simulation handout The Sports Company Managementsimulation - handout

Transcription

1 simulation handout The Sports Company Managementsimulation - handout

2 Table of contents Introduction 4 1 Purchasing,Transport and Warehousing 6 2 Sales 8 3 Advertising 10 4 Human Resources 12 5 Market Research 14 6 Competitor Review 16 7 Financial Data 18 2

3 Introduction

4 Introduction Starting today, you and a number of your colleagues form the board of directors of your own simulation company. Your company is an International Wholesaler in sports goods. You may choose your own company name. Your company faces competitor businesses within the same sector. These competitors are played by the other participants in the simulation. Your wholesale business trades in three product groups: Socks T-shirts Shoes You source your products in the Far East and you can sell them to retailers both at home and abroad. This means that you have six product-market combinations: Socks domestic retailers Socks foreign retailers T-shirts - domestic retailers T-shirts - foreign retailers Shoes - domestic retailers Shoes - foreign retailers All decisions are taken for one quarter and each round of the simulation represents one quarter. In the following, this manual discusses: Purchasing, Transport and Warehousing Sales Marketing Human Resources Market Research Competitor Review Financial Data 4

5 1 Purchasing, Transport and Warehousing

6 1 Purchasing, Transport and Warehousing You purchase your products in the Far East. Purchasing takes place in the following units: Socks: per three pairs T-shirts: per item Shoes: per pair You can purchase any desired volume. Do keep into account that the goods will be delivered exactly one quarter after they have been ordered, which means any goods ordered in a particular quarter will only be only available for sales in the next quarter! The purchase price is not fixed! However, you can use market research (see chapter 5 Market Research) to buy forecasted price developments for the coming four quarters. The cycle of market research, ordering, receiving and sales can be represented schematically as follows: Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Market Ordering Sales research and receiving Market Ordering Sales research and receiving Market Ordering Sales research and receiving Market Ordering Sales research and receiving Market Ordering Sales research and receiving Market Ordering Sales research and receiving After purchasing the goods are transported by container to the Netherlands. The fixed costs for this are 5,000 per container. You can transport the following volumes per container: Product Socks T-shirts Shoes Maximum volume per container 50,000 sets of three pairs 25,000 items 10,000 pairs You cannot transport different types of goods in a single container! Even if you only use part of a container s capacity, the cost is still 5,000. 6

7 Purchased goods are taken into inventory. Inventory carrying costs are charged on the average inventory for each quarter. Inventory carrying costs are: Socks : 0.25 per three pairs per quarter T-shirts : 2 per item per quarter Shoes : 7 per pair per quarter The goods in inventory are accounted for at a standard price. The standard prices for the various products are: Socks per three pairs : 0.90 T-shirts per item : 2.50 Shoes per pair : 19 If the actually paid purchase price is higher or lower than the standard price, the difference is entered on the Income Statement account under Price differences arising from purchase. Enter the volumes you wish to order on your Decision Form under Planning of Purchases. These volumes can only be sold in the following quarter! 7

8 2 Sales In a given quarter, your maximum sales volume is the closing inventory of the past quarter, which you can divide over domestic and foreign sales. You are free to determine your own sales price, albeit subject to a lower and an upper limit: Product Minimum sales price Maximum sales price Socks T-shirts 8 16 Shoes The sales price you choose is an important factor with respect to the volume of sales that you will achieve. In addition, the prices asked by your competitors are also an important factor in this! The level of sales achieved depends on: The potential of the sales markets The price elasticity of the demand for the product concerned The level of your sales prices The level of your competitors prices The level of advertising by you and your competitors Goods sold are shipped to the retailers for your account. Shipping is outsourced at a variable cost. The variable shipping costs are: Product-market combination Socks domestic Socks foreign T-shirts domestic T-shirts foreign Shoes domestic Shoes foreign Variable shipping costs 10 per 100 sets of 3 pairs 11 per 100 sets of 3 pairs 125 per 100 items per 100 items 400 per 100 pairs 440 per 100 pairs You can purchase market research information on the outlook for the sales market for each product-market combination (see chapter 5 Market Research). 8

9 On the Decision Form, please indicate under Offered Products : The volume you are offering The price you are asking Your offer is valid for the same quarter as the quarter for which you are completing the form. 9

10 3 Advertising You can spend on advertising for each product-market combination. This costs 5,000 per quarter per product-market combination. This means that you can spend a maximum of 30,000 on advertising in a given quarter. The costs are paid in the quarter in which they are incurred. Advertising has a beneficial impact on the sales levels you achieve, but this is also influenced by the degree to which your competitors advertise. You can purchase information on your competitors level of advertising (see Chapter 6 - Competitor Review). Check the boxes on your Decision Form under Advertising to indicate which product-market combinations you wish to advertise in the quarter concerned. 10

11 4 Human Resources

12 4 Human Resources You can also influence your company s HR policy. In the simulation, the way you shape your human resources policy is expressed in a decision variable: wage adjustments. In the starting situation, your company has the following employees with accompanying wage costs: Department Number of employees Wage costs per month Purchasing 2 3,500 Sales 2 4,000 Management 4 4,500 Warehouse 12 2,500 The quality of your company s human resources policy influences the level of sick leave within your company. Sick employees are automatically replaced and lead to higher wage costs. The quality of your employees is excellent: you can grow your company without hiring extra personnel as they are capable of handling limitless growth! Enter the percentage by which you wish to increase wage costs in the quarter concerned on your Decision Form under Personnel. The increase is calculated with respect to the wage costs of the preceding quarter. 12

13 5 Market Research

14 5 Market Research Market research allows you to purchase information on future developments on your purchasing and sales markets. This may allow you to take more responsible policy decisions than if you did not have such information. If you wish to purchase information on sales market potential, you can request information on the market s potential for a certain product in a certain quarter, at a consumer price selected by you. Do not forget that you are doing market research into consumer prices! The difference between your sales price and the consumer price is formed by the retail margin. The margins are: Product Retail margin as a percentage of the retail purchase price Socks 30 T-shirts 50 Shoes 40 You can purchase the following information at the following rates: Information Level of future purchase prices Potential of total sales market at a price chosen by you Price 1,000 per product-market combination per quarter 1,000 per product-market combination per quarter NB: You can only request the potential of the total sales market for a given quarter once, even if you want to test a different consumer price! Tick the boxes on the Decision Form under Development Purchase Products to indicate for which quarters and which product-market combinations you want to know the level of the purchase price. Under Market Potential you can indicate for each product-market combination for which quarters and at which consumer price you want to know the total sales potential. 14

15 6 Competitor Review

16 6 Competitor Review Your success or failure is influenced by what your competitors do. It is possible in retrospect of course to purchase information on the policies pursued by your competitors. You can purchase the following information: Sales achieved by your competitors The prices applied by your competitors The degree to which your competitors advertised The degree to which your competitors adjusted their wages The purchased information is delivered per competitor. However, you can only opt to purchase information for all competitors at once, or not at all. The costs for competitor research are: Information Costs Competitor sales 1,000 per product-market combination per quarter Competitor pricing 1,000 per product-market combination per quarter Competitor advertising 1,000 per product-market combination per quarter Competitor wage adjustments 1,000 per quarter On your Decision Form you can indicate under Competitors for which quarters and for which product-market combinations you want to find out: Competitor sales Competitor prices The degree of competitor advertising Under Competitor Personnel Policy you can indicate for which quarter you wish to be informed of competitors wage adjustments. 16

17 7 Financial Data

18 7 Financial Data At the start of the simulation, each simulation company has the same starting position. The balance sheet The opening balance sheet is as follows: BALANCE SHEET (IN ) Assets Liabilities Non-current assets Shareholders Equity Building 2,250,000 Share capital 360,000 Warehouse fittings 40,000 Reserves 230,303 Transport vehicles 30,000 Profit after tax 224,031 Current assets Non-current liabilities Inventory 267,500 Mortgage loan 2,200,000 Trade and other receivables 309,767 Current account 306,866 Current liabilities Cash 5,000 Trade and other payables 74,167 Tax payable 120,632 3,209,133 3,209,133 Explanatory note: Non-current assets are depreciated as follows: Building : 1.5% of 2,250,000 per year; Warehouse fittings : 10% of 40,000 per year; Transport vehicles : 20% of 30,000 per year. The inventory is valued on the balance sheet at standard prices. Debtors pay after one month. The cash balance is always 5,000. Any surplus is automatically added to the current account balance, and any shortfall is automatically made up from the current account. Share capital is fixed and cannot be adjusted during the simulation. The profit after tax is added to the reserves at the end of each fourth quarter. Any losses are deducted from the reserves. 18

19 The mortgage loan has a fixed interest rate of 5 percent. The mortgage loan cannot be increased, but it is possible to make redemption repayments every quarter. This always requires permission from the bank! Creditors are paid after one month. Taxes amount to 35% of the pre-tax profit and are paid in each fifth quarter. The costs Virtually all the costs have already been mentioned in the previous chapters. Cost of interest for a negative balance on the current account amount to 10% per year. In addition the following overhead needs to be taken into account: Purchasing department : 30,000 per quarter Sales department : 20,000 per quarter Warehouse : 25,000 per quarter Other fixed costs : 40,000 per quarter Within the simulation you can call up the full Income Statement for the past period. 19

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