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Performance Analysis And Simulations In A Chosen Company

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Strategy adopted and Decision-making

AAAA’s Pte Ltd has adopted a niche cost leader strategy for practice round where we concentrate primarily on Traditional and Low End segments. Since the focus is on the Traditional and Low End segments, it can be determined as a cash cow. A cash cow is generally a leading product in mature markets, generating more cash than is used. In order to be a market leader, we invested in Research & Development (R&D), production and material costs at its minimum investment in cost which will be below average and able to meet the customer expectations. Furthermore, we invested on automation which helps to improve the contribution margins and offset the overtime costs. By focusing only on Traditional segment (Able) and Low End segment (Acre) we are able to have more unit sold as compared to other products as the material cost for the product is much more cheaper. The sales at round 1 for Traditional and Low End product was pretty good with $39,260 and $41,584 respectively and with a unit sold of 1,378 and 2,029 respectively (shown in appendix 2).

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At round 4, we decided to add a new product, Apple, which is a High End product (shown in appendix 4). We hope that Apple is able to help with the profit gain(will be explained in section 2. 2. 1). In Comp XM Activity, Broad Differentiator was selected as its main strategy as it projects a strong presence towards each segment of the market. Key factors used by the Broad Differentiator strategy such as its excellent design, easy accessibility and high awareness, provides competitive advantage to the company’s products. Implementation of the R&D competency will keep designs fresh and exciting, enabling the products to keep in trend of the market, offering better performance and size.

Balance ScoreCard Metrics

The balance scorecard metrics measures performance across four categories: “Financial”, “Internal Business Process”, “Customer” and “Learning and Growth”. Financial includes profitability, leverage and stock price, Internal Business Process includes contribution margin, plant utilization and days of working capital. Customers will take a look at the company’s product line, including how well it satisfies the buying criteria and awareness/accessibility levels while Learning and Growth evaluates employee productivity. These categories include the use of 8 practice rounds to represent 8 years to showcase the product life cycle. By the end of each year, the points will then be used to show how well the company assist the sales.

Under the section “Financial”, AAAA’s Pte Ltd’s leverage shows the percentage of assets financed by equity. We did a pretty good job in maintaining a consistent score of 8 over the 8 years except for round 4 and 5. [image: ]Table 2: Leverage score for Practice RoundThe ideal leverage to be maintained by the company was at least 1. 8. In round 4 and 5, the leverage score was 1. 7 and 1. 8 respectively as shown above. Spreading capital financing equally over debt and equity spreads the risk over various stakeholders. In order to achieve the leverage of at least 1. 8, issuing stock or retiring long term debts can help to decrease the leverage score if it is too high. Retiring stock, giving out dividends per share, borrowing current debts and issuing long term debt can help to increase the leverage score. Therefore, as the company equity grew from its retained earnings, we stopped share issues and issued more bonds over the years.

Learning and Growth

Under the section “Learning and Growth”, Employee Turnover Rate was one of the areas which had declined since round 3 as shown above. This has caused an increasing number of employees leaving the company despite spending maximum amount on recruitment and training reducing the turnover rate score. When maximizing our spending on Total Quality Management (TQM), it tightened the wages of our labour force. This has caused our employees to be unhappy. Hence, the led to an increase in the turnover rate.

Customer: Product Count

Under the section “Customer”, Product Count was one of the areas where the score was uniform throughout the 8 rounds. In order to have a full score of 8 for product count, there is a need to have 8 products in the market. We tried to introduce a new product in round 4 hoping that we could increase the product count, but we failed to do so. Hence, as compared to other competitors, we did consistently poorly in this segment as no new product was being introduced.

Customer: Customer Buying Criteria

Under the section “Customer”, Customer Buying Criteria is an important factor that determines the customer’s willingness to purchase the product. This process of calculation consists of 8 rounds of testing for the 3 different criteria: Price, Age, Mean Time Before Failure (MTBF) and Positioning. In order to achieve a good score for the Customer Buying Criteria, the customer’s needs should be met in every round. The buyers in each segment place a different emphasis upon the four buying criteria as some customers are more interested in price, while other are more interested in Age. In order to achieve the customer needs in Age, improving the product and making the age as close as the ideal age as possible. [image: ]Table 6: Capstone carrier perceptual mapTherefore, any products that fall outside the circle in the perceptual map (circled in green as shown above) have a lower chance of being purchased by the customers as they only interested in the products that satisfy their needs. Hence, knowing the customer needs is important in order to improve the customer buying criteria.

Customer: Customer Awareness and Accessibility

By having 2 main market segments Traditional and Low end market segment, both focuses on the customer’s awareness and accessibility to the product. Factors such as promotion budget drives product awareness on the amount of resources that is being used for the product advertisement and public relations while sales budget drives accessibility towards pre and post sales focusing on the distribution process, order entries and customer services. Customer awareness and accessibility are the 2 main factors that goes hand in hand towards improving sales.

We decided to increase the promotion and sales budget for both Traditional and Low End Product higher than the other competitors for each round and we saw an increased in market share and sales for the next few rounds.

Did pretty consistently well for Contribution margin in both Capstone Courier and Comp XM Activity as we invested in Total Quality Management (TQM) and automation. When there is an increase in the automation levels, the labour hours required to produce each unit will decrease. With a decrease in labour, lesser employees will be needed and hence the overall labour costs required will decrease. Contribution margin increases as TQM decreases the cost of materials and labour where total cost decrease.

As you can see from the table above, under the “Financial” section, the profits in Practice Rounds have been fluctuating. With profits as high as 9 out of 9 for round 4 and 5, and a profit as low as 0 out of 9. Underestimating fellow competitors in the same market might result in unfavourable consequences, we did not spent enough money investing on Research & Development (R&D) and also on marketing. This affects the sales of our products and thus, it also affected the profits. Through this, Comp XM Activity’s profitability which have been rising steadily over time.

Sales Forecasting

To prevent incurring any unnecessary costs, having an accurate sales forecasting is a main element to a company success. Having too many units of products will result in higher inventory carrying costs while having too little units of products will result in stocks out and lost in market shares. Therefore, calculating the correct number of units for sales forecasting is important to lighten the risk of losing potential sales and incurring extra costs.

Reflection on Lessons Learnt about Business Decision-making

Strategy adopted

AAAA’s Pte Ltd started off with 5 products with 1 product for each market segment. In between the course of 8 years, different competitors have introduced new products into different market segment with some of the competitors having 7 different products at the end of 8 years. This increased the competition in the market where it will potentially affect our market share and reduce our profitability. Hence, at round 4 of practice round, we decided to introduce another product under the High End segment changing the strategy from Niche Cost Leader to Differentiator with Product Lifecycle Focus.

Differentiator with Product Lifecycle Focus concentrates on the High End, Traditional and Low End Segment. The company will gain a competitor advantages with excellent design, high awareness, easy accessibility and new products. As different competitors in the industry have different product requirements, companies usually produce products in 3 different market segments: High End, Traditional and Low End products. Hence, with the introduction of high end products into the market, AAAA’s Pte Ltd adopted the Differentiator with Product Lifecycle Focus strategy in order to maintain its market presence. Having more than one product in each of the market segments, the company is able to earn more profit as compared to the other competitors with premium products for mainstream customers. However, implementing this strategy will incurred huge additional costs on capital investment and other additional expenses are needed for each additional product. This means that we were not able to spend more on other critical expenditure as there is a limited amount of cash. Thus, with the help of the understanding in strategic planning, it gave me a better understanding on the six different basic strategies where I am able to learn to make business plans more effectively and strategically and also helped me in the Comp XM Activity. It also allows me to understand the overview of all the processes before planning and making a decision.

Decision-making

Capstone Carrier Perceptual Map

Through the 8 rounds, we learnt to pay a close attention to our competitors’ actions in responding to changes in the need for our products. Capstone carrier perceptual map is the focal point where we used it to decide the new market competition and to forecast the production. The use of perceptual map and production analysis from the capstone carrier can help to decide when a new product would be launched and which market segment it will be entering. It was also used to examine when a product is being kicked out of its market segment, or being recycled into another market segment. Being afraid that our products might be kicked out of its market segment and there will be no product left in the market segment, we adopted a new product at round 4(shown in appendix 3) under the High End segment hoping that we could end some profits from there. Little did we know that we are able to save the product from leaving the circle of the perceptual map by shifting the product more towards the centre and giving it a later revision date. This allows the product to remain in the current market segment.

Total Quality Management (TQM)

Total Quality Management (TQM) is also one of the focused strategies adopted to reduce material, labour and administrative costs, shorten the length of time required for Research & Development (R&D) projects to complete and increase demand for the product line. TQM was being introduced from round 4 onwards. We decided to invest $1,500 for round 4 and 5. Without knowing that the maximum limit for investments was $1,500, we made a mistake by investing $2,000 in round 6 for the TQM initiatives. Overspending of $500 for each category, this accumulates a total lost loss of $5,000 in that round. After knowing the mistake, we have learnt not to repeat the same mistake during the Comp XM Activity. In round 7 of practice round, we decided to decrease the cost for TQM to $1,000 each as the cumulative impacts compared to the other competitors are much higher. With a better TQM as compared to the competitors, we saved a lot of costs and hence able to earn more profits.

Working Capital

Through the Practice Rounds and Comp XM Activity, when days of working capital is too high, retiring stock, giving out dividend per share and retiring long term debts will helps to decrease the days of working capital. By doing this, it will also affect the leverage, profits and also the cash position. Handling of cash is important to avoid emergency loans where interest rates is crazily high and expensive. It can be used in various places such as capital expenditure in automation and capacity, production of inventory and also repayments of bonds issued. Thus, striking a balance between shares and borrowing long term debt is important.

Emergency Loans

Under the “Recap items” score after 8 rounds, Emergency loan had a score of 0. 7 out of 20 (shown in appendix 1) in Practice Rounds. Through the Practice Rounds, I learnt that Emergency Loans were combined with any current debt brought over from the previous year. The disadvantage of using emergency loans is that it depresses stock prices even when you are profitable. Stockholders tend to overlook the current performance when they are faced with a liquidity crisis. Learning how inappropriate uses of emergency loans is caused by the previous year’s sales forecast. It was made known that the sales forecast projected were higher than actual sales and that the Finance Department failed to raise funds needed for expenditures like capacity and automation purchases. Therefore, knowing that it is very important to predict the sales correctly and also preventing unfunded capacity and automation purchases, the result in Comp XM Activity for Emergency loans from pretty good with a score of 14. 3 out of 15 after 4 rounds (shown in appendix 4).

Personal Organisational and task management skills

Through this simulation, it gave me a better understanding of industry insight where I knew nothing about it at the start. By doing research, reading up on the member’s guide and doing the practice rounds, I am now able to implement what I have learnt in the Comp XM Activity. We began doing the practice round by try and error, to now doing Comp XM Activity with knowledge where there is a quote that says “Practice Makes Perfect”. For practice round, we did it in a pair. Having to engage in a pair, I noticed the importance of teamwork. Communicating well with one another is important so that no miscommunications are allowed. Fortunately, my groupmate and I agreed with the decision we made for the rounds and there were no conflicts.

15 April 2020

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