Bike Simulation

Demand Projection =

# of units per salesperson × # of sales people employed for the quarter.

fixed capacity v operating capacity and overtime

- Fixed Capacity refers to the maximum level of production output that a company can produce- Operational capacity refers to what you can produce in a given amount of time. Your operational capacity depends on a lot of things—resources, efficiency and staffing are key elements- overtime is a way that employers can increase labor and production to satisfy demand spikes

demand -- what factors affected demand?

Change in targeted market segments Change in prices Change in advertising design Change in advertising frequency Change in number of people on salesforce Change in salespeople compensation Changes in brand design (adding/removing features to existing bikes) Changes in the number of brands (creating new bikes)

Factors of demand

Did you change your target market segments? Are you targeting a bigger segment than last quarter? Yes? Demand should go up. No? Demand should go down. Did you raise prices? If yes, demand should go down. If you lowered prices, demand should go up. If you changed prices, the magnitude of the effect on demand will depend upon the elasticity of the target segment. Is the segment price-sensitive? Yes? Demand should be greatly affected. No? Demand should be moderately affected. Did you improve your ad designs? Demand should go up. Did you increase advertising frequency? Demand should go up. Compared to your competition, did you increase it a lot? Yes? Demand should go up a lot. Did you expand your internet marketing efforts? If your efforts are more substantial and successful than the competition, demand should go up. Did you increase the number of sales people? A lot or a little? Adding a lot of sales people to a market at one time can reduce the marginal contribution of the new ones. Thus, demand per sales person should go down. If you add new brands, will the new brands add just 2 or 3 points to your brand judgments? Yes? Demand should go up a little. Are you likely to add 5 or more points to your brand judgments? Yes? Demand should increase a good amount. Have you increased your brand selection? Do you have more brands to offer each segment (micro segmentation)? Demand should improve. Did you increase your compensation to your sales people? Are you leading the industry? Yes, demand should improve by a good amount. Are you in the middle of the pack? Yes? Demand should not be affected too much.

Fixed capacity vs. operating capacity, and overtime

Fixed production capacity determines the maximum number of units your production facility can produce each day (Number of 3D printers). Operating capacity determines the number of workers to employ, and thus, the number of units that are produced each day. Operating capacity must always be less than fixed capacity. Overtime represents an option to expand the operating capacity when too little capacity was scheduled into production. Underestimating demand and scheduling too little operating capacity results in lost sales and unhappy customers. Overtime can be your safety net when faced with the risk of too much or too little demand.

Human Resource Management and Asset Management

Human Resource Management is a measure of how well the executive team is able to recruit the best employees, satisfy their needs, and motivate them to excel. Human Resource Management = Sales Force Productivity / 100 Asset Management: is a measure of the executive team's ability to use the firm's assets to create sales revenue. Asset management is measured by computing the asset turnover of the firm. Good score would be 1.0 Asset Management = Asset Turnover

Investment in Future and Wealth

IIF: reflects the willingness of the executive team to spend current revenues on future business opportunities. Investment in Future = ( Cumulative Expenses that Benefit Firm's Future / Cumulative Net Revenues ) * 10 + 1 Wealth: is a measure of how well the executive team has been able to add wealth to the initial investments of the stockholders. Wealth = Net Equity / Total Stockholders Equity

simulation price implications

If competitors price below you, they can expect a larger share of the market, all other things being equal. The size of this brand switching will be dependent upon the sensitivity of the segment to pricing issues and the size of the difference. your firm will develop a company price image. If your firm's average price is below the competition, the price differential should help in generating more demand and taking business away from your competition. Your lower-priced models will be more attractive than your higher-priced brands for any given market segment. Even if no other competitor is in your sales area, your brands will compete with each other for market share.

Manufacturing Productivity and Financial Risk

Manufacturing Productivity measures how well you have matched operating capacity to demand. The score ranges from 0.0 to 1.0. A very good score would be 0.80. Manufacturing Productivity = ( Percent of Operating Capacity Used in Production / 100 ) - ( Overtime as Percent of Operating Capacity Used / 2 / 100 ) Financial Risk measures the executive team's ability to manage debt as a financial resource. A value of 1.00 would indicate there is no debt and, therefore, no perceived financial risk. Financial Risk = ( Total Equity / Total Capital ) ^ 0.5

Market Performance and Marketing Effectiveness

Market Performance: is a measure of how well the managers are able to create demand in their primary and secondary segments. Market Performance = ( Average Market Share in Targeted Segments / 100 ) * ( Percent of Demand Actually Served / 100 ) Marketing Effectiveness: is a measure of how well the managers have been able to satisfy the needs of the customers as measured by the quality of their brands and ads Marketing Effectiveness = ( Average Brand Judgment / 100 + Average Ad Judgment / 100 ) / 2

Pricing and Price Elasticity

Pricing decisions should be based on what the market will bear, and there is always a price-to-performance ratio. Building a bike with better performance will cost more to produce, and therefore must be priced higher. Will the better performance be worth the increased price in the eyes of the customer? It depends on the price elasticity (sensitivity) of the market segment. Price rebates are more popular among price elastic segments as a short-term stimulant to demand, but they can steal from future sales

lean manufacturing/just-in-time

Strives to meet consumer demand and desires but with minimal inventory levels and minimal supply chain waste, Toyota production system -Lean manufacturing is a production method aimed primarily at reducing times within the production system as well as response times from suppliers and to customers- Just in time (JIT) manufacturing is a workflow methodology aimed at reducing flow times within production systems, as well as response times from suppliers and to customers

Balanced ScoreCard components

The Advanced Balanced Scorecard highlights your team's strengths and weaknesses relative to the other teams in the exercise. A color-coding scheme is employed to highlight the top performers (various shades of green) and poor performers (various shades of red) in each performance area. Total Performance, Financial Performance, Market Performance, Marketing Effectiveness, Investment in Future, Wealth, Human Resource Management, Asset Management, Manufacturing Productivity, and Financial Risk

Total Performance and Financial Performance

The Total Business Performance indicator is a quantitative measure of the executive team's ability to effectively manage the resources of the firm. Total Performance = All components multipled by eachother Financial Performance: measures how well the executive team has been able to create profits for its shareholders. Financial Performance = ( Net Profit from Current Operations + Gross Profit ) / 2 / Total Shares Issued

balanced scorecard -- understand what it is, why it's used, and what key components are

The balanced scorecard is the most important measure of your total performance. It provides a single number that can be compared between companies. As such, it is the main indicator for evaluating your performance in the market. It becomes available after the first quarter of sales. The balanced scorecard is based upon financial performance, marketing effectiveness, market performance, investment in the future, asset management, human resource management, manufacturing productivity, creation of wealth, and financial risk.

what is proforma accounting?

The pro forma accounting statements for the current quarter permit you to tentatively enter decisions and observe their effect on your cash flows, income statement, and balance sheet. They are essentially a budgeting tool. The objective of the pro forma analysis is to observe the effect of your tactical decisions, production plan, and demand projections on your financial position

Excess inventory

The term for when customers did not buy as much inventory as the company estimated and there is too much inventory in stock.

target market -- primary and secondary targets (what is the importance of setting these?)

There were three market segments in the Bikes Simulation: Recreational, Mountain, and Speed. These three segments largely had different needs, with little overlap. Companies were asked to prioritize a segment as a Target Market, for which they would develop and execute a strategy for. This entailed creating a specific brand, advertising with specific media placements, and setting specific prices based on the Target Segment.

Customer Needs/customer value hierarchy

This hierarchy determines the importance of services in the mind of the consumer in terms of what the consumer expects and does not expect from the purchase experience

costs of production and economies of scale

Your production costs include materials, labor, and production overhead. The cost of materials represents the largest share of your production costs. Materials costs are variable and are determined by the production volume. Economies of scale are when production costs decrease as production volume increases.

Goal of lean manufacturing

Your production facility is setup for lean manufacturing, or just-in-time production and delivery. The goal of lean manufacturing is to produce only the quantity of goods that is demanded by customers, and no more.

demand forecasting

a decision process in which managers predict demand patterns- Change in targeted market segments Change in prices Change in advertising design Change in advertising frequency Change in number of people on salesforceChange in salespeople compensation Changes in brand design (adding/removing features to existing bikes )Changes in the number of brands (creating new bikes)

demand curves

a graph of the relationship between the price of a good and the quantity demanded

Price elasticity

a measure of the sensitivity of demand to changes in price

Profitibility analysis

a process that helps you determine whether your business or an element of your business is profitable When costs can be tied to an element of your business, that element is called a cost object. These can be departments, products, or geographical regions. once you link revenues and costs to cost objects, you can determine their profitability. Revenue - Cost = profit

three financial statements in the simulations and the key components of each

balance sheet income statement cash flow statement

Types of Pricing

penetration pricing (deep price cuts), Price Rebates, or skim-the-cream pricing (premium prices).

Price Rebates

short-term stimulant to market demand. Rebates are popular amongst price sensitive customers and, as a consequence, they are good traffic builders for sales outlets. Among price sensitive customers, rebates create excitement and encourage them to buy immediately. This inclination can be reflected in the price judgments. A brand with a rebate can achieve a better price judgment compared to a brand with regular price cut of the same amount. But, this does not work with the price inelastic segments. For these customers, a rebate suggests something negative, like the store is trying to unload unwanted inventory. Price judgments can actually get worse when you offer rebates to these segments. Therefore, consider using rebates with the price sensitive segments and avoid them with the value-driven segments. A down side of a rebate program is that you may be borrowing from future sales. Some of your customers may have been intending to buy at a later date. Rebates simply encourage them to act sooner. In addition, a large proportion of the customers would have made their purchases without a rebate. Also, while your price image will be improved in the quarter of the sale, it will deteriorate in the quarter the rebate is removed, as customers perceive a price increase. Rebates in the order of 50 to 100 are typical for price-sensitive customers. Buyers will tend to ignore unusually high rebates and will be discouraged from making a purchase if the price seems too high.

Match-up Benefits and Features

the features that seem faster are faster and comfort = comfort and mountain = mountain

Stock-outs

zero-inventory situations resulting in lost sales and customer dissatisfaction