Promoted to President

Year 4: 2005

Production Capacity Review• What is a standard capacity unit (SCU)?

– It’s a way of measuring capacity for different products made using the same machinery and staff.

• Example

– If a road bike takes 2 SCU to build, a mountain bike takes 1 SCU to build and a kids bikes takes 0.5 SCU to build,

– Then if you have 20,000 SCU of production capacity, how many bikes can you build?

Production Capacity Review (cont)• If you have 20,000 SCU of production capacity then the first

question is how much wastage do you have?

– If you have 20% wastage then you only have 0.85 x 20,000 SCU = 16000 SCU

– With 16000 SCU then you could produce

• 8,000 Road bikes, or 16,000 Mountain bikes or 32,000 Kids bikes.

• Alternatively you could make some of each type of bike, e.g. 4000 Road Bikes (8000 SCU), 5000 Mountain Bikes (5000 SCU) and 6000 Kids Bikes (3000 SCU)

Production Capacity Targets• What is a “reasonable” amount of wastage?

– In many manufacturing industries a target of 80% production efficiency is considered to be very good. Achieving more than 90% efficiency is often more expensive than purchasing more capacity.

• How much idle time should we aim for?– The ultimate target is 0% idle time. However in the

simulation you should consider reducing capacity if your idle time is ever greater than 10%. The 10% leeway is to allow for a gradual growth in sales.

Market Analysis3

MARKETSEGMENTS

– Two new market segments are now available: Road and Kids bikes.

– What stage is each segment at now in its product life cycle, e.g. growth or maturity?

– How will this change over the next two years (decisions)?

Road Bike Segment– Estimated size: 6,000 units

– Price range of $1000 to $2500 with an RRP of $1300

– Not particularly sensitive to advertising (0.20 recommended for awareness) but highly sensitive to PR (0.6) and Quality (0.95)

– Make sure that you check which media channels to target with your PR expenditure

Kids Bike Segment– Estimated size: 48,000 units

– Price range of $200 to $400 with an RRP of $260

– Highly sensitive to advertising (aim for 0.60) and distribution (0.50)

– Not particularly sensitive to PR (0.20) and prepared to accept lower quality materials (0.50)

– Make sure that you check your distribution decisions are targeting the right channels for this segment

Mountain Bike Segment– Estimated size: 40,000 units

– Price range of $400 to $800 with an RRP of $550

– This segment is mature and you should be aiming to reduce costs.

– Check your advertising (0.50) and PR (0.20) results on the all product details report. You may want to consider reducing your promotion expenditure for your mountain bike(s).

• Written Assignment 2: New President’s Memo– Prepare a 1-2 page memorandum to the employees of your firm. (It should be

typed, double spaced in a font of 10 or 11. One page is the minimum length acceptable; two pages is the maximum.)

– Readiness for the Position: Now that you have three years of experience under your belt, which functional areas (Marketing, Operations, Accounting, Information Technology…) of the business were you the most confident in? Which areas were you the least confident in? How will this affect your performance as President?

– Lessons Learned: Over the past three years, what have you learned about the coordination required among the functional areas? Has your firm experienced good cross-functional coordination, or not? How have decisions made in one area affected the other area(s)? As President, what policies will you initiate to ensure that your firm is successful as it grows to become a multi-product company?

– Reports: After you have rolled over to 2005, print out the Industry Benchmark Report, the Decisions Report, and the Income Statement for your firm for 2004. Staple these and attach them to the back of your memo.

You’re now ready to take over the President’s role at your firm