projecteverest

Adopted Experiment

[Adopted Experiment]: Fuel Timor - Cost Analysis of Solutions January 2019

Lean Phase: Cost Structures, Solution

Assumption: The three currently proposed solutions are economically feasible to produce in Timor at a scale of 100+ customer sales or production rate of 25/month for each solution.

Time Box: January Project Month

Key Metrics:
Cost of goods sold (COGS), including materials and any manufacturing/labour costs
Cost of transporting and/or storing the products once they are made
Manufacturing capacity, how many units/volume of the solution can be made per week/month.
The flexibility of the supply, whether there are order time frames or can be on demand
The viability of importation


Success Metrics: Related to Price testing, ideally we want the costs of our solutions to be lower than the price points identified in Price Testing (link to be posted here)
It is important to note that each maximum cost for feasibility will be different for each solution, however the success/failure points apply the same to all.


Green Light Proceed - Manufacture a decent quantity of the solution to test reliability and timing of the supply chain. Begin manufacturing to allow the development of distribution channels. Larger numbers of sales allow for a range of feedback and improvement in both the product and the processes surrounding it. Also investigate further cost reductions through scale or loyalty agreements.

Success Point - A gross margin of greater than 70% can be achieved on the solution.

Orange Light Optimise - At this point we will need to investigate whether the costs can be reduced by either ordering larger numbers in bulk, importing, and outsourcing more or less of the production. Assessing the features of each solution and if they can be reduced to cut costs while still maintaining functionality of the product.

Failure Point - Less than 40% gross margin is possible for the solution.

Red Light Failure - Assess importing options if locally made is not feasible at all. Investigate briefly what simplification of the product/manufacturing process would make the solution feasible. If none of these options look promising, the solution should be abandoned. Cost analyses should continue until a product is found that is feasible. There is a document with existing solutions for fuel in the google drive to prompt further investigation into pricing and manufacture.

 

Experiment Build:
This experiment is less structured than the usual, as a cost analysis covers a range of aspects and will differ for each solution analysed. The important part is that the key metrics above are covered in detail. It is also important to consider the scale of manufacturing. Prices or quotes should ideally be for a quantity of around 100 or more to get a quote representative of larger scale costs down the track. Cost may be influenced more by ongoing production and therefore the supplier is looking for stable income. In this case prices should be determined for > 25/month production. There may be instances where 500 units for example are required for a bulk price in which case that can be quoted also.

To determine accurate feasibility of the products, a range of hidden costs need to be considered. These include shipping costs, storage of solutions, and if there are likely to be additional costs in distribution due to the solution nature.

 

Experimental Results:
The results should be posted separately for each solution as these will be quite different.

It will be difficult to determine the outcome of this experiment until the results for price testing are determined. This does not mean that the costing should not be conducted until price testing is finished. It is important however to not price on cost, or to allow the results from this experiment to influence the price testing past giving a rough starting point for the price testing.

edited on 6th January 2019, 12:01 by Harry Telford

Lucy Preiss 5 months ago

Status label added: Experiment adopted

Reply 0

Lucy Preiss 5 months ago

Status label added: Proposed Experiment

Status label removed: Experiment adopted

Reply 0

Harry Telford 5 months ago

Status label added: Experiment adopted

Status label removed: Proposed Experiment

Reply 0

James Balzer 5 months ago

Hi Alex,

Really impressed to see how you're considering all of this already. It's definitely a trap that certain Ventures fall into, in that they fail to see things in the long term and therefore don't have short term goals that are geared towards achieving a long term solution that is economically viable and scalable. Good stuff.

I guess the next question is where to get people to produce the goods, and how to arrange this in relation to pricing and the supply chain. Figuring out the "who" is really important, as that sets the precedent for how you can negotiate pricing and scalability in relation to what they can offer.

Likewise, figuring out the "who" of your supply chain distribution measures is also really crucial.

Have you brainstormed some ideas of who you think might be able to produce and distribute the goods associated with this Venture?

Venture on,

James

Reply 0

Share