Julian Acayan, Zain Damani, Deyda Cristales, Maricruz Leon Business Strategy Game Outline Overview of Game Company Operations Produce footwear in North America and Asia Pacific Region. North America can assemble 5 million pairs but has equipment for 4 million. Asia Pacifica can assemble 6 million but has the equipment to assemble 4 million Sold 7.35 million to retailers and individuals. 800,000 pairs of private label shoes. Can deliver from 1 to 4 weeks Tariffs $4 in North America $6 in Europe-Africa $8 in Asia-Pacific $10 Latin America Competitive efforts. New styling and performance feature, Number of models/styles, Pricing, Advertising, Mail-in rebates, Contracting celebrities, Brand image and reputation, Merchandising and promotional support to retailers, Delivery times, Search engine ads Worldwide Market Projected Growth in Buyer Demand Website is 15% of sales, projected to rise 1% annually Styling-Quality (S/Q) Rating 0.0-10.0, Current-year spending on model for features and styling, Percentage of superior materials used, Current-year expenditures for total quality management and/or six sigma quality control, Cumulative expenditure for TQM/Six Sigma quality control efforts, Current-year and cumulative expenditures to train workers in best practices Julian Acayan, Zain Damani, Deyda Cristales, Maricruz Leon Distributions channels (3 total) Wholesale sales to independent footwear retailers 60,000 total, Department stores, Retail shoe and apparel stores, Discount chains, Sporting goods, Pro shops, Online sales to consumers at the company’s website, Private-label sales to large multi-outlet retailers, Projected to grow 12% annually year 11-15 and 10% year 16-20, Allows manufacturers to use production capabilities more efficiently, Consumers demand diverse footwear with price, styling, and purpose Competition 11 factors Pricing, styling and quality, breadth of product selection, celebrity endorsements, advertising, brand image and reputation, comparative sizes of the footwear retailer networks, amount of merchandising and promotional support provided to footwear retailers, mail-in rebates, speed of delivery orders to retailers, sales effort on websites. Raw Materials Shoes can be manufactured with any percentage combination of standard and superior materials. The market prices of standard and superior materials in any upcoming year will deviate from their respective base prices whenever the percentage mix is anything other than 60% for standard and 40% for superior materials. Greater than 40% usage of superior materials widens the price gap between superior and standard materials, and greater than 60% usage of standard materials narrows the gap. Footwear Manufacturing Base wages for Asian-Pacific and Latin America workers currently run about 35% of base wages in Europe Africa and North America; all employees worldwide are paid 1.5 times their regular base wage for working overtime It is perilous to leap to the conclusion that production should be concentrated in the Latin American and/or Asia-Pacific regions simply because of lower base wages and overtime costs. The costs of producing footwear in one region and exporting some of the pairs produced to supply buyer demand in another region are substantially impacted by import tariffs, fluctuating currency exchange rates, and the higher cost of shipping pairs to foreign distribution centers Exchange Rate Impacts All footwear companies are subject to exchange rate adjustments when Footwear is shipped from a facility in one region to distribution warehouses in a different region When the local currency the company receives in payment from local retailers and online buyers over the course of a year in Europe-Africa (where all sales transactions are tied to the €), Latin America (where all sales are tied to the Brazilian real), and AsiaPacific (where all sales are tied to the Sing$) must be converted to US$ for financial reporting purposes 2nd requirement calls for the net revenues the company actually receives on footwear sold to retailers and online buyers in various parts of the world to reflect year-to-year exchange rate differences – watch the exchange rate adjustments each year and understand what you can do to reduce the adverse impacts and Julian Acayan, Zain Damani, Deyda Cristales, Maricruz Leon take advantage of the positive impacts of shifting exchange rates. – There will be no exchange rate adjustments in Year 11 (current year) 5 Factors that Impact Internet Sales and Wholesale Sales of Branded Footwear 1) The S/Q Rating (style/quality, 2nd or 3rd most important factor) 2) Number of Models/Styles 3) Brand Advertising – When cross-rival differences on all the other competitive factors are, on balance, close to equal among company rivals in a region, companies with above-average current-year brand advertising expenditures will outsell companies with below-average current advertising expenditures 4) that Impact Only Wholesale Sales of Branded Footwear Sold to Retailers 1) Average Wholesale Price for Branded Footwear Sold to Retailers. – The more a company's wholesale price to retailers in a geographic region is above the all-company regional average, the bigger and more important is its price-based competitive disadvantage and the more that athletic footwear buyers in that region will be inclined to shift their purchases to lower-priced brands 2) The Numbers of Retail Outlets Carrying the Company’s Brand – based on four factors: (1) the company’s market share of branded footwear sales in that region (2) its regional S/Q rating (3) the number of weeks it takes for retailers in the region to receive orders (4) the degree of merchandising support that the company provides to regional retailers 3) The Number of Weeks It Takes to Deliver Orders to Retailers – Companies whose delivery times are in a region are shorter than the all-company average have an advantage in attracting footwear retailers to stock their brand and boosting sales because retailers are less likely to run out of particular sizes and styles. 4) Support Offered to Retailers in Merchandising and Promoting the Company’s Brand – Companies that provide amounts of retailer support above the all-company average in a region have an advantage in attracting footwear retailers to stock their brand and thereby boosting their branded footwear sales in the region. 5) Mail-in Rebates – When cross-rival differences on all the other factors that influence buyer brand preferences are, on balance, quite small, companies offering bigger-than-average The Three Competitive Factors that Impact Only Internet Sales of Branded Footwear Julian Acayan, Zain Damani, Deyda Cristales, Maricruz Leon 1) Average Retail Price Charged at Each Company’s Regional Websites. – The more a company's regional online price is above the all-company average in a geographic region, the bigger its price-based competitive disadvantage 2) Search Engine Advertising (SEO) 3) Free Shipping on Online Purchases. Three most important competitive factors affecting buyer brand preferences, pairs sold, and market shares are price (the average wholesale price in the case of branded pairs sold by footwear retailers and the average online price in the case of pairs purchased online), S/Q ratings, and the number of models/styles offered. The next most influential factors include the appeal of celebrities endorsing the various rival brands, brand advertising, search engine advertising, company image/brand reputation, the number of retail outlets stocking the company’s brand of footwear, and free shipping. 1) Annual base pay increases, 2) incentive compensation, 3) total annual compensation, 4) best practices training, 5) number of models, 6) supervisor salaries, 7) ratio of production workers to supervisors 8) new equipment, 9) Production Improvement Option D 5 types of decision entries are involved in producing branded footwear: (1) percentage of superior materials used (2) the number of models/styles to be produced (3) how much to spend on enhancing the styling and features for each model/style (4) how much to spend on the plant’s ongoing TQM/Six Sigma programs (5) the number of branded pairs to be manufactured. Julian Acayan, Zain Damani, Deyda Cristales, Maricruz Leon The Factors that Determine Reject Rates. 1) The size of the incentive payment per non-defective pair produced 2) Spending for TQM/Six Sigma quality control efforts 3) Best practices training 4) The number of models/styles comprising the company’s product line 5) The use of new equipment 6) Whether Production Improvement Option A has been installed Deciding How Many Pairs to Produce at Each Plant You will most certainly need to return to the Branded Footwear Production page one or more times to adjust the total number of pairs to be produced and to consider how best to allocate production across the plants to minimize overall costs. Production Facilities. This decision page involves entries regarding whether to: (1) add shoe-making capability by purchasing new or refurbished equipment, (2) sell any unneeded footwear-making equipment at one or more existing facilities, (3) invest in production improvement options at one or more existing facilities, (4) build new facilities in Latin America or Europe-Africa, and (5) construct more facility space in North America or Asia-Pacific plants so as to accommodate the installation of additional footwear-making equipment. Purchasing New or Refurbished Equipment . The 4 million pairs of new equipment in the North American facility were purchased at the beginning of Year 5 and must be replaced at the beginning of Year 15. The 4 million pairs of refurbished equipment in the Asia-Pacific facility were purchased at the beginning of Year 6 and must likewise be replaced at the beginning of Year 16. Production Improvement Options You may undertake one production improvement option per year at a given plant facility, with a maximum of two production improvement options throughout the life of the plant. take time to weigh the pros and cons of each production improvement option at each plant facility the cost-saving benefits vary quite significantly not only because of current operating differences across the plants (reject rates, models being produced, S/Q ratings, worker productivity, and labor costs per pair assembled) but also because your company’s management team may wish to compete differently in different geographic regions (and thus assemble different numbers of models and have different S/Q ratings for different regions)
