BA101  All quiz all the time  Forecasting review  Production Management

Low tech Price - $15- $35 Age – 3 years MTBF- 14,000-20,000 Position size= performance= How many customers? 70% market= 10% growth High tech Position size= performance= Age= 0 years Price= $25 - $45 MTBF= 17,000 –23,000 How many customers? 30% market= 20% growth Marketing: what your customer’s want

If you sell 1,000 sensors to the high tech market at a price of $42 each, your revenue will be 1.$1,000 2.$35,000 3.$40,000 4.$42,000 5.Can’t tell

If you sell 1,000 sensors to the high tech market at a price of $35 each, your revenue will be 1.$1,000 2.$35,000 3.$40,000 4.$42,000 5.Can’t tell

the cost of goods for sale  unit cost = the cost to make one sensor (car, computer, cup of coffee, ….)  material cost plus the cost of the stuff you use in your sensor smaller, faster, more reliable = higher cost  labor cost the cost of labor to assemble your product

Low tech Position size= performance= MTBF = 20,000 Bigger size Slower performance Lower reliability material cost lower High tech Position size= performance= MTBF = 23,000 Smaller size Faster performance higher reliability material cost higher Material cost

Your sensor has a performance (speed) of 8.2 and you change it to 8.8… a.In general, demand for your product will increase b.In general, demand for your product will decrease c.It won’t affect demand d.Can’t tell

Your sensor has a size of 8.2 and you change it to 8.8, a.Your material cost will go up b.Your material cost will go down c.Your material cost will be unchanged d.Can’t tell

Your sensor has a MTBF of 18,000 and you change it to 20,000… a.Your material cost will go up b.Your material cost will go down c.Your material cost will be unchanged d.Can’t tell

Back to the income statement Rev enue C ost o f G oods S old C ontribution M argin (price X units sold) (unit cost X units sold) (revenue – COGS) note note: “units sold” is constant, to increase margin increase price…OR decrease unit cost

You sell 1,000 sensors to the high tech market at a price of $42 each, each sensor has a unit cost of $30 per unit (materials= $18, labor = $12 per unit). What would your contribution margin be? a.$ 5,000 b.$12,000 c.$35,000 d.$42,000 e.This is a margin of error; it contributes nothing

Your revenue (sales) is $100,000, your total variable costs are $80,000. What is your contribution margin as a percentage of sales? a.80% b.70% c.30% d.20% e.This is not a math class so I don’t have to know

Labor costs Everything is based on HOW MANY sensors you want to make (now and in the future)  Capacity how many sensors you can make- one shift at regular hours; how “big” your factory is  Overtime workers work extra hours at a higher wage  Automation mix between machines and human labor

machinery: automation Level of robotics: from 1 – 10 Automation level of 1- labor cost of $11.20 per unit

machinery: automation Level of robotics: from 1 – 10 Automation level of 1- $11.20 per unit Automation level of 2- Labor cost is 10% ($1.12) lower… $10.08

machinery: automation Level of robotics: from 1 – 10 Automation level of 1- $11.20 per unit Automation level of 2- $10.08 per unit

labor cost per unit  1….. $11.20  2…. ($1.12)$10.08  3…. ($1.12)$_____  4…. ($1.12)$_____  5…. ($1.12)$_____  6…. ($1.12)$_____  7…. ($1.12)$_____  8…. ($1.12)$_____  9…. ($1.12)$_____  10. ($1.12)$ 1.12 IMPORTANT: Lowering labor cost is the ONLY WAY to meet your margin AND not lose sales

If you invest into bring automation to Level 5, what will your labor cost per unit be? a.$8.96 b.$7.84 c.$6.72 d.$5.60 e.$4.48

Automation and labor cost Automation level Base rate 1$ $ $1.12

PriceMaterial cost Automation level Labor costContribution margin (unit) Contribution Margin % Total contribution margin $35.00$15.001$11.20$8.8025%$13,200 $35.00$15.003$8.96 $35.00$15.005$6.72 $35.00$15.007$4.48 $35.00$ $ 1.12$ %$28,320 Calculate the contribution margins for Auto=5 Contribution Margin Sales = 1,500(000) units

Contribution Margin PriceMaterial cost Automation level Labor costContribution margin (unit) Contribution Margin % Total contribution margin $35.00$15.001$11.20$8.8025%$13,200 $35.00$15.005$6.72 $35.00$ $ 1.12$ %$28,320 Calculate the contribution margins for Auto=5 A.$11.04….. 32%.....$16,560 B.$13.28….. 38%......$19,920 C.$15.52….. 44%......$23,280 Sales = 1,500(000) units

Contribution Margin PriceMaterial cost Automation level Labor costContribution margin (unit) Contribution Margin % Total contribution margin $35.00$15.001$11.20$8.8025%$13,200 $35.00$15.005$6.72 $35.00$ $ 1.12$ %$28,320 $35- ( ) = $13.28 $13.28 / $35.00 = 38% $13.28 * 1,500 = $19,920 Sales = 1,500(000) units

Business plan: production  Automation trade off  Higher the automation – lower labor cost ($1.12)  Higher automation… longer time to reposition product in R&D  Low tech production… automate early  Current: $ = $7 (~20%)  Increase auto 3 levels… $34- 22= $12 (35%)  High tech… auto = 3; if any higher… R&D takes too long to minimize age & keep on ideal spot

Sales Forecast Use the sales forecasts to… Determine how many to produce (meet inventory management goals) Determine capacity investments Put worst case forecast to finance (if I only sell 1250, will I have enough cash) Check if you met performance targets ( If I only sell 1250, will I make a profit, stock price go up,…) Produce 1,500 InventorySales 11, /6= 2501,250 24

R2R3R4 Fast Track The past… The company that I am running now… Fine tune products, marketing, production The company I want to run… new product new factory new auto

Invest in productive capability It takes one year….  to add capacity for a new product line  to add capacity to existing line  to increase automation

R2 FastTrack- R3 decisions  R2: Capacity… 900 units; 1,800 at 100% Overtime  R2 Forecast… for Round 3, you want 1,680 units available for sale  R3 capacity decisions take effect R4  R4 forecast… ?????? 1,680 * 1.1 = 1,848 R4- want 1,848; can only make 1,800 ADD CAPACITY in Round 3 for Round 4

Invest in additional capacity  It takes one year to add capacity for a new product line - to add capacity to existing line  To add capacity, you invest money  to get the factory prepared (floor space-$6/unit)  to buy machinery ($4 /level of automation/unit)

Invest in additional capacity  It takes one year to add capacity for a new product line - to add capacity to existing line  To add capacity, you invest money  to get the factory prepared (floor space-$6/unit)  to buy machinery ($4 /level of automation/unit)  Add 1,000 units of capacity with an automation rating of 3.. (1,000*$6)+($4*3*1,000)= 6,000+12,000 $18,000

What would you have to invest to add 800 units of capacity for a new product with an automation rating of 3 $6/unit floor space & $4/level automation/unit a.$ 4,800 b.$ 6,600 c.$ 8,000 d.$ 9,600 e.$14,400

How much would you have to invest for new machinery with a capacity of 1,000 units at automation level of 3 a.$ 3,000 b.$ 4,000 c.$ 5,000 d.$ 8,000 e.$12,000 $4.00 per unit per level of automation

Existing capacity is 800 with an automation rating of 4. What size investment to increase capacity to 1,100 units at same automation rating. $6/unit floor space & $4/level automation/unit a.$ 4,800 b.$ 6,600 c.$ 8,000 d.$ 9,600 e.$14,400

If you have machinery that will produce 1,000 units at automation level of 3, what would you have to invest to raise the automation to 5 a.$ 3,000 b.$ 4,000 c.$ 5,000 d.$ 8,000 e.$12,000 $4.00 per unit per level of automation

invest in capacity to create value for customers “capacity” is factory and equipment Factory cost= $6.00 per unit Equipment cost= $4.00 per unit per level of automation greater automation= lower labor cost

Sell capacity  If you want to reduce the capacity of a product OR drop a product offering, you can sell capacity (turn machinery back into cash) at 65% of investment  If you sell all of your capacity, any inventory you have is stock is liquidated at half of the average cost to make it (50%)  If you sell all but 1 unit of capacity, you can sell your remaining inventory at your price

Factory Warehouse Factory (invested)= $14, units of capacity Automation level of 3 Sell 800 units of capacity = $.65 on the $1 (14,400 *.65)= $9,360 Inventory on hand (in the warehouse) is liquidated At 50% cost of production… Your current unit cost is ~ $27 1,000 units = $27million in INV. Liquidated = $13.5million 1,000,000

Factory Warehouse Factory (invested)= $14, units of capacity Automation level of 3 Sell 799 units of capacity = $.65 on the $1 (14,382 *.65)= $9,348 Inventory on hand (in warehouse) is sold at your price… $30 Your current unit cost is ~ $27 1,000 units = $27million in INV. 1,000 sold at $30= $30million 1,000,000

Human Resource Management Like TQM… Not going to teach it as a strategy…. Your responsibility…. At the least… match “Complement” with “Needed Complement” Like TQM it can be a source of competitive advantage

 Practice Round #1… due Tuesday night

Stocked out Similar offering Change position= Change material cost Unit cost Change in auto Change in Capacity Use of capacity

1.Who didn’t stock out? 2.Who made the greatest use of capacity? 3.Who had the product with the lowest unit cost? 4.Who has the greatest capacity for next year? 5.How much will team Chester’s (product “Cake”) material cost go down next year (assume- same production level)? A. can’t tell B. $1.12 C. $2.24 D. don’t care E. Ghostbusters was best movie ever made. a. Andrews b. Baldwin c. Chester d. Digby e. Erie

…made the greatest use of capacity? A.Andrews B.Baldwin C.Chester D.Digby E.Erie

…had the product with the lowest unit cost? A.Andrews B.Baldwin C.Chester D.Digby E.Erie

has the greatest capacity for next year? A.Andrews B.Baldwin C.Chester D.Digby E.Erie

If Chester’s automation was =3; how much would the base labor cost go down next year? A.Can’t tell B.$1.12 C.$2.24 D.$3.36 E.Don’t know

a. It will increase b. It will decrease c. Nothing d. Can’t tell 6.What happens to Baker’s material cost if performance is changed to 8.2? 7.What happens to Daze’s material cost if size is changed to 13? 8.What happens to Eat’s labor cost if MTBF is changed to 16,000? 9.What happens to Able’s material cost if performance is changed to 6.3? 10.What happens to Fast’s material cost if size is changed to 13?

What happens to Baker’s material cost if performance is changed to 8.2 ? A.It will increase B.It will decrease C.There will be no change D.You can’t tell from this information

What happens to Daze’s material cost if size is changed to 13? A.It will increase B.It will decrease C.There will be no change D.You can’t tell from this information

What happens to Eat’s labor cost if MTBF is changed to 16,000? A.It will increase B.It will decrease C.There will be no change D.You can’t tell from this information

What happens to Able’s material cost if performance is changed to 6.3? A.It will increase B.It will decrease C.There will be no change D.You can’t tell from this information

student TQM  TQM- investing to improve the process by which tasks are accomplished  Reading Fred reads about 20 hours per week and retains 70% of information Fred invests time and money in a speed reading course. Reduces time to 10 hours a week and improves retention 80%

Process Management  Continuous Process Improvement reduces material costs (small extent labor)  Vendor Just in Time Inventory reduces material costs- inventory carrying costs, administrative costs  Quality Initiative Training reduces labor costs  Channel Support Systems more for your money – Sales budget- demand  Concurrent Engineering reduces R&D cycle time

tqm  Benchmarking reduces admin and inventory carrying costs  Quality function deployment effort  reduce cycle time for R&D;  increase sales and promo effectiveness  6 sigma/ concurrent engineering  Reduces material and labor costs  Reduces marketing effectiveness