Capsim exam

1st Shift Complement:

For each product, if your schedules are less than or equal to the 1st Shift Capacity, your workers will only be used on a 1st Shift.

2nd Shift Complement:

If for any product your schedule is greater than your 1st Shift Capacity, and if the This Year (%) is at or near 100%, workers will be added to a 2nd Shift. 2nd Shift workers are paid 50% more per hour than 1st Shift workers. 2nd Shift scheduling has no impact upon the Productivity Index.

Channel Support Systems

Increases the effectiveness of the sales budget, and therefore demand

R&D works with _______ to make sure products meet customer expectations.

Marketing

Each segment has different price expectations. One segment might want inexpensive products while another, seeking advanced technology, might be willing to pay higher prices.

Price

R&D works with _______________ to ensure assembly lines are purchased for new products. If Production discontinues a product, it should notify R&D. Marketing and Production

Production

Positioning Fine Cut

Products inside the fine cut (green areas, Figure 3.1,) are within 2.5 units of the center of the circle. Ideal spots for each segment are illustrated by the black dots. The example on the left illustrates a segment that prefers proven, inexpensive technology. The ideal spot is to the upper left of the segment center, where material costs are lower. The example on the right illustrates a segment that prefers cutting-edge technology. The ideal spot is to the lower right of the segment center, where material costs are higher (see Figure 4.1 for an illustration of material positioning costs).

Positioning Rough Cut

Products placed in the rough cut area (orange rings, Figure 3.1) are between 2.5 and 4.0 units from the center of the circle. Products here are poorly positioned and they will have reduced customer survey scores. The farther they are from the fine cut circle, the more the scores are reduced. Just beyond the fine cut, scores drop 1%.

Your _____________________ have to make sure your products keep up with changing customer preferences. To do this, R&D must reposition products, keeping them within the moving segment circles.

R&D and Marketing Departments

Benchmarking:

Reduces Administrative overhead

Vendor/JIT (Just in Time [Inventory]

Reduces Material costs and Administrative overhead

Quality Function Deployment Effort

Reduces R&D cycle time and enhances the effectiveness of the Promotion and Sales Budgets

Concurrent Engineering

Reduces R&D cycle time, the time needed to move sensors on the Perceptual Map and to change MTBF specifications. R&D costs are determined by the length of time they require, therefore Concurrent Engineering also lowers R&D costs

QIT (Quality Initiative Training)

Reduces labor costs

CCE (Concurrent Engineering)/6 Sigma Training:

Reduces material costs and labor costs;

Price Rough Cut

Sensors priced $5.00 above or below the segment guidelines will not be considered for purchase. Those products fail the price rough cut. Sensors priced $1.00 above or below the segment guidelines lose about 20% of their customer survey score (orange arrows, Figure 3.2). Sensors continue to lose approximately 20% of their customer survey score for each dollar above or below the guideline, on up to $4.99, where the score is reduced by approximately 99%. At $5.00 outside the range, demand for the product is zero.

Positioning

Sensors vary in their dimensions (size) and the speed/sensitivity with which they respond to changes in physical conditions (performance). Combining size and performance creates a product attribute called positioning.

CPI (Continuous Process Improvement)

Systems: Reduces material cost and to a lesser degree labor costs

GEMI TQEM Sustainability:

The Global Environmental Management Initiative Total Quality Environmental Management initiative reduces labor costs as it minimizes environmental risks. These include production methods which protect employee health and redesign of products to have fewer toxic by-products. The initiative also reduces material costs, as it promotes recycling and other material use efficiencies.

Inventing Sensors

The Production Department must order production capacity to build the new product one year in advance. Invention projects take at least one year to complete.

UNEP Green Program:

The United Nations Environment Program increases the effectiveness of the sales budget (customers prefer products made by socially responsible manufacturers), and therefore increases demand. Green programs also reduce waste and therefore material costs.

Human Resources decisions are made in two locations:

The Workforce Complement percentage is entered at the bottom in the Production area; Recruiting Spend and Training decisions are made in the Human Resource area.

Age Score

The age criteria do not have a rough cut; a product will never be too young or too old to be considered for purchase. Customers demanding cutting-edge technology prefer newer products. The ideal ages for these market segments are generally one and a half years or less. Other segments prefer proven technology. These segments seek older designs. Each month, customers assess a product's age and award a score based upon their preferences. Examples of age preferences are illustrated in Figure 3.4.

Training:

The amount of time workers spend in training each year. Training leads to higher productivity and lower turnover, but takes people off the job while they are in the classroom. Each training hour costs $20.00 per worker.

Separation Cost:

The cost to separate (fire) workers. If you downsize your workforce (by reducing production schedules or increasing automation), each worker is given a separation package worth $5,000.

Expenditures beyond _______ over two or three years in each initiative pushes well into diminishing returns.

$4,000,000

For each point of change in automation, up or down, the company is charged ________ per unit of capacity. For example, if a line has a capacity of 1,000,000 units, the cost of changing the automation level from 5.0 to 6.0 would be $4,000,000.

$4.00

Your Finance Department is primarily concerned with five issues

-Acquiring the capital needed to expand assets, particularly plant and equipment. Capital can be acquired through: Current Debt Stock IssuesBond Issues (Long Term Debt)Profits -Establishing a dividend policy that maximizes the return to shareholders. -Setting accounts payable policy (which can also be entered in the Production and Marketing areas) and accounts receivable policy (which can also be entered in the Marketing area). -Driving the financial structure of the firm and its relationship between debt and equity. -Selecting and monitoring performance measures that support your strategy.

Watch out for three common tactical mistakes in a seller's market:

-After completing a capacity analysis, a company decides that industry demand exceeds supply. They price their product $4.99 above last round's published price range, forgetting that price ranges fall by $0.50 each round. Demand for the product becomes zero. They should have priced $4.49 above last year's range. -A company disregards products that are in the positioning rough cut. These products normally can be ignored because they have low customer survey scores. However, when the company increases the price, the customer survey score falls below the products in the rough cut areas, which are suddenly more attractive than their product. -The company fails to add capacity for the next round. A seller's market sometimes appears because a competitor unexpectedly exits a segment. This creates a windfall opportunity for the remaining companies. (However, a well-run company will always have enough capacity to meet demand from its customers.)

Despite its attractiveness, two factors should be considered before raising automation:

-Automation is expensive: At $4.00 per point of automation, raising automation from 1.0 to 10.0 costs $36.00 per unit of capacity; -As you raise automation, it becomes increasingly difficult for R&D to reposition products short distances on the Perceptual Map. For example, a project that moves a product 1.0 on the map takes significantly longer at an automation level of 8.0 than at 5.0 (Figure 4.4). Long moves are less affected. You can move a product a long distance at any automation level, but the project will take between 2.5 and 3.0 years to complete.

Segment circles on the Perceptual Map move at speeds ranging from_________units each year.

0.7 to 1.3

MTBF (Mean Time Before Failure) is a rating of reliability measured in hours. Segments have different MTBF criteria. Some might prefer higher MTBF ratings while others are satisfied with lower ratings.

2 MTBF (Mean Time Before Failure) or Reliability

Each segment sets a __________ range for MTBF (Mean Time Before Failure), the number of hours a product is expected to operate before it malfunctions. Customers prefer products towards the top of the range.

5,000 hour

Usually, a product with a low customer survey score has low sales. However, if a segment's demand exceeds the supply of products available for sale, a seller's market emerges. In a seller's market, customers will accept low-scoring products as long as they fall within the segment's rough cut limits. For example, desperate customers with no better alternatives will buy:(What the Example)?

A product positioned just inside the rough cut circle on the Perceptual Map- outside the circle they say "no" to the product; A product priced $4.99 above the price range- at $5.00 customers reach their tolerance limit and refuse to buy the product; and A product with an MTBF 4,999 hours below the range- at 5,000 hours below the range customers refuse to buy the product.

A company's _________________ policy sets the amount of time customers have to pay for their purchases. At 90 days there is no reduction to the base score. At 60 days the score is reduced 0.7%. At 30 days the score is reduced 7%. Offering no credit terms (0 days) reduces the score by 40%

Accounts Receivable

Marketing works with Finance to project revenues for each product and to set the ___________________ policy, which is the amount of time customers can take to pay for their purchases.

Accounts Receivable

Awareness and Accessibility

After your product leaves the factory and enters the marketplace, the calculations for its score become less exact. The score will be affected by the level of the product's awareness (the percentage of people who know about your product) and its segment's accessibility (the number of customers who can easily interact with your company).

Each segment has different age expectations, that is, the length of time since the product was invented or revised. One segment might want brand-new technology while another might prefer proven technology that has been in the market for a few years.

Age

The impacts of these initiatives improve product quality while reducing the time and resources required to design, manufacture, warehouse and ship products.

Benchmarking: Quality Function Deployment Effort CCE (Concurrent Engineering)/6 Sigma Training GEMI TQEM Sustainability

Customers within each market segment employ different standards as they evaluate products. They consider four buying criteria: Price, Age, MTBF (Mean Time Before Failure) and Positioning.

Buying Criteria

The impacts of these initiatives improve business procedures, resulting in improved efficiencies and cost structures:

CPI (Continuous Process Improvement) Vendor/JIT (Just in Time [Inventory] QIT (Quality Initiative Training) Channel Support Systems Concurrent Engineering UNEP Green Program

to reduce material costs, companies should consider investing in both __________________________.

CPI Systems and GEMI TQEM Sustainability

When the Human Resources Module is activated, three areas must be addressed:

Complement: Caliber: Training

MTBF rough cut

Demand scores fall rapidly for products with MTBFs beneath the segment's guidelines. Products with an MTBF 1,000 hours below the segment guideline lose 20% of their customer survey score. Products continue to lose approximately 20% of their customer survey score for every 1,000 hours below the guideline, on down to 4,999 hours, where the customer survey score is reduced by approximately 99%. At 5,000 hours below the range, demand for the product falls to zero.

Segment movement

Each segment moves across the Perceptual Map a little each month. In a perfect world your product would be positioned in front of the ideal spot in January, on top of the ideal spot in June and trail the ideal spot in December. In December it would complete an R&D project to jump in front of the ideal spot for next year.

Separated Employees:

Employees lost because of downsizing or increases in Automation. Specifically, Separated Employees is Last Year's Complement minus This Year's Complement. All separations occur in January and incur a Separation Cost.

New Employees:

Employees recruited this year. At a minimum, New Employees reflects replacement of workers lost during the course of the year to turnover. It also includes workers hired in January to increase the Complement from last year. New employees incur a Recruiting Cost. As a simplifying assumption, the simulation does not rehire fired or separated workers.

Rough Cut Circle

The dashed outer circle defines the outer limit of the segment. Customers are saying, "I will NOT purchase a product outside this boundary." We call the dashed circle the rough cut boundary because any product outside of it "fails the rough cut" and is dropped from consideration. Rough cut circles have a radius of 4.0 units.

Complement:

The number of workers in the workforce. Needed Complement is the number of workers required to fill the production schedule without overtime.

Complement:

The number of workers in your workforce this year. This year's complement percentage is entered on the Production spreadsheet in the This Year (%) column. It also appears in the second row of the Human Resource spreadsheet. Suppose you enter a percentage that is less than 100. Employees must work overtime to complete the work schedule. Excessive overtime drags down productivity and increases turnover. 2nd Shift and overtime workers cost 50% more per hour than workers on 1st Shift.

Needed Complement

The number of workers needed this year if the company is to avoid overtime.

Overtime Percent:

The percentage of work performed on overtime. 100% means that every 1st Shift worker is doing a double shift. 15% means that, on average, workers perform 15% overtime. Overtime increases turnover and drags down productivity.

Reliability (MTBF) Costs

The reliability rating, or MTBF, for existing products can be adjusted up or down. Each 1,000 hours of reliability (MTBF) adds $0.30 to the material cost. A product with 20,000 hours reliability includes $6.00 in reliability costs: ($0.30 * 20,000) / 1,000 = $6.00 Improving positioning and reliability will make a product more appealing to customers, but doing so increases material costs.

Fine Cut Circle

The solid inner circle defines the heart of the segment. Customers prefer products within this circle. We call the inner circle the fine cut because products within it "make the fine cut." Fine cut circles have a radius of 2.5 units.

Caliber:

The talent of the workforce. If companies are willing to spend the money, they can recruit a higher caliber of worker. This results in higher productivity and lower turnover. Companies set a Recruiting Spend budget of up to an additional $5,000 per worker. If they spend nothing extra, their recruitment cost per worker remains at $1,000 and they get an average person off the street. The more they spend, the higher the caliber of the worker.

Base Scores

To estimate the customer survey score, begin with the buying criteria available in the Courier's Segment Analysis reports. For example, suppose the buying criteria are: Age, 2 years- importance: 47% Price, $20.00-$30.00- importance: 23% Ideal Position, size 15.0 /performance 5.0- importance: 21% MTBF, 14,000-19,000- importance: 9% A perfect score of 100 requires that the product have an age of 2.0 years, a price of $20.00, a position at the ideal spot (5.0 and 15.0) and an MTBF of 19,000 hours. The segment weighs the criteria at: Age 47%, Price 23%, Positioning 21% and MTBF 9%. You can convert these percentages into points then use these numbers to estimate a base score for your product. For example, price is worth 23 points. The perfect Round 0 price of $20.00 would get 23 points, but at the opposite end of the price range, a price of $30.00 would only get one point.

According to the S-Shaped curve, diminishing returns for a single year budget become noticeable at $2,000,000. T or F

True

As a general rule, bond issues are used to fund long term investments in capacity and automation. T or F

True

Diminishing returns will occur when investing in the same TQM Initiative round after round. T or F

True

Every segment has a $10.00 price range. Customers prefer products-the ideal-towards the bottom of the range. Price ranges in all segments drop $0.50 per year. T or F

True

Marketers speak of "the 4 P's" - price, product, promotion and place. Price and product are found in the buying criteria. Together they present a price-value relationship. Your promotion budget builds "awareness," the number of customers who know about your product before sourcing. Your sales budget (place) builds "accessibility," the ease with which customers can work with you after they begin sourcing. To the 4 P's we can add two additional elements- credit terms and availability. Credit terms are expressed by your accounts receivable (A/R) policy. Availability addresses inventory shortages. T or F

True

Plug-ins and their decisions have a greater overall impact on your organization. For example, the simulation might include the Corporate Responsibility and Ethics plug-in, which presents you with an unexpected ethical dilemma. Group discussion and consensus is imperative because your decisions will affect your financial results. T or F

True

Positioning and price criteria change every year. Age and MTBF criteria always remain the same. T or F

True

Productivity Index will display on the Human Resources page. The higher the index, the lower the company's per unit labor cost T or F

True

Proformas are projections for the upcoming year. Annual reports are the results from the previous year. T or F

True

The exact outcome of TQM efforts appear on the TQM Report, and as bar charts on the TQM spreadsheet. These results are for the previous round only, assuming no additional investment is made. T or F

True

The two sustainability-oriented initiatives, the______________________________, can lower labor and material costs.

UNEP Green Program and GEMI TQEM

Price fine cut

Within each segment's price range, price scores follow a classic economic demand curve (green curve, Figure 3.2): As price goes down, the price score goes up.

MTBF

Within the segment's MTBF range, the customer survey score improves as MTBF increases (Figure 3.3). However, material costs increase $0.30 for every additional 1,000 hours of reliability. Customers ignore reliability above the expected range- demand plateaus at the top of the range.

Training Cost

are driven by Training Hours. Each worker-training hour costs $20.00 and pays for such things as educational materials, instructors, etc. Training costs do not include time off the job.

Total HR Admin Costs

are incorporated into the income statement's admin line item. Costs are allocated to products based upon their Complement. For example, if Able has 10 workers and Acre has 20, then the HR Admin costs (training, recruiting, etc.) would be twice as much for Acre as for Able.

Increasing Training Hours tends to

both increase and decrease the Needed Complemen

TQM (Total Quality Management)/Sustainability initiatives

can reduce material, labor and administrative costs, shorten the length of time required for R&D projects to complete and increase demand for the product line

______________reflects how well a product meets its segment's buying criteria. Company promotion, sales and accounts receivable policies also affect the survey score.

customer survey score

Example 2 customers seek ____________________________ in size/performance and new designs. Ideal Position, size 11.1/performance 8.9- importance: 43% Age, 0 years- importance: 29% MTBF, 20,000-25,000- importance: 19% Price, $30.00-$40.00- importance: 9%

cutting-edge technology

The Finance Department acts as a watchdog over company Production. Finance should review Marketing and Production decisions. Finance should cross-check Marketing's forecasts and pricing. Are forecasts too high or too low? Will customers be willing to pay the prices Marketing has set? Is Production manufacturing too many or too few units? Does Production need additional capacity? Has Production considered lowering labor costs by purchasing automation? T or F

false

The ideal spot is that point in the_______ where, all other things being equal, demand is highest.

heart of the segment

Similar products with________________________________ will score better than those with lower percentages

higher awareness and accessibility

The more advanced the positioning, the ___________. The trailing edge of the Low End fine cut has the lowest positioning cost of approximately $1.00; the leading edge of the High End fine cut has the highest positioning cost of approximately $10.00.

higher the cost

Each segment is described with a dashed outer circle, a solid inner circle and a dot representing the ideal position called the _________

ideal spot

UNEP Green Program also can improve customer perceptions about your company, which leads to_______________________.

increased sales

Productivity Index

indicates how the general workforce compares with the workers employed in Round 0. 100% means that current workers are just as good as original workers. 110% means that, on average, you only need 91% (100 / 110 = 91) of the Complement to do the same work as a workforce comprised of original workers. In short, higher productivity means fewer workers are required, and that drives down per unit labor cost. Recruiting Spend and Training Hours drive up the Productivity Index. Overtime drags down the Productivity Index. This Year actually means by the end of this year. Last year's Productivity is the driver behind your Complement requirements this year because it indicates your productivity level on January 1.

Awareness

is built over time by the product's promotion budget. Promotion budgets fund advertising and public relations campaigns.

Accessibility

is built over time by the product's sales budget. Sales budgets fund salespeople and distribution systems to service customers within the product's market segment.

Recruiting Spend

is the extra amount budgeted per worker to recruit high caliber workers. The higher the budget, the better the worker, resulting in a higher Productivity Index and lower Turnover. Your entry is added to a base amount of $1,000 per new employee. $0 means no extraordinary effort is spent recruiting new people. Diminishing returns apply after $5,000 per worker.

The Capstone Web Application

is the nerve center of your company where you formulate and finalize management decisions for every department. After you log in, the spreadsheet is available from the Decisions link

Training Hours:

is the number of hours each year that each individual worker is taken off-line for training and development. For example, 40 means that each worker will spend 40 hours in training this year. Training produces a higher Productivity Index and a lower Turnover Rate. The more time off-line, the higher the needed Complement. Each training hour costs $20.00 per worker in training costs.

Investments in Recruiting and Training raise your Productivity Index, which in turn lowers your per unit _____________.

labor costs.

The High End segment wants products that are faster performing and smaller in size. It wants products that fall within the____________ set of dashed and solid circles.

lower-right

Marketing works with Production to make sure____________________. Marketing's market growth projections also help Production determine appropriate levels of capacity. If Marketing decides to discontinue a product, it tells Production to sell the product's production line.

manufacturing quantities are in line with forecasts.

Production tells Finance if it___________________________. If Finance cannot raise enough money, it can tell Production to scale back its requests or perhaps sell idle capacity.

needs money for additional equipment

_________________ of 100 requires that the product: Be at the ideal position (the segment drifts each month, so this can occur only one month per year); be priced at the bottom of the expected range; have the ideal age for that segment (unless they are revised, products grow older each month, so this can occur only one month per year); and have an MTBF specification at the top of the expected range.

perfect customer survey score

Example 1 customers seek ____________________________________. Age, 2 years- importance: 47% Price, $20.00-$30.00- importance: 23% Ideal Position, size 16.0/performance 4.0- importance: 21% MTBF, 14,000-19,000- importance: 9%

proven products at a modest price

Increasing Capacity tends to

reduce the number of workers on Second Shift

Reducing automation costs money. If you reduce automation, you will be billed for a____________ cost. The net result is you will be spending money to make your plant less efficient. While reduced automation will speed R&D redesigns, by and large, it is not wise to reduce an automation level.

retooling

As a general rule, __________ are used to fund long term investments in capacity and automation.

stock issues

Recruiting Cost:

the amount spent to recruit new workers. It equals the number of workers recruited times ($1,000 + Recruiting Spend).

Turnover Rate

the percentage of workers who left the company last year, excluding downsizing. About 5% is rooted in unavoidable factors like retirement, relocation and weeding out poor workers. Remaining turnover is a function of employee dissatisfaction. The best workers leave first. Turnover is driven down by Recruiting Spend and Training Hours. Turnover also goes up as a result of overtime and a substandard compensation package from the Labor Negotiation.

(Savings * Remaining Rounds) / Automation Cost = ROI If your plant is highly utilized your ROI will be higher than if your plant is only partially utilized (if your plant is under-utilized you might consider selling excess capacity). Clearly, the greater the ROI, the better the investment. T or F

true

The Low End segment is satisfied with inexpensive products that are large in size and slow performing. It wants products that fall inside the ____________ set of dashed and solid circles

upper-left