product development process-Base Case model
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Transcript of product development process-Base Case model
Product Development Process – Economics and
Base Case Financial Models.
Presented By: Shivangi Dubey P004Rupsa Halder P005Mohit S. Harsolekar P00613th Jan 2016
IMPORTANT TO UNDERSTAND ?
1) CONTRACT MANUFACTURING
2) CORE COMPETENCY>Provides potential access to a wide variety of markets>Increases perceived customer benefits >Hard for competitors to imitate.
PHASE 0 : Planning
PHASE 1 : Concept Development
PHASE 2 : System – Level Design
PHASE 3 : Detail Design
PHASE 4 : Testing and Refinement
PHASE 5 : Production Ramp - Up
PHASE 0 : Planning
» Corporate strategy
» Assessment of technology
development
» Market Objectives
» Project mission statement
» Set supply chain strategy
» Research
PHASE 1 : Concept Development
» Identify needs of target market
» Generate product concept
» Alternative concepts
» Analysis of competitive products
» Economic analysis
PHASE 2 : System – Level Design
» Define product architecture
» Generate geometric layout
» Define functional specificationsof subsystems
» Preliminary process flow diagram for final assemblyprocess
» Facilitate make-buy analysis
» Set target costs
PHASE 3 : Detail Design
» Complete specification of all parts
» Identification of all standard parts from
suppliers
» Define whole process plan
» Design tooling
» Define quality assurance processes
» Develop marketing plan
PHASE 4 : Testing and Refinement
» Construction and evaluation of
prototypes
» Obtain regulatory approvals
» Implement design changes
» Refine fabrication and assemblyprocesses
» Develop promotion and launch materials
» Develop sales plan
PHASE 5 : Production Ramp - Up
» Train workforce
» Place early production with key
customers
» Carefully evaluate and
identify remaining flaws
» Begin operation of entire
production system
» Product launch and widespread
distribution after transition to
on-going production
What is a Base Case Model..??
• A Financial analysis model which consists ofthe determination of the inflow and outflowof cash from all the major activities in theproject simultaneously taking intoconsideration the time required for eachactivity.
The Cash Flow is obtained from the most basic activities..
• Development Costs.
• Ramp Up Costs.
• Marketing Costs.
• Production Costs.
• Sales Revenues.
NPV
Net Present Value (NPV) is the difference between
the present value of cash inflows and the present
value of cash outflows.
IRR• Internal Rate of Return
Defined as the interest rate that equates the
present value of an income stream to the
cost of the investment.
• Premium brand of Nestle which manufactures andsells coffee brewers.
• Brews coffee from the premeasured coffee podswhich are also produced by the company in differentflavours and combinations.
• The expected sales are assumed to be spread cyclically as 20%, 25%, 35% and 20%.
• Developmental Cost is $ 4 Million spread equally over 4 quarters.
• Production Ramp Up cost expected to be $ 1 Million.
• Equipment and Tooling Costs: 2 million upfront, then 1/2 million a year and scale up with volume of machines sold.
• Marketing expense calculation: Nestle'sexpense is $17,395 M.
• Nespresso will contribute nearly 4% toNestle's sales. Assuming the same 4% formarketing cost, Nespresso's marketing costwill be (17,395*.04) =$ 695.8. Per quarter costis 173.9.
• Assuming 50% of this is for machines and 50%for capsules, it is 86.9 for each.
Summary
• Nespresso machines are a base equipment whose sales gaurantee the sael of the nespresso coffee capsules.
• Inturn the estimates of revenue generated from capsules is much higher to that of those generated from the machine.
• This helps us to take the Go/No GO decisions in the product development at every crucial stage.
• Financial analysis decides the feasibility of the product development project as a whole.