Marketing

Production

Production section is where you setup your manufacturing for the year. There are a lot of useful things to know in this section that can help you cut down on the cost.

To calculate an estimate of how much you might sell next year, the formula is:
(Customer Survey # of the product / Total Customer Survey # of the segment) * (This year's total sale * [1+(Segment's Growth Rate)]

Lets take Traditional segment as an example. Lets calculate how many product will be sold in this segment the following year. Let say this year, a total of 12,000 product was bought from every team. Traditional has a 9.2% growth rate. You want to do 12,000 * (1+0.092) = 13,104. 13,104 Traditional products will be bought the following year. Say you have a customer survey of 24 with a total of 156 in the whole segment. You own 24/156 = 15.4% of the segment's sale. 15.4% * 13,104 = 2018. The estimate is that you will sell 2018 of Traditional for the following year if your customer survey does not change. I usually like to add 200 or minus 200 depending on how I adjust the product. Sometimes, it's best to have leftover inventory than sold out and miss some potential sale opportunities. Likewise, it's best to not have too much leftover inventory because you will have to pay inventory storage expenses.

Now you understand how to calculate your next year's production, you can do a diligent Unit Sales Forecast (this is done in Marketing section). The system default is NEVER correct. Don't go with that number.

Inventory On Hand is how much you have leftover from previous year. Production Schedule is how much you forecast to sell minus what you already have on hand. Again, I would add or minus about 200 just in case I sell more or sell less depending on how I adjust the product, when the product is coming out of R&D, etc. Take note of the Production after adjustment. This is the true number of production you will make for the year because of other factors (I forgot what it was but it has something to do with employees).

Lets jump into the Physical Plant. 1st Shift Capacity is how much you can produce that year. If you look under the section Margin, there's a 2nd Shift Capacity. That means you can produce twice the amount of your capacity but you do not want to overload the 2nd Shift capacity to 100%. An ideal place to adjust this is to get them to produce at a 50% to 80% so 1st and 2nd added together is 150%~180%. So why like this? If you purchase too much capacity, there are expenses incurred every year that are costly. You want to utilize the 2nd shift as much as possible but overload it. I think it's hard to explain. For example, you think you're going to sell 2018 for the following year. You have 418 in inventory, so you want to produce 1600 (more after adjustment). You want your capacity to be at around 850~900. You want to slowly increase your capacity depending on how you do and how much you think you will need next year. You want to adjust your capacity for next year so 2nd shift would achieve 50% to 80% for the optimal result.

Automation is also an important concept. What is automation? This is using machine to produce your product so you can cut down your labor cost of having to hire employees. So why not just max this out? Because when it comes to updating the product in R&D, if you make a major update on the product, you will also have to update your machines to make the upgrade product which will result in longer duration to get the product out into the market. What is the ideal setup for this section then? For products that requires a lot of update such as High End, Performance, and Size, you want to keep these around 2~4. It might cost more to produce the product, but you can release the product faster. For moderate updated products like Traditional, you want it around 5~6. It cost a little bit less to produce, and you should have enough time to improve the product and get it out on time. For products like Low end where you don't really need to update it ever, you can set it to 8~10. You don't need that many human labor to produce the low end products. Your machines will learn how to make the low end product and it will just make the same thing year after year. Beware though that buying up the automation is extremely costly. You might just be able to improve about 1 to 2 points per round depending on how much money you have to allocate.

A/P lag, you want to keep it at 30 days. This means you will pay your accounts payable within 30 days. The more time you need, the less they the debtor will trust you. The less time you need, the more money you can allocate but you have to pay it off earlier. More or less might not be favorable for you so unless you're doing really well, I would keep it at 30 days.

I think that covers all of Production. What are the main points to take away here? Produce what you predict to sell next year +-200. Utilize your 2nd shift effectively by getting it to around 50% to 80% to cut down on capacity cost. Automate the hell out of those that don't need big updates and use labor to produce those that requires big updates all over.

Question? Comments? Suggestions? Leave them in the comment section!

Research and Development

Research and Development is what it sounds like. There is where you develop your product for the market. Depending on how you position your product, it will automatically move that product into a certain segment of the industry. If you don't update your product accordingly, it will fall into a different segment of the industry (e.g. If you don't update you High End product, it will eventually fall into the Tradition market, and then the Low End market). Lets examine the terminology first.

Name: This is the name of your product. It has no other meaning and it doesn't affect anything other than just having a name just like Samsung Galaxy Note, Samsung Galaxy S, Samsung Tab, etc.

New Pfmn: This is where you set the performance of your product for the next year. It is pretty self explanatory as to what performance means. Updating this will cost money and it will take time. Market such High End has a high demand of the best performance item.

New Size: This is where you set the size of your product for next year. Also self explanatory. Updating this will cost money and it will take time. Market such as Size segment has a high demand for small products.

MTBF: This is an abbreviation of Mean Time Before Failure. This means how long the product will last before it breaks. This is where you set the MTBF of your product for next year. Market such as Performance has a high demand for long lasting products. This number is also in the ten thousands according to what the market wants. If you go lower, people will not buy your product. Lowering and upping the MTBF will cost money both ways. A bit of an advice is to, according to how much money you can allocate, put it on max for Performance (27000), medium for Size and High End, and low for Low and Traditional (12000 and 14000 respectively). Remember, the higher the number, the more expensive it will cost to produce every year because you are putting more money into making a product that will last longer. For Low and Traditional, you don't necessarily have to put it on the lowest. Longer lasting product will obviously sell better but customers from those segments do not really care for such stat as much as other segments.

Revision Date: This is the date for when your product will be coming out into the market after revision. This means that every update you perform into performance and size, it will take time to edit. The time increases by how big of a change you put into the product. The ideal time I found to be good at releasing a new product is around September-October (Coincidence that Apple releases new iPhones around that time?) with enough time to make an impact for the year's sale. Remember, NEVER to go over a year because you will only have what you have left over in your inventory if you can't get the new product out in time for the year.

Age at Revision: This is the age of the product after it is updated. Each revision/update to the product cuts the age in half. Plan accordingly. What do people want in High End products? What do people want in Low End products? It's not the easiest to control the age of the product 100% accurately, but it's good to stay in a range and things like High End and Low Ends are easy to manage.

R&D Cost: This is the cost of how much it will cost to update your product. This is possibly the only factor that will prevent you from making the perfect product because you're limited on the amount of money you have. You want to upgrade as much as possible to not go under. If you don't have that much money to allocate, don't overspend. Update according to your budget.

Material Cost: This is the cost of producing each product. If you did not update your product, it will continue to cost the same amount to make that product. If you update it, it will cost more to make that product. What does this mean? The better the product, the more it will cost to produce. For example, Ark cost about $15 to make. If I think this following year, I will sell 1000 of Ark, I will make 1000 of those product costing me $15,000 to product the inventory for sales. This cost can be lowered with Automation which we will go into later as it is part of another section.

Position: Straight forward. Show you where your product currently is in terms of the different market. It also shows you where the new product will be. As a product means more towards a circle, it will sell more in that market and less in the other market. Being a product that fits into the Traditional market does not necessarily mean that product will only sell in that market. People from Low End market might also buy it too if the position of the product is near the top left of the Traditional circle. Though you might not want to create a product that is in the middle of two market as people might get confused and not really buy out your inventory.

Age Profile: Simple. It tells you the age of your product, where it will be by the end of the year, and where it will be if you update your product. I believe this chart only updates on the Excel version and not the browser version. But don't quote me on that as I haven't tried this simulation in a long time.

Now that all sections are fully explained and you should understand what they mean, what are some tricks and tips that I can provide?

As a rule of thumb, update your product based on how much money you can allocate. The more you update, the most it cost to update and the more it cost to produce. But it's a different story if you're controlling the whole market. If you're raking in a lot of money, just go wild on it and make the perfect product. This is why Samsung is such a leader in the smartphone market. The more money you have, the better product you can make, the more you sell, the more money you get. It's a vicious cycle.

Another tip is to produce new products as soon as possible. Most simulations only give you 8 years to work with. The more product you have in the market, the more you can stomp on other people. As for making the product, plan accordingly to the position you want and when this product is coming out. If you're making a High End product and it doesn't come out until 2 years later, you want to invest in position that are 2 years later so your product will come out with up to date position at the age people wants. Same goes for Low End. People want a 7 years old product. You want to set the stat of your new Low End product to match the 7th year's stat, may it be the stat of a Traditional product. Let it age into the Low End. That way, you can just leave alone and set automation to max so all you do is have machine produce the same product for 7 years without any other cost of having to do R&D or man strength to produce this product. This is how you win this simulation! I don't advice leaving existing products to age into other groups as there are down times when people don't buy your product as much because it's not really something that belongs to any markets (e.g. Letting your High End product aging into Traditional). These down time might not work in your favors in the long run. Unless you're really tight on money then it'd be a reasonable solution to not having to spend more money on updating.

There are also many more ways to go about this section! Put your imagination into it and good luck!

Question? Comments? Suggestions? Leave them in the comment section!

All Information Compiled

I have made a spreadsheet of all the information that you will need to get through 8 rounds of the CapSim project. Though this is only helpful if you know what you are doing! Stay tuned and I'll go through every section of the simulation.

Download Spreadsheet (As word of advice, always scan file for virus before opening!)

Question? Comments? Suggestions? Leave them in the comment section!

Introduction and Understanding

So I return a year later realizing that I totally slacked off and forgot about this blog. But here I am again attempting to go at it once again.

Let me introduce. CapSim (https://capsim.com/) is a purchased online software where organizations and the likes use it as a training purposes to introduce management skills. You are a one hundred million dollar company that sells sensors and your team's job is to manage the company for however long your organization designate it. You can't go bankrupt. But you can screw up so bad that the bank refuse to loan you any money which prevent you from growing and eventually winning. I initially played this simulation in my college as part of a senior year project in a Management course. I had a wonderful professor. Unfortunately, I didn't do so well in the class due to an exam which I am terrible at remembering facts. I ended up retaking the class which let me play with this simulation twice and I got really into it competitively trying to come up on top on the class. Lets just say I've learned a lot about corporation management and got me really interested in the subject of entrepreneurship.

Enough about me. There are multiple ways to go about this simulation. This depends on how your organization is going to grade you on. There is a thing called Scorecard in the simulation that you must meet certain criteria to get full points. This is hard to achieve perfect score and you might be graded on this. There is another scoring system on the website that is just based on how well you're doing in comparison to other teams. This is easy to score a lot of points and you can play aggressively with this scoring (by taking out as much loans as you can to grow your business into a GIANT. You can't do this if you're graded on the scorecard because you will lose a lot of points for having too much loans). There are other ways to be graded, but these are the two main sources that your organization might grade you on.

Remember these points:
1. Happy customer = more profit
2. More money to utilize = better products (You can say that about Samsung)
3. Innovation is key (You can say that about Apple, but not really) <-- By this, I mean bringing out new products as soon as possible; beating your competitors. Porter's Five Forces might be relevant.

That's the introduction. Feel free to comment and post concerns, tips, trick, etc. Continue onto the next post for more information.

Question? Comments? Suggestions? Leave them in the comment section!

Welcome to my Capsim Strategy Blog!

I came to noticed that people are really interested in learning how to do well on the CapSim simulation game. I will start posting in-depth strategy here from my learning experience. I will try to post at least once a week on each section. Please stay tuned for updates.

Question? Comments? Suggestions? Leave them in the comment section!