There are three Operations decisions that you make in the MikesBikes Introduction to Business Simulation; Factory Capacity, Efficiency and Quality.
Factory Capacity
You will be able to control your Factory Capacity in Year 2 of the simulation. Your Factory Capacity is measured in Standard Capacity Units (SCU). Your Factory’s total SCU will determine how many bikes you can produce. For example, the standard Mountain bike requires 0.5 SCU to produce one bike. So if your Factory Capacity was 20,000 SCU, you would be able to produce 40,000 bikes.
You should look to increase Factory Capacity when you expect sales of your Mountain Bike to increase, and also when you launch new products. You should look to decrease Factory Capacity if you have excess Factory Idle Time, usually caused by lower sales than expected.
Factory Efficiency
Wastage during production of your bikes is caused by time spent on setting up machinery, maintenance and breakdowns. These act as a constraint on productivity by absorbing a proportion of your Factory’s available production capacity. The Efficiency decision in MikesBikes determines the amount to be spent on reducing Wastage. The more that you can decrease Wastage, the more of your Factory Capacity will be available for production.
Important: A larger Factory will require a greater amount spent on Efficiency. Therefore, when you increase the size of your Factory, through the Capacity Planner, you will also need to increase Efficiency expenditure to maintain your existing Efficiency level.
Factory Quality
Your Factory’s quality systems will determine the build quality of your products. This is reflected in the Quality Index which can be tracked on the Market Summary report.
Quality is a key driver of demand for some of the market segments in your industry (see Market Information report). If you have a product in these markets, expenditure in Quality will be important to develop a competitive product.
Important: A larger Factory will require a greater amount spent on Quality Systems. Therefore, when you increase the size of your Factory, through the Capacity Planner, you will also need to increase Quality expenditure to maintain your existing Quality Index.
Questions?
If you have any questions just send us an email through our Contact Us page.
A Sales Forecast is a prediction of the number of units you believe you can sell in the year ahead. It is not what you want to sell, but rather, how many unit sales are likely based on market size and actual demand.
Accurate sales forecasting is essential to succeeding in the MikesBikes Business Simulation. This will enable you to project future sales revenue and profitability. Get it too wrong and you will end up with excess stock on hand which will cost your company in holding fees. However, don’t expect perfection as it will always be an estimate.
How do I conduct a Sales Forecast in MikesBikes?
The videos below will demonstrate the best approach to forecast how many units you may sell in the year ahead.
MikesBikes Introduction
MikesBikes Advanced
Questions?
If you have any questions just send us an email through our Contact Us page.
“The moment you make a mistake in pricing, you’re eating into your reputation or your profits.” – Katherine Paine
Your Retail Price is the dollar price you direct distributors (Bike Shops) to sell your products to customers. The distributor receives a percentage of the Retail Price (known as Retail Margin) and you receive the remaining amount (known as Wholesale Price).
Retail Price is usually a key determinant of Consumer Demand and is critical to maximizing your Sales Revenue and Profit. Therefore, carefully thinking about your pricing strategy is important to your company’s overall success!
The most common Pricing Methods are:
Mark-up: Fixed margin on costs
Target Return: Return/margin required by the company
Perceived Value: What the consumer is willing to pay
Going Rate: What is being charged in the market
Your Retail Price should not be set without regard for the price sensitivity of consumers (see Market Information Report) and the prices of your competitor’s products (see Market Summary Report).
Your Retail Price must also align with the overall marketing and company strategy. For example a Low Retail Price would require a High Volume of Unit Sales, as such, you would need to consider how this would impact marketing expenditure and operations decisions (i.e. Factory Capacity and Efficiency).
Pricing Example in our MikesBikes Introduction to Business Simulation:
Pricing Example in our MikesBikes Advanced Strategic Management Simulation:
Pricing Example in our Music2Go Marketing Simulation:
Questions?
If you have any questions just send us an email through our Contact Us page.
Henry Ford is known for his innovative assembly line and American-made cars . Like many, he wasn’t an overnight success. His early businesses failed and left him broke five times before he founded the now successful Ford Motor Company. As they say,
Remember that life’s greatest lessons are usually learned at the worst times and from the worst mistakes.
Over the years, we have noticed the three common mistakes that students make in MikesBikes Intro and we want you to learn from these and how you can resolve them.
Three of the most common mistakes in MikesBikes Intro are:
Misunderstanding the Importance of Pricing Products Correctly
Inaccurate Sales Forecasts
Ineffective Spending in Operations
Mistake#1: Misunderstanding the Importance of Pricing Products Correctly
As Katherine Paine said, “The moment you make a mistake in pricing, you’re eating into your reputation or your profits.”
Price is usually a key determinant of demand and is the most critical component to maximizing your revenue. Therefore, carefully thinking about your Pricing strategy is important as this would have an impact on the demand for your products.
With a poor pricing strategy, you will be missing out on profits in every transaction that you make. View the “Market Summary Report”, in comparison to your competitors does your product have low Awareness, low Quality, low Distribution, or low Delivery (or all of the above)? If so you should price your product at the lower end of the market, if not and demand for your product is still average to high, then you can price your products at the higher end of the market. Keep in mind that extreme prices, high or low, will have a negative effect on Gross Margins.
There are several pricing methods, the most common of which are:
Mark-up: Fixed margin on costs
Target Return: Return/margin required by the company
Perceived Value: What the consumer is willing to pay
Going Rate: What is being charged in the market
These methods need to be in line with the overall marketing strategy. In addition, the retail price should be set by having regard for the price sensitivity of consumers and the prices of competitive products. This can be found in the Market Information Report (under the Key Reports menu).
Mistake# 2: Inaccurately Forecasting Sales
We have noticed two mistakes that students make in terms of forecasting sales:
Excessive Closing Inventory
Issues with Lost Sales due to lack of stock
Both of these scenarios are caused by inaccurately forecasting your firm’s sales for the year ahead. Ideally a firm would want to minimize this by correctly forecasting sales and adjusting your production based on this forecast (while also taking into account existing inventory levels).
There is a very helpful video available that demonstrates how to Forecast Sales within MikesBikes Introduction for new and existing products. Watch this here to learn how to Forecast your Sales accurately:
Mistake# 3: Ineffective Spending in Operations
Students often overspend or underspend in Operations and both have negative implications in their factory, its efficiency and the quality of their products.
There are three Operations decisions that you make in MikesBikes: Capacity, Efficiency and Quality.
Spending in these areas must be linked to your products and consumer preferences, some products require low Quality or high Delivery Time, whereas others revolve around Pricing and Advertising.
Capacity
Your Factory capacity is measured in Standard Capacity Units (SCU). The theoretical
capacity of a factory (in SCU) is calculated from the plant (machine) capacity and
the number and effectiveness of the workers.
For example, the standard Mountain bike requires 0.5 SCU to produce one
bike. If 500 SCU were available for production then the maximum output of
this design would be 500 SCU/0.5 SCU per unit = 1000 bikes (assuming zero idle
time and wastage).
Keep in mind that too much capacity relative to production/sales demand will result
in greater idle time (an inefficient use of resources causing higher average
manufacturing costs per bike). Also note that the maximum capacity you are able
to buy is set at the maximum amount of available cash you have for this year
before spending anything on any of your other budgets (decisions).
Capacity decisions should be made to accommodate your currently entered sales
forecasts and production decisions.
Efficiency
The Efficiency decision is used to enter the amount to be spent on reducing
wastage during production. Wastage relates to time spent on activities such as
setting up and maintenance of machines. In turn these activities act as a constraint
on production by absorbing a proportion (%) of the factory’s available capacity.
Note that increasing the size of your factory involves an increased Efficiency budget
to maintain your existing Efficiency level.
Quality
Quality refers to the satisfaction experienced by customers from a product and is an
important determinant of customer demand. It is measured in MikesBikes in terms
of the Quality Index which can be tracked on the Market Summary report.
Increasing the size of your factory involves an increased quality budget to maintain
your existing quality level. Before heavily investing in quality, consider your product
strategy as some segments are heavily sensitive to quality while others are not (if
you are planning to be a discount specialist then a large quality budget may be an
unnecessary expense, while if you are focusing on high end products they must be
produced to a high quality).
Conclusion
Every situation is unique within the simulation and these are only recommendations based on common mistakes we have found. As such there are no generalizations but this article will provide you with the tools to diagnose your unique situation and correct any problems you may be facing.
If you have any questions or would like to discuss anything further from what has been mentioned, please feel free to get in touch with us by clicking here.
