1. *

2. FAIR SHARE ESTIMATES: 3-4 Rnds out: ROW #1

3. S I M U L A T I O N M A R K E T I N G M G T. A Historical Consideration… RE: Projected Share LOW END: 0-1 product killed.. 0-1 repositioned or introduced TRADITIONAL: 3-6 repositioned from High…0-1 killed…1-2 introduced SIZE: 0-1 killed, 0-1 repositioned to Traditional, 1-2 introduced PERFORMANCE: 1-2 killed, 0-1 repositioned to Traditional, 0-1 introduced HIGH: 1-3 killed or repositioned to Traditional, 1-3 new products arrive in rounds 2 or 3

4. S I M U L A T I O N M A R K E T I N G M G T. Round 3- Forecast Segment Competitive Density LOW END: 6 products=rivalry unchanged TRADITIONAL: 9 products, w/ 3 repositioned= increased competition SIZE: 7 products, w/ 2 new= increased competition PERFORMANCE: 4 products, w/ 1 new= reduced competition HIGH: 6 products, w/ 2 new= increased competition 6 9 7 4 6

5. S I M U L A T I O N M A R K E T I N G M G T. -Given Round 3 Scenario- How should adjust your production capacities? Round 0- 1 st shift Capacity Round 3- Brand-Demand (FAIR-Share) Traditional18001063 Low End14002081 High End900668 Performance600823 Size600469

6. 1.Quick N’ Dirty 2. Consumer Pref’s 3. Best vs. Worst Case Projections

7. 2 Q’s: 1.What will the average product sell in the segment next round? ( = Fair-Share) 2.To what degree is your product above or below average- on consumers'’ buying criteria? ( = Earned-Share) Estimate Your EARNED SHARE:

8. 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?

9. 1.Quick N’ Dirty 2. Consumer Pref’s 3. Best vs. Worst Case Projections

10. Forecast off Customer Survey Scores

11. Total=223 R#1 Dec Survey score % of 223Predicted 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 36 16%1539 1492 Cake 42 19%1827 1339 Daze 26 12%1154 1045

12. R#1 Survey score 43 40 36 42 26 R#2 12

13. 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%

14. After 1 st Year/Round- Can see demand spread R#1R#1 R#3R#3R#2R#2

15. CA SE

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

17. Enter WORSE case = - (10- 12%) < Earned Share in “your sales forecast” on marketing spreadsheet Enter BEST case= + (10-12%) > Earned Share in “production schedule” on production spreadsheet Spread show up as inventory on proforma BALANCE SHEET

18. $0.00 In WORSE CASE: You have lots of Inventory & little or no Cash. In WORSE CASE: You have lots of Inventory & little or no Cash. need to drive cash position to the black…

19. 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. 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. To adjust your cash position --

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

21. 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 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

22. For example: 1. If annual sales $120M, = $10M/mo. 2. If a months material & labor costs = $7M, you missed contributing $3M to Net Margin. 3. You’r taxed at ~35%, so your opportunity cost is ~$2M in profit.

23. Worst Case: BIG INVENTORY / no cash – risk seeing Big Al Best case: Lots of CASH / no Inventory -you risk stockout How Big is your Slinky?

24. 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

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

26. & Divide by total variable costs of inventory sold: $23,900M/$131,119M =.18 52weeks *.18 = 9 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

27. Tutorials: Forecasting Demonstration

29. “Generically, profits are driven by the company’s asset base and by its efficiency working those assets”

30. S I M U L A T I O N M A R K E T I N G M G T. Key Demand Consideration: Overall market growing @ ~ 14%/yr “Average” company should/could double - sales in 6 years Key Capacity Consideration:

31. How effective will u b in building your Co’s asset base? At outset should be spending ~$10-25M / round on plant improvement By end should expand asset base to min $140M to $160M +

32. NET PROFITS $$ Year 1 $6 million Year 2 $8 million Year 3 $10 million Year 4 $12 million Year 5 $16 million Year 6 $21 million Year 7 $27 million Year 8 $35 million NET PROFITS $$ Year 1 $6 million Year 2 $8 million Year 3 $10 million Year 4 $12 million Year 5 $16 million Year 6 $21 million Year 7 $27 million Year 8 $35 million Rounds 6,7,8 should be most profitable

33. S I M U L A T I O N M A R K E T I N G M G T. Pay off Debt Invest in growth Buy-back stock Pay dividends Pay off Debt Invest in growth Buy-back stock Pay dividends Things you can do w/ your $$$: Which most often selected … but least preferable to do?

34. S I M U L A T I O N M A R K E T I N G M G T. Reducing Leverage Says to stockholders— “ We can think of nothing better to do w/ $$ than save you interest payments ” –More debt eliminated the greater target you become for a takeover.. No reason not to maintain Co. Financial Structure that got you to position of high profitability…

35. S I M U L A T I O N M A N A G E M E N T One more thing to think about What is the Relationship between My Strategy & Success Measures

36. S I M U L A T I O N M A N A G E M E N T Cumulative Profits Ending Market Share ROS Asset Turnover ROA ROE Ending Stock Price Market Cap. Strategy Performance Measures- Defined Performance Measures-Dynamics Success Measures

37. Diff Strategies Play into Different Success Measures ProfitMSSP & MCROE pf/e ROS pf/s AT s/a ROA pf/a BCL L=2-3 XXXX Cost- Niche & PLC XXX B-Diff L=1.5-2 XXXX Niche- PLCDiff XXXX Cost Strategy = higher leverage/more margin/ more assets/more debt/ less equity Differentiation Strategy =lower leverage/less investment/ less assets All Segments= more sales & thus enable greater Cum. profit & overall market share Focused Strategies should operate more efficiently & have overall less sales

38. Select Success Measures & Determine Relative Weightings Need to enter weightings – prior to round-1 Select Success Measures & Determine Relative Weightings Need to enter weightings – prior to round-1