Hi all, a few have popped into chat asking why the "math" wouldn't work on a variation of the s7201 that basshead mentioned a few days ago. Looking back I should have been more clear. I didn't mean the math in terms of anything to do with the cabinet mods or effective volume or anything like that. That would be easy enough to make happen.
I meant logistics, overhead, ROI, things like that. Here's the cliff notes version.
1) Reaching potential customers who wouldn't consider the purchase otherwise.
Product is already a tiny niche representing 0.5% of current orders. A variation on this product will add another 40% to that(pretty optimistic). So we're bumped up to 0.7% This represents a 0.2% increase in new sales.
2) Increased support and website updates. With each product variation support questions can increase---sometimes exponentially. Website updates, product pages,. shopping cart stuff, etc
3) A direct increase in inventory. Now we have two separate cabinet SKU to monitor.
4) An indirect increase in inventory. Each time we add another SKU to the cabinet inventory it forces us to maintain more inventory of a current product. This may be intuitive to anyone who has worked inventory logistics, not sure. The crux of the matter is the cabinet shop can only produce one SKU at a time, with minimums and maximums. I can't order ONE XYZ for monday, three ZXY for tuesday, and a partridge in a pear tree on Friday for example. The schedule is by week, by product, and limited to a narrow range of quantity. For our biggest sellers I may need to order the cabinets in multiples of 24 for example.
So, at times, I'm faced with the following.
I don't need 24 more XYZ cabinets right now, not for another 4 weeks really. BUT, if I dont accept them right now I won't be able to schedule them for 8 more weeks because the schedule is full. Each time we add another SKU to this...it increases the likelihood of this occurring. So even though it doesn't seem like the dots connect....I promise you that having two separate V7201 cabinets SKU means we'll be holding more inventory of other cabinet SKUs in ADDITION to having to hold two S7201 cabinets versus one.
I know some might read the above and feel that our cabinet situation is unfavorable. But it's a matter of quality to a large degree. To maintain our level of finish quality and consistency the cabinets need to be manufactured in given quantities.
So what is the ROI? What do we profit(not MSRP, Not Gross, but true profit after all overhead) on that 0.2% increase in potential customers versus #2
Now, that is really the bare bones version. Each of the above can be broken down in much more detail. And there's always the difficult non direct considerations as well. I mean, there are dozens of things to weigh. Here's one easy example. We do increase S7201 sales by 40%. Let's say we're shipping 2.8 a week instead of 2.0(on avg). Now, that gives me a little more negotiating power when we try to get lower rates with our freight guys in 3 months. So I need to factor in the best GUESS on how much this 1.5%(?) reduction in freight will save us too. But wait...I can't just use our current averages for all other products. I need to ALSO consider what affect introducing the new S7201 will have on other products that ship freight in terms of sales predictions.(will we sell less V3601 and S3601 now?) Then factor in the overall company expected growth...and I can come up with a reasonable prediction in freight savings per product, per month, moving forward. Do the same for material considerations, effective cost per sq-ft to warehouse another cabinet SKU, predict how this may affect other new products later(we could have wnet to production with the PR
sub 12 months sooner---but our cash flow, warehouse space, and all ancillary logistics considerations were tied up with s7201 variant. So how much did we potential lose in those 12 months in that context?
So the above (1,2,3,4) is the easy math stuff. It's like fight club.
Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one.
Anyway, just a small snapshot into what I put in front of myself for these types of decisions.
Power Sound Audio