Smartwave Pod Essay, Research Paper
1.0 Document History
This is a history of the document. The revisions will be described and the authors indicated.
1.1 Authors and Sections
Author Section Numbers
John Webb 4.X 2.0 2.1 2.2 6.X
Noah Everett 5.X 3.11 3.12 3.13
Shannon Campbell 1.X 3.4 3.5 3.7 3.8 3.9 3.10
Thomas Lann 3.0 3.1 3.2 3.3 3.6 2.3 2.4
1.2 Revision History
Number Date Description
Number Date Description
1.0 07 November 2001 Rough Draft
2.0 16 November 2001 First Draft
1.3 References
1. William P. Kopp ?Microwave Oven Radiations Hazards & Standards? http://www.lessemf.com/mw-stnds.html#FDA
(Current 1 Nov. 2001).
2. Andrei Khurshudov ?Compact Disk? http://www.usbyte.com/common/compact_disk.htm
(Current 1 Nov. 2001).
3. ?ECMA-119? http://www.ecma.ch/ecma1/STAND/ECMA-119.HTM (Current 1 Nov. 2001).
4. Nick Johnson ?Spatula Systems – Nick Johnson’s Barcode Specifications ? Spatula Systems? http://www.spatula.net/proc/barcode/upc.src
(Current 1 Nov. 2001).
5. ?EXCERPT FROM STANDARD OF SAFETY Microwave cooking appliances – Underwriters Laboratories Inc ANSI / UL 923?
http://www.ask.com/main/metaAnswer.asp?t=m&s=a&en=directhit&o=0&url=http%3A%2F%2Fask%2Edirecthit%2Ecom%2Ffcgi%2Dbin%2FRedirURL%2Efcg%3Furl%3Dhttp%3A%2F%2Fwww%2Egripi%2Ecom%2Fexcerpt%2Ehtml%26qry%3DWhat%2Bis%2BUL%2B923%26rnk%3D3%26cz%3Dac30f827e403c85b%26src%3DDH%5FAsk%5FSRCH%26u%3D2101618212&ac=-1&pt=EXCERPT+FROM+STANDARD+OF+SATEFY&io=2&qid=DA031792B06E7D4086BF71DC19EFED40&back=ask%3DWhat%2Bis%2BUL%2B923&ask=What+is+UL+923
(Current 1 Nov. 2001).
6. http://www.gallawa.com/microtech/how_work.html
7. http://www.gallawa.com/microtech/xformer.html
8. http://www.gallawa.com/microtech/magnetron.html
9. http://www.gallawa.com/microtech/mwave.html
10. H. W. Berkman and C. Gilson, Advertising: Concepts and Strategies, 2nd ed., New York, Random House, 1990, pp. 199-215.
11. SmartWave, Inc. Internal Document No. 2001.fin.10021, Financial and Business Plan for SmartWave, a UPC-Scanning Microwave Oven, June 2001.
2.0 Executive Summary
Presently, there are many microwave ovens available that cook food. However, it is often awkward and annoying to figure out the correct cook time and power for a microwavable product. We have researched a possible new product that could simplify microwave ovens. The SmartWave is an intelligent microwave oven that determines a product?s cook time and power by scanning the Universal Product Code from the package.
2.1 Market Objectives
The following paragraphs describe the target market, potential competition, and market capacity for the SmartWave product.
2.1.1 Target Market
Four target markets segments have been identified for the SmartWave: consumers, convenience stores, hotel/motel enterprises, and other institutional customers. Refer to section 0 for a definition of each of these market segments.
2.1.2 Competition
Because the SmartWave is a new product concept, current competition is limited to conventional (non UPC-scanning) microwave ovens. Future competition should be expected, however, as other competing manufacturers begin to produce UPC-scanning microwave ovens.
2.1.3 Summary of Market Research
Market research indicates that there are currently 46 million microwave ovens in use in the U.S. today, and that this number is growing by 1.1 million units per year. An additional annual sales volume of 15.4 million units is seen due to replacement of worn-out or outdated units, for a total annual market of 17 million units in 2000. Section 0 discusses goals for penetration of the SmartWave into these markets.
2.2 Financial Goals
Goals for sales, market pricing, and profits, both short- and long-term, for the SmartWave are described in the following paragraphs.
2.2.1 Market Goals
Research indicates that market response is unpredictable when introducing new technology into existing products. Initial market penetration can range from 1% to as high as 9%, depending on the market, the level of technology involved, and marketing strategies [10]. For the SmartWave, we are predicting an initial market penetration of 5%. This means that one out of every 20 microwaves sold will be a SmartWave. Using the 2000 sales figures as a conservative estimate for 2002-2003, this translates to annual sales of 850,000 units for the SmartWave in its first year.
2.2.2 Unit Price
For 2001, the average retail price of microwave ovens ranges from $69.00 to as high as $375.00 depending on size, wattage, and features. The SmartWave is a 600 watt, 1.2 cubic foot oven and would normally sell in the range of $79.00 to $109.00 retail. Because of its unique capability and corresponding advantages, the SmartWave is retail priced at $99.00, or about $5.00 higher than the average competing (non-UPC scanning) unit. The wholesale price for the SmartWave will range from $55.90 to $65.00 each, depending on the number of units purchased. Refer to section 0 for a detailed analysis of market pricing.
2.2.3 Potential Profit
Development costs for the SmartWave are expected to be $1.2 million over the 20-month development effort. Direct manufacturing costs are $24.00 per unit based on production runs of 100,000 units. Other ongoing costs such as general and administrative (G&A) and overhead costs are $19.5 million per year. This translates to a total cost per unit of $50.82, and resulting profit of $5.08 per unit or $4.3 million annually, calculated as follows:
The above figure assumes that all sales of SmartWave products by SmartWave, Inc. are wholesale sales with a unit price of $55.90 and that annual sales volume in the first full year of production is 850,000 units. Refer to section 4.0 for a detailed analysis of costs and profit.
2.2.4 Long-term Estimates
Long-term growth of profits for SmartWave, Inc. will be assured through the continuous development and introduction of innovative SmartWave products into the marketplace. Based on the business plan for SmartWave, Inc., a 20% annual earnings growth is being projected over the company?s first 5 years.
2.3 Product Requirements
2.3.1 The SmartWave will make microwave oven cooking much easier.
The SmartWave will automatically set the cook time and
power by scanning the Universal Product Code or barcode
from the microwavable products package. The UPC scanner
eye will read the UPC on the first try 98% of the time. The
SmartWave will also search its database for cook time and
cooking power based on the UPC in under one second. Like
all other good kitchen appliances, the SmartWave will be
very easy to clean. The owner of a SmartWave will only need
a cloth and regular dish soap to clean the unit. The
cheapest model will cost approximately $100.
2.3.2 Production Requirements
The SmartWave has a more advanced logic system than other microwave ovens. There will be a need to produce circuit boards with components that will need to be mounted by advanced soldering machinery.
2.3.3 Time Frame
The whole process of creation from the beginning of research and development to the end of production development will take approximately 20 months. Each product phase will last six months. However, some phases start while other phases are still proceeding.
2.4 Recommendations
I recommend that we immediately seek funding for the project and begin research. We should also begin organizing engineering, marketing and management teams.
3.0 Product Objective
The SmartWave will be able to scan a UPC from the package of microwavable foods. The SmartWave then searches its database for the cook-time and power that corresponds with the product. After finding the cooking information, the microwave oven prompts the user to open the door, place the food in the SmartWave and then press start. Because of the creation of new microwavable food products the SmartWave?s UPC database will be upgradeable by CD-ROM.
3. 1 Required Features
3.1.1 Design Constraints
The SmartWave must use an embedded processor with a storage device large enough to hold a database of universal product codes and support future upgrades. The economy unit must cost about $100 so that people with low budgets can afford one. The UPC scanner eye will read the UPC on the first try 98% of the time so that the SmartWave is convenient. The SmartWave must also be able to search for the cook time in less then 1 second. Otherwise, people will not like to use the SmartWave because it takes to long. The SmartWave will also heat food evenly so that it is warm all the way through. Outside edges must not be cold or frozen.
3.1.2 Physical Features
The SmartWave will have a UPC scanning eye (2?x2?) above the LCD display, a keypad to activate the UPC reader or to enter the cook time and cook power manually, and a CDROM below the keypad for database and operating system upgrades. The food will be visible during cooking through the viewing window.
3.1.3 Controls
The SmartWave has a keypad with buttons to enter time manually, to set the clock, to start the UPC scanner, to start the microwave oven, a button to stop the microwave oven, and a button to clear the cook time that has already been set. Like other microwave ovens the SmartWave will have an audible alarm to signal when the food is done.
3.1.4 Systems
The SmartWave consists of four different system modules.
3.1.4.1 The input output module is comprised of input output devices such as a keypad, a CDROM, a UPC scanning eye and a hard storage device. The keypad facilitates communication between the user and the SmartWave. The CDROM reads Universal Product Code database information and operating system upgrades from CDs. The hard storage device stores the operating system and the database of UPC. The UPC scanning eye reads universal product codes from the packages of microwavable foods.
3.1.4.2 The software module is comprised of the operating system and the Universal Product Code database. The operating system controls the microwave. The UPC database stores UPC information, cook time and power for every microwavable product.
3.1.4.3 The control module consists of the embedded processor system, the hard storage device interface, the CDROM interface and the microwave generation interface. The embedded processor system controls all of the other system components by communicating with their interface. The hard storage device interface controls the hard storage device and communicates with the processor. The CDROM interface is similar to the hard storage device except that it communicates commands from the processor to the CDROM. The microwave generation interface relays commands from the embedded processor system and controls the system that generates microwaves to cook the food.
3.1.4.4 The microwave generation module produces the microwaves that cook the food.
3.1.4.5 The shell module consists of the door, the door interlock mechanism, the outer case, the frame, and the microwave cavity where the food is cooked.
3.1.5 The SmartWave will have configurations that fit the language requirements for all necessary regions.
3.1.6 Due to the relatively small nature and specialization of the
operating system, it will be necessary to develop it in house.
3.2 Performance Goals
3.2.1 The SmartWave cooks food fully and consistently each time. The food that is cooked will not be cold in the center or on the edges.
3.2.2 The SmartWave will also be easy to use for almost anyone.
The user first presses the scan button and then swipes the
Universal Product Code in front of the UPC scanning eye. Next,
the door is opened, the food inserted and then the door is closed.
Finally, the user presses the start button to begin cooking the food.
3.2.3 The UPC database will also be easy to upgrade. The user only has to insert the upgrade CD into the CDROM. The smart-wave display will prompt the user with the message ?upgrade 1=yes and 2=no?. If the user wishes to upgrade he or she will select one for yes. If the CD is a valid upgrade CD the smart-wave will upgrade its database and then eject the CD.
3.2.4 The SmartWave?s system outputs include the user screen, the cooking subsystem, and the audible alarm. The user screen displays messages from the smart-wave such as cook time. The cooking subsystem outputs microwaves to cook the food inside the microwave oven.
The audible alarm signals the user with sound when the food is done.
3.2.5 Inputs of the SmartWave include the door release button, the keypad, the CDROM and the UPC scanning eye. The door release button is used to open the door to place a cooking product inside the SmartWave. The keypad is used to program the smart-wave with a cooking time and to activate the UPC reader. The CDROM is used to update the UPC database and the operating system. The UPC reader reads universal product codes so the SmartWave can identify the product.
3.3 Platform and Connectivity Requirements
An embedded processor will control the SmartWave. The
SmartWave will also upgrade its database regularly by means of a
CD-ROM.
3.4 Packaging Requirements
3.4.10 Boxes ? Cardboard
Cardboard boxes will be needed to ship the SmartWaves in.
3.4.20 Packing Foam
Some packing foam will be necessary to place inside the boxes to protect the SmartWaves from damage during shipping.
3.4.30 Packing Tape
Packing tape will be used to close the boxes prior to shipment.
3.4.40 Shipping Labels
The customer, retailer, or institutions address will be printed on shipping labels.
3.4.50 Wood Pallets
Bulk SmartWave shipments will be placed on wood pallets and wrapped in plastic.
3.4.60 Plastic Wrap
Plastic wrap will be used to secure the boxed SmartWaves to the wood pallets.
3.5 Standards Adherence
3.5.10 Microwave Ovens
The United States Food and Drug Administration have developed standards for microwave ovens which include the following:
3.5.10.10 Power Density Limits
There is a limit to the amount of microwaves that can be emitted from the SmartWave. It is described in the FDA standards [1]
3.5.10.20 Safety Interlocks
SmartWaves are required to have two safety locks that prevent someone from opening the SmartWave while the power is on.
3.5.10.30 Measurement and Test Conditions
There are standards for the equipment used to measure the emissions from the SmartWave that are described in the FDA Standards [1]. The test will be done with 275+- 15 milliliters of tap water initially at 20+- 5 degrees centigrade in a 600 milliliter beaker with an 8.5 centimeter inside diameter. [1].
3.5.10.40 User Instructions
The SmartWave will have instructions produced in all of the languages supported by the SmartWave. They will conform to the FDA standards for microwave oven instructions.
3.5.10.50 Service Instructions
Microwave oven manufacturers are required to provide service manuals upon request.
3.5.10.60 Warning Labels
Microwave Ovens are required to have warning labels attached to the inside that contain the Phrase, ?PRECAUTIONS FOR SAFE USE TO AVOID POSSIBLE EXPOSURE TO EXCESSIVE MICROWAVE ENERGY DO NOT Attempt to Operate This Oven With: (a) Object Caught in Door. (b) Door That Does Not Close Properly. (c) Damaged Door, Hinge, Latch, or Sealing Surface? [1]. The microwave oven is also required to have a label on the outside which warns owners to have it operated on by a professional repairperson.
3.5.20 CD-ROM
The ECMA Defines CD-ROM standards that include:
I. The attributes of the volume and the descriptors recorded on it [3].
II. The relationship among volumes of a volume set [3].
III. The placement of files [3].
IV. The attributes of the files [3].
V. Record structures intended for use in the input or output data streams of an application program when such data streams are required to be organized as sets of records [3].
VI. Three nested levels of medium interchange [3].
VII. Two nested levels of implementation
requirements for the processes which are provided within information processing systems, to enable information to be interchanged between different systems, utilizing recorded CDROM as the medium of interchange; for this purpose it specifies the functions to be provided within systems which are intended to originate or receive CDROM which conform to this Standard [3].
3.5.30 UPC Standards
There are standards involved for making the barcode that is used in the UPC tag.
3.6 Product Phases
3.6.1 Research
The research phase begins at zero months and ends at six months. Some of the things that will be researched are an implementation of the UPC reader, data storage device, cooking module and platform requirements necessary for control and input and output.
3.6.2 Development
The development phase begins at two months and ends at the 8 months. The control architecture, UPC reader, microwave generation module, data storage, and CDROM interface will be developed during this phase.
3.6.3 Design
The design phase begins at six months and ends at twelve months.
The design phase covers all modules of the SmartWave. The modules are the control module, the input output module, the microwave generation module, and the software module.
3.6.4 Implementation
Implementation starts at eight months and ends at fourteen months. The implementation phase will cover all modules of the smart-wave.
3.6.5 Testing
Testing starts at twelve months and ends at eighteen months.
Unit Testing will begin on each module separately as it is implemented. Once each module has satisfactorily passed each unit test, the modules will be integrated and tested together.
3.6.7 Production Development
Production Development starts at fourteen months and ends at twenty months.
3.7 Installability Requirements.
Installation should be a relatively simple process. All a person is requi
3.8 Support Requirements
3.8.10 Phone Support
Phone support will be provided by a 1-800 Number. Customers will then be directed by an automated system to the correct service technician.
3.8.20 Internet Support
A web page will be designed to answer questions about the SmartWave. It will have an online copy of the service instructions and user manuals. Information on how to order upgrade CDs will be available on the web page.
3.8.30 Repair and Service manuals
Repair and service manuals will be made available upon request.
3.9 Geographic Requirements
3.9.10 Power requirements will be different in various parts of the world so two models of the SmartWave will be produced.
3.9.10.10 120-Volt models will be produced for the United States.
3.9.10.20 220-Volt models will be produced for Europe and other countries
3.9.20 Languages
The SmartWave will have display language options for English, Spanish, Chinese, Japanese, French, German, Italian and Dutch.
3.10 Environment and Safety Standards
3.10.10 The FDA standards are described earlier in section 3.5.A
3.10.20 In addition I found the Underwriters Laboratory Standard of Safety UL 923 on microwave ovens. They were identical to the FDA standards.
3.11 Interdependence with Other Products
The Smart-Wave will need a comprehensive list of all microwave oven safe products currently on the market. This means that the Smart-Wave’s database will be arranged to accommodate the UPC format found on most products with a bar code today. The Smart-Wave’s onboard barcode scanner will also need to be able to read the codes from the products packing easily. This section describes the Smart-Wave’s interdependence with other products
3.11.1 Refills – The Smart-Wave must be capable of updating its
product database for new items on the market. Every six months a new
list of microwave oven safe consumer products will be produced on
CD-ROM.
3.11.2 Parts – The CD-ROMs will be distributed via mail or distributed
to appliance dealers that market the Smart-Wave.
3.11.3 Upgrades –
3.11.3.1 A high performance power control relay will be included in
advanced models.
3.11.3.2 A version will be released with increased processor speed,
memory capacity, and CD-ROM speed for industrial versions.
3.11.3.3 The design of the user interface will be developed to produce a
more user-friendly environment for high-grade models.
3.11.4 Systems -
3.11.4.1 Cooking Style – Rotating Food : The food will be rotated to
distribute the microwaves through the food. A plate will be mounted
on a rotating carousel turning the food slowly. This means the
cooking cavity will be large enough to enclose most microwavable
products and have enough turning power in the rotation motor turn
the food.
3.11.4.2 Scanning Style – Stationary Scanner : The barcode scanner
will be able to read UPCs so that it can identify most microwavable
products. The barcode scanner will be mounted to the front of the
Smart-Wave unit so that most products will be easily scanned.
3.11.5 Power – The Smart-Wave will use a standard 120v wall outlet.
3.12 Make or Buy Considerations
Any parts that are standard on today’s market are to be bought. Any parts that need special modifications or development are to be made. This section specifies which of the SmartWave’s components falls are to be bought and which are to be manufactured.
3.12.1 Parts to be bought – The microwave oven portion of the Smart-Wave will be purchased from the producer who can offer the highest quality for the best price. Only the components that take part in the cooking process will be bought.
3.12.2 Parts to be made – This section lists the components which form the control module. All components in the control module will be bought.
3.12.2.1 The barcode scanner which will be used to identify the product
being cooked by a UPC.
3.12.2.2 The cooking cavity will be used to contain the microwaves while
they heat the product.
3.12.2.3 The outer body will be the main shell of the unit used for
holding the components of the Smart-Wave in place.
3.12.2.4 The processor will be the unit used for controlling the
unit’s operations.
3.12.2.5 A Shielded Door will be used with the cooking cavity to contain
the microwaves while they heat the product.
3.13 Proposed Beta/Special Testing
The special testing will determine whether the SmartWave is easily operated by the common consumer. The testing will have two parts. The first part will test to see if the consumer can update the SmartWave via the CD-ROM. The second part of the testing will determine if the consumer can operate the SmartWave’s cooking features
4.0 Financial Analysis
The following paragraphs establish goals for unit pricing, costs, and resulting profit for each target market segment. The term costs as used here includes fixed and variable production costs, research and development costs, marketing costs, warehousing and distribution costs, and costs of product support after the sale.
In addition, this section addresses predicted sales volumes in both the wholesale and retail sectors, as well as of any special product variants designed specifically for institutional (versus consumer) markets. Finally, it establishes goals for product shipment, again categorized by target market and product variant (where applicable) and resulting profits both short- and long-term. It is expected to be the case that a new start-up company will be established for the development, manufacture, and distribution of this product, therefore section 4.4 (Impact on Existing Products) is not applicable to this POD.
4.1 Cost Targets
The following paragraphs provide a breakdown of target costs for both the development and manufacture of the SmartWave. Development costs are based on the 20-month development cycle described in 3.6, and include a limited initial production run of 10,000 beta units. Production costs are based on a production quantity of 100,000 units. In general, lower costs are expected to be associated with higher production quantities, assuming that production capacity, facilities, and warehousing and distribution are adequate for the quantities produced.
4.1.1 Development Costs
Development costs for the SmartWave include product research and development costs, tooling and facilities costs, and production and testing costs associated with making the initial beta test units.
4.1.1.1 Research and Development
Product research and development for the SmartWave includes product research and requirements analysis, specification development and documentation, and product design and documentation. Cost targets for research and development are listed as follows. Refer to the detailed cost breakdown, SmartWave, Inc. Internal Document No. 2001.fin.10021 [11] for a detailed breakdown of these costs.
4.1.1.2 Tooling and Facilities
Tooling and facilities costs include all costs associated with the development and production of special tooling and fixtures for producing the components of the SmartWave. In addition, they include costs of facilities and equipment to be used in the limited initial production and subsequent full-scale production runs for SmartWave products. The following is a summary of these costs. More detail can be found in 2001.fin.10021.
4.1.1.3 Beta Production and Testing
Costs for the limited initial (beta) production run of SmartWave units is targeted at $65.94 for an initial production quantity of 10,000 units. Costs of testing are targeted at $5.75 per unit, for a total of $71.69, as summarized below. Supporting detail can be found in the detailed cost breakdown, document No. 2001.fin.10021.
4.1.2 Production Costs
After the limited initial production and successful beta testing of the SmartWave product and receipt of management approval to proceed, full-scale production and deployment will begin. At this point, a stable support structure will be developed for the production, marketing, warehousing and distribution, product support, and ongoing research and development efforts at SmartWave, Inc. At that point, production costs for the SmartWave will be based on a standard product cost model. This cost model includes fixed costs, semi-fixed costs, and variable cost elements. The following paragraphs describe each of these cost elements and target values for the SmartWave.
4.1.2.1 Fixed Costs
Fixed costs, also known as General and Administrative (G&A) costs, include costs associated with the management structure of SmartWave, Inc., product marketing and advertising costs, and costs of ongoing product development efforts. Fixed costs are independent of production quantity, and are targeted to be $7.5 million per year for the first 5 years of the company?s life cycle. The following summarizes the breakdown of these costs. Refer to 2001.fin.10021 for a detailed breakdown.
4.1.2.2 Semi-Fixed Costs
Semi-fixed costs, also known as overhead costs, are those costs which are independent of production quantity over a fairly wide range. For example, manufacturing and warehouse facilities costs, production supervisor?s salaries, and shipping costs are all semi-fixed costs. Based on production quantities of 100,000 units, these costs are targeted as follows. Refer to 2001.fin.10021 for more detail
4.1.2.3 Variable Costs
Variable costs are those costs which are directly related to the quantity of units produced, and are sometimes called direct costs. These costs are broken down into parts and materials costs, subcontracted item costs, and labor costs for assembly, testing, and packaging. The following is a breakdown of variable costs by category, again based on production quantities of 100,000 units. Document 2001.fin.10021 provides a detailed cost breakdown within each category.
4.2 Market Pricing Targets
The following paragraphs describe the target markets for the SmartWave product, retail and wholesale price targets, and resulting profit margins for the SmartWave product and for SmartWave, Inc.
4.2.1 Target Markets
Four target markets segments have been identified for the SmartWave, each having different needs, buying patterns, and marketing strategies. The following paragraphs define each of these market segments.
4.2.1.1 Consumers
Consumers are defined as individuals who are buying the SmartWave for use in their home. Consumers? purchases will be heavily driven by advertising and store displays. Purchases will normally be made from retail stores but may also be made using mail-order, phone-order, or internet distribution channels.
4.2.1.2 Convenience Stores
Convenience stores are defined as retail food outlets which sell packaged, ready-to-eat foods, beverages, and other convenience items. Most of these stores are equipped with microwave ovens for heating the food items. Purchases by this market segment will be driven by targeted advertising and may be made from retail stores or wholesale outlets.
4.2.1.3 Hotel/Motel Enterprises
Hotel/motel enterprises are defined as hotels and motels which provide microwave ovens in their guest?s rooms. Purchases by this market segment will be driven by targeted advertising, trade shows, and sales calls by outside sales representatives. Purchases will normally be made from wholesale outlets or through outside sales representatives.
4.2.1.4 Other Institutional Customers
Other institutional customers are defined as commercial, governmental, and educational institutions which provide microwave ovens in break areas for heating packaged food items. Purchases by this market segment will be driven by general advertising, since the diversity of the market does not allow for targeted advertising. Purchases may be made from retail stores, wholesale outlets, or mail/phone/internet order.
4.2.2 Retail pricing and profit margins
Preliminary market research suggests that, to remain competitive with other products on the market, the base model SmartWave should be priced at just under $100 retail. A figure of $99.00 each has been established by the board as the retail price of the SmartWave. With production costs at $50.82 each in 100,000 unit production lots, this reflects a $48.18 total profit across all levels of distribution. Approximately $13.47, or 28% of this total profit is allocated to wholesale distribution outlets and factory operations, leaving $34.71 net profit at the retail level, or $62.09% based on a wholesale cost of $55.90. This is slightly higher than most competitive products, a factor in reducing the risks associated with an unproven product concept and in motivating sales within the retailer?s organization.
4.2.3 Wholesale Pricing and Profit Margins
Wholesale distribution outlets typically operate on lower profit margins than retail outlets, since they have lower overall operating costs and reduced levels of risk exposure due to the assumption of these risks, for the most part, by the manufacturer. Research has shown that a 15% profit margin for the wholesaler is typical for this type of product. This means that wholesalers will gross $7.29 on each SmartWave sold.
4.2.4 Net Profit for SmartWave, Inc.
After allocating $34.71 profit at the retail level and $7.29 at the wholesale level, as described above, $6.18 remains to be divided between SmartWave, Inc. and its independent sales representatives. This reflects a net profit margin of 12.16% based on a total production cost of $50.82.
4.3 Shipment Estimates
Materials, labor, and machinery for packaging SmartWave products for shipment will be allocated to the cost basis for the SmartWave product at the factory level. In other words, the factory cost of each SmartWave product includes all such cost elements. Actual cost of shipping, i.e. the price paid to the commercial carrier for shipment of the product to its destination, will be paid by the purchaser (retail or wholesale), FOB destination.
4.4 Impact on Existing Products
SmartWave, Inc. is a start-up company organized for the purpose of developing the SmartWave product and related products and services. Accordingly, all engineering and manufacturing resources, production lines and machinery, warehousing, and corporate partners will have to be established and in place when needed.
5.0 Risk Analysis
The integration of a UPC scanner and a microwave oven’s user interface and control system is a fairly simple task so the time and money invested would be at a minimal. This means that developing the product would be a low risk decision. This section explains the technical and marketing risks associated with the release of the SmartWave.
5.1 Market
5.1.1 Changes in defined market – When the Smart-Wave is introduced into the market, current microwave oven producers will be forced to update their technology. This means that there will be a decline in the demand for standard microwave ovens and an increase in the demand for the new automated units. The price of standard microwave ovens will fall as the Smart-Wave becomes more popular.
5.2 Technology
5.2.1Challenges in development, integration and costs
5.2.1.1 The control interface will need to be integrated with the barcode scanner.
5.2.1.2 A user interface will need to be developed for ease of use.
5.2.1.3 A comprehensive list of existing microwavable products from all major producers will need to be compiled.
5.3 Competitive
A. Existing competition – No microwave oven versions on the
market are currently equipped with UPC Scanners; however, some models feature preset programs for cooking certain substances of a specified quantity.
B. New competition – With the release of the first UPC Scanner equipped
microwave oven, competition will be a major problem the first year or two of production. A professional and easily used interface will be crucial to win the respect of the public consumer and categorize the product as a necessity and not a luxury.
C. Patent issues – A patent search will be done to search for existing patents with similar models.
6.0 Schedule and Timelines
The following paragraphs establish a timeline for the research and development, prototype, limited initial production, and full-scale production and distribution of the SmartWave. Since it is expected that a new start-up company will be formed to produce this product, many of the elements of the timeline are related to the establishment of the business, acquisition of capital, recruitment of a management team, and establishment of business practices. It is the goal of the product development timeline to break down each product phase into small enough tasks that they may be easily managed by the task leaders within each individual section. At the same time, it must be kept general enough to be used by top-level management and investors for the tracking of progress against investment dollars spent.
6.1 Product Shipment
Based on the product development schedule described in section 3.6, product shipment will begin approximately 6 months after receiving authority and funding to proceed. It is anticipated that, within about six months after initial release of the SmartWave product, competing manufacturers will begin producing similar products. During this six-month window of opportunity, SmartWave, Inc. must establish itself as the dominant producer of smart kitchen products such as the SmartWave oven.
6.2 Product Life Cycle
It is expected that the SmartWave product will undergo several ?phases? with respect to target markets and the marketplace. The first of these occurs immediately upon the introduction of the product to market. In this first phase, the product will be seen as innovative or unique and purchases will be driven by this uniqueness. Next, there will be a desire to purchase SmartWave products in order to remain competitive (particularly within the hotel/motel and convenience store market segments). Finally, as competing manufacturers enter the market and the product concept becomes established, it will become more of a ?staple? item and sales will stabilize. After researching similar products, the conclusion is that our products lifecycle will be 2-3 years in duration.