How to improve plant utilization in capsim

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Capstone® Debrief Rubric Report

Table of Contents

How to Use This Report ................................................................................................................................ 2

Sample Report ............................................................................................................................................... 3

The Company Rubric ..................................................................................................................................... 4 ROS ............................................................................................................................................................ 4

EPS (Earnings Per Share) ........................................................................................................................... 5

Contribution Margin ................................................................................................................................. 5

Change in Stock Price ................................................................................................................................ 6

Leverage .................................................................................................................................................... 6

Stock Price ................................................................................................................................................. 7

Bond Rating ............................................................................................................................................... 8

Emergency Loans ...................................................................................................................................... 8

Current Ratio ............................................................................................................................................. 9

Inventory Reserves.................................................................................................................................. 10

Plant Purchases Funded .......................................................................................................................... 11

Accounts Receivable ............................................................................................................................... 12

Accounts Payable .................................................................................................................................... 13

Asset Turnover ........................................................................................................................................ 14

Sales to Current Assets ........................................................................................................................... 14

Overall Plant Utilization .......................................................................................................................... 15

Stock Outs (Company level) .................................................................................................................... 15

Bloated Inventories ................................................................................................................................. 16

Overall Actual vs. Potential Demand ...................................................................................................... 16

Cost Leadership ....................................................................................................................................... 16

Product Breadth ...................................................................................................................................... 17

Market Share Overall .............................................................................................................................. 17

Overall Awareness .................................................................................................................................. 18

Overall Accessibility ................................................................................................................................ 18

Overall Design ......................................................................................................................................... 19

Asset Base ............................................................................................................................................... 19

2 © 2011 Capsim Management Simulations, Inc. All rights reserved.

The Product Rubric ..................................................................................................................................... 19 Positioning .............................................................................................................................................. 19

Age .......................................................................................................................................................... 20

Reliability ................................................................................................................................................. 20

Price Percentile ....................................................................................................................................... 21

Awareness ............................................................................................................................................... 21

Accessibility ............................................................................................................................................. 22

Customer Survey Score ........................................................................................................................... 22

Potential Share/Average Share ............................................................................................................... 23

Actual Share/Potential Share .................................................................................................................. 23

Plant Utilization ....................................................................................................................................... 24

Automation ............................................................................................................................................. 24

Contribution Margin ............................................................................................................................... 24

Days of Inventory .................................................................................................................................... 24

Promotion Budget ................................................................................................................................... 25

Sales Budget ............................................................................................................................................ 25

R&D Utilization ........................................................................................................................................ 25

Overall Product Evaluation ..................................................................................................................... 25

Summary Rubrics ........................................................................................................................................ 26

How to Use This Report

The Capstone® Debrief Rubric Report offers a comprehensive evaluation of a company and its products.

It is prepared as a rubric, with each item in the report scored on a scale of zero to three: • Excellent – 3 points • Satisfactory – 2 points • Poor – 1 point • Trouble – 0 points

There are seven categories ranging from “Margins & Profitability” to individual products. Each line item is discussed below, beginning with how the item was scored.

To make quick use of the report, scan it for zeros. Find the description below to learn why the company earned a zero. We recommend having a Capstone Courier at your disposal as you interpret the results.

3 © 2011 Capsim Management Simulations, Inc. All rights reserved.

Sample Report

DEBRIEF REPORT 2013 Ferris C42681

COMPANY RUBRIC Points (0..3)

Margins & Profitability Asset Utilization ROS (Profits/Sales) 0 Asset turnover (Sales / Assets) 1 EPS (Earnings Per Share) 0 Sales to Current Assets 1 Contribution Margin 2 Overall plant utilization 2 Change in Stock Price 0 Total (Max 9) 4 Total (Max 12) 2

Ability to raise growth capital Forecasting Leverage 2 Stock outs 2 Stock price 0 Bloated inventories 2 Bond rating 1 Overall Actual vs. Potential Demand 3 Total (Max 9) 3 Total (Max 9) 7

Sound Fiscal Policies Competitive Advantage Emergency loans 3 Cost leadership 0 Leverage 2 Product breadth 3 Current Ratio 3 Market share 2 Inventory reserves 0 Overall Awareness 2 Plant purchases funded 3 Overall Accessibility 2 Accounts Receivable 2 Overall Design 1 Accounts Payable 2 Asset Base 3 Total (Max 21) 15 Total (Max 21) 10

PRODUCT RUBRIC Cake Cedar Cid Coat Cure Ch Cp Cs Overall Primary Segment Trad Low High Pfmn Size 0 Pfmn Size Positioning 1 3 2 2 2 0 1 1 2 Age 3 3 1 3 3 0 2 1 2 Reliability 0 0 0 0 0 0 0 0 0 Price Percentile 0 1 0 0 0 0 0 0 0 Awareness 2 2 3 3 3 0 2 2 2 Accessibility 2 2 0 2 2 0 2 2 2 CustomerSurveyScore 1 0 3 3 3 0 3 1 2 PotentialShare/Avg 1 1 3 3 3 0 0 0 1 ActualShare/Potential 3 2 3 3 2 0 2 2 2 PlantUtilization 3 3 3 2 2 0 0 0 2 Automation 0 0 1 2 2 0 2 2 1 ContributionMargin 0 0 0 0 0 0 0 0 0 Days of Inventory 2 2 2 1 2 0 0 0 1 Promotion Budget 0 0 3 3 3 0 3 3 2 Sales Budget 0 0 3 3 3 0 2 2 2 R&D Utilization 0 0 0 0 0 0 0 0 0 Total (Max 48) 18 19 27 30 30 0 19 16 21

4 © 2011 Capsim Management Simulations, Inc. All rights reserved.

The Company Rubric

ROS Return on Sales (Profit/Sales) answers the question, “How much of every sales dollar did we keep as profit?”

Excellent ROS > 8% Satisfactory 4% < ROS <=8% Poor 0% < ROS <= 4% Trouble ROS <= 0%

Between 0% and 4%, while the company is at least making a profit, it is not bringing in sufficient new equity to fund growth. The industry is growing at about 15% per year. The industry consumes about 15% more capacity each year, which arrives in the form of plant expansions and new products. Therefore, as the simulation begins, an average company would add about $12 million in new plant each year. If half that or $6 million was funded with bonds, an average company would need about $6 million in new equity. Therefore, if the company does not have the profits, it must either issue $6 million in new stock, or $12 million in bonds, or not grow to keep up with demand. Worse, if it has no profits, its stock price falls, making it difficult to raise equity through stock issues.

This ignores investments in automation, which also require a funding mix of equity and debt.

In the opening round of Capstone® companies have an excess of assets, and that can convert idle assets into productive ones. Therefore, do not worry too much if the company’s profits are low. But after year 3, expect that idle asset cushion to be gone. Profits become critical because those companies with profits can grow, and those without cannot.

What if profits are negative? The company is destroying equity. Its stock price has plummeted, making it more difficult to raise equity. All of the problems described above are now accelerated. In short, trouble.

How can companies improve ROS? Here are a few questions to pose.

1. Can you raise prices? 2. Can you reduce your labor costs? Your material costs? 3. Can you forecast sales better and thereby reduce your inventory carrying expenses? 4. Have you pushed your promotion or sales budgets into diminishing returns? 5. Can you sell idle plant to reduce depreciation? Alternatively, can you convert idle plant into

some other productive asset, like automation or new products? 6. Is your leverage too high, resulting in high interest expenses. (See leverage.)

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EPS (Earnings Per Share) EPS (profits/shares outstanding) answers the question, “What profits did each share earn?” EPS is a driver of stock price, and stock issues are an important source of growth capital.

Excellent EPS > $2 + Round # Satisfactory ($2 + Round #)/3 < EPS <= $2 + Round # Poor $0.00 < EPS < ($2 + Round #)/3 Trouble EPS <= $0.00

In the table, “Round #” refers to the year in the Capstone®. Round 1 is year 1, round 2 is year 2. The market is growing, and so should profits. In Round 5, for example, an excellent EPS would be ($2 + $5) = $7.00 per share, and a satisfactory EPS would be at least 1/3 that or $2.33.