Capstone Simulation Detailed STUDENT Notes

Great Rules of Thumb for the CAPSTONE® Business Simulation Give customers the top two things they want—in the Good category. Just be in the Fair category with their other desires. Age and Reliability criteria stay th ...

Great Rules of Thumb for the CAPSTONE® Business Simulation Give customers the top two things they want—in the Good category. Just be in the Fair category with their other desires. Age and Reliability criteria stay the same every year. Price drops $0.50 each year. Positioning changes per the perception chart. 1. To maximize the value of Price to the customer, be in the bottom third of the expected rice range. (Middle 1/3 fair, bottom 1/3 is poor.) 2. To maximize the value of Reliability to the customer, be within top third of MTBF specification. (Middle 1/3 fair, bottom 1/3 is poor.) 3. To maximize the value of Age to the customer, be within 0.5 of the ideal age on December 31. (0.6-1 year is fair, >1 year is poor.) 4. To maximize the value of Positioning to the customer, be within 0.5 of the segment’s ideal spot. (0.6-1.5 is Fair, >1.5 away is Poor.) 5. To maximize the value of Awareness to the customer, be above 80.5%. (50-80% is Fair, <50% is Poor.) 6. To maximize the value of Accessibility to the customer, be above 80.5%. (50-80% is Fair, <50% is Poor.) 7. Keep bonds at BB or better. 8. Leverage = Total Assets/Total Equity. Ideal is 1.81-2.80 from shareholder’s perspective 9. Customer Survey scores above 50% are Good. 10. To drive stock price up, increase profitability and return excess profits to the stockholders. 11. Ideal inventory is 1. Inventory levels should not exceed 60 days (two months) of Sales. 12. Inventory should be about 4-6 weeks of sales (about 10% of sales). Stocks outs are very bad since they represent loss of pure profit (all SG&A already recovered). 13. Most successful firms run 50-80% overtime. Much cheaper than adding capacity. 14. Plant utilization should be 150-180%. At 180% add plant capacity. Don’t ever exceed 200%, but always run at a minimum of 100%. 15. Automation increases are good, but be careful of lengthy R&D times and total costs. 16. Products that straddle the fence are neither fish nor fowl. 17. Trailing edge products have substantially lower material costs. 18. Even great products must have good marketing to keep awareness up. 19. Don’t set prices more than $4.90 over the customer’s expected range. 20. Don’t let cash get over 5% of Sales. 21. Keep employee rolls at what is needed for production—no more. If extra money is spent on recruiting and training, you can reduce total number of personnel due to productivity increase 22. Production rule of thumb: Marketing forecast minus inventory on hand times 12%. 23. Keep 60 days of working capital on hand a. Go to Income Statement and look at Total Variable Costs b. Divide Total Variable Costs by 1/6 (60days/365daysin a year) to figure 2 months of working capital c. Use excess capital for R&D, plant, special marketing, paying down debt d. Cash position on balance sheet should be 8% or so of total assets