Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Industry and Team Specific Points
C66537 General: Immensely competitive Industry. Andrews and Chester are locked in a fight for market leadership in the industry. Expect to see more ups and downs as the years pass. Erie made losses this year. Low sales for Erie. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. The top-line for Andrews has shown good growth in the last financial year. Contribution margins are low for Digby. You will find it hard to make a profit with contribution margins below 30%. Emergency loans were seen for Digby and Erie. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Except Erie, all teams had a rise in stock price. Eries stock price remained constant. Andrews is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Andrews, Baldwin, Chester and Ferris had a rise in market share of 2.5%, 0.6%, 1.5% and 2.2% respectively. Digby and Erie had a fall in market share of 2.8% and 3.9% respectively. Low sales for Erie. This was caused by: Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. High price /pricing outside the price range for Eion. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Except Chester and Digby, all teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: Erie had bottom line in red. The reasons are known to you: High Unsold Inventory Levels Unnecessarily high depreciation due to low plant utilization Contribution Margin: Digby needs to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult if your margins are not above 30%. Even your profit will come out from this margin! Emergency Loans: Digby and Erie have emergency loans. The reasons are Digby For a cash outflow of $31.8M (plant improvements + retirement of current debt), you did not raise a penny. Raise funds from long term and current debt to repay this emergency loan. Erie For retirement of current debt of $36M, you raised $4M from sale of plant. You also have high unsold inventory worth $49M. Raise funds from long term and current debt to repay this emergency loan. It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Plant Size and Utilization: Digby and Erie need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Asset Turnover: Erie needs to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Erie has high levels of unsold inventory. This results from poor forecasting and being overly optimistic. Remember the high degree of competition in the industry. Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Andrews leads the industry. Baker and Daze need improvement in their specs. Low End Segment: Chester leads the industry. Ebb and Feast are out of the fine cut for this segment. High End Segment: Erie leads the industry. Eion and Dixie are overpriced (outside the price range). Performance Segment: Andrews leads the industry. Edge and Foam need improvement in their specs. Dot is overpriced (outside the price range). Size Segment: Ferris leads the industry. Egg needs improvement in its spec. This has become a sellers market. Teams should strategize accordingly. . Financial Management: Andrews and Digby have idle cash worth $54M and $45M respectively. That is high. Please reconcile and use it to fund your growth. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Baldwin and Chester have improved the productivity of their employees well. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66538 General: All teams made losses this year. Low sales for Erie. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. The top-line for Chester has shown good growth in the last financial year. Contribution margins are low for Digby. You will find it hard to make a profit with contribution margins below 30%. Emergency loans were seen for Digby and Ferris. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Chester and Ferris had a rise in stock price of $2/share and $5.3/share respectively. Andrewss stock price remained constant. Baldwin, Digby and Erie had a fall in stock price of $0.6/share, $23/share and $2/share respectively. Chester is the most valuable company measured by market cap. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Baldwin and Chester had a rise in market share of 2.2% and 4.3% respectively. Ferriss market share remained almost constant. Andrews, Digby and Erie had a fall in market share of 1.4%, 4% and 1.1% respectively. Low sales for Erie. This was caused by: Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. High price /pricing outside the price range for Egg. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. All teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case Capstone Business Simulation 2014: Competition Round 3 Great Lakes
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: All teams had bottom lines in red. The reasons are known to you: Low Contribution Margin for Digby High Unsold Inventory Levels for Andrews, Digby and Erie Unnecessarily high depreciation due to low plant utilization for Baldwin, Erie and Ferris Contribution Margin: Digby needs to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult if your margins are not above 30%. Even your profit will come out from this margin! Emergency Loans: Digby and Ferris have emergency loans. The reasons are Digby For a cash outflow of $33.3M (plant improvements + retirement of long term and current debt), you did not raise a penny. You also have high unsold inventory worth $39M. Raise funds from long term and current debt to repay this emergency loan. Ferris For a cash outflow of $25.3M (plant improvements + dividends + retirement of long term and current debt), you did not raise a penny. Raise funds from long term and current debt to repay this emergency loan. It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Plant Size and Utilization: Erie and Baldwin need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Asset Turnover: Erie needs to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Andrews, Digby and Erie have high levels of unsold inventory. This results from poor forecasting and being overly optimistic. Remember the high degree of competition in the industry. Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Chester leads the industry. Low End Segment: Chester leads the industry. Feat does not have the ideal age for this segment. High End Segment: Ferris leads the industry. Fist and Adam need improvement in their specs. Feast is overpriced (outside the price range). Performance Segment: Andrews leads the industry. Dot and Bold need improvement in their specs. Foam is overpriced (outside the price range). Size Segment: Chester leads the industry. Egg and Buddie are overpriced (outside the price range). . Financial Management: Erie has idle cash worth $28M. That is high. Please reconcile and use it to fund your growth. Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 Capstone Business Simulation 2014: Competition Round 3 Great Lakes
days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Baldwin, Chester and Erie have improved the productivity of their employees well. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66539 General: Baldwin, Digby, Erie and Ferris made losses this year. Low sales for Baldwin. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. Emergency loans were seen for Baldwin and Ferris. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Andrews, Chester and Digby had a rise in stock price of $5/share, $0.05/share and $5/share respectively. Baldwin, Erie and Ferris had a fall in stock price of $7/share, $5/share and $12/share respectively. Chester is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Baldwin, Digby and Ferris had a rise in market share of 0.3%, 0.1% and 0.2% respectively. Andrews, Chester and Erie had a fall in market share of 0.2% each. Low sales for Baldwin. This was caused by: Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. High price /pricing outside the price range for Bigred. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. Except Erie, all teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: Baldwin, Digby, Erie and Ferris had bottom lines in red. The reasons are known to you: High Unsold Inventory Levels Unnecessarily high depreciation due to low plant utilization for Baldwin and Digby Emergency Loans: Baldwin and Ferris have emergency loans. The reasons are Baldwin For a cash outflow of $13.5M (retirement of long term and current debt), you raised $7.4M from sale of plant. Raise funds from long term and current debt to repay this emergency loan. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Ferris For a cash outflow of $29.9M (plant improvements + retirement of long term debt), you raised $10M from sale of stock. Raise funds from long term and current debt to repay this emergency loan. It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Plant Size and Utilization: Baldwin and Digby need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Asset Turnover: Digby and Erie need to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Andrews leads the industry. Low End Segment: Ferris leads the industry. Bead does not have the ideal age for this segment. High End Segment: Andrews leads the industry. Performance Segment: Andrews leads the industry. Bold and Foam need improvement in their specs. Size Segment: Erie leads the industry. Buddy needs improvement in its spec. Bigred overpriced (outside the price range). . Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Financial Management: Chester has idle cash worth $15M. Please reconcile and use it to fund your growth. Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Chester and Digby have improved the productivity of their employees well. Ferris has been running overtime. We have learnt in the practice rounds that this is an expensive way of production. Do consider. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66540 General: Immensely competitive Industry. Chester and Ferris are locked in a fight for market leadership in the industry. Expect to see more ups and downs as the years pass. Baldwin made losses this year. Low sales for Baldwin. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. The top-line for Chester has shown good growth in the last financial year. Contribution margins are low for Baldwin. You will find it hard to make a profit with contribution margins below 30%. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Except Baldwin, all teams had a rise in stock price. Baldwin had a fall in stock price of $8.7/share. Chester is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Andrews, Chester and Digby had a rise in market share of 1.5%, 3.7% and 0.4% respectively. Baldwin, Erie and Ferris had a fall in market share of 3.8%, 1% and 0.7% respectively. Low sales for Baldwin. This was caused by: Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. Except Baldwin, all teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: Baldwin had bottom line in red. The reasons are known to you: Low Contribution Margin High Unsold Inventory Levels Unnecessarily high depreciation due to low plant utilization Contribution Margin: Baldwin needs to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult if your margins are not above 30%. Even your profit will come out from this margin! Plant Size and Utilization: Andrews, Baldwin and Ferris need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Forecasting and Inventory: Baldwin and Erie have high levels of unsold inventory. This results from poor forecasting and being overly optimistic. Remember the high degree of competition in the industry. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Digby leads the industry. Low End Segment: Digby leads the industry. Bead does not have the ideal age for this segment. High End Segment: Chester leads the industry. Cid, Fist and Bid need improvement in their specs. Performance Segment: Chester leads the industry. Bold and Foam need improvement in their specs. Fame is overpriced (outside the price range). Size Segment: Chester leads the industry. Buddy, Dune, Egg and Fume need improvement in their specs. . Financial Management: Digby has idle cash worth $39M. That is high. Please reconcile and use it to fund your growth. Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Baldwin, Chester and Ferris have improved the productivity of their employees well. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker Capstone Business Simulation 2014: Competition Round 3 Great Lakes
productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66541 General: Immensely competitive Industry. Expect to see more ups and downs as the years pass. Baldwin and Erie made losses this year. Low sales for Erie. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. The top-line for Digby has shown good growth in the last financial year. Contribution margins are low for Erie. You will find it hard to make a profit with contribution margins below 30%. Emergency loans were seen for Baldwin, Digby and Erie. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Andrews, Chester, Digby and Ferris had a rise in stock price of $5/share, $12/share, $0.2/share and $16/share respectively. Eries stock price remained constant. Baldwin had a fall in stock price of $7/share. Andrews is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Baldwin, Digby and Erie had a rise in market share of 0.1%, 2.5% and 0.3% respectively. Andrews, Chester and Ferris had a fall in market share of 0.4%, 0.5% and 2% respectively. Low sales for Erie. This was caused by: Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
High price /pricing outside the price range for Echo. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. All teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: Baldwin and Erie had bottom lines in red. The reasons are known to you: Low Contribution Margin for Erie High Unsold Inventory Levels Contribution Margin: Erie needs to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult if your margins are not above 30%. Even your profit will come out from this margin! Emergency Loans: Baldwin, Digby and Erie have emergency loans. The reasons are Baldwin For a cash outflow of $50.6M (plant improvements + retirement of current debt), you raised $22.6M (sale of stock + long term debt). You also have high unsold inventory worth $23.6M. Raise funds from long term and current debt to repay this emergency loan. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Digby For a cash outflow of $48.5M (plant improvements + retirement of current debt), you raised $21.5M (long term debt + current debt). Raise funds from long term and current debt to repay this emergency loan. Erie For a cash outflow of $30.5M (purchase of stock + retirement of current debt), you raised $18.4M (sale of plant + sale of stock + current debt). You also had high unsold inventory worth $73M. Raise funds from long term and current debt to repay this emergency loan. It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Plant Size and Utilization: Andrews and Chester need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Asset Turnover: Baldwin and Erie need to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Baldwin and Erie have high levels of unsold inventory. This results from poor forecasting and being overly optimistic. Remember the high degree of competition in the industry. Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Chester leads the industry. Low End Segment: Chester leads the industry. Feat and Bead do not have the ideal age for this segment. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
High End Segment: Digby leads the industry. Echo, Fist and Bid need improvement in their specs. Durex, Adam, Ace and Dixie are overpriced (outside the price range). Performance Segment: Chester leads the industry. Bold is overpriced (outside the price range). Size Segment: Erie leads the industry. Fume and Buddy need improvement in their specs. Budd is overpriced (outside the price range). . Financial Management: Ferris has idle cash worth $28M. That is high. Please reconcile and use it to fund your growth. Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Baldwin, Chester and Digby have improved the productivity of their employees well. Andrews has been running overtime. We have learnt in the practice rounds that this is an expensive way of production. Do consider. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes
C66542 General: Chester, Digby and Erie are locked in a fight for market leadership in the industry. Expect to see more ups and downs as the years pass. Low sales for Chester and Ferris. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. The top-line for Digby has shown good growth in the last financial year. Contribution margins are low for Chester. You will find it hard to make a profit with contribution margins below 30%. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Except Digby, all teams had a rise in stock price. Digby had a fall in stock price of $1/share. Ferris is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Andrews and Digby had a rise in market share of 1.1% and 3.7% respectively. Baldwin, Chester, Erie and Ferris had a fall in market share of 1.6%, 2.3%, 0.5% and 0.4% respectively. Low sales for Andrews. This was caused by: Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Except Andrews and Baldwin, all teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Contribution Margin: Chester needs to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult if your margins are not above 30%. Even your profit will come out from this margin! Plant Size and Utilization: Andrews and Baldwin needs improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a Capstone Business Simulation 2014: Competition Round 3 Great Lakes
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Forecasting and Inventory: Digby has stocked out in multiple segments. This results from poor forecasting. Remember the high degree of competition in the industry. Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Baldwin leads the industry. Low End Segment: Ferris leads the industry. Bead does not have the ideal age for this segment. High End Segment: Chester leads the industry. Fist and CC need improvement in their specs. Dexter, Fist, Fool, Dixie and Echo are overpriced (outside the price range). Performance Segment: Ferris leads the industry. Coat is overpriced (outside the price range). Size Segment: Baldwin leads the industry. Cure and Egg are overpriced (outside the price range). . Financial Management: Andrews has idle cash worth $28M. That is high. Please reconcile and use it to fund your growth. Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
HR Module: Digby and Ferris have improved the productivity of their employees well. Baldwin has been running overtime. We have learnt in the practice rounds that this is an expensive way of production. Do consider. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66543 General: Immensely competitive Industry. Expect to see more ups and downs as the years pass. Digby made losses this year. Low sales for Digby. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. The top-line for Ferris has shown good growth in the last financial year. Emergency loan was seen for Digby. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Andrews, Baldwin, Chester and Ferris had a rise in stock price of $11/share, $6/share, $3/share and $5/share respectively. Digby and Erie had a fall in stock price of $10/share and $1/share respectively. Baldwin is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Andrews, Baldwin and Ferris had a rise in market share of 1.8%, 0.8% and 5% respectively. Chester, Digby and Erie had a fall in market share of 1.4%, 4.6% and 1.6% respectively. Low sales for Digby. This was caused by: Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. Except Chester and Digby, all teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: Digby had bottom line in red. The reasons are known to you: Low Sales High Unsold Inventory Levels for Andrews and Digby Unnecessarily high depreciation due to low plant utilization Contribution Margin: Digby needs to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. Even your profit will come out from this margin! Emergency Loans: Digby has an emergency loan. The reasons are Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Digby For a cash outflow of $32.1M (dividends + retirement of current debt), you raised $11.7M (sale of plant). You also have high unsold inventory worth $31M. Raise funds from long term and current debt to repay this emergency loan. It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Plant Size and Utilization: Andrews and Digby need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Asset Turnover: Digby needs to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Chester, Digby and Erie have high levels of unsold inventory. This results from poor forecasting and being overly optimistic. Remember the high degree of competition in the industry. Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Baldwin leads the industry. Low End Segment: Baldwin leads the industry. Feat does not have the ideal age for this segment. High End Segment: Baldwin leads the industry. Fist and Adam need improvement in their specs. Ahana is overpriced (outside the price range). Performance Segment: Ferris leads the industry. Dot, Coat and Aft need improvement in their specs. Edge is overpriced (outside the price range). Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Size Segment: Andrews leads the industry. Dune needs improvement in its spec. . Financial Management: Andrews has idle cash worth $45M. That is high. Please reconcile and use it to fund your growth. Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Baldwin has improved the productivity of their employees well. Baldwin has been running overtime. We have learnt in the practice rounds that this is an expensive way of production. Do consider. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66544 General: Baldwin and Ferris made losses this year. Low sales for Baldwin. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. The top-line for Andrews has shown good growth in the last financial year. Contribution margins are low for Baldwin and Ferris. You will find it hard to make a profit with contribution margins below Capstone Business Simulation 2014: Competition Round 3 Great Lakes
30%. Emergency loans were seen for Andrews, Baldwin, Chester and Ferris. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Andrews, Chester, Digby and Erie had a rise in stock price of $14/share, $0.4/share, $17/share and $4/share respectively. Baldwin and Ferris had a fall in stock price of $35/share and $18/share respectively. Andrews is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Andrews, Chester, Erie and Ferris had a rise in market share of 3.9%, 1.4%, 1.2% and 0.1% respectively. Baldwin and Digby had a fall in market share of 5.6% and 1% respectively. Low sales for Baldwin. This was caused by: Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. High price /pricing outside the price range for Bold, Buddy and Blue. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. All teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this Capstone Business Simulation 2014: Competition Round 3 Great Lakes
This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: Baldwin and Ferris had bottom lines in red. The reasons are known to you: Low Contribution Margin High Unsold Inventory Levels Contribution Margin: Baldwin and Ferris need to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult if your margins are not above 30%. Even your profit will come out from this margin! Emergency Loans: Andrews, Baldwin, Chester and Ferris have emergency loans. The reasons are Andrews For a cash outflow of $34.5M (plant improvements + purchase of stock + retirement of current debt), you raised $6M (current debt). Raise funds from long term and current debt to repay this emergency loan. Baldwin For a cash outflow of $34M (plant improvements + dividends + retirement of current debt), you raised $15M (sale of stock + current debt). You also have high unsold inventory worth $57M. Raise funds from long term and current debt to repay this emergency loan. Chester For a cash outflow of $52.4M (plant improvements + purchase of stock + retirement of long term and current debt), you raised $4M from current debt. Raise funds from long term and current debt to repay this emergency loan. Ferris For a cash outflow of $32.5M (plant improvements + purchase of stock + retirement of long term and current debt), you did not raise a penny. You also have high unsold inventory worth $34M. Raise funds from long term and current debt to repay this emergency loan. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Plant Size and Utilization: Digby and Erie need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Asset Turnover: Baldwin needs to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Baldwin, Digby and Ferris have high levels of unsold inventory. This results from poor forecasting and being overly optimistic. Remember the high degree of competition in the industry. For example, Baldwin has an inventory of $57M. Had they sold all that, it would mean sales of another $110M approximately. They already had sales of $120M in this round, if this expected sales is added to it, it comes out to $230M! Did you actually think you can sell all that in Round 3 itself? That would be overly optimistic. Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Andrews leads the industry. Low End Segment: Andrews leads the industry. Acre does not have the ideal age for this segment. High End Segment: Chester leads the industry. Bid and Draco need improvement in their specs. Echo, Ahigh, Fist and Blue are overpriced (outside the price range). Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Performance Segment: Ferris leads the industry. Except Edge and Coat, all products are overpriced (outside the price range). Size Segment: Andrews leads the industry. Agape, Buddy, Fume and Dune are overpriced (outside the price range). . Financial Management: Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Erie and Ferris have improved the productivity of their employees well. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66545 General: Immensely competitive Industry. Andrews and Baldwin are locked in a fight for market leadership in the industry. Expect to see more ups and downs as the years pass. Chester made losses this year. Low sales for Chester. The reasons for your low sales are known to you all by now and are given below in the sales paragraph. The top-line for Andrews Capstone Business Simulation 2014: Competition Round 3 Great Lakes
has shown good growth in the last financial year. Contribution margins are low for Chester. You will find it hard to make a profit with contribution margins below 30%. Emergency loan was seen for Chester. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Except Chester, all teams had a rise in stock price. Chester had a fall in stock price of $10/share. Andrews is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Andrews and Erie had a rise in market share of 1.9% and 1.2% respectively. Baldwin, Chester, Digby and Ferris had a fall in market share of 0.6%, 0.4%, 0.7% and 1.4% respectively. Low sales for Chester. This was caused by: Poor product specifications (performance and size); look at the ideal spot on the perceptual map. Look at your product specifications. If you do not offer the customers the specifications they desire, sales will suffer. High price /pricing outside the price range for Coat. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget. Please pay more attention to the 4Ps of marketing: improve your sales. All teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this Capstone Business Simulation 2014: Competition Round 3 Great Lakes
This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: Chester had bottom line in red. The reasons are known to you: Low Contribution Margin High Unsold Inventory Levels Unnecessarily high depreciation due to low plant utilization Contribution Margin: Chester needs to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult if your margins are not above 30%. Even your profit will come out from this margin! Emergency Loans: Chester has an emergency loan. The reasons are Chester For a cash outflow of $14.2M (plant improvements + retirement of current debt), you did not raise a penny. You also have high unsold inventory worth $44M. Raise funds from long term and current debt to repay this emergency loan. It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Plant Size and Utilization: Baldwin, Chester and Ferris need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it Capstone Business Simulation 2014: Competition Round 3 Great Lakes
must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Asset Turnover: Chester needs to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Chester has high levels of unsold inventory. This results from poor forecasting and being overly optimistic. Remember the high degree of competition in the industry. Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Erie leads the industry. Low End Segment: Ferris leads the industry. High End Segment: Andrews leads the industry. Cid needs improvement in its spec. Echo, Dexter and Fist are overpriced (outside the price range). Performance Segment: Baldwin leads the industry. Bold, Coat and Dot need improvement in their specs. Aft, Edge, Bing, Foam and Coat are overpriced (outside the price range). Size Segment: Erie leads the industry. Cure, Agape and Buddy need improvement in their specs. Egg and Agape are overpriced (outside the price range). . Financial Management: Digby has idle cash worth $27M. That is high. Please reconcile and use it to fund your growth. Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Andrews, Digby and Ferris have improved the productivity of their employees well. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66547 General: Immensely competitive Industry. Chester and Ferris are locked in a fight for market leadership in the industry. Expect to see more ups and downs as the years pass. Andrews made losses this year. Emergency loan was seen for Andrews. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Except Andrews, all teams had a rise in stock price. Andrewss stock price remained constant at $1/share. Ferris is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Baldwin, Digby and Erie had a rise in market share of 0.6%, 0.2% and 0.4% respectively. Andrews, Chester and Ferris had a fall in market share of 0.5%, 0.4% and 0.2% respectively. Please pay more attention to the 4Ps of marketing: improve your sales. Except Chester and Digby, all teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 = $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Profits: Andrews had bottom line in red. The reason is known to you: Unnecessarily high depreciation due to low plant utilization Contribution Margin: Andrews and Chester need to improve their contribution margins. There are fixed costs and SG&A costs that need to be covered from sales. Even your profit will come out from this margin! Emergency Loans: Andrews has an emergency loan. The reasons are Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Andrews For a cash outflow of $63.5M (plant improvements + purchase of stock + retirement of long term and current debt), you raised $10M (current debt). Raise funds from long term and current debt to repay this emergency loan. It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Plant Size and Utilization: Andrews and Baldwin need improvement in plant utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally. Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Asset Turnover: Baldwin and Digby need to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Andrews, Chester and Erie have stocked out in multiple segments. This results from poor forecasting. Remember the high degree of competition in the industry. Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Ferris leads the industry. Low End Segment: Baldwin leads the industry. Ebb does not have the ideal age for this segment. High End Segment: Echo leads the industry. EchoN is overpriced (outside the price range). Performance Segment: Ferris leads the industry. Foam needs improvement in its spec. Aft and Edge are overpriced (outside the price range). Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Size Segment: Andrews leads the industry. Egg and Buddy are overpriced (outside the price range). . Financial Management: Digby has idle cash worth $12M. That is high. Please reconcile and use it to fund your growth. Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Digby and Erie have improved the productivity of their employees well. Chester has been running overtime. We have learnt in the practice rounds that this is an expensive way of production. Do consider. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you.
C66549 General: Andrews and Baldwin are locked in a fight for market leadership in the industry. Expect to see more ups and downs as the years pass. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
The top-line for Chester has shown good growth in the last financial year. Emergency loans were seen for Baldwin and Chester. Please read the paragraph on emergency loans below. Some teams are still repeating the mistakes made in the practice round. Stay away from large unsold inventories and emergency loans. Stock Price and Market Cap: Andrews and Chester had a rise in stock price of $3/share and $7/share respectively. Baldwin and Digby had a fall in stock price of $14/share and $0.7/share respectively. Andrews is the most valuable company measured by market cap. Stock price is affected by performance, asset base, debt, dividend policy, and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications. Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price. This shows that investors are losing confidence in your companies. Dont let that happen. Profits and cash: both are imperative and foundational. Remember your company could be profitable but still have a cash crisis. Profits do not equal cash! Sales: Chester had a rise in market share of 3.2%. Andrews, Baldwin and Digby had a fall in market share of 1.8%, 2.9% and 1.4% respectively. Please pay more attention to the 4Ps of marketing: improve your sales. All human teams have introduced new products in the market. Each team can launch up to three new products. More products help you capture more market share. Remember everyone started with a market share of 16.67%. Had you maintained this, your sales for this round would be $140M.Where does your team stand? Sales to Current Assets: Examine this This ratio asks the question, Given our sales base, do we have adequate current assets to operate the company? Current assets are comprised of Cash, Accounts Receivable and Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The accounts receivable policy (for example, 30 day terms) is a direct function of Sales. Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether a company has adequate Current Assets to operate the company. For example, suppose the company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84 Capstone Business Simulation 2014: Competition Round 3 Great Lakes
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31 Million. Sales/Current Assets = 3.8. Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets which should either be put to work or given back to shareholders as a dividend or stock repurchase. Emergency Loans: Baldwin and Chester have emergency loans. The reasons are Baldwin For a cash outflow of $33M (plant improvements + retirement of current debt), you did not raise a penny. You also have high unsold inventory worth $26M. Raise funds from long term and current debt to repay this emergency loan. Chester For a cash outflow of $29.3M (plant improvements + purchase of stock + retirement of long term and current debt), you did not raise a penny. Raise funds from long term and current debt to repay this emergency loan. It would be prudent to develop worst case and best case scenarios using the forecasting (marketing module) and production modules. Plant Size and Utilization: Overall Plant Utilization: Consider this Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated as Total Production / Total Capacity. It is easy to demonstrate that second shift is nearly always more profitable than first shift. This often surprises participants who look at the 50% second shift wage premium and assume that second shift must be something to avoid. But suppose we only run one shift by necessity it must pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, and Interest. Anything on second shift only pays for the 50% premium on labor. It follows that we want to run as much second shift as possible. In a perfect world, we would run two shifts, our best case demand forecast would come true, and we would have only one unit of inventory left at the end of the year. On the other hand, if we max out second shift, there is a good chance we could stock out, and stock outs are very costly. Therefore, 170% plant utilization or more is considered excellent and 130% satisfactory. Asset Turnover: Baldwin and Digby need to work their assets harder. They have an asset turnover of less than one. Forecasting and Inventory: Baldwin and Digby have high levels of unsold inventory. This results from poor forecasting and being overly optimistic. Remember the high degree of competition in the industry. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have such large stock piles of inventory. Please do not go by computer forecasts. Read the explanation on forecasting in the Capstone online guide. Segment Wise Product Analysis: Traditional Segment: Erie leads the industry. Low End Segment: Andrews leads the industry. High End Segment: Chester leads the industry. Adam, Acer and Dolly need improvement in their specs. Performance Segment: Chester leads the industry. Aft, Bold, Coat and Dot need improvement in their specs. Size Segment: Ferris leads the industry. Agape, Buddy, Dune and Cure need improvement in their specs. Agape is overpriced (outside the price range). . Financial Management: Credit Policy Your company determines the number of days between transactions and payments. For example, your company could give customers 30 days to pay their bills ( accounts receivable) while holding up payment to suppliers for 60 days ( accounts payable). Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a loan from your suppliers. The accounts receivable lag impacts the customer survey score. If your company offers no credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days, the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer the lag, the more cash is tied up in receivables. The accounts payable lag has implications for Production. Suppliers become concerned as the lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60 days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150 days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise. HR Module: Chester and Digby have improved the productivity of their employees well. In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments accordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker productivity and increase demand. Please ensure you manage your cash account as you make these investments. While inputting your decisions in the TQM sheet on Capstone, observe the worst case and best case benefits that accrue to you. Capstone Business Simulation 2014: Competition Round 3 Great Lakes
A Note on Customer Satisfaction
The Customer Satisfaction category examines your performance from the customer's perspective. Each of your products can earn points if it meets four criteria: 1. It must sell 50 thousand units during the year. 2. It cannot stock out. However, if the product's plant is running at maximum utilization (a complete second shift) the stock out rule is waived. (There are times when a competitor's unforeseen actions could cause capacity shortages.) 3. Its December Customer Survey score must be 30 or more. 4. The product must be available for sale by Dec. 31 of the previous year. All products that sell at least one unit during the year are considered. If the company has five products that sold at least one unit, then each product can contribute 20 points. If it has eight products making sales, each product can contribute 12.5 points. Since some products make sales in two or more segments, the algorithm produces a weighted average. For example, if a product sold 900 units in Traditional with a score of 40, and 100 units in High End with a score of 10, the weighted average would be (900*40 + 100*10) / 1000 = 37.
A products December Customer Survey Score is developed using marketings "4 Ps" 1. Product 2. Price 3. Promotion 4. Place Product and Price The Survey evaluates the product against the buying criteria. A perfect score of 100 results when the product: a. Is priced at the bottom of the expected range. b. Is positioned at the Ideal Spot. (Because the segment moves each month, this can occur only once each year.) c. Has an MTBF specification at the top of the expected range. d. Has the ideal age for that segment. (Because the product ages each month, it can only have the segment ideal once each year.) Capstone Business Simulation 2014: Competition Round 3 Great Lakes
Promotion Promotion, driven by your promo budget, creates product awareness before customers shop. If customers are not aware of the product, they are less likely to buy, and that drags down the Survey score.
Think of it this way. Suppose you had a perfect product a perfect design at a rock bottom price. Further, customers have no trouble finding your product when they shop, meaning that its accessibility is 100%. In this perfect world, you do no promotion at all. awareness is zero. What would happen to demand? On the one hand, some customers will stumble across your product when they shop, take the time to discover that it is perfect, and decide to buy it. On the other hand, some customers will pass over your product on their way to products they know about.
The simulation deals with the problem as follows. The customers that know about your product always consider it. Of the customers that are not aware of your product, half discover it, and half miss it. Mathematically it looks like this. Your perfect product (with perfect awareness) would start with a Survey score of 100. If its awareness were 60%, then 40% of your customers would not know about it. Of these, half (20%) would stumble across it. Instead of having the Survey score fall all the way to 60, it would fall halfway between 100 and 60, ending at 80.
Once you see that the score falls "halfway", it is relatively easy to estimate the result. For example: I estimate my product's design and price are worth: Its awareness is: So it will fall halfway to its estimated score times its awareness, or halfway to: Ending up with a Survey score halfway in between, or about: 100 0% 0, because 100 * 0% = 0 50 60 70% 42, because 60 * 70% = 42 51 20 40% 8, because 20 * 40% = 8 14
To be precise, multiply the score you think your product deserves based upon its mix of price and product design by (1- (100%-awareness)/2). In the examples above:
Place Place is driven by your Sales budget. It examines the question, "How easy is it for customers to work with you during and after the sale?" We measure this with the segments accessibility rating. An accessibility of 80% means that only 80% of customers have an easy time finding a product, talking to a sales person, taking delivery, etc. If the accessibility is below 100%, it drags down a products Survey score.
The method is identical to awareness. After considering Product, Price, and Promotion, we arrive at an estimated Survey score. The Survey score falls halfway to the estimated score Capstone Business Simulation 2014: Competition Round 3 Great Lakes
times its accessibility.
Lets continue the examples from above: After considering my product's price, design, and awareness, I think my product would score about: Its accessibility is: So it will fall halfway to its estimated score times its accessibility, or halfway to: Ending up with a Survey score halfway in between, or about: 50 0% 0, because 50 * 0% = 0 25 51 60% 31, because 51 * 60% = 31 41 14 30% 4, because 14 * 30% = 4 9
To be precise, multiply the score you think your product deserves based upon its mix of price, product design, and promotion by (1- (100%-accessibility)/2). In the examples above: 50 * (1 (100% 0%)/2) = 50 * (1 (50%)) = 50 * 50% = 25 51 * (1 (100% 60%)/2) = 51 * (1 (20%)) = 51 * 80% = 41 14 * (1 (100% 30%)/2) = 14 * (1 (35%)) = 14 * 65% = 9
The Survey Score Together, Product, Price, Promotion and Place drive most of the Survey score. For example, if the product had a great price and design worth 80, but awareness of 60% and accessibility of 80%, customers might say, "The design is great and we like the price, but only 60% of us ever heard of it, and of those, only 80% could easily take delivery." The net score would be:
However, several remaining factors could cause the score to fall further. a. The Rough Cut factors (pricing outside the range, positioning outside the inner black segment circle, or MTBF below the expected range) can cause the score to fall to zero. b. The Accounts Receivable Policy could cause the score to fall. At zero days (that is, you expect customers to pay cash on delivery) the score falls to 60% of its former value. At 30 days it falls to 95%. At 90 days it keeps 100%.
Two factors could cause the score to increase. a. "Salesmanship" or sales time. Your Sales Budget drives two factors, accessibility and Salesmanship. Accessibility examines infrastructure, is subject to diminishing returns, and is remembered from round to round. Salesmanship applies only to this year. The Capstone Business Simulation 2014: Competition Round 3 Great Lakes
more you spend, the more sales time you allocate to the product. Salesmanship could increase your product's score by up to 15%. b. If the TQM module is enabled, three TQM initiatives can collectively increase the product score by up to 10%. The initiatives include Channel Support Systems, Quality Function Deployment Effort, and CCE 6 Sigma. Note that Customer Satisfaction is often at odds with other goals. High scores imply high costs, and that could imply low margins. From a competitive standpoint, your demand is driven by the spread between your score and your competitors' scores. If everyone scores the same, whether at 10 or 50, they sell the same number of units.