612392017 10 Forecasting 10 Forecasting seat, Foracasting requires alitie math and a litte lg. For example, does your forecast predict your product wil acquire half segments sales when ther are four ‘oc ve products in the segment? Unies your product’ pasitoning, age and MTBF are significantly superior tothe other products an your price isa he low ‘ond ofthe range ts nat ely thal you wil acquire half the sale. Does your forecast predict you wil ako ony one tenth ofthe sale when thre are four or fve products in the segment? Unless your product's positioning, age and MTBF are sgnfcantly inferior and your price i tthe high and ofthe range or above, chances are you can sell mare. Forecasts are used by the proformas to calculate nancial projections (s0 ‘Chapter 6), if you enter a forecast that is unrealisticaly high, the proformas will take that forecast and project unease revenue, i you do not enter vakos in the Your Sales Forecast call, the proformas wil use the Benchmark Prediction to project nancial resus. 10.1 Basic Forecasting Method Last year's sales can be a good starting point for his year's forecasts. For example, the segment growty rate forthe upcoming year Is 9.2%, you can say, things being equa, we can expect to sel 8.2% more units this year than last year” ‘Assume next yoar's growt rato for Traditional i 82% and your Tradtional produc sald 1,100,000 units last yoar without stocking out unning out of inventory} 4,100,000 x 0.092 = 101,200 ‘Adding 101,200 to last year's sales of 1,100,000 unis gives you a starting forecast forthe upcoming year of 1,201,200 unis The statistic boxes on the Sogment Analysis reports (pages 6-8 of te Courier) publish ast year's Industry Unit Demand and the Growth Rate forthe upcoming year. Mulipyng last year’s demand by the Growth Rate then adding the result to ast year’s domane wil determine tis years demand. Ir your product stocked ou, calculate what it could have sald by mukipying the segment demand bythe potential sales percentage reported on page 10 ofthe Courier, the Market Shave Report, Next, mupl that by the segment growth ae, Is this pumber vala? I highly unkely thatthe market in the upeoming year wil be entical othe previous year. Prices wll adjust, revision projec will complete— the playing eld wil change. Sil, this number canbe a good beginning as you assess your product offer and speculate what yaur competitors wl oer. oop in mind the possibilty that your products sols because competitors who otherwise would have made sales under produced and stockes out, Page 19 of the Courter eisplays actual and potential sales as a percentage for each product. If your actual sales far exceed your polonal because your compat under produced, you cannat count on them making the same mistake again [Any new produes about to come to market must have a plan. Plant purchases: ‘are repartad on the Production Analyse (Courier, page 4. 10.2 Qualitative Assessment Compare your producto others competing within the segment and decide whether itis beter or worse than the competion. Start with the Courar Perceptual Map (page 11) It shows where products are curreny placed, The Revision Dates a the boom of the page reveal the timing of any future repasiionings. Continue the comparison using the Courer’s Segment Analysis pages. These ror each product's: ‘Age-_doos th product satsty customer age demands? MTBF-isretabilty nar the top ofthe range? Price—wil pico tds continue or wil ew automation (splayed on page 4 ofthe Courter) facitate a price reduction? (Remember, pice ranges drop $0.50 per year) [Awareness and Accessibilty” are these percentages leading, keeping pace wth or faling behind other products? pilin capsim.comiguides/capstone20*Sithe-quide/t0-forecastingab(@nim!?tmpl mponentprin page: 18612392017 10 Forecasting ‘Al these elements contribute tothe mently customer survey. 102.4 December Customer Survey Score |W your product be beter or worse than average? As an estimate, look athe December customer survey sara in the lower part of each Sagment Analysis ‘The Customer survey tives demand each manth. For example, I there are four products in December scoring 32, 28, 2 and 14 (fra total of 96), then the top product's December domand would be 32/86 or 33%, ‘Top Product in Segment’s Score / Sum of All Score 32 /(92 428+ 22 + 14)=32/96= 39% ‘What manthly customer survey scores wil your praduct have during the year? The score wil change from month to month because the segments dit, your roduc ages and might be revised, Each monthly écore is riven by how well our product salsfes the eegment buying citera, plus is awareness and accessibilty levels. the TOM/Sustainabilty modula ison, some native could increase the score (See “How ls the Customer Survey Score Calculated?” in the FAGIReports section for more information on assessing your product) Consider whether or not the top products inthe segment can meet customer demand. On the Production Analysis, examine the tp products’ capaci. Can ‘hey manufacture suicient units? W no, you could have an opportunity to explo. 10.3 Forecasts, Proformas 1nd the December 31 Cash Position (On the proforma income statement, sales revenue for each products based on is price multiplied by the lsserof ether: ‘The Your Sales Forecast entry (or, none is entered, the Benchmark Prediction); oF ‘The foal number of units available fo ele (thats, te Produetion Schedule added to Inventory). |When a forecasts las than the fal numberof units avaliable forsale, the proforma income sialement wil display an inventory carrying cost, When a forecast is equalto or greater han the number of units available, which predicts every unt willbe sol, the carrying cost wil be zero. ‘The simulation charges a 12% inventory carrying cost (On the proforma balance sheet, under curent assets, inventory reflcs he dolar value of all unsold units. Cash reflects the amount lt afterall company payments are sublracte from the sum of: ‘otal sales revenue reported on the proforma income statement: and ‘Stock, current debt and long tem debt entries inthe Finance area ‘The proforma balance sneet's cash poston also displays asthe Finance spreadshee's December 31 Cash Poston. Therefore, unrealistelly high forecasts or prices wil erate cash predictions tat are not key to come true. 10.4 Worst Case/ Best Case It you wish you can enter sales forecasis and production schedules that develop worst case / best case scenarios. Heveis an example: You generate pessimistic forecast of 1,200,000 for your Tradiional product, which predicts in the worst case monthly sales of 100,000 units. AS a mater of policy, your management team might decide that manufacturing an ational tree months worth of inventory, oF 300,000 units, san acceptable risk when compared tothe potential ward of making extra sales. In the Marketing spreadsheet, enter the worst case forecast of 1,200 nthe Your Sales Forecast cel. In the Production spreadsheet, enter the best case of 4,500 inthe Production Schedule col (inventory romains trom the previous year, be sure to subirac tha rom the 1,800). At the end ofthe yor, nthe Worst case you wil have sold 1,200,000 units and have 300,000 units in inventry Inthe best case you wil have sold 1,500,000 unis and have zero inventory. ‘The spread between the postions wil show up as inventory on your proforma balance sheet. Your proforma income statement will alo relat the worst case for sles, Inthe Finance area, ifthe December 31 Cash Postion is negative, adjust curent dee, longterm debt and stock save entries unt the December 31 Cash Position becomes postive, This wil help ensure against an emergency loan, pilin capsim.comiguides/capstone20*Sithe-quide/t0-forecastingab(@.nim!?tmpl page: 23