12.1 Cost Leader with a Product Lifecycle Focus - Practice Round 2 (2024)

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Practice Round 2

R & D ROUND 2

Able - Tweak positioning to reduce age. Reduce reliability (MTBF) to reduce material cost. Example: Decrease Able's size by 0.1 and reduce MTBF by 1000 hours. Do not reduce MTBF below 14000 hours, because that is the lower limit of acceptable reliability (MTBF) for Traditional customers. Note that Able is approaching the Low End segment.

Acre - Leave positioning alone, allowing the product to age further. Reduce reliability (MTBF) to reduce material cost. Example: Reduce Acre's MTBF by 500 hours. Do not reduce MTBF below 12000 hours, because that is the lower limit of acceptable reliability (MTBF) for Low End customers. Note that Acre will leave the Low End within two years.

Adam - Tweak positioning to reduce age. Reduce reliability (MTBF) to reduce material cost. Example: Increase Adam's performance by 0.1 and reduce MTBF by 1000 hours. Do not reduce MTBF below 20000 hours, because that is the lower limit for MTBF in the High End segment.

Aft - Tweak positioning to reduce age. Reduce reliability (MTBF) to reduce material costs. Example: Increase Aft's performance by 0.1, and reduce MTBF by 1000 hours. Do not reduce MTBF below 22000 hours, because that is the lower limit for reliability (MTBF) in the Performance segment.

Agape - Tweak positioning to reduce age. Reduce reliability (MTBF) to reduce material costs. Example: Reduce Agape's size by 0.1, and reduce MTBF by 1000 hours. Do not reduce MTBF below 16000 hours because that is the lower limit for reliability (MTBF) in the Size segment.

New Product - Note that the new product's row is yellow instead of green, and that you cannot change these cells. This is because your product will not emerge from R&D until its current project completes. Under the rules of the simulation, new R&D projects cannot begin until the old one completes.

Important: Plan R&D projects so that they complete before January 1st. For example, a 14- month project would complete in February of the following year. Because you can only begin a project on January 1st, you would give up the opportunity to do a follow-up project during the second year. Try to keep your projects less than 1 year in length, or just under 2 years.

Marketing Round 2

Able - Offer a price cut. Hold promotion and sales budgets near current levels. Forecast sales near average. Example: Price $25.00, promotion budget $1000, sales budget $1000, and sales forecast 1400.

Acre - Hold price, decrease promotion budget, and hold sales budget steady. Forecast average unit sales. Example: Price $21.50, promotion budget $900, sales budget $1000, and sales forecast 1700.

Adam - Make moderate cuts in price, hold promotion and sales budgets steady. Forecast unit sales near last year's level. Example: Price $36.50, promotion budget $1000, sales budget $1000, sales forecast 450.

Aft - Hold price, cut promo and sales budgets. Forecast a moderate decrease in unit sales. Example: Price $34.00, promotion budget $200, sales budget $200, sales forecast 200.

Agape - Hold price, cut promo and sales budgets. Forecast a moderate decrease in unit sales. Example: Price $34.00, promotion budget $200, sales budget $200, sales forecast 200.

New Product - Marketing decisions for the new High End product are not necessary because there is no production capacity with which to build the product. This is not an issue because the product would not emerge from R&D until very late in Round 2. Ignore price, promotion and sales budget decisions for your new product.

Production Round 2

For each product, schedule production using the formula:

(Unit Sales Forecast X 1.15) - Inventory On Hand

Able - Increase automation level by 1.0 or 3.0 points.

Acre - No change.

Adam - Increase automation level by 1.0 or 3.0 points, not to exceed an automation level of 8.0.

Aft - Sell 150,000 units of capacity by entering -150 in the Buy Sell Capacity cell.

Agape - Sell 150,000 units of capacity by entering -150 in the Buy Sell Capacity cell.

New Product - Buy 500,000 units of capacity by entering 500 in the Buy Sell Capacity cell. Set an automation level of 8.0.

Finance Round 2

Match your plant investment with a long-term bond. If you do not have sufficient new bond debt capacity, issue stock to cover the shortfall.

Look at the proforma balance sheet, and add together your cash and inventory accounts. Apply the following rule of thumb. Keep between 15% and 20% of your balance sheet assets in cash and inventory. You do not care about the mix, but you do want to have adequate reserves to cover unexpected swings in inventory.

Adjust your cash position to meet the guideline from Round 1. If you are cash poor, issue stock. If you are cash rich, pay dividends and buy back stock.

Do not issue current debt.

Save decisions (select "directly to the website").