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Knight Transportation Case Solution
All organizations need to ensure that they have a strategy in place that drives the functions and planning of the organization for both, the short term and the long term. It is for this purpose that not just the management team, but also dedicated teams are hired in organizations worldwide to provide a strategic analysis and provide a predictably more accurate set of findings so that the organization can decide how to move forward. In this case, Knight Transportation is just getting back up on its feet, and there is an urgent need to identify the economic indicators which can help Knight design and realign its strategy to become a successful business again within the next 3-5 years.
Following questions are answered in this case study solution:
Case Study Questions Answers
One of the most major and reliable economic indicators of indicating the health of the economy is the Real GSP. In the case of the US the real GDP till December 31, 2015, was 16.49 trillion and for the next quarter until June 30, 2016, it increased by 1.1% to 16.58 trillion showing that the economy is on the rise again, and the purchasing power of the people is increasing. As the economy recovers the demand for freight good would also increase so, Knight Transportation should be prepared to start catering to the increasing demand at a moment’s notice and then focus on increasing their prices again after 3-5 years (BEA, 2016). With the improvement in the economic health, another indicator has improved which is Money Supply. With the government infusing more money into the economy, the rate of borrowing has decreased and so firms like Knight Transportation can easily borrow at lower rates and expand as and when needed as the business builds up. The money supply in the economy is depicting an economic recovery so it also shows that the monetary policy would be comparatively lenient in the near future (US Federal Reserve, 2016).
Consumer Price Index is also an economic indicator that can show the impact and strategy for Knight Industries. For the past two years the CPI has been increasing and increased between the range of 0.1% to 2.3% across the US showing that the overall inflation is low. So it would not be a good move for Knight to increase their process now. They should focus on increasing volumes now and focus on the margins later (Beaureau of Labor Statistics, 2016). To assess for the inflation in the economy, Knight can look at the producer price index. The chart below shows the movement in PPI for the freight trucking industry of which Knight is a part of.
As the data shows the trend for PPI has been decreasing since 2014. So Knight needs to incorporate into its strategy the move for further cutting prices if they want to increase volume because they won’t get any customers with inflated prices (FRED, 2016). From the consumer, perspective stems another index that is the consumer confidence survey. The chart below shows the US consumer sentiment.
As the chart shows the expected levels of inflation are low in the latter part of 2016 showing that the people have more confidence in the economy and the expected levels of inflation are low. This also proves that the expected purchasing power of the people will increase which again implies that Knight Transportation should be prepared to handle the volume, growth and expansion (Trading Economics, 2016).
Another very important economic indicator is the rate of unemployment in the economy. The chart below shows how the rate of unemployment has changed over the past couple of years. The rate of unemployment has been a decline since an all-time high in 2010 when organizations had to do massive layoffs after the recession. With the increasing levels of employment, the skilled labor force will be picked up quickly so if Knight intends to do any hiring they need to start immediately, especially given that their hiring criteria are very strict (Bureau of Labor Statistics, 2016).
Source: Bureau of Labor Statistics (2016)
The seventh indicator is the retail trade sales and food services sale, the trend for which is depicted by the graph below:
Source: United States Census (2016)
As shown by the graph there is an overall increase in the consumer spending, but it has been reducing slightly since the mid of 2016. This indicates that the consumer may become more cautious about spending in the near future but as the overall purchasing power will increase, it can be deduced that the overall retail sales and food services sale would increase. This can have a positive impact on Knights business as their services would be rendered to move the goods (United States Census, 2016).
The eighth indicator for Knight to consider is the Housing Starts which had been going upwards for the major part of the year but not as much as expected (Mutikhani, 2016). They have taken a downward plunge in the South as the demands for housing decreased due to the adverse weather conditions and the flooding. It is expected to go up again (CNBC, 2016). This trend provides Knight with a cautious note not to overdo things and opt for an aggressive expansion strategy rather Knight Transportation should employ a semi-conservative strategy for growth. The ninth indicator is the manufacturing and trade inventories and sales as shown in the graph below
Source: US Census Bureau (2016)
The total inventories to sales ratio have increased slightly in the past few years indicating that the sales are decreasing, and the inventories are piling up in the warehouses so the overall movement of the goods is not as good as expected. This again provides a note of caution for Knight Transportation for not employing an aggressive strategy for growth short (US Census Bureau, 2016).
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