1. Forecasting and Simulation tips

2. Forecast Definition To estimate or calculate in advance
Estimate future trends by examining and analyzing available information.
A prediction, as of coming events or conditions.

3. Why Forecast Sales? The sales forecast should be input to: Finance
Projected revenue for following year
Production
Sales Forecast – Inventory = approximate Production schedule
R&D
Competitive assessment of your product

4. Let’s look at an example:
Chester Corporation
Two products
Cake
Cruton
Just completed the year 2010 and must forecast for next year 2011

5. Perceptual Map December 31, 2010
Cake
Cruton
Perceptual Map December 31, 2010

6. Production Analysis December - 31, 2010
How many Low Tech Products are there ?
How many High Tech Products are there? 9 4

7. Low Tech Market Segment Analysis
Round 4 – December 31, 2010

8. Top Products in Low Tech Segment
Cake’s specs for 2011
2011 Customer Expectations
Performance
7.0
7.3
Size
12.7
Price
$31.00
$ $35.00
MBTF
18500
14 – 20,000
Age at 12/31
2.9
3.0
Assessment –
Above Average
Revision Date: April 24, 2011

9. Low Tech Sales in High Tech Segment

10. Forecasting Demand for Cake
2011 Total Low Tech Unit Demand
Number of Products
Average Product Expected Sales
Cake Assessment
Low Tech Forecast
High Tech Forecast
Total Forecast
7,379 * 1.1 = / 8.5 = 955 Above Average 955 * 1.10 = 1, ,275

11. High Tech Market Segment Analysis
Round 4 – December 31, 2010

12. Top Products in High Tech Segment
Cruton’s specs for 2011
2011 Customer Expectations
Performance
10.5
10.9
Size
9.3
9.1
Price
$45.00
$ $45.00
MBTF
21000
17 – 23,000
Age at 12/31
1.4
Assessment –
Very Good
Revision Date: May 29, 2011

13. Forecasting Demand for Cruton
2011 Total High Tech Unit Demand
Number of Products
Average Product Expected Sales
Cake Assessment
High Tech Forecast
Low Tech Forecast
Total Forecast
4,479 * 1.2 = 5, / 5 = 1,075 Very Good 1,075 * 1.20 = 1, ,290

14. Simulation Tips

15. MANAGING CONTRIBUTION MARGINS
Unit cost
the cost to make one sensor (car, computer, cup of coffee, etc.)
Material cost … plus …
the cost of the “stuff” you use to make your sensor
smaller, faster, more reliable = higher cost
Labor cost
the cost to assemble your product

16. Material Cost Low tech High tech Bigger size Slower performance
Position size= performance= 6.8
MTBF = 20,000
High tech
Position size= 10.2
performance= 9.8
MTBF = 23,000
Bigger size
Slower performance
Lower reliability
Lower material cost
Smaller size
Faster performance
Higher reliability
Higher material cost

17. Positioning Impact on Material Costs
Positioning affects material cost. The higher the technology, the higher the material costs
… therefore, for Low Tech sensors, less aggressive positioning will reduce costs

18. 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

19. Machinery: Automation
Level of robotics: from 1 – 10
Automation level of 1
Labor cost of $11.20 per unit

20. 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

21. Machinery: Automation
Level of robotics: from 1 – 10
Automation level of 1 $11.20 per unit
Automation level of 2 $10.08 per unit
Automation level of 3 $8.96 per unit

22. Labor Cost Per Unit
If you invest into bring automation to Level 5, what will your labor cost per unit be?
1….. $11.20
2…. ($1.12) $10.08
3…. ($1.12) $ 8.96
4…. ($1.12) $ 7.84
5…. ($1.12) $ 6.72
6…. ($1.12) $ 5.60
7…. ($1.12) $ 4.48
8…. ($1.12) $ 3.36
9…. ($1.12) $ 2.24
10. ($1.12) $ 1.12

23. Customer Buying Criteria - 2008
Low Tech
High Tech
Price
$15 – 35
$25 – 45
Age
3.0
0.0
Reliability
17000– 23000
Positioning
6.3 / 13.7
9.5 / 10.5
Evaluating Products
Name
Seg
Units
Sold
Unit
Inv
Revision
Date
Age
Dec. 31
MTBF
Pfm
Size
Price
Able
1,094
378
May-08
2.1
19000
6.8
13.2
Apple
Jun-08
0.6
22000
10.5
9.5
Ants
High
413
191
Mar-08
0.7 10
9.7
$45.00
Baker
760 62
Aug-08
1.5
21500
10.7
$35.49
Best
Low
725
2.2
16500 7
$33.99
Bold
221 76
Jul-08
0.5 11
9.8
$44.99
Cake
1,292
195
20000
7.8
11.3
$32.25
Candy
542
Oct-08
14000
13.0
$30.25
Corn
508 46
0.9
21345
9.3
$43.25

24. Production and Inventory
You have a great low tech product
You think you can produce and sell about 2,400 units
What does that mean for inventory management?
Don’t stock out (at least 1 unit left)
Not more than 60 days of inventory
What is the most you can sell and the least you can sell and still meet your inventory goals?

25. The Timing … jan feb mar april may june july aug sept oct nov dec
Produce 2,400 in a year…
60 days=
1/6 year=
(2400/6) =
400 units
200
INVENTORY GOALS…
If you produce 2,400 units;
You want at least 1 unit left (sales = 2,399 & units inventory = 1)
You want no more than 400 units left (sales= 2,000 & units inventory = 400)

26. New Product – 1 September
You have a new product coming out 1-Sept. and it’s perfect:
ideal size (11.2), performance (8.8), MTBF (23,000), age (0 years)
Factory with production capacity of 900
You think you can sell 33% of market
Market size = 2,160 * 1.2 = 2,592
2,592 * 33% = 863… so you decide to produce 900.
Can you sell 863? Why or why not?
Can you make 900? Why or why not?

27. Timing … jan feb mar april may june july aug sept oct nov dec
Produce 900 in a year… 75 75

28. Timing … jan feb mar april may june july aug sept oct nov dec
Produce 900 in a year… 75
Produce 900 in a year…
If you had a whole year
But you only have 1/3 year for…
Sales and Production
September 1st ...
Sales begin
Production begins
Sales forecast = 300
Production schedule = 300 (600 would be 100% overtime)

29. Timing … 2015 2016 j f m a s o n d j f m a s o n d
“old” able
“new” able
new automation
new product
Run the company you have
Product revisions- that happen quickly
Set price, production, promo &sales
Create the company you want to manage in the future
Add new products
Add capacity, increase automation, build new factory
Create your “worst case scenario” and finance your vision
Check your projected performance “pro-formas”
new factory

30. Business Plan & Process
Strategy
Mission
R&D
Marketing
Production
Finance
Specific (tactical)-
what are you going to do
when are you going to do it
how (specifically) will it get done

31. Low Tech Tactics: Product strategy Marketing Production
keep it in the fine cut circle
ONLY revise to manage the age (ideal = 3)
if the age over the year is 2-3 or 3-4 that’s best
MTBF close to 20,000
revise to keep acceptable
revise ONLY to manage age
Marketing
build awareness & accessibility aggressively
NOT lowest price; highest price & meet sales
Production
automate aggressively and early
OT is OK
add capacity as needed

32. High Tech Tactics: Product strategy Marketing Production
revise every year to keep on ideal spot
revise every year to manage AGE (ideal = 0)
add new products as you wish
MTBF close to 23,000
Marketing
build awareness & accessibility aggressively
Market is not price sensitive
Production
automation- low…speeds R&D times
add capacity as needed

33. Tactics
Operate your current company Make decisions for the product you have now…(short term repositioning, price, promotion, sales, Sales Forecast and Production Schedule)
Make investments in the company you want to be in the future (new products- repositioning greater than a year, increased capacity or automation)
Finance current operation and future growth