Capsim - Digby

1 DIGBY 8 YEARS

16 LESSONS

Team | Preeti |Swapnil | Anshika | Ajinkya

LEARNING CYCLE

Key Learning 1:

Realise your true potential and plan your capacity

accordingly

Problem:O Suboptimal Utilization

Causes:O Huge unused assetO Capacity exceed industry demand

Effects:O Higher depreciationO Low plant utilisation

Digby Ferris

Plant utilisation 70% 154.6%

Depreciation 9.7 Mil 5.6 Mil

Key Learning 2:

Your mistake = competitor’s profit

Problem: OConservative sales forecast and production

Cause:OUnderestimate our own products

Effect:OStock outOLoss of potential profit

Product

Potential market share

Actual market share

Pot-Actual MS

Total demand

Units not produced Price Loss

Daze 17.90% 15.20% 2.70% 8067 217.809 28.00 6098.652

Dell 20.00% 16.30% 3.70% 10009 370.333 20.00 7406.66

Dixi 21.00% 20.00% 1.00% 2967 29.67 40.00 1186.8

Dot 22.70% 15.90% 6.80% 2294 155.992 34.00 5303.728

Dune 17.50% 17.30% 0.20% 2347 4.694 35.00 164.29

        25684 778.498  20160.13

Key Learning 3:

Analyse the products and cut off the tail

Problems:O Products have low contribution margin

Causes:O High variable cost

Effects:O Low margin

O Performance segment – least profitable segmentO Net margin of Dot = (0.6) mil

O Baldwin realized this from round 1 and retired from this segment to focus on other segments which are more profitable

Key Learning 4:

Accurate sale forecasts will lead to maximum profit

Problems:O Over-stocking

Causes:O Overestimating our productsO Underestimating our competitorsO Aggressive prediction

Effects:O Negative cash flow from operating activities

ProductsInventor

yDaze 1208Dell 1025Dixie 88Dune 13Dude 98Dexter 146Dik 431EXCESS STOCK 3009

Key Learning 5:

Making profit does not mean your business is doing well

Problems:O Positive profits but Negative cash flow from

operating activities

Causes:O Excess inventory due to poor sale forecasts

Effects:O Your business is not making money

Key Learning 6:

Give the customers what they want

Problems:O Dik did not sell in high segment

Causes:O Over-engineering of product for high segment

Effects:O Huge inventoryO Negative contribution marginO Negative cash from operation

Performance

Size

What customers want?

12.5-13.4 7.5-6.6

What we deliver?

14.7 5.3

Products units soldinventor

yproductio

n

Dik 13 431 444

Dik (,000)

Sale $500

Total variable $1710

Contribution margin ($1210)

Total Period cost $4360

Net margin ($5570)

Key Learning 7:

Avoid Myopic Vision

Problem:O Insufficient Automation as compared to competitors

Cause:O Estimated cost of automation to be too high vs reduction

in labor costs

Effects:O Higher labor costs and thus high variable costs in

following rounds

Key Learning 8:

Who’s Richer? You or Ambani?

Problem :O Paid off long term debt of $ 25 millions in Round 6

Causes:O Conditioned to pay off long term debt as soon as possibleEffects:O Emergency Loan of $ 22 millionsO Landed into trouble

Erie Ferris

Total liabilities 4.8 19

Profit 24 31.5

ODon’t let Finance drive your Business. Let your Business drive your Finance.

Key Learning 9:

Right Decision at the Right Time

O Ideal Age for Low Segment: 7 yrsOCompetitors did not reengineer low

segment productsOWe re-engineered Dell in Round 3 to match

Round 6 specsOHighest Market Share in Round 6: 31 %

Round 6Round 4

Key Learning 10:

“Never invest in a business you can’t understand”

~ warren buffet

Learning• Never read the guide = lack of preparations lead

to lack of understanding of the game• No rehearsal = one step behind competitors• Man of principle = no cheating• In reality, the more information you have, the

more cutting edge you have in the industry

O “Learn from other people’s mistakes”

11.Playing the blame game when things go wrong

O Everybody wants to be included for successO ButO Nobody wants to be responsible for the failures

O FROM WE TO YOU

12. In war everyone loses except…

O There is enough pie for everyoneO Going for a price war O You earn lesser so ----- you lostO competitors’ profit go down ----- they lost

O So who win?

OConsumers

13.Blinded by greed

O Problem: O Pricing 4.50 $ above the normal price range on D Day.

O Causes:O Wrong approximation of a Seller’s marketO Greed to maximize profit in Low Segment on D Day.O Impatience to exploit Low Segment

O Effects:O Very Low Sales (857 units)O Market Share of 7 %

14. Are you working for Digby or the Marketing Company ?

Problems:High expenditure on sales and promotion wrt profit

Causes:Lack of business understanding

Effects:Wastage of resources in one segment , i.e. an Unprofitable Product

Key Learning 15:

Exploit Seller’s Market

O In Performance Segment, we priced Dot higher than the range by 4.49

O Made huge profits due to seller’s marketO We overestimated our competitors but they did

not take advantage of seller’s market

16. Key Learning

OWhen your competitors team up against you, remember they are scared of you and your product.

O Problem: Ferris & Erie go for a CartelO Causes:Very good specs of our productPoor age of their productsO Effects:No major impact on us, but they won’t trust each other ever.

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