Capsim Foundation

Benchmarking:

Reduces Administrative overhead

Vendor/JIT (Just in Time [Inventory]):

Reduces Material costs and Administrative overhead;

If your company is competing in the high technology segments, with high material costs, you might consider initiatives that reduce material costs

(for example, Continuous Process Improvement)

7. Assuming the Productivity Index is greater than 100%, adding Overtime will A. increase the Productivity Index B. decrease the Productivity Index

B While the Productivity Index can never fall below 100%, it is possible for teams to increase the Index by investing in a higher quality of worker (Recruiting Spend) and in education (Training Hours). However, scheduling Overtime will decrease the Index because workers will become tired and disgruntled.

6. Recruiting Costs are incurred when A. Automation levels increase B. Production runs increase and teams match hiring to Needed Complement C. workers are assigned to a Second Shift

B Increasing production and then matching the Needed Complement will result in new hires, and therefore increase Recruiting Costs.

3. Management should strive to A. increase Turnover B. decrease Turnover

B Lowering Turnover reduces Recruitment costs.

9. Teams can eliminate all Recruiting Costs if they wish A. True B. False

B Teams can choose to enter 0 in the Recruiting Spend cell on the Human Resources screen, however that number is in addition to a base Recruiting Cost of $1,000 per worker. A Recruiting Spend entry facilitates recruiting a better quality of worker.

Your company needs to determine which initiatives best serve its purposes. If you are keeping automation levels low so R&D projects complete more quickly, you might want to invest in areas that lower labor costs

(for example, Quality Initiative Training)

Margin Potential equation

= Maximum Price - Minimum Unit Costs

Minimum Labor Cost

= [$11.20 - (1.12 * Automation Ratings Below)] + 1.12

Investing in the same TQM Initiative round after round will create

B diminishing returns

Expenditures beyond $2,000,000 over two or three years in each initiative pushes well into diminishing returns.

For example, suppose a company wants to reduce the time required to complete R&D projects by investing in Concurrent Engineering and Quality Function Deployment. An aggressive schedule would be $750,000 this year (staying within acceptable diminishing returns); $750,000 next year (which would not produce as much benefit, but would continue to improve R&D cycle time); and $500,000 in the third year. The TQM area displays the projected impacts for the current year. As companies make decisions, worst-case/best-case sets of outcomes are predicted. These are also carried into the proformas. The spreadsheet can only offer a range of possible savings. Actual results appear the following round on page 9 of the Foundation FastTrack in the HR/TQM Report.

Channel Support Systems:

Increases the effectiveness of the sales budget, and therefore demand;

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;

CPI (Continuous Process Improvement) Systems:

Reduces material cost and to a lesser degree labor costs;

CCE (Concurrent Engineering)/6 Sigma Training:

Reduces material costs and labor costs;

4. The exact outcome of TQM efforts appear on the TQM Report, and as bar charts on the TQM spreadsheet. These results are for A. the previous round only B. the upcoming round only C. cumulative for the previous and all remaining rounds (assuming no additional investment is made)

c - cumulative for the previous and all remaining rounds

According to the S-Shaped curve, diminishing returns for a single year budget become significant at A. $1,000,000 B. $1,500,000 C. $750,000

c. 750,000

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. The impacts of the investments produce returns in the year they are made and in each of the following years.

5. If a company with low automation wanted to invest in a single area that exclusively lowers labor costs, they would select: A. QIT (Quality Initiative Training) B. Concurrent Engineering C. Vendor/JIT (Just in Time [Inventory])

A

2. Hiring the Needed Complement will always eliminate A. Overtime B. worker layoffs C. a Second Shift D. strikes

A Hiring the Needed Complement eliminates all Overtime. The Second Shift workers are paid the same as workers on Overtime, however, Second Shift workers are more efficient and do not seek work elsewhere, therefore reducing turnover.

8. Worker training is entered by the A. Hour B. Dollar

A Hours are entered on the HR Screen. Training costs $20.00 per hour per worker.

1. The TQM report can be accessed from A. The Foundation(r) FastTrack B. The Decisions menu

A The Foundation FastTrack

4. Increasing Capacity tends to A. reduce the Needed Complement B. reduce the number of workers on Second Shift C. reduce Overtime

B Increasing Capacity tends to reduce the number of workers on the Second Shift. As an example, a production order of 1,200 units on a line with a Capacity of 800 units (numbers in thousands) will require 400 units to be produced by the Second Shift. Increasing Capacity to a total of 1,000 units will result in 1,000 units manufactured by First Shift labor, and only 200 units produced by more expensive Second Shift labor.

1. Production runs can be scheduled in A. only one shift B. always two shifts C. one or two shifts D. up to three shifts

C Up to twice the production line's First Shift Capacity can be scheduled for each individual product. Production runs that exceed the First Shift Capacity result in either Overtime and/or a Second Shift, depending on the Worker Complement.

5. Increasing Training Hours tends to A. increase the Needed Complement B. decrease the Needed Complement C. neither increase nor decrease the Needed Complement D. both increase and decrease the Needed Complement

D In the short term, increasing Training Hours will increase the Needed Complement-- Workers are taken off the production line and put in the classroom. However, as time goes on, investing in Training Hours increases worker productivity, and therefore tends to decreases the Needed Complement.

10. Generally, Separation Costs will be incurred when A. Production levels increase B. Automation Levels increase C. Production Levels decrease D. Production levels decrease and / or Automation levels increase

D The Needed Complement is determined by a combination of: a) the number of units ordered into production; and b) the Automation level of the assembly lines. Decreasing the number of units produced from one year to the next will decrease the Needed Complement. Similarly, increases in Automation will decrease the Needed Complement. If teams adjust the This Year cell to match the Needed Complement, Separation Costs will be incurred

S-shaped curve For each initiative, returns for investments follow the shape of an S-curve. That is if you spend too little or too much the returns on your investment are poor

If you spend less than $250,000 in any initiative in a single round chances are you will see little return. An investment of $750,000 in a single round produces a cost-effective impact, investments over $750,000 become dollar for dollar less effective. Finally, for each initiative, an investment over $1,000,000 in a single round produces absolutely no additional benefit.

Quality Function Deployment Effort:

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

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.

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.

For each impact, complementary initiatives combine together to increase the total effect. You should bundle your investments in multiple initiatives that have an impact important to your company's strategy. By spreading your investment among complementary initiatives you can invest more in each impact than the limit of $1,000,000 for an individual initiative.

You can target multiple impacts, such as both material and labor cost reduction; this can be a substantial investment in any given year. As you fine tune your decisions, keep an eye on the Projected Cumulative Impacts to ensure that your investments are creating cost-effective returns. Companies that invest in the same initiatives over two or three rounds (depending on the amount of money) will experience decreasing and eventually no additional returns for their investments.

Minimum Material Cost

[(Lowest Acceptable MTBF * 0.30) / 1000] + Trailing Edge Position Cost

Margin Potential

finding the maximum amount of profit you can get from one unit of a product is called margin potential. This is useful for a company when making a decision about whether to go into production or not.

To maximize the effect, companies should find complementary initiatives and invest in each of them. For example, to reduce material costs, companies should consider

investing in both CPI Systems and GEMI TQEM Sustainability.