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How Many to Produce?

How Many to Produce?. Problem Statement. Your company is developing a new video game console and would like to know the number of units to produce. What is your recommendation?. Understand the Problem. To determine the production number the potential demand for the product must be estimated.

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How Many to Produce?

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  1. How Many to Produce?

  2. Problem Statement • Your company is developing a new video game console and would like to know the number of units to produce. What is your recommendation?

  3. Understand the Problem • To determine the production number the potential demand for the product must be estimated. • Limits on supply capacity or minimum production requirements can also be an issue • Require knowledge of competitive landscape

  4. Plan the Strategy • Demand Data • Potential customer demographics • Current video game console owners • Potential new video game console owners • Supply Data • Production Limits (labor, equipment capacity, minimum commitment levels) • Raw material capacity • Competitive Landscape • Number of competitors • Competition sales • Product lifecycles

  5. Plan the Strategy Cont. (start small, can expand later) • Demand Assumptions • New customer target demographic • Male, 12-21 • U.S.market • Product penetration percentage of new console customers • Existing console owners • Supply Assumptions • Unconstrained supply • Competition Assumptions • Fixed percentage of current console market

  6. Execute the Strategy • New customer demographic information source • U.S. Census data • Current console owners/competitive landscape data source • Current market share – Hoover’s, Yahoo Finance, etc. • Estimate product differentiation and impact on market share (subjective)

  7. Execute the Strategy • Using found/estimated data determine • Potential market size from new console customers • Potential market size from current console owners

  8. Check and Interpret Solution • Sanity check • Sensitivity analysis on assumptions and inputs • Compare estimated market with first year sales or competitors console products.

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