How Many to Produce?

Your company is developing a new video game console and would like to know the number of units to produce. What is your recommendation?

Problem Statement

To determine the production number the potential demand for the product must be estimated.

Limits on supply capacity or minimum production requirements can also be an issue

Require knowledge of competitive landscape

Understand the Problem

Demand Data◦ Potential customer demographics◦ Current video game console owners◦ Potential new video game console owners

Supply Data◦ Production Limits (labor, equipment capacity,

minimum commitment levels)◦ Raw material capacity

Competitive Landscape◦ Number of competitors◦ Competition sales◦ Product lifecycles

Plan the Strategy

(start small, can expand later) Demand Assumptions

◦ New customer target demographic Male, 12-21 U.S. market

◦ Product penetration percentage of new console customers

◦ Existing console owners Supply Assumptions

◦ Unconstrained supply Competition Assumptions

◦ Fixed percentage of current console market

Plan the Strategy Cont.

New customer demographic information source◦ U.S. Census data

Current console owners/competitive landscape data source◦ Current market share – Hoover’s, Yahoo Finance,

etc.◦ Estimate product differentiation and impact on

market share (subjective)

Execute the Strategy

Using found/estimated data determine◦ Potential market size from new console customers◦ Potential market size from current console owners

Execute the Strategy

Sanity check Sensitivity analysis on assumptions and

inputs Compare estimated market with first year

sales or competitors console products.

Check and Interpret Solution