Capsim Decision Record

Directions: This document is intended to help you record your thoughts as you apply your team’s chosen strategy through the rounds in Capsim decision record. The notes you take here will be useful for your final analysis. Find your assigned department below. Listed in each department are the action items given in Capsim: A Systematic Approach to Making Strategic Decisions.

Chosen strategy: Global Niche Cost Leader

Research and Development Capsim Decision Record

Decision Summary: Capsim Decision Record

Round 1

Since Team Chester’s strategy is to market to low- tech customers, the speed and accuracy were set to the criteria of the low-tech customers that was appealing to all potential purchasers across the USA and China. From the posted Customer Buying Criteria, the product age had a 19% importance and reported three years as the ideal age across all three regions.  Based on CAPSIM limitations, we were only able to set the age at 2.2, well within the customer requirement of 3 years. For the service life of product Cake, we set this decision at the low range of the customer reliability range of 14,000 to 20,000.

Since the Customer Buying Criteria placed only a 9% importance on this feature, we chose to reduce costs by setting the service life at 15,000. For Round 1, the team also introduced R&D for a new product, Cat. The speed, accuracy, and service life parameters were set congruently with product Cake, in order to produce two reliable products that met customer expectations. The missing production and marketing decisions for this new product was an oversight, delaying the launch of this product. Lastly, Given the fact that the team was anticipating opening sales in China, region kits were added to R&D for both product Cake and Cat.

Round 2

In round 2, Team Chester again adjusted the speed and accuracy for the Cake product in alignment with the Customer Buying Criteria for the year 2022. The speed and accuracy were increased from 5.3 to 5.8 for product Cake. In compliance with Team Chester’s cost leader-niche strategy, the service life for the cake was slightly reduced to the lowest end of the customer expectation range of 14,000 – 20,000 hours, or 14,000 hours. This decision was made in hopes of further reducing R&D costs yet remaining within the range of customer’s preferences.

Per the Round 1 simulation report, year-end the 2022 age for product Cake was 4.1. And according to the CAPSIM user guide, modified products are considered to be new and improved, which cuts the perceived age of the product in half (CAPSIM, n.d). Per the Round 1 simulation report, product cake ended in 2021, with an age of 4.1. Therefore, after changes to speed and accuracy, the product Cake age equaled approximately 2.05. This age is well within the 3-year customer expectation for Round 2.

The speed, accuracy, and service life parameters for product Cat were similarly adjusted to within the specifications of the 2022 Customer Buying Criteria. Secondly, a new product, Product Cell, was also introduced to R&D during Round 2. Although no production or marketing decisions were implemented for product Cat or Cell during Round 1 or Round 2, R&D was able to begin formulating the product.

Additional region kits were added for the US market during this round. While the region kits were somewhat contradictory to our approach as a Cost Leader-Niche, the choice was made in hopes of increasing demand for both the US and China markets. We also deemed the relatively low cost of the region kits still to maintain our position as a low-cost point manufacturer. Lastly, specifications for Product Cell, a new product, was introduced to R&D during

Round 3

In round 3, it was determined that a teammate had mistakenly made a significant change to the service life of Product cake during the decision making the process of Round 2. Even though the change was corrected just prior to simulation processing on 08/08/20, the change was so excessive that the team was locked out of R&D while it tried to implement the service life change. Due to this situation, the team was unable to make any changes to speed, accuracy, or service costs for any product. This was unfortunate, as the Customer Buying Criteria indicated desired speed, accuracy, and service life to be 6.3, 6.3, and within the range of 14,000 – 20,000 service hours, respectively.

For Round 3, the speed and accuracy for Cake, Cat, and Cell remained the same as those decisions set in Round 2. Luckily, the service life for all three products was still in the anticipated customer range for 2023, as the service life spectrum remained the same overall four rounds. However, given the fact that Cake sales had fallen significantly between Rounds 1 and 2, the intention had been to slightly increase age and service life to improve demand during Round 3. Lastly, at the end of Round 2, the age for product cake was reported to be 5.1, well outside the customer expectations.

The product Cat and Cell finally reached development during round 3, and the necessary production and marketing decisions were made to initiate sales. Product Cat entered the market with speed and accuracy of 5.9 and similar service life to product Cake of 14,650. For produce Cell, the speed and accuracy were set at 6.0 and 5.8, slightly less then the Customer Buying Criteria. This was not the exact specifications our customers relied upon, but again, we were unable to make any further adjustments during this round.

Round 4

In Round 4, Team Chester continued to improve the speed and accuracy of the Cake product to align with the low-tech customers. However, the service life for all three products, Cake, Cat, and Cell, were once again set at the lowest end of customer expectations, between 14,000 and 14,100. This decision was made solely to reduce R&D but, in hindsight, greatly impacted customer demand. For product Cake, the age had progressed to 3.5 at the end of Round 3, once again outside of the Customer Buying Criteria. The remaining positive aspect of products Cat and Cell was their age, both starting Round 4 at .4 years. Products Cat and Cell remained viable through Round 4 and supported the doubling of sales in the Chinese market.

Marketing Capsim Decision Record

Regions Selected for Sales – the United States and China

 Decision Summary:

Round One

As a team following the local niche cost strategy, we aim to keep all costs at a low point, so we are able to offer consumers competitive prices, without compromises on products’ reliability. Low-tech consumers are our target group in the United States and China. In round one, the marketing department aimed to keep pricing within the range of both countries. The price is 50% or above in rank of importance. Although it was a new company, we kept a modest promo budget and chose to let our products inherit value sale itself, so to speak.  The forecast was largely due to the production capacity available in sync with the modest marketing approach.

Round Two

In round 2, the half-price introductory price promotion was ended, and preparations were made to scale up marketing efforts.  The promotional budget remained the same to make up for the price increase, but the sales budget was increased to make headway in targeting consumers.  Forecasting was adjusted based on customer demand rates. The cake started a touch higher in requirements than niche value customers would have preferred, so the demand was lower than initially anticipated.  The forecast in China was scaled back, and the forecast in the United States was increased to be more in line with expectations. 

Round Three

In round 2, an unfortunate error debilitated CAKE’s ability to be further adjusted for consumer demands.  Forecasts were lowered as this was going to negatively impact any chance to meet customer specifications. Two new products, CAT and CELL, were introduced into the R&D cycle in the previous round, and they could be given a chance to compete in the market even if the CAKE was handicapped.  Keeping in Chester’s modest marketing approach, the promotional budget and sales budget were kept low and once again aimed at delivering quality products that would speak for themselves.

Round Four

The setbacks for CAKE and the overall suboptimal financial situation from the error prevented a bigger campaign to raise product awareness, particularly in the United States market.  The modest marketing approach did not raise significant enough awareness to penetrate the USA market, and Chester remained in the last place.  Chester’s strategy was much more competitive in the emerging Chinese market, however.

The general affordability allowed Chester to take a stand, and with the emergence of CAT and CELL, actually, take the lead as all three products hit the sweet spot of customer requirements.   While Chester’s combined effort sold near the potential capacity in the Chinese market, much of the USA market was left unrealized, and moving forward would require a larger marketing budget and presence to make it known as an option.

Production Capsim Decision Record

Round One

With production, Team Chester is following a local niche cost strategy. The production plant location is in the United States and participates in the local USA market and the Chinese market.  For the initial round, a Cake production order of 350 and 950 were placed for the US and China, respectively.  However, according to CAPSIM support, there was a program glitch that kept production at the default of 1,700.  This happenstance was actually to Team Chester’s advantage, as the increased production allowed us to get closer to the estimated US market demand of approximately 1,600 units.

At the end of the round, 1,632 units were produced. Unfortunately, the units produced did not meet demand, and we “stocked-out” during the round. In addition, Team Chester did not account for the 4% defect specifications based on our plant setup.  Production equaled 100% of capacity for the first shift only.

Round Two

For 2022, a Cake production order of 650 and 750 were placed for the US and China, respectively. Mistakenly, a capacity change was made that reduced production by 1,000 units. Therefore, Team Chester once again “stocked-out” against demand, which was estimated to be approximately 2,000 units. During this round, 1,296 units were produced as compared to the 700 capacity, utilizing 193% of the limited plant capacity decision.

Round Three

Based on the reducing demand for the Cake product, a production order of 325 and 325 were placed for the US and China, respectively. Also, production orders for product Cat were introduced at 650 and 750 for the US and China, respectively. In addition, a Cell production order of 900 and 850 were placed for the US and China, respectively.  These robust new product orders were initiated to boost Team Chester’s China market share. Production of product Cat boosted plant production to 200%, thereby using both the first and second shifts. Production of product CELL resulted in plant utilization of 194%, consuming the majority of both shifts one and two.

Round Four

In the final round, four for production Team Chester moved to stabilize production with the reality of the simulation.  The low marketing presence strategy worked fairly well in the Chinese market but led to Chester failing to realize the potential in the USA market.  The focus in the final round was scaling production back to meet the new marketing forecast.  There was no need for a second shift to increase labor costs, with the marketing forecast reduced, so the workforce had to be scaled back.

Investments were added in automation for CAT and CELL in order to reduce total variable costs and increase the contribution margin across products above 40%. Due to the precarious financial situation from setbacks, it was only a 0.1 increase in automation to avoid too many capital expenditures during uncertainty, but enough to still challenge metrics.

Finance Capsim Decision Record

Round One

Within the financial role, Team Chester had to provide funding to cover R&D, Marketing, and Production activities. As a new endeavor into global markets, we understood this to be a costly proposition. It was decided early on that Team Chester should acquire as little short-term debt as possible. Therefore, only $6.200 in current debt was borrowed during Round 1. In addition, Team Chester borrowed long-term debt of $3,000 and issued a stock of $4,100. The team recognizes these decisions were contradictory to our minimal, current debt intentions and classify this as an oversight.

We clearly could have increased the amount of bond issuance and not depended upon current debt during this round. Lastly, a stock issue of $4,100 was executed. Please note that none of the financing decisions made were reflected in the 2021 annual report, as current debt, long-term debt, and common stock remained the same between year-end 2020 and 2021. Despite this confusion, we were able to increase cash by $12,304, exclusively as a result of positive operating activities.

Round Two

For 2022, Team Chester realized that plant improvement would be substantial, and once again, we disproved our resolution to maintain a low current debt balance. However, we more than halved the annual obligation, which was a move in the right direction. In addition to the short-term debt draw, we proceeded with a bond issue of $3,000. However, we also included a stock dividend of $.05 per share. With this debt arrangement, we were able to accommodate the annual plant investment of $22,700 and reduce the 2022 cash balance by only $1,887. In the end, Team Chester paid only $1,944 in finance charges.

Round Three

For 2023, Team Chester had to pursue heavy long-term debts to cover further plant improvements of $27,960 and the inventory introduction of Cat and Cell costing $6,110. We also incurred an operating loss of $4,448. To maintain our cash balance at a reasonable level, we again borrowed the current debt of $2,400 and long-term debt of $20,500. We then retired bond debt of $1,500 and still issued a stock dividend of $.22. These activities reduced our cash from $20,416 at the beginning of the year to $3,517 at the end of 2023. We were pleased that we had planned ahead and did not require an emergency loan.

Round Four

For 2024, Team Chester proceeded with a more current debt of $2,700 and a bond issuance of $23,200, again returning to our goal of curtailing short-term debt. In conjunction, we also retired bonds of $3,500. And lastly, we initiated another stock issue of $.26 per share and issued new stock totaling $2,600. We quickly determined that much of this round borrowing was unnecessary because we experienced revenue from operational activities of $11,075 and had minimal plant improvements. As a result, we ended the year 2024 with a cash balance of $34,851. Due to the excessing borrowing, annual finance charges totaled $4,724.