Transcript simulation-intro-g06 - Duke University`s Fuqua School of Business

THE DUKE GLOBAL INTEGRATIVE
BUSINESS SIMULATION
Global Executive MBA Program
Term V 2006
Agenda



Objectives
Mechanics
Market Information and Decisions
Part I: Objectives
Duke Global Integrative Business Simulation


A competitive business simulation focused on
strategy formulation & implementation
A capstone learning experience that




integrates learning from the core curriculum
requires the design and execution of a strategy
demands good decision making under uncertainty
Tests your ability to
 build and maintain an effective team
 integrate functional decisions to achieve company
goals
 deal effectively with unexpected events
Part II: Mechanics
Two Worlds

Blue World and Red World

Each with six teams
Teams compete within a world
List of teams available
Each world has a wing in Thomas Center, each team
with an office (a team room)
Software will be loaded before you occupy your office




Decisions

Beginning:






Strategy Planning Worksheet
Present it to a venture capitalist group
Quarter 0 start-up decisions about plant
locations and size
Quarters 1~? Decisions
Shareholder meeting
Final Presentations
Communications





We communicate with you by memos and
handouts
You cannot talk to any member of any of your
competing teams
You can talk to instructor and facilitators
You can give out Press Releases
We also publish Duke Street Journal
Facilitators


A group of facilitators help me run the simulation
Dedicated team for each world
Part III: Market Information and
Decisions
How Do You Succeed?
Competitive results are based on the
interactions of:





Customers’ demand characteristics
Competitors’ and company decisions
Economics in the environment
Unknowns ??
There are many decisions, each involves tradeoffs
Customers
 24 Unique Customers
15 Wholesalers
9 Retailers
 Needs differ by customer type
 Demand forecast by customer
Industry Demand
 Initial Demand
10,000
?
0
Capacity
?
Forecast
 Forecast for Strong Growth
Initial Market Sizes
South
America
20%
Asia
22%
North
America
31%
Europe
27%
Sources of Competitive Advantages
Price
Product
Improvements
Reliability
Sales Support
Delivery
Advertising
Geographic or
Customer Focus
Branding
Strategy
Plant
Location
Multiple Functional Decisions





Marketing
Sales
Finance
Operations
R&D
Some decisions about
the present, others
about the future
Assessing Your Situation
Your situation at a given stage is given by:
 Your financial statements

balance sheet, income statement, cash flow statement


Available inventory, production capacity


Number and locations of sales offices and salesforce
available
Product features


amount of pre-approved loans available
Improvement level, reliability, variable costs
Customer satisfaction levels
Marketing Decisions
Sales Decisions


Sales Offices
 Must have open to sell in an area
 Each office costs $10,000 / qtr; $5,000 start-up
Turnover caused by poor financial results and/or poor customer service
Operations Decisions

Building plants



Production




Capacity choices, plant locations
$25k/site, $125/unit of capacity
How to much to product from the available capacities
Lead time in the process
How much to distribute from where to where
Finished goods supplier available


Produces to your specification
Available in the same period
Construction, Production and Sales
Quarter X
Construct
Quarter X+1
Produce & Store in
Regional Warehouse
Quarter X+2
Distribute/Sell
Operations Decisions Screen
Key Production/Operations Costs
Initial Variable Costs
Fixed Costs
Capacity
Fixed Costs
up to 1000 units $15,000
1001…3000
25,000
3001…5000
35,000
more than 5001
40,000
Region
North America
South America
Europe
Asia
Variable Costs
$85/unit
79
75
81
Distribution Costs
 One region to another: $7/unit
 Retrofitting costs for regional brand shipped
to another region: $10/unit
R & D Decisions
Product
Improvements
Pricing Flexibility
Cost Reduction
Variable Costs
Process
Engineering
Reject Rate/
Reliability
R&D
Product Improvement Decisions
 Highly uncertain results from expenditures
 Limited to 1 product improvement per quarter
 First product improvement should cost between $20K to
$30K
 Each subsequent expenditure is less effective in
increasing product improvement
 Expenditures for global brands more effective than for
regional brands
 Expense item
Other R&D Decisions
Cost Reduction
(Capitalized)
Process Engineering
(Expensed)
Investment is unique
to each plant
Highly uncertain process
$10K – $15K for 1%
reduction in reject rate
Each additional reduction
harder to achieve
$10K to $15K per
plant to reduce initial
unit variable cost by
$2 to $5
Each subsequent
dollar is less effective
R&D Decisions Screen
Finance Decisions
Long-term Debt
(Planned)
Short-Term Debt
(Planned)
 Must be scheduled
 Issuing charges
 Automatically renewed
 Interest rate 1% higher
than short-term debt
 Must maintain
debt/equity ratio below
100% to issue
 10-year maturity
 Issuing charges
 Interest rate depends on
credit rating (prime rate
plus risk premium)
 Bank intervenes if D/E >
100%
Finance Decisions Screen
Importance of Cash Flow Management





Solvency Loan (Emergency)
Automatically granted
Fee: $10,000
Interest rate about 6% above prime rate
Automatically converted to short-term debt next quarter
Managing Cash Flow
Cash
Balance
Debt
Accounts
Receivable
Available Cash
Operating
Expenses
Capital
Expenditures
Interest
Managing Foreign Exchange
 Not a learning objective
 All transactions in US dollars
Strategy Creates Alignment
Finance
R&D
Marketing
Sales
Operations
Initial Company Position
Customers Perceive
Companies as Equals
$700K Cash
AAA Debt Rating
Finance
R&D
All Companies
at Same Position
Marketing
Sales
Operations
All Companies Face Start-Up Decisions
• Plant Location
• Production Levels
• Plant Capacity
Three
Experienced
Sales Reps
Start-Up Decisions


$700K in available cash
Key decisions
 Locations of plants
 Capacities of plants (1,500 total)
 Production for Quarter 1
Suggestions for Success




Make your strategy the centerpiece of your thinking
If uncertain about a decision
 Check the case facts from the manual
 Ask about it
There is a person behind every piece of paper
Use all your instincts, judgment, and experience
 React to information/events as you would in your
real job
Logistics






Headquarters / External Environment
Handouts
Deadlines, Late Penalties: $1,000 per minute
Give yourself the time to enter the decisions and
verify them
Each quarter: turn in your memory key + a hard
copy;
Our version of Sarbanes-Oxley: hard copy must
be signed by the CEO
Next Steps




Make sure everyone is prepared
Read the simulation guide/manual, take the quiz
You will begin by filling out a specific strategy
planning worksheet
I will also ask you to agree on a decision making
process
Caution
This simulation is a very good learning experience
 It is not a game but is a simulation
 The objective is not to do slightly better than the
competitors but is to put the company on a sound footing
 It is a lot of fun
BUT
 It can also be very stressful
 Maintain the right balance

GOOD LUCK!