Scenario guides - General guide for all scenarios

18.05.2017

All Global Management Challenge scenarios are unique and they have accumulated several dozen for long history of the championship. However, there are some universal tips that you can follow safely in any scenario while making company's strategy for upcoming game. Based on the cumulative experience of our experts, this topic provides general strategy tips for Global Management Challenge.

It is important to analyze your opponents before start of the game. Elasticity of demand on some factors depends on total market share of companies. The lower total market share occupied by you and your competitors, the higher elasticity of demand and easier it is to increase sales. For example, if there are only 4 teams in group with you (the minimum possible number), then on average you can expect a greater increase in demand compared to a group where all 8 teams will play (the maximum number). However, even if your group consists of 8 teams, you need to analyze the real strength of competitors - to play in the 1 round of the national championship, where there are many "green" newcomers, or in the international final, where the best of the best play - these are 2 big differences. In the “weak” group, you need to play more aggressively, investing more in development of the company. In a strong group, on contrary, you need to switch to saving mode, since competitors will not allow you to earn money and you will be wasting money in vain. This and other guides are valid for groups with medium competition, where there is an active struggle for the market.

 

Advertising

  1. Corporate advertising - strong cumulative effect on demand, but the decision made has an impact only after a period (if the decision is made in 1 period, then the effect occurs in the 2 period). Most of the investment in corporate advertising should be directed to the market with the maximum revenue with a gradual decrease in investment to 0 by 5 period.
  2. Direct advertising - cumulative effect on demand is negligible. The higher potential revenue from the sale of products in the market, the more you need to invest in direct advertising. Total direct advertising costs should be kept in the range of 4 - 8% of projected revenue.

 

Prices - price elasticity of demand depends on total market share of the companies in the group. The lower total market share, the greater effect of price changes on demand. If at the beginning of the game (periods 1 and 2) total market share is low (less than 40%) and the elasticity of demand from the price is maximum, then prices should be reduced and market share increased. When total market share becomes high (more than 60%) and elasticity of demand from the price is minimal, then prices should be raised to market average or higher. As a result, company retains most of its market share from dumping and gains additional profit due to higher margins compared to competitors (investment return is one of the factors of goodwill).

 

Production plan - when calculating the number of products to ship to agents and distributors, do not ship partially filled containers. This is especially true for the Nafta market, where shipping 1 container costs 8 000. You should plan to ship containers with the maximum possible load, this will increase the company's profitability. Plan the volume of production depending on the demand forecast and the chosen strategy. Take the opportunity to leave some of the products in stock in order to evenly balance the load on production in the face of seasonal changes in demand and to avoid backlog (backlog is one of the factors of goodwill).

 

Quality of products

  1. Research and development - research and development (R&D) is one of the factors of goodwill. It is necessary to implement MAJOR developments, MINOR are implemented automatically. In the period when you are planning to implement MAJOR development, you should minimize stock of products in the warehouse, because you will have to destroy them at the scrap price. History of the company may indicate (or not) MAJOR developments that were not implemented in previous periods. In the 1 period, it is imperative to implement these MAJOR developments. Research and development forecasting and R&D budget planning should be carried out on the basis of the accumulated database of management reports. You can purchase optimal R&D plan for all scenarios in our store.
  1. Assembly time - effect of increasing assembly time on demand occurs only after a period (if the decision is made in 1 period, then effect occurs in 2 period). If you decide to increase assembly time of the product, then you should increase the assembly time already in the 1 period, maximum in the 2 period. Optimal assembly time in the range of 110 - 120% of standard value.
  2. Premium materials - use of premium materials is effective only at low cost of raw materials. Actual use of premium materials can have only 2 options (demand has a linear dependence on this factor) - if use of premium materials in production is economically effective, then we set 100%. If it is not economically effective, then set 0%.

 

Subcontracting - useful option for quickly scaling up production. There are only 2 alternatives to subcontracting - switching to higher number of shifts (2, 3) and purchasing new machines. Effective use of subcontracting requires high-quality production planning in next period. You should purchase such number of subcontracting details to allow machines and operators to work in 1 shift at 100% load (5 days a week). This will allow not to pay personnel for overtime and reduce the cost of production. If company has enough cash, and the prices for subcontracting details in next periods will increase, then you should purchase a stock of subcontracting details for several periods in advance at a minimum price.

 

Agents and distributors - number of agents and distributors depend on expected sales in EU and Nafta market. In common, optimal number of agents for EU market is 5 - 7 and 4 - 6 for Nafta market depending on scenario. Optimal number of agents and distributors should be hired in 1 period and not changed until the end of the game. In the 5 period, an additional 1 or 2 distributors should be hired to increase the company's goodwill (increase in the agent network is one of the factors of goodwill). You can purchase the optimal recruiting plan for agents and distributors for all scenarios in our store.

 

Operations

  1. Raw materials - buy raw materials with a small reserve to have enough resources for production. It is useful to plan production in advance for all 5 periods and purchase materials for 3 and 6 month futures, so you can save money. Remember that when using subcontracting for production, then you do not need to buy raw materials, it is not required and will just insease stocks and decrease luquid assets.
  2. Maintenance hours - during operation, machines spend their resource and require constant maintenance. If machines are not serviced in a timely manner, their efficiency will gradually decrease and workers will spend more time manufacturing details, which will increase the cost of production. Optimal efficiency of the machines is about 92%, for which 15 hours of maintenance is sufficient per 1 working shift. Achieving a higher level of machine efficiency will require more maintenance hours, which is not economically effective. You can purchase the optimal maintenance plan for all scenarios in our store.
  3. Shift level - production of products in 1 shift is always cheaper than in 2 shifts (all other things being equal), and production in 2 shifts is always cheaper than in 3 shifts (all other things being equal). Organize production to work in 1 shift and use subcontracting to compensate for the missing production capacity. In absence of opportunities to increase production in 1 period due to subcontracting, it is necessary to organize production to work in 2 or 3 shifts. Otherwise, you could lose market share because will not be able to supply your agents and distributors with enough products compared to more aggressive competitors.
  4. Ports - purchase enough ports to maintain no more than 0.1% of estimated level of failed visits. In 5 period number of ports can be doubled, because payment is made after the next period.
  5. Website development - website development increase demand only in Internet market. The more investments in website, the more demand growth you can expect. Optimal value of investment depends on size of Internet market and is in the range of 15 - 30. You can purchase optimal website development plan for all scenarios in our store.

 

Personnel

  1. Recruit assembly workers - cheap but not guaranteed way to increase the number of assembly workers. With a sufficient number of free assembly workers in labor market, the hiring of the required number is practically guaranteed. With a shortage of free assembly workers in the labor market, probability of successful hiring is reduced to 20 - 30% of the planned number. In such a situation, hiring even more assembly workers does not make sense, you will be wasting money. It is more effective to invest in factors that increase the chance of hiring assembly workers or reduce production.
  2. Train assembly workers - expensive but guaranteed way to increase the number of assembly workers. It is used in exceptional cases when the competition among companies for assembly workers in labor market is high. In any other situation, it would be cheaper to hire more assembly workers or raise wage rate to increase chances of personnel recruitment.
  3. Wage rate - it is impossible to reduce wage rate, this will automatically lead to dismissal of some of assembly workers and strike of those remaining in the company. Wage rate should be increased as needed (if there are not enough free assembly workers on labor market), because this leads to an increase in cost of production.
  4. Management budget - increase in management budget increases demand for products, reduces scrap rates, speeds up R&D research, reduces the risk of force majeure, increases the chance of hiring assembly workers, etc. Optimal value of management budget is 13 - 14% of administrative costs. A decrease in management budget can lead to dismissal of some of the assembly workers and strike of those remaining in the company, therefore, it can be applied only as a last resort when management budget is significantly exceeded over optimal value.
  5. Training - principle of training is similar to management budget, but has 10 times less effect. Unlike management budget, training can be reduced to 0 without risk of triggering a assembly workers strike or force majeure. Optimal training value is 1.3 - 1.4% of administrative costs. Training has a significant cumulative effect (similar to corporate advertising), it is recommended to invest most of the funds at the beginning of the game and gradually reduce it by 5 period.

 

Finance

  1. Shares to issue/repurchase - issue of shares increases available liquidity of the company (liquidity is one of the factors of goodwill), therefore, during the game, you need to issue shares at least 2 times in amount of + 10% of the shareholders' capital (every calendar year). For greater effect, choose the right moment of issue and repurchase of shares - issue at the maximum share price, repurchase at the minimum price. So the company earns additional liquidity due to the difference in prices.
  2. Dividends - dividends are one of the factors of goodwill. Dividends can be paid only if retained earnings in the previous period are greater than 0. Dividend payments should be started as early as possible and carried out each period with a gradual increase in the amount of payments by 1.5 times.
  3. Term loans - loan that you can take, but cannot be repaid. Decision makes sense only when the company takes out an unsecured loan that cannot be repaid until the 5 period. Bank provides term loan at a rate of 10%, borrowing power loan at a rate of 10.5%. Term loan will allow you to borrow funds at a lower interest rate and save on debt servicing.
  4. Term deposit - all "free" funds is useful to put on deposit, which will give you small but additional income.
  5. Machines to buy - decision does not make sense, because it is more profitable to replace the lack of own production facilities with the help of subcontracting. Purchase new machine tool reduces current assets (cash) by 300 000, but increases non-current assets by only 292 500 (cost of equipment each period decreases by 2.5% due to depreciation).
  6. Machines to sell - decision makes sense only when company is limited by the free factory space and it is necessary to free up space for hiring assembly workers. This is a risky strategy, where it is important to remember that when selling machines, there are additional costs in the form of tax 60 000, which must be recouped in the following periods. With high competition it is very difficult to do this, therefore it is most effective to apply this strategy only in the early stages of the championship or in groups with an incomplete number of participating teams.
  7. Factory space - space limit limits the production capacity of the company. Free space should be monitored when purchasing new machines or hiring assembly workers. If there is not enough free space, then it will be impossible to purchase machines and hire assembly workers.
  8. Insurance plan - occurrence of force majeure has a specific sequence and amount of losses for each scenario. For a correct forecast of force majeure, 1 set of management reports is enough. You can purchase optimal insurance plan for all scenarios in our store.

 

Information

  1. Market shares - it is useful to buy information about market shares at least in 1 and 2 periods, when companies are increasing sales at a high rate. This way you can assess the free niches in the market and adjust the strategy for increasing your own market share (market share is one of the factors of goodwill). In subsequent periods, you can play without paid information, because market shares will grow insignificantly and their change can be predicted on the basis of previous management reports.
  2. Corporate activity - information about companies is useless during the game, but it will allow you to analyze the strategy of competitors in the subsequent analysis. Attempts to adjust your own strategy and adapt to the decisions of competitors (increase the advertising budget, reduce R&D, etc.) are likely will lead to defeat. If you are sure that you are winning or, on the contrary, that there is no chance of winning, then purchase all paid information - there will be something to exchange with competitors from the group after the game.

 

You can purchase in our store calculation model for all scenarios, which is optimized with the tips above.