User Manual Learning Phase V2206

iBizSim: International Business Simulations
International Business Simulations
User Manual
iBizSim SM 1 Learning Phase
V.22.06
© 2022 by Prof. Dr. Ashok N. Ullal, Hölderlinstrasse 13, 72127 Kusterdingen, Germany Page 1
Table of Contents
1. The Business Simulation iBizSim...........................................5
1.1. Structure of the Business Simulation iBizSim..............................5

1.2. Organization of the Management Team........................................5
1.3. Management Tasks........................................................................7
...............................................................................................................7
1.4. Company Policy.............................................................................8
1.5. Analysis and Evaluation of Data - Setting up Indices...................9
1.6. Methodology for Decision Making.............................................10
1.7. The Products................................................................................11
1.8. The Markets.................................................................................11
1.9. Development of Demand.............................................................13
1.9.1. General.............................................................................................13
1.9.2. Decisions..........................................................................................13
1.9.3. Demand for Petra and Quarto in the Markets..................................13
1.9.4. Effects of Inability to Deliver..........................................................14
1.10. Terms of Payment......................................................................15
1.11. Image.........................................................................................16
1.12. Production.................................................................................17
1.12.1. Personnel Capacity.........................................................................17
1.12.2. Machine Capacity..........................................................................18
1.12.3. Sequence for Purchase, Production and Sale.................................19
1.13. Costs..........................................................................................19
1.13.1. Variable Production Costs..............................................................19
1.13.2. Variable Marketing Costs...............................................................20
1.13.3. Fixed Costs.....................................................................................20
1.13.4. Depreciation Costs.........................................................................20
1.13.5. Stock Value.....................................................................................20
1.14. Finance......................................................................................22
1.14.1. Procurement of Funding.................................................................22
1.14.2. Liquidity and Insolvency...............................................................23
1.15. Exchanging Currencies..............................................................24
1.16. Summary of the Effect of Influencing Factors..........................25

1.16.1. Effect on Demand..........................................................................25
1.16.2. Other Effects..................................................................................26
2. Decisions...............................................................................27
2.1. Company Decisions.....................................................................29

2.1.1. Lean Management............................................................................29
2.1.2. Payment of Dividends......................................................................29
2.2. Sales Decisions............................................................................31
2.2.1. Market Research..............................................................................31
2.2.2. Product Policy - Product Management............................................31
2.2.3. Price Policy......................................................................................34
2.2.4. Communication Policy - Advertising, Sales Promotion..................34
2.2.5. Distribution Policy - Marketing Logistics.......................................34
2.2.5.1. Quantities to be Transported..................................................................34
2.2.5.2. Training of Sales Personnel - Key Accounts.........................................35
2.3. Purchasing Decisions..................................................................36
2.3.1. Market Research..............................................................................36
2.3.2. Purchase of Raw Material................................................................36
2.3.3. Purchase of Bought-in Goods..........................................................36
2.4. Production Decisions...................................................................36
2.4.1. Planning of Production Quantities...................................................36
2.4.2. Appointment and Dismissal of Personnel........................................37
2.4.3. Sale and Purchase of Machines........................................................37
2.4.4. Lean Production...............................................................................38
2.4.4.1. Total Quality Management (TQM)........................................................38
2.4.4.2. Production Technology..........................................................................38
2.4.4.3. Continued Training of Personnel...........................................................39
2.5. Financial Decisions.....................................................................39
2.5.1. Raising Short-term and Long-term Loans.......................................39
2.5.2. Fixed-term Deposits with Banks......................................................39
2.5.3. Factoring..........................................................................................40
2.5.4. Exchange Rate Fixing......................................................................40
Preface
This course is based on iBizSim: International Business Simulations, a series of business
simulations developed by Prof. Dr. Ashok N. Ullal, Professor emeritus, School of Inter-
national Business (now merged into ESB Business School), Reutlingen University, Ger-
many.
The course is designed to give groups of students working as teams the opportunity to
build and implement an international business strategy for a simulated company operat-
ing in the world markets. The simulated company is located in Germany, has a produc-
tion plant initially in Germany, manufactures initially two consumer products and sells
these in two markets, the home and the export market.
The course emphasizes strategic planning and control and expects you to use your
knowledge and experience from all the other business-related courses in a very inte-
grated manner.
The simulated company that you will manage:
Purchases raw materials and bought-in goods - invoices are drawn up in Euro.
Produces goods in the Germany - all costs arising are in Euro.
Transports the finished goods from the central store to the sales branches in the
two sales markets.
Sells the products Petra and Quarto in two markets in which the invoices
are drawn up in two different currencies.
Currencies used
Home market Export market
Euro US Dollar
(EUR) (USD)
The balance sheet, the profit and loss account, and the financial accounts will all be
drawn up in Euro.
1. The Business Simulation iBizSim

1.1. Structure of the Business Simulation iBizSim
Several companies in a particular branch of industry are in competition with one another.
They sell the products Petra and Quarto in two markets that are independent of one an-
other. Each company manufactures the products it supplies, but there exists the possibil-
ity of buying-in these goods.
The products are generalized consumer goods. Hence, the simulation is based on the ap-
plication of general business principles.
Specific experience from particular branches of industry is therefore not necessary for
taking part in the simulation. The products Petra and Quarto will be described in de-
tail below.
The structure of the production plant, sales and turnover in all markets, stocks of goods
and cash, outgoing and incoming payments, therefore all information which is necessary
for managing the company, are in the Management Report. The first Management Report
shows the economic and operating state of the company at the close of the initial period
0. All the companies have the same opening situation.
The simulation is run in chronological periods of a quarter each. Hence, four of these pe-
riods constitute a financial year. At the start of each period, each company makes the de-
cisions that are to apply in that period. The decisions of all the companies are processed
in a computer program, and the results of each period are available in the form of re-
ports. From these reports, each management team can see the consequences of its deci-
sions. The report constitutes the basis of the decisions for the subsequent period.
One of the tasks of the company’s management team is to analyze the reports and to as-
certain the interrelationships, as well as the factors involved, in order to establish a ratio-
nal basis for subsequent optimal decisions.
All decisions have to be made in such a way that the long-term success of the company
beyond the conclusion of the simulation is assured.
1.2. Organization of the Management Team

The amount of information and knowledge necessary for the successful running of a
company is continually increasing. This forces the management to delegate important
duties to senior colleagues who in turn have to work together for the company's success.
iBizSim recognizes this trend and requires that all business functions are exercised by
working groups (= teams).
Hence, your willingness to work in a team is an absolute prerequisite.
Your team will take over the management of one of the companies that are competing
with one another in an industry. In real life, management decisions directly affect the
success or failure of a company. In the same way, your team has to take decisions that
will affect your company. The decisions necessary for this will be made at the start of
each period. The owners of your company expect you to perform better than the compa-
nies that are in competition with you.
It is your task to:
● Improve the market position of the company.
● Achieve a satisfactory level of profit.
In principle, the internal organization and allocation of responsibilities is left to you

members of the team. However, we strongly recommend that you allocate specific func-
tional areas sales, finance, production to individual team members. In the areas of re-
sponsibility allocated in this way, each team member can prepare the decisions in the al-
located functional area and present them to the team for subsequent discussion.
Finally, your team must be able to reach a group decision. This means that you must
first agree on how the final decisions are to be made, whether by unanimous or major-
ity vote.
Whatever organization you choose, remember that it is important for every member of
the team to be involved as much as possible in reaching the decisions.
1.3. Management Tasks
Define the goals of the company
Plan the strategic and operational measures
Ensure the availability of resources
Raw materials Machines Personnel Capital
Produce the products
Petra Quarto
Supply the markets
Home market Export market
1.4.Company Policy
One of your first tasks as a team will be to define your business objectives and the strat-
egy to achieve them.
After your team has become familiar with the simulated company, the products and the
markets, we expect a clear statement of short- and long-term company policy.
The company is not rigidly bound to the policy established at the start of the simula-
tion. However, any deviations from it need to be discussed and justified in the final
discussion.
Here are some examples of business objectives:
In production: Optimal stock holding, high degree of utilization of capacity,

minimization of costs, an even utilization of capacity, minimal
staff turnover.
In finance: Short and long term profit, low level of debt, self-financing, high
yield on capital, distribution of high dividends.
In marketing: Optimal satisfaction of customer demand, favorable image,
steady growth, high quality, high market share, and constant
ability to supply the goods, high turnover.
In the social Contented workforce, continuity of employment even when
sphere: there are fluctuations in sales, identification of employees with
the company.
Your team should discuss such widely varying and often conflicting business objec-
tives, even if it means that at the end of the discussion some easily determinable objec-
tives like profit or market share are selected as objectives and used as a measure of
success and hence of “ability”.
1.5. Analysis and Evaluation of Data - Setting up Indices

The first Management Report shows the opening situation at the end of period 0 and pro-
vides a wealth of data at the beginning of the simulation. Subsequent reports at the end
of each period give each management team an overview of the success and situation of
its company. A careful analysis will show whether changes have occurred in the various
areas, and if so which changes. It is advisable to consider what information can be rep-
resented by indices/statistics that are particularly meaningful and that should be regularly
collated and displayed in charts.
In the analysis and processing of the data, the following points could be examined:
● In which areas of the company do bottlenecks exist? How significant are they?
What short-term measures can be taken to improve utilization, what long-term
measures are there to eliminate the bottlenecks?
● Which of the indices appear really fundamental and should thus have particular
attention paid to them?
● Which data should be collected in tabular form over several periods, or

extrapolated? Which data are suitable for graphical representation?
● How is the progression of the curve of the diagrams to be interpreted?
● What deviations from the planned or expected course of events are discernible?
● What factors can cause the deviations?
● How sensitive is the situation to these factors?
● What effects do price changes have on demand in the markets?
● What effect does expenditure on communication policy have in the markets
● Meaningful information could be supplied by relative figures. They provide

relationships in the form of ratios between sets and sub-sets in the same period
the share of material costs in total costs. The reference of essentially different
figures difference and/or change in demand in each market. Index figures
between essentially similar but chronologically dissimilar figures personnel
costs in period 1 / personnel costs period 0.
We recommend that you select and use only a limit number of indices.
Remember that the quality and usefulness of indices depends on the quality of the
data on which they based, and some ratios/relationships may not be meaningful.
1.6. Methodology for Decision Making
Acquire management information
Past periods Current period Future periods
Analyze management information
Set objectives
Define strategy
Plan measures
Develop plans
Purchasing plan Production plan Sales plan Finance plan Cost plan
Assess alternatives
Take decisions
1.7. The Products

Your company currently manufactures the products Petra and Quarto. They are durable
consumer goods.
The products are offered on two different markets. At the start of the simulation, their
selling prices and sales figures are identical for all companies.
Petra and Quarto may be characterized as follows:
● They are manufactured partly from the same raw materials, partly from different
ones. The raw materials are Tika, Ulli and Varu.
● Each unit of Petra requires 4 units Tika and 1 unit Ulli.

Each unit of Quarto requires 1 unit Ulli and 2 units Varu.
● They are manufactured on the same groups of machines, but require different
production times per unit.
● Both products may be bought in as finished goods which, thanks to strict quality
control measures, are equal in quality to your own production.
● There is no competition between Petra and Quarto as substitutes.
● Petra is a product that has been available in the markets for several years and has
developed into a main generator of turnover. The well-tried and tested basic
concept, which, when it was originally introduced, was considered a major
innovation, has been largely retained. From time to time attempts have been
made by introducing minor improvements and adaptations to respond to ever
more sophisticated requirements, particularly in the export markets. But this has
not prevented the customers from turning to newer products.
● Quarto is a newer product that corresponds to state-of-the-art technology. Quarto

meets the high demands of the discerning consumer with high spending power.
It has earned high praise from consumer test associations and in technical
journals. Quarto has been available in the markets for several periods and to date
has fulfilled all expectations. So far the markets have been only partially opened
up, and that to differing degrees.
1.8. The Markets

The products Petra and Quarto are offered on two separate markets.
All companies compete in these markets, but there are no further suppliers. Cooperation
between companies is not allowed.
The markets are different in their size and structure.
It is up to each company to decide in which markets it wishes to supply its goods. Sales
branches have been set up in the markets. They are the prerequisites for opening up and
supplying the markets. They fulfill all necessary functions such as processing estimates/
offers and orders, after-sales service, customer care, service backup, storage and dis-
patch.
The transport of products to the two markets causes different costs. These costs are spec-
ified in the List of Parameters.
The size of the sales branches in the two markets is determined by the expected demand
for Petra and Quarto. This is a fixed cost.
Please note that in the profit and loss account the costs of maintaining additional stores
in the sales branches are not included under the heading “Sales branches” but are lumped
together with the costs of additional stores in the central store under the heading “Stor-
age costs for finished goods”.
The companies attempt to build up long-term business relationships in the markets, a

permanent presence on the markets is hence required. The closing down of individual
sales branches is not permissible, even when the situation on the market does not al-
low for costs to be covered on a short-term basis.
1.9. Development of Demand
1.9.1. General
In the first period, the trend of the general economic environment in the two markets re-
mains the same. To date, there have been various forecasts for the development in subse-
quent periods.
Customer demand for the products of a company is determined by the following factors:
● The decisions of the company.
● The decisions of competing companies.
● The general economic environment.
● Factors specific to particular markets.
● The reputation (= image) of the company.
The development of Petra and Quarto in the markets may vary and can be influenced
to a considerable degree by the decisions of the companies. Hence, the sales position
of the individual companies can and will deviate from the general situation in the
overall markets.
1.9.2. Decisions
As at the start of the simulation the products of all the companies are the same, special
significance attaches to the company’s sales policy decisions. Their aim is to firmly es-
tablish the name of the products and of the company in the consciousness of potential
customers, to create a competitive advantage for their own products, and last but not
least to increase demand and sales at “reasonable” prices.
In this, the demand and purchasing decisions of the customers will be determined
partly by their experience with the degree to which the different suppliers are able and
willing to deliver the right goods at the right time at the right price.
1.9.3. Demand for Petra and Quarto in the Markets

Petra was introduced a long time ago in the home market. Petra achieved high turnover
figures and great success. However, for some time now the turnover in the home market
has been stagnating.
Market resistance is expected to grow. For the coming periods pessimistic forecasts pre-
dict a considerable decline in demand. This trend will gradually accelerate. To begin
with, replacement sales will continue but will decline in the long run.
In line with declining interest on the part of customers, the level of personal prefer-
ences for Petra in these markets must be expected to decline or disappear. This, how-
ever, also applies to the comparable products of the competition.
Petra was introduced in the export market at a considerably later date. The product can
be considered as being in the mature stage. It has been possible to achieve such a level of
consumer awareness of Petra since its introduction.
Quarto, a technically, high-quality product, was received well in the home market, where
customers are particularly receptive to new ideas. The correct application of sales policy
instruments has enabled the establishment of a loyal group of regular customers. Com-
peting companies, offering comparable products, have been able to do the same. Lower
turnover growth rates are expected in the home market. On the other hand, Quarto was
introduced in the export market only at a later date. Higher turnover growth rates can be
expected in these markets, as the product is increasingly accepted by customers, leading
to higher demand.
The forecasts are only valid while the economic situation remains constant, so that
upswings and downswings will increase or decrease the expected quantities. A contin-
uous observation of the markets and their developments will improve the level of in-
formation of the companies.
1.9.4. Effects of Inability to Deliver

If a company cannot satisfy demand – this happens if the demand in a specific period
and in a specific market exceeds the supply - the customers are patient and are willing to
wait for late delivery in the following period. Non-fulfilled orders are stored and added
to the new orders of the following period, hence leading to an increase in demand in the
following period.
Non-fulfilled orders prejudice the image of the company. The damage to the image in-
creases in proportion to the inability to satisfy the demand in that period.
It is difficult to win back in subsequent periods those customers who have drifted away
as a result of this loss of image.
1.10. Terms of Payment

The customers in all market pay after 90 days, in the following period.
Turnover figures are indicated in the balances of the pertinent periods as accounts receiv-
able. Accounts receivable from the export market are in US dollars and are converted
into the base currency of your company, Euro, at the exchange rate valid in that period.
There are two possibilities depending on your decision to use exchange rate fixing (see
“financial decisions“):
● If the exchange rates are not forward fixed, the accounts receivable are entered
on the assets side at the spot rate. Any exchange rate profits or losses are then
indicated in the profit and loss account of the subsequent period.
● If exchange rates are forward fixed, the accounts receivable are entered on the
assets side at the forward rate. Hence, there will be no exchange rate profits or
losses registered in the following period.
Please note that the exchange rate fixing is entered as a decision individually for each
market and should not be entered for your home market with its currency Euro. Each
decision covers the entire turnover of the selected market and cannot be made for a
part of the turnover of that market.
It is assumed that the payments from the export market in the initial period 0 are made to
the company in accordance with the contract in the following period.
Factoring is possible (see “financial decisions“).
1.11. Image
The market position of the companies, and thus also buyer behavior, are influenced by,
among other things, image. By “image” we mean the sum total of all factors that contrib-
ute to the public reputation of a company. Cultivating this reputation can lead to an indi-
rect influencing of customers, and to considerable favorable side effects on the promo-
tions side. The companies establish standards that - from the point of view of the cus-
tomers - provide the best performance.
By adopting the following measures, companies can encourage the desired favorable at-
titude of the customers:
● Punctual delivery of ordered goods:

Punctual delivery is a strong sales argument. It is, rightly, taken for granted by
customers. It therefore does not improve the regard in which a company is held. On the
other hand, failure to provide punctual delivery damages the company’s reputation and
worsens its image in proportion to the degree to which demand in the market cannot be
met. Damage to image is effective in the following period.
● Motivation and qualification of personnel involved in marketing:

The products are of a high technical standard and hence require explanation and
guidance from the sales personnel. This puts the motivation and the qualifications of the
sales personnel at a premium. They can be achieved by the training of sales personnel.
● Continuity of prices:
Customers show annoyance with, and lose faith in, companies whose prices fluctuate
greatly between periods.
● Payment of dividend:
Dividend payouts up to a certain level benefits image.
At the start of the simulation, all companies enjoy the same image. This factor has the
value of 100. It is calculated separately for each market in each period. The image of
the companies affects the level of demand for their products: a good image can in-
crease demand; a poor image can result in a reduction in the demand for the products
of a company.
1.12. Production
You are required to set up the production program to manufacture the products Petra and
Quarto utilizing the available capacities of raw materials, machines and personnel. The
products are manufactured partly from the same raw materials, partly from different
ones. The raw materials are Tika, Ulli and Varu.
When the financial position permits, it is possible to a balance between demand on the
markets and the necessary production capacity by:
● Adapting the working hours by introducing overtime (for a maximum of 2

consecutive periods).
● Changing the machine capacity by purchasing or selling machines.
● Changing the personnel capacity by appointing or dismissing personnel.
● Buying in finished units of Petra.
● Buying in finished units of Quarto.
● Utilizing excess capacity and producing for stock.
If demand exceeds available supplies of the products, your company cannot meet the de-
mand, with unfavorable consequences for the company. If demand is lower than the sup-
ply of products available, stockpiling is inevitable. While this increase in stock levels im-
proves your ability to supply the demand in the following period, it also ties up cash.
Company policy permits a reduction of capacity to a certain minimum number ma-

chines. This minimum number is specified in the List of Parameters. This means that
you are not allowed to shut down your production.
1.12.1. Personnel Capacity

Every company requires a set of personnel other than those employed in the actual pro-
duction (technical and commercial administrators, skilled tradesmen, and similar) to run
the company’s operations. Wages and salaries of these employees, whose number is basi-
cally determined by size of the company, are included in the fixed costs.
In addition, the company has available a workforce employed in the actual production.
This pool of productive labor can be enlarged or reduced by management decisions and
reduced by fluctuation.
● The pool of labor decreases automatically by a certain natural attrition per

period.
● Additional personnel can be hired.
● Companies may reduce the workforce by dismissing personnel.
If the pool of labor is insufficient to operate the existing machines and to produce the
planned quantity of goods, some machines will be standing idle. This affects the quan-
tity of products that your company can manufacture.
In single shift operation, no employee may work more than 8 hours per day.
You may decide to use overtime to a maximum of 2 hours per day. Agreements with the
trade unions permit overtime working only for two consecutive periods. After that, at
least one period must be worked without overtime. If you utilize overtime, the maximum
working hours increase to 10 hours per day.
Companies can increase the qualifications of their production personnel by expenditure

on continued training of personnel.
1.12.2. Machine Capacity

The number of machines available in any period is shown in the Management Report.
The machines are all the same.
The capacity of each machine is:
● 8 machine hours per working day with single-shift operations.
● 10 machine hours per working day with overtime.
Each period covers one quarter with 60 working days.
The products Petra and Quarto make different demands on production capacity. The base
production times are defined in the List of Parameters.
These base production times may be influenced by lean production and by the continued
training of production personnel. The effective production times are available in the
Management Report.
The variable production costs (without depreciation) are given in the List of Parameters.
The useful working life of the machines is also defined in the List of Parameters. The
linear depreciation figures are calculated in each period as costs. The companies rein-
vest in each period the same amount that is calculated as depreciation. This means
that the machines are maintained at a constant level and the production capacity does
not fall due to aging machines.
1.12.3. Sequence for Purchase, Production and Sale
Order raw
materials
Delivery of
raw
materials
Raw material
store
Home
market
Produce
Transport
Deliver
to the
Central store to the
market
customers
stores
Delivery of
bought-in
goods
Export
market
Order
bought-in
goods
The entire quantity of raw materials delivered in any period can be processed in that
period.
The entire quantity of finished goods produced in any period is available for transport
to the market stores.
The entire quantity of bought-in goods delivered in any period is available for trans-
port to the market stores.
1.13. Costs
For the purposes of costing, the costs can be categorized as follows:
1.13.1. Variable Production Costs

The variable production costs depend on the quantity of goods produced.
It is assumed that these costs rise proportionally to the utilization of capacity. As a rule,
they remain constant per hour of production and hence per unit of production. The costs
per unit will only change as a result of price changes for raw materials, a reduction of the
production time per unit, the introduction of overtime.
Into this category fall the costs of:
● Raw materials used by the production.
● Production wages.
● Other variable costs. These are largely machine-dependent and are therefore
calculated as cost rates per machine hour.
The wages for surplus production personnel, for those not required in a period, are
added to the fixed costs.
1.13.2. Variable Marketing Costs

The variable marketing costs depend on the quantity of goods transported or sold.
This category includes costs for transporting the goods from the central to the market
stores.
1.13.3. Fixed Costs

The fixed costs result from the degree of operational readiness of the company. These
costs are dependent on time and are basically independent of the quantity of goods pro-
duced, transported or sold.
These costs are not regarded as a single, monolithic block of fixed costs, but rather are
subdivided as follows:
● Product fixed costs, in the framework of product policy or communication

policy.
● Sectional fixed costs. These include fixed costs of production. They amount to a
fixed basic sum and, in addition, may depend on the available capacity of
personnel and machines.
● Company fixed costs for technical and commercial administration, sales etc.
1.13.4. Depreciation Costs

Depreciation costs occupies a special position. When single-shift working prevails, aging
is the dominant cause of loss of value.
1.13.5. Stock Value

Goods produced within the company are entered with their variable production costs;
bought-in products are entered with their purchase price.
In the central store in which at any time, old stocks, bought-in products, and newly pro-
duced products may be stored, a weighted average value is calculated.
The method of weighted averages is also used to calculate the value of the stocks in the
sales branches.
1.14. Finance
At the start of period 0, all companies possess the same amount of cash. This is reported
in the liquidity account and in the balance sheet.
The List of Parameters defines the minimum amounts of cash that your company must
maintain at the end of a period, and the maximum amount of indebtedness.
All decisions taken by you affect the finances of your company and lead directly or indi-
rectly to cash inflows and cash outflows.
● Directly in the same period: lean production, communication policy, etc.
● Indirectly, for example by decisions in the framework of price policy.
In addition, income and expenditure arise by reinvestment of machine depreciation,

withdrawal from banks of fixed-term deposits, etc.
1.14.1. Procurement of Funding

The companies have several methods of procuring financial resources to cover planned
expenditure:
● By selling of manufactured or bought-in products. The turnover of a period is

shown in the balance as accounts receivable and the customers pay in the
following period.
● By factoring the accounts receivable. This is a means of receiving the cash in the
current instead of the following period. The factoring costs are defined in the
List of Parameters.
● By selling used production machines. The book value of these machines is

defined in the List of Parameters.
● By reducing of stocks of raw materials and bought-in goods thereby releasing

locked capital.
● By utilizing short-term credit (= overdraft). The overdraft is granted

automatically when your company does not have the minimum amount of cash
at the end of the period. The overdraft is also repaid automatically in the
following period. The interest rate for the overdraft is defined in the List of
Parameters.
● By raising long-term loans. The interest rate for the long-term loans is defined in
the List of Parameters.
1.14.2. Liquidity and Insolvency

In each period, companies must be in a position to meet their payment obligations. Ex-
penditure in any period must not exceed the available financial means. Ideally, both
amounts should be equal. While over-liquidity does no more than reduce profit, under-
liquidity threatens the very existence of the company. Under-liquidity exists when in any
period the financial means are insufficient to cover the planned expenditure.
The maximum debt-equity ratio (credit limit) is defined in the List of Parameters. Your
decisions will constantly and directly affect the debt-equity ratio.
A company is insolvent when the debt-equity ratio equals or is greater than the limit de-
fined in the List of Parameters.
The following considerations must be taken into account in liquidity planning:
● Taxes due at the end of every period must be paid.
● Any dividends also occur as cash outflows at the end of every period.
In every period the basis for the calculation of the debt-equity ratio (credit limit) is
capital resources (ordinary share capital plus reserves, as adjusted for dividend pay-
outs). At the end of the year in period 4, the basis for the calculation of the debt-equity
ratio is capital resources (ordinary share capital plus reserves, as adjusted for dividend
payouts and further adjusted for any accumulated losses).
1.15. Exchanging Currencies

In the Management Report the exchange rates are reported in a style that will, at first, ap-
pear unfamiliar to you, as they are based on the Euro. This is unusual, but essential, as
your company’s balance sheet, profit and loss account and financial results will be ex-
pressed in Euro.
You will hence have to use such exchange rates as:
1 USD has a value of EUR 0.68433.
The effective exchange rates for a period are displayed in the Management Report of the
period.
1.16. Summary of the Effect of Influencing Factors
1.16.1. Effect on Demand
Has affect on
Factor
Demand Image
State of the economy •
Product life cycle •
Price policy •
Communication policy •
Product policy •
Product quality •
Image •
Payment of dividends •
Training of sales personnel •
Continuity of sales prices •
Punctual delivery •
1.16.2. Other Effects
Has affect on
Factor Fixed costs Production Staff Rejection
Product
per period times per unit turn-over rate
quality
Lean management •
Total quality
• •
management
Production
•
technology
Continued training
of • • •
personnel
2. Decisions
When you have become familiar with the simulated company, you should prepare and
enter the decisions for the next period.
The course instructors will define and tell you of the specific dates and times for the en-
tering of these decisions for every period.
It is essential that you enter your decisions by this deadline. Otherwise, the decisions
of period 0 will be used as your decisions for the next period.
The decisions fall into the following categories:
● Company decisions
● Lean management
● Payment of dividends
● Sales decisions
● Product policy
● Price policy - sales price
● Communication policy - advertising, sales promotion
● Distribution policy - marketing logistics
● Training of sales personnel - key accounts
● Transportation
● Market research
● Purchasing decisions
● Market research
● Purchase of raw materials
● Purchase of bought-in goods
● Production decisions
● Planning of production quantities
● Appointment and dismissal of personnel
● Purchase or sale of machines
● Lean production
● TQM (Total Quality Management)
● Production technology
● Continued training of personnel
● Financial decisions
● Raising and repayment of long-term loans
● Deposits with banks
● Export factoring
● Exchange rate risk management
2.1. Company Decisions
2.1.1. Lean Management

The idea of introducing lean production has long been discussed by the directors of your
company. Outmoded practices that have become fossilized in other sections of the com-
pany have led to the idea being pursued and to the introduction of lean management
techniques to the whole company.
Lean management is a management concept that is aimed at the greatest level of effi-
ciency in all sections of the company.
Among the major objectives are:
● Recognition and fulfillment of customer wishes as the primary goal.
● Elimination of superfluous hierarchy levels.
● Encouragement of responsibility of personnel. Decentralization, adoption of

personnel into the decision-making processes (downward shift of responsibility).
● Greater flexibility through communication and co-operation across sections and

division.
● Faster reaction times to changes in the markets.
It is not easy to break up existing structures and to change behavior patterns. Yet lean
management is not a state, or condition, it is a continuous process of effort to increase
the efficiency of the company, even if only in small steps. You too can try to put the
ideas of lean management into practice in your company.
Expenditure invested in this will achieve a reduction of the company fixed costs.
Experts are of the opinion that a 25% reduction of the company’s fixed costs is possi-
ble.
2.1.2. Payment of Dividends

The shareholders expect from the companies a dividend as a commensurate return on
their invested capital and their share of the company’s success.
Dividend payments at the end of each period improve the company’s image, but at the
same time reduce the company’s own retained earnings and credit line.
Dividend payments that reduce the company’s available capital can lead to critical dis-
cussion in public. This in turn can affect the company’s reputation.
2.2. Sales Decisions
2.2.1. Market Research

A market research institute can supply information on the competitor companies and the
markets.
Prices for the various reports are defined in the List of Parameters.
Expenses occur in the period in which the decision is taken, the market research re-
ports are available at the end of the same period.
In the section “Sales” the following reports can be purchased:
● Type 1:
Spend on product policy of all companies.

Image of all companies in all markets.
Sales price of all companies in all markets.
● Type 2:
Total sales of the products of all companies in all markets.

Market shares of own company.
● Type 3:
Quality index of all companies

Spend on training of sales personnel of all companies
Spend on communication policy of all companies in all markets.
● Type 4:
Development of the general economic climate as well as specific developments

in the markets.
2.2.2. Product Policy - Product Management

Characteristics required of a product go beyond the basic use desired by the customer.
They also include, for example:
● Increased functions, simplification, fewer parts subject to wear and tear, repair-
friendliness.
● Improved design.
● Expansion of customer service and extension of guarantee.
● Product variations or innovations in order to differentiate products from those

offered by the competition.
An integral part of product policy is, in addition to decisions regarding the range/assort-
ment of products (to begin with, Petra and Quarto), the planning of new products.
Expenditure on product policy increases demand in proportion to the degree to which

it exceeds that of the competition. Experts are of the opinion that in this way demand
can be increased by a maximum of 15%.
Improved
customer service
Extended Environmentally
guarantee friendly packaging
Basic function
= Basic use
Improved Attractive
durability design
Fewer parts subject

to wear and tear
= Repair-friendliness
2.2.3. Price Policy

Price policy attempts to establish a relationship between the selling prices set by a com-
pany and the possible quantity of demand. Price is only one - albeit a very important -
component in a bundle of possible instruments/measures that can be applied to influence
demand. The purchasing decisions of the customers can be influenced considerably by
their experience with the overall efficiency of a company ( punctual delivery).
If prices are too low, there is a danger of reducing willingness of the customers to buy, as
they could lose faith in the quality of the products.
If prices are set too high, particularly if they are not justified by advertising or quality,
customers may feel tempted to switch to other, cheaper, competing products.
In this sense, the decisions of each individual company, as well as those of the compe-
tition, exert an effect on the demand accruing to each company.
2.2.4. Communication Policy - Advertising, Sales Promotion

Communication policy embraces all the measures a company adopts to inform and to
convince potential clients in the market of the characteristics of the products - such as
technical fields of application, economy, design, etc. They draw attention to the products
of a company and serve to distinguish the products from others on the market, and to cre-
ate preferences. Advertising and sales promotion directly affect the number of orders re-
ceived by a company - the sum total of all expenditure of all companies influences the
overall total demand. The level of expenditure on it determines the quality of communi-
cation policy. Expenditure is established separately for each product and for each market.
The effect of communication policy is immediate and there is a fading in the following
periods. It is therefore spread over the current and subsequent periods (carry-over ef-
fect), although the effect steadily declines. The greatest effect arises in the period in
which expenditure occurs.
The List of Parameters defines the rate of fading.
Experience so far indicates that an increase of expenditure over and above 8% of the
previous period’s turnover will not lead to any notable further increase in the effect of
communication policy.
2.2.5. Distribution Policy - Marketing Logistics

Marketing logistics is understood as the sum of activities adopted in order to be able to
supply or deliver the right goods in the right quantities to the right place.
2.2.5.1. Quantities to be Transported
At the start of each period, the companies decide which quantities of products are to be
transported from the central store to the market stores.
The following types of finished goods are available for transport to the market stores:
● The stocks available at the start of each period. These are the residual quantities
left over at the end of the previous period.
● The quantities produced in the period.
● The bought-in goods delivered in the period.
You may transport the maximum quantity represented by the total of the three types of
finished goods.
These transport quantities together with the quantities available in the market stores are
available to meet the demand.
If the transport decisions of the companies exceed the available quantities, the
planned level of transport quantities to the markets are reduced proportionately.
An exchange of stocks between the markets is not possible due to the distances in-
volved. Return of stocks to the central store is not permitted.
The costs arising from transportation of goods from the central store to the market stores
are debited in the profit and loss account of the same period.
The transport costs per product and market shown in the List of Parameters are applica-
ble to small quantities.
In all markets bulk transport is possible, which - depending on the quantities of all prod-
ucts transported to this market - result in discounts. The discounts are included in the ac-
counts of the same period.
2.2.5.2. Training of Sales Personnel - Key Accounts
Technical expertise and motivation of the sales personnel of one’s company can be im-
proved by training in the qualities and possible fields of application of the products, as
well as the required sales techniques. Detailed technical advice and counseling improve
the regard in which the company is held (= image). You might also think of the training
of particularly competent personnel responsible exclusively for looking after key ac-
counts (key customers) and for the solution of their problems. These members of the per-
sonnel would be specialists in, for example, negotiating, financing, foreign exchange
transactions, risk management, customs law and preference law, export calculation and
export marketing. Additionally, they would be totally familiar with the mentality and
customs of foreign customers.
The effect of sales personnel training on a company’s image depends on how far the
training is superior/inferior to that of the competition. Changes in image of up to 5%
seem possible.
2.3. Purchasing Decisions
2.3.1. Market Research

Prices and available quantities of raw materials and bought-in goods can change inde-
pendently of the general economic situation and other factors. The higher the share of
material costs in manufacturing costs of the products is, the more advisable it is to keep a
close eye on the purchasing markets.
By purchasing market research reports, the companies can gain information on any
trends in good enough time to include such changes in their decisions.
Without market research, the companies will only be informed of changes once they
have already taken place.
2.3.2. Purchase of Raw Material

The level of production per period depends on, among other things, sufficient stocks in
hand and/or prompts ordering of materials. If stock in hand plus materials ordered are
not sufficient for planned production, then machines will be idle.
The purchase of raw materials results in delivery in the same period.
The material is paid for on delivery.
Prices for raw materials are given in the List of Parameters.
2.3.3. Purchase of Bought-in Goods

To relieve pressure on their own production plant, companies can buy in finished Petra
and Quarto. They are delivered directly to the central store.
The goods ordered are delivered immediately and the payment is on delivery.
Quantities available on the market are, as a rule, sufficient to supply the companies. De-
livery prices are shown in the List of Parameters.
2.4. Production Decisions
2.4.1. Planning of Production Quantities

In each period the companies establish the planned production quantities of the products,
these quantities are limited by the capacity available in that period.
To adapt production capacity to demand, the introduction of overtime is permissible.
Management expressly orders overtime, and the planned amount expressed in total
machine hours for the whole period is entered in the decisions sheet. Please do not en-
ter 1 or 2 overtime hours that are allowed per day but some calculated number like
1,800 overtimes hours.
The decision is valid for one period, and is effective directly. No more than 2 machine
hours of overtime are allowed per working day.
Overtime working leads to an increase in production wages. The increase is the overtime
surcharge defined in the List of Parameters. It also increases the variable production
costs, among other things through necessary overtime working in auxiliary sections, but
does not affect the depreciation per period as the latter is regarded as determined by ag-
ing.
Overtime must not be used for more than two consecutive periods. After that, at least
one period must be without overtime.
2.4.2. Appointment and Dismissal of Personnel

Appointments are possible at the commencement of each period. Newly appointed per-
sonnel can be used immediately in production.
The appointment of a new employee requires a fixed sum for such expenses as job ad-
vertisement, interview, and similar.
It is also possible for employees to hand in their notice, or be given their notice, in each
period. Dismissals take effect one period after notice has been given.
The dismissal is effective immediately at the beginning of the period. For social reasons,
they receive severance pay on leaving the company.
Companies that frequently dismiss personnel must take into account that, as a result
of the resultant poor reputation of the company, job advertisements in future periods
will not attract sufficient applicants.
2.4.3. Sale and Purchase of Machines

Purchase of machines may take place in any period, in order to expand production capac-
ity. Only whole machines can be purchased.
Machines ordered are available at the beginning of the period.. Payment is made on de-
livery.
Companies can reduce their production capacity and hence the fixed assets by selling
production plant. Proceeds from the sale of machines are usually lower than the book
value.
The decision to sell machines has an immediate effect.
● The capacity of machines sold is no longer available in that period.
● The proceeds are calculated as cash inflow in the same period.
● The profit and loss account is debited with any loss in the same period.
2.4.4. Lean Production

2.4.4.1. Total Quality Management (TQM)
It is no longer sufficient to regard quality as the fulfillment of minimum standards, as to-

day’s commercial world is characterized by ever-increasing competitive expectations.
Today, “quality” is seen as an all-embracing concept. It includes products and personnel,
but also all the company’s procedures from planning and draft projects, production,
through to marketing and distribution.
In traditional quality control, errors arising at the planning stage are not discovered until
it is too late: but later the discovery, the more expensive it is to rectify the error.
A modern all-embracing system of quality control has the aim of:
● Recognizing errors at the earliest possible stage, or – even better -
● Not letting them occur at all.
Expenditure on TQM ( the formation of quality circles, quality system certification, and
so on) enables you to:
● Reduce the rejection rate of faulty products. These rejects cannot be re-used.
● Improve the quality of products produced in your company.
Rising expectations of the customers and the efforts of the competitors require each com-
pany to pay increasing attention to quality and to efforts to improve it.
Experts expect that an increase in product quality up to 15% can be achieved by these
measures.
2.4.4.2. Production Technology
Through investment in superior technology, but particularly through a rigorous structur-

ing of logistic process, an improved flow of information, and the utilization of value
analysis, kanban, etc. a continuous process of improvement can be achieved.
On the basis of exhaustive analyses, experts are of the opinion that a considerable
cost-reduction potential can be realized in production. Specifically, such measures can
bring about a reduction of the production time per unit, up to a maximum of 20%.
2.4.4.3. Continued Training of Personnel
TQM and lean production presuppose qualified and motivated personnel. The latter must
be willing to work in semi-autonomous groups, to accept changing work demands, and
to take on responsibility. They then enable the dismantling of superfluous levels of hier-
archy.
Programs for the continued training of the work force represent expenditure that results
in:
● A reduction of staff turnover and non-reusable rejects.
● A shorter production time per unit.
It is doubtful whether expenditure in this direction of more than Euro 4,000 per person/
period is sensible.
2.5. Financial Decisions
2.5.1. Raising Short-term and Long-term Loans

Within certain limits, companies can obtain short-term and long-term loans. The sum to-
tal of indebtedness must not exceed a certain proportion of the company’s own capital.
Short-term loans (overdrafts) do not have to be specifically applied for. Any needed
overdraft is credited automatically at the end of the period.
Short-term loans are automatically paid back in the following period.
Long-term loans, on the other hand, do have to be applied for. The amount applied for is
available in the same period. The rate of interest for long-term loans is, as a rule, more
favorable than for overdrafts. Long-term loans are not subject to a time limit.
Long-term loans may be paid back in part or in total. To do either, it is necessary to en-
ter your decision the notice to repay the debt(s). Redemption takes place in the beginning
of the period.
2.5.2. Fixed-term Deposits with Banks

If a company does not wish to use all available funds in a period, it can make its finan-
cial surplus available to the money market and invest it on an interest-bearing basis.
These deposits are invested in the same period in which the decision to do so is taken.
This investment is always on a short-term basis for two periods.
2.5.3. Factoring
It is possible to arrange for the collection of all accounts receivable from customers in all
markets through the services of a factoring company. Thus, return on turnover in the pe-
riod of sale immediately becomes cash inflow.
The decision to use factoring is entered separately for each market. It covers the entire
accounts receivable of the market cannot be used for a part of the accounts receivable.
The fees (including interest and del credere) are given in the List of Parameters. The ac-
count in the markets is paid at the forward rate of the pertinent period.
2.5.4. Exchange Rate Fixing

Sales activities in the export market are conducted in a foreign currency. The forward
and spot rates for the pertinent period are documented in the Management Report. The
forward rate is the rate at which 90-day forward buying can be conducted. This means
that the companies have the following alternatives:
● At the conclusion of the sales contracts (in period n) the foreign exchange due to
be received by the companies 90 days later (period n+1) can be sold at the
forward rate. The proceeds from such a transaction are received by the
companies at the fixed rate of period n.
Currency transactions of this nature give the companies a certain protection

against exchange rate risk, but the commission, brokerage etc involved cost
some proportion of the amount receivable.
● If no forward buying transaction is conducted, receipts of foreign currency paid

by customers in the period n+1 will be converted at the then valid spot rate.
The spot rate of the period n+1 can, and as a rule will, deviate from both the spot
rate of period n and from the forward rate of period n+1. Depending on whether
the spot rate of period n+1 is higher or lower, exchange rate losses or profits will
accrue.

User Manual Learning Phase V2206

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

User Manual Learning Phase V2206

Uploaded by

Copyright:

Available Formats

iBizSim: International Business Simulations

International Business Simulations

1. The Business Simulation iBizSim...........................................5

1.1. Structure of the Business Simulation iBizSim..............................5

1.16. Summary of the Effect of Influencing Factors..........................25

2.1. Company Decisions.....................................................................29

The simulated company that you will manage:

1. The Business Simulation iBizSim

1.2. Organization of the Management Team

Hence, your willingness to work in a team is an absolute prerequisite.

It is your task to:

● Improve the market position of the company.

● Achieve a satisfactory level of profit.

In principle, the internal organization and allocation of responsibilities is left to you

1.3. Management Tasks

Define the goals of the company

Plan the strategic and operational measures

Ensure the availability of resources

Raw materials Machines Personnel Capital

Produce the products

Supply the markets

Home market Export market

Here are some examples of business objectives:

In production: Optimal stock holding, high degree of utilization of capacity,

1.5. Analysis and Evaluation of Data - Setting up Indices

● Which data should be collected in tabular form over several periods, or

● How is the progression of the curve of the diagrams to be interpreted?

● What factors can cause the deviations?

● How sensitive is the situation to these factors?

● What effects do price changes have on demand in the markets?

● What effect does expenditure on communication policy have in the markets

● Meaningful information could be supplied by relative figures. They provide

1.6. Methodology for Decision Making

Acquire management information

Past periods Current period Future periods

Analyze management information

1.7. The Products

Petra and Quarto may be characterized as follows:

● Each unit of Petra requires 4 units Tika and 1 unit Ulli.

● There is no competition between Petra and Quarto as substitutes.

● Quarto is a newer product that corresponds to state-of-the-art technology. Quarto

1.8. The Markets

The markets are different in their size and structure.

The companies attempt to build up long-term business relationships in the markets, a

1.9. Development of Demand

● The decisions of the company.

● The decisions of competing companies.

● The general economic environment.

● Factors specific to particular markets.

● The reputation (= image) of the company.

1.9.3. Demand for Petra and Quarto in the Markets

1.9.4. Effects of Inability to Deliver

1.10. Terms of Payment

Factoring is possible (see “financial decisions“).

● Punctual delivery of ordered goods:

● Motivation and qualification of personnel involved in marketing:

● Adapting the working hours by introducing overtime (for a maximum of 2

● Changing the machine capacity by purchasing or selling machines.

● Changing the personnel capacity by appointing or dismissing personnel.

● Buying in finished units of Petra.

● Buying in finished units of Quarto.

● Utilizing excess capacity and producing for stock.

Company policy permits a reduction of capacity to a certain minimum number ma-