Micromatic Management*

Prof. A D Amar, PhDSeton Hall University

*Based on Timothy Scott, Minnesota State Univ., Mankato, MN

Introduction

• Simulate the workings of a small manufacturing business, integrating operations, marketing, and finance.

• Each team in this class will play against each other

• Computer just processes each company’s individual decisions in relationship to the others

• Administrator (the professor) acts as the owner, banker, industry regulator, union negotiator, etc.

Goals

• Understand the importance of your business and strategic plan to guide decisions

• Understand the relationship between the three main financial statements—Income Statement, Balance Sheet, and Stockholder Equity Statement

• Understand the relationship between marketing, operations, and finance

• Understand the operational issues of production, inventory, plant, and labor force

How to approach the simulationManagement is a balance of art (intuition) and

science (analysis of facts) combined with group dynamics

To Succeed you should:• Manage your time efficiently (stay focused)• Manage your business – do not guess at your

decisions

To Succeed you should

• Learn from your failures• Decision rules are the same for every round• Must learn to capitalize of success and recover from

mistakes• Do not worry if a little confused at start

• you will quickly move up the learning curve• Simulation requires applying your knowledge not just

listening as in lectures (fundamental shift)

Four Functions of Management

Planning

Controlling

OrganizingLeading

The Manager as a Planner

Must develop the Vision• Mission Statement & Statement of Goals &

Strategies• Who are the customers, what are their needs and

how will gain competitive advantage• What are your corporate values

Low price /

High volumePremium price /

Low volume

The Manager as a Planner

In the Simulation you are responsible for the planning in five main areas

1. Marketing2. Production3. Finance4. Sales Forecasting5. Management Dilemmas

Marketing – Production – Finance – Sales - Dilemmas

Marketing Decisions• Pricing

• Price sensitive marketplace unless enticed by stronger marketing efforts (oligopoly)

• Promotion• Local newspaper advertising, trade publications, ad message,

salesreps, WWW promotion, product features and quality• Market Research

• Can buy Market Research Information (9 types)• Price, local newspaper advertising, trade publications, quality,

WWW, salespersons, product features, units sold, all by Company, Future Sales Potential

Marketing – Production – Finance – Sales - Dilemmas

Production Decisions• Ordering Raw Material (order + carrying cost)• Product Research and Development• # of Units to Produce

• Must have raw material, plant capacity & # of workers• # of production workers to hire, fire or layoff

• Begin with 54 workers; can add overtime• Amount of production capacity to buy or sell• $ to invest in Training

• Improve productivity

Marketing – Production – Finance – Sales - Dilemmas

Finance Decisions• Short Term Loans (Line of Credit)

• Finance current operations• Long term Bonds (mortgages)

• Finance expansion of plant capacity• Short Term investment deposits or withdrawals

• Can invest excess cash into stable & conservative short term securities

Marketing – Production – Finance – Sales - Dilemmas

Sales Forecast Decisions• Based your quarterly sales forecast on your current

and future mix of pricing, advertising & investment in product quality

• Use this forecast to set production parameters; but no guarantee you will reach these forecasts

• If you misjudge your competitor's actions you will not make the forecast

• Added complication is you do not know what the economy will do.

Marketing – Production – Finance – Sales - Dilemmas

Management Dilemmas• Periodically will introduce various management dilemmas

• Range from employee theft to union relations to substance abuse• There is no right answer in these dilemmas• Responses to the dilemmas will result in different consequences• Consequences can effect worker productivity, sales, cost of raw

materials or interest rates

The Manager as an OrganizerMust develop the Organizational Hierarchy• Organizational Chart

• List of duties & responsibilities for each position• Staff the position

• Remember the dual role (student -> friendship) and (manager -> work)

• Teams that have an established chain of command do better than “the herd”

• Herds tend to take narrow view and focus only on a single issue

• Organized groups (specialized functions) tend to keep broader focus and are much more efficient

The Manager as a LeaderMust decide how to influence and motivate members• Goal Setting

• Balance of individual’s goal and organizational goal• Will you have management hierarchy or team approach?• How will you manage your company?• How will you balance the workload?• Your peers will evaluate your leadership ability in both a

public and confidential manner• How will you motivate under performing members?

The Manager as a ControllerMust deal with issues of control• Must establish a reporting system• Must develop performance standards• Must monitor key performance parameters and

take corrective steps if necessary• Must know the breakeven points for the

manufactured product

The Business Environment• All companies start from identical point• All companies manufacture identical products • Manufacturing process consists of forming raw

material (components) into finished consumer product

• Produce a commodity => No customer or brand loyalty => you must “earn” each quarters sales

Company publicly held

• Company is in start-up position – only one quarter’s (Quarter 0) info is available

• You will deliver reports to the board of directors• Initially no difference exists between you and your

competitors’ products• This will change as you modify promotion, pricing, and

product improvements

The Simulation Environment• Each decision period is 3 months (1 quarter)• Teams make approximately 50 - 100 decisions per QtrThree stages:1. Forecasting Stage:

• Test “what-if” and modify decisions until have best case2. Processing Stage:

• Administrator accesses decisions of ALL companies to determine market share allocations and individual company profitability

3. Results Stage:• Teams analyze actual versus forecasted performance. Use

this analysis to forecast next quarter.

To Do:

• Read in detail the summary and study the decisions and reports and get familiar with the software.

• Decide on Company name, organizational structure, individual job titles and responsibilities.

• Begin to develop a mission statement & strategy, areas of responsibility, and duties

The Professor’s Role• Roles

• Banker• Board of Directors• Regulatory Advisor• And other roles as necessary

As Administrator I Can Control• Economic variables (industry demand, costs, and

weightings of performance variables)• Introduction of management dilemmas• The amount and availability of loans and mortgages• Frequency and Amount of fines (lost passwords, late

submissions, failure to get proper prior approvals, etc.)• Introduce “External Substitute” products. If everybody

takes a low promotion strategy I can introduce external substitutes which creates a loss of demand for ALL companies.