question whether a change in fibre composition, if made for price reasons, would be permanent or temporary. Perhaps, says the group’s report, this indidicated a “wait and see” attitude. Of the remaining third, most stated that the change would be temporary. It was noteworthy that the remainder would regard a change as permanent. The number varied from 12 per cent of the British sample to 20 per cent of the Italian sample. But “price is not the only reason for changing fibre composition of a product Respondents indicated the importance of fashion followed by technical changes. Other reasons included the influence of promotional activity by synthetic producers, special charactertistics of synthetics, easy care properties and demand by customers.”