Simulation Evaluation

How It All Started:
The simulation project was overall very challenging and fun. I remember when we first started, we played a game based on game theory, in which we have to base our decision on what we think the other teams going to do. Would they hold up an X or an Y, and how would that impact us? Although the game sounded very simple, it’s the foundation of many businesses running in the corporate world. Competitors have to predict the next move of each other, and work it to their own benefits. This stays true in the simulation project we did through out the semester, even though we can’t jump right into running a business in the real world on our own based on what we learn from it, it gives us a very basic idea.

Mission and Stakeholder Identification:
We derived our major goal of the company by looking at the way our grades are evaluated, which are ROI, stock price, EPS, D/E ratio, current ratio, credit rating, cost factor, sales growth, total asset, and total RE. We identified the major factors that affect each of them, and the amount of sales and profit has the greatest impact. Our goal from this point on was to provide satisfying products to customers to maximize on sales and profits, and turn those profits into higher returns to our investors. We also identified our major stakeholder groups as the customers and stockholders. As our goal can be separated into two steps – maximize profit and maximize return, our simulation decisions are also separated into two steps.

Porters’ 5 Forces:
As with many businesses, we can’t come up with a strategy until we have an understanding of the market first. This is exactly what the trial simulation was there for. The trial simulation gave us an idea of the total market demand, the competitors’ preliminary strategy, and other market forces.

Threat of New Entrants: Medium
There wasn’t any regulation in the industry. The manufacturing process was very simple as it only takes two steps. Raw materials and labor are readily available at affordable costs. Only a factory, some necessary raw materials, labor and a sales force are needed to start running this business. In addition, since dishware are generic products, it wouldn’t be too hard for a new company to capture market share by pricing them at an attractive level. A major concern might be the high cost of building and expanding a factory. Therefore, the attractiveness level based on this force is: Low.

Rivalry: High
There are 6 domestic and 1 foreign competitor identified in the industry. The market identified in the trial simulation turned out to be very small too. The total market demand was approximately 128000 for dishware type 1 (product 1). This means we are competing against 7 competitors in a relatively small market in selling a very similar product. Therefore, the attractiveness level can be assessed as: Low

Supplier Power: High
The production of the dishware is based completely on two raw materials. The cost of producing our dishware is highly dependent on how the prices of those materials. When suppliers raise the prices, we also need to raise the prices of our dishware in order to maintain the same gross profit margin. This means suppliers have a high impact on how we run our business. Attractiveness level is therefore: Low

Buyers Power: High
Customers have a choice between dishware from 7 companies. There’s almost no switching cost involved, if they realized the quality or the price of dishware at one company unsatisfying, they simply buy from another. Therefore attractiveness level is also: Low

Threat of Substitutes: Low
There are two products in the whole market - Product 1, the regular dishware, and Product 2, the premium dishware. Therefore, there aren’t that many choices in choosing the different types of dishware. The two products also utilize the same raw materials, so every company producing product 1 can also produce product 2, so even though the customers would choose one over the other, the company can easily sell more of one over the other based on which one has higher demand. Attractiveness level is: High

Our Strategy:
After we got a general idea of what our goals are and how the market of the industry is doing, we began to form our strategy.
In order to not reveal to the others any idea of how we will run our simulation, we purposely gave the market a false picture of our strategy. From the trial simulation, we realized most of our competitors didn’t change the prices set by the previous management that much, and all their dishware were competing at comparable prices. So in order to avoid such fierce competition, we must differentiate our products, through either cost leadership or by product differentiation.

We realized that it would be difficult to compete against the importer in terms of cost leadership, so we decided to follow the second path – selling high premium dishware. We believe by differentiating our product, we can avoid the fierce rivalry and influence buyers to come to us rather than any of our competitors. We put in a large amount of quality control and R&D to enhance the quality of our products, and in order to build a better brand image, we invested more than the others in advertising. We hoped this will change the customers’ perception of dishware from how it was before when it was under the previous management team. We also build a capable sales force by encouraging them to bring the products to more potential buyers through a higher commission based compensation structure.

We diversified our focus on different areas of operating management instead of strictly generating highest earning in each quarter. We also implemented rapid expansion on our current capacity for the first few quarters. This allowed us to have a competitive advantage on low production cost and avoid the subcontract charges. Having this advantage, we were able to greatly reduce our unit cost, and with that saving, we were able to put more into enhancing the quality of the products without jeopardizing our profit margin too much in comparison to the competitors. To maximize the return to stockholders, we took a different approach from other competitors. We noticed that many of the groups issued dividends to increase stock price, and we decided a better way to do that was to continuously reinvest our cash to buy back treasury stocks. This will not only build up a higher corporate value to stock investors, but also allow us to maintain a better financing structure.

Possible Future Strategic Changes:
Based on our company's current position in the simulation market, we believe that our strategy has been working effectively. Due to the fact that our simulation is only for eight quarters, we discontinued to invest in R&D, engineering studies and expansion to reduce cost since it takes a minimum of two quarters to take effect. If we are to continue with the simulation, then we will continue to implement our strategy by investing higher than average amounts in R&D, engineering, QC, advertisement and continue to expand our capacity.

Evaluation of Our Performance:
We believe we were successful in achieving a high profit margin by selling high premium dishware. By lowering our cost per unit through expansion and engineering, we achieved significant savings which were invested into quality control, R&D and advertising to build up on our brand image. It seemed we were not as successful in achieving satisfying sales growth, due to the fact that most customers still saw dishware as a generic product, lower prices still affected their choice. However, we think that wasn't a significant problem as our goal of maximizing profits and returns was primarily achieved through a high profit margin.

Diagnosing Strategic Problems

There are various symptoms that may indicate a firm having strategic problems. One symptom may be having too much debt. One of the easiest way to see if a company is struggling is by looking at there liability. If a company has too much debt, they would have a problem with their working capitals. With an insufficient asset, when in time of downturn economy, paying off the creditors will be a tough task. Too much debt will also prevent the company from expanding and turn off potential investors.

Another symptom could be a company slow to introduce new products in a fast changing environment. This holds true for a lot of technology companies. If a company can’t keep pace with its competitor, they will surely lose their share of the market. That’s why a company shouldn’t just sit back when they have a competitive advantage. A company should preach innovation and growth because in today’s world nothing is static.

Two companies that have been incurring too much debt are Fannie Mae and Freddie Mac. During the subprime mortgage crisis both of these two companies took on a large amount of housing debts. They maintain a capital that is very small compare to their debt obligation. Now there is a chance both of these two companies could default and requiring government bail out. One of the reasons why they took the risk is because they felt the government will support them if they default and the worst case scenario may occur now. Freddie Mac reported their first ever lose during 2007 and Fannie Mae reported their first ever in 22 years. Could they be in a debt that is to deep to get out of?

Business Strategy

There are various methods for a company to achieve a competitive advantage over its rivalries. Two common ways are through cost leadership and differentiating. A company may become a cost leader through the efficient use of their facilities, supply system, and reduction in cost of production. This will allow them to undercut their competitor prices, but still offer at a comparable quality. A company that uses the differentiation strategy will try to make their product unique to its competitor in justifying the higher price. This is achieve through R&D, marketing, product design, and etc.

Two example of cost leaders are Dell and Wal-Mart. Dell became a major player in the personal computer industry through the use of direct-sales over the internet and its Just-In-Time inventory policy. Through the use of the internet and J-I-T policy, they have abandoned the traditional brick and mortar business. This eliminates inventory holding charges and retail markup prices. The computers are made only after a customer’s order, so there won’t be obsolete inventory. They also have one of the best supply systems of any company. Through these various cost cutting strategy, they are able to sell there product at a lower cost and obtain a competitive advantage.

Wal-Mart became a cost leader through its efficient management system and technological advantage over their competitors. Wal-Mart’s motto is “Every Day Low Prices,” so how did they achieve this. They eliminate the need for sales, coupon, advertisement, and other marketing tool that is traditionally been very expensive to maintain. What made them very efficient is the use of their automation technology. It allows the manager and suppliers to closely monitor the inventory level, in doing so it helps them maintain a very low inventory and eliminate overhead processing cost.

Two examples of companies using differentiation to gain a competitive edge are Starbucks and Hummer. Starbucks success is attributed to its quality and brand image. They offer a wide variety of premium coffee that no other companies could match. The company is focus more on brand image than anything else. They want to make drinking coffee a “coffee shop experience.” They were able to entice their customers to come back even though at a higher price.

The Hummer is like no other SUV, it is particularly advertise toward the affluent males. This “war machine” is as macho as it gets, it’s suppose to give the driver a feeling of power, control, and invincibility. It’s supposed to offer superior-off road capabilities that will let people travel any where. What they lack in quality and efficiency is made up in appearance and brand image. Through strong marketing and brand image its was able to capture their market.

Porter's Five Forces

Porter’s Five Forces Analysis- Soft Drink Industry

Barriers to Entry

• Size is a crucial factor in this industry. It’s important to have a larger economies of scales so the cost of production per unit is minimizes.

• A large capital requirement in production and distribution system is necessary for them to be successful.

• The biggest hurdle when entering this industry is the brand loyalty. Taking business way from these establishes companies like Coca-Cola will be tough.

• The learning curve within this industry is relatively low compare to others. The industry technology and the manufacturing process system is not that complicated.

• Government regulation within this industry is moderate. Their biggest hurdle over the years is the approval of sweeteners by the government.

• The switching cost for customers (retailers) is high. (explain further in the Buyer Power section)

• It is critical to have an efficient distribution channel in this industry. New entries will have a hard time completing for shelves space during the beginning stages.

High

Rivalry

• This industry is dominated by two companies Coca-Cola and PepsiCo and with a distant third in Dr. Pepper.
• The soft drink industry has matured already, so the there is minimal growth. Their demand has actually decreased over the years due to substitutes.
• With the large capital requirement and their contractual agreement with the distributors, exiting the industry is really hard.
• Brand identification, fixed cost on the rise, and high switching cost for distributors.

Moderate – High

Supplier Power

• Most of the material needs to produce a soft drink are commodities, so it is readily available and less chance of being over price.

• Some suppliers is highly depend on the soft drink industry because they purchase a large portion of there sells. Companies like the plastic bottle industry are at the mercy of the soft drink industry.

Low

Buyer Power (Distributors or Retailers)

• A lot of retailers have a contractual agreement with certain soft drink companies, which might bind them to the company.

• Even thought there is a lot of a substitute out on the market. The switching cost is still relatively high. The legal cost to get out of a contractual agreement and the cost of searching for a new deal.

• Lager retail stores are at an advantage when they are able to purchase a large volume of soft drink at a discount. This power is lessens for small retail stores.

• The soft drink industry needs the retailers because they ultimately sell the product to the end consumers. So it is important to have a strong relationship with the retailers because they indirectly affect the company’s reputation.
  

• Brand loyalty minimizes product switching by the consumer.
  

Moderate

Threat of Substitutes

• This industry is more susceptible to product substitutes than any other industries.

• The list of substitutes is endless. Some example are tea, coffee, distill water, sport drink, juice, milk, healthy drinks, and etc.

• There is a trend in coffee (Starbucks) and toward healthy drinks, which has fewer calories and more nutrition.

High

Based on the analysis this industry is unattractive. There is too much product substitutes and barriers to entry.

Harley Davidson's Mission Statement

Harley Davidson’s Mission Statement

A mission statement may consist of four parts task, vision, values and goals. The function of a mission statement is to articulate the purpose of the company, the future of the company, and the method of achieving this future position. A company mission statement should be unique to its competitors. In constructing a mission statement, it should be motivational and inspiring.

Vision is the broad perspective of the company, while a goal is the short term outlook to its vision. Their goals should be realistic and attainable. It should be clearly stated and quantifiable. A well constructed goal should motivate and inspire the employee and management toward a common vision. If a goal is farfetched, a company could lose it credibility. Values are what the companies is committed to. One company may value customer services, while others may value efficiency. Company has to portray themselves to the public in a way that it would attract or inspire different customers. Company should avoid over exaggerating their values, they should only commit what they can offer.

We live in a dynamic environment; a company’s mission statement may become irreverent over time. For a mission statement to be successful it must be broad enough to meet the customer’s changing expectation. Common mistakes are limiting your mission statement to the company’s area of services and expertise. When writing a mission statement it should be free of jargons. It should be succinct and clear in stating the nature of the company. It should clearly state the target audience in it mission statement.

Mission Statement

“We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments.”

Value Statement

“These are our values. They are the heart of how we run our business. They guide our actions and serve as the framework for the decisions and contributions our employees make at every level of the Company.”

• Tell the Truth.
• Be Fair.
• Keep Your Promises.
• Respect the Individual.
• Encourage Intellectual Curiosity.

This mission statement by Harley Davidson is sound because it is concise and informative. It clearly stated their targeted audience and its task. It expresses their goal and vision of expanding the Harley Davidson experience. Based on the mission statement, the company is marketing their motorcycle as a luxury item to it customers. It is intended to motivate and inspire the individual to buy the motorcycle. Their value statement conveys the notion of a honest employee, whom the customer could trust.

Introduction

Name : Hao Chen

Major: Accounting, what was I thinking, after three and a half year the only things I have learned is adding, subtracting, credit and debit.

Minor: History, that’s right history. You should be contemplating why an accounting major would choose history as their minor. I could sum this up in three words history is interesting. Many people find history boring because he or she is unwilling to sit down and read or keep awake in a history class.

Interest
Sports: I’m a diehard Yankees and Giants fan.
Video game: Metal Gear Solid, Final Fantasy, NBA Live, Madden and etc.
T.V.: Scrubs, Chuck, Las Vegas, any sports program, and etc.
Texas Hold’em
Mahjong a.k.a. MJ: For those people who don’t know what this is. This a Chinese game that involves tiles with symbols inscribed on it. An individual needs to arrange these tiles in a particular order to receive points. Money is awarded base on the amount of point an individual received. There are varies versions to this game, so getting more in detail with this game would require me staying up all night. A word of caution, don’t get involve in this game, this is more addictive than the other MJ that one might refer to.

These five activities should consume 99% of my free time. The other 1% is devoted to studying.

Post Graduation

Scenario 1: Graduate from Baruch with a BBA and MS in taxation. Pass the CPA exam and after gaining enough experience start up a small CPA firm. Then live happily ever after. (30% of occurring)

Scenario 2: I get so depress while studying for the CPA, I realize this is not my career path. After months of soul searching I finally found my true calling, the culinary art. Unwilling but forced into another four years of schooling. In the end I found myself opening up my own Chinese take out restaurant. I have finally achieved the American Dream. Is this what I want from eight years of schooling? Of course not, my goal is to work under a world renown chef. Then maybe one day I could open up a French cuisine restaurant myself or head a five star restaurant. This has always been my dream and I regret not pursuing it. (70% of occurring)

Scenario: 3 At a ripe age of 22, I found life in my throwing arm. My fastball went from 70 mph to 100 mph. Complement with a plus plus slider and change combo. The New York Yankees sign me to to the largest contract in baseball history 350 millions over 8 years. I quickly accept and lead the Yankees to ten World Series championship. One could always dream.