Thursday, November 17, 2011

How to Pwn Capstone Simulation (CapSim)

UPDATE #2: In-Depth Guide to CapSim (LINK)


EDIT: Wow, since I get so many views on this, I think I'll create a more in-depth guide to help those seeking for help. ^_^ I'll surely post it up before September comes around to get you guys ready for the new start of the school year (I'm sure some companies utilize this simulation to teach managers and personnel too).

So it's my senior year and I'm required to take this class called Business Strategy & Policy. We have to pay like 100 bucks to do this simulation online where you own your own company. For this company, you have to make strategic planning. You need to decide how much you want to spend on Research & Development, how you're going to market your products, how much you're going to pay your employees, do you want to take out loan or retire existing loan or issue/buy back stocks?, and a lot of other decision. Best of all, you're competing other people and not just the computer. My group started off not reading anything on it, so we were clueless on what to do. It is Year 6 and we're in last place with $148million of total debt. But after putting serious effort into this simulation, I finally found out how to win it.

Tip:
1. NEVER CREATE A NEW PRODUCT. Waste of money. You need to put a lot of money into a new product by R&D, promotion and sales, etc.
2. DO NOT TAKE OUT SHORT TERM LOAN UNLESS YOU HAVE TO. This simulation is serious business. 14% interest rate? You'll be paying huge amount of interest.
3. I forgot...

But there's the gist of it.

Research & Development:
Your product should always meet what the customers want.
If you go to Reports --> Industry Conditions Report and scroll down a little bit, it should give you a chart of what they want each year.
With the exception of Low-End segment. They don't really care about performance and size. They care a lot about price and age. You can leave the Low-End segment product with 3/17 until Round 5/6. As long as it's an old product and you sell it cheap enough to cover your cost, you should lead the market with that.
There's not much to say here. Make sure you follow the Perceptual Map on setting your performance and size (Traditional, High End, Performance, and Size) because it is what the customers want. The default MTBF is at a good number for all of the product. The only thing I recommend changing is the Low-End to make the material cost cheaper, but not really necessary.

Marketing(!):
This is really important. Here are some really useful tips:
1. Prices should never be too high or too low. For Low-End segment, make sure you can cover all the cost and not selling at a lost. For High-End, people might attempt to price it at a very high price because only 9% of the market cares about price. Hell, you can price it above the range and you will still do well as long as the perform/size is what they want. Also, remember that the customers wants the price to be $0.50 cheaper every year, but price it at a reasonable price to beat your competitors. Good prices to start out with: T$28/L$20/H$39/P$32/S$32
2. Round 0 and 1, you cannot allocate your money into different promotions and sales. Start by investing 2000 into every promotion and 3000 into every sales budget. THIS IS REALLY CRITICAL. Awareness and Accessibility is REALLY IMPORTANT to make your products sell really well! Aim for 95%+ in Awareness/Accessibility. Once you start off well, you'll take all the market shares. Once it's around 95%+, you should be in Round 3 where you can start allocating money into different promotions and sales. !ALSO REMEMBER, AWARENESS AND ACCESSIBILITY ACCUMULATES EVERY YEAR! You won't have a high one for spending a lot in one year and drop it down by spending really low another year. They lose 15% each year, so you have to set a budget to keep it high once you max it.
-For Promotion, look at the tips and allocate your fund into where it's the best way to promote. Make sure you spent at least $1,500 in each segment to keep it high. Each year, it goes down 15% if you don't put money into promotion.
-For Sales Budget, 12/30/15 is max (I believe $4,500 per segment). If it's at 95% awareness, you can lower it to about $2,000 total per segment.
3. If your company is doing well, always predict that you will sell 200~500+ more product than the previous year. Don't look at the computer prediction because it's not accurate. It's predicting how much you'll sell if you don't have any good competitions.

Production:
This page is really important to understand too.
1. Production Schedule = Unit Sales Forecast - Inventory On Hand. You can produce less than that. If you produce more than that, you will get a charging fee based on how much more you produce.
2. Buy/Sell capacity: Capacity is how much you can produce. Capacity should be half of what you think you need to produce. So after subtracting your Inventory On Hand, the Production Schedule is how much you're going to produce for that year. If you're producing 1000 product that year, your 1st Shift Capacity should be 550~600 (for producing 1100~1200 products) but no more than that unless you think you will produce a lot more next year. Remember, buying capacity cost more than what you get back from selling. Don't sell too much of it. Tradition and Low-End should have a fairly high capacity while High/Perf/Size should have a low capacity.
3. Automation basically mean using machines to produce products. By using machines, you cut down on labor cost (At automation 10, your labor cost should be at $1.57). Sounds awesome! But that's not the end of it. Every year, you're improving your products in R&D. By upgrading your products, you also have to upgrade your machines to produce these new products. This will delay the products and you won't be able to push out the new products until really late into the year or even next year. So you want high automation on products that don't improve a lot or improve very minimal each year. You want low automation for products that requires big change and change every year. Here are some good automations: T6~7, L10, H3, P5, S5.

Human Resource:
Not much here... Make sure your labor negotiation meets what the employees want.
Max out the spending here if you have the money. Or else, just keep it in the average. I didn't see much significant here. ~$1000 to $2000 in Recruiting Spending each year and 40~60 Training Hours.

Finance:
NEVER! EVER! TAKE OUT SHORT TERM LOANS UNLESS YOU HAVE TO! That means your company is doing really bad and you're expecting that if you don't, you'll have to take out an emergency loan which has a higher interest. If you are not playing in the Price per Share, then take out max long term debt for the first 2~3 years. It will help you a lot in the long term to have a good head start on promotion, sales and R&D.
Shares, it was not really important to us. Issue shares when you have a high Price Per Share and Buy back if you have a bad Price Per Share (for my group, our Price Per Share has been $1.00 for the past 3 Rounds).

TQM:
Starts in Round 3. Play with your numbers and see how much you can invest in each category until it doesn't make that big of a difference. I found it was good to invest $1,600 in each of them the first year. Any year after that, just put $1 in each TQM Initiatives and $1,000 in Concurrent Engineering. It won't make a big difference even if you spend $1,000 in each of them. It's good to lower all your cost at the first year that you can start investing into TQM.

Make sure your income statement do not have any red numbers. If you can, keep your predicted Net Profit at 10% each year. Don't take out too much debt or else the investors will not let you take out anymore money and you won't be able to invest any money into capacity/automation. Make sure you don't give minimum wage or else your employees might strike or leave your company for the others.

I did this with the Rehearsal simulation and I ended up with 55% of the market share by the end of Round 4. Good luck! :)

10 comments:

  1. Hey, just looking around some blogs, seems a pretty nice platform you are using.

    Capstone Simulation

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  2. Great post! This info helped me in my first simulation. I have made a post on my blog http://strengthofgif.blogspot.com/2013/01/capsim-objectives.html, and a few helpful youtube videos for other students.
    Marketing: http://www.youtube.com/watch?v=RDWppBNPQ0w
    Production: http://www.youtube.com/watch?v=W38fyQnnIZ4
    R&D: http://www.youtube.com/watch?v=WUgrYFfTbwY

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  3. Hi mate,

    I find your two tips absoultely absurd. We are in week three of the simulation and created a product in the first week, maximising our long term debt. The outcome was that we now have a 6th product in a market of its own as no one else has and it is already constantly selling out. We are winning the class.

    In regard to your short term loan comment, we have taken out a short term loan as we have increased our spend on investment and automation. This has lead to us creating a loss and needing to cover by increasing our debt to provide a profit. The outcome a share price of $40 and retained earnings of $10 per share.

    You can build up as much long term debt as you want because by the end of the competition it ends anyway and doesnt need to be repayed. End of story we have implemented both of the strategies you choose not to and we are winning and have a new product which provides us with a high asset base and huge ratios.. We will only increase from here. (our labour cost is also $1.40 compared to $10...) so its not all done one way mate.

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    Replies
    1. How'd you guys finish at the end of the simulation?

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    2. Check out this Blog mainly related to the challenge inputs.
      And how to maximize chances of winning.
      http://capsimchallengetips.blogspot.com

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  4. hi, this is our final round and we had many days of strike so, is there anyway we could win this game?

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  5. This is great stuff. If anyone still needs individual help, you should try capsimhelp.com, they helped us annihilate the competition.

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  6. This is only possible strategy and its success will also largely depend on what your competition does. There is no strategy that will guarantee success.
    Make sure you think ahead and know where you want to be 2-3 rounds ahead.

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  7. Why not current debt.. it is cheaper..

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