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CAPSIM Decision-Making

Research & Development

Segments drift down and to the right in the perceptual map.


Products are produced and sold at the current rates until revision date.
Age at revision is how old product will be when the age is cut in half on
revision date.
The Industry Conditions Report shows drift rates for each segment. Pages 5
9 of the Courier will show state the customer buying criteria.
It is promising to leave at least one segment in the very first round and invest
this money into automation to 10 in low/traditional segmentsor
Introduce new high tech product in first round with targeted ideal size and
performance for its release date.

Marketing

Review customer buying criteria on pages 5 9 of the Courier. The report


shows last years prices. This years prices should be 50 less.
A penalty of 20% demand will be assessed for every dollar above the price
range.
Set price based on current R&D positions.
Promotion: Loses 1/3 each year. Increasing budget adds awareness by:
o $1M = 22%
o $2M = another 23%, or 45% total
o $3M = only another 5%, or 50% total
It is very important to invest in promotion and sales to keep up customer
awareness and accessibility. If you couldnt afford in in previous rounds, catch
up with $3000 even though there will be diminishing returns. For other
rounds, $2500 is the best compromise. When you hit 100% awareness, $1400
is the maintenance amount for promotion, $2500 for accessibility and $3500
accessibility if you have two 300products in the same category. When youre
bringing up two products, its $4500 per segment instead of $3000 for one
product. Split the spending to $2500 for the new product, and $2000 for the
old.
Sales: Loses 1/3 each year. Spread across all segments, increasing budget
adds accessibility by:
o $1M = 7%
o $2M = 22%
o $3M = 32%
o $4.5M = 35%
Forecasting: Check proformas after entering best & worst case scenarios.
17% is a safe, conservative market share rate.

Segment pages 5 9 of Courier report and market share report on page 10


gives you all the information you need to develop a forecast for this year.
Last Years Total Demand X Growth Rate Next Year X Market Share Rate =
Sales Forecast
Enter the worst case forecast as the decision.
First forecast the supposed size of each segment by each round (by taking
the size of the segment in Round 0 and then multiplying it with the growth
rate). We then multiplied this number (using the forecast for Round 1 of
course in Round 0) by our potential market share stated in the capsim courier
to get the sales forecast for each segment for the next year. This was the
worst-case scenario which we utilized to calculate key performance indicators
(KPIs).

Production

Review Production Analysis on page 4 of the reports.


Production Schedule should represent the best case scenario. An extra month
or two worth of sales is reasonable. Estimate for both this year and next year.
Multiply the worst case forecast by 1.2 in order to calculate how much you
should produce to avoid stock outs. You may experience a recession in Round
4, so pull projections back to 1.15 or 1.10. When new products are coming
online, push projections way beyond potential market share, such as 1.3 or
1.4
Production After Adjustment is what we actually produce. The A/P policy
determines size of adjustment. The longer we make the supplier wait for
payment, the greater the adjustment will be.
Contribution margin needs to be 30% or higher to make a nice profit. Keep an
eye on this figure as prices change.
You can only schedule up to double your first shift capacity. If second shift
percentage is high, think about adding more capacity to keep up with growing
demand.
Automation rating can be from 1.0 to 10.0. High automation rating = low
labor cost.
Up the Automation early in the game in all segments but especially in the low
end (10) and traditional (8.5). All other segments should be 6.5.
It takes one year to add capacity or automation to a product line. Review
Production Schedule estimates for next year to determine if you need to add.
Think ahead!
Selling capacity happens immediately and changes 1 st shift capacity for this
year. Company receives 65% of original purchase price when capacity is sold.
Heavily invest in TQM and automation to reduce production costs
TQM initiatives should be invested in initially, but later continued
expenditures beyond 2M over 2 or 3 years result in diminishing returns.

Estimate worst case (entered in marketing), average, and best case. Enter
both decisions, checking proformas balance sheet after each. As long as there
is $1 left in cash in our worst case, we have planned for the worst, but hope
for the best.

Finance

Always the last decision made before processing the round.


Avoid high interest emergency loans by keeping cash position higher than
$8,000.
Current debt has a lower interest rate than long term debt, but is to be repaid
next year. Its better to pay 1 percent more in interest to have essentially free
money since it has a 10-year maturity.
You can increase demand by increasing the number of A/R in days for
customers to pay their debt.
The longer you wait to pay venders, the more likely deliveries will be delayed.
This affects the adjustment to production schedules.
If the cash position is high, retire stock or bonds.
Check proformas to ensure the right decisions have been made.
Maximize bonds issued instead of stocks or short term debt
Borrowing max long-term debt and issuing max stock in the first round should
give you $56M to play with
Issue dividends to raise the stock price, then sell high to repay debt
In later rounds, repurchase stocks. This will increase the stock price.
Keep the ratio of assets to equity (or leverage) between 33% and 66%. The
formula for ratio of assets is asset /equity
Rule of thumb is that you can calculate how much money to borrow from your
banker as current debt = (Inventory + Accts. Rec.)/2-Accts. Pay.

Inventing New Products

Research the opportunities in the Courier.


In Rounds 1 5, launch a new product each year in the High Tech segment
and let them drift backwards eventually into Low End segment.
In R&D, add new product and its product attributes. Pay attention to the
completion date.
In Production, order capacity and automation. Ramp up automation slowly as
you need TQM to kick in over three rounds: 1500, 1500, and 1000. It may be
best to wait until next year to buy the plant or modify project so that its
revision date falls in December so the plan wont sit idle for too long.
In Finance, issue stock or long-term debt to finance the product.

Human Resources

Employees need to be hired with $5000 and 80 hours.


Any spending is for the next round, like capacity and automation.
HR investments impact your financial statements positively. You can gain
competitive advantage on your cost structure using HR and TQM.

TQM

There is diminishing return after $5M in any given initiative.


Benefits of investment is seen immediately.

Reports

Industry Condition Report


o Date never changes
o Interest rate is last sentence on the report.
Capstone Courier
o High level overview of industry on page 1: Emergency loans, Sales,
Profits, Contribution Margin. Dont focus on profit too much in early
rounds. Making early strategic investments will pay off in later rounds.
o Stocks and Bond summary on Page 2. Again, first couple of rounds are
not important. However, note the due dates of bonds because it will
affect finance for that round.
o Financial reports on page 3: Cash flow statement survey can help
diagnose emergency loans. Balance sheet survey tells you what you
own, owe and equity. Income statement survey shows sales, variable
rates, period costs, and net profit. Product-by-product
o Production Analysis on page 4: shows products; can compare what you
did against your competitors. Analyze strengths, weaknesses,
opportunities and threats.
o Segment Analysis on pages 5-9: demand, growth rate, buying criteria,
and graphs for cost and potential market share. Also shows the
perceptual map, customer survey score, and top sellers
o Actual vs. Potential market share on page 10: numerical view
o Perceptual maps on page 11
o HR and TQM summary on page 12
Annual Reports
o Expanded version of page 3 on Courier
o