FOUNDATION BUSINESS SIMULATION

SENSORINDUSTRYOVERVIEW

FOUNDATION SIMULATION

$40 Million electronic sensor $40 Million electronic sensor manufacturer.manufacturer. Sensors are devices that observe Sensors are devices that observe

physical conditionsphysical conditions New sensor businesses are created New sensor businesses are created

every day in diverse areasevery day in diverse areas Market dominated by six firms.Market dominated by six firms. Sensors is a Business to Business marketSensors is a Business to Business market

Applications

• Customers (OEMs) need sensors for their products

• Initially one segment, now breaking into two

• Very different customer demands between the two segments

• Diversification in the use and utility of the sensors

High Tech

Low Tech

The Marketplace

Large

Small

Slow Fast

Size

Performance

LowTech

HighTech

• In our industry we track the changing customer demand on a perceptual map

• Perceptual maps are used to plot customer preferences for two product characteristics

• Clusters show groups of customers with similar preferences

• Over time, the customers will demand sensors that are faster and smaller• Market Segments will continue to diverge

The Marketplace

Perceptual MapLarge

Small

Slow Fast

Size

Performance

Low Tech

High Tech

Ideal Spot is Ideal Spot is that point that point where, all where, all other things other things being equal, being equal, customer customer demand is demand is highesthighest

Each Segment has an Ideal Spot

You’renot

giving me what I want“I want these sensors to be

inexpensive”

“I want them to have been around for a while – no Beta Testing!”

“They have to be moderately reliable.”

“The technology doesn’t have to be cutting edge.”

Low Tech Customers

And I’m not getting

what I want!“These sensors have to be small, like micro, and fast”

“I need them to be right out of R&D, I’m talking ZERO years on the market”

“I’ll pay more to get what I want.”

“I like a pretty high reliability, but it’s not that important.”

High Tech Customers

SENSOR INDUSTRY ANALYST PROJECT ONGOING GROWTHSees the next 5 years as consistent growth. Both market segments increase at a nice “clip,” according to market analyst.

“I see the entire market growing at around 14% or 15% per year. The High Tech market will be growing at a whopping 20%.”

I hope those companies out there are ready for that kind of expansion!”

0

1000

2000

3000

4000

5000

6000

7000

8000

Year 1 Year 2 Year 3 Year 4 Year 5

Low Tech High Tech

6 Companies

$40 Million in Sales

1 Product Line

Closed Marketplace

ANDREWS

BALDWIN

CHESTER

DIGBY

ERIE

FERRIS

The CompetitionCOMPANYOVERVIEW

SHAKE UP IN SENSOR INDUSTRY

Company Fires Management Team

After poor results, lackluster sales and angry customer reports, the Chairman of the Board of Directors has announced the immediate termination of the Management Team.

“This is a black day for our company,” said Chairman Patrick Nuss, “We need to hire a dynamic leadership group who will be able to take this company into the future!”

“Due to this immediate need I have hired the “Dream Team” to start on January 1st. I expect to see great things from this Executive Team!

Functional AreasWELCOME TO YOUR NEW COMPANY!

Research & Development

Establish the specification of the products to meet customer demand

Build the quality and reliability (MTBF) into the products

Ensure the perceived age of the product meets customer demands

Create new products to meet the changing marketplace

““Our productOur productstraddles bothstraddles bothmarket market segments.segments.

It isn’t a greatIt isn’t a greatlow tech low tech product,product,or a great highor a great hightech one.”tech one.”

Marketing

Set the price of our products in the marketplace

Build customer awareness through promotion

Establish a sales force and distribution channels

Set the sales forecast for our products

Set Credit Policies AR/AP

““Our productOur productisn’t priced isn’t priced optimallyoptimallyfor either for either market.market.

And many of ourAnd many of ourcustomers don’tcustomers don’teven know oureven know ourproduct exists.”product exists.”

Production

Purchase machinery to automate our facilities

Buy or sell capacity of product lines

Schedule production for each line

Manage the majority of the companies fixed assets

Establish workforce compliment

““We are payingWe are payingtoo much fortoo much forlabor costs.labor costs.

Very soon weVery soon wewill run outwill run outof capacity toof capacity tomeet demand.”meet demand.”

Finance

Acquire capital to fund capital expansions Issue Stock Short Term Debt Issue Long Term Bonds

Issue dividend to our shareholders

Balance our debt portfolio

Manage our Proforma

““We have poorWe have poorcash flow andcash flow andsubstandardsubstandardfinancial ratios.financial ratios.

We have noWe have nofinancial policyfinancial policystatement.”statement.”

Proformas

Balance Sheet Profit & Loss Cash Flow Financial Ratios

A great management tool driven by forecasts and projections. Allows “What if” Scenarios by the company.

Scoring the Simulation

1. Analyst Report2. Round Analysis3. Balanced Scorecard

Balanced scorecards allow companies to gauge their performance by assessing measures in four categories: 1. Financial– includes profitability,

leverage and stock price; 2. Internal Business Process–

ranks, among other measures, contribution margin, plant utilization and days of working capital;

3. Customer– examines the company's product line, including how well it satisfies buying criteria and awareness/ accessibility levels;

4. Learning and Growth– evaluates employee productivity.

Good Luck and Enjoy!