Bay Back Simulation

Topics: Rechargeable battery, Lithium-ion battery Pages: 11 (4393 words) Published: December 18, 2011
Decision Rationale
Decision 1
In determining our initial strategy, we knew that we wanted to focus on the product that would be most profitable and key in on features that are important to the customer. Looking at product sales in 2008, the NiMH sold 28.0 M units and the Ultracapacitor sold only 4.3 M units. Based on these sales, the NiMH generated $280.3 M and the Ultracapacitor generated $86.2 M. In addition, when reviewing the Income Statement, the NiMH produced a profitable contribution in the years 2006 through 2008. The Ultracapacitor, on the otherhand, produced an unprofitable contribution during the same timeframe. Based on these figures, we decided to focus on the NiMH.

We relied on the income statement to determine the forecast for both the NiMH and Ultracapacitor. In 2007, the NiMH made $3.25 M per unit and in 2008, made $3.41 M per unit. This is an increase of approximately 5%. We felt this trend would continue and decided to increase our forecast for the upcoming year, however, instead of increasing our forecast by 5% our team wanted to be conservative and increased our forecast by 3% which equaled a forecast of 28.8 M units. In 2007, the Ultracapacitor made -4.3 M per unit and in 2008, made -4.66 M per unit. This is a decrease of approximately 8%. Under the same reasoning as the NiMH, we decreased the forecast by 5% to be conservative and forecasted 4.1 M units.

When deciding where to invest our money, we reviewed what features were most important to the customer. Energy density was rated the highest among all features so we decided to focus on this one. We chose energy density within the NiMH due to its historical profitability. The minimum annual cost for this project was $3M. Since this was our first round of the simulation, we decided to invest the minimum required.

Our team also felt it was important to focus on process improvement. Learning from the GEOX case study, in order to compete with surrounding competition, a company must always look for methods to improve. We chose to put two million towards both the NiMH and Ultracapacitor. We did not want to be aggressive with this figure as we were not sure of the effect that this investment would have on the sales figures.

Decision 2
In 2009, the NiMH sales grew by approximately 21% to 33.8M. Based off of this increase, we raised the forecast 10%, again, taking the conservative approach. For 2010, the team forecasted 37.2 M. The Ultracapacitor increased its sales year over year by less than 5% so we decided to leave the forecast as is at 4.5 M.

In order for the investment in energy density to be effective, the project must last for a minimum of 4 years, so we invested an additional 3M in this feature for the second year in a row. Since the NiMH continued to be profitable another year, the team increased their investment in process improvement and invested 3M for the NiMH.

At this time, the team decided to review the prices of each product and compare these prices against the demand of the customer. The price of the NiMH was exactly where the customer thought it should be so we decided to leave the price for this product alone. The Ultracapacitor was currently priced at $20, however, the customer felt this price should be half of that. Based on this information, the team decreased the price by $2. We chose the $2 decrease because we wanted to see what type of impact this decrease had on the market. If data did show an impact, then we would continue the price decrease in future years. Decision 3

In 2010, sales for the NiMH started to level out and this was the first year that we did not under forecast this product. Our forecast was over by roughly 8%. We felt that a trend may be starting for this product and so we decreased our forecast by 5% to $32.6M. Sales for the NiMH increased by roughly 8% and so we decided to increase this forecast. Being conservative, we increased our forecast by half of this percentage, 4%, to $5M in sales....
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