Simulation - Make it a REAL Business World of Dinnerware!!!

Even though simulation is just an online model, but we could view it as if we are in a real business, because we run all facets of a business venture. From applying the strategic management concepts which we have learned through out the semester, we could see how theses strategies work in operating our simulated company just like a real business of the Dinnerware Industry.

Since we are competing with one another in the chosen market environment, and the start point is the same for everyone, then it is essential to position our company in this Dinnerware Industry.

The mission statement is the first step to be considered in the development of our company's strategic direction. In order to have a sound mission statement, we need to identify the organization's business, to determine the target market and provide the values to them. At the start of the simulation, our mission is to gain a large market share and then become the dominant player in the Dinnerware industry.

Having the mission in mind, the question is how are we going to succeed?

First, we look at all the people who affect our business. We need to identify the main stakeholder groups for our company and the claims they placed on the company. A stakeholder is any party who affects, or can be affected by, the company's actions. In the simulation, our main stakeholders include: shareholders, investors, creditors, employees, customers, suppliers, and competitors. Since the company’s purpose of doing business is to maximize profits, which means only those stakeholders who bear direct financial risk - the shareholders - should have the claim right of voice to determine policy, and the creditors have the right to recover the debts. Other stakeholders have the right of exit: customers can stop buying the product, and suppliers can stop doing business with the firm, and workers leave for a better job. Our strategy formulation was mostly impacted by two groups: our customers and competitors. The company’s goal is to attract customers to buy our products, and what the competitors do would also affect our sale.

Second, we have to perform both internal and external analysis, and we identify each of the following carefully:

- Industry’s Attractiveness/Opportunities/Threats
- The Porter’s Five Forces
- Resources
- The company’s Capabilities and Competencies
- Competitive Advantage

Porter’s Five Forces of the Dinnerware Industry

1. Threats of new entries---> High
-low capital requirements needed to enter the industry since all you need are equipments and capacity to start up
-low brand loyalty of existing firms because the customers are price sensitive
-no government regulation
-there is no switching cost for the customers
-high access to key supplies

2. Degree of rivalry among existing firms ---> Medium to High
-if there is a change of price of one firm, it is very likely the others will follow
-the demand in this industry is somewhat constant
-there are currently 7 competitors: 6 domestic firms and 1 foreign firm
-the firms can easily exit market without much cost
3. Bargaining power of suppliers ---> Low
-there are many suppliers available and all we need is two types of raw materials, so the suppliers have little influence over this industry

4. Bargaining power of buyers ---> High
- it is up to the customers' decision of whether or not to buy dinnerware from you because they have the ability to turn to someone else without cost a penny to themselves.

5. Threat of substitute products ---> Low
-customers can choose to buy alternatives or substitute products such as plastic plates, even though plastic plates are much cheaper but they don’t last long and don’t look nice.

Overall, according to the Porter's Five Forces Model, we can conclude that the attractiveness of the Dinnerware Industry is Medium.


Internal Analysis

Having the mission in mind, we started to analyze what the company needs to achieve our goal- to gain a large market share and become the dominant player in the industry. Obviously, we need to have a high level of sales to gain a large market share. We ask ourselves the following questions:

-How can we increase our sales?
-What are the major costs/expenses?
-Are there enough resources?
-Do we have the capability or competency to produce a large amount of output?
-Do we have any competitive advantages?

To address the above issues, the first step is to know the reason for the loss the company had incurred in Q4 of year 2004. Looking at the firm’s report, we figured out the problem- the company’s sale was too low and had a huge inventory on hand. The company sold less than 2,000 units of P1 in Area 1 and a little more than 1,000 units in Area 2. On the other hand, the finished goods of P1 on hand were more than 8,000 units in each Area. Now we know what the problem is, and the next step is to fix it. There are many things we can do to increase our sales level: spend more on advertising, hire/train more salesperson and pay them sales commission, and improve our product with R&D investment and quality control.
With the successful sales we had in Q1 of 2005, the company was able to sell almost all of the finished goods on hand from last year, and we had a great profit for the quarter. We also noticed that COGS accounted for half of the Sales Revenue. To solve this problem, we adopted a new strategy – to gain a competitive advantage through cost leadership- a focus on the cost of running our business not just offer the customer a lower price. Our company can sustain profits that exceed the average in this industry with a lower cost. The only ways to cut cost for production were to invest in engineering study and to expand our capacity. Because P2 require a lot of both Raw Material and Human Resource, our focus is on P1.

With both shifts available and overtime, the company did not have enough capacity to produce such a huge output for Q2 because the expansion takes two quarters to be effective. The labor hours we had was only enough to produce about 5,000 units of P1, and we had to make subcontract of the remaining 10,000 units to achieve the increase in the sales volume which cost 1.9 times more. The COGS alone accounted for more than 70% of the Sales Revenue for Q2, even with high sales revenue of nearly $1 million, the company’s Net Income was only $4,768, and a few competitors had a huge loss. Seeing this, we were more certain of continuing to increase our capacity.

To reach the maximum expansion for couple of periods, a lot of cash is needed. To avoid running out of cash or getting special loan, we decided to raise capital through selling bonds. We wanted to have a debt/equity ratio close enough to 1, so we can utilize the use of capital and assets to grow and expand our company.

Way to Success!

In order to achieve our mission, we also take considerations of credit policy, production costs, quality control, sales personnel, advertising, sales price changes, and inventory on hand. We also forecast our production units by looking at current economic index, Next qtr/Next yr. forecast included in the Industry Report provided for each simulation period.

With the new capacities available, and with careful monitor of what our competitors do, our company was able to gain a large market share and made sustainable profits and has become the dominant player in this industry by the end of year 2005.

Our Firm’s Future…

If the simulation continued for additional periods, we would position not only to have the most market share, but also to provide the customers improved quality dinnerware, and expand our business further to enter into the foreign markets!

Strategic Problems- Substandard Product

A firm's product perceived as being relatively substandard is an indicator of stratigic problem because it not only deteriorates the company's brand image but also hurts the public. In addition, it is very likely that a company with substandard products would have many legal suits pending which would make the company out of business.

Substandard products may occur as a result of negligence, human error, insufficient human and financial resources or counterfeiting. A substandard product is one that does not meet the specifications claimed for it and it can be both unintentional or intentional. An unintentional substandard product is one due to incompetence or human error. An intentional one, a counterfeit product, is due to criminal activity.

Recently, China has suspended the import of tainted meat products from seven U.S. companies, including Tyson Foods Inc, the world's largest meat processor. The products that included the main ingredients of some Chinese delicacies such as pig ears and chicken feet contained salmonella, feed additives and veterinary drugs, says the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) website (www.aqsiq.gov.cn). The other U.S. companies on the ban list are Sanderson Farms Inc, Intervision Foods, AJC International Inc, Cargill Meat Solutions Corp, Van Luin Foods USA Inc and "Thumph Foods", which most likely is Missouri-based Triumph Foods. The last three firms have been given 45 days to get their products in order. But the suspension period for the other companies has not been specified. The AQSIQ also had found excessive amounts of selenium in protein powder imported from U.S.-based Jarrow Formulas Inc. The products have been sent back. Excessive amounts of selenium could lead to gastrointestinal disorders, hair loss, neurological damage, cirrhosis of the liver and even death!

Business Strategy - Competitive Advantage

When a firm sustains profits that exceed the average in its industry, the firm is said to possess a competitve advantage over its rivals. The goal for many companies is to achieve a sustainable competitive advantage(SCA). An SCA is different from a competitive advantage (CA) in that it provides a long-term advantage that is not easily replicated.

Competitive Advantage: a company is said to have a competitive advantage over its rivals when its profitability is greater than the average profitability of all other companies competing for the same set of customers.
Sustainable Competitive Advantage: a company has a sustained competitive advantage when its strategies enable it to maintain above-average profitability for a number of years.

The two basic types of Competitive Advantage are: Cost Leadership and Product/Service Differenciation.

Cost Leadership – Lowest cost leadership (a focus on the costs of running the business, not just the low pricing offered to its customers)
With more than 3,000 stores in the US and more than $200 billion in annual sales, Wal-Mart sits firmly atop the Fortune 500, because it is a relentlessly profit-driven company. Wal-Mart made it through cost leadership, Wal-Mart not only competes on price, but also competes on time and convenience because they offer so many products customers do not have to drive to multiple stores to get what they need. They also compete on location and reputation. Successful inventory management, an important part of maintaining low prices at Wal-Mart, requires up-to-date information about sales as well as good communication withsuppliers. This scenario is critical when there are thousands of stores, tens ofthousands of suppliers, and hundreds of thousands of products. Wal-Mart turned totechnology in the early 1980s, first for collecting and analyzing sales data and then fortransmitting orders to suppliers with electronic data interchange (EDI), and Wal-Mart is able to keep their low cost through its valuable supply chain.

Product/Service Differentiation - Seeking to be perceived as unique compared to competition; seeking a perceived product advantage over rivals; deriving profits by charging a higher price for perceived value it provides.
Dell's buy-direct sales method, coupled with its built-to-order system, has allowed it to compete not only on price, but also on loyalty, time, reputation, customer experience, service, quality and process. In 2006, Fortune magazine ranked Dell as the 25th-largest company in the Fortune 500 list, 8th on its annual Top 20 list of the most-admired companies in the United States. A 2006 publication identified Dell as one of 38 high-performance companies in the S&P 500 which had consistently out-performed the market over the previous 15 years. Dell Computer Corp. was able to use the Internet to trim costs and boost sales, both of which were becoming increasingly difficult to do in the nearly saturated personal computer (PC) market of the late 1990s. Hoping to gain a competitive advantage, the firm started to sell PCs via the Internet in 1996. It became possible for customers who previously had placed custom orders via the telephone to place them on Dell's Web site. Customers could customize their PCs by select configuration options, get price quotes, and order both single and multiple systems. The site also allowed purchasers to view their order status, and it offered support services to Dell owners. Within a year, Dell was selling roughly $1 million worth of computers a day via the Internet. Even more importantly, nearly 80 percent of the online clients were new to Dell.

Porter's 5 Forces Model

Porter's 5 Forces Model is a framework for industy analysis and business strategy development developed by Michael E. Porter in 1979. Whenever conducting an external environmental analysis, it is essential to use this model because it determines the competetiveness and attractivess of a market. The 5 Forces Model is proven to be very effective for determining the industry attractiveness. The model considers the degree of power that current and new competitors, suppliers, buyers, and substitute products have in the industry.



Now, let's look at the FAST FOOD industry using the Porter's 5 Forces Model:



1. Threats of entry posed by new or potential competitors ---> Medium
-medium to high economies of scale
-low to medium capital requirements needed to enter the industry
-medium brand loyalty of existing firms--> because the customer compare both the price and the taste of the food
-government regulation --> a license is required from the health department, food handling, etc.
-there is no switching cost for the customers
-high access to key supplies

2. Degree of rivalry among existing firms ---> Medium to High
-price ---> if there is a change in the price of one firm, it is very likely the others will follow
-demand conditions---> the demand in the fast food industry is constant
-ability of firms to exit market--> it's costly for firms to exit market due to the franchise contract

3. Bargaining power of suppliers ---> Low
-since there are many food suppliers available, they have little influence over this industry

4. Bargaining power of buyers ---> High
- it is up to the consumers's decision of wether or not to buy food from you because they have the ability to turn to someone else without cost a penny to themselves.

5. Closeness of substitute products ---> Medium to High
-it is very easy for customers to find alternatives or substitue products, they may decide to cook themselves, eat from restaurant, but it's time consuming to cook themselves and eat in restauant is not as convenient as fast food is.

Overall, according to the Porter's 5 Forces Model, we can conclude that the attractiveness of the fast food industry is Medium.

~Google's Mission Statement~

When you want to search something online, where do you often go for? If you say Google, you've got a good one. Google is one of the world's largest search engine because it is fast, accurate and easy to use. The company also serves corporate clients, including advertisers, and content publishers. You'll be able to find information in many different languages; check stock quotes, maps, and news headlines; lookup phonebook listings for every city in the United States; search billions of images and peruse the world's largest archive of Usenet messages -- more than 1 billion posts dating back to 1981.


Through technology development and a continuing focus on innovation, the company works every day to achieve its core mission: to organize the world's information and make it universally accessible and useful.


The company's philosophy is never settle for the best. "The perfect search engine," says Google co-founder Larry Page, "would understand exactly what you mean and give back exactly what you want."





Google is achieving their mission by following the ten philosophies:


1. Focus on the user and all else will follow.


2. It's best to do one thing really, really well.


3. Fast is better than slow.


4. Democracy on the web works.


5. You don't need to be at your desk to need an answer.


6. You can make money without doing evil.


7. There's always more information out there.


8. The need for information crosses all borders.


9. You can be serious without a suit.


10. Great just isn't good enough.

AbOut MySelF

Welcome to the craziepepper blog!
First of all, wish you all Happy Valentine's Day!

This is Haiqun Lu... I'm currently enrolled in Prof. K's BPL class, section WY13B. My major is Accounting, and this is my last year here. I'm new to this blog thing, and I wish I'll have a great time here.

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