1. Simulation Introduction

2. Why Simulate? Risk Free. Innovate and explore alternative strategies and tactics.Risk Free. Innovate and explore alternative strategies and tactics. Big Picture. Decisions and their impacts will be examined within the context of overall business operations - across functional boundaries.Big Picture. Decisions and their impacts will be examined within the context of overall business operations - across functional boundaries. Develop Critical Thinking Skills. You will analyze, assess, plan, make decisions, evaluate, and adjust.Develop Critical Thinking Skills. You will analyze, assess, plan, make decisions, evaluate, and adjust. Compresses Time. Several years worth of decision-making will play out during the term.Compresses Time. Several years worth of decision-making will play out during the term. Comprehensive Strategy. Demonstrates the importance of developing linked functional, business- level, and corporate strategies.Comprehensive Strategy. Demonstrates the importance of developing linked functional, business- level, and corporate strategies.

3. $100M electronic sensor manufacturing firms. All teams begin with an identical profile.$100M electronic sensor manufacturing firms. All teams begin with an identical profile. Oligopoly - market dominated by handful of firms.Oligopoly - market dominated by handful of firms. No outside competitors or product substitutes.No outside competitors or product substitutes. Relatively benign environment – no disruptive new technologies or new competitors. Focus on existing competition in an even playing field.Relatively benign environment – no disruptive new technologies or new competitors. Focus on existing competition in an even playing field. The Business

4. Markets Defined By Segments Performance – 8.4% to 11% Low End – 39% to 37% Traditional – 32% to 28% Size – 8.7% to 11% High End – 11.2% to 13% Percentage in dollars ($), change over 5 years

5. Introduction To Perceptual Maps Size (how big is the sensor?) Performance (how sensitive is the sensor, and how fast does it process data?) Large Small SlowFast Marketing tool used to depict product positioning. Illustrates how customers distinguish between products that are similar in nature. Electronic Sensors

6. Perceptual Map Large Small SlowFast Size Performance Defines five market segments Defines five market segments Low End Traditional Size High End Performance There are five distinct segments of the market: Traditional Low End High End Performance Size. The customers in each segment have different priorities and evaluate the product according to their own needs.

7. Perceptual Map Large Small SlowFast Size Performance Segments Differentiated By Name Low Trad SizeHigh Pfmn For example, Low End Segment customers look for large, slow sensors, representing nearly obsolete technology. Their primary concern is price. While High End Segment customers want the latest & greatest technology. They’re willing to pay more to get very small, high performance sensors.

8. Perceptual Map Large Small Slow Fast Size Performance Segments drift over time Low Trad Size High Pfmn Customer expectations are constantly changing. They expect the sensors to become smaller in size and better in performance.

9. Perceptual Map Large Small Slow Fast Size Performance Low Trad SizeHigh Pfmn Segments drift over time

10. Perceptual Map Large Small Slow Fast Size Performance Low Trad Size High Pfmn Segments drift over time

11. Customers Go Through a Two-Stage Purchase Decision Process Stage 1 - Match Product to Market 1. Product must be positioned within the segment (performance & size). AbleSizePerformance 2. Product must fall within price guidelines. price guidelines. Able Price Segments 3. Product must fall within reliability guidelines within reliability guidelines Able Reli- ability Segments

12. Two-Stage Purchase Decision Stage 2 - Rank Best Product Position Age Reliability Price 1. Positioning 2. Age 3. Reliability 4. Price Ideal Spot AB 01Yrs 2000025000 $30$40 HIGH END

13. Product Ranking Criteria by Market Segment TraditionalSegment Size Segment Performance Segment High End Segment Low End Segment 1 - Age 2 - Price 3 - Position 4 -Reliability 1 - Price 2 - Age 3 - Position 4 - Reliability 1 - Position 2 - Age 3 - Reliability 4 - Price 1 - Reliability 2 - Position 3 - Price 4 - Age 1 - Position 2 - Age 3 - Reliability 4 - Price Listed in order of importance for each market segment.

14. Decision Screens Info in Team Member Guides R&D – Pg. 10-11 Marketing – Pg. 11-13 Production – Pg. 13-14 Finance – Pg. 15-17

15. Research & Development Establish the specification of the products to meet customer demand – Plan ahead for product position in future years! R&D can take anywhere from 3 months to 3 years. They cost $100,000 per month. Build the quality and reliability (MTBF) into the products Sometimes a long project needs to be two shorter projects. Ensure the perceived age of the product meets customer demands Create new products to meet the changing marketplace Establish the specification of the products to meet customer demand – Plan ahead for product position in future years! R&D can take anywhere from 3 months to 3 years. They cost $100,000 per month. Build the quality and reliability (MTBF) into the products Sometimes a long project needs to be two shorter projects. Ensure the perceived age of the product meets customer demands Create new products to meet the changing marketplace “Our products are not well positioned in the marketplace.”

16. Marketing Set the price of our products in the marketplace Build customer awareness through promotion – Do they know about the product? (Promotion & Sales Budgets, pgs. 12-13) Establish a sales force and distribution channels – Is the product accessible? Set Credit Policies AR/AP Set the sales forecast for our products SALES FORCASTING IS A KEY ELEMENT TO COMPANY SUCCESS! (See pgs. 13 & 22) Set the price of our products in the marketplace Build customer awareness through promotion – Do they know about the product? (Promotion & Sales Budgets, pgs. 12-13) Establish a sales force and distribution channels – Is the product accessible? Set Credit Policies AR/AP Set the sales forecast for our products SALES FORCASTING IS A KEY ELEMENT TO COMPANY SUCCESS! (See pgs. 13 & 22) “Our products are not priced optimally. And many of our customers don’t even know our product exists.”

17. Think about the long-term, and consider market growth early on. AUTOMATION: Purchase machinery to automate our facilities CAPACITY: Buy or sell capacity of product lines Think about products stuck in R&D - They are not being produced Maximize your fixed assets Consider TQM Initiatives Think about the long-term, and consider market growth early on. AUTOMATION: Purchase machinery to automate our facilities CAPACITY: Buy or sell capacity of product lines Think about products stuck in R&D - They are not being produced Maximize your fixed assets Consider TQM Initiatives Production “We are paying too much for labor costs. Very soon we will run out of capacity to meet demand.”

18. Acquire capital to fund capital expansions –Short Term Debt – A/P, inventory expansion, more lax A/R policy –Issue Stock – Use for funding long-term investments (capacity, automation) –Issue Long Term Bonds – Use for funding long- term investments (capacity, automation) Issue dividend to our shareholders (They do not respond to dividends greater than EPS) Balance our debt portfolio - debt & equity Manage our proformas – Financial information measures your success, always track ratios (Also used for success measures, understand these are optimistic estimates) AVOID EMERGENCY LOANS AT ALL COST! THEY USUALLY OCCUR DUE TO BAD SALES FORECASTING Acquire capital to fund capital expansions –Short Term Debt – A/P, inventory expansion, more lax A/R policy –Issue Stock – Use for funding long-term investments (capacity, automation) –Issue Long Term Bonds – Use for funding long- term investments (capacity, automation) Issue dividend to our shareholders (They do not respond to dividends greater than EPS) Balance our debt portfolio - debt & equity Manage our proformas – Financial information measures your success, always track ratios (Also used for success measures, understand these are optimistic estimates) AVOID EMERGENCY LOANS AT ALL COST! THEY USUALLY OCCUR DUE TO BAD SALES FORECASTING Finance “We have poor cash flow and substandard financial ratios. We have no financial policy statement.”

19. Other Modules Labor Negotiations TQM Human Resources

20. Decision Making Each firm begins with identical profile. Decisions are made January 1st each year. Tactical plan should align with chosen success measurements (Profit, Stock Price, ROE, ROS, ROA, Asset Turnover, Market Share, Market Capitalization). Responsibilities may be divided up by Product Manager, Functional Manager, or Market Segment Manager roles/also Intelligence Officer & Record Keeper. Every member of the firm is able to create and upload decisions - communication and teamwork is vital!

21. Simulation Vs. Real World Differences Finite time span to re-coop investments. Segment growth rate & demand given for each year. Demand grows for most years of the simulation. Domestic market only. Price ceilings given as part of simulation structure, no sales once the ceiling is passed. Customer preferences are homogeneous and given within all segments.

22. Recommendations Build a spreadsheet to calculate industry demand for each year & sweet spot location over the course of the simulation. Build & offer a new product in Practice Round 1, it serves as good practice. Divide responsibilities among your group members, but meet as a group to enter & make final decisions. Don’t wait until the last minute to make decisions. Develop a consistent strategy and stick with it. Focus on both internal strategies and behaviors of competitors, avoid tunnel vision.