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Transcript
Sam Holt, Grace Lewis Goals • Achieve the highest Shareholder Value (SHV) – Price/Volume strategies – Net Income – Market share: Creating awareness – Spend money to earn money, within reason Decisions • Year 1 – Product Quantity (production & forecast) – Sales price – Advertising & PR (Tv, Magazine, Internet) • Year 2 – – – – Year 1 Decisions +.. Distribution Assistance Distributor Margins (notice different types of stores) Branding Basics to Keep in Mind: Supply & Demand Price Demand Supply Surplus (inventory) Equilibrium Price Shortage (Lost Sales) Quantity Produced Equilibrium QuantityQuantity Produced Quantity of Bikes Decisions cont… • Year 3 – Year 2 +… – Capacity planner (SCU, Efficiency, Quality) – Debt • Year 4 – Year 3 +… – 1 New Product (including all its advertising, production, pricing decisions, etc.) – Equity (shares & dividends) Modifying Existing & Creating New Products • Once you are able to create new bikes, you can also modify existing products to make their specifications conform with market demand, OR to reduce production costs, OR both! • COSTS: – – – – $1,000,000 to modify specs $1,000,000 to reduce production costs $2,000,000 to do both $1,000,000 to launch a new product **Information about product launch and modification available on “The Year Ahead” page of year that these become available ***Inventory left from before modifying product will no longer be sellable Modifying Existing Products • Production = 21,000 • Cost of Production (COP) = $185/unit: $3,885,000 total • REDUCE COSTS to $133/unit: $2,793,000 Savings = COP – (REDUCED COST + EXPENDITURE) Savings = $92,000… and that’s if production stays the same. It should increase annually as a reflection of increasing product awareness, branding, distribution, etc… (if you raise production by 2,000, you save $196,000) Modifying Existing Products • Similarly, modifying a product’s specs will increase demand for your bikes because it will match them closer to what consumers are looking for** • Change in QD from previous year is hard to calculate, it is a bit of a guessing game **Preferences are likely to change annually, always check product specs (See next slide) Spend on Efficiency to Reduce Wastage (increases Idle time, allows for increased production without purchasing SCU) Spend on Quality to Reduce Rework (Faulty products having to be scrapped, re-built, warranty claims, etc.), increases demand for Quality sensitive bike markets… **Rework Found in “Products Marketing: Products- Sales, Margin, Production” Report under ALL REPORTS, MARKETING REPORTS ***sensitivity to Quality found in “Market Information” Report- KEY REPORTS Helpful hints… • Spend money to make money- advertise and use PR/branding to gain awareness, gain market share • Pricing strategies- low price/low volume doesn’t make money- and high price/high volume is unrealistic • Use forecast results to speed up the simple math (it adds up all your spending and subtracts that from your forecasted sales x price) • Invest in Quality + Efficiency to reduce costs / raise sales • Evaluate creating new products / modifying existing ones to see if it can save you money… $$ saved goes directly to profit Helpful hints cont… • Distribution is important- help your suppliers and they will help you, but don’t waste money. The more stores you’re in, the better • Dividends are a guaranteed increase in SHV because it is a guaranteed payment to the shareholder- spend the cash if you have it after other product spending decisions • Debt can be helpful if you need money- it is also a burden on value • When you can, try creating new products • Use the reports’ data to influence your decisions!! More Basics: Accounting Assets = Liabilities + Owner’s Equity **D/E Ratio = Liabilities(debt)/Equity. Factors into SHV Net Income = Revenue – Expenses **If you think you’ve minimized expenses, optimize them to raise more revenue, i.e. Net Income- directly effects SHV… is each dollar being spent in the best possible place? ***If you think you’ve maximized revenue (you haven’t), cut expenses to raise N.I. (do it anyways- it’s good for you) Total Retained Earnings = R.E.(beginning) + Net Income – Dividends **Retained Earnings is another way of saying CASH. Make sure you have a stockpile (check statement of cash flow), but pay a dividend! Less R.E. doesn’t necessarily mean lower SHV, because paying a dividend directly increases it Good Luck!! Sam Holt: [email protected] Grace Lewis: [email protected]