Professional Documents
Culture Documents
Mitigating Risk
Companies are faced with increasing levels of risk in todays market. Time Compression product life cycles are being reduced, this increases risk because:
New products must continually be in development Less time to capture development costs
Cost new product development is expensive with costs regularly exceeding $100 million
40% of all quality problems stem from poor design 60-80% of a product's cost is determined during design
10
12
13
Modular Design
Modular products can be manufacturer in pieces and parts from a variety of manufacturers. Modularity is facilitated by standardization
Reduces the risk of supplier dependency Increases customer choice in terms of options
14
Product Positioning relies on promotion and design to create niche appeal in a market segment
15
Concurrent NPD
Advocated by most supply chain leaders Uses cross-functional teams to develop new products with targeted cost and features.
Typical teams will include managers from marketing, R&D, engineering, production, purchasing. Many companies include customers, suppliers and service providers in NPD teams.
19
20
Competitive Pricing
Target Price
Market Conditions
Price Elasticity
21
22
23
25
28
Reporting Relationships
29
Measures of Profit
Operating profit represents how much money, before tax, a company makes from its ongoing business of selling goods and services.
Profit before tax represents the sum of operating profits plus or minus gains and losses from other activities.
Includes investments, interest expense, and other financing activities
30
Cash Flow
Cash flows in to a company when it collects on receivables, borrows money, or sells stock. Cash flows out from a company when it acquires plant and equipment, purchases raw material, produces goods, markets goods, repays investors, or repays debt. Of interest is not only the aggregate amount of these flows but their timing.
32
33
While the income statement shows a pretax profit of $160,000, the statement of cash flows shows that we would not have enough cash to finance operations. Managing cash flows and profit are critical for long term survival.
34
Discounts future cash flows in terms of present value to determine the net value added to the company by a project. Considers:
Forecasts of revenues and costs Expected life cycle or products and technology Industry Trends
38
Present Value
An organization will receive $500 two years from now. At an interest rate of 10 percent, what is the present value of this future payment?
Ci Present Value (1 r)i Where : Ci Cash at time period i r interest rate i number of periods
Future Value
An organization invests $500 for 5 years at an interest rate of 15 percent. What is the future value of this original $500?
Future Value Co X (1- r) T Where : Co initial investment r interest rate T number of periods
40
41