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exam 1 + capsim

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Foundation FastTrack
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an extensive year-end report of the sensor industry including customer buying patterns, product positioning, public financial records detailing last year’s company-level financial performance for all firms, sales, production capacity, automation rates, customer survey scores, an other information -print the PDF copy, copy to excel file from the html version
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FastTrack- front page
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a snapshot of last year’s results including sales, profits and cumulative profits for your firm and competitors
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FastTrack- stock and bond summaries
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stock prices, market capitalization, bond ratings and prime interest rates for all companies
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FastTrack- financial summary
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surveys each company’s cash flow, balance sheet and income statements. *does not include product level income statement
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FastTrack- production analysis
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detailing information about each product in the market, including sales and inventory levels, price, material and labor costs, revision dates, ages, capacity, and utilizaion
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FastTrack- statistics box in segment analysis reports
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reports Total Industry Unit Demand, Actual Industry Unit Sales, Segment Percent of Total Industry and Next Year’s Growth Rate *in the upper-left corner
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FastTrack- customer buying criteria box in segment analysis reports
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ranks the customer criteria within each segment
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FastTrack- segment analysis reports
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-statistics box -customer buying criteria box -actual and potential market share for each company -products sorted by the # of units sold in the segment
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market share actual VS potential chart
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-displays 2 bars per company -actual reports the market percentage each company attained in the segment -potential indicated what the company deserved to sell in the segment -if the potential bar is higher than the actual, the company under produced and missed sales opportunities -if the potential is lower than the actual, the company picked up sales because other companies under produced and stocked out (ran out of inventory)
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the top products in segment
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-reports, sorting in descending order of total sales -shows: market share, units sold to segment, revision date, stock out indicator, performance and size coordinates, price, MTBF, the product’s Age on Dec. 31st, promotion and sales budgets, awareness and accessibility levels, and customer survey score
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annual report
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a report detailing your firm’s performance at both the company and product levels. *the only report that provides detailed breakdown of product-level profits (FastTrack does not show product level profits!)
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how to print the annual report
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-log into Capsim -navigate to industry results → reports → annual reports → “download” → print 🙂
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which report includes product level profits?
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ANNUAL report
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reports to look at for current status and for looking backward
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-Foundation FastTrack -Annual Report =what has actually occurred- results of the previous year’s performance
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forward looking Proformas
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-projections for the upcoming year -estimates of future results based on your saved decisions help you envision the impacts of your pending decisions and sales forecasts -accessed through the “Proforma” tab in the Decision screens
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proformas include…
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-Proforma Balance Sheet -Proforma Cash Flow Statement -Proforma Income Statement -Proforma Ratios
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factual information
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forward looking, but not estimates *factual includes: -industry conditions report -the foundation spreadsheet (decision screens) -decision screen icons -the decision audit
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industry conditions report
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-factual information/parameters about the beginning business environment, including customer buying criteria, segment drift rates and ideal spots, and segment demand and growth rates -posted in “Factual Information” -also available through industry results → reports → “industry conditions report”
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the foundation spreadsheet (decision screens)
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where you formulate and finalize management decisions for every department, accessed via an internet browser
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decision screen icons
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just in time information accessed by right clicking on these decision screens to release a pop-up with more detailed information about decision factors
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the decision audit
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a complete trail of all team decisions saved -available on the website by clicking the “decision audit” link
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which 4 areas are decisions made in?
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1. Research and Development (R&D) 2. Marketing 3. Production 4. Finance none of the additional “plug-in” TQM, HR, or advanced marketing are being used
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how many rounds are completed in the simulation
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13 total rounds -5 practice rounds -a reset round to 0 -8 graded rounds
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when does the simulation round process?
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every Friday at 11:00 pm
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when can you make and save decisions?
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-any time during the week after the prior decision has run -the simulation runs with whatever decisions saved as “update official decisions” are on file at 11:00pm on friday -you can change and save the decisions as many times as you like prior to the run time
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is decision saving sequential or simultaneous?
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SEQUENTIAL like microsoft office vs google docs
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how do you avoid overwriting decisions that others on your team have made?
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always start with and update “official decisions”
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why do all firms in the industry start identical in round 0?
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there was once a single firm with a monopoly which was broken up equally into separate companies
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how many teams are there in the industry? names?
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5 total 1. Andrews (your team) 2. Baldwin 3. Chester 4. Digby 5. Ferris
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what does your company manufacture?
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sensors sensor definition: a device that responds to a physical stimulus (motion, smoke, fire, etc.) or measures a stimulus (such as the amount of heat, pressure, sounds, etc.) and transmits a signal indicating that a physical presence exists (such as a motion sensor) or its level (such as a thermometer)
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who do you sell your product to? what do they use it for?
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to industrial buyers that use it in the manufacturing of larger, more complex products
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what 2 market segments do your customers fall into?
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1. low tech 2. high tech -segments names for the customer’s primary requirements -each market segment consists of customers who have similar needs
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drift rates
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each year, customers demand increased performances (Pfmn) (i.e. higher values) and decreased (i.e. smaller values) size *different for each segment and constant for each of the eight rounds
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drift rate for low tech
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Pfmn: +0.5 Size: -0.5
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drift rate for high tech
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Pfmn: +0.7 Size: -0.7
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what is shown on the perceptual map?
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the plot of size and position
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ideal spot
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the size and performance most desired by customers in the segment *can find on perceptual map
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ideal spots distance from the center of the segment circle
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low tech: pfmn -0.0 size +0.0 description= segment center high tech: pfmn +1.4 size -1.4 description= lower right corner at leading edge
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fine cut
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the preferred range in size and performance *can find on perceptual map
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rough cut
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the acceptable but not desired range in size and performance *can find on perceptual map
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in which rounds should you know the segment centers?
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rounds 1, 4, and 8 *if you know them for round 0 you can easily calculate them all with the drift rate
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segment centers for round 1
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low tech: Pfmn 5.3 Size 14.7 high tech: Pfmn 6.7 Size 13.3
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segment centers for round 4
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low tech: Pfmn 6.8 Size 13.2 high tech: Pfmn 8.8 Size 11.2
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segment centers for round 8
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low tech: Pfmn 8.8 Size 11.2 high tech: Pfmn 11.6 Size 8.4
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segment growth rates
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*constant for all rounds low tech: 10.0% high tech: 20.0%
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demand for each segment for year 1, 4, and 8
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round 1 low tech: 4,620 high tech: 2,160 round 4 low tech: 6,149 high tech: 3,732 round 8 low tech: 9,003 high tech: 7,740
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which segment sells more units?
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at the beginning of the simulation, Low Tech sells more units than High Tech and will across all 8 rounds
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buying criteria
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customers within each market segment employ different standards as they evaluate sensors
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what are the 4 buying criteria?
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1. price 2. age 3. MTBF (Mean Time Before Failure) 4. position
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price exceptions
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-different price expectations for each segment -customers always favor lower prices within the expected range *price range remains constant across the 8 years
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why would sensors not be considered for purchase?
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if they are prices $10 above or below the segment guidelines *they will fail the rough cut
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age
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always perceived age which is cut in half upon any change in the product’s size or performance
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age preference (based on segment and round)
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high tech: new technology low tech: proven technology that has been in the market for a few years *ideal age and range remain constant across the 8 years
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MTBF (Mean Time Before Failure)
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-a rating of reliability (not overall quality!) measured in hours -it is the number of hours a product is expected to operate before it malfunctions -remains constant for all 8 rounds
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customer preference for MTBF
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customers prefer products towards the top of the range
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position
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-combination of size and performance -preferred size and performance changes each year
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low tech segment buying criteria
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low tech customers seek proven products, are indifferent to technological sophistication and are price motivated
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summary of LT buying criteria
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price: $15-$35…41% age: ideal=3.0…29% MTBF: 14,000-20,000…21% ideal position: segment center… 9% age: ~3 yrs…29%
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high tech segment buying criteria
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high tech customers seek cutting-edge technology in size/performance and new designs
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summary of HT criteria
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ideal position: leading edge…33% age: ideal=0.0…29% price: $25-$45…25% MTBF: 17,000-23,000…13%
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customer survey score (CSS)
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calculated each month to determine market share -CSS shown in the FastTrack is for one day of the year in December
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how do you estimate Market Share?
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sum CSS values for all products sold in a segment…market share is the products fraction of the total
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how do you estimate demand for the next year?
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multiply the market share fraction (products/CSS) times the next year’s segment demand (=this year’s segment demand plus the growth)
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what is the customer survey score calculation based on?
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each segment’s 4 buying criteria…then reduced for less than ideal levels of awareness, accessibility, and accounts receivable
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how many times customer survey scores calculated?
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12 *December CSS are reported in the FastTrack’s segment analysis pages
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Research and Development (R&D)
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setting and revising position (size & performance) and reliability (MTBF) for existing and new products *indirectly sets age with changes to position
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marketing
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price, sales (awareness) and promotion (accessibility), accounts receivable (A/R) and accounts payable (A/P) lag, and company’s sales forecast
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production
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production schedule, buying and selling capacity, setting automation level, A/P lag
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finance
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issue and retire stock, set dividend, borrow current debt, issue and retire long-term debt, and set A/R and A/P lag
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CEO
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responsible for coordination across the functions and ensuring all decisions are consistent with the strategy selected
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specific decisions made by R&D
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-inventing sensors -revisions to size, performance, MTBF of existing sensors -indirectly change a product’s age
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when will revisions to the product be completed?
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on the revision completion date *100% certain
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2 critical aspects of R&D
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1. monitering timing (the time required to launch) 2. product perceived age (revise a sensor)
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how long are R&D projects?
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between 3months and 3years
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what are R&D projects lengthened by?
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higher product automation levels and having multiple products being revised
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min. time to create a new product (sensor)
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1 year
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what are the steps to invent/launch a new sensor?
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in R&D: -create the product name -set size, performance, and MTBF in production: -buy capacity -set automation level
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what affects a product’s age?
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changes in MTBF and performance
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age…”perceived age”
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affected by chronological age (if untouched product gets 1 year older each round) and changes in size and/or performance (perceived age is cut in half as of the the revision date)
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when can a product be revised?
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when any ongoing R&D project on it has been completed
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inventory fairy (what happens when a R&D project on an existing product is completed? why?)
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-unsold units of inventory are immediately reworked and take on the size, performance, MTBF, and age of the new product. -to avoid LIFO accounting of products
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which functional areas does R&D directly affect?
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-product cost (both position and MTBF cost) -need for production to build a new plant for each new product
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R&D time is affected by…
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automation level (set by production
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MTBF
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reliability (not overall quality)
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how much can a product’s MTBF differ from the range?
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up to 4,999 hrs above or below the range *5,000 hrs below the range customers refuse to buy the product
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a product loses –% appeal with every — units of MTBF —– or —– the range
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a product loses 10% appeal with every 500 units of MTBF above or below the range
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material costs
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=MTBF cost + Position cost
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how much does MTBF cost?
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$0.30 per 1,000 units
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position costs
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-trailing edge of low tech=$1.50/unit -midway between the trailing edge of low tech and the leading edge of high-tech= $5.75/unit -leading edge of the high tech segment= $10.00/unit
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position cost=
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material cost per unit-MTBF cost per unit= position cost per unit
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rough cut circle
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-the dashed outer circle defines the outer limit of the segment -radius= 4.0 units -customers are saying “i will NOT purchase a product outside this boundary”
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fine cut circle
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-the solid inner circle defines the heart of the segment -customers prefer products within this circle -radius=2.5 units
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poorly positioned products
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-the customer survey score for products outside the fine cut drops in a linear fashion -just beyond the fine cut the score drops 1% -halfway between the fine and the rough cut the score drops 50% -customer survey score drops 99% for products that are just inside the rough cut -a product outside of a segments rough cut will not sell in that segment
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“your sales forecast” field
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used as your estimate of the units your company will sell, does not affect how many units your firm will produce *# you input into the sales forecast box will be used in the finance screen and the pro forma financial statements to estimate financial performance such as profit
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what is the promotional budget used for?
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awareness
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awareness
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the percentage of customers who are familiar with your product; 100% means every customer knew about your product
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what is awareness affect by?
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promotion budets and time
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how much does awareness decline by each year?
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1/3
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awareness at the start of the year=
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last year’s awareness- (33% x last year’s awareness)
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key levels and costs of promo budgets
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-10% awareness costs $550,000 -20% awareness costs $900,000 -30% awareness costs $1,250,000 -40% awareness costs $1,700,000 *diminishing returns
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once 100% awareness is achieved, how much do you have to spend annually to maintain 100%?
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$1,400 million
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how much awareness do new products launch with?
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25% + any promotional spending budgeted
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accessibility
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the percentage of customers your salesforce reaches regularly
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promotion budget VS sales budget
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promotion budget= awareness sales budget=accessibility
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how much does accessibility decline by each year?
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1/3
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key levels and costs of sales budget
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-10% accessibility costs $1,250,000 -20% accessibility costs $1,800,000 -30% accessibility costs $2,800,000
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is the sales budget per product or for the whole segment?
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segment *having more than one product in the segment makes your sales budget more efficient
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max spending for sales budget
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one product= $3,000 2+ products= $4,500 can be spent ($2,250/product)
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how do you reach 100% accessibility? how much does it cost?
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-must have 2 products in the same segment -spending $3,500 maintains 100%
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how long for added capacity and automation changes to become available?
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1 full year *time your purchase of plant and automation so that completion of the plant coincides with the product’s release
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each product requires…
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its own plant with its own capacity and automation level
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first-shift capacity
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the number of units that can be produced on an assembly line in a single year with a daily eight-hour shift
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how much can an assembly line produce with a second-shift?
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up to twice its first-shift capacity
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utilization rate
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how much a plant produces compared to its capacity
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0% utilization
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a plant produced no units (sat idle)
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100% utilization
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a plant produces to its full first-shift capacity
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200% utilization
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both full first and second shifts were used (and plant production reached maximum possible level)
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labor cost
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a function of automation and plant utilization
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straight time labor rate (R0; utilization 0-100%)
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=$12.50-(automation level*$1.25)
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overtime labor rate (utilization 101-200%)
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=straight time labor rate * $1.50
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how much are second-shift labor costs?
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50% higher than the first shift
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cost of each unit of capacity for a plant
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$6.00 for the floor space + $4.00 multiplied by the automation rating. =6(4+automation rating)
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when/for how much/how can capacity be sold for?
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-at the beginning of the year -for $0.65 on the dollar value of the original investment -enter negative value into “buy/sell capacity” in the decision screen
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how is plant and equipment depreciated?
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-15-year straight-line approach -any plant or equipment sold which has not been held for 5.25 years (depreciated at 35%) is sold at a loss
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how to close a plant: 2 options
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1.sell all the capacity on an assembly line= liquidation. Foundation will sell your remaining inventory for half the avg. cost of production 2.sell all but 1 unit of capacity and you may sell the remaining inventory at your set price
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stock out
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when a product generates high demand but runs out of inventory (“stocks out”) *the company loses sales as customers turn to competitors
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automation range
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0 (lowest) to 10 (virtually all work done by machines
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automation costs
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$4.00 per point of automation ex. raising automation from 1.0 to 10.0 costs $36.00 per unit of capacity
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what happens when you raise automation?
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-# of labor hours required to produce each unit falls…labor costs are lower -it becomes increasingly difficult for R&D to reposition products short distances on the perceptual map (long moves are less affected)
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automation and R&D: the time required for one unit of change in size or performance at an automation level of — requires— years
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-1; <5 years -5; 6 years -10; 1.4 years
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how much does lowering a plant’s automation cost?
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the same as raising it… $4.00 per point
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when should finance decisions be made?
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AFTER all the other departments enter their decisions (after the management team decides what resources the company needs, the finance department addresses funding issues and financial structure)
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the finance function is responsible for five aspects of the company…
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1. acquiring capital 2.establishing a dividend policy that maximizes the return to shareholders 3.setting accounts payable policy and accounts receivable policy 4.driving the financial structure of the firm and its relationship between debt and equity 5.selecting and monitoring performance measures that support your strategy
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how to acquire capital
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-current debt -stock issuances -bond issues (long-term debt) -operating cash flow
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brokerage fees for current debt
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none
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how much current debt will bankers loan
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-up to 75% of your accounts receivable (found on last year’s balance sheet) -50% of this year’s inventory (about 15% of the combined value of last year’s total direct labor and total direct material) -plus 20% (for growth)
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interest rates & debt level
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-interest rates are a function of your debt level -the more debt you have relative to your assets, the more risk you present to debt holders and the higher the current debt rates
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how much do you pay for issuing stock?
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5% brokerage fee
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what are stock issuances used for?
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to fund long term investments in capacity and automation
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new stock issuances are limited to…
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20% of your company’s outstanding shares in that year
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what is stock price driven by?
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book value, the last 2 years’ earnings per share (EPS) and the last two years’ annual dividend
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dividend
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the amount of money paid per share to stockholders each year *stockholders do not respond to them if they are beyond the EPS because they consider them to be unsustainable
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can you retire stock?
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yes, at a 1.5% brokerage fee
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when retiring stock, the amount cannot exceed the lesser of either…
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5% of your outstanding shares, listed on page 2 of last year’s courier OR your total equity
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bonds
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10-year notes that you pay a 5% brokerage fee to issue
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the first 3 digits of a bond
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the series number, reflect the interest rate
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the last 4 digits of a bond
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indicate the year in which the bond is due
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what are bond issues used for?
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to fund long term investments in capacity and automation
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how much will bondholders lend?
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up to 80% of the value of your plant and equipment
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interest rate when issuing new bonds
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1.4% over the current debt interest rates
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can you buy back outstanding bonds before their due date?
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yes (incur a 1.5% brokerage)
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how are bonds retired?
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-in the order that they were issued -the oldest bonds retire first -there are no brokerage fees for bonds that are allowed to mature to their due date
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what happens if a bond remains on December 31st of the year it becomes due?
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your banker lends you current debt to pay off the bond principal…this converts the bond to current debt. this amount is combined with any other current debt due at the beginning of the year
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where do you find operating cash flow?
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-historical performance: annual report/cash flow statement -predicted performance: pro forma financial statements
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emergency loans
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-given when you manage your cash poorly and run out of cash -depress stock prices, even when you are profitable
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emergency loans charge
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one year’s worth of current debt interest plus a 7.5% penalty fee
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accounts receivable lag
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* impacts the customer survey score -90 days there is no reduction to the base score -60 days the score is reduced by 0.7% -30 days the score is reduced by 7% -offering no credit terms (0 days) reduces the score by 40%
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accounts payable lag
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*impacts suppliers… as lag grows, they become concerned and start to withhold material for production -30 days, they withhold 1% -60 days they withhold 8% -90 days they withhold 26% -120 days they withhold 63% -140 days they withhold all material
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what is your grade on the simulation based on?
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-cumulative profits -market capitalization -ROE and ROA compared to the computer teams in your industry
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min. acceptable contribution margin
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30%
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when can you produce and sell a product that is being launched?
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when R&D has been completed and the product is “launched” on the revision date
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can you product a product while it is being revised?
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yes- you produce and sell the “old” product until the revision date; you begin producing and selling the new product as of the revision date
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how are products named?
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with the first letter being the same as the company name ex. “A” products= Andrew’s company products
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the production analysis will report the release date (but not the coordinates) of a new product if…
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-production capacity is purchased; and/or -a promotion budget is entered; and/or -a sales budget is entered
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prime interest rate round 1
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7%
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seller’s market
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-occurs when demand exceeds the # of units available -even products with very poor customer survey scores will sell more than their potential demand -customers will accept low-scoring products as long as they fall within the segment’s rough cut limits
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a plant’s max. production
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=2* capacity (capacity utilization rate would be 200%)
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if a new product is being launched, you cannot begin making it until…
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1. the plant is complete 2. R&D is complete
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production when a product is being revised
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the plant can produce up to 200% of capacity; the plant produces the “old” product up to the date of the R&D completion; then immediately begins production the new product as of the completion date
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market share calculation
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your product’s CSS in the segment / sum of all product’s CSS in the segment
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how to calculate what your expect to sell
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last year’s segment demand + % of high or low tech segment growth * expected market share
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customer survey score components
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-price: price of $15=41 CS points, price at high end of range=1 CS point -age: ideal age of 3=29 CS points, age at low or high end of range=1 CS point -reliability: MTBF at the top of the range=21 CS points, at low end of the range=1 CS point -ideal position: center of the segment in LT=9 CS points, at edge of the fine cut=1 CS point
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the adjusted base score
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base score=sum of customer survey score components (max=100) =[(base score)/10]^2 *removes linear relationship between the scores…better products are rewarded with proportionally higher results (100→100; 80→64; 60→36; 40→16; 20→4)
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adjusting the adjusted base score for lack of awareness
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*lack of awareness reduces your customer survey…if awareness is near 1%, adjusted base score falls by roughly 50% [100%-(Awareness%/20] * the adjusted base score
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adjusting the adjusted base score for lack of accessibility
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*lack of accessibility reduces your customer survey [100%-(accessibility%/20] * the adjusted base score