This submission offers an analysis of the results from the supply-chain simulation. The submission will discuss strength areas, areas of opportunities, and lessons learned at the end of the simulation.
This submission analyzes the results of the supply-chain simulation completed. This analysis will comprise several noted points encountered in the simulation. Each discussion point will include a discussion of the correlation of the author’s actions with the simulation results, comparative success results, and alternate actions to produce better results. Further analysis will be applied to the author’s actions with relation to just-in-time inventory management and lean operations. An analysis will also be offered of the application of work cells in the simulated manufacturing plant. Inventory management will also be analyzed. Finally, the author will discuss continuous-improvement plans that lead to high-quality products and services. Simulation Analysis
Quarter 1 Analysis
Simulation Actions: The author had two aims: 1) capture the majority of the most price-insensitive market and 2) focus on a small, high-margin segment. The author was never motivated by being a market leader in all markets. The Mercedes market was the most price-insensitive out of the four. The North American and European markets were the most metropolitan and lucrative, with sales opportunities of 4,822 and 3,459, respectively.
The Mercedes market consists of thought professionals, such as engineers and scientists, who require substantial computing power to process complex calculations. Their computers should focus on raw power, speed of executing complex calculations, and interconnectivity with other systems and networks. The author believed providing the right equipment to this group could engender brand loyalty, although, admittedly, there is no empirical evidence in quarter 1 to substantiate such claim. The author also chose to target the Travelers market because it demonstrated an impressive demand potential in both the North American and European markets.
A notable caveat for this market is its price sensitivity. However, the constituency of this market includes high-ranking officials and C-level management professionals, all of which have high incomes and are well-connected, which indicates that offering a stellar product at a price they can afford may generate brand evangelists, thereby leading to higher revenue and profit. Obviously, portability and access to industry-accepted productivity software, such as word processors and spreadsheets, are important, but also systems with stellar levels of interconnectivity are de rigueur. Actions to Results: The actions in this quarter were focused on establishing processes to generate as much revenue as possible during the subsequent quarters. Therefore, there were no results to discuss. Here is an explanation of several first-quarter actions, however.
For Human Resources, the author reviewed industry-standard remuneration packages for sales professionals to assist in determining what package the company would offer to new employees. (The actual remuneration package is established in quarter 2.) The human-resources manager is Xavier Smith, also the president of the company.
For Marketing, the initial advertising brand name was “Enterprise PC,” which focused on scientific/engineering software, multimedia engineering software, standard design, widescreen monitor, powerful computer processor—CPU—and Internet connection.
For Marketing, a second brand called “Mobile Ultimate” was created for the travelers segment. Features such as office applications, mobile games, travel multimedia, average CPU, and Internet connection targeted this system to the mobile professional needing to maintain constantly efficient and connected.
For Sales Offices, the company chose to open a location in North America/New York and Europe/Paris. The construction cost of each location was $220,000 and $210,000, respectively. The quarterly leasing cost was $120,000 and $100,000, respectively. To iterate, the reason for opening only two locations was to position the company’s products in front of a significant number of consumers with metropolitan appetites and disposable incomes to support computer purchases.
For Manufacturing, production facilities were situated near Tokyo due to government perquisites offered. The company chose a facility that supported the production of 50 units per day, or 3,250 per quarter, at a cost of $22,000 per unit, inclusive of fixed and variable costs. Since no production began, choosing this plant size was purely anticipatory, not based on actual generated data. Facility adjustments may be made in subsequent quarters to accommodate higher-than-normal or lower-than-expected demand. For Accounting, the cash-flow sheet demonstrates an ending cash balance of $350,000, which comprises of $550,000 and $1,100,000 total anticipated expenses subtracted from $2,000,000 in sold stocks—financing. Since there was a positive cash balance, no loans were necessary.
Comparative Success: Success in this quarter cannot be determined, since the aims were focused on establishing processes to generate as much revenue as possible during subsequent quarters. Therefore, no comparisons are possible or appropriate. Alternative Actions: It is not possible to discuss alternative or corrective actions during quarter 1, since the aims were focused on establishing processes to generate as much revenue as possible during subsequent quarters. Alternative actions can only be discussed in subsequent quarters once there are data to review.
Quarter 2 Analysis
Simulation Actions: The previous quarter focused on establishing the computers to be sold. Quarter 2 focused on actually entering the market with a viable product that is sold by appropriately remunerated sales professionals committed to the company’s profit-maximization goals.
For Human Resources, the company reviewed worldwide compensation packages for sales professionals in the computer industry. The company also studied the importance that employees placed on specific aspects of the remuneration package. For quarter 2, the company set employee salary at $40,000, which is $5,000 lower than the industry average. However, the company chose full-coverage health benefits, which exceeded the industry standard; two weeks of vacation time, which exceeded the industry standard; and 10 percent retirement-account contributions, which far exceeded the industry standard. The cost of the remuneration package, however, was almost equivalent with the industry standard. The reason for offering better-than-expected ancillary benefits was based on the company’s view that salary alone is not a sufficiently significant motivator to compel employee loyalty and, as a result, productivity.
For Marketing, the company had to forecast demand for the quarter but do so to avoid unnecessary expenses from excess inventory or revenue loss due to stock-outs. The company projected selling 500 units for the quarter.
The company then chose a retail price of $3,847, with a $300 rebate, for Enterprise PC (for Mercedes customers), which is 50 percent higher than the suggested cost; this price difference supports the company’s paying for other costs to sell the computers, such as for marketing. However, this price is lower than $4,000 Mercedes customers would be willing to pay. Coupled with a rebate, the goal was to significantly motivate demand for the engineering PCs.
For this quarter, the company chose not to sell Mobile Ultimate to Travelers customers. The rationale is that the company wanted to minimize the risk of failure by investing in two separate markets that have different sets of needs. The company chose to use the Mercedes market as the test market because this group is less resistant to price changes. If the company needed, it could increase the cost of the PCs being sold, and it would not be expected that the Mercedes customers would immediately purchase from a competitor.
The company also wanted to be a market leader for this segment, since the company identified Mercedes customers as being loyal to the brands that they appreciate. The ultimate aim was to create such a compelling product that the elasticity of demand for the PCs would be substantially reduced. In other words, the PC comes to be recognized as a necessity as opposed to a substitute good. With that type of hoped-for entrenchment, moving into a new market—i.e., Travelers—would be a much less dubious process. (Marketing to Travelers would happen in later quarters.)
For Advertising, the company chose to run two ad campaigns, both with slightly different emphases. The first campaign, “A Powerful You,” focused on the power of the PCs sold. The campaign prominently featured discussions on processing power and monitor real estate. And it made the connection by prominently featuring pictures of engineers and scientists. Brand-name mentioning was also a tactic and was the most important in placement. As a test market, it was important for the customer to match a brand with a company in the initial stages.
The second campaign, “Engineer Now,” focused on the processing power and making the connection with engineers and scientists. But the campaign also included pictures of business professionals, since some professionals use spreadsheet and other computational software to treat large amounts of data. Still, the focus was on thought professionals. Actions to Results: The actions in this quarter were focused on establishing processes to generate as much revenue as possible during the subsequent quarters. Therefore, there were no results to discuss.
Mercedes customers read news and science-and-technology magazines, so the company chose to focus its marketing efforts in those areas primarily. News magazines were relatively inexpensive to advertise in—at $8,000 per advertisement. The company chose to run one instance of each campaign in these magazines. It also ran one of each in trade and industry magazines. “Engineer Now” was run exclusively in business magazines, however, to capture the business professionals that compute large calculations. Science-and-technology magazines were some of the most costly—at $15,000 per advertisement. The company chose to one instance of each campaign in these magazines. Last, the company chose to spend $15,000 in market research to better understand customer needs, trends, and information about competitors and their tactics for market capitalization.
For Sales, the company chose to hire five salespeople, three for North America and two for Europe. For North America, two were dedicated to selling, and one was dedicated to technical support. The reason for the two-to-one ratio was that the company needed more professionals to move products into production and fewer to troubleshoot issues. For Europe, one was dedicated to sales, and the other was dedicated to technical support. The rationale was Europe is a smaller market and will not naturally generate the same level of demand, so one salesperson would be sufficient. One technical-support professional would also be sufficient. The total cost to employ salespeople for the quarter was approximately $87,000. For Manufacturing, with five salespeople in the field generating business, the company projected 100 sales per professional, which was 500 sales per quarter. That equated to seven units per day.
The company chose to only produce Enterprise PC, since, as indicated previously, the focus for the current quarter was on the Mercedes market. To limit an abundance of costly leftover inventory, the company set 25-unit threshold for unwanted goods. The company chose to set the daily production limit at 10 per day, which is higher than the projected seven per day. At 10 per day, the plant would have been able to produce 650 units for the quarter, which was approximately one-fifth of the plant’s production capability. The factory simulation bore these results: 19 percent plant utilization, with overhead costs of $115,423. The production volume was lower, so the costs of production were higher, naturally.
The goal was to increase demand in subsequent quarters, which would increase production and, as a result, decrease production costs, thereby funneling more funds into revenue and profit as opposed to expenses. Comparative Success: Millennium Technologies competed with Creative Computers, Inc., Powerhouse Technologies, and Olympus Computers for market share in three markets: Workhorse (office professionals), Traveler (mobile business professionals), and Mercedes (engineering/scientific professionals). See the following graph for market-share placement:
Please note that the company was only interested in the Mercedes market and placed its efforts there. For the Mercedes market, the company had the second-largest customer base, only preceded by Powerhouse Technologies. Due to advertising placement in certain publications, some unanticipated demand was generated from the Workhorse segment. Overall, the company had the third-largest customer base for all computing demand.
Although the company never intended to be the market leader in all the segments, the company was not the market leader in the Mercedes segment. After a competitive analysis, the company determined that Powerhouse Technologies had a better pricing strategy:
Its PCs are substantially cheaper than Millennium Technologies’s, and their PCs still outsold the company’s without a single rebate. This reality further indicates that Powerhouse Technologies markets better and in a more targeted fashion that Millennium Technologies:
A factor that supported the company’s competitive stance is the productivity garnered from salespeople as it relates to their remuneration package:
Despite having a lower salary, most other aspects of the company’s remuneration package exceed the industry standards. Looking at the productivity rate of the company’s salespeople, an easy inference can be made that the remuneration package is working to motivate employees to be competitive. Alternative Actions: In hindsight, to promote more competitiveness, the company should have embarked on capturing the mobile market as opposed to focusing solely on one market.
Doing so could have increased overall market share. The company would also have been more deliberate in its pricing scheme. Simply because a segment seems price inelastic does not indicate that price is never a concern or motivator. The company also learned from Powerhouse Technologies that making a connection with customers through effective and well-placed advertising can mean the difference between a successful or unsuccessful company.
Quarter 3 Analysis
Simulation Actions: The results from quarter 2 were mostly in line with the author’s intentions. The goal was to be the market leader and demonstrate the highest profit margin for the Mercedes market. As of the inception of quarter 3, Millennium Technologies was the second most demanded technology company in the industry:
The sales for the primary product, “Enterprise PC,” were in line with expectation, with a gross profit margin of $556,756, as indicated here:
Please note that the company made a conscious decision not to advertise its mobile-PC product. Found in the cash-flow statement for this quarter, the company amassed $1.1 million dollars in cash flow to be used for further expansion. Effective price levels were instrumental in generating this cash flow. Most customers found Enterprise PC’s pricing to be enticing when compared with competitors’ pricing scheme:
The follow table demonstrates advertisement placement, which contributed to how well the product sold:
For quarter 3, the company chose to expand its remuneration package for its employees. The goal from the outset was 1) to offer compelling ancillary benefits and 2) incrementally align the salary with the industry standard while making minor modifications to ancillary benefits to keep those portions above industry standard. Review the chart for remuneration modifications:
The salary increased to $42,000 annually; the benefits remained the same. However, paid time off increased to three weeks, two weeks above industry standards. Employer contribution to retirement accounts increased to 15 percent, significantly higher than industry standard. The remuneration package’s cost was in line with the industry average.
To bolster sales, the company chose to employee more sales professionals in both North America and Europe. To account for the employee increase and anticipated sales increase, the company staffed an additional support person. Also, to galvanize for a market push for the Travelers segment, one of the additional employees was staffed for that market. Also, even though no advertisement was planned for the Workhorse market, one employee was staffed there to capture any sales, no matter how minor, that would be generated through word-of-mouth advertising for the company:
For the European market, additional staff was added to the Mercedes market. New employees were staffed for the Travelers market in preparation of the market push via advertising for this segment. Also, as noted in the North American market, even though no advertising was planned for the Workhorse market, some sales had been generated there, so it was necessary to employ a professional to capture any random sales opportunities there. As noted in the chart above, the employment costs increased substantially due to the recent recruiting efforts.
The company chose not to open additional sales locations out of a financial concern. Although the company demonstrated a positive cash flow, Xavier Smith chose to be conservative in his approach and chose to focus on exclusively on the Mercedes and (now)
The goal for increasing the remuneration package was to increase the employee loyalty, which should increase the employee productivity rate. Comparative Success: The following are pie charts demonstrating the success of the company compared with competitors in key markets:
Millennium Technologies placed third in overall market share. This placement was not unexpected, since the company chose to focus only on one market segment, Mercedes. (It is interesting, however, that the company placed better than one company that did focus on advertising to three different markets.) For the target market, the following pie chart indicates the company’s results:
The overall performance in this market is acceptable, but the company expected to do better, since it focused its advertising dollars in this market. Powerhouse Technologies clearly had a better marketing strategy. This is indicative of the dissonance between Millennium Technology’s brand recognition, which was higher than Powerhouse Technologies, and actual sales:
Alternative Actions: For inventory, the company had no stock-outs but was left with 25 unwanted inventory items, which was forecasted in the previous quarter:
For demand projection, the company chose to be too conservative and did not change the projected demand. This is nonsensical, since the company also planned a market push for the Travelers market for the current quarter. Even if that market push were not as successful as planned, some increased demand would be logical. This conservative approach was not in the best interest of the company.
A further indication of a judgment failure is the misinterpretation of the operational capacity of the plant. With the projected demand—that remained unchanged—the plant would still only have operated at 41-percent capacity. A reasonable increase of operational capacity would have been 55 to 60 percent. Such a decision would have left sufficient capacity to absorb any unexpected demand without creating stock-outs.
During the preceding quarter, the company should have started marketing to the Travelers market, just to be more competitive in the overall market.
Quarter 4 Analysis
Simulation Actions: The previous quarter demonstrated moderate gains in market. The Total Business Performance measurement showed a five-point gain. As indicated in the chart below, the business’s performance fell within an acceptable range, though barely.
Perusing the other line items, it is clear that the previous quarter’s results are indicative of company growth measures that are too conservative and, in the case of financial risk, detrimental to the overall viability of the company.
For Brand Profitability, both brands of the company, Enterprise PC for Mercedes customers and Mobile Ultimate for Travelers customers posted healthy revenue due to the hiring of additional sales professionals and the expansion into the Travelers market to bolster revenue and market position.
Actions to Results/Comparative Success: When compared with other brands in the two markets of interest of the company, Millennium Technologies continues to offer competitive brands and are positively perceived. For the Mercedes market, the most important for the company, the company’s brand is among the top three competitors:
For the Travelers market, which is a new market for the company, the company is the top rated in comparison with competitors:
Minor modifications were made the significance and order of features in the advertising campaign for the Mercedes market, and new feature significance were effective in generating healthy sales volume. Mentioning the brand’s name and highlighting connecting appropriate features to customer’s wants and needs aided the success of this campaign.
The company’s overall success level when compared with competitors continues to be acceptable, as indicated in the following pie charts:
The company’s hiring additional sales professionals (and support staff) contributed to becoming the leader in the Mercedes market, which has always been the goal of the company. Also, providing these employees a more compelling remuneration package increased their productivity rate compared with competitors:
Millennium Technologies dominates the Travelers market through concerted and effective marketing efforts in the North American and European markets. Unfortunately, the growth in both sectors did not sufficiently contribute to gaining overall market share:
It should be noted that overall market share declined merely one percent. This decline can be attributed to more aggressive marketing efforts by competitors. Alternative Actions: The total demand for the company’s products is substantially lower than its competitors, as indicated by the following chart:
Immediately, the demand difference can be attributed to the reality that the company chose not to implement advertisement for the Travelers section until last quarter. Competitors immediately begin to place advertisements for that market and gained market share before Millennium Technologies. Again, being the market leader in all market segments was never a principle concern; however, having a more respectable overall market share could mitigate against large demand upsurges in competitors in later quarters.
Another considerable issue is the average price of products, which is the highest in the industry:
The first cell is Millennium Technologies’ pricing, with the rest being competitors’ pricing. The price difference is not stark, but even though the Mercedes market, which demonstrates high levels of price inelasticity, the higher price can have an overall effect on revenue and profits and compel at least some customers to seek more less costly solutions. The company should have scrutinized the pricing strategies of competitors more and made adjustments accordingly. These adjustments could have positively influenced the sales volume for the Mercedes market.
The overall sales force when compared with competitors is lower, which contributed to lower sales and, as a result, less demand:
Quarter 4 Results
The following are the results for quarter 4:
The scorecard is generally positive, though results could certainly be better. The Total Overall performance is 5.12, which is slightly higher than the minimum. This number can be directly attributed to the reality that throughout the year, the company was too conservative in its actions. Furthermore, the company did not invest in research and development of new products, which limited its influence on the market in general. However, for the markets it chose to focus on, Mercedes and Travelers, the company’s financial performance was acceptable.
There is no unmet demand, which means that customers who want the company’s product can readily obtain it:
A notable achievement is the company’s risk profile, which is acceptable. The company has no unmet debt obligations and has no financial risk. This reality is directly attributed to conservative growth behaviors. Budget and Pro-Forma Statement Utilization
Conservative marketing efforts to generate revenue was the growth approach of choice for the company. Doing so would minimize the need to involve the company in financially tenuous activities but also provide cash flow to fund conservative growth efforts.
The baseline budget was $350,000, which was the starting point for quarter 1. For quarter 2, the goal was to spend as little as possible, conserving a positive cash flow to support operations and growth for subsequent quarters. The company chose to limit production to Mercedes products. Whereas the operational capacity of the plant was 50 units per day, or 3,250 units per quarter, the company conservatively projected 10 units per day, or 650 units per quarter. Thus, the company projected only 20-percent utilization of the plant. The company also projected 25 unwanted units at the end of the quarter.
Total projected revenue would have been $1.9 million, with production expenses minimized to $1.2 million. Factoring in rebates, this conservative approach would allow a gross profit of approximately $640,000. Coupled with selling $1 million in stocks, the company was poised for the next quarter to have a cash balance of $1.2 million. This approach avoided stock-outs and minimized unwanted inventory at the beginning of the next quarter.
Quarter 3 and 4 demonstrated the same conservative approach, with minimal increases to units produced per day and overall operational capacity of the plant. The goal was to remain solvent and to have a positive cash balance at the end of the year. The company achieved that goal by posting a nearly $950,000.
Just-in-time, or JIT, manufacturing is a continuous-improvement process that seeks to eliminate inefficiency from the supply-chain process. The company adequate attention to this concept through the limited amount of unwanted inventory at any time, which was 25 products at the end of each term, regardless the increase in operational capacity and units produced per day.