WEEEKKK 7

2

Reflection for Decisions 17

Decision 1: Compensation & Training

Decision made: We raised base wages by 3% in North America ($37,534), Asia-Pacific ($13,119), and Latin America ($13,120); Europe-Africa has no workers. Incentive pay is $0.00 per pair in every region, and best-practices training stays at $800 per worker. Supervisors stay at 40 workers each, with a 5% raise to $66,869 (NA), $27,863 (AP), and $27,866 (LA). The team used base pay rather than incentives to stay competitive: base pay is a predictable cost that supports retention while we add workers in Asia-Pacific and Latin America. Incentive pay, which averaged $4,613 per North America worker and $1,927 per Asia-Pacific worker in Year 16, was set to zero because the extra output was not needed. Training was kept because it supports quality and the reject rates in Decision 2. We will compare actual productivity and labor costs with these projections after Year 17 is processed.

Results of the Decision: Projected productivity is 4,917 pairs per worker in NA, 3,942 in AP, and 3,976 in LA, close to last year’s industry averages (4,957, 3,921, and 4,088). Labor cost is $8.55 per pair in NA, $4.00 in AP, and $4.16 in LA, with 1,037, 1,776, and 1,006 workers. Overtime is 100K pairs in NA, 1,090K in AP, and 800K in LA.

What caused the results: Base wages sit above each region’s minimum ($36,091 in NA, $12,738 in AP and LA), so productivity holds near the industry average even without incentives. Overtime in AP and LA is needed because branded output is above regular-time capacity; it costs $5.4M in AP and $4.0M in LA. Training costs about $0.8M in NA, $1.4M in AP and $0.8M in LA.

Rationale and alternatives considered: We weighed three alternatives. A larger raise adds about $0.73M a year for each extra 1% across the three regions (about $378K in NA, $226K in AP and $128K in LA), and it carries into every later year. Keeping Year 16’s incentives would have cost roughly $4.8M in NA and $3.4M in AP at Year 16’s per-worker amounts, money better used on marketing. We rejected cutting training because it totals only about $3.1M and supports the reject rates. The trade-off is productivity about 0.8% below last year’s NA industry average, which we judged acceptable because the game ends after Year 18 and extra output was not needed.

Decision 2: Branded Production

Decision made: We set superior materials at 38% in North America, 40% in Asia-Pacific and 18% in Latin America, with 500 models in NA and 400 in AP and LA. Styling is $49K per model in NA and $46K in AP and LA, and TQM is $3.50, $3.10 and $3.00 per pair. We scheduled 5,100K pairs in NA, 8,090K in AP and 4,800K in LA (17,990K in total) and none in Europe-Africa. Our materials price estimates are $5.94 for standard and $16.90 for superior. The team deliberately moved from a premium-quality position toward a value position: lower S/Q, together with lower prices, supports volume while keeping margins healthy, and the money saved on materials funds stronger marketing and retailer support in Decisions 5 and 6. Production was sized from the Distribution page, because the “total production needed” figure is only an approximation.

Results of the decision: Projected S/Q is 7.6★ (NA), 7.4★ (AP) and 6.5★ (LA), down from 8.1★ in every region in Year 16. Reject rates are 4.1%, 3.0% and 6.6%, leaving 4,891K, 7,847K and 4,483K net pairs. Production cost is $32.97 per pair in NA, $23.93 in AP and $25.09 in LA.

What caused the results: Materials cost $10.28 per pair in NA, $10.47 in AP and $8.47 in LA. Asia-Pacific is the cheapest plant because its 7,847K pairs spread styling, TQM and set-up costs, and its 3.0% reject rate is the lowest after the reject-cutting upgrade bought in Year 15. Latin America has the highest reject rate (6.6%) and the lowest TQM spend ($3.00).

Rationale and alternatives considered: We compared holding the quality level with cutting it. Each 10 points of superior materials costs about $1.10 per pair ($16.90 versus $5.94). Holding the last known 60% (NA) and 80% (AP) would cost about $2.41 and $4.38 more per pair than our 38% and 40%, or about $11.8M in NA and $34.4M in AP. We also tested going further, to 22% and 24%: EPS rose $0.52, but image fell 2 points (to 88) and the EPS rule we set for this test was not met, so we returned to 38% and 40%. TQM and styling stayed where they were because they hold the reject rate and S/Q. The cost is real: S/Q is about 0.6 lower than last year, which is why prices were cut in Decisions 5 and 6.

Decision 3: Production Facilities & Equipment

Decision made: We bought 4,000K pairs of new equipment in Latin America ($80M) and 1,000K pairs in Asia-Pacific ($20M). We bought none in North America or Europe-Africa, sold no equipment, built no new space and kept Options C and D at No. Year 17 capital outlays also include $14.6M for equipment upgrade options and $1.7M for energy efficiency. The Latin America plant, built in Year 16 with 4,000K pairs of space, could not produce anything until it was equipped, and local production avoids the $10 per pair import tariff. Asia-Pacific needs more regular-time capacity because 8,090K pairs are scheduled against 6,000K in place. North America did not need new equipment because its 5,000K pairs of equipment cover almost all of the 5,100K pairs scheduled. Because the game ends after Year 18, we bought only equipment that pays back within two years.

Results of the decision: Capacity without overtime is 6,000K pairs (NA), 0 (EA), 7,000K (AP) and 4,000K (LA), or 7,200K, 0, 8,400K and 4,800K with maximum overtime. Year 17 capital outlays are about $116M: $4.7M in NA, $24.8M in AP and $86.8M in LA.

What caused the results: The Latin America plant avoids the $10 tariff on about 4,483K pairs, worth roughly $44.8M a year, against a unit cost of $25.09 versus $23.93 in Asia-Pacific. The new AP equipment lets 7,000K pairs run on regular time and only 1,090K on overtime, inside the 1,200K ceiling. Dropping the planned $20M North America purchase cut depreciation from $17.4M to $14.9M, raised projected EPS from $13.01 to $13.16 and added $25.1M of cash, at the cost of only 100K pairs of NA overtime.

Rationale and alternatives considered: Equipment depreciates 10% a year, so $20M costs $2.0M of expense a year, but the game ends after Year 18, so a purchase has to pay back by then. In North America the purchase would only have replaced about $0.4M of overtime premium with $2.0M a year of depreciation, so we dropped it. In Latin America, refurbished equipment was cheaper to buy but, as in Year 15, would raise rejects at a plant that already has the highest reject rate. In Europe-Africa the 1,000K pairs of space stay empty: the plant’s total cost is about $48 per pair against about $32 for pairs shipped from Asia-Pacific ($23.93 plus $2 freight and $6 tariff). We left Option C (one more S/Q star) at No: it costs $28.8M in NA and $33.6M in AP, and its payoff would come after the game ends.

Decision 4: Distribution & Warehouse

Decision made: North America ships 4,878K pairs to its own warehouse and 13K to Europe-Africa. Asia-Pacific ships 4,263K pairs to Europe-Africa, 3,560K to its own warehouse and 24K to Latin America. Latin America ships all 4,483K pairs to its own warehouse, and the idle Europe-Africa plant ships none. We cleared 100% of Year 16 inventory in all four regions (238K, 197K, 139K and 166K pairs). Every plant ships its full net output, so nothing is left to be shipped automatically. The team chose a small surplus over any shortfall because rivals lost sales to stockouts last year (Blueprint 1,729K wholesale pairs, AKinetix 1,951K), while a surplus costs only storage. Careful entry mattered here: a greyed Europe-Africa column had held 1,130K phantom pairs until we cleared it.

Results of the decision: Every region ends with a surplus over required inventory: +143K pairs in NA, +373K in EA, +152K in AP and +196K in LA, and all four Remaining Pairs boxes read 0. Distribution and warehouse cost is $6.66 per pair in NA, $13.21 in EA, $6.80 in AP and $6.35 in LA. Europe-Africa pays $25.7M in tariffs and a $1.2M exchange-rate adjustment.

What caused the results: Europe-Africa has no working plant, so 4,263K pairs come from Asia-Pacific at $2.00 freight and $6.00 tariff per pair, which is why its distribution cost is about twice that of the other regions. Latin America’s cost is lowest because its 4,483K pairs come from the local plant and pay only $0.05 per pair in tariffs.

Rationale and alternatives considered: The main alternative was to equip the Europe-Africa plant. At about $48 per pair against about $32 delivered from Asia-Pacific, it would add about $16 per pair on 4,263K pairs, roughly $68M a year. We also compared a bigger surplus with a smaller one: storing a leftover pair costs about $0.50, while a missed wholesale sale loses about $16 of operating profit, so a surplus is the cheaper error. The 13K pairs sent from North America to Europe-Africa are simply NA’s remaining output after the 4,878K shipped to its own warehouse.

Decision 5: Internet Marketing

Decision made: Online prices are $98 (NA), $100 (EA), $91 (AP) and $96 (LA), down $4, $2, $2 and $2 from Year 16. Search engine advertising is $14.0M in every region, up from $7.5M, $7.5M, $8.0M and $7.5M. We offer no free shipping. Blueprint was expected to fix its stockouts and keep online prices of $91, $93.50, $86 and $92.50, so the team narrowed the price gap slightly and spent heavily on search to defend online share rather than cutting price across the board. Not offering free shipping avoids an extra cost on every order. The competitive-assumption boxes were set at $88.00, $91.13, $84.00 and $89.75 for prices and $7,563K, $6,750K, $6,625K and $7,250K for search.

Results of the decision: Operating margin on Internet sales is 37.4% in NA, 35.2% in EA, 35.8% in AP and 39.7% in LA, or $41.27, $39.18, $37.03 and $42.39 per pair.

What caused the results: Search spending of $14.0M is about 2.6 to 3.0 times last year’s industry average ($5,313K in NA, $4,750K in EA, $4,625K in AP, $5,000K in LA). Our prices are still about $3.50 to $7.00 above Blueprint’s Year 16 prices, supported by celebrity appeal and S/Q.

Rationale and alternatives considered: The alternative was a bigger price cut, but each $1 off the online price gives up revenue on every pair, and our Year 16 Internet share was already about 36–37% in NA, EA and LA. We therefore raised search by $25.5M in total (about 2.1% of projected revenue) to keep visibility ahead of a rival expected to have full stock. Free shipping was rejected because it adds a cost to every online order for a conversion gain we did not need at these share levels.

Decision 6: Wholesale Marketing

Decision made: We cut wholesale prices to $70 (NA), $68 (EA), $64 (AP) and $66 (LA), $8 to $12 below last year. Brand advertising is $30.0M in every region, the mail-in rebate is $5.00, delivery time is 2 weeks, and retailer support is $8,000 (NA), $7,000 (EA), $8,000 (AP) and $7,000 (LA) per outlet. In the competitive-assumption boxes we assumed tougher rivals: wholesale prices of $60.38, $62.25, $57.38 and $61.50, brand ads of $24.0M, $20.75M, $21.9M and $20.0M, rebates of $5.20 and $5.00, 2.2-week delivery and support of $5,713, $5,513, $5,400 and $4,850. The aim was to close the gaps that cost us wholesale share: last year Blueprint had 4,349 outlets in North America against our 1,000 and delivered in 2 weeks against our 4. Moving price, delivery, rebates and retailer support toward Blueprint’s terms is meant to rebuild outlets and share, with the cost accepted in margin. We lowered the assumed rival prices by $2 so that the forecast sits in the middle of likely outcomes.

Results of the decision: Projected wholesale share is 24.6% (NA), 25.8% (EA), 21.9% (AP) and 29.8% (LA), up from 21.8%, 23.4%, 19.5% and 25.6%. Retail outlets are projected at 1,180, 1,396, 1,078 and 1,551. Wholesale operating profit is about $164.5M, with margins of 23.4%, 20.1%, 24.9% and 27.9%.

What caused the results: Our prices are now only $6, $1, $3 and $0 above Blueprint’s Year 16 prices ($64, $67, $61, $66); last year the gap was $14, $13, $14 and $11. Retailer support is 40–60% above our own $5,000 and 45–66% above last year’s industry average of $4,813. Two-week delivery costs about $1.50 per pair, roughly $15M on about 10.2M wholesale pairs.

Rationale and alternatives considered: The alternative was to hold last year’s premium prices, which left us with a 22% share in NA and AP against Blueprint’s 46–47%. Retailer support at the new levels costs about $38.7M, against about $22.6M last year (4,528 outlets × $5,000), so we are paying about $16M more to rebuild outlets. We kept brand advertising at $30.0M everywhere to protect image and share. The forecast adjustment reflects a real risk: last year we gained about 803K wholesale pairs from rivals’ stockouts (EA +316K, AP +127K, LA +360K), and if rivals restock we could lose about $50M of revenue (4.3%).

Decision 7: Private-Label

Decision made: We offered 197K pairs from Asia-Pacific at $35.00 and no pairs from North America, Europe-Africa or Latin America. Both private-label specs use 30% superior materials and 100 models, with styling of $6K per model in NA and $14K in AP, giving S/Q of 5.0★ (NA) and 5.4★ (AP) against the 5.0★ minimum. We set Incorporate to No in all four regions. All remaining capacity is overtime (900K pairs in NA, 310K in AP, none in LA), so private label is a small add-on this year rather than a core line. We did not offer North America pairs because the margin on overtime-only capacity was thin.

Results of the decision: If the contract is accepted, Asia-Pacific earns $772K (revenue $6.9M, margin $3.92 per pair on a $29.08 production cost and $2.00 freight). Because it is not incorporated, the projections exclude it.

What caused the results: Asia-Pacific’s 310K pairs of spare overtime capacity is what remains after branded production. Its $29.08 cost, against a $35.00 price, leaves a thin margin.

Rationale and alternatives considered: The contract is worth about $0.03 of EPS, and each $1 off the offer would cost about $197K, so a lower price was not worth chasing. We left it out of the projections because a win is uncertain and an accurate forecast earns the Bull’s Eye point, which is worth more than the contract. The upside is free: if the offer is accepted it adds a small amount of profit, and if not, nothing changes.

Decision 8: Celebrity Endorsements

Decision made: We bid $3,500K a year to renew Billy Eyelash (priority 1) and $1,800K to renew Bronko Mars (priority 2), with a $6,000K spending cap. We made no offer to Taylor Sluggish, Jay XYZ or Chef Curry. Lady HaHa stays under contract through Year 17. A company can win at most two contracts a year, so the team judged which two mattered most. Billy and Bronko are our own expiring contracts and hold our appeal in North America and Latin America, and a rival that won them would gain what we lose. Taylor Sluggish would have taken one of our two contract slots for a smaller gain.

Results of the decision: Projected celebrity appeal is 245 (NA), 185 (EA), 185 (AP) and 210 (LA), against an industry average of 104 to 108. Total offers are $5,300K, under the $6,000K cap.

What caused the results: Billy’s contract expires this year, and the last rival offer for him was Blueprint’s $2,617K, so our $3,500K is 34% above it. Bronko’s last offer was $1,500K, so $1,800K is 20% above it. Billy brings 100 points of NA appeal and Bronko 95 points in Latin America.

Rationale and alternatives considered: A Taylor Sluggish offer would use one of our two contract slots. It would add 100 points of Europe-Africa appeal, and it would displace one of our own renewals. Overpaying slightly for Billy and Bronko is cheaper than losing them. The $6,000K cap is about 0.5% of projected revenue and covers both offers with $700K to spare.

Decision 9: Corporate Social Responsibility

Decision made: We stopped using recycled packaging this year (it was Yes in Years 13 to 16) and continued the other initiatives: energy efficiency at $100K per million pairs of capacity, $5,000K of charitable contributions, ethics training, both working-condition programs and the supplier code of conduct. CSR is one of the five scored measures through image, so the team asked whether each item still earned its cost. We tested recycled packaging at Yes and saw no change in projected image (still 90) while EPS fell $0.09, so we dropped it. Charity was held at $5,000K rather than raised because we already spend more than any rival and our image is level with Blueprint’s.

Results of the decision: Total CSR cash outlays are $22.5M, or $1.52 per pair sold, against $11.2M ($0.89) in Year 16 and an industry high of $1.03 per pair. Projected image is 89, against a target of 77.

What caused the results: CSR spending is about double Year 16’s, which we attribute mainly to the larger facility base and capacity-linked energy spending; the detailed breakdown will be confirmed when actual Year 17 CSR outlays are reported. We have won the Corporate Responsibility Award in Years 14, 15 and 16.

Rationale and alternatives considered: Recycled packaging costs about $0.15 per pair, roughly $2.7M a year, and the test showed it did not move image. Charity of $5,000K is about 2% of projected net profit. Image uses a three-year average and we are level with Blueprint at 22 of 24 on the investor score, so more giving earns little, while the cash supports the credit rating and the payout plan in Decision 10.

Decision 10: Finance & Cash Flow

Decision made: We took no new loans, issued no stock and made no early loan repayment. We raised the dividend from $2.25 to $3.25 per share ($58.9M) and repurchased 20K shares ($7.7M at $383.80). Scheduled repayments of $25.9M on existing 5-year and 10-year loans continue. The team returned cash to shareholders for two reasons. The Player’s Guide says higher dividends raise the stock price, and we are the best-in-industry benchmark on stock price ($383.38 against Blueprint’s $354.35), so a higher price lowers Blueprint’s relative score while keeping ours at 20. Paying out cash also lowers equity, which lifts ROE. We kept enough cash that a revenue miss would not force an overdraft.

Results of the decision: We project $38.9M of ending cash, EPS of $12.85, ROE of 34.7% and an A+ credit rating. Interest coverage is 54.26 (from 181.79) and debt-to-assets falls to 0.14 (from 0.21).

What caused the results: Operating profit covers about $116M of capital spending, $25.9M of loan repayments and $66.6M of dividends and buybacks without new borrowing. Interest coverage falls only because operating profit is shared with a larger interest bill on existing loans ($6.9M), and it remains far above the level needed for A+. Debt-to-assets improves because repayments shrink debt faster than assets grow.

Rationale and alternatives considered: The $3.25 dividend is about 25% of projected EPS and costs about $9M more than the $2.75 we first considered. The buyback retires only about 0.1% of shares, so its benefit is small. We rejected borrowing to fund larger payouts because loan interest (5.6–6.6%) would cut EPS and the credit measures. We also did not pay out more cash: if revenue missed by 5%, profit would fall about $25M and cash would still stay positive near $14M, whereas overdrafts cost 7.6%.

Projected Year 17 outcomes

Every scoring measure is projected to beat its investor target, though EPS, ROE and image are below Year 16’s levels.

Measure	Year 16 actual	Year 17 projected	Year 17 target
EPS	$14.46	$12.85	$6.00
ROE	49.0%	34.7%	27.0%
Credit rating	A+	A+	A
Image rating	94	89	77
Net profit	$262.0M	$232.7M	—
Net revenues	$1,120.8M	$1,189.6M	—
Ending cash	$19.8M	$38.9M	—
Interest coverage	181.79	54.26	—
Debt-to-assets	0.21	0.14	—

EPS and ROE fall from Year 16’s levels because we cut prices, raised marketing and retailer support, and spend about $116M on equipment; Year 16’s 49.0% ROE was exceptionally high. Stock price is set by the year’s results, so it is not projected here; it was $383.38 in Year 16 against a Year 17 target of $150.