Business Simulation Seminar

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Business Simulation Seminar

• Planning
• Forecasting Demand and Capacity

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Planning

• Critical management role
• Takes time
• Need to
• Understand current situation
• Determine where you want to go
• Decide the best way to get there

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Demand Planning

• Forecast projected demand
• Need to consider
• Market size
• Market growth
• Changing market needs
• Your competitive position
• Your competitors positions
• What might this look like for
• Macys
• Apple
• Nike

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Capacity Planning

• Need to plan ahead
• Capacity typically doesnt come instantly
• Adding capacity costs money
• Must coordinate with RD
• When are new products coming out?
• Are we dropping products?
• Must coordinate with Marketing
• What demand do they forecast?
• What might this look like for
• GM, Apple, Nike?

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What Does a Business Forecast?

• The market
• Overall size
• Segments
• Sales
• Costs
• Material, labor, breakage, theft, etc.
• Headcount
• Hires and losses
• Cash needs
• Pretty much everything

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Methods of Forecasting

• Graphical

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Mathematical

• Linear regression

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Mathematical Forecasting

• Linear regression
• potential problem

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Mathematical Forecasting

• Econometric
• Create complex models based upon a number of
  inputs
• E.g. sales may be a function of GDP, new home
  sales, existing home sales, and unemployment
• Other models
• Simple alpha based upon prior period data
• Limited only by creativity

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Delphi Method

• Get variety of subject matter experts together
• Each describes environment from their perspective
• Each member makes own forecast
• Share the forecasts
• Discuss
• Repeat votes and sharing until consensus is
  reached

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Practical Forecasting

• Sales Forecast Example
• Sales market size market share
• market size market size last period (1
  growth rate)
• market share market share last periodadjusted
  for product improvements and changes in marketing

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Example

• How many cars will you sell next year?
• Market size 10,000 cars per year
• Market growth 2
• Your market share 25
• You are coming out with a new line of hybrids
• You will spend more on advertising and improve
  your showroom

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Forecasting Exercise

• Each person should pick a different product for
  their company
• How many units do you forecast for the product in
  the next round?
• How did you get the forecast?

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Margin Analysis

• Must always keep an eye on the financials
• What are our planned profit margins?
• How do we calculate this?
• ROS
• Contribution margin
• What numbers can we control? How?
• Should we automate? (a cost)
• Should we train our people? (a cost)
• What might this look like for
• GM, Apple, Nike?

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Planning and the Simulation

• After making your decisions
• Review your forecasted financials
• What is the ROS?
• What will be your contribution margin?
• Do you need financing?