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

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

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

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

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

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

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?

1 2 3 4 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?

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

Forecast off Customer Survey Scores

Baker 43 1758 units Able 40 1598 Fast 36 1560 Eat 1492 Cake 42 Daze 26 R#1 Dec Survey score % of 223 Predicted sales R#2 Actual Sales R#2 Baker 43 19% 1827 units 1758 units Able 40 18% 1731 1598 Fast 36 16% 1339 1560 Eat 1539 1492 Cake 42 1827 Daze 26 12% 1154 1045 Total=223

R#2 R#1 Survey score 43 40 36 42 26 2 1

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% For Example-in Traditional segment everyone begins w/ 13% market share

After 1st Year/Round- Can see demand spread

CASE CASE

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

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

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

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.

Important Considerations re: BEST-WORST Scenario Analyses By adjusting your CASH POSITION according to your WORST CASE estimate– will avoid … BiG AL

Important Considerations re: BEST-WORST Scenario Analyses By adjusting production 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

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.

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

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 =

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

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

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

Round analysis -example

Simulation Scoring System