Transcript MgtSim-3 - University of Alaska system

M A RKETING
M G T.
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
If Company well managed &
you make right decisions…
• Balance Sheet
– Current ratio= 2-2.5
– Leverage= 1.5-2.5
– Sales/Current assets=
3-5
• Income Statement
– Contribution Margin=
30%+
– ROS=5%+
•Production #’s
– Plant
Utilization=150%+
–Turnover ratio 1+
indicates no idle assets
–Inventories= 1-90 days
•Marketing
–Customer
satisfaction=40+
–Awareness=80%
–Accessibility=80%+
M A RKETING
M G T.
S I M U LA T I ON
BUSINESS PLAN GUIDELINE
Page 1: Mission & Vision Statements –
SECTION I : SITUATION ANALYSIS
1.1: External Environment - Opportunities & Threats:
MARKET STRUCTURE
MARKET DEMAND
MARKET SEGMENT VALUE
MARKET SEGMENT DYNAMICS
DECISION
GUIDES…
1.2: Internal Environment- Analysis & Evaluation of Company's Strengths & Weaknesses
Marketing Management
Production & HR Management
Financial Management
1.3: Situational Analysis Results: SWOT Analysis
SECTION II: STRATEGY, OBJECTIVES & TACTICS
2.1: Select one of the Six Basic Strategies delineated in your Online Guide – Describe
your Company's Growth & Competitive Strategy; be specific regarding any plans for
new product development (What products? Which segments? What years?)
2.2: Functional Domains- Objectives & Tactics
Marketing + R&DProduction & HR
Financial-
“Generically, profits are
driven by the company’s
asset base
and by its efficiency working
those assets”
M A RKETING
M G T.
Key Demand
Consideration:
S I M U LA T I ON
• Overall market
growing @ ~
14%/yr
• “Average” company
should/could double sales in 6 years
Key Capacity
Consideration:
How effective will u b in building
your Co’s asset base?


At outset should be
spending ~$10-25M /
round on plant
improvement
By end should
expand asset base to
min $140M to $160M+
70000
60000
50000
40000
30000
20000
10000
0
Year Year Year Year Year Year Year Year
1 2 3 4 5 6 7 8
NET PROFITS $$
•Year 1 $6 million
•Year 2 $8 million
Rounds 6,7,8
should be
most
profitable
•Year 3 $10 million
•Year 4 $12 million
•Year 5 $16 million
•Year 6 $21 million
•Year 7 $27 million
•Year 8 $35 million
M A RKETING
M G T.
S I M U LA T I ON
Which most often selected …
but least preferable to do?
Things you can do w/ your $$$:
Pay off Debt
Invest in growth
Buy-back stock
Pay dividends
M A RKETING
M G T.
Reducing Leverage
S I M U LA T I ON
• Says to stockholders— “We can
think of nothing better to do
w/ $$ than save you interest
payments”
– More debt eliminated the greater
target you become for a
takeover..
• No reason not to maintain Co.
Financial Structure that got you
to position of high profitability…
M A RKETING
M G T.
S I M U LA T I ON
Most Basic Principle
Guiding Your Decisions:
Increase
Demand for Product
• will it
• Decrease Cost
of Mfgg Product
M A RKETING
M G T.
Increase Product Demand
Driven by Effective Mgt of 4 P’s
S I M U LA T I ON
• Product Mgt.
– Introduce new brands, Repositioning /
killing old brands
• Promotional Mgt.
– Optimizing Segment & Media Vehicle
budget allocations
• Distribution Mgt.
– Optimizing Outside & Inside Sales-force &
segment allocations
• Pricing– Competitive pricing & Fine-tune A/R
M A RKETING
M G T.
Decrease Mfgg Costs
S I M U LA T I ON
Effective Mgt of two other P’s:
• People
– Investments in HR,TQM & PI
• Plant
– Investments in automation
& capacity mgt.
M A RKETING
M G T.
Increase Demand
S I M U LA T I ON
• Driven by
Effective
Mgt of 4
P’s
M A RKETING
M G T.
Product Mgt. Options
S I M U LA T I ON
For every product - 3
options
• Improve it• Kill it- sell off
capacity- reinvest
recovered capital
Reposition
• Reposition it
M A RKETING
M G T.
S I M U LA T I ON
Consequences:
Improving a product…
PRO:
• Increase sales
& market
share
Con’s:
• offering a better- price,
design and/or higher
awareness- accessibilitycosts $$$
• High Tech segments can
take 2+ years• Will increase SG&A budgets
& squeeze margins…
M A RKETING
M G T.
S I M U LA T I ON
Questions need to answer if
plan on improving a product…
1. What are your limits -How
much can you cut price?
Increase R&D…
Promotion… Sales Budget?
2. Competitor movesimproving existing brands in
seg. and/or introducing new
brands in seg.
M A RKETING
M G T.
S I M U LA T I ON
Variation on Improving… Can
Reposition
Can allow product to age
gracefully and ride the
life cycle
Can redirect trajectory of
brand position into
adjacent segment
M A RKETING
M G T.
S I M U LA T I ON
Questions need to answer if
plan on repositioning a
product…
1. How long will it take?
2. Material & labor cost
implications?
3. Impact on products in
segment entering?
Leaving?
In final analysis–
You Could decide to
Kill
M A RKETING
M G T.
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
Questions need to answer if plan
on Killing a product…
1. How many products do you plan
to have overall?
2. Going to add a replacement in
this or another segment?
3. Kill immediately-or phase out?
4. Other options- Improve?
Reposition?
5. How will competitors react?
M A RKETING
M G T.
S I M U LA T I ON
Consequences:
Killing a product…
1) Makes it difficult
maintain Overall Market
Share
– Even if Niche strategyshould increase share in
selected niche(s) to offset
loss in abandoned
segments…
• Investors-like to see Co.
maintain overall starting
share….
M A RKETING
M G T.
S I M U LA T I ON
Consequences:
Killing a product…
If not replaced:
2) Hands over Market
Share to competitors
3) Removes strategic
opportunity for
distribution $$
efficiencies….
M A RKETING
M G T.
S I M U LA T I ON
Segment Consequences:
Killing a product…
• LOW TECH Segments:
Kill the Cash Cow
– In opening years 2/3’s volume &
profit from Low & traditional
sectors
• HIGH TECH Segments:
Difficult to re-enter, could take
up to 3 years to launch new
prdt.
M A RKETING
M G T.
S I M U LA T I ON
Your & Your Competitors
Product Mgt. Decisions
Impact
Arenas
of
Competition
M A RKETING
M G T.
Let’s assume……
S I M U LA T I ON
• LOW
END: 0-1 product killed.. 0-1
repositioned or introduced
• TRADITIONAL: 3-6 repositioned
from High…0-1 killed…1-2 introduced
• SIZE: 0-1 killed, 0-1 repositioned to
Traditional, 1-2 introduced
• PERFORMANCE: 1-2 killed, 0-1
repositioned to Traditional, 0-1
introduced
• HIGH: 1-3 killed or repositioned to
Traditional, 1-3 new products arrive in
rounds 2 or 3
M A RKETING
Round 3- Forecast
M G T.
nature, magnitude & arena of Competition
S I M U LA T I ON
• LOW
END: 6 products=rivalry
unchanged
• TRADITIONAL: 9 products,
w/ 3 repositioned= increased
competition
6
9
7
4
6
• SIZE: 7 products, w/ 2 new=
increased competition
• PERFORMANCE: 4
products, w/ 1 new= reduced
competition
• HIGH: 6 products, w/ 2 new=
increased competition
M A RKETING
M G T.
-Given Round 3 ScenarioHow should adjust your production capacities?
S I M U LA T I ON
Traditional
Round 01st shift
Capacity
1800
Round 3Fair/Equal
Share
1068
Low End
1400
2081
High End
900
668
Performance 600
823
Size
469
600
M A RKETING
M G T.
Optimal levels of capacity?
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
Most Basic Principle
Guiding Your Decisions:
• will it Increase
Demand for Product
• Decrease Cost
of Mfgg Product
M A RKETING
M G T.
S I M U LA T I ON
Optimal levels of
automation?
M A RKETING
M G T.
S I M U LA T I ON
Once have optimal levels of
capacity–
Need to have most efficient
levels of production costs
M A RKETING
M G T.
S I M U LA T I ON
How to have most efficient levels of
production costs
 Reduce Material costs
• Proffer minimal/optimal level
MTBF
• TQM/Sustainability Initiatives
• Process Management Initiatives
 Reduce Labor costs
• TQM & PI Initiatives
• Increase automation
• Invest in employee recruitment
& training
• Utilize 2nd shift
?
• Increases length
R&D on product
line-–makes repositioning take
longer
• Incur employee
separation costs
• w/ maximum
expenditures can
realize 18%
improvement in
productivity in 6
years!
M A RKETING
M G T.
S I M U LA T I ON
Why run 2nd shift –when
labor costs 50% higher?
M A RKETING
M G T.
S I M U LA T I ON
Why run 2nd shift –when
labor costs 50% higher?
Answer by using your proformas:
1- On production spreadsheet
build at capacity- if have 1000
units – build 1000 units
2-On Marketing displayFORECAST 1000 UNITS
3.-ON Proforma Income
statement- note NET MARGIN –
THE BIQ Q: If we double sales will
we double our net margin?– Will we make
less because labor costs are 50% higher
for 2nd shift?
M A RKETING
M G T.
S I M U LA T I ON
Why run 2nd shift –when
labor costs 50% higher?
Answer by using your proformas:
1- On production spreadsheet
double output-run full 2nd shift
2-On Marketing display- double
forecast
3.-ON Proforma Income
statement- NET MARGIN –will
more than double
When run 1 shift- must pay all fixed
costs- 2nd shift gets a free ride-only
has to pay labor premium &
Material costs
M A RKETING
M G T.
S I M U LA T I ON
Now that that you are producing-in the most efficient manner-- a
“perfectly designed” product
• need to
make sure
“maximum #”
consumers
are aware of
it & can
“easily” buy
it…
M A RKETING
M G T.
Moving Product
S I M U LA T I ON
Message Weight &
Media Planning
 Breadth, Depth &
Heft of Distribution
Network
 Optimal Pricing &
Credit Terms
M A RKETING
M G T.
S I M U LA T I ON
Advertising Budget Drives
Awareness
New products are newsworthy events. The buzz creates 25% awareness at no cost.
M A RKETING
M G T.
Sales Budget Drives Access
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
Fine tuning
your Promo,
Sales &
Pricing…
M A RKETING
M G T.
S I M U LA T I ON
Promo Budget
M A RKETING
M G T.
S I M U LA T I ON
Sales Budget
Time Allocations
Decide on how many
salespeople & Mfr
Reps will have:
• OUTSIDE
How much effort will be
focused on market
segments:
sales-meet face-to-face (cost $120K/each)
• INSIDE sales-works leads & operates website &
customer support systems (cost $50K/each)
• Distributors: push product (cost $100K/each)
M A RKETING
M G T.
Pricing / Credit terms
S I M U LA T I ON
A/R Lag: (in days) is the time between
customers receiving products & when they
are expected to pay for ‘em
• No credit - demand falls to~ 65% of normal.
• At 30 days - demand is 92%.
• At 60 days - demand is 98.5%
• At 120 days - demand is 100%.
The longer the lag, the more your cash is
tied up in receivables.
M A RKETING
M G T.
S I M U LA T I ON
Made all the Right Decisions --product
design, pricing, positioning, promotion,
distribution… credit terms… production line
capacity, automation, hiring training, TQM & PI…
Your Competitors produce a
better product
 &/or You produce too much of
your “great” product

IF
Then
You’ll be left w/less
revenue than anticipated
PLUS production &
inventory carrying costs
that must be paid..
IF
You’re left w/less revenue than
anticipated and did not plan &
allocate enough cash to cover your
production & inventory carrying
costs....
Then
Big Al arrives -pays your bills,
and leaves you
with a loan & a
stiff interest
payment
In order to:
• Avoid “Big
AL” & a
Liquidity
Crisis-
Need to:
•Maintain
Adequate
working capital
& cash reserves
•Have realistic/
accurate sales
forecasts
1.Quick N’ Dirty
2. Consumer
Pref’s
3. Best / Worst
Case
Estimate FAIR & EARNED Share
2 Q’s:
1.What will the average
product sell in the segment
next round?
2.To what degree is your
product above or below
average- on consumers'’
buying criteria?
EARNED Share - Sales Forecast
1
2
3
4
Determine industry demand next round.
Estimate # products that will be in segment.
Divide total industry demand by the number of products=
FAIR SHARE
Your product’s EARNED demand can be between ½ and
2X the average product’s demand.
Compare your product with competing products.
Factors include design, awareness, accessibility, and
planned mid-year revisions.
Examine industry capacities, and the capacities of
the “best” products.
Can products meet the demand they generate?
#2 Forecast by Consumer
Pref’s
Forecast off Customer
Survey Scores

Opening rounds crucial- can
establish competitive advantage
(that can be sustained for many yearseven thru-out entire sim.)


Initial round demand can vary
+/- 25%
Later rounds best case/worst
case vary ~~~~ 10-15%
For Example-in Traditional
segment everyone begins w/ 13%
market share
After 1st Year/RoundCan see demand spread
R#1 Dec
Survey score
Baker
43
19%
Predicted
sales R#2
1827 units
Able
40
18%
1731
1598
Fast
36
16%
1339
1560
Eat
36
16%
1539
1492
Cake
42
19%
1827
1339
Daze
26
12%
1154
1045
Total=223
% of 223
Actual
Sales R#2
1758 units
R#2
2
1
R#1
Survey
score
43
40
36
36
42
26

Worst Case:

BIG INVENTORY/
little cash

Best case:

Lots of CASH /
little Inventory
•Enter WORSE case- in “your
sales forecast” on marketing
spreadsheet
•Enter BEST case- in
“production schedule” on
production spreadsheet
•Spread show up as inventory
on proforma BALANCE SHEET
In WORSE
CASE: You
have lots of
Inventory
& little or no
Cash.
$0.00
In WORSE
CASE: You
have lots of
Inventory
& thus need to
drive your cash
position to the
black…
$0.00
To adjust your cash
position -
If you are cash poor,
issue Stock /Bonds - or
consider a short term
loan
 If you are cash rich,
pay dividends and/or
buy back stock.
Important Considerations
re: BEST-WORST Scenario Analyses
By adjusting your CASH
POSITION according to your
WORST CASE estimate– will avoid
… BiG AL
Important Considerations
re: BEST-WORST Scenario Analyses
By adjusting production
according to BEST CASE
estimate– will minimize loss of
profit due to Stock-outs


Fixed costs (marketing, R&D, interest
or depreciation) already covered
Thus, any additional sales would
only incur variable (production)
costs
For example,
1.
2.
3.
If your annual sales were
$120M, in one month
you’d sell $10M.
If a months material &
labor costs = $7M, you
missed contributing $3M
to Net Margin.
This would be taxed in
the simulation at 35%, so
your opportunity cost is a
missed $2M in profit.
How Big is your
Slinky?

Worst Case:

BIG INVENTORY/ no
cash– risk seeing Big Al

Best case:

Lots of CASH / no
Inventory -you risk stockout
Determining A
Reasonable Spread


Want to avoid generating an ultra
Conservative Worst case scenario
…matched w/ an ultra Optimistic Best case
scenario
Should be able to sell excess inventory in
~betw. 6 & 16 weeks


Any less -- risk a visit from Big Al
Any more –- would require major screw-up from
competition
How to measure your slinky slack--
Take your
total
inventory
costs
$23,900M
& Divide by total
variable costs of
inventory sold:
$23,900M/$131,119M
=.18
52weeks *.18 = 9
Risk ~9weeks of
Inventory to avoid
stockout
•Tutorials: Forecasting &
Developing a Unit Sales
Forecast
• Guidelines Re: Sales
Forecasting
M A N A G E M E N T
S I M U LA T I ON
What is the Relationship
between My Strategy &
Success Measures
One more
thing to
think about
M A N A G E M E N T
Success
Measures
S I M U LA T I ON
•
•
•
•
•
•
•
•
Cumulative Profits
Ending Market Share
ROS
Asset Turnover
ROA
ROE
Ending Stock Price
Market Cap.
Performance Measures- Defined
Performance Measures-Dynamics
Strategy
Diff Strategies Play into
Different Success Measures
Profit
BCL
L=2-3
X
MS
X
SP & MC ROE
pf/e
All
Segments= more sales & thus
X enable X
& PLC
greater Cum. profit & overall market share
NichePLCDiff
X
X
AT
s/a
ROA
pf/a
X
Cost- Niche
B-Diff
L=1.5-2
ROS
pf/s
X
X
X
X
X
X
X
M A R KE T I N G
M A N A G E M E N T
• Select Success Measures
& Determine Relative
Weightings
• Need to enter weightings –
prior to round-1
This week’s assignment:
1) Draft- Financial
Objectives & Tactics
2) Draft- Mission & Vision
Statements