Et Cetera Final Report

104B Team
 

 
2
 

   

 
Business Live SBUS10060
  Omar Elsayed 12342991
Paul Fallon 12376356
 
Tomás Fahy 12364266
  David Doyle 12344531
Anna Dybul 12363476
 

   

 
  
 

Table of Contents

1 - Excutive Summary ............................................................................................. 3

2 - Performance Sumaary ...................................................................................... 5

A. Financial Performance .......................................................................... 5

B. Market Performance .............................................................................. 7

3 - Business Strategy ................................................................................................ 7

A. Overall Strategy ..................................................................................... 8

B. Marketing Strategy ................................................................................ 9

C. Distribution Strategy ............................................................................. 10

D. Manufacturing Strategy ........................................................................ 12

E. Financial Strategy .................................................................................. 14

4 - Assessment of Current Situation ....................................................................... 15

i. Assessment by Regions ........................................................................ 15

5 - Preparing for the Future .................................................................................... 16

A. Growth Plan............................................................................................. 16

B. SWOT Anaylsis ....................................................................................... 17

6 - Lessons Learned ................................................................................................. 18

A & B. learning from Success and Failure ................................................ 18

C. Teamwork ................................................................................................ 19

7- Appendices ........................................................................................................... 21

   
   

   
   
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1. Executive Summary

The purpose of this report is to reflect our performance in the simulation over a six quarter period.
We will assess our effectiveness in the following areas:

Performance Summary

During the early growth phase of our company, our total Cost of Goods Sold was significantly high
at 1,222,282 CU. However from quarter 4 onwards, we benefited from economies of scale. Hence
our overall cost per unit decreased and consequently, our gross profit margin increased accordingly.
We incurred operating losses in quarter 2 and 4 respectively. This was expected as we opened sales
offices and heavily invested in Research & Development. More importantly, however, we ended
with an operating profit of 4.5 million.

Throughout the quarters we saw our demand increase considerably. Our increased sales force, R&D
investments and advertising campaign contributed to this growth. In relation to market share, we
started off the frontrunner in both segments. However, as the simulation continued we lost our
dominant status in both markets to our rivals.

Business Strategy

In relation to our objectives and overall strategy, we preferred the option of focusing on smaller, high
margin segments. Thus we established the Mercedes segment as our first priority and the Traveller
segment as our second focus. In total, we competed in three geographic markets. Firstly we
established a sales office in Paris in quarter 1, this was followed by Chicago in Quarter 2 and lastly,
Shanghai in quarter 5.

Our marketing campaign was successful. We had the highest overall marketing effectiveness score.
Our brand rating was the highest in the Mercedes sector and 4th in Traveller. We also experienced
some pricing issues as we became too focused on market share. We reaped the benefits of a very
successful aggressive advertising campaign and had a very high ad copy judgement.

   
   

   
   
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In the beginning we employed six sales people. when we opened in Chicago, however, we doubled
this figure to 12 employees. We soon realised this number wasn’t enough to cope with the significant
rise in demand. In total we ended with 35 sales people, 13 working each in Paris and Chicago, and 9
employed in Shanghai.

Regarding our fixed capacity we started off with the ability to produce 25 units per day. We
increased our manufacturing twice throughout the simulation and we can now produce up 100 units
per day. This adequately allowed us to meet the demand of our target segments. We decided to adopt
an optimistic approach to operating capacity by producing an output just below the above fixed
capacity boundaries. Thus we rarely had stock outs.

In relation to our financial strategy we intended to target high-end segments to maximise margins.
Our investment in future was always low as we did not open a 4th sales office. Our asset
management was initially the highest in the industry; however it declined towards the end of the
simulation due to our competitors entering the Workhorse segment. Finally in this section, our
financial risk was always 1.0 as we did not borrow any money.

Assessment of Current Situation

In this section, we will discuss the location of our sales office, our main competitors, and what makes
them superior to us. ‘Momento’ and ‘Infinity’ are our main competitors and they have a larger sales
force along with a more aggressive advertising campaign. Also, both of the companies invested
heavily in R&D which explains their strong position in the market. However, we had the highest
volume of sales in Chicago making us the market leader in the Mercedes segment.

Preparation for Future

With only one more sales office to be opened, we plan to head into the Sao Paulo region and
challenge our competitors with a diversification strategy to penetrate this market. We also plan to re-
introduce our older products for both 'Affluence' and 'Monami' at suitable prices for this region along
with a new product, 'Essentiel' to be introduced in the Workhorse segment.

   
   

   
   
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Lessons Learned

In this section, we will discuss what we learned from our failures and our successes. Our drawbacks
included our failure to apply formulas for capacity levels, our inadequate sales force and poor
margins. We also learned that early investment is key to future success and our cost-benefit analysis
of human resources proved financially effective for Human resources.

2. Performance Summary

A. Financial Performance

i. Sales Growth

Our sales growth consistently increased during our first six months of business. The total sales
revenue was 2,254,900 CU. Our Monami computer accounted for 36% of this revenue, and our
Affluence contributed to the remaining 64%. Thus we established Affluence as our first priority.
Approaching the end of first year, our sales revenue grew to 7,116,300 CU. This figure arose from
the sale of 2,109 computers. Moving on to our final quarter, our total sales revenue was almost 17
million CU with Affluence contributing 72% and Monami 28% of this figure.

ii. Cost of Goods Sold

During the early growth phase of our company, our total Cost of Goods Sold was significantly high
at 1,222,282 CU. This was because of our low output which affected our margins. However in
quarter 4, we benefited from economies of scale. Hence our overall cost per unit decreased because
our total cost of goods sold was spread across a greater output of 2,109 units. Consequently, our
gross profit margin increased accordingly. A similar situation occurred in quarter 6. (See Fig. 2.1 in
Appendices)

iii. Profit Margins

As expected, we incurred an operating loss in quarter 2 of 20,913 CU. This was mainly due to the
opening of a sales office and a low volume of sales. Similarly in quarter 4, we experienced a net loss
of 2,078,524 CU. This was as a result of heavy investment of 4 million in Research & Development.
   
   

   
   
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In quarter 6, we again earned an operating profit of 4.5 million. This resulted from high sales
revenues and efficient allocation of resources. Likewise, our ending cash in quarters 2&4 was
unfavourable but we finished with a positive cash balance of 2.7 million in quarter 6. (See Fig. 2.2 in
Appendices)

iv. Asset Management and Creation of Wealth

We effectively utilised our firm’s assets to create sales revenue. Not only did we depend on initial
investments of stockholders but we also created additional wealth through our daily activities. Our
cumulative wealth stands at 1.368 which makes us the second wealthiest company in the industry.

v. Financial Risk

We continuously had a rating of 1.0 as we avoided taking out any loans throughout the simulation.
Thus we were not dependent on outside debt and avoided the burden of quarterly interest payments.

B. Market Performance:

i. Growth in Demand

Throughout the quarters we saw our demand increase from 641 units to 4,945 units. We put this
increase down to upgraded products with new R&D features. Likewise our increased sales force and
advertising campaign helped contribute to this growth. (See Fig. 2.3 in Appendices)

ii. Market Share

Our market share during our first six months of the business was very encouraging. Our overall
market share was 27% in quarter 2 which was marginally behind the frontrunner in the market. We
were the leader in the Mercedes and Traveller segments from the outset. Our first sales office was in
Paris and we believe our name of French origin helped attract this large customer base and gave us a
temporary competitive advantage over our rivals.

Again the results presented to us in quarter 4 were satisfying, however our overall market share
decreased to 18%. Furthermore, we did get some comfort when we looked deeper into the market

   
   

   
   
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share of the frontrunner in the industry. They sold over 2,700 units in the Workhorse segment which
explains their significantly higher percentage of the overall market share compared to ourselves. On
the bright side, we did manage to sell the most units in the highly competitive Traveller segment.

Our final market position was disappointing to say the latest. Firstly, our overall market share
decreased to 14%. Of greater concern, however, “Premium Laptops Direct” as well as “Infinity” has
overtaken us in our principal target market. In relation to the Traveller segment, we failed to retain
our dominance, offloading only 1,159 laptops. This is significantly behind ‘Momento’ who sold
2,840 units. (See Fig. 2.4 in Appendices)

3. Business Strategy

A. Overall Strategy

i. Mission Statement & Objectives

In relation to our objectives and overall strategy,  we preferred the option of focusing on smaller, high
margin segments. Thus we felt priority should lie with the Mercedes sector first and the traveller
sector second. We avoided competing in the Workhorse segment as we did not want to engage in
price wars. Furthermore, as we aimed to concentrate mainly on the Mercedes segment, we believed
selling a much cheaper version of our computer may not appeal to our niche market as the company
will not appear as exclusive to the public. In other words we wanted to convey a certain perception
and image of the firm. Apple adopts a similar strategy.

Taking all this into account we define our mission statement as “We strive to become a leader in the
Mercedes segment, achieve the highest net income, and produce reasonably priced laptops for the
highly competitive Traveller segment suitable for both office and portable use”.

   
   

   
   
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ii. Scope

In total, we competed in three geographic markets. We set up our first sales office in Paris in quarter
1, shortly followed by Chicago in quarter 2 and finally, Shanghai in quarter 5. We will discuss these
in greater detail in the territory development section.

In quarter 2 we produced our first two computers. The name of the desktop aimed at the Mercedes
segment is ‘Affluence’. This model was a top of the range desktop capable of doing complex task
efficiently. It was equipped with the latest technology and commanded a high price because the
customer was willing to pay for the best. Furthermore these customers had inelastic demand and
were not price sensitive. The computer sold to the traveller segment was called ‘Monami’. It was a
portable, high speed, laptop packed with the latest software that enabled users to connect effortlessly
with other computers.

During our first three quarters, both of them received the highest brand rating in the industry.
Therefore in quarter 4 we did not feel it was necessary to release an improved version of any
computer as this would only incur losses as a result of selling our inventory at salvage prices.

However, as our investment into research and development came into play in quarter 5, it was
essential that we designed new updated brands to maintain market share in the long run. With the
help our engineering department, we were able to increase the computing power and networking
ability of both computers. However, as this was a costly investment, we had to increase the prices of
both brands by roughly 100 or 200 euro. The new name for our Mercedes computer was called “Chic
Affluence”, while the improved laptop for the Traveller market was called “Gentil Monami”. By
retaining at least half of the original brand name, we believed that our target markets recognised that
these models were a continuation of our previous successful computers.

Again in quarter 6, as a result of our investment in R&D we were able to advance the office
applications running on both computers.

   
   

   
   
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iii. Competitive Advantage

According to the cumulative balanced scorecard, we were the top performer regarding market
effectiveness. Thus we adequately satisfied our consumer needs and fulfilled our target markets. This
was down to our aggressive advertising campaign. We were also one of the few firms in the industry
to offer rebates on our computers which we believe it gave us a sustained competitive advantage
which we look to further exploit in the future.

B. Marketing Strategy

i. Brand Management

Regarding brand management, our two brands fulfilled our customers’ requirements. However, this
was not always the case. Indeed, in the beginning, we were unable to satisfy all of our target
segment’s needs. In other words our product mix did not meet our market’s demands. This can be
illustrated when reviewing our Mercedes customer’s wants. They desired a computer that could
efficiently carry our complex tasks. However, as a newly established firm we were unable to design
computers with enough power and capacity to complete sophisticated operations. Thus, similar to
other firms at this development stage, we had to compromise with software such as engineering apps.
Fortunately, our competitors did not have extra resources available to them at this early phase in the
market, to exploit this opportunity, which allowed us to gain market share in this segment.

However, our product mix evolved in quarter four, which posed our first decision making process
regarding brand management. With the help of our engineering department, we were able to invest in
research and development features, an opportunity that we seized upon in order to differentiate
ourselves from our competitors. Referring to the needs of both our target segments, we decided to
pump funds into the computing power and networking ability of both brands. We developed these
features in one quarter rather than three quarters for both computers. Although, this was the more
expensive option, we believed it helped us gain significant market share as well as consumer loyalty.

The results of the above investment were very satisfying and ensured our early dominance in both
the Traveller and Mercedes segments. However, despite this early success, we were aware of our
   
   

   
   
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competitors potential from quarter five onwards. Thus, it was necessary to invest further resources
into research and development in quarter five. During this quarters activities we upgraded the office
applications running on both brands. This was in attempt to acquire the highest rated brand in not
only one, but two of our segments.

ii. Pricing Strategy

In order to implement the most successful pricing strategy we felt it was necessary to charge
premium pricing along with a rebate to maximise our gross profit margins. As the simulation
progressed, we adopted a penetration pricing strategy to overcome our loss in market share as can be
seen in Fig. 2.4.

We saw a correlation between pricing and demand. As the price was reduced, the demand increased.

iii. Advertising and Media Strategy

We executed an aggressive advertising campaign by continuously increasing the number of inserts

published each quarter. Initially we had 4 inserts in quarter 1 which was the industry average, and by
quarter 6 we had 40 inserts which was the second highest in the industry.

For the majority of the simulation, our ad copy judgement was of very high standard with the
exception of quarter 5. In quarter 6, ‘Chic Affluence’ came 1st in the Mercedes segment, with the ad
copy judgement of 89.

C. Distribution Strategy

i. Territory Development

We chose to set up business in Paris first. This was our city for testing our two products at two
different segments. We settled in Paris because we hoped the marginally higher start up and lease
costs would disinterest our competitors from originally setting up there. Thus, we aimed to gain the
majority share of our targeted segments i.e. a competitive advantage and create a barrier to trade for

   
   

   
   
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our fellow competitors through consumer loyalty before they attempted to invade our metropolitan
market.

In quarter 2, we also decided to open up another sales office in Chicago. This market had a high
volume of potential customers in our two target segments. Despite the potentially strong competition
that we faced in Chicago, we believed that this would be a profitable investment as we were to gain
substantial market share through product differentiation.

We opened our last sales office in Shanghai in quarter 5. Not only did this result in increased sales
volume but it also increased our investment in future and financial performance statistics in the
balanced scorecard areas which were originally compressing our total performance indicator.

ii. Sales Office Management

We ordered our sales people to prioritise our Mercedes brand above our Traveller model. This
adhered to our mission statement of being a leader in this lucrative market. Furthermore the profit
margins were likely to be higher at this end of the market.

iii. Sales Force Management

In the beginning we complied with the Marketplace Live advice about sales force. Thus we decided
to hire five sales people, one dedicated to service support, three committed to our primary target
(Mercedes) segment and finally, one devoted to our secondary segment (Traveller). Again when we
opened in Chicago, we doubled our overall sales force to 12 employees. We soon realised this wasn’t
enough and we felt it was necessary to increase significantly to cope with the rise in demand. In total
we ended with 35 sales people, 13 working each in Paris and Chicago, and 9 employed in Shanghai.
This helped us regain market share in those regions. (See Fig. 3.1 in Appendices)

From the outset we favoured the option of adding extra benefits and increasing wages when required,
rather than offer all perks and a high salary. However, it was clear from the research provided to us
that our rivals did not follow the same strategy as ourselves. Thus, we decided to stop following our
human resources plan and copy that of the firm with the highest worker productivity. We adopted
   
   

   
   
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their compensation package as we understand a firm must offer an agreeable contract, above the
industry benchmark to attract and recruit the best employees. As a result we increased average wages
from 47,000 CU to 64,000 CU, allowed 3 weeks holidays instead of the customary 1 week and also,
increased employee’s pension from 5% to 7% of salary. This competitive and improved
compensation package resulted in increased worker productivity. (see Fig. 3.2 in Appendices )

In order to stimulate additional demand for our two computers we also implemented special sales
force programs and promotions. We equipped each sales person with a demonstration kit which
should help them offload computers with greater ease. Likewise, we further developed their
interpersonal and teamwork skills. Following on from this we also set up competitions within the
firm. These referred to the volume of sales each employee generated during a three month period.
The best performers in each segment earned a cash bonus and a gift, while the overall top sales
person enjoyed a special vacation. The total cost of these promotions and programs was roughly
60,000 CU. We believe this was a worthwhile investment as the incentives on offer for our sales
force created healthy competition amongst them and more importantly help increased our volume of
sales.

D. Manufacturing Strategy

i. Fixed Capacity

We didn’t feel we needed the highest capacity as we were not targeting the Workhorse segment. We
started off with 25 fixed capacity per day during our first three months of the business. Then we
increased it to 50 per day in quarter 2 as we were aware that an increase in fixed capacity takes a
quarter delay. Thus throughout the simulation we effectively predicted our future demand.

We also decided to expand the building considerably for the remaining three quarters. In accordance
with our growth plans, we increased fixed capacity by 50 units. This enabled us to meet our expected
demand from quarter 4 onwards. As a result, we did not have to increase fixed capacity again and
consequently, we enjoyed decreased capital costs per unit.

   
   

   
   
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ii. Operating Capacity

We decided to accommodate an optimistic approach to operating capacity by producing an output

just below our fixed capacity boundaries. Unfortunately, we were left with poor efficiency and high
excess capacity costs. As a result, workers had met the demand well in advance of the previously
judged time and were allowed to leave while still being paid. (See Fig. 3.3 for Manufacturing in
Appendices)

iii. Manufacturing Performance

Our enthusiastic operating capacity strategy resulted in overall poor productivity in the early stages
of the simulation but improved considerably in the last two quarters. Furthermore our cumulative
manufacturing productivity was 0.8 which is recognised as a good score.

As already mentioned earlier, from quarter 4 onwards we benefited from economies of scale.
Consequently our total cost per unit decreased because our total manufacturing costs were spread
across a greater output.

As our operating capacity was significantly high, the probability of stock outs was low during the
first three quarters. However, this coincided with high excess capacity costs and low productivity as
explained earlier. As we only experienced stock outs in quarter 5 alone we lost 260 customers to our
rivals, which was below the industry average. The stock outs in quarter 5 occurred due to general
underestimation of our sales force as well as our projected demand for our new innovative computers
with R&D features. (See Fig. 3.4 for Manufacturing in Appendices)

iv. Marketing vs Manufacturing

Marketing and Manufacturing rarely conflicted with each other. In fact we developed a symbiotic
relationship between these two departments.

   
   

   
   
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E. Financial Strategy

i. Earning a profit

Adhering to our mission statement, we focused on high profits in the beginning. We targeted high-
end segments to maximise margins and in quarter 3 we reaped the benefits of this strategy with an
operating profit of over 2 million CU. However, we soon placed too much importance on market
share and dropped prices to attract more customers. As a result our margins decreased by
approximately 3%. We will reflect on this in lessons learned.

Our cash flow steadily increased quarter by quarter with the exception of quarter 4. Due to heavy
investment in R&D, our cash flow was badly affected this quarter.

iii. Investment in Future

Our Investment in Future was low from the very beginning. It was the minimum score in quarter 2
and by quarter 6 it was still below the industry average. This was affected by our decision not to
open a 4th sales office in Sao Paulo and not to invest in R&D in quarter 6.

iv. Asset Management

Our Asset Management rating started off positively. In quarter 2 and 3, we had the best ratings in the
industry due to our original dominance in the market. As our authority declined in the market, our
Asset Management rating dropped significantly. As this figure calculated on sales volume, we did
expect this decrease as we were targeting smaller segments, but this decline is not as severe as it may
first appear. Indeed we were only 0.2 below the cumulative industry average and many of our
competitors targeted the larger Workhorse market. (See Fig. 3.3 in Appendices)

v. Financial Risk

Throughout the simulation, our Financial Risk rating of 1.0 remained constant. We avoided taking
out any loans to finance our R&D investment and other activities. As a result, we were lowly geared
and not dependent on outside debt. Furthermore we eliminated finance costs by not having to pay
interest on a loan.

   
   

   
   
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4. Assessment of Current Situation

i. Paris

Paris is an intensely competitive market with all companies targeting this region. This is because the
demand in each segment is quite high and this overlooks the steep costs of setting up a business there.
This includes the quarterly lease costs of 150,000 CU.

Referring to the demand generated by our competitors, we have established ‘Momento’ as our main
rival in the Traveller segment and ‘Infinity’ as one of the leaders in the Mercedes segment. We
finished the simulation with the highest sales volume in our primary market segment (Mercedes) in
Paris. With an eye on the future, we have identified Momento’s large sales force, and Infinity’s
aggressive advertising as a temporary competitive advantage over our sales.

ii. Chicago

Similarly all firms are competing in Chicago for much of the same reasons as explained above. This
was expected from the outset as both set up and quarterly lease are lower than those in Paris. Thus
we anticipated the majority of our competitors to open their first sales office there which explains the
rationale of our decision to start our business in Paris.

Premium Laptops Direct offloaded the most units, marginally behind us in the Mercedes segment in
the last quarter hence being our main competitor in Chicago. In relation to the Traveller segment, we
again identified Momento as a threat due to higher sales volume. Both these firms heavily invested in
R&D which explains their strong position in the market.

iii. Shanghai

We opened a sales office in Shanghai in quarter 5 in an attempt to boost market share however we
don’t consider it as a principal region for our brands. Demand for both segments is noticeably lower
than in the above cities. Nevertheless, the set up and quarterly lease costs are low which enticed four
of the five firms in the industry to locate sales offices there.

   
   

   
   
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Akin to Paris, Infinity and Momento are our main opposition in the Mercedes and the Traveller
segment respectively. This is down to Momento’s human resource strategy, and Infinity’s substantial
number of advertising inserts.

5. Preparing for the Future

A. Growth Plan

i. Market Penetration

In an attempt to boost market share in our three existing regions, we will marginally increase our
sales force and adopt a more aggressive marketing campaign with additional number of inserts. We
feel this will help increase our sales volume.

ii. Product Development

We prefer the option of standardising our brands instead of adapting them to each individual region’s
preferences. We intend to invest substantially in R&D to produce a new Traveller brand named
‘Voyager’ and sell this in our existing markets.

iii. Market Development

We plan to re-launch our older Affluence model and sell it in Sao Paulo at a more appropriate price
for this developing region.

iv. Diversification

We intend to expand into Sao Paulo to become a fully globalised enterprise. This would increase our
customer base and promote the brand internationally. We would also benefit from economies of
scale from mass production. We plan to develop a product for the Workhorse segment called
‘Essentiel’. We feel there is a big enough demand to justify the decision.

   
   

   
   
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B. SWOT Analysis

i. Maximizing Strengths

We feel that with our high financial performance, we will be able to invest in many aspects of our
company to ensure a sustained competitive advantage over our rivals. The main areas we would
primarily invest in regarding the future are sales force and advertising.

Also, by tweaking our marketing campaign of our Traveller brand ‘Gentill Monami’ we will improve
the brand judgement, thus leading to greater sales.

ii. Minimizing Weaknesses

As mentioned previously, we are continuously improving our manufacturing productivity by being

more accurate with our demand projection and applying a ‘high-low’ confidence interval.

We also aim to increase the price of our Mercedes brand, as customers are still willing to pay a more
premium price than we currently impose. In turn this would lead to a higher profit margin and further
strengthen our financial performance statistic.

iii. Exploiting Opportunities

By opening a sales office in Sao Paulo and targeting the Workhorse segment, we can make the most
of our global opportunities. The Workhorse segment provides the largest customer base
internationally.

iv. Neutralizing Threats

We feel that if we effectively carry out the above future operations, we should gain significant
market share through consumer loyalty. Furthermore, this will help us to solidify our position as a
dominant force in the Mercedes segment to drive back the market leader – Momento. This in turn
will neutralize any threats that our competitors have at their disposal.

   
   

   
   
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6. Lessons Learned

A. Learning from Failure

In the beginning, we set our operating capacity remarkably high. In fact, it was almost twice our
projected demand. This was because we failed to apply the advised formula and instead set up
operating capacity at the level just below our fixed capacity boundaries. Consequently, we were left
with poor efficiency and high excess capacity costs. Furthermore, workers had met the demand well
in advance and were sent home.

Our next downfall refers to our sales force. Up to quarter 5, taking the marketplace advice on board,
we agreed to hire six sales people in each city. We were careful with the amount of sales people we
hired but this number proved to be inadequate. For quarter 6, we were left with the decision to more
than double our overall sales force. In hindsight we should have increased our sales force earlier in
the simulation.

Ultimately, we paid too much attention to market share rather than profitability in the latter stages of
the simulation. In trying to increase our market share, we lowered prices for more advanced models,
which proved costly with our gross profit margin and also confused our customers into believing our
products were technologically declining.

B. Learning from Success

We learned in the early stages that investing in marketing played an important role in attracting
customers to our products over our competitors. Our brand and ad judgement were continuously
superior to our rivals and thus we finished with the highest cumulative market effectiveness rating in
the industry.

Our cost-benefit analysis in relation to our human resources strategy proved financially successful.
Throughout the simulation, we observed that significant investment in human resources resulted in
minimal increases in productivity. For example, in quarter 5, we saved almost 10,000 CU per sales
person and we were only 1% lower than the leader in productivity.

   
   

   
   
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C. Team Work

As a group, we gathered for roughly two hours a week, usually on Tuesday afternoons to submit our
decisions and to compile our individual pieces for the quarterly reports. The meetings proved
productive and we worked through all sections on the left-hand side of the simulation page together,
ensuring no key decisions were bypassed.

Each Vice President proposed ideas for their respective responsibilities. These ideas were discussed
and decided upon among the entire group. If a decision could not be reached, the president would
have the final call. This decision making process improved the efficiency and the creativity of the
proposed ideas.

Regarding group dynamics, there were small, minor differences of opinion throughout the simulation.
Often we didn’t prioritise our objectives and were left spending too much time on minor aspects that
didn’t affect the simulation.

Finally, our time management skills let us down. Occasionally, we were inefficient with our time and
our meeting ran well over the recommended time. This proved frustrating as people began to lose
focus and concentration as the meetings endured.

In the future, we would take the minutes of each meeting as this would save time in preparation for
the quarterly and final reports. We would also try to allocate our time more appropriately and
efficiently to make our meetings more concise. It would also help if we chose isolated studios for our
meetings as the noise often distracted us from our work.

 
   
   

   
   
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7. Appendices

Figure 2.1
 
18

16
 
14

  12

10
  CU in millions
8 Sales Revenue

  Cost of Goods Sold

6

  4

2
 
0
  Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6

 
Figure 2.2
 
5000

4000
 
3000
CU in thousands

2000
Sales Office
Expenses
1000 Operating Profit

0 Research &
Development
-1000

-2000

-3000
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6

   
   

   
   
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  Figure 2.3: Demand

  Quarter 2, 641

 
Quarter 3, 2001

  Quarter 6, 4945

Quarter 4, 2109
 

  Quarter 5, 2974

 
Figure 2.4

 
Quarter 2

 
Quarter 3

 
Quarter 4 Traveller Market Share
Mercedes Market Share
 
Quarter 5 Overall Market Share
 
Quarter 6
 
0   10   20   30   40   50   60  

  Percentage of Market Share

   
   

   
   
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Figure 3.1: No. of Sales People
  No. of Sales People

 
Quarter 6

Quarter 5
 

 
Quarter 4
 

  Quarter 3

 
Quarter 2
 

0 5 10 15 20 25 30 35 40
 

Figure 3.2
Sales Force Special Promotions
Promotion Price Per Person in CU
Free Gift 100
Cash bonus 550-650
Sales Contest 1200
Sales Training 800
Demonstration Kit 150
 

   
   

   
   
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  Fgure 3.3

  Figure 3.4

  70  
60  
  50  
 
40  
30  
  20  
10  
 
0  
 
Quarter   Quarter   Quarter   Quarter   Quarter  
2   3   4   5   6  
 
Inventory  Control     40   60   24   0   30  
  Excess  Capacity  Cost   *0  *  
38.4567   38.349   41.0144   16.2699  
(10,000's)     *  

*Stock out of 297 In Quarter 5

   
   

   
   
23  
 
  
 

Income Statement
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6
Gross Profit
Revenues 0 2,254,900 6,863,550 7,116,300 9,554,004 16,810,825
- Rebates 0 32,000 128,450 105,400 194,220 268,475
- Cost of Goods Sold 0 1,222,282 3,520,995 3,654,986 5,215,059 9,720,100
= Gross Profit 0 1,000,618 3,214,105 3,355,914 4,144,725 6,822,250
Expenses
Research and Development 120,000 0 0 4,121,725 1,257,028 120,000
+ Advertising 0 99,500 161,199 180,675 390,759 422,036
+ Sales Force Expense 0 91,763 250,814 263,942 391,878 952,630
+ Sales Office Expense 250,000 370,000 270,000 270,000 450,000 350,000
+ Marketing Research 0 15,000 15,000 15,000 15,000 15,000
+ Shipping 0 28,158 70,003 73,010 88,357 144,362
+ Inventory Holding Cost 0 7,543 10,422 4,109 0 5,743
+ Excess Capacity Cost 0 384,567 383,490 410,144 0 162,699
+ Depreciation 0 25,000 50,000 95,833 95,833 95,833
= Total Expenses 370,000 1,021,531 1,210,928 5,434,438 2,688,855 2,268,303

Operating Profit -370,000 -20,913 2,003,177 -2,078,524 1,455,870 4,553,946

Miscellaneous Income and Expenses
+ Other Income 0 0 0 0 0 0
- Other Expenses 0 0 0 0 0 0
= Earnings Before Interest
-370,000 -20,913 2,003,177 -2,078,524 1,455,870 4,553,946
and Taxes

+ Interest Income 15,000 0 0 0 0 0

- Interest Charges 0 0 0 0 0 0
= Income Before Taxes -355,000 -20,913 2,003,177 -2,078,524 1,455,870 4,553,946

- Loss Carry Forward 0 0 375,913 0 1,102,166 0

= Taxable Income 0 0 1,627,263 0 353,704 4,553,946

- Income Taxes 0 0 650,905 0 141,481 1,821,578

= Net Income -355,000 -20,913 1,352,271 -2,078,524 1,314,388 2,732,368

Earnings per Share -18 -1 34 -26 16 34

 

   
   

   
   
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Balance Sheet
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6
Current Assets
Cash 45,000 1,373,653 2,647,134 4,727,577 6,178,889 8,949,663
+ 3 Month Certificate of
1,000,000 0 0 0 0 0
Deposit
+ Finished Goods Inventory 0 75,433 104,224 41,090 0 57,427
Long Term Assets
+ Net Fixed Assets 600,000 1,175,000 2,225,000 2,129,167 2,033,333 1,937,500
= Total 1,645,000 2,624,087 4,976,358 6,897,834 8,212,222 10,944,590
Debt
Conventional Bank Loan 0 0 0 0 0 0
+ Emergency Loan 0 0 0 0 0 0
Equity
+ Common Stock 2,000,000 3,000,000 4,000,000 8,000,000 8,000,000 8,000,000
+ Retained Earnings -355,000 -375,913 976,358 -1,102,166 212,222 2,944,590
= Total 1,645,000 2,624,087 4,976,358 6,897,834 8,212,222 10,944,590
 

   
   

   
   
25  
 
  
 
 

Cash Flow
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6
Beginning Cash Balance 0 45,000 1,373,653 2,647,134 4,727,577 6,178,889
Receipts and Disbursements from Operating Activities
Revenues 0 2,254,900 6,863,550 7,116,300 9,554,004 16,810,825
- Rebates 0 32,000 128,450 105,400 194,220 268,475
- Production 0 1,297,715 3,549,785 3,591,852 5,173,969 9,777,527
- Research and Development 120,000 0 0 4,121,725 1,257,028 120,000
- Advertising 0 99,500 161,199 180,675 390,759 422,036
- Sales Force Expense 0 91,763 250,814 263,942 391,878 952,630
- Sales Office Expense 250,000 370,000 270,000 270,000 450,000 350,000
- Marketing Research 0 15,000 15,000 15,000 15,000 15,000
- Shipping 0 28,158 70,003 73,010 88,357 144,362
- Inventory Holding Cost 0 7,543 10,422 4,109 0 5,743
- Excess Capacity Cost 0 384,567 383,490 410,144 0 162,699
- Income Taxes 0 0 650,905 0 141,481 1,821,578
+ Interest Income 15,000 0 0 0 0 0
- Interest Charges 0 0 0 0 0 0
+ Other Income 0 0 0 0 0 0
- Other Expenses 0 0 0 0 0 0
= Net Operating Cash Flow -355,000 -71,347 1,373,481 -1,919,557 1,451,312 2,770,774
Investing Activities
Fixed Plant Capacity 600,000 600,000 1,100,000 0 0 0
= Total Investing Activities 600,000 600,000 1,100,000 0 0 0
Financing Activities
Increase in Common Stock 2,000,000 1,000,000 1,000,000 4,000,000 0 0
+ Borrow Conventional Loan 0 0 0 0 0 0
- Repay Conventional Loan 0 0 0 0 0 0
+ Borrow Emergency Loan 0 0 0 0 0 0
- Repay Emergency Loan 0 0 0 0 0 0
- Deposit 3 Month Certificate 1,000,000 0 0 0 0 0
+ Withdraw 3 Month Certificate 0 1,000,000 0 0 0 0
= Total Financing Activities 1,000,000 2,000,000 1,000,000 4,000,000 0 0

Cash Balance, End of Period 45,000 1,373,653 2,647,134 4,727,577 6,178,889 8,949,663
 

 
   
   

   
   
26