Brittany Baxter bjb5481@psu.edu Section 003 TEAM ANDREWS C64360 Simulation Analysis Report Strategy Summary Before I begin to analyze the decisions that were made in the past and for the future, it is crucial to understand the strategy that was behind each of these decisions. The method that was decided upon to positively impact Andrews’s sales, margins, and our investors, was one that is known as the broad differentiator approach. This enabled us to focus on each and every one of the five products which targeted separate markets. Our main priority was to be a competitive force in each segment in order to broaden our consumer base, which in turns, expands our sales numbers. Over the past eight years, our positive key point has been our ability to remain a market leader in every product, however, we have formed capacity issues as well as a need for finance restructuring. Market Share It is not an easy feat to hold the greatest market share within five products over eight years. We were successfully able to obtain and maintain our market share and customer satisfaction. Based on figure 1, it is evident that our market share has never dropped below 20%. With 4 other competitors, it is crucial to always remain above the even 20% split. Also by referring to the Analyst Report which breaks down the 8 years in comparison to the other four competitors, we have remained at the top two spots in every category. Attached in Figure 2 you will find the graph that labels the criteria and where we stand in comparison to the highest level obtained by any competitor. In addition, when referencing the final relative score report, out of the 8 categories, Andrews has been the leader in exactly 4 of the 8 criteria while only trailing slightly in the other four areas. This is successful awareness and accessibility management which should be continued. Capacity Issue Inventory accounts for our largest issue which impacted our bottom line severely. Our quick ratio and our current ratio equal the same value of 5.21 because by year eight there was no inventory in stock, as shown in figure 3. This may seem appealing because it converts to $5.21 for every $1 of liabilities we must pay. However, over half (5/8) of our time spent in operation was concluded with a stock out. While it is positive that our demand and sales are consistently increasing, it is not sustainable or profitable to have them increasing more than what we are capable of. Reflected in figure 3, there is a large gap between our capacity available and our production. These are opportunity costs that negatively impact our profits and our potential. It is clear that this did not occur due to poor sales forecasting because each time there was a given formula [sales forecast = units sold x (1+growth rate)] that was used to calculate that exact number. However, the initial years forecast included too much optimism which did not benefit Andrews since this measure is used as a tool for other measurements. Additionally, our buy/sell capacity was used too late. We did not implement any buying to increase our capacity until after year 5, when it was realized that buying more capacity will allow us to satisfy the excess demand that our first shift in capacity did not fulfill. Also, automation was not implemented until the fifth year. Automation, buy/sell capacity, and overly optimistic sales numbers all played a role in the lack of proper inventory. Now that we understand how valuable these tools are, there will be no stock outs in the future. The goal will be to keep inventory at 1 by the end of each upcoming year by implementing those three procedures. Figure 4 shows us our actual vs. potential market share numbers. If we were able to avoid stock outs, our actual market share numbers would have been raised, resulting in greater than or equal values to our potential. Capital Restructuring Financials are another crucial aspect to our company that must be thoroughly discussed. Up until this point, we have a long term debt balance of 0. This is due to holding no long term debt and only very minimal amounts of short term debt. Initially it was assumed that the less money needed to be paid back, the better position the company will be. However, over time it was learned that debt provides leverage, which is beneficial. In order to obtain that control that leverage provides, our long term debt should not have been paid off so quickly. The balance on our long term debt was zero by year 6. While we had cash available to be paid off, our capital structure should never have an empty LT balance. With a debt to asset ratio (figure 6) of 10% there is opportunity to convert excess cash into equity through stock repurchasing. This will decrease our assets to balance out our liabilities all while benefitting the stock holders. Conclusion For the future, we are to focus on our current margins which have been positive in the past with a gross margin of 32% which is 12% over the ideal margin, and a contribution margin of 32% which is only 2% over the ideal value. By continuing our current TQM efforts, we can decrease our variable costs, as it has done once since we began implementing TQM from year 68. This is evident in figures 7-9. However, much of our attention must go to implementing processes that will correct our capacity and production disparities in addition to our capital restructuring through stock repurchasing. Figure 1 (Capsim Courier) Figure 2 Final Relative Report 134,217,728.00 16,777,216.00 2,097,152.00 262,144.00 32,768.00 4,096.00 512.00 64.00 8.00 1.00 Andrew's Values Highest Value Figure 3 Current Ratio Current assets $96,742.00 / Current liabilities $18,551.00 5.21 Quick Ratio (Current assets - Inventory) / Current liabilities $96,742.00 $0.00 $18,551.00 5.21 Figure 4 Capacity vs. Production 12000 10000 8000 Capacity 6000 Production 4000 2000 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Figure 5 Actual vs. Potential 35.0% 30.0% 25.0% 20.0% Actual 15.0% Potential 10.0% 5.0% 0.0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Figure 6 Debt to Asset Ratio Total liabilities $18,551.00 / Total assets $190,956.00 0.10 Figure 7 (Capsim Courier) Figure 8 (Capsim Courier) Figure 9 (Capsim Courier) Works Cited “Capsim Courier C64360 Round 1-8” www.capsim.com pgs. 1 – 16, 15 October 2014