BASE NDLS EXAM

EOQ Model

A quantitative decision model based on the trade-off between annual inventory holding costs and annual ordering costs

experience curve pricing

Aggressive pricing designed to increase volume and help the firm realize experience curve economies.

Market modification

Attract non-users, more frequent users, win competitors customers

Decline

Changing technology or customer needs, declining demand, potential phase in of a replacement product

Occupancy Cost: Includes

Common area maintenance Fees (CAM) Property taxes Property insurance

Net Working Capital

Companies will try to maintain just enough working capital to ensure short-term liquidity (Not run out of money) This is the cash outflow needed to buy/hold inventory sufficient for a few days sales Year One: Includes primarily the initial outlay Subsequent years: Only need to build additional inventory as sales/COGS increase

Store Contribution Margin %

Contribution margin is a new stores sales revenue minus all associated store level expenses resulting in the incremental profit earned for the new store location Used for estimating the estimate incremental profit as the business scales new store opening. provides a "Hurdle" for new store site selection

How to Classify Expenses: Other expenses-Selling, General, Administrative

Cost of operations not directly related to performing services or selling products

How to Classify Expenses: Variable costs

Costs that are incurred for every unit of volume TVC change in direct proportion to sales/production volume

How to Classify Expenses: Fixed Costs

Costs that do not change despite changes in sales/production volume

Competition oriented approaches

Customary, Loss leader, Above-, At-, Below- Market

Maturity

Demand and product stabilization, increased importance of the cost, process innovation to increase operational efficiency

Occupancy Costs

Determining Occupancy costs = retail rent + NNN Retail rent: Paid per square feet per year Net, Net, Net (NNN): Portions of expenses that tenants or lessees pay in addition to the lease fee (rent) to the landlord or lessor

Coefficients and intercept

Each coefficient estimates the change in the estimate of y per unit increase in x when all other predictors stay the same The intercept is telling you what the predicted value of Y will be if all the independent variables were 0

Manufacturing cells

Efficiency -> Process similar parts or components saving duplication of equipment and labor Often are U shaped to facilitate easier operator and material movements

Market Penetration

Existing customers Current Product Current Market

Purpose of regression anlaysis

Explains one variable as a function of others 3 main goals: Identify which independent variables matter Quantify effect of significant variables Predict value of Y given values of X

Growth

Increasing demand, flexible operations, more data from customers, increasing standardization

How to Classify Expenses: 2 simple ones

Interest Expenses Income taxes

Launch

Introduction into the market and may require process innovation

Logical material flow

Kitchen triangle between sink, fridge and workstation

How to Classify Expenses: Cost of services & Cost of product

Labor and materials directly related to services or product revenue (For NDLS restaurant operation)

Product Life Cycle Stages

Launch, growth, maturity, decline

Understand the Operations

MTO: Make to order ATO: Assembled to order CTO: Cooked to order

How can a mature business achieve growth?

Market modification Product modification Marketing Mix modification, Four P's

Calculating EOQ: Economic Order Quantity

Minimize total acquisition costs; point at which holding and order costs are equal Determine how much to order (Q)

How to Classify Expenses: Depreciation MACRS

Modified Accelerated Cost Recovery System Allows for faster depreciation in the first years of an assets life and slows the depreciation later on. Beneficial from a tax perspective

Process Flow considerations: Kitchen layouts. GOAL

Move people and materials when and where needed quickly

Net Present Value

NPV is the difference between the present value of cash inflows and cash outflows over a period of time NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project

Financial Analysis Metrics

Net Present Value (NPV) Internal Rate of Return (IRR)

Product Development

New Product New Product Current Market

Diversification

New Products & Market New Product New Market

Market Development

New Stores Current Product New Market

Product modification

New improved products, features or style increase appeal

CTO NDLS

Noodles operation -> Dish was not fully pre-made

NDLS Challenge in 2018

Opened too many stores too quickly Had to close them because location wasn't optimized for target market segment Expanded the menu beyond core offerings -Result: Declining same store sales, inconsistent customer experience

Reminder about P values in the context of coefficients

P value gives us an idea about the significance of each variable A small P value indicates the variable is important to the model A large P value indicates the variable is probably unnecessary to the model

bundle pricing

Packaging together two or more complementary products and selling them at a single price

Four P's

Product, Place, Promotion, Price Price Change Distribution Advertising Sales Promotion

Formula: Store Contribution Margin Percentage

SCMR% (Pre-tax) = Store contribution to profit/Sales Revenue SCMR% (Post-tax) = Store contribution to profit (After taxes)/Sales Revenue

EOQ Formula

SQRT((2DCo)/UCi D = Annual demand in Units/year Co = Ordering costs per order UCi = Holding costs per unit per year

What does the EOQ do

Seeks to determine an optimal order quantity where the sum of the annual order cost and the annual inventory holding cost is minimized

How to Classify Expenses: Depreciation & Amortization

Spreading the cost portion of an asset costs spread over a specific time, usually the assets useful life Non-cash expenses that has cash impact on income tax expense - Deduct depreciation expense to arrive at taxable income and income tax expenses add back to arrive at cash flows

Assessing Overall model significance: F-test

The F test indicates statistical significance of the overall model F tests tell us whether there is any relationship between the independent and dependent variables It starts out assuming that there is no relationship between X and Y values (Null hypothesis) and tests to see if that is true The significance F value is the probability that the null hypothesis is true

coefficient of determination R^2

The percent of changes in y that are explained by changes in x The higher the R^2 the better job the X is of predicting the Y Extraneous factors or unnecessary variables the bigger the difference between R^2 and adjusted R^2 Merely having a larger R^2 is not necessarily better

Normal Distribution refresher

The values occurring towards the edges of the bell curve have a much lower probability of happening due to mere random chance

Internal Rate of Return

This is the minimum acceptable ROI to breakeven (NPV=0) Helps calculate what % return is required to breakeven on an investment adjusted for the time value of money

How to Classify Expenses: Amortization

Used for intangible assets Amortization is almost always implemented using straight line method

How to Classify Expenses: Depreciation

Used for tangible assets Depreciation can be implemented using either straight line or accelerated methods

Lean Layouts

Visually oriented, lines of visibility are unobstructed - operators at one processing center are able to monitor work at another

Past New Entrée failures

Why adding sandwiches was not a good decision - didn't fit the brand or cooking operational flow How did sandwiches differ operationally from noodles - Different ingredients & steps to prepare

standard markup pricing

adding a fixed percentage to the cost of all items in a specific product class

prestige pricing

charging a high price to help promote a high-quality image

4 Pricing approaches

demand oriented, cost oriented, profit oriented, competition oriented

Ansoff Growth Opportunity Matrix

market penetration, market development, product development, diversification

customary pricing

pricing on the basis of tradition

target pricing

set prices based on what you think customers are willing to pay based on perceived value

penetration pricing

setting a low initial price on a new product to appeal immediately to the mass market

odd-even pricing

setting prices a few dollars or cents under an even number

skimming pricing

setting the highest initial price that customers really desiring the product are willing to pay

demand oriented approaches

skimming, penetration, prestige, price lining, odd-even, target, bundle, yield management

cost-oriented approaches

standard markup, cost-plus, experience curve

cost-plus pricing

summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price

Profit oriented approaches

target profit, target return on sales, target return on investment

yield management pricing

the charging of different prices to maximize revenue for a set amount of capacity at any given time

price lining

the practice of offering a product line with several items at specific price points

loss leader pricing

the pricing policy of setting prices very low or even below cost to attract customers into a store