When the engineers and the accountants put their heads together

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MOD Tom Caldwell Forum Pro • Posts: 41,940
When the engineers and the accountants put their heads together
10

Please don’t get too excited about this thread it will make heads spin.

I have to start a new thread as the thread where this debate was a sub-thread has filled.

Why do I bother? mainly because we need to dispel the idea often put forward “I want that product, why isn’t it being made?”

Basically there are two main theories about how product is made and marketed - I will restrict this to some distinct extremes as there would be all sorts of variations and combinations depending on the background and needs of a corporation and its future planning.

Some might think that making lots of product and selling them at affordable prices is an automatic way to make lots of money.

Essentially:

Make into stock and sell down the stock over a period of time.  This lends itself to known popular product of not too high a selling price. Lead times and R&D costs could be very high.

Advantages - can be made in a form of production line to keep assembly costs in check. reasonably large parts volume used would also help keep costs down. Labour would have to be trained but with a repetitive assembly process skills could be enhanced on the job. Hardly likely to run out of stock until the end of the model.

To try and keep costs under control production would start before launch and keep going until a certain level of stock was in inventory.  For a run-away success manufacture might continue and a sales disaster might result in an earlier shut down.

This is the cheapest way to make things but also the most financially risky.

Disadvantages - only suitable for high volume - stock would have to be warehoused, and sold down over an extended period of time.  The cost of manufacture - tooling, parts accumulation, staff training, cost of inventory and merchandising would have to be found up front and justified to financiers.  Slow sales and storage costs can ramp up and eat margins - the payback method of arriving at success or failure would be most appropriate.  The risk of unsold stock becoming obsolete would be huge.  It would take some time to organise the production line and train staff and once the product run was over the released factory space and operating staff would have to be found further duties.  Only large established firms need apply.

The old Olympus?

It would be hard to canvass all the details within a sensible size post.

The other type of process is only suitable for low volume production and the per item price should be high to justify the small scale activity.

This suits $7,500 lenses

Advantages - less risk, profit margins higher, every unit sold should be profitable and stocks would only be high enough to justify the relatively small demand.  Much more flexible and easier to control. Small batches of stock made on the bench by highly trained expert staff when stock levels fall to a known trigger point.  R&D easier as each design is custom built. Might not need special financing.

Easy to resist consumer attempts to get a discount - no sales then the batch production ceases pretty quickly. This is a long term product strategy and the same product might be made and sold in small quantities over a (say) ten year cycle.

Suits a small outfit with relatively low numbers of staff with access to a good machine shop who can turn there hands to assembling multiple be-spoke lens types into product.  The same space could be used for various things over any given time.  Little prospect of space redundancy.

The per item value would be quite high and therefore it would be financially difficult to carry much more than a base working level of made stock.

Disadavantages - can run out of stock.  Only suitable for very expensive items where there is a good profit margin.  A firm depending solely on this method is unlikely to sell a lot of gear.  Nor could. It make them well known - handy enough as a stocking filler if you are already a well known market identity.

The new Olympus?

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Tom Caldwell

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