The following template is to be used for the project. The report needs to be rewritten grammatical error free and concise.
Project 4 Analysis Directions: Write your answers below each question. Please do not delete the questions.
What strategy were you implementing? What type of product (speed, accuracy, service life, and price) did you design in Round 1? Explain how your settings for speed, accuracy, service life, and price in Round 1 were driven by the chosen strategy.
The strategy implemented by Team Baldwin was a broad cost leader approach, with the goal of maintaining products in both market segments in two to three countries (Eight Strategies in Capsim, n.d.). Team Baldwin made their products easily accessible in target countries and improved them as the market changed each round.
In the first round, Team Baldwin improved their Baker product’s speed and accuracy to 6.4, increased its service life to 18,000, and priced it at $33.50. We decided to market Baker in the low-tech sector and purchase a China region kit to target their market. We chose the speed and accuracy of 6.4 because of the research and development costs. The costs would have been too high if we decided to lower the speed and accuracy to low-tech buying criteria. The service life was chosen because of the importance of the countries we were targeting. Keeping the service life lower meant that we would lower the material costs (Customer Segment Guide, n.d.). The price point we chose was to stay competitive within our markets. We wanted our price to be reasonable and reasonable. Additionally, we began production for our high-tech product, Bead. In round one, Team Baldwin chose Bead’s price and accuracy of 8.1 and service life of 17,500. We could not choose a price due to the market date of our product in 2025. The speed and accuracy decision was based on the high-tech customer buying criteria of 8.1 for all countries. The service life was decided because of the low importance for all countries.
How did you create a sales forecast in each round? Explain. For Round 1 only, how did you use the sales forecast for capacity planning?
In all four rounds, Team Baldwin created their forecast by the segment demand for each country we were targeting and our inventory standings. In round one, we selected 1,500 for our China and 1,500 for our USA forecasts. We sold our inventory in the USA but still had too much inventory in our China forecast. In round two, we kept our USA forecast at 1,500 and decreased our China forecast to 900 to sell our leftover inventory. We also had to market our second product, Bead. We selected the max forecast of 600 units for Bead. We chose this because we believed the product would be competitive against our competitors. In round 3, we kept our USA forecast the same again and increased our China forecast to 1,500. These decisions were based on increasing our sales and promo budget for both country’s markets. We kept the forecast at 600 for our product Bead and increased our promo and sales budget. In round four, we kept the same USA forecast of 1,500 and forecasted 1,300 for China. In round four for Bead, we increased our forecast to 1,200 because we wanted to profit from our products. In round one, we kept our sales forecast close to our capacity number. We decided to increase our capacity to 1,700 because we wanted to be able to sell more units than not.
What was the level of automation in your plant? Why? Discuss the role of contribution margins, if any, in your decisions regarding automation.
Throughout the rounds, Team Baldwin agreed to maintain a level three automation. While there could have been long-term benefits to increasing the automation level, it was decided that leveraging automation to maintain cost efficiency was in the best interest of the company. The same mindset applied to the capacity level.Since Team Baldwin’s focus is Broad Cost Leader, managing the plant as efficiently as possible was one of the goals throughout the rounds. In considering margin contribution, not a lot of emphasis was placed on this area. The contribution margin represents the portion of a product’s sales revenue that is not used by the variable cost; therefore contributing to covering the company’s fixed cost (Estevez, 2023). In Round One, Team Baldwin’s contribution was 27.23%, which was approximately.80% below the average. In Rounds Two and Three, Team Baldwin had contribution margins of 21.47% and 27.15%, respectively, which averaged to five-percent below our competitors. Lastly, in Round Four, the team’s contribution margin was 36.34, while the average was 1.23% below the team’s margin. This turnaround is likely attributed to the team maxing out the plant utilization. In an effort to end on a positive note, while staying true to our strategy, the team elected to go all in on production and it paid off. In retrospect, a greater emphasis should have been placed regarding the contribution margin as it truly signified the need for the team to adjust the automation level so that it was not a labor intensive company; rather one that relied on fixed costs.
Here is the correct citation (per Hope):
Estevez, E. (2023, December 20). Contribution Margin: Definition, Overview, and How To Calculate. Investopedia. https://www.investopedia.com/terms/c/contributionmargin.asp
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Are you running a second shift? Why or why not? Did you have inventory issues in any round? Explain.
Team Baldwin had two different product offerings since our strategy was cost leader, broad. With Baker being our lowtech product offering and Bead being our high tech, we did see inventory variances within the product offerings. For lowtech, it’s critical to consider how to create a produc that will not have a lot of labor cost involved since we are selling the item in a low cost competitive market. Our high tech product Bead, we still considered strategies around lowering labor costs but it wasn’t as important as it is for lowtech.
One of the first decisions we made in the beginning of round 1, was to consider where we are producing. We chose to produce and manufacture out of China. The reason for this was based on labor and shipping cost. In China, the hourly wage is $19.11 and the shipping cost is $0. Our team felt that this would give us a competitive advantage for both our hightech and lowtech products. We had to use two shifts for every round for both Baker (lowtech) and Bead (hightech) with the exception of round 4. In round 4, we used one shift for Baker. The goal is to not use unnecessary labor if the product line does not have demand and order against it. Baker seemed to not sell as many units as the high tech product did. We had inventory that carried over in almost every round so we needed to strategize on ways to not use a second shift for this product offering.
In round 4, Baker had an inventory count of 120 units with 1,468 units sold. Our group assessed each rounds inventory carryover, and sales to see how our labor was being utilized. We determined that since Baker didn’t have many sales from round to round, we needed to understand our production better to determine if we have the right capacity and manufacturing utilization. Baker sells in both the China and US market. In round 4, we lowered our ordering since we had excess in inventory and didn’t have high sales compared to our competitors. The other thing to consider with the shifts within manufacturing is labor costs. We saw an upward trend in labor costs with both Bead and Baker products.
The production for our high tech product offering, we ran two shifts for every round. Labor cost was some of the highest for this production compared to our competitors. In round 4, our labor cost was $11.54. Although the labor cost for all four rounds continued to be high for this production and product offering, we needed 2 shifts based on how we planned and ordered. Based on our round 3 report, we produced and sold the exact amounts which was 564 units and we had zero in inventory. For our round 4 planning, we knew that we needed to order more since we were selling exactly what we produced. Everything we planned, was a direct result in our labor and amount of shifts needed.
Which country (or countries) and customer segment (or segments) were you targeting with your product and why? Describe any two marketing decisions that you implemented over the four rounds to enable your desired targeting. If you introduced a region kit, describe how that affected your sales.
Team Baldwin implemented a strategy focusing on the Chinese and United States markets. Our initial product, Baker, targeted the low-tech segment in both regions. The decision to focus on these countries was due to China’s demand growth of 45%, compared with the United States’ more modest 6% growth, but had a substantial market size of 5,838. Choosing to establish our factory in China was advantageous by capitalizing on reduced labor costs for the US market and eliminating shipping expenses for the China market. Our pricing strategy was accurately adjusted to align with the market demand and maximized our net margins. Since our production was based in China, we decided to manufacture a region-specific kit, increasing our competitive advantage in the market by 15%. This not only increased customer satisfaction and met consumers’ expectations but also increased the position of our products against our competitors.
Our bead product solely targeted the high-tech customer segment in the United States. In round one, our R&D efforts for bead were aligned with the consumer expectations, determined by a segment demand of 3,195 and a growth rate of 13%, which continued to increase in following rounds. By round three, the introduction of a region kit for bead sustained sales but also improved the design score from 20 to 35 and customer satisfaction from 15 to 25. By solely selling the product in the United States, we aimed to increase our company’s presence in the region and capitalize on a large market size and potential increase profits through higher pricing. This approach enabled us to strategically position our products in these markets to drive company growth and potential profitability.
During project 4, team Baldwin noticed that some early marketing decisions influenced the sales of our high-tech and low-tech products, Bead and Baker. We learned that choosing to use a regional kit will influence sales by 15%, so we choose to utilize it in round 1. This decision positively impacted the overall results throughout the rounds.
We used the region kit to impact the operations of the US and China Market. The region kit captured consumer preferences, economic conditions, and regulatory environments. The region kit drove our strategy and business approaches in China and the US, which resulted in a positive impact to our sales, and it enhanced our competitiveness in the market.
We noticed that Baker, our low-tech product, was doing very well throughout the market but Bead, our high-tech product was not doing as well. We knew that we wanted to institute some marketing changes with Bead but lacked the capacity at our warehouse. We also needed to incorporate more automation since this product was high-tech since the sales were marginally lower than Bead. Due to the low sales we decided to drop our cost in the China market to increase sales. We also increased our promotion budget because our customer awareness was only 9%.
In round 3 for Baker, we increased our sales budget to try to increase overall demand in China and the US markets. The increases in our overall budget are attributed to Beads demand increasing our overall inventory. The China market was our most challenging market for low tech sales throughout the rounds. The region kits really made an impact on our marketing efforts throughout the rounds.
Remembering what you have learned in MBA 620 and by referencing the financial accounting ratios (link to Learning topic from MBA 620), calculate the net profit margin ratio at the end of Round 4. What does this ratio tell you about the profit being generated?
Net profit margin is one of the most important indicators of a company’s financial health. By tracking increases and decreases in its net profit margin, a company can assess whether current practices are working and forecast profits based on revenues. Because companies express net profit margin as a percentage rather than a dollar amount, it is possible to compare the profitability of two or more businesses regardless of size. Investors can assess if a company’s management is generating enough profit from its sales and whether operating costs and overhead costs are being contained (Murphy, 2024).
For example, a company can have growing revenue, but if its operating costs increase at a faster rate than revenue, its net profit margin will shrink. Ideally, investors want to see a track record of expanding margins, meaning that the net profit margin is rising over time. Most publicly traded companies report their net profit margins both quarterly during earnings releases and in their annual reports. Companies that can expand their net margins over time are generally rewarded with share price growth, as share price growth is typically highly correlated with earnings growth.
Net profit margin can be influenced by one-off items such as the sale of an asset, which would temporarily boost profits. Net profit margin doesn’t hone in on sales or revenue growth, nor does it provide insight as to whether management is managing its production costs. It’s best to utilize several ratios and financial metrics when analyzing a company. Net profit margin is typically used in financial analysis along with gross profit margin and operating profit margin.
Net profit margin is thus 0.10 or 10% ($8,365/$80,409) x 100. A 10% profit margin indicates the company earns 10 cents in profit for every dollar it collects.
Examining the balance sheet at the end of each round calculate the current ratio for each. Has the current ratio increased or decrease from round to round? Explain the major cause of the changes from round to round. Also, calculate the working capital for each round. Has your company had sufficient working capital in each round? If not, why not?”
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables. A current ratio that aligns with the industry average or slightly higher is generally considered acceptable. A current ratio that is lower than the industry average may indicate a higher risk of distress or default. Similarly, if a company has a very high current ratio compared with its peer group, it indicates that management may not be using its assets efficiently. The current ratio is called current because, unlike some other liquidity ratios, it incorporates all current assets and current liabilities.
The current ratio measures a company’s ability to pay current, or short-term, liabilities (debts and payables) with its current, or short-term, assets, such as cash, inventory, and receivables. In many cases, a company with a current ratio of less than 1.00 does not have the capital on hand to meet its short-term obligations if they were all due at once (Fernando, 2024). In contrast, a current ratio greater than 1.00 indicates that the company has the financial resources to remain solvent in the short term. However, because the current ratio at any one time is just a snapshot, it is usually not a complete representation of a company’s short-term liquidity or longer-term solvency.
A company that seems to have an acceptable current ratio could be trending toward a situation in which it will struggle to pay its bills. Conversely, a company that may appear to be struggling now could be making good progress toward a healthier current ratio. In the first case, the trend of the current ratio over time would be expected to harm the company’s valuation. Meanwhile, an improving current ratio could indicate an opportunity to invest in an undervalued stock amid a turnaround.
· Round 1- Current Ratio: 5.24 – An increase in inventory production from the year before made an impact on the current ratio.
· Round 2- Current Ratio: 2.42 – The current ratio decreased from the prior year as all cash was expensed, inventory doubled, and current debt was issued.
· Round 3- Current Ratio: 8.17 – The current ratio increased as accounts payable and current debt decreased.
· Round 4- Current Ratio: 6.06 – The current ratio decreased as current debt increased.
The current ratio is sometimes called the working capital ratio. Our company had sufficient working capital in each round since the current ratio was over the standard 1.00. Working capital estimates are derived from the array of assets and liabilities on a corporate balance sheet. Working capital is also a measure of a company’s operational efficiency and short-term financial health (Fernando, 2023). If a company has substantial positive NWC, then it could have the potential to invest in expansion and grow the company. If a company’s current assets do not exceed its current liabilities, then it may have trouble growing or paying back creditors.
Adequate cash flow is required for a company to support operations, invest in the future, pay down long-term debt and reward shareholders with dividends. Analyzing the Statement of Cash Flow for each round identify the change in cash flow from the previous round and identify the major cause of this change.
The cash flow statement serves as a crucial financial document for companies to identify the inflow and outflow of cash within the organization. It offers a detailed picture of the company’s cash during a specific timeframe, facilitating an evaluation of its financial health (Dublino, 2020). In all four rounds, our cash flow statement depicted fluctuations, indicating inconsistency in our financial stability until round four, where our team finally maintained financial stability.
In round one, our starting cash position stood at $9,999, decreasing to an ending cash position of $5,118. The inventory costs accounted for a significant part of the cash decrease, amounting to $9,050. Also, investments totaling $4,200 were made in plant improvements with the purpose to reduce long-term cost. To balance the high inventory costs, our team decided to issue long-term debt amounting to $4,200. Despite these efforts, our final cash position was $5,118, with concerns towards the impact of our high inventory costs in subsequent rounds. Round two resulted in further increase in inventory costs, climbing to $12,972, with investments of $5,700 for plant modifications. Despite issuing $1,200 in common stock sales and adding long-term debt of $4,500 to alleviate our costs, the ending cash position fell to $0, requiring a $5,324 emergency loan.
Entering round three we had a starting cash position of $0, our focus shifted to stabilizing our finances. Inventory costs were cut to $2,258, and a low plant investment of $900. We issued $4,700 in common stock and $2,400 in long-term debt, successfully retiring current debt totaling $7,191 while requiring a significantly smaller $42 emergency loan. This round was vital in stabilizing finances and limiting costs, helping lay the foundation for a successful round four.
In round four, we made significant improvements in cash from operations amounting to $17,544. Eliminating the inventory costs significantly increased our ending cash position and investing $1,800 in plant improvements and the retirement of $42 in current debt from emergency loans. We issue $1,800 in common stock to help refrain from increasing more long-term debt, resulting in our best ending cash position of any round with $17,264. Had there been another round, our focus would have shifted towards debt repayment and rewarding our shareholders due to financial stability. The consistent fluctuation of cash flow stemmed from ineffective cost management strategies and operational efficiency.
At the end of Round 4, how aware are consumers of your product in each country? How accessible is your product to the consumers in each country? How did your awareness and accessibility change from Round 3 to Round 4, and did that have any impact on your sales?
By the end of Round Four, for products Baker and Bead in the United States of America, customer awareness was at 68% and 72% respectively. In China, where Baker was the leading product, customers had a 55% awareness. Even though the awareness in the United States was comparable to competitors, the conservative approach that is recommended for the Broad Cost Leader Strategy may have cost the team a wider pool of consumers. Albeit, after Round Two, a little more money was invested into the product, but it may have been a case of too little, too late. Across the globe, when marketing Baker in China, conservative amounts were applied. In recognizing that Baker was our low-tech product, limited resources were placed in sales and promotions, as the team wanted to keep them to a minimum. This proved costly. After Round Three, 15 units of Baker were sold in China and customer satisfaction was one. An underestimation of the China market was prevalent throughout and was a factor in our limited success. Using data from Round Four regarding accessibility, for Baker and Bead in the United States of America, 67% accessibility was achieved for both products; whereas 19% was achieved for Baker in China. Again, the accessibility competition within the U.S.A was on par with competitors; however, it was greatly missed with our consumers in China.
In round 3 for our lowtech product offering, Baker, our customer accessibility was 51% and our customer awareness was 69%. We considered where our products in the market stood with customer when building a strategy around promotional and sales budget. In round 3, we also added a US region kit to help us gain more customer awareness and flush out the inventory we were carrying over. We sold 815 units, which is low compared to our competitors in the market. Our strategy was to build onto as much awareness as possible to gain more momentum in the market and customer awareness to win the sale. In round 3 our sales budget was $1,200 and our promo budget was $1,100. We also sold this product into the China market. Our sales budget was $1,400 giving us only 20% customer accessibility and our promo budget was $1,000 with a 51% customer awareness. Cake was the leader in this market selling more units then any other product or team and the highest customer awareness and accessibility. Some key indicators that gave them an advantage over our product was the price point, age, and investment dollars into their sales and promo budget. This was a market that we struggled in for both round 3 and 4. If we could go back and do things differently, we could consider these factors and have a better understanding of how to ensure our age, speed and efficiency align in a way to gain more momentum into these markets.
For our high tech product offering, Bead, we invested with $1,400 in our sales budget which led us to 63% for customer accessibility and $1,000 against our promo budget which resulted in a 57% customer awareness. We did not have the highest sales in this market within the US. We priced our product on the lower end as well compared to our competitors. Something to reconsider is our investment dollars behind our promo budget. In order to gain more customer awareness which could led to winning the sale, would be more investment behind our promotional dollars. In this round, Ant was the leader in this market segment. They had the highest sales and largest ratio in customer accessibility and awareness. Some key factors they did differently, was their investment behind the promo budget and they had the highest price point. Our team needs, to work on ensuring that we have high awareness so that the customer knows about the product. We priced our product lower then the competition which could be a huge advantage, but because our awareness was lower, we did not gain the sale to take the lead in this market.
In round 4 for our lowtech product in the US, Baker’s customer accessibility was 55% and the customer awareness was 68%. We increased our sales budget slightly and decreased the promo budget to $1,000. Although we had an increase in awareness, 45% of the consumer base did not have accessibility to our product which impacted our sales. In China for this product line, our customer accessibility was only 27% and our customer awareness was 55%. Cake was the leader in this product type and saturated the market the most. They had a lot more investment dollars behind their sales budget which allowed the consumer to have access potentially leading to a sale. They also had the most customer awareness and because their pricepoint was competitive and not as high as ours, they won the sale over our product. For our high tech product offering, Bead saw more traction in round for for awareness and accessibility which helped with our sales but we were still not the leaders in this market. Our accessibility was 67% and our awareness was 72%. Our pricepoint was not the highest compared to the market, but we were never able to fully capitalize on this since our accessibility and awareness was not as high as our competitors. We kept our promotional and sales budget the same, $1,400. While analyzing the report, we should have considered increasing the amount to see if that would help get us to the front of the consumer to win the sale since our pricepoints were fairly competitive.
