Transcript No Slide Title

BA101
 All quiz all the time
 Forecasting review
 Production Management
Marketing:
what your customer’s want
Low tech
•
•
•
•
Price - $15- $35
Age – 3 years
MTBF- 14,000-20,000
Position
size=
performance=
How many customers?
• 70% market=
• 10% growth
High tech
• Position
size=
performance=
• Age= 0 years
• Price= $25 - $45
• MTBF= 17,000 –23,000
How many customers?
• 30% market=
• 20% growth
If you sell 1,000 sensors to
the high tech market at a
price of $42 each, your
revenue will be
1.
2.
3.
4.
5.
$1,000
$35,000
$40,000
$42,000
Can’t tell
If you sell 1,000 sensors to
the high tech market at a
price of $35 each, your
revenue will be
1.
2.
3.
4.
5.
$1,000
$35,000
$40,000
$42,000
Can’t tell
the cost of goods for sale
 unit cost
=
the cost to make one sensor
(car, computer, cup of coffee, ….)
 material cost
plus
the cost of the stuff you use in your sensor
smaller, faster, more reliable = higher cost
 labor cost
the cost of labor to assemble your product
Material cost
Low tech
High tech
• Position
size=
performance=
• MTBF = 20,000
Bigger size
Slower performance
Lower reliability
• Position
size=
performance=
• MTBF = 23,000
Smaller size
Faster performance
higher reliability
material cost lower
material cost higher
Your sensor has a performance
(speed) of 8.2 and you change
it to 8.8…
a. In general, demand for your product
will increase
b. In general, demand for your product
will decrease
c. It won’t affect demand
d. Can’t tell
Your sensor has a size of 8.2
and you change it to 8.8,
a.
b.
c.
d.
Your material cost will go up
Your material cost will go down
Your material cost will be unchanged
Can’t tell
Your sensor has a MTBF of
18,000 and you change it to
20,000…
a.
b.
c.
d.
Your material cost will go up
Your material cost will go down
Your material cost will be unchanged
Can’t tell
Back to the income statement
Revenue
(price X units sold)
Cost of Goods Sold
(unit cost X units sold)
Contribution Margin
(revenue – COGS)
note: “units sold” is constant,
to increase margin
increase price…OR decrease unit cost
You sell 1,000 sensors to the high
tech market at a price of $42 each,
each sensor has a unit cost of $30
per unit (materials= $18, labor = $12
per unit). What would your
contribution margin be?
a.
b.
c.
d.
e.
$ 5,000
$12,000
$35,000
$42,000
This is a margin of error; it
contributes nothing
Your revenue (sales) is $100,000,
your total variable costs are
$80,000. What is your contribution
margin as a percentage of sales?
a. 80%
b. 70%
c. 30%
d. 20%
e. This is not a math class so I don’t
have to know
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
Level of robotics: from 1 – 10
Automation level of 1labor cost of $11.20 per unit
machinery: automation
Level of robotics: from 1 – 10
Automation level of 1- $11.20 per unit
Automation level of 2Labor cost is 10% ($1.12) lower… $10.08
machinery: automation
Level of robotics: from 1 – 10
Automation level of 1- $11.20 per unit
Automation level of 2- $10.08 per unit
labor cost per unit










1…..
2…. ($1.12)
3…. ($1.12)
4…. ($1.12)
5…. ($1.12)
6…. ($1.12)
7…. ($1.12)
8…. ($1.12)
9…. ($1.12)
10. ($1.12)
$11.20
$10.08
$_____
$_____
$_____
$_____
$_____
$_____
$_____
$ 1.12
IMPORTANT:
Lowering labor cost is
the ONLY WAY
to meet your margin
AND not lose sales
If you invest into bring
automation to Level 5, what
will your labor cost per unit
be?
a.
b.
c.
d.
e.
$8.96
$7.84
$6.72
$5.60
$4.48
Automation and labor cost
Automation Base rate
level
1
$11.20
2
$10.08
3
8.96
4
7.84
5
6.72
6
5.60
7
4.48
8
3.36
9
2.24
10
$1.12
Contribution Margin
Price
Material
cost
Automation
level
Labor cost
Contribution
margin (unit)
Contribution
Margin %
Total
contribution
margin
$35.00 $15.00
1
$11.20
$8.80
25%
$13,200
$35.00 $15.00
3
$8.96
$35.00 $15.00
5
$6.72
$35.00 $15.00
7
$4.48
$35.00 $15.00
10
$ 1.12
$18.80
54%
$28,320
Sales = 1,500(000) units
Calculate the contribution margins for Auto=5
Contribution Margin
Price
Material
cost
Automation
level
Labor cost
Contribution
margin (unit)
Contribution
Margin %
Total
contribution
margin
$35.00 $15.00
1
$11.20
$8.80
25%
$13,200
$35.00 $15.00
5
$6.72
$35.00 $15.00
10
$ 1.12
$18.80
54%
$28,320
Sales = 1,500(000) units
Calculate the contribution margins for Auto=5
A. $11.04….. 32%.....$16,560
B. $13.28….. 38%......$19,920
C. $15.52….. 44%......$23,280
Contribution Margin
Price
Material
cost
Automation
level
Labor cost
Contribution
margin (unit)
Contribution
Margin %
Total
contribution
margin
$35.00 $15.00
1
$11.20
$8.80
25%
$13,200
$35.00 $15.00
5
$6.72
$35.00 $15.00
10
$ 1.12
$18.80
54%
$28,320
Sales = 1,500(000) units
$35- (15 + 6.72) = $13.28
$13.28 / $35.00 = 38%
$13.28 * 1,500 = $19,920
Business plan: production
 Automation trade off
 Higher the automation – lower labor cost ($1.12)
 Higher automation…
longer time to reposition product in R&D
 Low tech production… automate early
 Current: $34- 27 = $7 (~20%)
 Increase auto 3 levels… $34- 22= $12 (35%)
 High tech… auto = 3; if any higher…
R&D takes too long to minimize age &
keep on ideal spot
Sales Forecast
Produce 1,500
Inventory
Sales
1 1,499
1500/6= 250 1,250
Use the sales forecasts to…
• Determine how many to produce
(meet inventory management goals)
• Determine capacity investments
• Put worst case forecast to finance
(if I only sell 1250, will I have enough cash)
• Check if you met performance targets
( If I only sell 1250, will I make a profit,
stock price go up,…)
24
Fast Track
The past…
R2
The company that I am running now…
The company
Fine tune products, marketing, production I want to run…
R3
R4
new product
new factory
new auto
Invest in productive capability
It takes one year….
 to add capacity for a new product line
 to add capacity to existing line
 to increase automation
R2 FastTrack- R3 decisions
 R2: Capacity…
900 units; 1,800 at 100% Overtime
 R2 Forecast… for Round 3, you want
1,680 units available for sale
 R3 capacity decisions take effect R4
 R4 forecast… ??????
1,680 * 1.1 = 1,848
R4- want 1,848; can only make 1,800
ADD CAPACITY in Round 3 for Round 4
Invest in additional capacity
 It takes one year to add capacity for a new
product line - to add capacity to existing line
 To add capacity, you invest money
 to get the factory prepared (floor space-$6/unit)
 to buy machinery ($4 /level of automation/unit)
Invest in additional capacity
 It takes one year to add capacity for a new
product line - to add capacity to existing line
 To add capacity, you invest money
 to get the factory prepared (floor space-$6/unit)
 to buy machinery ($4 /level of automation/unit)
 Add 1,000 units of capacity with an
automation rating of 3..
(1,000*$6)+($4*3*1,000)= 6,000+12,000
$18,000
What would you have to invest to
add 800 units of capacity for a new
product with an automation rating
of 3
a.
b.
c.
d.
e.
$ 4,800
$ 6,600
$ 8,000
$ 9,600
$14,400
$6/unit floor space & $4/level automation/unit
How much would you have to
invest for new machinery with a
capacity of 1,000 units at
automation level of 3
a.
b.
c.
d.
e.
$ 3,000
$ 4,000
$ 5,000
$ 8,000
$12,000
$4.00 per unit per level of automation
Existing capacity is 800 with an
automation rating of 4. What size
investment to increase capacity to
1,100 units at same automation
rating.
a.
b.
c.
d.
e.
$ 4,800
$ 6,600
$ 8,000
$ 9,600
$14,400
$6/unit floor space & $4/level automation/unit
If you have machinery that will
produce 1,000 units at
automation level of 3, what would
you have to invest to raise the
automation to 5
a.
b.
c.
d.
e.
$ 3,000
$ 4,000
$ 5,000
$ 8,000
$12,000
$4.00 per unit per level of automation
invest in capacity to create value for customers
“capacity” is factory and equipment
Factory cost=
$6.00 per unit
Equipment cost=
$4.00 per unit
per level of automation
greater automation=
lower labor cost
Sell capacity
 If you want to reduce the capacity of a
product OR drop a product offering, you can
sell capacity (turn machinery back into cash)
at 65% of investment
 If you sell all of your capacity, any inventory
you have is stock is liquidated at half of the
average cost to make it (50%)
 If you sell all but 1 unit of capacity, you can
sell your remaining inventory at your price
Factory (invested)= $14,400
• 800 units of capacity
• Automation level of 3
Factory
Warehouse
1,000,000
Sell 800 units of capacity =
$.65 on the $1
(14,400 * .65)= $9,360
Inventory on hand
(in the warehouse) is liquidated
At 50% cost of production…
Your current unit cost is ~ $27
1,000 units = $27million in INV.
Liquidated = $13.5million
Factory (invested)= $14,400
• 800 units of capacity
• Automation level of 3
Factory
Warehouse
1,000,000
Sell 799 units of capacity =
$.65 on the $1
(14,382 * .65)= $9,348
Inventory on hand (in warehouse)
is sold at your price… $30
Your current unit cost is ~ $27
1,000 units = $27million in INV.
1,000 sold at $30= $30million
Human Resource Management
Like TQM…
Not going to teach it as a
strategy….
Your responsibility….
At the least… match
“Complement” with
“Needed Complement”
Like TQM it can be a
source of competitive
advantage
 Practice Round #1… due Tuesday night
Name
Able
Baker
Primary Segment
Low
Low
Units Sold
1362
1389
Units in Inventory
0
0
Revision Date
Dec-03
Nov-03
Age Dec.31
2.1
2.1
Price
30
27.5
MTBF
19,000
19,500
Pfmn Coord
5.2
6.9
Size Coord
14.8
12.2
Material Cost
$ 11.68 $ 16.63
Labor Cost
$ 10.43 $ 10.48
Overtime
59%
63%
Automation Next Round
5
4
Capacity Next Round
1400
800
Plant Utiliz.
159%
163%
Stocked out
Similar offering
Change position=
Change material cost
Unit cost
Change in auto
Change in Capacity
Use of capacity
Production Information
Name
AM
PSP
Units Unit
gTf i r
Sold Inven
eBmzi
Able 1,542 11
Baker1,406
0
Cake1,355
0
Daze 1,132
0
Eat 1,518
0
Fast 1,184
0
a. Andrews
1.
2.
3.
4.
5.
Material
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
b. Baldwin
Labor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
Contr
Marg.
41%
23%
25%
28%
23%
26%
c. Chester
Auto
Cap Next
Next
Plant
Utiliz.
6.0 1,050 183%
3.0 800 165%
5.0 800 158%
4.0 800 131%
4.8 800 179%
4.0 800 137%
d. Digby
e. Erie
Who didn’t stock out?
Who made the greatest use of capacity?
Who had the product with the lowest unit cost?
Who has the greatest capacity for next year?
How much will team Chester’s (product “Cake”) material
cost go down next year (assume- same production level)?
A. can’t tell B. $1.12 C. $2.24 D. don’t care
E. Ghostbusters was best movie ever made.
P ro d u c tio n In fo r m a tio n
Name
AMPSP
Units
Unit
g Tf i r
Sold Inven
e Bmzi
Able 1,542
Baker1,406
Cake 1,355
Daze 1,132
Eat 1,518
Fast 1,184
11
0
0
0
0
0
Materia l
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
La bor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
Contr
Marg.
41%
23%
25%
28%
23%
26%
Auto
Ca p Next
Ne xt
Plant
Utiliz.
6.0 1,050 183%
3.0
800 165%
5.0
800 158%
4.0
800 131%
4.8
800 179%
4.0
800 137%
…made the greatest use of capacity?
A.
B.
C.
D.
E.
Andrews
Baldwin
Chester
Digby
Erie
P ro d u c tio n In fo r m a tio n
Name
AMPSP
Units
Unit
g Tf i r
Sold Inven
e Bmzi
Able 1,542
Baker1,406
Cake 1,355
Daze 1,132
Eat 1,518
Fast 1,184
11
0
0
0
0
0
Materia l
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
La bor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
Contr
Marg.
41%
23%
25%
28%
23%
26%
…had the product with the
lowest unit cost?
A.
B.
C.
D.
E.
Andrews
Baldwin
Chester
Digby
Erie
Auto
Ca p Next
Ne xt
Plant
Utiliz.
6.0 1,050 183%
3.0
800 165%
5.0
800 158%
4.0
800 131%
4.8
800 179%
4.0
800 137%
P ro d u c tio n In fo r m a tio n
Name
AMPSP
Units
Unit
g Tf i r
Sold Inven
e Bmzi
Able 1,542
Baker1,406
Cake 1,355
Daze 1,132
Eat 1,518
Fast 1,184
11
0
0
0
0
0
Materia l
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
La bor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
Contr
Marg.
41%
23%
25%
28%
23%
26%
Auto
Ca p Next
Ne xt
6.0 1,050 183%
3.0
800 165%
5.0
800 158%
4.0
800 131%
4.8
800 179%
4.0
800 137%
has the greatest capacity for
next year?
A.
B.
C.
D.
E.
Andrews
Baldwin
Chester
Digby
Erie
Plant
Utiliz.
P ro d u c tio n In fo r m a tio n
Name
AMPSP
Units
Unit
g Tf i r
Sold Inven
e Bmzi
Able 1,542
Baker1,406
Cake 1,355
Daze 1,132
Eat 1,518
Fast 1,184
11
0
0
0
0
0
Materia l
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
La bor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
Contr
Marg.
41%
23%
25%
28%
23%
26%
Auto
Ca p Next
Ne xt
6.0 1,050 183%
3.0
800 165%
5.0
800 158%
4.0
800 131%
4.8
800 179%
4.0
800 137%
If Chester’s automation was =3;
how much would the base labor
cost go down next year?
A.
B.
C.
D.
E.
Can’t tell
$1.12
$2.24
$3.36
Don’t know
Plant
Utiliz.
Name
Pfmn
Able 6.4
Baker 7.8
Cake 6.6
Daze 6.4
Eat 5.4
Fast 7.8
Size
13.6
13.2
13.4
13.6
14.6
12.5
a. It will increase
Price
17,000
20,000
18,500
16,500
14,000
17,000
$44.90
$34.50
$35.00
$34.75
$33.50
$35.00
b. It will decrease
Material
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
Labor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
c. Nothing
Plant
Utiliz.
183%
165%
158%
131%
179%
137%
d. Can’t tell
6. What happens to Baker’s material cost if performance is
changed to 8.2?
7. What happens to Daze’s material cost if size is changed to 13?
8. What happens to Eat’s labor cost if MTBF is changed to
16,000?
9. What happens to Able’s material cost if performance is
changed to 6.3?
10. What happens to Fast’s material cost if size is changed to 13?
Production Information
Name
Pfmn
Able 6.4
Baker 7.8
Cake 6.6
Daze 6.4
Eat 5.4
Fast 7.8
Size
13.6
13.2
13.4
13.6
14.6
12.5
Price
17,000
20,000
18,500
16,500
14,000
17,000
$44.90
$34.50
$35.00
$34.75
$33.50
$35.00
Material
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
Labor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
Plant
Utiliz.
183%
165%
158%
131%
179%
137%
What happens to Baker’s material cost if
performance is changed to 8.2?
A.
B.
C.
D.
It will increase
It will decrease
There will be no change
You can’t tell from this information
Production Information
Name
Pfmn
Able 6.4
Baker 7.8
Cake 6.6
Daze 6.4
Eat 5.4
Fast 7.8
Size
13.6
13.2
13.4
13.6
14.6
12.5
Price
17,000
20,000
18,500
16,500
14,000
17,000
$44.90
$34.50
$35.00
$34.75
$33.50
$35.00
Material
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
Labor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
Plant
Utiliz.
183%
165%
158%
131%
179%
137%
What happens to Daze’s material cost
if size is changed to 13?
A.
B.
C.
D.
It will increase
It will decrease
There will be no change
You can’t tell from this information
Production Information
Name
Pfmn
Able 6.4
Baker 7.8
Cake 6.6
Daze 6.4
Eat 5.4
Fast 7.8
Size
13.6
13.2
13.4
13.6
14.6
12.5
Price
17,000
20,000
18,500
16,500
14,000
17,000
$44.90
$34.50
$35.00
$34.75
$33.50
$35.00
Material
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
Plant
Utiliz.
Labor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
183%
165%
158%
131%
179%
137%
What happens to Eat’s labor cost if
MTBF is changed to 16,000?
A.
B.
C.
D.
It will increase
It will decrease
There will be no change
You can’t tell from this information
Production Information
Name
Pfmn
Able 6.4
Baker 7.8
Cake 6.6
Daze 6.4
Eat 5.4
Fast 7.8
Size
13.6
13.2
13.4
13.6
14.6
12.5
Price
17,000
20,000
18,500
16,500
14,000
17,000
$44.90
$34.50
$35.00
$34.75
$33.50
$35.00
Material
Cost
$14.94
$16.99
$15.08
$14.49
$8.72
$17.71
Labor Cost
$10.93
$10.66
$10.56
$10.00
$10.87
$10.15
Plant
Utiliz.
183%
165%
158%
131%
179%
137%
What happens to Able’s material cost
if performance is changed to 6.3?
A.
B.
C.
D.
It will increase
It will decrease
There will be no change
You can’t tell from this information
student TQM
 TQM- investing to improve the process by
which tasks are accomplished
 Reading
Fred reads about 20 hours per week and
retains 70% of information
Fred invests time and money in a speed
reading course. Reduces time to 10 hours a
week and improves retention 80%
Process Management
 Continuous Process Improvement
reduces material costs (small extent labor)
 Vendor Just in Time Inventory
reduces material costs- inventory carrying costs,
administrative costs
 Quality Initiative Training
reduces labor costs
 Channel Support Systems
more for your money – Sales budget- demand
 Concurrent Engineering
reduces R&D cycle time
tqm
 Benchmarking
reduces admin and inventory carrying costs
 Quality function deployment effort
 reduce cycle time for R&D;
 increase sales and promo effectiveness
 6 sigma/ concurrent engineering
 Reduces material and labor costs
 Reduces marketing effectiveness