SWOT and Strategy

EXPLANATION OF DECISION CATEGORIES

The simulation exercise is driven by your decisions submitted quarterly as well as those of your competition. Each decision is discussed below to clarify its meaning and its impact, as used in this exercise. 

ENGINEERING QUALITY ($000) How many dollars will be invested in Quality efforts?  Through this investment, management is able to influence the technical quality of the product relative to the competition.  The value of the investment will decrease as production levels increase and diminishing returns will result at some level. The quality achieved can be measured by access to the quality survey report. A lack of quality may be reflected in sales. The survey report may be requested each quarter, but it will not be available each quarter. When available, it will assess both the technical quality and the customer perceived quality of the product for all companies in an industry. Perceived quality is a function of technical quality and marketing/advertising investment. The report will be provided when available, if requested. There is no charge for the report until it is provided. The report will be for the quarter just ended. 

RESEARCH FUNDING ($000) How many dollars will be invested in Research and Development engineering?  Management uses this means to achieve product improvements and product breakthroughs.  R&D work requires dollars and time to be successful. Management must decide how R&D blends into the overall strategy of the company and how much of the company resources will be allocated to this effort. Progress in R&D will be announced to management through memos from the R&D operation.

 

MARKETING ($000) How many dollars will be invested in the marketing function? These dollars are spent to sell the company product. Sales persons, promotions, market research and other activities which focus on getting the customer to buy the product are funded by these dollars. The principal effect of this investment is on market share.  Share is primarily a function of marketing dollars, product quality and pricing decisions interacting in the marketplace. A move in one area may be offset by a countermove in a related area.

 

ADVERTISING ($000) How many dollars will be invested in the advertising function? These dollars are spent to let current and potential customers know about your product. Through this effort, all who provide the same product benefit from advertising. If all companies advertise, the overall market will grow larger and faster than if less than all participate.  The principal effect of this investment is on market growth.

 

LEAN SIX SIGMA EXPENSE ($000) How many dollars will be invested in driving the cost to produce downward? Production costs trend upward in new companies unless actively driven down by improved product and production engineering. These efforts are measured by Cost/Unit to produce and Planned Time. Once costs are turned downward, continued investment at some level is necessary to retard the inefficiencies, which tend to creep back into the production process over time. These cost avoidance measures are no less important than initial cost reduction.  The principal effects of these dollars are to reduce planned time and reduce production costs.

 

LABOR   How many production employees will be employed during the quarter?  The number of employees is one key ingredient to determining the company’s capacity to produce.  Labor is expensive and the costs associated with hiring and firing go beyond the wages paid. Changes in employment will affect employee effectiveness. The impact is proportional to the magnitude of change.

 

PICK-UP CELL ORDER How many units of raw material will be ordered this quarter for delivery next quarter?  Material is another key to determining production capacity.  One unit of raw material is necessary for each unit of product produced. This decision includes consideration of the back order potential and the cash consequences of payment on delivery.

 

PLANNED PRODUCTION How many units of finished goods will be produced this quarter? This is the planned production normally found in an Manufacturing Resource Planning (MRP) or production scheduling system. The actual production will be limited by the capacity to produce; but, management may use this entry to limit production to a level below the production capacity. Production cannot be higher than requested, but it may be lower due to capacity bottlenecks (labor, lines, raw material).

 

NUMBER OF NEW LINES  How many new inspection lines will be ordered this quarter for delivery next quarter?  This is the third ingredient to determining production capacity.  Each inspection line has a rated capacity. Installing lines in the factory is disruptive and will impact effectiveness of the labor force. That impact is proportional to the number of lines installed at one time.

 

PRICE ($)  How much will the company charge its customers for its product during the quarter?  Price, marketing, advertising and quality determine market share, which determine Sales. A pricing strategy must consider these and other factors no less important: the perception of the customer; the competitors’ pricing actions; the costs of forecasts; financial goals; and many other management concerns. The principal impact of price is on market share, but that must be moderated by the other concerns discussed.

 

TERMS (IN DAYS)  How many days will be granted to the customer before payment is expected?  This may be between 1 and 90 days. If terms are 45 days, a company would expect to collect about 50% of its outstanding Receivables during the quarter; if terms are 30 days, collections should approximate 66%. It is important to recognize the difference that may exist between terms extended and actual collections. There is no bad debt in the exercise; however, there may be delinquent payments. Terms are related to price in the impact on the market place.

 

MARKETING SURVEY May be requested each quarter but will be delivered only when available. When delivered, the recipient will be charged $5,000. Do not add dollars to the decision sheet for the report. The charge will be shown as an added Marketing expenditure when the results are received.