1. S I M U L A T I O N M A R K E T I N G M G T.

2. S I M U L A T I O N M A R K E T I N G M G T.

3. S I M U L A T I O N M A R K E T I N G M G T. Most Basic Principle Guiding Your Decisions-- will it: Increase Demand for Product Decrease Cost of Making & Marketing Product

4. S I M U L A T I O N M A R K E T I N G M G T. Made all the Right Decisions --product design, pricing, positioning, promotion, distribution… credit terms… production line capacity, automation, hiring training, TQM & PI…

5. You’ll be left w/less revenue than anticipated PLUS production & inventory carrying costs that must be paid.. IF Your Competitors produce a better product &/or You produce too much of your “great” product Then

6. You’re left w/less revenue than anticipated and did not plan & allocate enough cash to cover your production & inventory carrying costs.... IF Then Big Al arrives -- pays your bills, and leaves you with a loan & a stiff interest payment

7. Maintain Adequate working capital & cash reserves In order to: Have realistic/ accurate sales forecasts Avoid “Big AL” & a Liquidity Crisis- Need to:

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

9. 2 Q’s: 1.What will the average product sell in the segment next round? 2.To what degree is your product above or below average- on consumers'’ buying criteria? Estimate Your EARNED SHARE:

10. 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?

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

12. Forecast off Customer Survey Scores

13. 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

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

15. 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%

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

17. CA SE

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

19. Enter WORSE case- in “your sales forecast” on marketing spreadsheet Enter BEST case- in “production schedule” on production spreadsheet Spread show up as inventory on proforma BALANCE SHEET

20. $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…

21. 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 --

22. 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

23. 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

24. 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.

25. 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?

26. 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 w/ 8 <9 =

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

28. & 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

29. Additional Tools/Techniques for Managing & Assessing Your Performance: 1. Marketing- Evaluation Checklist 2. Round Analysis 3. Analyst Report

30. S I M U L A T I O N M A N A G E M E N T Round analysis -exampleexample

31. S I M U L A T I O N M A N A G E M E N T Simulation Scoring System