Congratulations, you are now in charge of a sensor manufacturing company. Your company was formed when a former monopoly was broken up into identical competitors.
What are sensors? Cameras, biometric devices, and labs-on-a-chip are all sensors. New sensor businesses are being created today in arenas as diverse as genetics, power generation, and satellites. The most relevant point from your perspective is that your sensors are incorporated into your customer’s products. You are in a business-to-business market, not a direct-to-consumer market.
Although last year’s financial results were decent, your products are getting old, your marketing efforts are falling short, your production lines need revamping and your financial management is almost nonexistent. You and your management team must correct these problems.
The Capstone Courier is an industry report that has key information about your company and your competitors. The Courier will help you find opportunities and identify your competitors’ strengths and weaknesses.
The Courier displays “Last Year’s Results.” The Courier available at the start of Round 1 displays Last Year’s Results for Round 0, when all companies have equal standing. The Courier available at the start of Round 2 will display the results for Round 1. As the simulation progresses and strategies are implemented, results among the competing companies will begin to vary.
The Courier is available from two locations:
Proformas and annual reports both include a balance sheet, cash flow statement and income statement. What is the difference between proformas and annual reports? Proformas are projections of the upcoming year. Annual reports are the results from the previous year. The proformas and annual reports will help you identify efficiencies and weaknesses within your company.
To access proformas, click the proformas menu in the Capstone Spreadsheet. To access the annual reports:
Your simulated industry is unique. When launched, your instructor had options to tailor the scenario for your class.
The Industry Conditions Report details conditions specific to your simulation including customer buying criteria and financial conditions. The report will help you plan your decisions and complete the Situation Analysis.
To access your report, login to your simulation then click the Reports link.
You need to coordinate strategy and tactics across all functional areas of your company:
Your simulation might also include Human Resources, TQM (Total Quality Management)/Sustainability, Labor Negotiation and Advanced Marketing modules. On the website, your simulation Dashboard will tell you if modules are scheduled.
R&D is responsible for inventing new products and re-engineering old ones. R&D determines each product’s physical characteristics:
R&D decisions affect the perceived age of your products. Revising a product’s size and/or performance makes the market view it as a newer product. R&D decisions affect the material cost of your products. Decreasing size, increasing performance and increasing MTBF increase the cost of material.
The length of time required to revise a product varies. Slight revisions can complete in three or four months; more comprehensive projects, two or three years. The longer the project, the greater the expense: a six-month project costs $500,000; a 12-month project costs $1,000,000.
R&D invents products by assigning a name, performance, size and MTBF. Inventing a product always takes more than a year. Your new product cannot be built without an assembly line, and new assembly lines take one full year to install. If you invent a product, you must coordinate with Production to time the delivery of your design with the delivery of your assembly line.
The number of simultaneous projects affects the time required for each project to complete. As you add projects, dates can slip. Be sure to check the revision dates of all your projects.
For each product, the Marketing Department sets a:
At the beginning of the simulation, each product is intended for a primary group of customers, also known as a market segment. Demand and growth rates for each segment vary. Marketing determines a sales forecast by assessing last year’s sales, the segment’s growth rate and the characteristics of the product versus its competitors’.
For each product, your Production Department:
Production also adds assembly lines to manufacture new products.
Every assembly line has a first shift capacity. First shift capacity is the number of units that can be produced each year with a daily eight hour shift. If your production schedule exceeds the amount that can be built on first shift, work is scheduled on a second shift. Second shift labor costs are 50% higher than the first shift, but adding a second shift saves the expense of adding capacity and increases the asset utilization of the assembly line.
Every assembly line has an automation rating. A line with low automation has more workers and therefore higher labor costs. A line with high automation has fewer workers and lower labor costs, but increasing automation is expensive. Also, R&D revisions for products with higher automation take longer to complete because more machines have to be retooled.
Purchases of capacity and automation for new and existing products take a full year to implement. Sale of capacity is immediate. Selling all of a product’s capacity discontinues the product– it is no longer available for sale.
Your Finance Department makes sure your company does not run out of money. While it is possible to fund activities entirely from operations, it is unlikely to happen in the early years. The company will need to turn to the capital markets. The company has two outside sources of money (stock issues are not permitted):
Other Finance Department activities include:
If the company runs out of money during the year, emergency loans are issued by a lender of last resort, affectionately known as Big Al. Big Al will automatically keep the company afloat with a loan for the needed amount. Big Al charges a 7.5% penalty in addition to the company’s current debt rate. Emergency loans convert to current debt at the beginning of the following year. Emergency loans will lower your stock price.
Your R&D Department works with Marketing to make sure your product line meets customer expectations.
R&D works with Production to ensure assembly lines are purchased for new products. If Production discontinues a product, it should notify R&D. Production and R&D also discuss automation increases and their impact on revision dates.
Your Marketing Department works with Production to make sure manufacturing runs are in line with forecasts. Marketing’s market growth projections also help Production determine appropriate levels of capacity. If Marketing decides to discontinue a product, it tells Production to sell all of that product’s capacity.
Marketing works with Finance to project revenues for each product (price multiplied by forecast) and to set the Accounts Receivable policy.
Production tells Finance it needs money for additional capacity and automation. If Finance cannot raise enough money through stock, bonds and working capital, it can tell Production to scale back its requests, or perhaps sell idle capacity.
The Finance Department acts as a watchdog over company expenditures. Finance should review Production’s decisions. Is Production manufacturing too many or too few units? Does it need additional capacity? Has Production considered labor cost versus automation purchases? Finance should crosscheck Marketing’s forecasts and pricing. Are forecasts too high or too low? Is pricing correct for the targeted segment?
Finance can determine a range of possible outcomes for the year by changing (but not saving) Marketing’s forecasts then checking the proformas. Lowering the forecasts will decrease revenue and increase inventory (worst case); raising the forecasts will increase revenue and decrease inventory (best case).
Finance can print the worst case and best case proformas, then compare them to the annual reports after the round advances.
The Rehearsal Tutorial teaches decision entries for R&D, Marketing, Production and Finance. The Rehearsal is an individual tutorial that you can review before joining a company. The Rehearsal is available from the website’s Decisions area.
You will use the Capstone Spreadsheet to enter departmental decisions and review proformas for each round of the simulation. The Capstone Spreadsheet is available from the website’s Decisions area.
The Practice Rounds allow you to organize workflow among the members of your team and practice making departmental decisions.
In Practice Rounds, you will begin to compete against the other companies in your simulation, or, if you are in a Footrace competition, against a common set of computer-run companies.
After the conclusion of the Practice Rounds, the simulation is reset and the Competition begins. Companies compete for up to eight rounds, with each round simulating one year in the life of a company.
The board selected you and your fellow managers because of your strategic vision and tactical skills. The company expects you to make it a market leader. Successful managers will:
Careful study of the rest of this guide can help greatly with these efforts. Best of luck with running your company!