Tuesday, 27 September 2011

Capsim General Strategies

*While this blog is dated Sept-11, I'm always around unless stated otherwise (Updated FEBRUARY 2014)*


READ THE TEAM MEMBER GUIDE

I cannot stress the above more. Whether you follow my strategies or not, you NEED to read the team member guide because it provides you with invaluable information. A lot of capsim can be applied to real life business. Since you WILL need to learn those things, you may as well start now.

Capsim is complex. Every decision is interconnected and to achieve the desired result, you need to know how one decision can affect the short and long term well-being of your business. Whether you are doing a team simulation (8 rounds) or individual simulation (4 rounds), the same thing applies. For your convenience, I will break the general strategies into 7 parts: R&D, Marketing, Production, Finance, HR, TQM & Reports.

WARNING: These general strategies are intensive in the number of words. It is necessary because Capsim is not a simple game. If you are impatient or too lazy to read the whole thing, email me at capsimhelp(at)hotmail.com and I will give you a summarized version. However be warned that summarized version will probably not help much if you don't read the text below. Guaranteed response within hours.




1) R&D

R&D is the backbone of your company. Whatever strategies you use, you need to R&D something every year. If you're ever not R&Ding something, then you're doing something wrong.

First of all, do NOT R&D your products according to the Capstone Courier.
Why? Because Capstone Courier gives you the data for LAST YEAR's products. If you follow it, then your products are outdated. You should R&D the products to its ideal spots 1 or 2 year in advance, according to several factors.

Invent new products in the least competitive segment. This is self-explanatory. At Round 1 or 2 you may not know which segment is the least competitive, but by Round 3 you should be able to with the help of Courier. The more products you have earlier, the greater advantage you'll be in in the future.
However do NOT invent all 4 additional products in Round 1 because you won't have the budget for it.


2) Marketing

This section is probable the most important aspect of Capsim. It deals with your pricing, marketing & sales budget as well as your sales forecast, which will be shown in Proforma Income Statement.

Pricing: Price your Low End at the bottom third of the price range, your Traditional at middle range and your High End/Size/Performance at max price. Try not to get into price war early because it'll kill both you and your competitors. Lose-lose.

Some of you may wonder why not simply set the lowest price for Low End, considering price is 47% of the Buying Criteria. During my simulations, I found out it is not decision. For example the price range is $10 - 20. My competitors set price at $10 while I set mine at $11.50. He sells 2800 units while I sell 2600 units. Yes his sales is bigger, but I rake a lot more profits than him.  It is simply not worth to set the lowest price while getting only a bit more sales. This also works in reverse on why I said set max price for High End/Size/Performance products. By lowering the price you can sell a bit more, but your overall profit will go down.

Promo & Sales Budget: Promo budget raises your product's awareness while Sales budget increase your product's segment accessibility. Noticed the difference? Promo budget is according to EACH product while Sales budget for each SEGMENT. If you've 4 products in Traditional segment, you may need to spend $1400 Promo budget for each product, but you can set $1000 Sales budget for a combined $4000 Sales budget in Traditional Segment.

There is a diminishing amount for both budgets. Found out more in your Team Member Guide. I purposely do not include the figures to force you to read (you'll thank me).

If Advanced Marketing module is activated, do not worry because it is essentially the same thing. Refer to the end of this entry for more info.

Sales Forecast: NEVER EVER USE the computer prediction for your sales forecast, except may be in Round 1 but even then it is not reliable. How do you do a sales forecast then? This depends on so many variables that it's impossible for me to provide you with a magic formula. However there is one simple way to set a benchmark. Here's how:

Read up Courier and scroll down to your product's segment. Look at "Total Industry Unit Demand". Get this number and multiply it by the 1+growth rate to know the demand next year. Now scroll down to "Market Share" report and look at your product's POTENTIAL market share. Sometimes it can have % in different segments, but just take the biggest number. This percentage multiply by the industry demand we calculated next year will give you a rough idea on how many units you will sell. Of course this depends if you can maintain the same percentage of buying criteria and whether your competitors improve or not.

Why do you need to get the numbers right? 2 BIG reasons: Production & Proforma Income Statement. If you estimate you'll sell 1,000 units, you can tell Production to produce 1,000 units. If in fact the demand is only 500 units, you LOSE MONEY because you need to store those extra units somewhere. If it turns out the demand is greater than 1,000 units, you LOSE POTENTIAL MONEY. Either case is bad for you. The second reason is your Sales Forecast determine your PROJECTED profit/loss. One word of advice: if your projected profit is $10,000, expect your actual profits to be only 50% of that. You make financing decisions based on your projected profit/loss, hence why Marketing is the most important decision function of Capsim.


3) Production

Production is an extension of Marketing. You get Marketing right, Production is easy for most parts.

You do a worst-best case scenario with Marketing and Production. If you expect to sell 1,000 units, but feel at worst you'll sell 800 units and at best you sell 1,200 units, you can enter both. Under Marketing, you input 800 units and under Production you produce 1,200 units. This way your projected profit/loss is the worst case.

This section is self-explanatory. You take the amount of units you expect to sell and minus it by inventory on hand. The adjusted number is the actual number of products you'll get minus a few defect products, but it's only like 0.89% lower so don't bother yourself with the number.

The big thing about Production is Capacity and Automation Rating. Remember you can employ 2nd shift workers to produce double your capacity. Having too much capacity is not an efficient way to run your company while having too many is also bad investment. Remember any additional Capacity and Automation Rating will take place NEXT ROUND AND NOT IMMEDIATELY. Plan ahead.

Automation Rating is a complicated. The higher the rating, the more machines you use and the less workers you need. Less workers mean less wages, which means cost-savings on your part. However higher automation rating also means longer R&D cycle. You can safely set 10 for Low End and Traditional. However for High End/Size/Performance, 10 may or may not be a good thing, depending your strategy. Either way do NOT increase your automation to 10 right away from the start because it cost a lot of money. Refer to the end of entry for more help.


4) Finance

Finance is all money related. If you are accounting major, this is a piece of cake for you. Simply put, raise as much money as you can through Issuing Stock, Current Debt and Long Term Debt for Round 1-3. Trust me, you'll need the extra money even if you think you don't.

Stock: Issuing stock is a great way to make money. However if you use share price or market cap as one of your success measures, it gets complicated. One thing though: do NOT pay dividends ever. If you need to raise your stock price, simply buy back stock. You need to plan in advance though. Issuing stock is not free: it has brokerage fees. It doesn't make sense to issue $5m worth of stocks this year only to buy it back next year. You pay twice brokerage fees.

Current Debt: There are 2 ways to use Current Debt. One is rolling it. If you borrow $10,000 Current Debt, then when it is due next year, you borrow that same amount. The result is $10,000 of free money minus the interests. However the interest is higher than the Long Term Debt, hence the 2nd way of playing it: Never use Current Debt unless in emergencies. With its higher interest rate, Current Debt will only hurt your Income Statement. How you play it is up to you.

Long Term Debt: Greet your bestest friend in Capsim. Round 1-4, you should issue MAX Long Term Debt to fund your production improvements. Beyond that, you may need to issue even more. I've won several rounds while issuing max amount Round 1-8. I've also won many simulations by having 0 Long Term Debt. It's a tough thing to balance whether to issue or retire. Refer to end of entry for more help.


4) HR & TQM

Human Resource and Total Quality Management are additional modules.

HR is easy. ALWAYS have 80 Training Hours. This will boost your Productivity Index and in turn will save you on employee cost. Recruiting Spend is set at $5,000 depending on its benefits. Try inputting $5,000 and see the benefits. Then try to set $0 and see if extra money is worth the benefit.

Labor Negotiation is another advanced module. In this part, ALWAYS set your offers at its max. This way your employees will never strike and if the other teams don't follow your suit, THEIR employees will strike and you'll make more money off them.

TQM is also easy, yet highly important. The optimal figure is $1,500 per category. Although you can set at $2,000, but I found that number is too much. Remember the benefits are cumulative. The first round TQM is activated, put $1,500 into categories that reduce your R&D cycle time and $750 in all other categories. Next round, do the same. However start putting $0 in one category and see if the benefits changes or not. After certain point, $100 can give you the same benefit as $1,500.


5) Reports

You should always read up your Capstone Courier. It has a wealth of VITAL information.

Also remember your Proformas are projected numbers and they WILL change once the round has been processed. Use them as benchmarks, but don't depend on them.

That's all. This section is not really a guide, but just a reminder to read your reports.






Those are all the general strategies that I've for you right now. Remember when I wrote look at the end of entry for more help? Here it is.
Email me at capsimhelp(at)hotmail.com with your questions and I guarantee reply in a few hours (except when I'm sleeping) for FREE.

7 comments:

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