Planning and Business Executive Team Business Game Report
Planning and Business Executive Team Business Game Report
“Executive Team” is a business game in which we have been involved over six weeks; the business game consisted of 4 teams who formed 4 companies to compete in 5 separate trading areas. The game is an interactive game in which the decisions of 1 company have an impact on the other teams positioning as well as their own. Each team has a home trading area, these are areas 1 to 4 and there is a common area, area 5. All of the companies are free to trade in all of the areas. The advantage of trade in the home area is that transport prices are lower. We participated in the game for 6 weeks and had 7 periods in which we made decisions.
The team in which I played was company 4 at the start of the game our objectives were as follows:
- To get out of loss and into profit
- To try and bring down the cost per unit and create a more efficient production line, which in turn would boost profits
- To aim to have optimum stock sales therefore creating efficiency and reducing storage costs.
In this report I am going to asses the decisions made and the implications of those decisions in the areas of pricing policy, marketing and product policy, production policy and transport and distribution policy, I am going to assess the decisions and their impact period by period.
We had a simple approach to pricing policy we decided that we would use our price along with marketing to maximise our sales we used the first week to decide which areas we felt we wanted to up sales in and to decide which areas where we thought sales were at an acceptable level. To aid me in assessing the pricing policy I made a graph (see appendix 2).
At period 0 price, marketing and sales were all on at an even level so our first decision we decided to keep areas 1, 2 and 3 at the same levels, with area 4 being the home area we reduced the price to keep our consumer in this area happy and in area 5, the common area, we upped the price to 62, this being the common area we decided raising the price would see whether the common market was prepared to pay more for our product. The effect of our changes in period 1 where that sales in area 2 rose whereas in areas 1 and 5 sales dropped and in area 3 and 4 sales remained the same. In period 0 we had produced 817 however had only sold 775 and due to opening stock we closed with 232 units in stock, this was going to cost us in storage, if we could accurately predict a sales number we would save this unnecessary cost so we decided to produce 600 units which in turn gave us 832 units in total to sell and with any luck we wouldn’t be left with as many in storage. As for transport and distribution policy we decided that as we were in loss we shouldn’t yet invest in vehicles so we hired vehicles as this would save us maintenance costs. Our decisions for period 1 resulted in a dip in cumulative retained earnings (see appendix 6) whilst retained earnings rose (see appendix 5), we had made considerable profit however we were still in loss.
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From the results of periods 0 and 1 we then were slightly more informed of our markets so in period 2 we dropped the prices in area 1 and 3 whilst area 2 remained at 60, area 4 we pulled back up to 60 and area 5 we reduced to 61. Area 1 we dropped price in hope it would boost sales as this was the area where we lost most sales and so we wanted to entice a clientele and thought dropping the price would do this. We also dropped price in area 3, in this area we had not lost sales however one of our objectives was to maximise sales and in this area we had stayed at a level selling pitch, we wanted to increase sales rather than just maintain them and felt lowering the price could help d this. Area 2 we kept at 60 in hope to maintain our sales and are 4 we brought back up to 60 as the reduction made no difference in sales so we decided that this area was probably not price reactive. The common area we reduce by one unit to 61 as we found upping the price by 2 units in the previous period did loose us sales but not an enormous amount so we could recover those by a small shift. To counteract the price drop in area 1 and to encourage even more sales we increased marketing to 1000 all other areas we kept marketing the same as in period 1 as we had achieved satisfactory results and saw no need to change marketing in the other 4 areas, we again invest 3000 into product development as we had in periods 0 and 1 this was to give customers faith in our product, it showed that we were constantly trying to update our product. In period 2 we opened with 60 units in stock, already a reduction in storage costs and so we wanted to do as well in this period, we produced 840 giving us a total of 900 to sell, and we again had made a very good estimate and were left with just 19 units in stock. As we were still in loss at the end of period 1 we again opted to just hire vehicles rather than purchase as this way we wouldn’t encounter additional costs. By the end f this period we had made it out of loss as well as this both Cumulative retained earnings and retained earnings rose.
In period 3 we dropped all prices to 58 and marketing to 800 across the board, this was the week in which every other firm had reached larger capacity and we chose not to invest in this as we were coping fine with the capacity we had and saw no need to expand, however this being the week everyone else did we decided to cut all prices just to gain customers in case they decided to start some kind of price war. In all areas our sales grew, however we knew this was a temporary growth due to the price drop, we did on the other hand hope our drop in prices would entice new customers who maybe satisfied with our product and wish to start purchasing it instead of their usual brand. We put marketing at an even level as we were already going to see a drop in profits due to the reduction in price we didn’t want to also be spending an excess on marketing as our lower price should already have encouraged sales. In period 3 we chose to produce 840 again giving us a total of 859 units to sell, this production figure was very accurate as we were left with just 1 unit in stock. By this time in the game we were no longer in loss so we decided o purchase some vehicles so we put 3000 into vehicle purchase and 1500 into vehicle hire, however we didn’t quite have enough vehicles and had to use some special delivery vehicles, this again is an unnecessary cost and was due to a mistake in calculations, however even though we encountered this cost our transportation and distribution costs where lower. In this period our decisions resulted in the cumulative retained earnings increasing whilst retained earnings decreased.
Period 4 we used to try and work out which areas where more sensitive to price than marketing, however this is always going to be a difficult task we didn’t want our profits to suffer too much so had to increase price in 2 areas, at this point we decided that the home area, 4, reacted best to price drops it sold more at a lower price so in this area we decided marketing wasn’t a huge impact and reduced marketing whilst keeping the price low at 58. Area 5, the common area still seemed to sell well when the price increased so we decided that in this area our product was possibly a necessity and so people didn’t mind what they had to pay for it therefore we increased the price to 59 and kept marketing at 800. We found 58 was a comfortable price for area 3 in period 2 and so decided it was best to stick at the price as it was bringing us more sales and this is what we wanted, a fast stock turnover and low storage cost, as this had already proved successful we also kept marketing at the same level. Area 1 we found reacted well to the price drop and marketing in period 2, however we weren’t entirely sure whether it was more price or marketing reactive so we upped marketing to our highest level 1200 and kept price at 58 so we could compare the results of this period and last period to see if it was the marketing which was beneficial. Area 2 again we weren’t convinced what the market where reacting to and we thought that if we boosted the marketing it would boost sales so we upped marketing and price together and as a resulted we saw a sudden rise in sales. In period 4 we produced our highest amount ever, 925 units, this was the full capacity of what we could produce and we did it because we believed that in this period we had managed to identify our customers and so would sell more in total we had 926 to sell and again we were left with just 19 units in stock. In the previous period we found transport and distribution was cheaper when we invested in our own vehicles so we put 5000 into vehicle purchase and 500 into hire, we found again that to split between purchase and hire saved us money as it wag cheaper than just purchasing and this period we had no special delivery costs. Again in this period both cumulative retained earnings and retained earnings rose.
We found the analysis we made of the markets in period 4 quite successful in each area and found that the combinations of price and marketing we had selected were working for us so we decided to keep the same figures in all areas this period in hope to maintain our high sales if not beat them in this period and we found that we had even higher sales in each area at the end of this period (see appendix 1). In period 5 we decided that we would also increase our investment in product development to 5000 to keep our product top of the range. This period we again produce top capacity, 940 and in total had 959 units to sell of which we sold all our units and we were left with no closing stock, this confirmed our beliefs that we had found the correct combination of price and marketing in each area. As we already had quite an amount of transport capacity we decided that for the remainder of the vehicles needed for distribution we would just hire, this ended up being slightly more costly than the past 2 periods though. In period 5 we also decided to start to pay off our loan as we were doing so well so we paid 1000 off. In turn our cumulative retained earnings rose however retained earnings dropped.
After our sales success in period 5 we decided we wanted to try and increase our profits as we now had quite a large customer base so we re-evaluated our areas to see where we could bring in a price rise. We decided that we had our marketing at the correct levels for each area and so kept our marketing the same; we also decided that as area 4 was so price reactive that we would not change that price from 58. However in all the other areas our sales had risen in the past period so we did not think a price rise would have a huge effect on these areas and so the prices increased to 60 units in each of the other areas. We kept marketing the same in all areas as we didn’t want to “rock the boat” to much as we were already changing prices. We again put 5000 into product development which should strengthen our appeal to customers. After selling all our stock in the previous period we opted to produce full capacity again, giving us a total of 952 to sell, producing maximum capacity also keeps our cost per unit low and therefore gives us a larger profit margin, we again managed to sell all our stock resulting in no storage costs. Transport and distribution was higher than usual last period so we opted again for a split, to purchase the majority of vehicles needed but hire some also we managed to bring our transport costs down again however we did have to use some special delivery vehicles again. In this period we decided to pay back the rest of the loan, 13000, as we saw we already had this money to spare. At the end of period 6 our cumulative retained earnings and retained earnings had both increased.
In the final period we wanted to boost sales as much as possible for the last week to ensure we maintained the lead, which we did, and so we again kept marketing the same and increased the price in areas 1 and 2 to 62 as these two areas seemed to cope best with higher prices. Area 3 was increased to 61, area 4 to 59 and area 5 stayed at 60, these prices were solely to boost profits in the final week and we did loose sales, however this wasn’t by a drastic amount. We again produced maximum capacity which was 962 of which we were left with116 closing stock the first time in 2 weeks we had any closing stock. We reduced product development this period to 2000 as we knew it was the final week and so we would not benefit from it. As for transport we again split between purchase and hire and reduced our costs. We finished the period with an increase in cumulative retained earnings and a huge rise in retained earnings. Out of the 4 companies we were the only company to be in profit by the end of the last period.
As we found whilst making our decisions marketing and pricing policy is inextricably linked and in many cases we had to use marketing and price to counter act each other and when we found the correct balance in period we found we reaped the rewards. Product development also interlinks here as it increases customer’s satisfaction of the product and also keeps the product at the top of the range. None of the decisions which we have made have been independent they are all inextricably inter linked. The amount that we produce influences how much we invest in transport; it also alters the cost per unit. The pricing and production policy both influence each other and as well as that they influence sales, the sales bring profit and the cost per unit and pricing policy work inextricably to create a profit margin. Each decision we made had an implication of every other aspect of the game and so it was imperative that we get it right.
By the end of the business game we had managed to meet all 3 of our objectives, we were out of loss and in profit by period 2, as well as this profits were continually rising. Also we were producing maximum capacity and so managed to get our cost per unit price down to 29.39 in period 7 with 36.7 being our highest cost per unit in period 2 (see appendix. 7). We had optimum stock sales in two periods we sold all stock and therefore had no storage costs, in 4 periods we had 60 or less units in closing stock and only in the final period we had over 100 units left in stock. Our sales income rose over the 7 periods, reaching its peak in period 6 and our sales never dropped below 775 at the lowest and reached their highest, 959 in period 5. Overall our company has been very successful and this can be seen by looking at the graphs and tables in the appendices. In comparison to the other companies, by the end of period 7 we had the highest level of cash and debtors, also the highest cumulative retained earnings, also the highest amount of sales income after cost of sales and the second to lowest cost per unit, which we found surprising as we were the only company who didn’t increase our plant capacity to 12000. Our decisions have been very successful and left our company in the lead at the end of the game, our decision not to increase capacity meant we were on an even keel. If I was to play the game again I would make all the same decisions except for in transport, I would calculate more accurately how much transport is needed and invest more money in vehicle purchase than in hire as this helped to save money and therefore left us with higher profits.
Kathryn Bond @00108238