Final Capsim Report D - Google Docs PDF

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Summary

Capsim Final Report - 2015...

Description

Analysis Report

Team Members:

Section 3

Professor: Bassam Farah

Table of Contents

I.

Strategy Development

a. Vision, Mission, and Value b. Team Members c. Practice Rounds d. Round 1 e. Round 2 f. Round 3 g. Round 4

II.

Strategy Assessment and Correction after 4 rounds

a. Round 5 b. Round 6

c. Round 7 d. Round 8

III. Final Analysis and Lessons Learnt

I.

Strategic Development:

Baldwin is a company that manufactures Electronic Sensors. The company proved itself to be profitable at the end of the 6 th round, manufacturing Electronic Sensors for a broad range of customers, targeting the five different market segments: traditional, low-end, high-tech, performance, and size. Because of the high consumer demand for our products, this directed the company to rank the 4th among its competitors and closed at a market share worth 31.04$. We haven’t acquired any emergency loans throughout the rounds. Baldwin started and ended with an S&P rating of CC, which means that the company is highly vulnerable and bonds will become a default. In every round, we have seen progress for potential growth in all five segments, and stocking out in products because we started producing them earlier in 2015. Our Team pursued a broad-differentiation strategy, focusing on premium quality and performance. We also maintained presence in every segment of the market. The company will gain a competitive advantage by distinguishing products with an excellent design, high awareness, and easy accessibility which we followed according to the Ideal size and performance of each segment. Several parameters have to be taken when following a broad-differentiation strategy: ·

We developed an R&D competency that keeps the designs fresh and exciting

·

We maintained presence in all five market segments

·

We spent money on advertising and sales on all segments, in the first few rounds, to generate maximum awareness and accessibility (Promo/Sales budgets)

·

We also adjusted our prices above the average

Practice Rounds During the practice rounds, we found it very challenging for us to understand the concept behind capsim. We had to make real decisions for our company in order to exceed the competitors’ performance. At first, we have set several decisions at a time; we wanted to pursue a broad differentiation strategy, then we moved to a niche differentiation, focusing on one market segment, and then we ended up as cost leaders, lowering our costs to sell our products. We took emergency loans at all rounds because we ran out of money in the company, and we couldn’t issue long term debts. At this stage, we didn’t know what to do, so we continued lowering the prices of our products, and spending on R&D. Even though we performed drastically, this was a good practice for us to understand what strategy we want to pursue in the real rounds, competing with many international teams, and aiming for a better balance scorecard, to be among the top 10.

Round 1 – ending December 2016 In Round 1, we decided to follow the broad differentiation strategy because our aim is to target all market segments and provide them with premium quality and performance in Electronic Sensors. We concentrated on all of Traditional (Baker), Low End (Bead), High End (Bid), Performance (Bold), and Size (Buddy) market segments and products. When we started making decisions for Round 1, we followed the required parameters to proceed in the strategy. We invested in R&D, which is the part that focuses on inventing and revising products that appeal to the customer’s changing needs. We were confused and ended up adding the drift rates to the

current product performance and size values instead of to the ideal industry standard. This left us an entire round behind our competitors and we had to work toward catching up for several rounds after that. In R&D department, we reduce the size of the product and increase its performance because our customers expect for products that are smaller and faster. We added the drift rates of performance and size to the segment centers, given in the industry conditions report. We didn’t make any changes in MTBF, except in the Performance (Bold) increased it to the maximum because it has high importance in terms of reliability.

In the marketing department, we decreased the prices gradually to maintain a certain level of competitiveness. We worked on increasing the awareness (promo budget) to reach as many customers as possible, starting with 2M $ in traditional and gradually decreasing to 1.5M $ in Size. We reached 70-85% awareness which indicates that more than 70% of the people know that the product exists. We also invested highly on accessibility (sales budget), which indicates the number of customers who can easily interact with your company via salespeople, customer support, delivery, etc…, starting from 2M $ and gradually decreasing in other market segments. We reached 45-60%, but this is not enough because less than 50% of the people are accessing our products. We also added sales forecasts for every product, as a benchmark, aiming to produce more than what we are forecasting. In the production section, we adjusted the number of units to produce, considering the sales forecast minus any inventory left unsold from previous year. We also increased automation in

Traditional (Baker) and Low-end (Bead) because the number of labor hours required producing each unit falls. The higher the automation, the lower the labor costs by 10%. In the financial section, we just issued maximum long term debt because we had negative cash at the end. Our market share closed at 26.63$, which was the highest among the competitors. The Assets turnover equaled 1.01 decreased by 0.04 from Round 0, generating sales from its assets at a slower pace.

Round 2 – Ending December 2017

At this stage, things got challenging. As cost leaders, we had to lower our prices further to get an advantage over the competitors and sell most of our products from most of the market segments. We stocked out in the last 3 market segments, High End (Bid), Performance (Bold), and Size (Buddy), which is something positive because our customers liked our products and bought all the products that are produced and in inventory from previous years. Even though we produced our products at the end of the year of November and December, we were worried that we want sell all of them, but we ended up selling much more than we expected. This gave us the incentive to increase our production in the next rounds, aiming for higher market shares, high awareness and easy accessibility. In the R&D segment, what went wrong is that our size and performance were calculated wrongly in Round 1, where we had to spend on the market segments except for the low end, in order to

reach the ideal position. Even though we sold most of our sensors, our market share dropped to 3.79$ compared to Round 1, which was our highest. Regarding the financial ratios, our Assets Turnover dropped to 0.85, because the company isn’t generating enough sales from its assets. The ROE dropped from -3.8% to -23.4%, which indicates that the company is unprofitable. Even though we stocked out in most of the products, our performance had dropped among the competitors, which pushes us forward to improve our decisions and perform much better in the next rounds. Our sales have dropped from the last round to 98,700,051$. Our market share ended in year 2016 was 16.83% but dropped in the year 2017 to 13.18%, which gives us an indication that the company is losing its competitiveness of products among its competitors. We had the lowest market shares in Traditional, High End, Performance, and Size, even though we stocked out in the last three market segments. The contribution margins have increased by 2%, but still needs to reach above 30% to be able to cover the company's fixed costs, fixed expenses, and profit.

Round 3- Ending December 2018

If we take a look at the selected financial statistics of round 2 and compare it to that of round 3(December 2018) we notice the following, there is a substantial increase in our ROS from -8.9% to -5.9% which is quite useful in identifying our operational efficiency. This measure is helpful to us because it provides insight into how much profit is being produced per dollar of

sales. Although the ratio was still negative, it has increased indicating our efficiency improvement. Concerning our asset turnover, we had an increase from 0.85 in round 2 to 1.15 in round 3 which indicates an increase in the amount of sales generated per dollar of assets. This ratio is an indicator that our efficiency in deploying our assets has increased. Moving onwards to the leverage which is the ratio of assets to equity, there was a 0.2 increase between rounds 2(a value of 3.1) and 3 (a value of 3.3) this ratio measures our financial leverage. The increase in this ratio is an indicator that a larger portion of our asset financing is being done through debt. Moving to the ROE we have noticed an increase from -23.4% to -22.3%. This ratio shows the amount of net income returned as a percentage of shareholders equity. The increase in the following ratio is useful in accessing our profitability because this shows that although the ratio is still negative, the increase means that we were generating a higher profit with the money that shareholders have invested. This round like the previous rounds, we had no emergency loan, which indicates that we had enough credit to cover up for the expenses we have incurred and for any other unforeseen event such as the piling up of huge amounts of inventory. Our sales in round 3 have increased to $ 199,587,354 from $ 98,700,051 in round 2. If we take a look at our contribution margin, which is the measure of the overall profitability of our company we notice a 0.1% decrease if we compare round’s 3 value 29.8% to the previous round’s value 29.9%. Moreover, we had a 0.1% decline in the SG&A/sales ratio between rounds 2 and 3. A decreasing percentage indicates that we are controlling our overhead expenses. Moving into the market share analysis, we can see that our overall market share has increased from 13.18% in round 2 o 14.49% in round 3. This increase indicated that the decisions we have

made in R&D, marketing, finance, HR, and production have had a positive result on the position of our company in the market. The market share analysis is useful for investors because its increases and decreases are a sign of the relative competitiveness of our products. The increase in market share in round 3 meant that our company is growing relative to our competitors. We have noticed a decrease in our stock price this round which was the lowest among our competitors (1$). We have sold stocks worth of $ 1,514. And we have gotten $ 13,224 cash from long term debt. Zooming in to our products, we had no inventory in Baker which was the product we are selling in the traditional segment priced at $25.49. Unfortunately, we have stocked out in this product. We should’ve been more optimistic in our forecasts and production; if we have increased our production we would’ve probably gained a higher market share. We have sold 1,347 units which wasn’t the highest among our competitors. We haven’t changed our MTBF from previous round and kept it as 17,500. However, the product’s performance was improved to 7.1 and its size was reduced to 12.9, we had the relatively the best performance and size. The product’s contribution margin was 30%. Our product gained a 14% market share in the traditional segment. Our promotion and sales budget were respectively $ 2,100 and $ 3,000; they had resulted in 97% awareness and an accessibility of 76%. In the low end, we had almost the highest market share of 18% with 2,223 units sold. We should have probably lowered our price from 15.99 dollars to 15.00 dollars to increase our market share more. We hadn’t changes the position of the product, and the awareness of our product has reached a 100 %; its accessibility was 76%. Its contribution margin was 28%. In the high end, we had a low market share of 15% compared to our competitors who had a 21% market share. Our

product’s price was 38.49 dollars with 583 units sold. If we have improved our product’s position more to appeal to the customers we would’ve gained a higher market share. But given the fact that we were facing some constraints regarding the revision dates we weren’t able to push our product’s position further because we would’ve had a product with a late revision date and thus resulting in the lowest possible market share, we wouldn’t want to take this risk of not selling any of our high end product, so we worked on its positioning which was the most important to customers, gradually so that we won’t lose the whole market share. Its contribution margin was 35%. As for our performance and size products, their respective market shares were 14% and 10%, the lowest among the competitors due to the same problem previously stated in regards to positioning. Our products’ price was 33.49 dollars with only 473 and 342 units sold. Their contribution margins were 26% and 30% respectively. Consequently our closing cash position for the year ended 2018 (round 3) was 13,833 dollars.

Round 4 – Ending December 2019

Looking at the financial statistics of rounds 3 and 4 we can notice the following, our return on sales has increased from -5.9% to -5.1% which is shows that over the rounds our operational efficiency is increasing. Another positive indicator of our improvement is the increase in our asset turnover from 1.15 to 1.35; our sales per dollar of asset are increasing. The ROA remained steady this round, and our leverage has further increased from 3.3 in round 3 to 4.4 round 4 which means our reliance on debt to finance our assets. Our ROE has unfortunately decreased from -22.3% in round 3 to -29.9% in round 4. As we have previously said this ratio measures how efficiently we are using the money from shareholders to create profits. This decrease is not good from an investors’ perspective because this means that we are not using their funds effectively. When comparing this ratio to our competitors we can find that we have had the lowest ratio among all our competitors in the industry. Similarly, we hadn’t taken any emergency loan this round and our sales have increased as well from $ 119,587,354 t0 $ 145,128,409. In this round too we had a decrease in our contribution margin to become 29.3%. There’s also a substantial decrease in the SG&A/sales ratio to 19.2% which indicates the increased efficiency in controlling our overhead costs. If we take a look at our market share in this round we notice that it further increased from round 3 to become 16.02% in round 4. This shows that our market share increase allows us to achieve a greater scale in our operation and improve our profitability. We are looking to expand our share in the market by appealing to customers through advertising and increasing our promotion and sales expenditures. Our stock price remained 1 dollar, and we had $ 8,506 cash available from long term debt.

Moving into segment analysis and decisions made within each segment, we had the highest market share of 15% in the traditional segment; we have lowered our price to 24.99 dollars and improved our product’s position. We sold 1,623 units with 249 units left in inventory. Our product’s awareness and accessibility have increased from the previous round. The product’s contribution margin was 28%. In the low end, we kept our product’s position constant, we have lowered our price to 14.99 dollars which resulted in 17% market we sold 2,304 units and had 383 inventory. Our product’s awareness and accessibility has been high as well this round. As with the previous round, we continued to face the same issue of following up with our competitors to position these products in a way that appeal to our customers, that’s why probably we had a 17% market share in our high end product although we had a high awareness and accessibility.

We have sold 786 units with 10 units of inventory left as compared with our competitor who sold 1,021 units and gained the highest market share of 22%. Our product’s contribution margin was 35%. As for the performance and size segments, our performance product had a low market share as well, a value of 16% as compared to our competitors who scored 20%. We sold 647 units and we stocked out unfortunately, we should have been more optimistic in our production. The product’s contribution margin was 24%. With respect to the size segment, we have sold 570 units with 12 units of inventory left. The product’s contribution margin was 32%. We had the lowest market share of 15% in this segment as compared to competitors. So if we take our overall contribution margin decline we can say that our high end product’s contribution margin (24%) was the reason behind the 29.3% overall contribution margin we had in this round. Consequently, our closing cash position for the year ended 2019 was 13,290 dollars.

We had a mixed overall performance in the first rounds. We scored the highest in Round 1, and we couldn’t maintain our performance until the 4 th round. This is because we messed up when finding the ideal spots for every segment, and added the drifts incorrectly. This sudden swipe in performance warned us, and we had to take risks to catch up in the last rounds.

JANAS PART

When we first started working on CAPSIM, we weren’t familiar at all with the platform. It was the first course that required us to do a simulation. In other business courses, what we learn remains theoretical and we apply financial ratios to measure the company’s profitability. What we really liked about this course is that we were able to make decisions for the first time and to see the impact of these decisions after each round. Although we struggled a bit during the first rounds, we learned from our mistakes. For instance, we realized that our forecasts were too pessimistic. This caused us to stock out and to lose some of our customers to our competitors. In the last 2 rounds we produced more and we were able to meet customer demand in most segments. The most interesting aspect about CAPSIM was our ability to make decisions across

various departments and to see the effect of each decision on the end result. In addition, we gained a clear understanding of the different business strategies a business can adopt and the characteristics of each market segment. We also learned to focus on different product characteristics depending on the market segment we are targeting. For instance we were more reluctant to decrease our prices in the high end segment because we knew that customers in this segment were not price sensitive. In marketing, we learnt that we should “tailor our products to meet our customers needs” but it is through capsim that we were really able to understand its true meaning by setting different priorities depending on the market segment.

Out of all the courses we took in OSB, I believe this course is the closest we can get to reality because as a decision maker in the future we will have to understand the impact of making decisions in R&D, Marketing, Production, Finance, HR and TQM on the company’s profitability....