To estimate or calculate in advance
Estimate future trends by examining and analyzing available information.
A predictionprediction, as of coming events or conditions.
Forecast Definition
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:
Chester Corporation Two products
Cake Cruton
Just completed the year 2010 and must forecast for next year 2011
Perceptual Map December 31, 2010
18
16
14
12
10
8
6
4
2
02 4 6 8 10 12 14 16 18 20
Performance
Able
Baker
Bear
Cake
Cruton
Daze
Daffy
Ducky
Eat
Eek
Fast
Fetish
Cake
Cruton
Production Analysis December - 31, 2010
Production Information
NamePrimary
SegmentUnits Sold
Units in Inventory
Revision Date
Age Dec.31
MTBFPfmn Coord
Size Coord
PriceMaterial
CostLabor Cost
Contr Marg.
2nd Shift or Over
Time
Auto- mation
Next Round
Capacity Next
Round
Able Low 1,505 0 22-Jan-10 3.2 15500 6.5 13.0 $28.00 $10.20 $7.73 33% 0% 5.0 1,250Apple 0 0 13-Mar-11 0.0 0 0.0 0.0 $0.00 $0.00 $0.00 0% 0% 1.0 500 Baker Low 977 0 19-May-10 3.0 18000 6.8 13.2 $32.00 $11.02 $9.36 36% 5% 5.0 1,000Bear High 564 0 20-Mar-09 2.3 17000 7.7 11.5 $43.00 $0.00 $0.00 30% 0% 1.0 1Baby 0 0 29-Jun-11 0.0 0 0.0 0.0 $0.00 $0.00 $0.00 0% 0% 1.0 450 Cake Low 990 0 4-May-08 4.0 18500 6.5 13.0 $31.75 $11.10 $9.67 25% 0% 3.8 1,000Cruton High 989 0 17-Jul-10 1.1 21000 10.0 10.0 $44.00 $18.35 $14.20 28% 89% 2.0 700 Daze Low 1,188 0 3-Mar-10 2.9 20000 6.9 13.2 $33.00 $11.73 $10.10 33% 33% 4.0 900Daffy Low 1,033 0 8-Mar-08 2.8 18000 5.8 14.7 $31.00 $8.55 $8.35 43% 20% 5.0 750Ducky High 103 0 25-Oct-10 0.2 17001 10.2 9.8 $43.00 $17.55 $15.96 22% 100% 1.0 700 Eat Low 1,244 0 11-Apr-10 2.1 19000 7.1 13.3 $31.00 $11.54 $10.31 27% 0% 4.0 1,105Eek High 931 0 18-Jun-10 1.3 21000 10.0 10.1 $42.42 $18.25 $12.24 26% 0% 1.5 800 Fast Low 1,089 0 12-Apr-10 2.1 20000 6.8 13.0 $33.00 $11.83 $9.41 35% 10% 5.0 1,100Fetish Low 972 0 22-Feb-09 1.9 18000 6.0 14.0 $31.50 $9.42 $10.92 33% 14% 3.0 900
How many Low Tech Products are there ?How many High Tech Products are there?
94
Statistics
Total Industry Unit Demand 7,379Actual Industry Unit Sales 7,243Segment % of Total Industry 62.2%Growth Rate 10.0%
Customer Buying CriteriaExpectations Importance
1. Price $15.00 - 35.00 41%2. Age Ideal Age = 3.0 29%3. Reliability MTBF 14000-20000 21%4. Positioning Pfmn 6.8 Size13.2 9%
Low Tech Market Segment Analysis
Round 4 – December 31, 2010
Top Products in Low Tech Segment
Cake’s specs for 2011 2011 Customer Expectations
Performance 7.0 7.3
Size 12.7 12.7
Price $31.00 $15.00 - $35.00
MBTF 18500 14 – 20,000
Age at 12/31 2.9 3.0
NameMarket Share
Units Sold to Seg
Revision Date
Stock Out
Pfmn Coord
Size Coord
List Price MTBFAge
Dec.31Promo Budget
Sales Budget
Customer Awareness
December Customer
SurveyAble 17% 1,207 22-Jan-10 YES 6.5 13.0 $28.00 15500 3.2 $1,400 $1,800 100% 31Daffy 14% 1,019 8-Mar-08 YES 5.8 14.7 $31.00 18000 2.8 $1,500 $1,500 97% 31Daze 13% 932 3-Mar-10 YES 6.9 13.2 $33.00 20000 2.9 $1,400 $1,400 100% 40Cake 11% 805 4-May-08 YES 6.5 13.0 $31.75 18500 4.0 $1,400 $1,950 100% 29Eat 11% 797 11-Apr-10 YES 7.1 13.3 $31.00 19000 2.1 $1,400 $1,400 94% 27Fetish 11% 795 22-Feb-09 YES 6.0 14.0 $31.50 18000 1.9 $2,000 $1,750 90% 25Baker 11% 790 19-May-10 YES 6.8 13.2 $32.00 18000 3.0 $1,500 $1,500 100% 32Fast 11% 779 12-Apr-10 YES 6.8 13.0 $33.00 20000 2.1 $1,400 $1,900 100% 35Bear 2% 117 20-Mar-09 YES 7.7 11.5 $43.00 17000 2.3 $900 $900 76% 3Eek 0% 1 18-Jun-10 YES 10.0 10.1 $42.42 21000 1.3 $1,750 $1,750 100% 0
Revision Date: April 24, 2011
Assessment – Above Average
Low Tech Sales in High Tech Segment
NameMarket Share
Units Sold to Seg
Revision Date
Stock Out
Pfmn Coord
Size Coord
List Price MTBFAge
Dec.31Promo Budget
Sales Budget
Customer Awareness
December Customer
SurveyCruton 23% 988 17-Jul-10 YES 10.0 10.0 $44.00 21000 1.1 $1,900 $1,650 100% 43Eek 21% 929 18-Jun-10 YES 10.0 10.1 $42.42 21000 1.3 $1,750 $1,750 100% 42Eat 10% 447 11-Apr-10 YES 7.1 13.3 $31.00 19000 2.1 $1,400 $1,400 94% 13Bear 10% 447 20-Mar-09 YES 7.7 11.5 $43.00 17000 2.3 $900 $900 76% 7Fast 7% 310 12-Apr-10 YES 6.8 13.0 $33.00 20000 2.1 $1,400 $1,900 100% 13Able 7% 298 22-Jan-10 YES 6.5 13.0 $28.00 15500 3.2 $1,400 $1,800 100% 5Daze 6% 256 3-Mar-10 YES 6.9 13.2 $33.00 20000 2.9 $1,400 $1,400 100% 9Baker 4% 187 19-May-10 YES 6.8 13.2 $32.00 18000 3.0 $1,500 $1,500 100% 7Cake 4% 185 4-May-08 YES 6.5 13.0 $31.75 18500 4.0 $1,400 $1,950 100% 6Fetish 4% 177 22-Feb-09 YES 6.0 14.0 $31.50 18000 1.9 $2,000 $1,750 90% 0Ducky 2% 103 25-Oct-10 YES 10.2 9.8 $43.00 17001 0.2 $2,750 $2,500 74% 33Daffy 0% 14 8-Mar-08 YES 5.8 14.7 $31.00 18000 2.8 $1,500 $1,500 97% 0
Basic Forecasting 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
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
8.58117 / 8.5 = 955
Above Average955 * 1.10 = 1,050
225
1,275
High Tech Market Segment Analysis
Customer Buying CriteriaExpectations Importance
1. Positioning Pfmn10.2 Size 9.8 33%2. Age Ideal Age = 0.0 29%3. Price $25.00 - 45.00 25%4. Reliability MTBF 17000-23000 13%
Statistics
Total Industry Unit Demand 4,479Actual Industry Unit Sales 4,340Segment % of Total Industry 37.8%Growth Rate 20.0%
Round 4 – December 31, 2010
Top Products in High Tech Segment
Cruton’s specs for 2011 2011 Customer Expectations
Performance 10.5 10.9
Size 9.3 9.1
Price $45.00 $25.00 - $45.00
MBTF 21000 17 – 23,000
Age at 12/31 1.4 0
NameMarket Share
Units Sold to Seg
Revision Date
Stock Out
Pfmn Coord
Size Coord
List Price MTBFAge
Dec.31Promo Budget
Sales Budget
Customer Awareness
December Customer
SurveyCruton 23% 988 17-Jul-10 YES 10.0 10.0 $44.00 21000 1.1 $1,900 $1,650 100% 43Eek 21% 929 18-Jun-10 YES 10.0 10.1 $42.42 21000 1.3 $1,750 $1,750 100% 42Eat 10% 447 11-Apr-10 YES 7.1 13.3 $31.00 19000 2.1 $1,400 $1,400 94% 13Bear 10% 447 20-Mar-09 YES 7.7 11.5 $43.00 17000 2.3 $900 $900 76% 7Fast 7% 310 12-Apr-10 YES 6.8 13.0 $33.00 20000 2.1 $1,400 $1,900 100% 13Able 7% 298 22-Jan-10 YES 6.5 13.0 $28.00 15500 3.2 $1,400 $1,800 100% 5Daze 6% 256 3-Mar-10 YES 6.9 13.2 $33.00 20000 2.9 $1,400 $1,400 100% 9Baker 4% 187 19-May-10 YES 6.8 13.2 $32.00 18000 3.0 $1,500 $1,500 100% 7Cake 4% 185 4-May-08 YES 6.5 13.0 $31.75 18500 4.0 $1,400 $1,950 100% 6Fetish 4% 177 22-Feb-09 YES 6.0 14.0 $31.50 18000 1.9 $2,000 $1,750 90% 0Ducky 2% 103 25-Oct-10 YES 10.2 9.8 $43.00 17001 0.2 $2,750 $2,500 74% 33Daffy 0% 14 8-Mar-08 YES 5.8 14.7 $31.00 18000 2.8 $1,500 $1,500 97% 0
Revision Date: May 29, 2011
Assessment – Very Good
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
55375 / 5 = 1,075
Very Good1,075 * 1.20 = 1,290
0
1,290
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
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
MATERIAL COST
POSITIONING IMPACT ON MATERIAL COSTS
02468
101214161820
Size
0 2 4 6 8 10 12 14 16 18 20
Performance
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
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
Automation level of 3 $8.96 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 ProductsCustomer Buying Criteria - 2008
Low Tech High Tech
Price $15 – 35 $25 – 45
Age 3.0 0.0
Reliability 14000-20000
17000– 23000
Positioning
6.3 / 13.7 9.5 / 10.5
Name SegUnits Sold
Unit Inv
Revision Date
Age Dec.
31MTBF Pfm Size Price
Able 1,094 378 May-08 2.1 19000 6.8 13.2Apple Jun-08 0.6 22000 10.5 9.5Ants 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 $35.49Best Low 725 0 May-08 2.2 16500 7 13.2 $33.99Bold 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 $32.25Candy Low 542 11 Oct-08 1.5 14000 6.8 13.0 $30.25Corn High 508 46 Aug-08 0.9 21345 9.7 9.3 $43.25
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?
jan feb mar april may june july aug sept oct nov dec
200 200 200 200 200 200 200 200 200 200 200 200
Produce 2,400 in a year…
The Timing …
60 days= 1/6 year=(2400/6) =400 units
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
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?
jan feb mar april may june july aug sept oct nov dec
75 75 75 75 75 75 75 75 75 75 75 75
Produce 900 in a year…
Timing …
75 75 75 75 75 75 75 75 75 75 75 75
jan feb mar april may june july aug sept oct nov dec
75 75 75 75 75 75 75 75 75 75 75 75
Produce 900 in a year…
Timing …
September 1st ... • Sales begin • Production begins
Produce 900 in a year… If you had a whole year But you only have 1/3 year for…
Sales and Production Sales forecast = 300 Production schedule = 300
(600 would be 100% overtime)
j f m a m j j a s o n d
Timing …
j f m a m j j a s o n d
2006 2007
Run the company you have Product revisions-
that happen quickly Set price, production,
promo &salesCreate 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”
“old” able “new” ablenew automationnew productnew factory
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: 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:
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
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