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Most Basic Principle Guiding Your Decisions-- w ill it:

Most Basic Principle Guiding Your Decisions-- w ill it:. Increase Demand for Product. Decrease Cost of Making & Marketing Product.

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Most Basic Principle Guiding Your Decisions-- w ill it:

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  1. Most Basic Principle Guiding Your Decisions-- will it: • Increase Demand for Product • Decrease Cost of Making & Marketing Product

  2. Made all the Right Decisions --product design, pricing, positioning, promotion, distribution… credit terms… production line capacity, automation, hiring training, TQM & PI…

  3. IF • Your Competitors produce a better product • &/or You produce too much of your “great” product You’ll be left w/less revenue than anticipated PLUSproduction & inventorycarrying costs that must be paid.. Then

  4. Big Al arrives -- pays your bills, and leaves you with a loan & a stiff interest payment Then You’re left w/less revenue than anticipated and did not plan & allocate enough cash to cover yourproduction & inventorycarrying costs.... IF

  5. Maintain Adequate working capital & cash reserves In order to: Need to: • Avoid “Big AL” & a Liquidity Crisis- • Have realistic/ accurate sales forecasts

  6. Quick N’ Dirty • Consumer Pref’s • Best vs. Worst Case Projections

  7. Estimate Your EARNED SHARE: 2 Q’s: • What will the average product sell in the segment next round? • To what degree is your product above or below average-on consumers'’ buying criteria?

  8. EARNED Share - Sales Forecast Look-up next round Industry Demand … Estimate# products that will be in segment. Divide total industry demand by the number of products= FAIR SHARE Your product’s EARNED demand can be ½ to 2X the average product’s demand… Compare your product with competing products. Factors include design, awareness, accessibility, and planned mid-year revisions. Examine industry capacities & capacities of the “best” products. Can products meet the demand they generate?

  9. Quick N’ Dirty • Consumer Pref’s • Best vs. Worst Case Projections

  10. Forecast off Customer Survey Scores

  11. Total=223

  12. R#2 2 1

  13. For Example-in Traditional segment everyone begins w/ 13% market share • Opening rounds crucial- can establish competitive advantage (that can be sustained for many years- even thru-out entire sim.) • Initial round demand can vary +/- 25% • Later rounds best case/worst case vary ~~~~ 10-15%

  14. After 1st Year/Round-Can see demand spread R#2 R#3 R#1

  15. CASE CASE

  16. Worst Case: • BIG INVENTORY- Little Ca$h • Best Case: • Lots of CA$H - Little Inventory

  17. Enter WORSE case- in “your sales forecast” on marketing spreadsheet • Enter BEST case- in “production schedule” on production spreadsheet • Spread show up as inventory on proforma BALANCE SHEET

  18. $0.00 In WORSE CASE: You have lots of Inventory & little or no Cash. need to drive cash position to the black…

  19. To adjust your cash position -- • If you are cash poor, issue Stock /Bonds - or consider a short term loan • If you are cash rich, pay dividends and/or buy back stock.

  20. Important Considerationsre: BEST-WORST Scenario Analyses By adjustingyour CASH POSITIONaccording to your WORST CASE estimate– will avoid … BiG AL

  21. Important Considerationsre: BEST-WORST Scenario Analyses By adjustingproduction according to BEST CASE estimate– will minimize loss of profit due to Stock-outs • Fixed costs(marketing, R&D, interest or depreciation)already covered • Thus, any additional sales would only incur variable(production) costs

  22. For example: • If annual sales $120M, = $10M/mo. • If a months material & labor costs = $7M, you missed contributing $3M to Net Margin. • You’r taxed at ~35%, so your opportunity cost is ~$2M in profit.

  23. How Big is your Slinky? • Worst Case: • BIG INVENTORY/ no cash– risk seeing Big Al • Best case: • Lots of CASH / noInventory -you risk stockout

  24. Determining A Reasonable Spread • Want to avoid generating an ultra Conservative Worst case scenario …matched w/ an ultra Optimistic Best case scenario • Should be able to sell excess inventory • in ~betw. 6 & 16 weeks • w/8<9 =

  25. How to measure your slinky slack-- Take your total inventory costs $23,900M

  26. & Divide by total variable costs of inventory sold: $23,900M/$131,119M =.18 52weeks *.18 = 9 Risk ~9weeks of Inventory to avoid stockout

  27. Additional Tools/Techniques for Managing & Assessing Your Performance: • Marketing-Evaluation Checklist • Round Analysis • Analyst Report

  28. Round analysis -example

  29. Simulation Scoring System

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