Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Industry and Team Specific Points
C66537
General: Immensely competitive Industry. Andrews and Chester are locked in a fight for
market leadership in the industry. Expect to see more ups and downs as the years pass.
Erie made losses this year. Low sales for Erie. The reasons for your low sales are known to you
all by now and are given below in the sales paragraph. The top-line for Andrews has shown
good growth in the last financial year. Contribution margins are low for Digby. You will find it
hard to make a profit with contribution margins below 30%. Emergency loans were seen for
Digby and Erie. Please read the paragraph on emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Except Erie, all teams had a rise in stock price. Erie’s stock
price remained constant.
Andrews is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Andrews, Baldwin, Chester and Ferris had a rise in market share of 2.5%, 0.6%, 1.5%
and 2.2% respectively. Digby and Erie had a fall in market share of 2.8% and 3.9%
respectively.
Low sales for Erie. This was caused by:
• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
• High price /pricing outside the price range for Eion.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Except Chester and Digby, all teams have introduced new products in the market. Each
team can launch up to three new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: Erie had bottom line in red. The reasons are known to you: –
• High Unsold Inventory Levels
• Unnecessarily high depreciation due to low plant utilization
Contribution Margin: Digby needs to improve their contribution margins. There are fixed
costs and SG&A costs that need to be covered from sales. This will be difficult if your margins
are not above 30%. Even your profit will come out from this margin!
Emergency Loans: Digby and Erie have emergency loans. The reasons are –
• Digby – For a cash outflow of $31.8M (plant improvements + retirement of current debt),
you did not raise a penny. Raise funds from long term and current debt to repay this
emergency loan.
• Erie – For retirement of current debt of $36M, you raised $4M from sale of plant. You
also have high unsold inventory worth $49M. Raise funds from long term and current
debt to repay this emergency loan.
It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Plant Size and Utilization: Digby and Erie need improvement in plant utilization. Your plant
can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Asset Turnover: Erie needs to work their assets harder. They have an asset turnover of less
than one.
Forecasting and Inventory: Erie has high levels of unsold inventory. This results from poor
forecasting and being overly optimistic. Remember the high degree of competition in the
industry.
Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Andrews leads the industry. Baker and Daze need improvement
in their specs.
• Low End Segment: Chester leads the industry. Ebb and Feast are out of the fine cut for
this segment.
• High End Segment: Erie leads the industry. Eion and Dixie are overpriced (outside the
price range).
• Performance Segment: Andrews leads the industry. Edge and Foam need
improvement in their specs. Dot is overpriced (outside the price range).
• Size Segment: Ferris leads the industry. Egg needs improvement in its spec. This has
become a sellers’ market. Teams should strategize accordingly.
.
Financial Management: Andrews and Digby have idle cash worth $54M and $45M
respectively. That is high. Please reconcile and use it to fund your growth.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Baldwin and Chester have improved the productivity of their employees well.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66538
General: All teams made losses this year. Low sales for Erie. The reasons for your low sales
are known to you all by now and are given below in the sales paragraph. The top-line for
Chester has shown good growth in the last financial year. Contribution margins are low for
Digby. You will find it hard to make a profit with contribution margins below 30%. Emergency
loans were seen for Digby and Ferris. Please read the paragraph on emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Chester and Ferris had a rise in stock price of $2/share and
$5.3/share respectively. Andrews’s stock price remained constant. Baldwin, Digby and Erie
had a fall in stock price of $0.6/share, $23/share and $2/share respectively.
Chester is the most valuable company measured by market cap.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Baldwin and Chester had a rise in market share of 2.2% and 4.3% respectively.
Ferris’s market share remained almost constant. Andrews, Digby and Erie had a fall in market
share of 1.4%, 4% and 1.1% respectively.
Low sales for Erie. This was caused by:
• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
• High price /pricing outside the price range for Egg.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
All teams have introduced new products in the market. Each team can launch up to three
new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: All teams had bottom lines in red. The reasons are known to you: –
• Low Contribution Margin for Digby
• High Unsold Inventory Levels for Andrews, Digby and Erie
• Unnecessarily high depreciation due to low plant utilization for Baldwin, Erie and Ferris
Contribution Margin: Digby needs to improve their contribution margins. There are fixed
costs and SG&A costs that need to be covered from sales. This will be difficult if your margins
are not above 30%. Even your profit will come out from this margin!
Emergency Loans: Digby and Ferris have emergency loans. The reasons are –
• Digby – For a cash outflow of $33.3M (plant improvements + retirement of long term and
current debt), you did not raise a penny. You also have high unsold inventory worth
$39M. Raise funds from long term and current debt to repay this emergency loan.
• Ferris – For a cash outflow of $25.3M (plant improvements + dividends + retirement of
long term and current debt), you did not raise a penny. Raise funds from long term and
current debt to repay this emergency loan.
It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Plant Size and Utilization: Erie and Baldwin need improvement in plant utilization. Your plant
can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Asset Turnover: Erie needs to work their assets harder. They have an asset turnover of less
than one.
Forecasting and Inventory: Andrews, Digby and Erie have high levels of unsold inventory.
This results from poor forecasting and being overly optimistic. Remember the high degree of
competition in the industry.
Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Chester leads the industry.
• Low End Segment: Chester leads the industry. Feat does not have the ideal age for
this segment.
• High End Segment: Ferris leads the industry. Fist and Adam need improvement in their
specs. Feast is overpriced (outside the price range).
• Performance Segment: Andrews leads the industry. Dot and Bold need improvement in
their specs. Foam is overpriced (outside the price range).
• Size Segment: Chester leads the industry. Egg and Buddie are overpriced (outside the
price range).
.
Financial Management: Erie has idle cash worth $28M. That is high. Please reconcile and use
it to fund your growth.
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Baldwin, Chester and Erie have improved the productivity of their employees
well.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66539
General: Baldwin, Digby, Erie and Ferris made losses this year. Low sales for Baldwin. The
reasons for your low sales are known to you all by now and are given below in the sales
paragraph. Emergency loans were seen for Baldwin and Ferris. Please read the paragraph on
emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Andrews, Chester and Digby had a rise in stock price of
$5/share, $0.05/share and $5/share respectively. Baldwin, Erie and Ferris had a fall in stock
price of $7/share, $5/share and $12/share respectively.
Chester is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Baldwin, Digby and Ferris had a rise in market share of 0.3%, 0.1% and 0.2%
respectively. Andrews, Chester and Erie had a fall in market share of 0.2% each.
Low sales for Baldwin. This was caused by:
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
• High price /pricing outside the price range for Bigred.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
Except Erie, all teams have introduced new products in the market. Each team can launch
up to three new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: Baldwin, Digby, Erie and Ferris had bottom lines in red. The reasons are known to
you: –
• High Unsold Inventory Levels
• Unnecessarily high depreciation due to low plant utilization for Baldwin and Digby
Emergency Loans: Baldwin and Ferris have emergency loans. The reasons are –
• Baldwin – For a cash outflow of $13.5M (retirement of long term and current debt), you
raised $7.4M from sale of plant. Raise funds from long term and current debt to repay
this emergency loan.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Ferris – For a cash outflow of $29.9M (plant improvements + retirement of long term
debt), you raised $10M from sale of stock. Raise funds from long term and current debt
to repay this emergency loan.
It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Plant Size and Utilization: Baldwin and Digby need improvement in plant utilization. Your
plant can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Asset Turnover: Digby and Erie need to work their assets harder. They have an asset
turnover of less than one.
Forecasting and Inventory: Be prepared for the worst and best case scenarios (in terms of
sales) so that you don’t have such large stock piles of inventory. Please do not go by computer
forecasts. Read the explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Andrews leads the industry.
• Low End Segment: Ferris leads the industry. Bead does not have the ideal age for this
segment.
• High End Segment: Andrews leads the industry.
• Performance Segment: Andrews leads the industry. Bold and Foam need improvement
in their specs.
• Size Segment: Erie leads the industry. Buddy needs improvement in its spec. Bigred
overpriced (outside the price range).
.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Financial Management: Chester has idle cash worth $15M. Please reconcile and use it to fund
your growth.
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Chester and Digby have improved the productivity of their employees well. Ferris
has been running overtime. We have learnt in the practice rounds that this is an expensive way
of production. Do consider.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66540
General: Immensely competitive Industry. Chester and Ferris are locked in a fight for market
leadership in the industry. Expect to see more ups and downs as the years pass.
Baldwin made losses this year. Low sales for Baldwin. The reasons for your low sales are
known to you all by now and are given below in the sales paragraph. The top-line for Chester
has shown good growth in the last financial year. Contribution margins are low for Baldwin. You
will find it hard to make a profit with contribution margins below 30%.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Except Baldwin, all teams had a rise in stock price. Baldwin
had a fall in stock price of $8.7/share.
Chester is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Andrews, Chester and Digby had a rise in market share of 1.5%, 3.7% and 0.4%
respectively. Baldwin, Erie and Ferris had a fall in market share of 3.8%, 1% and 0.7%
respectively.
Low sales for Baldwin. This was caused by:
• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
Except Baldwin, all teams have introduced new products in the market. Each team can
launch up to three new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: Baldwin had bottom line in red. The reasons are known to you: –
• Low Contribution Margin
• High Unsold Inventory Levels
• Unnecessarily high depreciation due to low plant utilization
Contribution Margin: Baldwin needs to improve their contribution margins. There are
fixed costs and SG&A costs that need to be covered from sales. This will be difficult if your
margins are not above 30%. Even your profit will come out from this margin!
Plant Size and Utilization: Andrews, Baldwin and Ferris need improvement in plant
utilization. Your plant can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Forecasting and Inventory: Baldwin and Erie have high levels of unsold inventory. This
results from poor forecasting and being overly optimistic. Remember the high degree of
competition in the industry.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Digby leads the industry.
• Low End Segment: Digby leads the industry. Bead does not have the ideal age for this
segment.
• High End Segment: Chester leads the industry. Cid, Fist and Bid need improvement in
their specs.
• Performance Segment: Chester leads the industry. Bold and Foam need improvement
in their specs. Fame is overpriced (outside the price range).
• Size Segment: Chester leads the industry. Buddy, Dune, Egg and Fume need
improvement in their specs.
.
Financial Management: Digby has idle cash worth $39M. That is high. Please reconcile and
use it to fund your growth.
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Baldwin, Chester and Ferris have improved the productivity of their employees
well.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66541
General: Immensely competitive Industry. Expect to see more ups and downs as the years
pass.
Baldwin and Erie made losses this year. Low sales for Erie. The reasons for your low sales are
known to you all by now and are given below in the sales paragraph. The top-line for Digby has
shown good growth in the last financial year. Contribution margins are low for Erie. You will find
it hard to make a profit with contribution margins below 30%. Emergency loans were seen for
Baldwin, Digby and Erie. Please read the paragraph on emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Andrews, Chester, Digby and Ferris had a rise in stock price
of $5/share, $12/share, $0.2/share and $16/share respectively. Erie’s stock price remained
constant. Baldwin had a fall in stock price of $7/share.
Andrews is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Baldwin, Digby and Erie had a rise in market share of 0.1%, 2.5% and 0.3%
respectively. Andrews, Chester and Ferris had a fall in market share of 0.4%, 0.5% and 2%
respectively.
Low sales for Erie. This was caused by:
• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• High price /pricing outside the price range for Echo.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
All teams have introduced new products in the market. Each team can launch up to three
new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: Baldwin and Erie had bottom lines in red. The reasons are known to you: –
• Low Contribution Margin for Erie
• High Unsold Inventory Levels
Contribution Margin: Erie needs to improve their contribution margins. There are fixed
costs and SG&A costs that need to be covered from sales. This will be difficult if your margins
are not above 30%. Even your profit will come out from this margin!
Emergency Loans: Baldwin, Digby and Erie have emergency loans. The reasons are –
• Baldwin – For a cash outflow of $50.6M (plant improvements + retirement of current
debt), you raised $22.6M (sale of stock + long term debt). You also have high unsold
inventory worth $23.6M. Raise funds from long term and current debt to repay this
emergency loan.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Digby – For a cash outflow of $48.5M (plant improvements + retirement of current debt),
you raised $21.5M (long term debt + current debt). Raise funds from long term and
current debt to repay this emergency loan.
• Erie – For a cash outflow of $30.5M (purchase of stock + retirement of current debt), you
raised $18.4M (sale of plant + sale of stock + current debt). You also had high unsold
inventory worth $73M. Raise funds from long term and current debt to repay this
emergency loan.
It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Plant Size and Utilization: Andrews and Chester need improvement in plant utilization. Your
plant can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Asset Turnover: Baldwin and Erie need to work their assets harder. They have an asset
turnover of less than one.
Forecasting and Inventory: Baldwin and Erie have high levels of unsold inventory. This
results from poor forecasting and being overly optimistic. Remember the high degree of
competition in the industry.
Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Chester leads the industry.
• Low End Segment: Chester leads the industry. Feat and Bead do not have the ideal
age for this segment.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• High End Segment: Digby leads the industry. Echo, Fist and Bid need improvement in
their specs. Durex, Adam, Ace and Dixie are overpriced (outside the price range).
• Performance Segment: Chester leads the industry. Bold is overpriced (outside the
price range).
• Size Segment: Erie leads the industry. Fume and Buddy need improvement in their
specs. Budd is overpriced (outside the price range).
.
Financial Management: Ferris has idle cash worth $28M. That is high. Please reconcile and
use it to fund your growth.
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Baldwin, Chester and Digby have improved the productivity of their employees
well. Andrews has been running overtime. We have learnt in the practice rounds that this is an
expensive way of production. Do consider.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.


Capstone Business Simulation 2014: Competition Round 3 Great Lakes


C66542
General: Chester, Digby and Erie are locked in a fight for market leadership in the industry.
Expect to see more ups and downs as the years pass.
Low sales for Chester and Ferris. The reasons for your low sales are known to you all by now
and are given below in the sales paragraph. The top-line for Digby has shown good growth in
the last financial year. Contribution margins are low for Chester. You will find it hard to make a
profit with contribution margins below 30%.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Except Digby, all teams had a rise in stock price. Digby had a
fall in stock price of $1/share.
Ferris is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Andrews and Digby had a rise in market share of 1.1% and 3.7% respectively.
Baldwin, Chester, Erie and Ferris had a fall in market share of 1.6%, 2.3%, 0.5% and 0.4%
respectively.
Low sales for Andrews. This was caused by:
• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Except Andrews and Baldwin, all teams have introduced new products in the market. Each
team can launch up to three new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Contribution Margin: Chester needs to improve their contribution margins. There are fixed
costs and SG&A costs that need to be covered from sales. This will be difficult if your margins
are not above 30%. Even your profit will come out from this margin!
Plant Size and Utilization: Andrews and Baldwin needs improvement in plant utilization. Your
plant can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Forecasting and Inventory: Digby has stocked out in multiple segments. This results from
poor forecasting. Remember the high degree of competition in the industry.
Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Baldwin leads the industry.
• Low End Segment: Ferris leads the industry. Bead does not have the ideal age for this
segment.
• High End Segment: Chester leads the industry. Fist and CC need improvement in their
specs. Dexter, Fist, Fool, Dixie and Echo are overpriced (outside the price range).
• Performance Segment: Ferris leads the industry. Coat is overpriced (outside the price
range).
• Size Segment: Baldwin leads the industry. Cure and Egg are overpriced (outside the
price range).
.
Financial Management: Andrews has idle cash worth $28M. That is high. Please reconcile
and use it to fund your growth.
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

HR Module: Digby and Ferris have improved the productivity of their employees well. Baldwin
has been running overtime. We have learnt in the practice rounds that this is an expensive way
of production. Do consider.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66543
General: Immensely competitive Industry. Expect to see more ups and downs as the years
pass. Digby made losses this year. Low sales for Digby. The reasons for your low sales are
known to you all by now and are given below in the sales paragraph. The top-line for Ferris has
shown good growth in the last financial year. Emergency loan was seen for Digby. Please read
the paragraph on emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Andrews, Baldwin, Chester and Ferris had a rise in stock
price of $11/share, $6/share, $3/share and $5/share respectively. Digby and Erie had a fall in
stock price of $10/share and $1/share respectively.
Baldwin is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Andrews, Baldwin and Ferris had a rise in market share of 1.8%, 0.8% and 5%
respectively. Chester, Digby and Erie had a fall in market share of 1.4%, 4.6% and 1.6%
respectively.
Low sales for Digby. This was caused by:
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
Except Chester and Digby, all teams have introduced new products in the market. Each
team can launch up to three new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: Digby had bottom line in red. The reasons are known to you: –
• Low Sales
• High Unsold Inventory Levels for Andrews and Digby
• Unnecessarily high depreciation due to low plant utilization
Contribution Margin: Digby needs to improve their contribution margins. There are fixed
costs and SG&A costs that need to be covered from sales. Even your profit will come out from
this margin!
Emergency Loans: Digby has an emergency loan. The reasons are –
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Digby – For a cash outflow of $32.1M (dividends + retirement of current debt), you
raised $11.7M (sale of plant). You also have high unsold inventory worth $31M. Raise
funds from long term and current debt to repay this emergency loan.
It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Plant Size and Utilization: Andrews and Digby need improvement in plant utilization. Your
plant can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Asset Turnover: Digby needs to work their assets harder. They have an asset turnover of less
than one.
Forecasting and Inventory: Chester, Digby and Erie have high levels of unsold inventory.
This results from poor forecasting and being overly optimistic. Remember the high degree of
competition in the industry.
Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Baldwin leads the industry.
• Low End Segment: Baldwin leads the industry. Feat does not have the ideal age for
this segment.
• High End Segment: Baldwin leads the industry. Fist and Adam need improvement in
their specs. Ahana is overpriced (outside the price range).
• Performance Segment: Ferris leads the industry. Dot, Coat and Aft need improvement
in their specs. Edge is overpriced (outside the price range).
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Size Segment: Andrews leads the industry. Dune needs improvement in its spec.
.
Financial Management: Andrews has idle cash worth $45M. That is high. Please reconcile
and use it to fund your growth.
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Baldwin has improved the productivity of their employees well. Baldwin has been
running overtime. We have learnt in the practice rounds that this is an expensive way of
production. Do consider.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66544
General: Baldwin and Ferris made losses this year. Low sales for Baldwin. The reasons for
your low sales are known to you all by now and are given below in the sales paragraph. The
top-line for Andrews has shown good growth in the last financial year. Contribution margins are
low for Baldwin and Ferris. You will find it hard to make a profit with contribution margins below
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

30%. Emergency loans were seen for Andrews, Baldwin, Chester and Ferris. Please read the
paragraph on emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Andrews, Chester, Digby and Erie had a rise in stock price of
$14/share, $0.4/share, $17/share and $4/share respectively. Baldwin and Ferris had a fall in
stock price of $35/share and $18/share respectively.
Andrews is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Andrews, Chester, Erie and Ferris had a rise in market share of 3.9%, 1.4%, 1.2% and
0.1% respectively. Baldwin and Digby had a fall in market share of 5.6% and 1% respectively.
Low sales for Baldwin. This was caused by:
• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
• High price /pricing outside the price range for Bold, Buddy and Blue.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
All teams have introduced new products in the market. Each team can launch up to three
new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: Baldwin and Ferris had bottom lines in red. The reasons are known to you: –
• Low Contribution Margin
• High Unsold Inventory Levels
Contribution Margin: Baldwin and Ferris need to improve their contribution margins.
There are fixed costs and SG&A costs that need to be covered from sales. This will be difficult if
your margins are not above 30%. Even your profit will come out from this margin!
Emergency Loans: Andrews, Baldwin, Chester and Ferris have emergency loans. The
reasons are –
• Andrews – For a cash outflow of $34.5M (plant improvements + purchase of stock +
retirement of current debt), you raised $6M (current debt). Raise funds from long term
and current debt to repay this emergency loan.
• Baldwin – For a cash outflow of $34M (plant improvements + dividends + retirement of
current debt), you raised $15M (sale of stock + current debt). You also have high unsold
inventory worth $57M. Raise funds from long term and current debt to repay this
emergency loan.
• Chester – For a cash outflow of $52.4M (plant improvements + purchase of stock +
retirement of long term and current debt), you raised $4M from current debt. Raise funds
from long term and current debt to repay this emergency loan.
• Ferris – For a cash outflow of $32.5M (plant improvements + purchase of stock +
retirement of long term and current debt), you did not raise a penny. You also have high
unsold inventory worth $34M. Raise funds from long term and current debt to repay this
emergency loan.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Plant Size and Utilization: Digby and Erie need improvement in plant utilization. Your plant
can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Asset Turnover: Baldwin needs to work their assets harder. They have an asset turnover of
less than one.
Forecasting and Inventory: Baldwin, Digby and Ferris have high levels of unsold inventory.
This results from poor forecasting and being overly optimistic. Remember the high degree of
competition in the industry.
For example, Baldwin has an inventory of $57M. Had they sold all that, it would mean sales of
another $110M approximately. They already had sales of $120M in this round, if this expected
sales is added to it, it comes out to $230M! Did you actually think you can sell all that in Round
3 itself? That would be overly optimistic.
Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Andrews leads the industry.
• Low End Segment: Andrews leads the industry. Acre does not have the ideal age for
this segment.
• High End Segment: Chester leads the industry. Bid and Draco need improvement in
their specs. Echo, Ahigh, Fist and Blue are overpriced (outside the price range).
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Performance Segment: Ferris leads the industry. Except Edge and Coat, all products
are overpriced (outside the price range).
• Size Segment: Andrews leads the industry. Agape, Buddy, Fume and Dune are
overpriced (outside the price range).
.
Financial Management:
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Erie and Ferris have improved the productivity of their employees well.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66545
General: Immensely competitive Industry. Andrews and Baldwin are locked in a fight for
market leadership in the industry. Expect to see more ups and downs as the years pass.
Chester made losses this year. Low sales for Chester. The reasons for your low sales are
known to you all by now and are given below in the sales paragraph. The top-line for Andrews
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

has shown good growth in the last financial year. Contribution margins are low for Chester. You
will find it hard to make a profit with contribution margins below 30%. Emergency loan was seen
for Chester. Please read the paragraph on emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Except Chester, all teams had a rise in stock price. Chester
had a fall in stock price of $10/share.
Andrews is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Andrews and Erie had a rise in market share of 1.9% and 1.2% respectively. Baldwin,
Chester, Digby and Ferris had a fall in market share of 0.6%, 0.4%, 0.7% and 1.4%
respectively.
Low sales for Chester. This was caused by:
• Poor product specifications (performance and size); look at the ideal spot on the
perceptual map. Look at your product specifications. If you do not offer the customers
the specifications they desire, sales will suffer.
• High price /pricing outside the price range for Coat.
• Low customers awareness levels for your products due to low promo budgets.
• Poor distribution reach and accessibility for your product caused by low sales budget.
Please pay more attention to the 4P’s of marketing: improve your sales.
All teams have introduced new products in the market. Each team can launch up to three
new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: Chester had bottom line in red. The reasons are known to you: –
• Low Contribution Margin
• High Unsold Inventory Levels
• Unnecessarily high depreciation due to low plant utilization
Contribution Margin: Chester needs to improve their contribution margins. There are fixed
costs and SG&A costs that need to be covered from sales. This will be difficult if your margins
are not above 30%. Even your profit will come out from this margin!
Emergency Loans: Chester has an emergency loan. The reasons are –
• Chester – For a cash outflow of $14.2M (plant improvements + retirement of current
debt), you did not raise a penny. You also have high unsold inventory worth $44M. Raise
funds from long term and current debt to repay this emergency loan.
It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Plant Size and Utilization: Baldwin, Chester and Ferris need improvement in plant utilization.
Your plant can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Asset Turnover: Chester needs to work their assets harder. They have an asset turnover of
less than one.
Forecasting and Inventory: Chester has high levels of unsold inventory. This results from
poor forecasting and being overly optimistic. Remember the high degree of competition in the
industry.
Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Erie leads the industry.
• Low End Segment: Ferris leads the industry.
• High End Segment: Andrews leads the industry. Cid needs improvement in its spec.
Echo, Dexter and Fist are overpriced (outside the price range).
• Performance Segment: Baldwin leads the industry. Bold, Coat and Dot need
improvement in their specs. Aft, Edge, Bing, Foam and Coat are overpriced (outside the
price range).
• Size Segment: Erie leads the industry. Cure, Agape and Buddy need improvement in
their specs. Egg and Agape are overpriced (outside the price range).
.
Financial Management: Digby has idle cash worth $27M. That is high. Please reconcile and
use it to fund your growth.
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Andrews, Digby and Ferris have improved the productivity of their employees
well.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66547
General: Immensely competitive Industry. Chester and Ferris are locked in a fight for market
leadership in the industry. Expect to see more ups and downs as the years pass.
Andrews made losses this year. Emergency loan was seen for Andrews. Please read the
paragraph on emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Except Andrews, all teams had a rise in stock price.
Andrews’s stock price remained constant at $1/share.
Ferris is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Baldwin, Digby and Erie had a rise in market share of 0.6%, 0.2% and 0.4%
respectively. Andrews, Chester and Ferris had a fall in market share of 0.5%, 0.4% and 0.2%
respectively.
Please pay more attention to the 4P’s of marketing: improve your sales.
Except Chester and Digby, all teams have introduced new products in the market. Each
team can launch up to three new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Profits: Andrews had bottom line in red. The reason is known to you: –
• Unnecessarily high depreciation due to low plant utilization
Contribution Margin: Andrews and Chester need to improve their contribution margins.
There are fixed costs and SG&A costs that need to be covered from sales. Even your profit will
come out from this margin!
Emergency Loans: Andrews has an emergency loan. The reasons are –
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Andrews – For a cash outflow of $63.5M (plant improvements + purchase of stock +
retirement of long term and current debt), you raised $10M (current debt). Raise funds
from long term and current debt to repay this emergency loan.
It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Plant Size and Utilization: Andrews and Baldwin need improvement in plant utilization. Your
plant can produce up to twice the first shift capacity. Use it more optimally.
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Asset Turnover: Baldwin and Digby need to work their assets harder. They have an asset
turnover of less than one.
Forecasting and Inventory: Andrews, Chester and Erie have stocked out in multiple
segments. This results from poor forecasting. Remember the high degree of competition in the
industry.
Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Ferris leads the industry.
• Low End Segment: Baldwin leads the industry. Ebb does not have the ideal age for this
segment.
• High End Segment: Echo leads the industry. EchoN is overpriced (outside the price
range).
• Performance Segment: Ferris leads the industry. Foam needs improvement in its spec.
Aft and Edge are overpriced (outside the price range).
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

• Size Segment: Andrews leads the industry. Egg and Buddy are overpriced (outside the
price range).
.
Financial Management: Digby has idle cash worth $12M. That is high. Please reconcile and
use it to fund your growth.
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Digby and Erie have improved the productivity of their employees well. Chester
has been running overtime. We have learnt in the practice rounds that this is an expensive way
of production. Do consider.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.

C66549
General: Andrews and Baldwin are locked in a fight for market leadership in the industry.
Expect to see more ups and downs as the years pass.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

The top-line for Chester has shown good growth in the last financial year. Emergency loans
were seen for Baldwin and Chester. Please read the paragraph on emergency loans below.
Some teams are still repeating the mistakes made in the practice round. Stay away from large
unsold inventories and emergency loans.
Stock Price and Market Cap: Andrews and Chester had a rise in stock price of $3/share and
$7/share respectively. Baldwin and Digby had a fall in stock price of $14/share and $0.7/share
respectively.
Andrews is the most valuable company measured by market cap.
Stock price is affected by performance, asset base, debt, dividend policy, and number of
shares outstanding. In a year of aggressive investment in plant expansion and automation,
you would expect that the necessary debt load would cause some uneasiness on the part of
shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too
much debt. The stock price can also suffer in profitable years. For example, liquidation of plant
brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative
effect on stock price.
This shows that investors are losing confidence in your companies. Don’t let that happen.
Profits and cash: both are imperative and foundational. Remember your company could
be profitable but still have a cash crisis. Profits do not equal cash!
Sales: Chester had a rise in market share of 3.2%. Andrews, Baldwin and Digby had a fall in
market share of 1.8%, 2.9% and 1.4% respectively.
Please pay more attention to the 4P’s of marketing: improve your sales.
All human teams have introduced new products in the market. Each team can launch up to
three new products. More products help you capture more market share.
Remember everyone started with a market share of 16.67%. Had you maintained this, your
sales for this round would be $140M.Where does your team stand?
Sales to Current Assets: Examine this
This ratio asks the question, “Given our sales base, do we have adequate current assets to
operate the company?” Current assets are comprised of Cash, Accounts Receivable and
Inventory. In the worst case scenario, cash has dwindled to $1 as inventory expanded. The
accounts receivable policy (for example, 30 day terms) is a direct function of Sales.
Given the A/R policy in days, inventory policy in days, and sales, it is easy to calculate whether
a company has adequate Current Assets to operate the company. For example, suppose the
company projects worst case sales to be $120 million, sets A/R policy to 30 days, and is willing
to carry 90 days of inventory. If its gross margin is 30%, then it will spend 70% * $120 million on
inventory during the year,or $84 million, and a 90 day inventory policy translates to 90/365*$84
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

= $21 million. Accounts Receivable will be 30/365*$120 million = $10 million. In the worst case
the company will have only $1 in cash. Current Assets = $1 + $10 million + $21 million = $31
Million. Sales/Current Assets = 3.8.
Too low a ratio risks a visit from Big Al. Too high a ratio indicates idle current assets
which should either be put to work or given back to shareholders as a dividend or stock
repurchase.
Emergency Loans: Baldwin and Chester have emergency loans. The reasons are –
• Baldwin – For a cash outflow of $33M (plant improvements + retirement of current
debt), you did not raise a penny. You also have high unsold inventory worth $26M. Raise
funds from long term and current debt to repay this emergency loan.
• Chester – For a cash outflow of $29.3M (plant improvements + purchase of stock +
retirement of long term and current debt), you did not raise a penny. Raise funds from
long term and current debt to repay this emergency loan.
It would be prudent to develop worst case and best case scenario’s using the forecasting
(marketing module) and production modules.
Plant Size and Utilization:
Overall Plant Utilization: Consider this
Overall Plant Utilization asks the question, “Are we working our plant hard?” It is calculated as
Total Production / Total Capacity.
It is easy to demonstrate that second shift is nearly always more profitable than first shift. This
often surprises participants who look at the 50% second shift wage premium and assume that
second shift must be something to avoid. But suppose we only run one shift – by necessity it
must pay all of the fixed costs – depreciation, R&D, Promotion, Sales Budget, Admin, and
Interest. Anything on second shift only pays for the 50% premium on labor.
It follows that we want to run as much second shift as possible. In a perfect world, we would run
two shifts, our best case demand forecast would come true, and we would have only one unit of
inventory left at the end of the year. On the other hand, if we max out second shift, there is a
good chance we could stock out, and stock outs are very costly. Therefore, 170% plant
utilization or more is considered excellent and 130% satisfactory.
Asset Turnover: Baldwin and Digby need to work their assets harder. They have an asset
turnover of less than one.
Forecasting and Inventory: Baldwin and Digby have high levels of unsold inventory. This
results from poor forecasting and being overly optimistic. Remember the high degree of
competition in the industry.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Be prepared for the worst and best case scenarios (in terms of sales) so that you don’t have
such large stock piles of inventory. Please do not go by computer forecasts. Read the
explanation on forecasting in the Capstone online guide.
Segment Wise Product Analysis:
• Traditional Segment: Erie leads the industry.
• Low End Segment: Andrews leads the industry.
• High End Segment: Chester leads the industry. Adam, Acer and Dolly need
improvement in their specs.
• Performance Segment: Chester leads the industry. Aft, Bold, Coat and Dot need
improvement in their specs.
• Size Segment: Ferris leads the industry. Agape, Buddy, Dune and Cure need
improvement in their specs. Agape is overpriced (outside the price range).
.
Financial Management:
Credit Policy
Your company determines the number of days between transactions and payments. For
example, your company could give customers 30 days to pay their bills ( accounts receivable)
while holding up payment to suppliers for 60 days ( accounts payable).
Shortening A/R (accounts receivable) lag from 30 to 15 days in effect recovers a loan made to
customers. Similarly, extending the A/ P (accounts payable) lag from 30 to 45 days extracts a
loan from your suppliers.
The accounts receivable lag impacts the customer survey score. If your company offers no
credit terms, your product's customer survey score falls to about 60% of maximum. At 30 days,
the score is 93%. At 60 days, the score is 99.3%. At 90 days there is no reduction. The longer
the lag, the more cash is tied up in receivables.
The accounts payable lag has implications for Production. Suppliers become concerned as the
lag grows and they start to withhold material for production. At 30 days, they withhold 1%. At 60
days, they withhold 8%. At 90 days, they withhold 26%. At 120 days, they withhold 63%. At 150
days, they withhold all material. Withholding material creates shortages on the assembly line.
As a result, workers stand idle and per-unit labor costs rise.
HR Module: Chester and Digby have improved the productivity of their employees well.
In Round 4, TQM initiatives will start. Please read the flags on each cell and make investments
accordingly – TQM investments can cut material cost, reduce R&D cycle time, improve worker
productivity and increase demand. Please ensure you manage your cash account as you make
these investments. While inputting your decisions in the TQM sheet on Capstone, observe the
worst case and best case benefits that accrue to you.
Capstone Business Simulation 2014: Competition Round 3 Great Lakes


A Note on Customer Satisfaction

The Customer Satisfaction category examines your performance from the customer's
perspective. Each of your products can earn points if it meets four criteria:
1. It must sell 50 thousand units during the year.
2. It cannot stock out. However, if the product's plant is running at maximum utilization (a
complete second shift) the stock out rule is waived. (There are times when a
competitor's unforeseen actions could cause capacity shortages.)
3. Its December Customer Survey score must be 30 or more.
4. The product must be available for sale by Dec. 31 of the previous year. All products that
sell at least one unit during the year are considered. If the company has five products
that sold at least one unit, then each product can contribute 20 points. If it has eight
products making sales, each product can contribute 12.5 points.
Since some products make sales in two or more segments, the algorithm produces a weighted
average. For example, if a product sold 900 units in Traditional with a score of 40, and 100 units
in High End with a score of 10, the weighted average would be (900*40 + 100*10) / 1000 = 37.

A product’s December Customer Survey Score is developed using marketing’s "4 P’s" —
1. Product
2. Price
3. Promotion
4. Place
Product and Price
The Survey evaluates the product against the buying criteria. A perfect score of 100 results
when the product:
a. Is priced at the bottom of the expected range.
b. Is positioned at the Ideal Spot. (Because the segment moves each month, this can occur
only once each year.)
c. Has an MTBF specification at the top of the expected range.
d. Has the ideal age for that segment. (Because the product ages each month, it can only
have the segment ideal once each year.)
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

Promotion
Promotion, driven by your promo budget, creates product awareness before customers shop. If
customers are not aware of the product, they are less likely to buy, and that drags down the
Survey score.

Think of it this way. Suppose you had a perfect product – a perfect design at a rock bottom
price. Further, customers have no trouble finding your product when they shop, meaning that its
accessibility is 100%. In this perfect world, you do no promotion at all. awareness is zero. What
would happen to demand? On the one hand, some customers will stumble across your product
when they shop, take the time to discover that it is perfect, and decide to buy it. On the other
hand, some customers will pass over your product on their way to products they know about.

The simulation deals with the problem as follows. The customers that know about your product
always consider it. Of the customers that are not aware of your product, half discover it, and half
miss it. Mathematically it looks like this. Your perfect product (with perfect awareness) would
start with a Survey score of 100. If its awareness were 60%, then 40% of your customers would
not know about it. Of these, half (20%) would stumble across it. Instead of having the Survey
score fall all the way to 60, it would fall halfway between 100 and 60, ending at 80.

Once you see that the score falls "halfway", it is relatively easy to estimate the result. For
example:
I estimate my
product's design and
price are worth:
Its
awareness
is:
So it will fall halfway to its
estimated score times its
awareness, or halfway to:
Ending up with a Survey
score halfway in
between, or about:
100 0% 0, because 100 * 0% = 0 50
60 70% 42, because 60 * 70% = 42 51
20 40% 8, because 20 * 40% = 8 14

To be precise, multiply the score you think your product deserves based upon its mix of price
and product design by (1- (100%-awareness)/2). In the examples above:

100 * (1 – (100% – 0%)/2) = 100 * (1 – (50%)) = 100 * 50% = 50
60 * (1 – (100% – 70%)/2) = 60 * (1 – (15%)) = 60 * 85% = 51
20 * (1 – (100% – 40%)/2) = 20 * (1 – (30%)) = 20 * 70% = 14

Place Place is driven by your Sales budget. It examines the question, "How easy is it for
customers to work with you during and after the sale?" We measure this with the segment’s
accessibility rating. An accessibility of 80% means that only 80% of customers have an easy
time finding a product, talking to a sales person, taking delivery, etc. If the accessibility is below
100%, it drags down a product’s Survey score.

The method is identical to awareness. After considering Product, Price, and Promotion, we
arrive at an estimated Survey score. The Survey score falls halfway to the estimated score
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

times its accessibility.

Let’s continue the examples from above:
After considering my product's
price, design, and awareness, I
think my product would score
about:
Its
accessibility
is:
So it will fall halfway to its
estimated score times its
accessibility, or halfway to:
Ending up with a
Survey score
halfway in between,
or about:
50 0% 0, because 50 * 0% = 0 25
51 60% 31, because 51 * 60% = 31 41
14 30% 4, because 14 * 30% = 4 9

To be precise, multiply the score you think your product deserves based upon its mix of price,
product design, and promotion by (1- (100%-accessibility)/2). In the examples above:
50 * (1 – (100% – 0%)/2) = 50 * (1 – (50%)) = 50 * 50% = 25
51 * (1 – (100% – 60%)/2) = 51 * (1 – (20%)) = 51 * 80% = 41
14 * (1 – (100% – 30%)/2) = 14 * (1 – (35%)) = 14 * 65% = 9


The Survey Score
Together, Product, Price, Promotion and Place drive most of the Survey score. For example, if
the product had a great price and design worth 80, but awareness of 60% and accessibility of
80%, customers might say, "The design is great and we like the price, but only 60% of us ever
heard of it, and of those, only 80% could easily take delivery." The net score would be:

80 * (1 – (100% - 60%)/2) * (1 – (100% - 80%)/2) = 80 * (1 – 20%) * (1 – 10%) = 80 * 80% * 90%
= 58.

However, several remaining factors could cause the score to fall further.
a. The Rough Cut factors (pricing outside the range, positioning outside the inner black
segment circle, or MTBF below the expected range) can cause the score to fall to zero.
b. The Accounts Receivable Policy could cause the score to fall. At zero days (that is, you
expect customers to pay cash on delivery) the score falls to 60% of its former value. At
30 days it falls to 95%. At 90 days it keeps 100%.

Two factors could cause the score to increase.
a. "Salesmanship" or sales time. Your Sales Budget drives two factors, accessibility and
Salesmanship. Accessibility examines infrastructure, is subject to diminishing returns,
and is remembered from round to round. Salesmanship applies only to this year. The
Capstone Business Simulation 2014: Competition Round 3 Great Lakes

more you spend, the more sales time you allocate to the product. Salesmanship could
increase your product's score by up to 15%.
b. If the TQM module is enabled, three TQM initiatives can collectively increase the product
score by up to 10%. The initiatives include Channel Support Systems, Quality Function
Deployment Effort, and CCE 6 Sigma.
Note that Customer Satisfaction is often at odds with other goals. High scores imply high
costs, and that could imply low margins. From a competitive standpoint, your demand is
driven by the spread between your score and your competitors' scores. If everyone scores
the same, whether at 10 or 50, they sell the same number of units.