capstone round 3

8/10/2019 Capstone round 3

1/43

Industry and Team Specific Points

C66537

General: Immensely competitive Industry. Andrews and Chester are locked in a fight formarket leadership in the industry. Expect to see more ups and downs as the years pass.

Erie made losses this year. Low sales for Erie. The reasons for your low sales are known to youall by now and are given below in the sales paragraph. The top-line for Andrews has showngood growth in the last financial year. Contribution margins are low for Digby. You will find ithard to make a profit with contribution margins below 30%. Emergency loans were seen forDigby and Erie . Please read the paragraph on emergency loans below.

Some teams are still repeating the mistakes made in the practice round. Stay away from largeunsold inventories and emergency loans.

Stock Price and Market Cap: Except Erie, all teams had a rise in stock price. Eries stock

price remained constant.Andrews is the most valuable company measured by market cap.

Stock price is affected by performance, asset base, debt, dividend policy, and number ofshares outstanding . In a year of aggressive investment in plant expansion and automation,you would expect that the necessary debt load would cause some uneasiness on the part ofshareholders. But, if the stock price dips more than $15.00, it may be a warning sign of toomuch debt. The stock price can also suffer in profitable years. For example, liquidation of plantbrings in cash, but makes shareholders wonder about the long term competitive ramifications.Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative

effect on stock price.This shows that investors are losing confidence in your companies. Dont let that happen .Profits and cash: both are imperative and foundational. Remember your company couldbe profitable but still have a cash crisis. Profits do not equal cash!

Sales: Andrews, Baldwin, Chester and Ferris had a rise in market share of 2.5%, 0.6%, 1.5%and 2.2% respectively. Digby and Erie had a fall in market share of 2.8% and 3.9%respectively.

Low sales for Erie. This was caused by:

Poor product specifications (performance and size); look at the ideal spot on theperceptual map. Look at your product specifications. If you do not offer the customersthe specifications they desire, sales will suffer.

High price /pricing outside the price range for Eion. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget.

Please pay more attention to the 4Ps of marketing: improve your sales.


2/43


3/43

Plant Size and Utilization: Digby and Erie need improvement in plant utilization. Your plantcan produce up to twice the first shift capacity. Use it more optimally.

Overall Plant Utilization: Consider this

Overall Plant Utilization asks the question, Are we working our plant hard? It is calculated asTotal Production / Total Capacity.

It is easy to demonstrate that second shift is nearly always more profitable than first shift. Thisoften surprises participants who look at the 50% second shift wage premium and assume thatsecond shift must be something to avoid. But suppose we only run one shift by necessity itmust pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, andInterest. Anything on second shift only pays for the 50% premium on labor.

It follows that we want to run as much second shift as possible. In a perfect world, we would runtwo shifts, our best case demand forecast would come true, and we would have only one unit ofinventory left at the end of the year. On the other hand, if we max out second shift, there is agood chance we could stock out, and stock outs are very costly. Therefore, 170% plantutilization or more is considered excellent and 130% satisfactory.

Asset Turnover: Erie needs to work their assets harder. They have an asset turnover of lessthan one.

Forecasting and Inventory: Erie has high levels of unsold inventory. This results from poorforecasting and being overly optimistic. Remember the high degree of competition in theindustry.

Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have

such large stock piles of inventory. Please do not go by computer forecasts. Read theexplanation on forecasting in the Capstone online guide.

Segment Wise Product Analysis:

Traditional Segment: Andrews leads the industry. Baker and Daze need improvementin their specs.

Low End Segment: Chester leads the industry. Ebb and Feast are out of the fine cut forthis segment.

High End Segment: Erie leads the industry. Eion and Dixie are overpriced (outside theprice range).

Performance Segment: Andrews leads the industry. Edge and Foam needimprovement in their specs. Dot is overpriced (outside the price range). Size Segment: Ferris leads the industry. Egg needs improvement in its spec. This has

become a sellers market. Teams should strategize accordingly. .

Financial Management: Andrews and Digby have idle cash worth $54M and $45Mrespectively. That is high. Please reconcile and use it to fund your growth.


4/43

Credit Policy

Your company determines the number of days between transactions and payments. Forexample, your company could give customers 30 days to pay their bills ( accounts receivable)while holding up payment to suppliers for 60 days ( accounts payable).

Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made tocustomers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts aloan from your suppliers.

The accounts receivable lag impacts the customer survey score. If your company offers nocredit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longerthe lag, the more cash is tied up in receivables.

The accounts payable lag has implications for Production. Suppliers become concerned as thelag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150days, they withhold all material. Withholding material creates shortages on the assembly line.

As a result, workers stand idle and per-unit labor costs rise.

HR Module: Baldwin and Chester have improved the productivity of their employees well.

In Round 4, TQM initiatives will start. Please read the flags on each cell and make investmentsaccordingly TQM investments can cut material cost, reduce R&D cycle time, improve workerproductivity and increase demand. Please ensure you manage your cash account as you makethese investments. While inputting your decisions in the TQM sheet on Capstone, observe the

worst case and best case benefits that accrue to you.

C66538

General: All teams made losses this year. Low sales for Erie. The reasons for your low salesare known to you all by now and are given below in the sales paragraph. The top-line forChester has shown good growth in the last financial year. Contribution margins are low forDigby. You will find it hard to make a profit with contribution margins below 30%. Emergencyloans were seen for Digby and Ferris . Please read the paragraph on emergency loans below.


Stock Price and Market Cap: Chester and Ferris had a rise in stock price of $2/share and$5.3/share respectively. Andrewss stock price remained constant. Baldwin, Digby and Erie had a fall in stock price of $0.6/share, $23/share and $2/share respectively.

Chester is the most valuable company measured by market cap.


5/43

Stock price is affected by performance, asset base, debt, dividend policy, and number ofshares outstanding . In a year of aggressive investment in plant expansion and automation,you would expect that the necessary debt load would cause some uneasiness on the part ofshareholders. But, if the stock price dips more than $15.00, it may be a warning sign of toomuch debt. The stock price can also suffer in profitable years. For example, liquidation of plant

brings in cash, but makes shareholders wonder about the long term competitive ramifications.Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negativeeffect on stock price.

This shows that investors are losing confidence in your companies. Dont let that happen .Profits and cash: both are imperative and foundational. Remember your company couldbe profitable but still have a cash crisis. Profits do not equal cash!

Sales: Baldwin and Chester had a rise in market share of 2.2% and 4.3% respectively.Ferriss market share remained almost constant. Andrews, Digby and Erie had a fall in marketshare of 1.4%, 4% and 1.1% respectively.



High price /pricing outside the price range for Egg. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget.


All teams have introduced new products in the market . Each team can launch up to threenew products. More products help you capture more market share.

Remember everyone started with a market share of 16.67%. Had you maintained this, yoursales for this round would be $140M. Where does your team stand?

Sales to Current Assets: Examine this

This ratio asks the question, Given our sales base, do we have adequate current assets tooperate the company? Current assets are comprised of Cash, Accounts Receivable andInventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The

accounts receivable policy (for example, 30 day terms) is a direct function of Sales.Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whethera company has adequate Current Assets to operate the company. For example, suppose thecompany projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willingto carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million oninventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case


6/43

the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31Million. Sales/Current Assets = 3.8.

Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assetswhich should either be put to work or given back to shareholders as a dividend or stockrepurchase.

Profits: All teams had bottom lines in red. The reasons are known to you:

Low Contribution Margin for Digby High Unsold Inventory Levels for Andrews, Digby and Erie Unnecessarily high depreciation due to low plant utilization for Baldwin, Erie and Ferris

Contribution Margin: Digby needs to improve their contribution margins . There are fixedcosts and SG&A costs that need to be covered from sales. This will be difficult if your marginsare not above 30%. Even your profit will come out from this margin!

Emergency Loans: Digby and Ferris have emergency loans. The reasons are Digby For a cash outflow of $33.3M (plant improvements + retirement of long term and

current debt), you did not raise a penny. You also have high unsold inventory worth$39M. Raise funds from long term and current debt to repay this emergency loan.

Ferris For a cash outflow of $25.3M (plant improvements + dividends + retirement oflong term and current debt), you did not raise a penny. Raise funds from long term andcurrent debt to repay this emergency loan.

It would be prudent to develop worst case and best case scenarios using the forecasting(marketing module) and production modules .

Plant Size and Utilization: Erie and Baldwin need improvement in plant utilization. Your plantcan produce up to twice the first shift capacity. Use it more optimally.






7/43

Asset Turnover: Erie needs to work their assets harder. They have an asset turnover of lessthan one.

Forecasting and Inventory: Andrews, Digby and Erie have high levels of unsold inventory.This results from poor forecasting and being overly optimistic. Remember the high degree ofcompetition in the industry.

Be prepared for the worst and best case scenarios (in terms of sales) so that you dont havesuch large stock piles of inventory. Please do not go by computer forecasts. Read theexplanation on forecasting in the Capstone online guide.


Traditional Segment: Chester leads the industry. Low End Segment: Chester leads the industry. Feat does not have the ideal age for

this segment. High End Segment: Ferris leads the industry. Fist and Adam need improvement in their

specs. Feast is overpriced (outside the price range). Performance Segment: Andrews leads the industry. Dot and Bold need improvement in

their specs. Foam is overpriced (outside the price range). Size Segment: Chester leads the industry. Egg and Buddie are overpriced (outside the

price range). .

Financial Management: Erie has idle cash worth $28M. That is high. Please reconcile and useit to fund your growth.

Credit Policy



The accounts receivable lag impacts the customer survey score. If your company offers no

credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longerthe lag, the more cash is tied up in receivables.

The accounts payable lag has implications for Production. Suppliers become concerned as thelag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150


8/43

days, they withhold all material. Withholding material creates shortages on the assembly line. As a result, workers stand idle and per-unit labor costs rise.

HR Module: Baldwin, Chester and Erie have improved the productivity of their employeeswell.

In Round 4, TQM initiatives will start. Please read the flags on each cell and make investmentsaccordingly TQM investments can cut material cost, reduce R&D cycle time, improve workerproductivity and increase demand. Please ensure you manage your cash account as you makethese investments. While inputting your decisions in the TQM sheet on Capstone, observe theworst case and best case benefits that accrue to you.

C66539

General: Baldwin, Digby, Erie and Ferris made losses this year. Low sales for Baldwin. The

reasons for your low sales are known to you all by now and are given below in the salesparagraph. Emergency loans were seen for Baldwin and Ferris . Please read the paragraph onemergency loans below.


Stock Price and Market Cap: Andrews, Chester and Digby had a rise in stock price of$5/share, $0.05/share and $5/share respectively. Baldwin, Erie and Ferris had a fall in stockprice of $7/share, $5/share and $12/share respectively.


Stock price is affected by performance, asset base, debt, dividend policy, and number ofshares outstanding . In a year of aggressive investment in plant expansion and automation,you would expect that the necessary debt load would cause some uneasiness on the part ofshareholders. But, if the stock price dips more than $15.00, it may be a warning sign of toomuch debt. The stock price can also suffer in profitable years. For example, liquidation of plantbrings in cash, but makes shareholders wonder about the long term competitive ramifications.Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negativeeffect on stock price.


Sales: Baldwin, Digby and Ferris had a rise in market share of 0.3%, 0.1% and 0.2%respectively. Andrews, Chester and Erie had a fall in market share of 0.2% each.

Low sales for Baldwin. This was caused by:


9/43


High price /pricing outside the price range for Bigred. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget.


Except Erie , all teams have introduced new products in the market . Each team can launchup to three new products. More products help you capture more market share.



This ratio asks the question, Given our sales base, do we have adequate current assets tooperate the company? Current assets are comprised of Cash, Accounts Receivable andInventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. Theaccounts receivable policy (for example, 30 day terms) is a direct function of Sales.

Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whethera company has adequate Current Assets to operate the company. For example, suppose thecompany projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willingto carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million oninventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst casethe company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31Million. Sales/Current Assets = 3.8.


Profits: Baldwin, Digby, Erie and Ferris had bottom lines in red. The reasons are known toyou:

High Unsold Inventory Levels Unnecessarily high depreciation due to low plant utilization for Baldwin and Digby

Emergency Loans: Baldwin and Ferris have emergency loans. The reasons are

Baldwin For a cash outflow of $13.5M (retirement of long term and current debt), youraised $7.4M from sale of plant. Raise funds from long term and current debt to repaythis emergency loan.


10/43

Ferris For a cash outflow of $29.9M (plant improvements + retirement of long termdebt), you raised $10M from sale of stock. Raise funds from long term and current debtto repay this emergency loan.

It would be prudent to develop worst case and best case scenarios using the forecasting

(marketing module) and production modules .Plant Size and Utilization: Baldwin and Digby need improvement in plant utilization. Yourplant can produce up to twice the first shift capacity. Use it more optimally.



It is easy to demonstrate that second shift is nearly always more profitable than first shift. Thisoften surprises participants who look at the 50% second shift wage premium and assume that

second shift must be something to avoid. But suppose we only run one shift by necessity itmust pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, andInterest. Anything on second shift only pays for the 50% premium on labor.


Asset Turnover: Digby and Erie need to work their assets harder. They have an asset

turnover of less than one. Forecasting and Inventory: Be prepared for the worst and best case scenarios (in terms ofsales) so that you dont have such large stock piles of inventory. Please do not go by computerforecasts. Read the explanation on forecasting in the Capstone online guide.


Traditional Segment: Andrews leads the industry. Low End Segment: Ferris leads the industry. Bead does not have the ideal age for this

segment. High End Segment: Andrews leads the industry. Performance Segment: Andrews leads the industry. Bold and Foam need improvement

in their specs. Size Segment: Erie leads the industry. Buddy needs improvement in its spec. Bigred

overpriced (outside the price range). .


11/43

Financial Management: Chester has idle cash worth $15M. Please reconcile and use it to fundyour growth.

Credit Policy






HR Module: Chester and Digby have improved the productivity of their employees well. Ferrishas been running overtime. We have learnt in the practice rounds that this is an expensive wayof production. Do consider.


C66540

General: Immensely competitive Industry. Chester and Ferris are locked in a fight for marketleadership in the industry. Expect to see more ups and downs as the years pass.

Baldwin made losses this year. Low sales for Baldwin. The reasons for your low sales areknown to you all by now and are given below in the sales paragraph. The top-line for Chester has shown good growth in the last financial year. Contribution margins are low for Baldwin. Youwill find it hard to make a profit with contribution margins below 30%.


12/43


Stock Price and Market Cap: Except Baldwin, all teams had a rise in stock price. Baldwin had a fall in stock price of $8.7/share.




Sales: Andrews, Chester and Digby had a rise in market share of 1.5%, 3.7% and 0.4%respectively. Baldwin, Erie and Ferris had a fall in market share of 3.8%, 1% and 0.7%respectively.

Low sales for Baldwin. This was caused by:

Poor product specifications (performance and size); look at the ideal spot on the

perceptual map. Look at your product specifications. If you do not offer the customersthe specifications they desire, sales will suffer. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget.


Except Baldwin , all teams have introduced new products in the market . Each team canlaunch up to three new products. More products help you capture more market share.





13/43

Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whethera company has adequate Current Assets to operate the company. For example, suppose thecompany projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willingto carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million oninventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84

= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst casethe company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31Million. Sales/Current Assets = 3.8.


Profits: Baldwin had bottom line in red. The reasons are known to you:

Low Contribution Margin High Unsold Inventory Levels Unnecessarily high depreciation due to low plant utilization

Contribution Margin: Baldwin needs to improve their contribution margins . There arefixed costs and SG&A costs that need to be covered from sales. This will be difficult if yourmargins are not above 30%. Even your profit will come out from this margin!

Plant Size and Utilization: Andrews, Baldwin and Ferris need improvement in plantutilization. Your plant can produce up to twice the first shift capacity. Use it more optimally.




It follows that we want to run as much second shift as possible. In a perfect world, we would runtwo shifts, our best case demand forecast would come true, and we would have only one unit of

inventory left at the end of the year. On the other hand, if we max out second shift, there is agood chance we could stock out, and stock outs are very costly. Therefore, 170% plantutilization or more is considered excellent and 130% satisfactory.

Forecasting and Inventory: Baldwin and Erie have high levels of unsold inventory. Thisresults from poor forecasting and being overly optimistic. Remember the high degree ofcompetition in the industry.


14/43



Traditional Segment: Digby leads the industry. Low End Segment: Digby leads the industry. Bead does not have the ideal age for this

segment. High End Segment: Chester leads the industry. Cid, Fist and Bid need improvement in

their specs. Performance Segment: Chester leads the industry. Bold and Foam need improvement

in their specs. Fame is overpriced (outside the price range). Size Segment: Chester leads the industry. Buddy, Dune, Egg and Fume need

improvement in their specs..

Financial Management: Digby has idle cash worth $39M. That is high. Please reconcile anduse it to fund your growth.

Credit Policy


Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to

customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts aloan from your suppliers.




HR Module: Baldwin, Chester and Ferris have improved the productivity of their employeeswell.

In Round 4, TQM initiatives will start. Please read the flags on each cell and make investmentsaccordingly TQM investments can cut material cost, reduce R&D cycle time, improve worker


15/43

productivity and increase demand. Please ensure you manage your cash account as you makethese investments. While inputting your decisions in the TQM sheet on Capstone, observe theworst case and best case benefits that accrue to you.

C66541

General: Immensely competitive Industry. Expect to see more ups and downs as the yearspass.

Baldwin and Erie made losses this year. Low sales for Erie. The reasons for your low sales areknown to you all by now and are given below in the sales paragraph. The top-line for Digby hasshown good growth in the last financial year. Contribution margins are low for Erie. You will findit hard to make a profit with contribution margins below 30%. Emergency loans were seen forBaldwin, Digby and Erie . Please read the paragraph on emergency loans below.


Stock Price and Market Cap: Andrews, Chester, Digby and Ferris had a rise in stock priceof $5/share, $12/share, $0.2/share and $16/share respectively. Eries stock price remainedconstant. Baldwin had a fall in stock price of $7/share.

Andrews is the most valuable company measured by market cap.



Sales: Baldwin, Digby and Erie had a rise in market share of 0.1%, 2.5% and 0.3%respectively. Andrews, Chester and Ferris had a fall in market share of 0.4%, 0.5% and 2%respectively.




16/43

High price /pricing outside the price range for Echo. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget.





This ratio asks the question, Given our sales base, do we have adequate current assets tooperate the company? Current assets are comprised of Cash, Accounts Receivable andInventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The

accounts receivable policy (for example, 30 day terms) is a direct function of Sales.



Profits: Baldwin and Erie had bottom lines in red. The reasons are known to you:

Low Contribution Margin for Erie High Unsold Inventory Levels

Contribution Margin: Erie needs to improve their contribution margins . There are fixedcosts and SG&A costs that need to be covered from sales. This will be difficult if your marginsare not above 30%. Even your profit will come out from this margin!

Emergency Loans: Baldwin, Digby and Erie have emergency loans. The reasons are

Baldwin For a cash outflow of $50.6M (plant improvements + retirement of currentdebt), you raised $22.6M (sale of stock + long term debt). You also have high unsoldinventory worth $23.6M. Raise funds from long term and current debt to repay thisemergency loan.


17/43

Digby For a cash outflow of $48.5M (plant improvements + retirement of current debt),you raised $21.5M (long term debt + current debt). Raise funds from long term andcurrent debt to repay this emergency loan.

Erie For a cash outflow of $30.5M (purchase of stock + retirement of current debt), youraised $18.4M (sale of plant + sale of stock + current debt). You also had high unsold

inventory worth $73M. Raise funds from long term and current debt to repay thisemergency loan.


Plant Size and Utilization: Andrews and Chester need improvement in plant utilization. Yourplant can produce up to twice the first shift capacity. Use it more optimally.




It follows that we want to run as much second shift as possible. In a perfect world, we would runtwo shifts, our best case demand forecast would come true, and we would have only one unit ofinventory left at the end of the year. On the other hand, if we max out second shift, there is a

good chance we could stock out, and stock outs are very costly. Therefore, 170% plantutilization or more is considered excellent and 130% satisfactory.

Asset Turnover: Baldwin and Erie need to work their assets harder. They have an assetturnover of less than one.

Forecasting and Inventory: Baldwin and Erie have high levels of unsold inventory. Thisresults from poor forecasting and being overly optimistic. Remember the high degree ofcompetition in the industry.

Be prepared for the worst and best case scenarios (in terms of sales) so that you dont have

such large stock piles of inventory. Please do not go by computer forecasts. Read theexplanation on forecasting in the Capstone online guide.


Traditional Segment: Chester leads the industry. Low End Segment: Chester leads the industry. Feat and Bead do not have the ideal

age for this segment.


18/43

High End Segment: Digby leads the industry. Echo, Fist and Bid need improvement intheir specs. Durex, Adam, Ace and Dixie are overpriced (outside the price range).

Performance Segment: Chester leads the industry. Bold is overpriced (outside theprice range).

Size Segment: Erie leads the industry. Fume and Buddy need improvement in their

specs. Budd is overpriced (outside the price range). .

Financial Management: Ferris has idle cash worth $28M. That is high. Please reconcile anduse it to fund your growth.

Credit Policy






HR Module: Baldwin, Chester and Digby have improved the productivity of their employeeswell. Andrews has been running overtime. We have learnt in the practice rounds that this is anexpensive way of production. Do consider.



19/43

C66542

General: Chester, Digby and Erie are locked in a fight for market leadership in the industry.Expect to see more ups and downs as the years pass.

Low sales for Chester and Ferris. The reasons for your low sales are known to you all by nowand are given below in the sales paragraph. The top-line for Digby has shown good growth inthe last financial year. Contribution margins are low for Chester. You will find it hard to make aprofit with contribution margins below 30%.


Stock Price and Market Cap: Except Digby, all teams had a rise in stock price. Digby had afall in stock price of $1/share.

Ferris is the most valuable company measured by market cap.



Sales: Andrews and Digby had a rise in market share of 1.1% and 3.7% respectively.Baldwin, Chester, Erie and Ferris had a fall in market share of 1.6%, 2.3%, 0.5% and 0.4%respectively.

Low sales for Andrews. This was caused by:

Poor product specifications (performance and size); look at the ideal spot on the

perceptual map. Look at your product specifications. If you do not offer the customersthe specifications they desire, sales will suffer.

Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget.



20/43

Except Andrews and Baldwin , all teams have introduced new products in the market . Eachteam can launch up to three new products. More products help you capture more market share.






Contribution Margin: Chester needs to improve their contribution margins . There are fixedcosts and SG&A costs that need to be covered from sales. This will be difficult if your margins

are not above 30%. Even your profit will come out from this margin!

Plant Size and Utilization: Andrews and Baldwin needs improvement in plant utilization. Yourplant can produce up to twice the first shift capacity. Use it more optimally.




It follows that we want to run as much second shift as possible. In a perfect world, we would runtwo shifts, our best case demand forecast would come true, and we would have only one unit ofinventory left at the end of the year. On the other hand, if we max out second shift, there is a


21/43


22/43

HR Module: Digby and Ferris have improved the productivity of their employees well. Baldwinhas been running overtime. We have learnt in the practice rounds that this is an expensive wayof production. Do consider.


C66543

General: Immensely competitive Industry. Expect to see more ups and downs as the yearspass. Digby made losses this year. Low sales for Digby. The reasons for your low sales areknown to you all by now and are given below in the sales paragraph. The top-line for Ferris hasshown good growth in the last financial year. Emergency loan was seen for Digby . Please readthe paragraph on emergency loans below.


Stock Price and Market Cap: Andrews, Baldwin, Chester and Ferris had a rise in stockprice of $11/share, $6/share, $3/share and $5/share respectively. Digby and Erie had a fall instock price of $10/share and $1/share respectively.

Baldwin is the most valuable company measured by market cap.


This shows that investors are losing confidence in your companies. Dont let that happen .

Profits and cash: both are imperative and foundational. Remember your company couldbe profitable but still have a cash crisis. Profits do not equal cash!

Sales: Andrews, Baldwin and Ferris had a rise in market share of 1.8%, 0.8% and 5%respectively. Chester, Digby and Erie had a fall in market share of 1.4%, 4.6% and 1.6%respectively.

Low sales for Digby. This was caused by:


23/43


Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget.


Except Chester and Digby , all teams have introduced new products in the market . Eachteam can launch up to three new products. More products help you capture more market share.



This ratio asks the question, Given our sales base, do we have adequate current assets to

operate the company? Current assets are comprised of Cash, Accounts Receivable andInventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. Theaccounts receivable policy (for example, 30 day terms) is a direct function of Sales.



Profits: Digby had bottom line in red. The reasons are known to you:

Low Sales High Unsold Inventory Levels for Andrews and Digby Unnecessarily high depreciation due to low plant utilization

Contribution Margin: Digby needs to improve their contribution margins . There are fixedcosts and SG&A costs that need to be covered from sales. Even your profit will come out fromthis margin!

Emergency Loans: Digby has an emergency loan. The reasons are


24/43

Digby For a cash outflow of $32.1M (dividends + retirement of current debt), youraised $11.7M (sale of plant). You also have high unsold inventory worth $31M. Raisefunds from long term and current debt to repay this emergency loan.

It would be prudent to develop worst case and best case scenarios using the forecasting

(marketing module) and production modules .Plant Size and Utilization: Andrews and Digby need improvement in plant utilization. Yourplant can produce up to twice the first shift capacity. Use it more optimally.



It is easy to demonstrate that second shift is nearly always more profitable than first shift. Thisoften surprises participants who look at the 50% second shift wage premium and assume that

second shift must be something to avoid. But suppose we only run one shift by necessity itmust pay all of the fixed costs depreciation, R&D, Promotion, Sales Budget, Admin, andInterest. Anything on second shift only pays for the 50% premium on labor.


Asset Turnover: Digby needs to work their assets harder. They have an asset turnover of less

than one. Forecasting and Inventory: Chester, Digby and Erie have high levels of unsold inventory.This results from poor forecasting and being overly optimistic. Remember the high degree ofcompetition in the industry.



Traditional Segment: Baldwin leads the industry. Low End Segment: Baldwin leads the industry. Feat does not have the ideal age for

this segment. High End Segment: Baldwin leads the industry. Fist and Adam need improvement in

their specs. Ahana is overpriced (outside the price range). Performance Segment: Ferris leads the industry. Dot, Coat and Aft need improvement

in their specs. Edge is overpriced (outside the price range).


25/43

Size Segment: Andrews leads the industry. Dune needs improvement in its spec..

Financial Management: Andrews has idle cash worth $45M. That is high. Please reconcileand use it to fund your growth.

Credit Policy






HR Module: Baldwin has improved the productivity of their employees well. Baldwin has beenrunning overtime. We have learnt in the practice rounds that this is an expensive way ofproduction. Do consider.


C66544

General: Baldwin and Ferris made losses this year. Low sales for Baldwin. The reasons foryour low sales are known to you all by now and are given below in the sales paragraph. Thetop-line for Andrews has shown good growth in the last financial year. Contribution margins arelow for Baldwin and Ferris. You will find it hard to make a profit with contribution margins below


26/43


27/43



Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assetswhich should either be put to work or given back to shareholders as a dividend or stock

repurchase.Profits: Baldwin and Ferris had bottom lines in red. The reasons are known to you:

Low Contribution Margin High Unsold Inventory Levels

Contribution Margin: Baldwin and Ferris need to improve their contribution margins .There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult ifyour margins are not above 30%. Even your profit will come out from this margin!

Emergency Loans: Andrews, Baldwin, Chester and Ferris have emergency loans. The

reasons are

Andrews For a cash outflow of $34.5M (plant improvements + purchase of stock +retirement of current debt), you raised $6M (current debt). Raise funds from long termand current debt to repay this emergency loan.

Baldwin For a cash outflow of $34M (plant improvements + dividends + retirement ofcurrent debt), you raised $15M (sale of stock + current debt). You also have high unsoldinventory worth $57M. Raise funds from long term and current debt to repay thisemergency loan.

Chester For a cash outflow of $52.4M (plant improvements + purchase of stock +retirement of long term and current debt), you raised $4M from current debt. Raise fundsfrom long term and current debt to repay this emergency loan.

Ferris For a cash outflow of $32.5M (plant improvements + purchase of stock +retirement of long term and current debt), you did not raise a penny. You also have highunsold inventory worth $34M. Raise funds from long term and current debt to repay thisemergency loan.


28/43


Plant Size and Utilization: Digby and Erie need improvement in plant utilization. Your plantcan produce up to twice the first shift capacity. Use it more optimally.





Asset Turnover: Baldwin needs to work their assets harder. They have an asset turnover ofless than one.

Forecasting and Inventory: Baldwin, Digby and Ferris have high levels of unsold inventory.This results from poor forecasting and being overly optimistic. Remember the high degree of

competition in the industry.For example, Baldwin has an inventory of $57M. Had they sold all that, it would mean sales ofanother $110M approximately. They already had sales of $120M in this round, if this expectedsales is added to it, it comes out to $230M! Did you actually think you can sell all that in Round3 itself? That would be overly optimistic.



Traditional Segment: Andrews leads the industry. Low End Segment: Andrews leads the industry. Acre does not have the ideal age for

this segment. High End Segment: Chester leads the industry. Bid and Draco need improvement in

their specs. Echo, Ahigh, Fist and Blue are overpriced (outside the price range).


29/43

Performance Segment: Ferris leads the industry. Except Edge and Coat, all productsare overpriced (outside the price range).

Size Segment: Andrews leads the industry. Agape, Buddy, Fume and Dune areoverpriced (outside the price range). .

Financial Management:

Credit Policy


Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made tocustomers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a

loan from your suppliers.




HR Module: Erie and Ferris have improved the productivity of their employees well.


C66545

General: Immensely competitive Industry. Andrews and Baldwin are locked in a fight formarket leadership in the industry. Expect to see more ups and downs as the years pass.

Chester made losses this year. Low sales for Chester. The reasons for your low sales areknown to you all by now and are given below in the sales paragraph. The top-line for Andrews


30/43

has shown good growth in the last financial year. Contribution margins are low for Chester. Youwill find it hard to make a profit with contribution margins below 30%. Emergency loan was seenfor Chester . Please read the paragraph on emergency loans below.


Stock Price and Market Cap: Except Chester, all teams had a rise in stock price. Chester had a fall in stock price of $10/share.




Sales: Andrews and Erie had a rise in market share of 1.9% and 1.2% respectively. Baldwin,Chester, Digby and Ferris had a fall in market share of 0.6%, 0.4%, 0.7% and 1.4%respectively.

Low sales for Chester. This was caused by:


High price /pricing outside the price range for Coat. Low customers awareness levels for your products due to low promo budgets. Poor distribution reach and accessibility for your product caused by low sales budget.






31/43



Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assetswhich should either be put to work or given back to shareholders as a dividend or stock

repurchase.Profits: Chester had bottom line in red. The reasons are known to you:

Low Contribution Margin High Unsold Inventory Levels Unnecessarily high depreciation due to low plant utilization

Contribution Margin: Chester needs to improve their contribution margins . There are fixedcosts and SG&A costs that need to be covered from sales. This will be difficult if your marginsare not above 30%. Even your profit will come out from this margin!

Emergency Loans: Chester has an emergency loan. The reasons are

Chester For a cash outflow of $14.2M (plant improvements + retirement of currentdebt), you did not raise a penny. You also have high unsold inventory worth $44M. Raisefunds from long term and current debt to repay this emergency loan.


Plant Size and Utilization: Baldwin, Chester and Ferris need improvement in plant utilization.Your plant can produce up to twice the first shift capacity. Use it more optimally.



It is easy to demonstrate that second shift is nearly always more profitable than first shift. Thisoften surprises participants who look at the 50% second shift wage premium and assume thatsecond shift must be something to avoid. But suppose we only run one shift by necessity it


32/43


33/43


34/43


Sales: Baldwin, Digby and Erie had a rise in market share of 0.6%, 0.2% and 0.4%respectively. Andrews, Chester and Ferris had a fall in market share of 0.5%, 0.4% and 0.2%respectively.


Except Chester and Digby , all teams have introduced new products in the market . Eachteam can launch up to three new products. More products help you capture more market share.





= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst casethe company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31Million. Sales/Current Assets = 3.8.


Profits: Andrews had bottom line in red. The reason is known to you:

Unnecessarily high depreciation due to low plant utilization

Contribution Margin: Andrews and Chester need to improve their contribution margins .There are fixed costs and SG&A costs that need to be covered from sales. Even your profit willcome out from this margin!

Emergency Loans: Andrews has an emergency loan. The reasons are


35/43


36/43


37/43

The top-line for Chester has shown good growth in the last financial year. Emergency loanswere seen for Baldwin and Chester . Please read the paragraph on emergency loans below.


Stock Price and Market Cap: Andrews and Chester had a rise in stock price of $3/share and$7/share respectively. Baldwin and Digby had a fall in stock price of $14/share and $0.7/sharerespectively.




Sales: Chester had a rise in market share of 3.2%. Andrews, Baldwin and Digby had a fall inmarket share of 1.8%, 2.9% and 1.4% respectively.

Please pay more attention to the 4Ps of marketing: improve your sales. All human teams have introduced new products in the market . Each team can launch up tothree new products. More products help you capture more market share.



This ratio asks the question, Given our sales base, do we have adequate current assets tooperate the company? Current assets are comprised of Cash, Accounts Receivable and

Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. Theaccounts receivable policy (for example, 30 day terms) is a direct function of Sales.



38/43


39/43



Traditional Segment: Erie leads the industry. Low End Segment: Andrews leads the industry. High End Segment: Chester leads the industry. Adam, Acer and Dolly need

improvement in their specs. Performance Segment: Chester leads the industry. Aft, Bold, Coat and Dot need

improvement in their specs. Size Segment: Ferris leads the industry. Agape, Buddy, Dune and Cure need

improvement in their specs. Agape is overpriced (outside the price range). .

Financial Management:

Credit Policy






HR Module: Chester and Digby have improved the productivity of their employees well.



40/43

A Note on Customer Satisfaction

The Customer Satisfaction category examines your performance from the customer'sperspective. Each of your products can earn points if it meets four criteria:

1. It must sell 50 thousand units during the year.

2. It cannot stock out. However, if the product's plant is running at maximum utilization (acomplete second shift) the stock out rule is waived. (There are times when acompetitor's unforeseen actions could cause capacity shortages.)

3. Its December Customer Survey score must be 30 or more.

4. The product must be available for sale by Dec. 31 of the previous year. All products thatsell at least one unit during the year are considered. If the company has five productsthat sold at least one unit, then each product can contribute 20 points. If it has eightproducts making sales, each product can contribute 12.5 points.

Since some products make sales in two or more segments, the algorithm produces a weightedaverage. For example, if a product sold 900 units in Traditional with a score of 40, and 100 unitsin High End with a score of 10, the weighted average would be (900*40 + 100*10) / 1000 = 37.

A products December Customer Survey Score is developed using marketings "4 Ps"

1. Product

2. Price3. Promotion4. Place

Product and Price The Survey evaluates the product against the buying criteria. A perfect score of 100 resultswhen the product:

a. Is priced at the bottom of the expected range.

b. Is positioned at the Ideal Spot. (Because the segment moves each month, this can occuronly once each year.)

c. Has an MTBF specification at the top of the expected range.

d. Has the ideal age for that segment. (Because the product ages each month, it can onlyhave the segment ideal once each year.)


41/43

Promotion Promotion, driven by your promo budget, creates product awareness before customers shop. Ifcustomers are not aware of the product, they are less likely to buy, and that drags down theSurvey score.

Think of it this way. Suppose you had a perfect product a perfect design at a rock bottomprice. Further, customers have no trouble finding your product when they shop, meaning that itsaccessibility is 100%. In this perfect world, you do no promotion at all. awareness is zero. Whatwould happen to demand? On the one hand, some customers will stumble across your productwhen they shop, take the time to discover that it is perfect, and decide to buy it. On the otherhand, some customers will pass over your product on their way to products they know about.

The simulation deals with the problem as follows. The customers that know about your productalways consider it. Of the customers that are not aware of your product, half discover it, and halfmiss it. Mathematically it looks like this. Your perfect product (with perfect awareness) wouldstart with a Survey score of 100. If its awareness were 60%, then 40% of your customers wouldnot know about it. Of these, half (20%) would stumble across it. Instead of having the Surveyscore fall all the way to 60, it would fall halfway between 100 and 60, ending at 80.

Once you see that the score falls "halfway", it is relatively easy to estimate the result. Forexample:

I estimate myproduct's design andprice are worth:

Itsawarenessis:

So it will fall halfway to itsestimated score times itsawareness, or halfway to:

Ending up with a Surveyscore halfway inbetween, or about:

100 0% 0, because 100 * 0% = 0 50

60 70% 42, because 60 * 70% = 42 5120 40% 8, because 20 * 40% = 8 14

To be precise, multiply the score you think your product deserves based upon its mix of priceand product design by (1- (100%-awareness)/2). In the examples above:

100 * (1 (100% 0%)/2) = 100 * (1 (50%)) = 100 * 50% = 5060 * (1 (100% 70%)/2) = 60 * (1 (15%)) = 60 * 85% = 5120 * (1 (100% 40%)/2) = 20 * (1 (30%)) = 20 * 70% = 14

Place Place is driven by your Sales budget. It examines the question, "How easy is it forcustomers to work with you during and after the sale?" We measure this with the segmentsaccessibility rating. An accessibility of 80% means that only 80% of customers have an easytime finding a product, talking to a sales person, taking delivery, etc. If the accessibility is below100%, it drags down a products Survey score.

The method is identical to awareness. After considering Product, Price, and Promotion, wearrive at an estimated Survey score. The Survey score falls halfway to the estimated score


42/43

times its accessibility.

Lets continue the examples from above:

After considering my product'sprice, design, and awareness, Ithink my product would scoreabout:

Its

accessibilityis:

So it will fall halfway to its

estimated score times itsaccessibility, or halfway to:

Ending up with aSurvey scorehalfway in between,or about:

50 0% 0, because 50 * 0

capstone round 3

Documents