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Et Cetera Final Report ! 104B Team ! ! ! ! ! ! ! Business
Et Cetera Final Report
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104B Team
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Business Live SBUS10060
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Omar Elsayed
Paul Fallon
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Tomás Fahy
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David Doyle
Anna Dybul
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Table of Contents
Table of Contents
1 - Excutive Summary 3
1 -
Excutive Summary
3
2 - Performance Sumaary 5
2 -
Performance Sumaary
5
A. Financial Performance 5
A. Financial Performance
5
B. Market Performance 7
B. Market Performance
7
3 - Business Strategy 7
3 -
Business Strategy
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A. Overall Strategy 8
A. Overall Strategy
8
B. Marketing Strategy 9
B. Marketing Strategy
9
C. Distribution Strategy 10
C. Distribution Strategy
10
D. Manufacturing Strategy 12
D. Manufacturing Strategy
12
E. Financial Strategy 14
E. Financial Strategy
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4 - Assessment of Current Situation 15
4 - Assessment of Current Situation
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i. Assessment by Regions 15
i. Assessment by Regions
15
5 - Preparing for the Future 16
5 -
Preparing for the Future
16
A. Growth Plan 16
A. Growth Plan
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B. SWOT Anaylsis 17
B. SWOT Anaylsis
17
6 - Lessons Learned 18
6 - Lessons Learned
18
A & B. learning from Success and Failure 18
A & B. learning from Success and Failure
18
C. Teamwork 19
C. Teamwork
19
7- Appendices 21
7- Appendices
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1. Executive Summary
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
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
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 1 st 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 4 th 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
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
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
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
7. Appendices
 

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Cost of Goods Soldmillions   8 6 4 2 0 Figure 2.1 Quarter 2 Quarter 3 Quarter 4 Quarter

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3000
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
CU in thousands
! ! ! ! ! ! ! ! ! 20 ! !
! !
!
!
!
! !
!
!
20 !
!
! !
!
!
Figure 2.3: Demand ! Quarter 2, 641 ! ! ! Quarter 3, 2001 Quarter 6,
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
!
!
! ! ! ! ! ! ! ! ! 21 ! !
! !
!
!
!
! !
!
!
21 !
!
! ! !
!
!
!
! Figure 3.1: No. of Sales People ! No. of Sales People ! ! Quarter
!
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
!
!
!
! ! ! ! ! ! ! ! ! 22 ! !
! !
!
!
!
! !
!
!
22 !
!
! ! Fgure 3.3 ! ! ! ! ! ! ! ! ! ! !
!
!
Fgure 3.3
!
!
!
!
!
!
!
!
!
!
!
Figure 3.4
!

70!

! 60! ! 50! 40! ! 30! ! 20! 10! ! 0! Quarter! Quarter! Quarter!
!
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!
*
!
38.4567!
38.349!
41.0144!
0!
16.2699!
(10,000's)!
!
!

* Stock out of 297 In Quarter 5

! ! ! ! ! ! ! ! ! 23 ! !
! !
!
!
!
! !
!
!
23 !
!
! ! Income Statement Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter
!
!
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
and Taxes
=
-370,000
-20,913
2,003,177
-2,078,524
1,455,870
4,553,946
+ 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
! ! ! ! ! ! ! ! ! 24 ! !
! !
!
!
!
! !
!
!
24 !
!
! ! !
!
!
!

!

 

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 Deposit

+

1,000,000

0

0

0

0

0

+ 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 ! !
! !
!
!
!
! !
!
!
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 ! !
! !
!
!
!
! !
!
!
26 !
!