Best Suggestions For Struggling Teams
Capsim can be difficult when you make the wrong decisions in your sales, stocks or any other significant element. This article focuses on suggestions for struggling teams Is your team struggling with Capsim decisions? Worry no more! We got you covered!
Contribution margin is small
Contribution margin is defined as revenue less labor, material, and inventory carrying costs. According to the Courier/FastTrack, it is given on page 1 as an aggregate average of the product portfolios of each firm. A fair starting point is 30 percent of the total. If the contribution margin is less than 30%, the firm should explore lowering its cost of goods and/or boosting its pricing to improve the situation.
Problems that often occur include:
- Mean Time Between Failure (MTBF) Ratings Are Too High: MTBF ratings have a direct impact on material prices. Assess each product’s MTBF ratings in relation to the Customer Buying Criteria on the Segment Analyses of the Courier/FastTrack service provider. Are they set at a greater level than they should be? If the MTBF range is 12000-17000 and it is the least essential purchasing factor, as it is in the Capstone Low End Segment, having MTBF set higher than the minimum is not beneficial.
- Prices are too low: Look at the income statement in the company’s yearly reports to see whether this is the case. Compare the income generated by each product with the cost of producing it. Prices must be established at a level that generates a sustainable amount of income while maintaining the present cost structure.
ASSISTANCE IN AN EMERGENCY
On page 1 of the Courier/FastTrack, there is a listing for emergency loans. The issuing of an Emergency Loan with an interest rate that is 7.5 percent higher than the present debt interest rate happens every time a cash flow shortage develops. Emergency loans of a moderate amount are not a major problem. Emergency loans in excess of ten million dollars suggest that there are major issues.
Problems that are often encountered
1.Check the inventory status of each product shown on page 4 of the Courier/FastTrack invoice to see whether there is any excess inventory. If there is an excessive amount of inventory, attempt to figure out why. The sales expectations were just too optimistic. Instructors may figure this out by comparing goods on the Market Segment Analyses worksheets they provide.
2.Unfunded Capacity and Automation Purchases: Companies can make large investments in plant but fail to obtain the necessary funds to cover the costs. Check out the Cash Flows from Investing Activities Plant Improvements line on page 3 of Courier/ FastTrack for further information (Financial Analysis). Were there significant capital expenditures on plant and equipment? If yes, how did the funds for the project come to be?
INVENTORY THAT IS EXCESSIVE
It is very expensive to maintain significant volumes of inventory (total unit cost is multiplied by a 12 percent inventory carrying charge). It is ideal to have one unit of inventory in each product line at the end of the year: this way, one knows that every prospective sale has been completed, and the carry cost would be so minimal that it is insignificant. Excess inventory is sometimes associated with lower-than-expected revenue from sales, resulting in a double-whammy situation. Not only did the team face unexpected inventory expense, but it also generated far less revenue than projected.
Problems that are often encountered
- Sales forecasts that are too optimistic: On each market segment study, the previous year’s consumer needs (as well as segment growth rates) are detailed. Examine the company’s sales projections for the year. Were their sales projections a little too optimistic? Example: If the segment demand limit is 3 million units and there are six teams having goods in the segment, a “fair share” beginning point would be 500 thousand units sold by each of the teams.
Sales will increase if the firm produces a product that is superior to the competition. The reverse is true for items that are below average in quality. Companies, on the other hand, should be aware that any product that tracks inside the rough-cut boundaries will see some sales. In other words, buyers do not purchase all of the greatest things first, and then wait until they are all sold out before moving on to the next best product, and so on.
Customers, on the other hand, review each product on a monthly basis. Sales of the finest items outpace those of less attractive ones; however this is only true in relative terms. It is conceivable for less desired things to run out of supply, but superior ones may have plenty of stock.
For example, suppose the Andrews team produces 250 thousand units of a mediocre product in the Capstone Size category, whereas Baldwin produces 750 thousand units of a superior product in the Capstone Size segment. According to this scenario, Andrews could easily stock out, whereas Baldwin would wind up having 150 thousand pieces of goods on hand.
- Lack of understanding of how spreadsheets operate: A common source of misunderstanding among participants is the link between sales predictions, production schedules, and manufacturing capacity:
In the Marketing decision area, sales forecasts have no effect on proformas, which are used to assist participants envision financial outcomes if sales predictions are accurate.
- Production Schedule in the Production decision section refers to the actual production choice for the year as determined by the production schedule. It should be consistent with the projection, after deducting any inventory left over from the previous fiscal year. Participants are required to provide the number of units they intend to manufacture. It’s on the calendar.
- Production on the First Shift The capacity of a factory refers to its overall size. Using the first and second shifts, organizations may create up to one million units if their capacity is 500 thousand units per day. Second shift labor costs will be applied to all units produced in excess of 500 thousand, with the second shift labor cost equal to 150 percent of the first shift labor cost.
Reduction in stock prices
The stock price is determined by the following factors:
- Book Value
- Earnings Per Share (EPS)
- Annual Dividend
The book value of a company is equal to the equity divided by the number of shares outstanding. The value of common stock and retained profits on the balance sheet is equal to the amount of equity. The number of shares that are now outstanding represents the number of shares that have been issued. When equity is $50,000,000 and there are 2,000,000 shares outstanding, the book value of a share is $25 per share, for example. The earnings per share (EPS) is derived by dividing net profit by the number of shares outstanding.
The dividend is the amount of money paid out to owners on a per-share basis each year. Dividends in excess of earnings per share (EPS) do not elicit a response from stockholders since they are considered unsustainable. For example, if an earnings per share (EPS) is $1.50 per share and a dividend is $2.00 per share, owners would disregard anything beyond $1.50 per share as a driver of the stock price in this scenario. In years when earnings are lower than in prior years or when losses occur, the stock price often declines.
Losses are excessive
Page 1 of the Courier/FastTrack contains a summary of profits and losses for the previous month. Costs that are too high combined with prices that are too low are the most common causes of losses. Overproduction and excess inventory are other common causes of losses. Excessive spending in Sales and Promotion budgets (recorded in the Marketing category), high interest payments on loans, and write-offs when items are withdrawn may all have a negative impact on profit.
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