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The learning journey from Capsim business simulation
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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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