Demand factor Assembly time
One of the most underrated factors. A common optimum assembly time for products is 105% - 120%, but the real optimum assembly time can greatly go beyond this range, as it depends on several factors.
These factors include:
- Elasticity factor.
- Features of the factor influence on demand.
- Wage rate.
Elasticity of the factor
Diagram presents test results of assembly time for product 1 among 5 teams in the same group (and it is not to much for such coincidences to happen) in previous version GMC simulator. Factor mechanics in new version GMC simulator has not changed, so information is still relevant. Vertical - relative change in demand compared with previous period. Horizontal - relative value of assembly time in % from normal time.
The relationship between the assembly and the demand is a quadratic function that will be unique to each market and product.
Features of the factor influence on demand
Increasing assembly time will be reflected in increasing sales over 1 period, but decreasing assembly time will decrease sales in current period. It is important to remember and to calculate optimal value before the game for all 5 periods, to prevent extra costs. For example, in scenario 12C3 in 1 period is shortage of workers to implement production plan. So you can not increase assembly time to optimum value 120%. At the same time labor market has shortage of qualified workers and in 2 period you also probably will not be able to hire required number of workers. As a result, in 2 period, you also can not increase assembly time to the optimum. At last by 3 period required number of workers are hired, but remember that effect on demand will act only through 1 period, it means in 4 and 5 periods only, and 3 period you will work "for free". In this situation, raising assembly time to 120% is no sense, it is not profitable, so you should leave it as is.
Main thing you should pay attention. Between wage rates 10.00 and 13.50 is a huge difference. At rate 10.00 you can safely increase assembly time up to 125% - 130%, low salary costs offset costs of high assembly time. While at wage rate 13.50 setting assembly time above 120% is dangerous, because salary costs will “eat” effect of sales growth.
- No residual effect.
- Effect is different between markets and products.
- Competitors in the group affect on sales.