Simulation Introduction

1. Simulation Introduction

2. Why Simulate? • Risk Free.Innovate and explore alternative strategies and tactics. • Big Picture. Decisions and their impacts will be examined within the context of overall business operations - across functional boundaries. • Develop Critical Thinking Skills. You will analyze, assess, plan, make decisions, evaluate, and adjust. • Compresses Time. Several years worth of decision-making will play out during the term. • Comprehensive Strategy. Demonstrates the importance of developing linked functional, business-level, and corporate strategies.

3. The Business • $100M electronic sensor manufacturing firms. All teams begin with an identical profile. • Oligopoly - market dominated by handful of firms. • No outside competitors or product substitutes. • Relatively benign environment – no disruptive new technologies or new competitors. Focus on existing competition in an even playing field.

4. Performance – 8.4% to 11% Low End – 39% to 37% Traditional – 32% to 28% Size – 8.7% to 11% High End – 11.2% to 13% Markets Defined By Segments Percentage in dollars($), change over 5 years

5. Large Small Slow Fast Introduction To Perceptual Maps Marketing tool used to depict product positioning. Illustrates how customers distinguish between products that are similar in nature. Electronic Sensors Size (how big is the sensor?) Performance (how sensitive is the sensor, and how fast does it process data?)

6. Defines five market segments • There are five distinct segments of the market: • Traditional • Low End • High End • Performance • Size • The customers in each segment have different priorities and evaluate the product according to their own needs. Large Low End Performance Traditional Size Size High End Small Slow Fast Performance Perceptual Map

7. Segments Differentiated By Name Large Low Pfmn For example, Low End Segment customers look for large, slow sensors, representing nearly obsolete technology. Their primary concern is price. While High End Segment customers want the latest & greatest technology. They’re willing to pay more to get very small, high performance sensors. Trad Size Size High Small Slow Fast Performance Perceptual Map

8. Segments drift over time Large Low Customer expectations are constantly changing. They expect the sensors to become smaller in size and better in performance. Pfmn Trad Size High Size Small Fast Slow Performance Perceptual Map

9. Segments drift over time Large Low Pfmn Trad Size Size High Small Fast Slow Performance Perceptual Map

10. Segments drift over time Large Low Trad Pfmn Size Size High Small Fast Slow Performance Perceptual Map

11. Size 1. Product must be positioned within the segment (performance & size). Able Able 2. Product must fall within price guidelines. Performance Price Able Segments Reli-ability 3. Product must fall within reliability guidelines Segments Customers Go Through a Two-Stage Purchase Decision Process Stage 1 - Match Product to Market

12. Two-Stage Purchase Decision Stage 2 - Rank Best Product Reliability 1. Positioning 2. Age 3. Reliability 4. Price Position Ideal Spot AB 0 Yrs 1 Age Price 20000 25000 HIGH END $30 $40

13. Product Ranking Criteria by Market Segment Traditional Segment Low End Segment High End Segment Performance Segment Size Segment 1 - Age 2 - Price 3 - Position 4 -Reliability 1 - Price 2 - Age 3 - Position 4 - Reliability 1 - Position 2 - Age 3 - Reliability 4 - Price 1 - Reliability 2 - Position 3 - Price 4 - Age 1 - Position 2 - Age 3 - Reliability 4 - Price Listed in order of importance for each market segment.

14. Decision Screens Info in Team Member Guides R&D – Pg. 10-11 Production – Pg. 13-14 Finance – Pg. 15-17 Marketing – Pg. 11-13

15. Research & Development • Establish the specification of the products to meet customer demand – Plan ahead for product position in future years! • R&D can take anywhere from 3 months to 3 years. They cost $100,000 per month. • Build the quality and reliability (MTBF) into the products • Sometimes a long project needs to be two shorter projects. • Ensure the perceived age of the product meets customer demands • Create new products to meet the changing marketplace “Our products are not well positioned in the marketplace.”

16. Marketing • Set the price of our products in the marketplace • Build customer awareness through promotion – Do they know about the product? (Promotion & Sales Budgets, pgs. 12-13) • Establish a sales force and distribution channels – Is the product accessible? • Set Credit Policies AR/AP • Set the sales forecast for our products • SALES FORCASTING IS A KEY ELEMENT TO COMPANY SUCCESS! (See pgs. 13 & 22) “Our products are not pricedoptimally. And many of our customers don’t even know our product exists.”

17. Production • Think about the long-term, and consider market growth early on. • AUTOMATION: Purchase machinery to automate our facilities • CAPACITY: Buy or sell capacity of product lines • Think about products stuck in R&D - They are not being produced • Maximize your fixed assets • Consider TQM Initiatives “We are payingtoo much forlabor costs. Very soon we will run outof capacity to meet demand.”

18. Finance • Acquire capital to fund capital expansions • Short Term Debt – A/P, inventory expansion, more lax A/R policy • Issue Stock – Use for funding long-term investments (capacity, automation) • Issue Long Term Bonds – Use for funding long-term investments (capacity, automation) • Issue dividend to our shareholders (They do not respond to dividends greater than EPS) • Balance our debt portfolio - debt & equity • Manage our proformas – Financial information measures your success, always track ratios (Also used for success measures, understand these are optimistic estimates) • AVOID EMERGENCY LOANS AT ALL COST! THEY USUALLY OCCUR DUE TO BAD SALES FORECASTING “We have poorcash flow and substandardfinancial ratios. We have nofinancial policystatement.”

19. Other Modules Labor Negotiations TQM Human Resources

20. Decision Making • Each firm begins with identical profile. • Decisions are made January 1st each year. • Tactical plan should align with chosen success measurements (Profit, Stock Price, ROE, ROS, ROA, Asset Turnover, Market Share, Market Capitalization). • Responsibilities may be divided up by Product Manager, Functional Manager, or Market Segment Manager roles/also Intelligence Officer & Record Keeper. • Every member of the firm is able to create and upload decisions - communication and teamwork is vital!

21. Simulation Vs. Real World Differences • Finite time span to re-coop investments. • Segment growth rate & demand given for each year. • Demand grows for most years of the simulation. • Domestic market only. • Price ceilings given as part of simulation structure, no sales once the ceiling is passed. • Customer preferences are homogeneous and given within all segments.

22. Recommendations • Build a spreadsheet to calculate industry demand for each year & sweet spot location over the course of the simulation. • Build & offer a new product in Practice Round 1, it serves as good practice. • Divide responsibilities among your group members, but meet as a group to enter & make final decisions. • Don’t wait until the last minute to make decisions. • Develop a consistent strategy and stick with it. • Focus on both internal strategies and behaviors of competitors, avoid tunnel vision.