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

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

5. 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

6. 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

7. 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

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

9. 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?

10. 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?

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

12. Forecast off Customer Survey Scores

13. 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

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

15. 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

16. After 1st Year/Round- Can see demand spread

17. CASE
CASE

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

19. 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

20. 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

21. 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.

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

23. 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

24. 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.

25. 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

26. 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 =

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

28. 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

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

30. Round analysis
-example

31. Simulation Scoring System