Component 1: Executive Summary
Chester Company is founded and anchored on the premise of providing quality products to its customers at a relatively low price. The company also has a commitment of ensuring that its customers can easily access its products easily and at affordable prices. This report focusses on Chester Company Final Summary Report Capsim. Chester Company started relatively well just like all the other companies but this changed from round 1 to round 8, and this is attributed to the strategic decisions adopted by the company throughout the entire simulation process. The company reported profits in its first and second rounds before this dipped to net losses in its third and fourth rounds. The net profit making trend swung back to the course at round 5, and this continued to round 6, 7 and 8.
The company performance in rounds 5, 6, 7 and 8, can be attributed to the strategic decisions that were made by the management from round 5, which include lowering prices to lower edge in the low tech market segment and taking control of over production earlier witnessed in previous rounds. The company adopted low prices for the products in low market segment and this enabled the company to increase sales of its products, primarily in the low tech segment. Lowering of prices not only influenced more customers into buying more products in low tech segment, but also helped reduce inventory carrying costs, as the company was able to maintain ideal inventory position. The previous rounds had high inventories and the company was struggling to sell the products in the market.
The key performance indicators of the Company showed similar trend as the profit making trend. The Return on Assets, Return on Sales, Leverage, Contribution Margin and other parameters were relatively high at rounds one and two, but they dipped downwards in round three and four, before later rising upwards up to round eight.
Progress of the Company
The company began its operation with one product in round one, Able. The product Able primarily fell under low tech segment, though it was able to sell both in low tech market segment and high tech market segments. Under low tech market segment, Able had a 17% of the market share and recorded 840,000 units in sales. The same product recorded 360, 000 units in sales under high tech product segment. The company had to reposition the product so as to align with its objectives and mission of providing quality products at a fraction of the price. The production records show that, the company made sales of 1,200,000 sales for the product Able in year one, or round 1. There was an inventory of 87,000 units of Able by the end of round 1, which shows that the product had a great demand in the market and that the company had to produce more units so at to avoid losing market opportunities in the market. This was used as the basis of increasing production in round 2, or the following year. The company closed round 1 with a net profit of $1,820,166, contribution margin of 17.1%, ROE of 12.4%, ROA of 8.0% and ROS of 4.1%. This is acceptable in the early rounds of simulation, or when the company has just started its operation and production.
The company increased the production capacity in round two so avoid stocking out of Able product. The company was able to sell 1,440,000 units in round 2, and closed with an inventory of 144,000 units. The company made great sales in second round and with one product only, the company was not making enough use of its initial investments, assets and capital. The leverage ratio was therefore more or less the same as that in round 1, when the company had just started the operation. Nonetheless, the company made net profit of $1,320,706, which was less compared to the profits made in round 1. In round 2, the company also reported a reduced contribution margin of 16.3%, reduced ROE of 8.3%, reduced ROA of 5.4%, and reduced ROS of 2.9%. It is worth noting that all the key performance indicators dropped significantly from round 1 to round 2.
The most significant changes happened in round 3 and 4, which had negative financial implication to the company. This happened mainly because the company decided to introduce a new product by the name Acre, in the high tech market segment. The new product had to have high performance, reduced size and had to have high mean time before failure, or rather reliability so as to be accepted within the high tech product segment.
The company recorded loss for the first time in round 3. The net loss is round 3 was of $2,802,572. The company’s contribution margin dipped to 15.3%, the ROE dipped to -21.2%, the ROA dipped to -7.4%, and the ROS dipped to -9.4%. This indicated that the company was not doing so well in the market and its competitors could be doing better at that particular point in time. The company also took an emergency loan of $17,388,860, to help sustain operation while still adjusting production and marketing of the products.
The poor performance and returns on Assets, Sales and Equity kept on dipping negatively even in round 4 and the company was forced to taking emergency loans. The company recorded emergency loan of $52,996,097 in round 4. Records in round 4 shows net losses of $16,212,385, the ROE of -536.8%, the ROS of -76.3%, ROA of -23.5% and the contribution margin of 9.4%. The company had the worst performance in round 4, as can be shown in the industry reports.
The Able product in the low tech market segment recorded the highest ever inventory and this led to highest inventory carrying costs experienced throughout the all 8 rounds. The company managed to sell only 371,000 units of Able in round 4, and the inventory rose to 2,099,000 units of Able. The company also sold 206,000 units of Acre, and recorded an inventory of 156,000 units for the Acre, the high end product. The high inventory in the low tech market segment can be attributed company’s failure to keep up with customers’ buying criteria, poor marketing, and over production of the products in the ow tech market segment.
The newly introduced product Acre, under high tech segment had zero entries in units sold and inventories as it had just been introduced and production of the same would only occur in the forthcoming round, round 4, or fourth year.
The already produced low tech segment product Able recorded low sales of 933,000 units for the first time, and had a very high inventory of 796,000 units in round 3. This meant that, the company had to waste more funds in carrying the inventory to the next year of production or round 4. The acceptable ideal inventory is usually 200,000 units, and therefore, the inventory in round three was almost 4 times the bearable inventory threshold. This means that the company was not making enough sales, either due to poor pricing strategy, poor customer accessibility or failure to understand customer tastes and preferences. The other factors that could be attributed to less sales and high inventory is inadequate funding towards sales and promotion budgets.
The company had a great turnaround in round 5, and begun making profit at this point. In round 5, the company made a profit of $706,103. It is also at round 5 that the company had a contribution margin of 35.4%. The company had its last emergency loan of $28,857,033 in round 5, which was necessary in improving the products and pushing towards the desired features. The company had to push through the low tech segment and high tech segment so as to make reasonable sales and profits. The company made a profit of $11,833,445 in round 5. The company recorded a ROS of 16.6%, ROA of 47.1%, ROE of 124.3%, and a contribution margin of 41.7%. This indicates a great improvement and the company’s performance improved all the way up to round 8.
Figure 1: Production Analysis Round 8 for Chester
In rounds 6, 7 and 8, the company did not borrow any emergency loans and operated profitably. The company made a profit of $11,833,445, in round 6, $7,974,994 in round 7 and $8,268,956 in round 8. Cumulatively, the company had made a profit of $15,403,119 from round 1 to round 8. By the end of round 8, the company posted a contribution margin of 40.1%, ROS of 40.1%, ROA of 19.9% and ROE of 32.1%. In short, the company had a very sustaining growth rate and profitability from round 5 all the way to round 8. The company had adjusted its production schedule and its plant and equipment were utilized optimally.
The table below shows summary of Key Performance Indicators
|Rounds||ROS||Asset Turnover||ROA||ROE||Emergency Loans||Profits||Contribution Margin|
The Company invested $750,000 in every in its TQM section at rounds 5, 7 and 8 so as to cut various costs such as administration costs, materials and labor costs during production. The investment on the TQM initiatives had compounding effects on the various variables and led to increase in demand for the products as shown below:-
Material Cost Reduction 11.80%
Labor Cost Reduction 14.00%
Reduction R&D Cycle Time 40.01%
Reduction Admin Costs 60.02%
Demand Increase 14.40%
It was very necessary to invest in the TQM section so as to stimulate demand and price reduction in administrative, labor and material costs. Investment in the TQM section also led reduction in the research and development cycle of the products by 40%.
Current Situation: SWOT Analysis
The company’s strengths are as follows;-
The products have been accepted in the market and this has led to an increase in sales. The new products that have been introduced in the market have unique features that make them attractive to customers.
The company has a very efficient and effective marketing team that has been able to increase brand awareness in the market. The company also has a very efficient sales force that has been able to push products in the market. Additionally, Chester Company’s research and development team is very effective and this has led to introduction of new products in the market.
The company’s weaknesses are as follows;-
Chester Company has a very high inventory levels and this has led to high holding costs. The company operated at a loss for three years, in rounds 3, 4 and 5, and this led to increase in debt. The company has a very high debt level and this has led to high interest payments. The company’s products are not very differentiated and this makes it difficult to compete in the market. Notably, Chester does not have a very efficient production system and this has led to high production costs.
The company’s opportunities are as follows;-
The company can expand its product range so as to increase its market share. Chester Company can expand its geographical reach so as to increase its sales. Also, the company can invest in new technology so as to reduce its production costs.
The company’s threats are as follows;-
The company faces stiff competition from other companies in the market. The company’s products may become obsolete if new technology is introduced in the market. The company may be unable to meet customer demand if there is an increase in demand.
Future of the company
According to the SWOT analysis of the Chester Company, it is evident that the company has a lot of potential for growth in the future. The company should take advantage of its strengths and opportunities so as to grow in the future. The company should invest in new technology so as to reduce its production costs. The company should also expand its product range so as to increase its market share.
The company has been able to post profits for the last four years and this is expected to continue. The company has also been able to reduce its debt level and this is expected to continue. The company has also been investing in new technology and this is expected to reduce its production costs. The company is also expected to expand its product range and this is expected to increase its market share. The company is also expected to expand its geographical reach so as to increase its sales.
The company is expected to continue posting profits in the future and this is expected to lead to an increase in its share price. The company’s share price is expected to keep increasing going forward.
The Chester Company faces a number of risks that could impact its future performance. The main risks facing the company are as follows;
The company faces stiff competition from other companies in the market. The company’s products may become obsolete if new technology is introduced in the market. The company may be unable to meet customer demand if there is an increase in demand. The company’s debt level is high and this could lead to financial problems if the company is unable to generate enough profits.
The company has put in place a number of measures to mitigate these risks. The company has been investing in new technology so as to reduce the risk of its products becoming obsolete. The company has also been expanding its product range so as to increase its market share. The company has also been expanding its geographical reach so as to increase its sales.
The Chester Company is a well-established company with a strong market position. The company has a lot of potential for growth in the future. The company should take advantage of its strengths and opportunities so as to grow in the future. The company has put in place a number of measures to mitigate the risks it faces.
Ethical, Legal and Social Challenges
The Chester Company faces a number of ethical, legal and social challenges. The main challenges facing the company are as follows;
The company’s products may have a negative impact on the environment. The company’s products may have a negative impact on human health. The company’s products may be addictive and this could lead to social problems.
The company has put in place a number of measures to mitigate these challenges. The company has been investing in new technology so as to reduce the negative impact of its products on the environment. The company has also been investing in research and development so as to reduce the negative impact of its products on human health. The company has also been working with government agencies to develop regulations that will reduce the social problems associated with its products.
The Chester Company is a well-established company with a strong market position. The company faces a number of ethical, legal and social challenges. However, the company has put in place a number of measures to mitigate these challenges.
The Chester Company operates in a global market and faces a number of global challenges. The main challenges facing the company are as follows;
The company’s products may be subject to import/export restrictions. The company may be subject to sanctions. The company’s operations may be impacted by political instability in the countries it operates in.
The company has put in place a number of measures to mitigate these challenges. The company has been diversifying its customer base so as to reduce the risk of import/export restrictions. The company has also been diversifying its supplier base so as to reduce the risk of sanctions. The company has also been investing in risk management so as to reduce the impact of political instability on its operations.
Component 2: Professional Reflection
The whole Capsim simulation and capstone was a great personal learning experience that taught me very variable lessons in business strategic decisions making. I learned about a lot of business concepts that I was not aware of, for example the concept of economies of scale and what it means. I also learned a lot about product life cycles and how important it is to keep up with the trends in the market so as to remain relevant.
I enjoyed the challenge that came with making strategic decisions for the company and trying to predict how the market would respond to those decisions. I also enjoyed the competition aspect of the simulation where I was able to compete against other companies in the market.
There were a few areas that I struggled with during the Capsim simulation and capstone such as making decisions on what R&D projects to invest in and when to launch new products. I also struggled with making decisions on pricing and how to respond to changes in the market. However, I was able to overcome these challenges by doing research and consulting with other members of my team.
The debrief and forum sessions throughout the coursework helped me improve on my communication skills that I intend to use not only for the remaining coursework in at school but also at my line work. I was also privileged to learn from my fellow students during the weekly discussions and engagements.
The areas that I need to continue to work on and improve are my presentation skills as well as my ability to make decisions under pressure. I also need to continue to improve my research skills so as to be able to make better informed decisions.
We offer all simulations from round 1 to round 8.