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Forecasting and Simulation tips. 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. Why Forecast Sales?. The sales forecast should be input to: Finance

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Forecasting and simulation tips

Forecasting and Simulation tips


Forecast definition
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.


Why forecast sales
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


Let s look at an example
Let’s look at an example:

  • Chester Corporation

    • Two products

      • Cake

      • Cruton

    • Just completed the year 2010 and must forecast for next year 2011



Production analysis december 31 2010
Production Analysis December - 31, 2010

How many Low Tech Products are there ?

How many High Tech Products are there?

9

4


Low tech market segment analysis
Low Tech Market Segment Analysis

Round 4 – December 31, 2010


Top products in low tech segment
Top Products in Low Tech Segment

Assessment –

Above Average

Revision Date: April 24, 2011



Basic forecasting for cake
BasicForecasting for Cake

  • Last year's sales can be a good starting point for this year's forecasts.

  • Cake

    • Low Tech 805 * 10% = 80.5

    • High Tech 185 * 20% = 37.0

    • Forecast increment 117.5

    • Total Forecast 1107.5

  • Assumptions:

    • No new products

    • No major competitive changes

    • Sales were not impacted by stock-outs


Forecasting demand for cake
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 = 8117

8.5

8117 / 8.5 = 955

Above Average

955 * 1.10 = 1,050

225

1,275


High tech market segment analysis
High Tech Market Segment Analysis

Round 4 – December 31, 2010


Top products in high tech segment
Top Products in High Tech Segment

Assessment –

Very Good

Revision Date: May 29, 2011


Forecasting demand for cruton
Forecasting Demand for Cruton

  • 2011 Total High Tech Unit Demand

  • Number of Products

  • Average Product Expected Sales

  • Cruton Assessment

  • High Tech Forecast

  • Low Tech Forecast

  • Total Forecast

4,479 * 1.2 = 5,375

5

5375 / 5 = 1,075

Very Good

1,075 * 1.20 = 1,290

0

1,290



Managing contribution margins
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


Material cost
Material Cost

  • Low tech

  • Position size= 13.2 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


Positioning impact on material costs
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


Labor costs
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
Machinery: Automation

Level of robotics: from 1 – 10

Automation level of 1

Labor cost of $11.20 per unit


Machinery automation1
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 automation2
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


Labor cost per unit
Labor Cost Per Unit

  • 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

If you invest into bring automation to Level 5, what will your labor cost per unit be?


Evaluating products

Age

Units

Unit

Revision

Name

Seg

Dec.

MTBF

Pfm

Size

Price

Sold

Inv

Date

31

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

22000

10

9.7

$45.00

Baker

High

760

62

Aug-08

1.5

21500

10

10.7

$35.49

Best

Low

725

0

May-08

2.2

16500

7

13.2

$33.99

Bold

High

221

76

Jul-08

0.5

22000

11

9.8

$44.99

Cake

Low

1,292

195

Aug-08

2.1

20000

7.8

11.3

$32.25

Candy

Low

542

11

Oct-08

1.5

14000

6.8

13.0

$30.25

Corn

High

508

46

Aug-08

0.9

21345

9.7

9.3

$43.25

Evaluating Products


Production and inventory
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?


The timing

200

200

200

200

200

200

200

200

200

200

200

200

60 days=

1/6 year=

(2400/6) =

400 units

The Timing …

jan

feb

mar

april

may

june

july

aug

sept

oct

nov

dec

Produce 2,400 in a year…

  • 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)


New product introduction
New Product Introduction

  • You have a new product coming out Sept. 1st… 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?


Timing

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

75

Timing …

jan

feb

mar

april

may

june

july

aug

sept

oct

nov

dec

Produce 900 in a year…


Timing1

75

75

75

75

75

75

75

75

75

75

75

75

Timing …

jan

feb

mar

april

may

june

july

aug

sept

oct

nov

dec

Produce 900 in a year…

  • 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)


Timing2

j

j

f

f

m

m

a

a

m

m

j

j

j

j

a

a

s

s

o

o

n

n

d

d

Timing …

2006

2007

“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

  • Use your Forecast to create a “best” case and “Worst” case scenarios

  • Create your “best case” and in Production build to that level of sales

  • Create your “worst case” and Finance to that level of sales

  • Check your projected performance “pro-formas”

new factory


Business plan process
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


Low tech tactics
Low Tech Tactics:

  • Product strategy

    • 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


High tech tactics
High Tech Tactics:

  • Product strategy

    • 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


Tactics
Tactics

  • Operate your current companyMake 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


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