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