So this post is fine-tuned even more than the BSG Tips Revisited. People have made comments to me that make it seem like the post isn't clear enough. Hopefully this will shed some light on my exact process. I'll break it down so that each section corresponds to each section of my former post, meaning the same section title.
Choose a Strategy
What is a high quality/low model approach? The high quality refers to your S/Q rating. This needs to be higher than everyone else, maybe starting at a 7 and bumping it up one every year or two. The number that worked best for me for low models was 50. What is the mid quality/high model approach? The mid quality is right in the middle at 5 or 6. Definitely no higher than six, and I'd probably stick with 5. The number for high model really varies. I saw people with between 250 and 350 models when they took this approach.
One cool thing about either approach is that you can still be the low cost manufacturer, meaning that you make shoes at a cheaper price than anyone else. This gives you an advantage over your competition because if things get cut-throat, you can drop your price and still make a profit. This is like Walmart. They can drop their prices below others becuase they get stuff really cheap. The high quality approach is geared toward maximizing your profits so that each sale gives you a ton of profit. You may not sell a ton of shoes, but you will make a killing if you sell enough shoes. The mid quality approach is geared toward selling an insane amount of shoes and making some profit from each sale. This still gives you a lot of profit if you sell enough.
Corporate Citizenship
When I say optimize in posts, your goal is to get the highest profit for your buck. To do this, you have to look at the little box on the left of your screen and focus on the NET PROFIT section. If the % increase goes up when you change something, you are optimizing. When I say toggle in posts, that means you adjust the numbers. You can do that by entering a specific number or using the up and down arrows to change the amount. You toggle each variable, or area, until you have optimized your profits. Toggling things to optimization is what will make you the winner in this game.
Playing the Game
Review what I just wrote concerning optimization and toggling. An excel spreadsheet is not necessary to use. If you put the competitive rate to at least +2%, you'll do well. Remember how I mentioned to toggle everything? Make sure you do it. The whole toggling process should take you at least an hour your first time doing it. The regional sales volume is located at the bottom of the screen. Make sure to write those numbers down for each region.
Plant Capacity
A good strategy for building plant capacity is to build about 1000 units every other year. Check each year for people who sell plant capacity and if you can, BUY IT! It's so cheap that it's worth it every time.
I like to alternate the upgrades that I want with buying plant capacity somewhere in the game. Usually I'll get an S/Q upgrade early so that it doesn't cost me as much to have high quality.
Branded Production
Toggling and optimizing again! When I say multiply the wholesale demand by an increased percent, I'm talking about anywhere from 15% - 25%. So to do that I've given you the number range of 1.15 - 1.25. Just pick a percent, say 18% and that will be the number behind the decimal. The 1 will always be in front. So in the example above the number would be 1.18. Hopefully that makes it a little more clear.
Branded Distribution
The only real thing to understand here is how tariffs work. So if you don't know, NAFTA stands for North American Free Trade Agreement. The reason there are no tariffs is pretty self explanatory in the name, but if you want more information just google it.
Celebrity Bids
One part I left out of this post was that Celebrities really do help you, but like everything else there is a price at which it makes no sense. You can still win the game without celebrities, but it does help you. I will usually bid on all celebrities that I can for a bid price of 3,000 - 6,000. It really depends on what they were going for. Usually you can win 1 or 2 per round.
Private Label
I have been told that many professors are encouraging students to focus on one aspect of the game, such as wholesale or private label. This is ridiculous! If you go with high quality, the private label market can be one of your best markets. This is because you will sell fewer shoes, most likely, than other teams. That means that the rest of your capacity can go toward private label production.
Again, toggle everything. Get your cost per shoe as low as you can. The hardest part of the whole process is to determine how many teams will play in which market, how many shoes they'll have available to sell in each market, and what price they'll sell at. It's a fine art to determine who's doing what. It's a gamble that can pay off big.
Finance & Cash Flow
When paying off debt, leave yourself a buffer. I usually like to have between 10,000 and 25,000 in ending cash so that I can purchase other things the next year if I need to.
Well, I hope this was useful. Let me know if you have any further questions or additional tips for others to know!
Showing posts with label branded production. Show all posts
Showing posts with label branded production. Show all posts
Saturday, January 19, 2013
Wednesday, April 13, 2011
BSG Tips Revisited: My Winning Strategy
So I've found out a few more tricks and refined some of the tricks that will teach you how to win your BSG strategy game. Some of the things are still the same as my previous post on BSG tips, but with some new insights. In this post, I'd actually like to walk you through the process that I go through in order to win.
Choose a Strategy
Like I said in the former post, in order to win you need to either have a high quality/low model or mid quality/high model strategy. I have seen the most success with high quality/low model strategies. This is because you can more easily make profits, which is the key of the game! If you focus on revenues or ending cash or market share, you'll lose. If you focus on profits, you'll win. Once you choose your strategy, stick with it. It will help you in the long run.
Corporate Citizenship
The first screen in on the decision page is corporate citizenship. It's mostly a waste of money. They give the Gold Star Award, but it doesn't do anything for you, except make you feel all warm and fuzzy inside. However, you can increase your Image Rating with some of the options. The key, as with the rest of game is to optimize. The choices that will best optimize your image rating are the Ethics Training, which you'll put on 'All Employees', and Workforce Diversity Program, which you'll put on 'Yes'. If you go any further than that, you're spending too much money and your costs will erode your revenues, thus decreasing your profits, which lowers your ROE, EPS, possibly your credit rating, and your stock price. If it lowers 3/5 of your grading criteria, how can you possibly win?
Playing the Game
The key to the game is optimization. In order to optimize, you need to toggle everything and see how it affects the percentage profit increase/decrease. You also need to know what your competition is going to do, mainly with what price they are going to charge. This is easy to do after the 3rd or 4th year. You can easily keep track of their price on an Excel Spreadsheet. A useful tool is the 'Adjust Competitive Intensity' button. If you click on that button in each market, you will see that in the center is an option to change the competitive rate. If you keep it at +2%, you will usually get optimal results. The most it will be is probably +4%. If you're keeping track of price changes, you can evaluate what percentage the following year will be by finding the percent increase/decrease in overall prices. Next, make sure you have the industry S/Q rating accurate. If it's wrong it will skew your optimization. Next, toggle everything. I always start with NA Price and work my way down the column. Your S/Q rating should be known, so you don't need to toggle that. If you're going for the high quality strategy, set you models sold to 50. Then, toggle advertising, rebate, retailer support (by 100s only), and set delivery time at 3 weeks.
After you've done that for each market, estimate the industry internet price. Models offered will probably be close enough to the actual number that you don't need to mess with that. Then, toggle your own internet price, set your models offered to 50, and No free shipping, unless it boosts your profits, which is highly unlikely. If you have inventory left from the prior year, see if clearing it will boost your profits. You'll have to toggle each percentage for each market. When that's done, write down your regional sales volume for internet and wholesale for each market. You'll use this later.
Plant Capacity
Decide your strategy for building plant capacity. My recommendation is to only build onto existing plants. This increases your learning curve and shoes cost less. Never sell your capacity. This is really stupid. You're always going to want the capacity that you have. Eventually, you'll want the S/Q upgrade if you're going with a high quality strategy or the Production Run Setup Reduction upgrade if you're going with a low quality strategy.
Branded Production
Here, you'll need to toggle the materials, features and TQM until you get the S/Q that you want. First, put best practices training to $5000. This gets you the best S/Q rating for your buck. It pays for itself and more. When toggling the materials, features, and TQM, it's usually the best to have your features maxed out at $50K. Play with the numbers, but that's usually the case. TQM will usually be best around $0.70 or $0.80. Again, play with the numbers. Find the combination that gets you the highest profit. When toggling the wages, always try reducing their pay first. Sometimes they're alright with it and you can increase profits. If not, increase their wage a percent at a time. Sometimes if you go up between 6 and 8, and sometimes up to 14 percent, you'll maximize profits. Do it for each region.
Figuring out the branded pairs needed is a complicated process. The numbers that you wrote down from the other screen are now needed. First, you multiply the wholesale expected demand by an increased percent, so by 1.15 -1.25. To start off, I recommend multiplying by 1.2. If you end up with a huge surplus of shoes, lower it a couple percent the next year. The projected demand that the computer shoots out is always wrong, except for internet demand, so do it this way. You'll then add the internet and new wholesale expected demand together for each region. That's going to be about how many shoes you sell in that region. Type that amount into the boxes for each region and then add the reject rate that it shows to that number. If you have to use overtime to achieve the number you got, do it. However, if you're having to use overtime, you'll want to increase your plant capacity the next year. You need those shoes for private label.
Branded Distribution
You'll want to ship all shoes going to NA and LA from your NA plant. That's because shipping from NA to LA does not have any tariffs due to NAFTA. You'll want to ship shoes going to EA and AP from your AP plant. If you are having to ship shoes from your AP plant to either NA or LA, you'll want to build plant capacity in NA. Type in the number that you wrote for each region on your paper into the boxes provided. Maker sure your shipping from the right plant.
Bids for Celebrities
This can be quite ridiculous. From the times that I have bid on celebrities other teams usually bid way too high. Some teams will get a ton of celebrities at ridiculous prices. I recommend putting in a low to medium bid, which is between $3,000 and $6,000. The most I would do is probably $8,000. Any more than that and I don't think it's worth the price of a celebrity. You can decide what's best for you though.
Private Label
This market is definitely one that you want to be involved in, unless you are the low price provider selling a ton of shoes. In that instance it may not be a money-maker. The most important thing here is to be a good estimator of what every other team is going to do, but also to produce the lowest cost shoe. This gives you a much better chance of being profitable. I recommend using all the remaining production capacity that you have to place in the private label market. So if you've got regular and overtime production available, use it. Then, allocate the amount to whichever markets you want. Look at the margin over direct costs in order to determine if that market will be profitable based on the price you are charging.
After allocating the shoes to a region, toggle the superior materials and styling features so that the price shown for production costs is the lowest it can possibly be. MAKE SURE YOU ARE MEETING THE S/Q RATING FOR THAT ROUND! If the required S/Q is 4, then you need to have a 4 S/Q. If you have a 3 S/Q, you won't sell one shoe. Another note is to price your shoes at least 5 dollars below the industry average wholesale price for the region. If it's above that price, you won't sell one shoe.
Some useful strategies are the following: 1) If no one is involved in the private label market, price your shoes as high as you can ($5 below the wholesale industry average). I usually put the price $6 below what I estimate the industry average will be to play it safe. 2) If the private label market is competitive, under-price everyone else. It will discourage others from entering because profits will be low. Obviously don't let your margin over direct costs go into the negative. Make sure you pay attention to tariffs and which regions will bring in the most profits. 3) Take all of the market share in each region or selected regions. This is done by under-pricing everyone else and maxing out the demand in a region. This can hurt other teams, discourage entry, and boost your profits.
Finance & Cash Flow
This is a great screen. Here you can pay off your outstanding debt, issue stock, repurchase stock, and give dividends to investors. Whenever I have enough cash, I like to pay off the debt. This increases your net income, thus increasing ROE, EPS, and stock price. I always issue a dividend, regardless of how small it starts out. I try to increase it as the game goes on. This will slightly raise your EPS and ROE. If you need money to purchase capacity, you can issue stock instead of taking out loans. If you have a low stock price, repurchasing stock is always good for raising EPS and ROE.
There you go! That's how I win BSG online. I'd appreciate any comments or other strategies that you've used that have been successful, as I'm sure there are many other strategies. I really like the high quality strategy because you can charge so much more per shoe and increase your profit margins, which is how you win the game. I suppose you could do the same thing for low price strategies, but you'd definitely have to sell a ton of shoes to get enough revenues to increase your profitability.
Choose a Strategy
Like I said in the former post, in order to win you need to either have a high quality/low model or mid quality/high model strategy. I have seen the most success with high quality/low model strategies. This is because you can more easily make profits, which is the key of the game! If you focus on revenues or ending cash or market share, you'll lose. If you focus on profits, you'll win. Once you choose your strategy, stick with it. It will help you in the long run.
Corporate Citizenship
The first screen in on the decision page is corporate citizenship. It's mostly a waste of money. They give the Gold Star Award, but it doesn't do anything for you, except make you feel all warm and fuzzy inside. However, you can increase your Image Rating with some of the options. The key, as with the rest of game is to optimize. The choices that will best optimize your image rating are the Ethics Training, which you'll put on 'All Employees', and Workforce Diversity Program, which you'll put on 'Yes'. If you go any further than that, you're spending too much money and your costs will erode your revenues, thus decreasing your profits, which lowers your ROE, EPS, possibly your credit rating, and your stock price. If it lowers 3/5 of your grading criteria, how can you possibly win?
Playing the Game
The key to the game is optimization. In order to optimize, you need to toggle everything and see how it affects the percentage profit increase/decrease. You also need to know what your competition is going to do, mainly with what price they are going to charge. This is easy to do after the 3rd or 4th year. You can easily keep track of their price on an Excel Spreadsheet. A useful tool is the 'Adjust Competitive Intensity' button. If you click on that button in each market, you will see that in the center is an option to change the competitive rate. If you keep it at +2%, you will usually get optimal results. The most it will be is probably +4%. If you're keeping track of price changes, you can evaluate what percentage the following year will be by finding the percent increase/decrease in overall prices. Next, make sure you have the industry S/Q rating accurate. If it's wrong it will skew your optimization. Next, toggle everything. I always start with NA Price and work my way down the column. Your S/Q rating should be known, so you don't need to toggle that. If you're going for the high quality strategy, set you models sold to 50. Then, toggle advertising, rebate, retailer support (by 100s only), and set delivery time at 3 weeks.
After you've done that for each market, estimate the industry internet price. Models offered will probably be close enough to the actual number that you don't need to mess with that. Then, toggle your own internet price, set your models offered to 50, and No free shipping, unless it boosts your profits, which is highly unlikely. If you have inventory left from the prior year, see if clearing it will boost your profits. You'll have to toggle each percentage for each market. When that's done, write down your regional sales volume for internet and wholesale for each market. You'll use this later.
Plant Capacity
Decide your strategy for building plant capacity. My recommendation is to only build onto existing plants. This increases your learning curve and shoes cost less. Never sell your capacity. This is really stupid. You're always going to want the capacity that you have. Eventually, you'll want the S/Q upgrade if you're going with a high quality strategy or the Production Run Setup Reduction upgrade if you're going with a low quality strategy.
Branded Production
Here, you'll need to toggle the materials, features and TQM until you get the S/Q that you want. First, put best practices training to $5000. This gets you the best S/Q rating for your buck. It pays for itself and more. When toggling the materials, features, and TQM, it's usually the best to have your features maxed out at $50K. Play with the numbers, but that's usually the case. TQM will usually be best around $0.70 or $0.80. Again, play with the numbers. Find the combination that gets you the highest profit. When toggling the wages, always try reducing their pay first. Sometimes they're alright with it and you can increase profits. If not, increase their wage a percent at a time. Sometimes if you go up between 6 and 8, and sometimes up to 14 percent, you'll maximize profits. Do it for each region.
Figuring out the branded pairs needed is a complicated process. The numbers that you wrote down from the other screen are now needed. First, you multiply the wholesale expected demand by an increased percent, so by 1.15 -1.25. To start off, I recommend multiplying by 1.2. If you end up with a huge surplus of shoes, lower it a couple percent the next year. The projected demand that the computer shoots out is always wrong, except for internet demand, so do it this way. You'll then add the internet and new wholesale expected demand together for each region. That's going to be about how many shoes you sell in that region. Type that amount into the boxes for each region and then add the reject rate that it shows to that number. If you have to use overtime to achieve the number you got, do it. However, if you're having to use overtime, you'll want to increase your plant capacity the next year. You need those shoes for private label.
Branded Distribution
You'll want to ship all shoes going to NA and LA from your NA plant. That's because shipping from NA to LA does not have any tariffs due to NAFTA. You'll want to ship shoes going to EA and AP from your AP plant. If you are having to ship shoes from your AP plant to either NA or LA, you'll want to build plant capacity in NA. Type in the number that you wrote for each region on your paper into the boxes provided. Maker sure your shipping from the right plant.
Bids for Celebrities
This can be quite ridiculous. From the times that I have bid on celebrities other teams usually bid way too high. Some teams will get a ton of celebrities at ridiculous prices. I recommend putting in a low to medium bid, which is between $3,000 and $6,000. The most I would do is probably $8,000. Any more than that and I don't think it's worth the price of a celebrity. You can decide what's best for you though.
Private Label
This market is definitely one that you want to be involved in, unless you are the low price provider selling a ton of shoes. In that instance it may not be a money-maker. The most important thing here is to be a good estimator of what every other team is going to do, but also to produce the lowest cost shoe. This gives you a much better chance of being profitable. I recommend using all the remaining production capacity that you have to place in the private label market. So if you've got regular and overtime production available, use it. Then, allocate the amount to whichever markets you want. Look at the margin over direct costs in order to determine if that market will be profitable based on the price you are charging.
After allocating the shoes to a region, toggle the superior materials and styling features so that the price shown for production costs is the lowest it can possibly be. MAKE SURE YOU ARE MEETING THE S/Q RATING FOR THAT ROUND! If the required S/Q is 4, then you need to have a 4 S/Q. If you have a 3 S/Q, you won't sell one shoe. Another note is to price your shoes at least 5 dollars below the industry average wholesale price for the region. If it's above that price, you won't sell one shoe.
Some useful strategies are the following: 1) If no one is involved in the private label market, price your shoes as high as you can ($5 below the wholesale industry average). I usually put the price $6 below what I estimate the industry average will be to play it safe. 2) If the private label market is competitive, under-price everyone else. It will discourage others from entering because profits will be low. Obviously don't let your margin over direct costs go into the negative. Make sure you pay attention to tariffs and which regions will bring in the most profits. 3) Take all of the market share in each region or selected regions. This is done by under-pricing everyone else and maxing out the demand in a region. This can hurt other teams, discourage entry, and boost your profits.
Finance & Cash Flow
This is a great screen. Here you can pay off your outstanding debt, issue stock, repurchase stock, and give dividends to investors. Whenever I have enough cash, I like to pay off the debt. This increases your net income, thus increasing ROE, EPS, and stock price. I always issue a dividend, regardless of how small it starts out. I try to increase it as the game goes on. This will slightly raise your EPS and ROE. If you need money to purchase capacity, you can issue stock instead of taking out loans. If you have a low stock price, repurchasing stock is always good for raising EPS and ROE.
There you go! That's how I win BSG online. I'd appreciate any comments or other strategies that you've used that have been successful, as I'm sure there are many other strategies. I really like the high quality strategy because you can charge so much more per shoe and increase your profit margins, which is how you win the game. I suppose you could do the same thing for low price strategies, but you'd definitely have to sell a ton of shoes to get enough revenues to increase your profitability.
Tuesday, December 14, 2010
BSG Tips
Here are some useful tips on how to win the Business Strategy Game (BSG) for your class.
Stick With Your Strategy
A really important thing to do is to stick with your strategy. Typically the high quality or low price group will win the game. I recommend choosing one of those strategies. If you produce a low amount of models, your costs will decrease and your profits will increase. That's because your setup costs decrease with a lower amount of pairs. I chose the high quality strategy when I played it and my group won. We actually placed 67th in the whole world.
Keep Costs Low
One of the best methods, which most people don't ever figure out, to lower costs is to max out your best practices. This will increase your S/Q rating more than anything else. You save tons of money because you don't have to spend the money on superior materials. Other than that, fiddle around with the rest of the numbers. Focus on the numbers on the side of the screen, particularly net profit. When you fiddle around with the numbers, notice if net profits go up or down with each move. Only participate in the Corporate Citizenship segment as far as it is worth the additional Image Rating. Don't worry about the Golden Star Award; it doesn't do anything to help you. The best thing for you to participate in is the ethics training for everyone. The next best thing is the workforce diversity. If you do those two, you'll have reached the max benefit, and mostly likely exceeded it. You will also want to build capacity in NA and AP, where you have plants already. This is because you take advantage of the learning curve associated with having plants operating already. If you build in a foreign country, you'll want to do it during the first year or else it really isn't worth it. Take advantage of the upgrades. The S/Q upgrade is great for those that choose high quality. Setup Cost reduction is great for groups that have a lot of models. The other two didn't seem very useful to me. You may think differently.
Know What the Other Groups are Doing
One very important thing to do is to know what moves other groups are going to make. This is difficult in the first few years because most groups like to completely change their strategies. This is why it is beneficial to stick with your strategy. The most important component of the game to know is what price others are charging. You'll especially want to know what the groups that are your direct competitors are going to do. Spreadsheets are the best way to do that. After several years of the game, you can use trend analysis in Excel. It seems to be a pretty good indicator of what groups are going to do.
Play the Private Label Market
Use any excess capacity, including overtime, to put shoes into the private label market. At first, you might want to see how many shoes each group is putting in. If you can figure out how many shoes are going to be put into the Private Label market, you can have a high price for a certain amount of shoes that is $5 under the wholesale price of the region. This can boost your profits a lot!
There it is. I hope it was useful. I know there are tons more things you could do to improve your standing, but these are the most important. Good luck!
Stick With Your Strategy
A really important thing to do is to stick with your strategy. Typically the high quality or low price group will win the game. I recommend choosing one of those strategies. If you produce a low amount of models, your costs will decrease and your profits will increase. That's because your setup costs decrease with a lower amount of pairs. I chose the high quality strategy when I played it and my group won. We actually placed 67th in the whole world.
Keep Costs Low
One of the best methods, which most people don't ever figure out, to lower costs is to max out your best practices. This will increase your S/Q rating more than anything else. You save tons of money because you don't have to spend the money on superior materials. Other than that, fiddle around with the rest of the numbers. Focus on the numbers on the side of the screen, particularly net profit. When you fiddle around with the numbers, notice if net profits go up or down with each move. Only participate in the Corporate Citizenship segment as far as it is worth the additional Image Rating. Don't worry about the Golden Star Award; it doesn't do anything to help you. The best thing for you to participate in is the ethics training for everyone. The next best thing is the workforce diversity. If you do those two, you'll have reached the max benefit, and mostly likely exceeded it. You will also want to build capacity in NA and AP, where you have plants already. This is because you take advantage of the learning curve associated with having plants operating already. If you build in a foreign country, you'll want to do it during the first year or else it really isn't worth it. Take advantage of the upgrades. The S/Q upgrade is great for those that choose high quality. Setup Cost reduction is great for groups that have a lot of models. The other two didn't seem very useful to me. You may think differently.
Know What the Other Groups are Doing
One very important thing to do is to know what moves other groups are going to make. This is difficult in the first few years because most groups like to completely change their strategies. This is why it is beneficial to stick with your strategy. The most important component of the game to know is what price others are charging. You'll especially want to know what the groups that are your direct competitors are going to do. Spreadsheets are the best way to do that. After several years of the game, you can use trend analysis in Excel. It seems to be a pretty good indicator of what groups are going to do.
Play the Private Label Market
Use any excess capacity, including overtime, to put shoes into the private label market. At first, you might want to see how many shoes each group is putting in. If you can figure out how many shoes are going to be put into the Private Label market, you can have a high price for a certain amount of shoes that is $5 under the wholesale price of the region. This can boost your profits a lot!
There it is. I hope it was useful. I know there are tons more things you could do to improve your standing, but these are the most important. Good luck!
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