Instructions for a successful simulation exercise

Rules of the simulation:

• We play one decision round at a time. Wait for feedback until you play the next round
• Your grade is based on your documentation of the decision-making process, not on the outcome of your decisions - so please document your decision-making process about the detailed step-by-step instructions below
• You do not need external data for the decision-making process, but you can consult external sources on concepts like price elasticity for commodity products, marketing strategies for commodity products etc.

Step-by-step instructions:

1. Prior to your first decision round for year 1
   1. Analyze historical data about market trends
   2. Pay special attention to price changes and their impact on revenue and demand
      1. Calculate price elasticity of demand for each event where there is a price change

https://open.lib.umn.edu/principleseconomics/chapter/5-1-the-price-elasticity-of-demand/

1. Analyze factors that impact demand in the data explorer tool by experimenting with different filters, so you can determine impact on demand for demographic factors such as:
2. Ethnicities
3. Age groups
4. Family size
5. Income groups
   1. What are geographic and demographic preferences for:
      1. Formulation
      2. Brand attribute
      3. Packaging
      4. Trade channel
      5. Advertising channel
   2. Calculate your per-unit costs and your competitors per unit costs
      1. You can present this based on data in the Balance sheets
      2. Per unit cost is
         1. Variable cost per unit by dividing variable cost by number of units produced
         2. Fixed cost divided by number of units produced
         3. Other cost divided by number of units produced
         4. Add up all three per unit costs to determine your cost per unit
   3. Document each of your findings to form your strategy
6. First decision round
   1. Utilize the intelligence you gathered in step 1 to formulate your strategy
      1. For strategies in competitive markets consult to Porter 5-forces model
      2. https://www.investopedia.com/terms/p/porter.asp
   2. Make your selections in the simulation based on your strategy
      1. Document how each decision supports your strategy
   3. Keep the production decision for last
      1. Production decision is governed by the demand you generate minus any inventory
      2. Use the demand forecast tool to predict demand
      3. Adjust the production decision based on your strategy
      4. Calculate your per unit cost as above and document how your per unit cost changes based on the volume of units produced
      5. Predict your profit based on per unit cost and price and check if this meets your strategic objective; if so, proceed to commit your decisions, otherwise change your parameters for demand generation, including price, recalculate profit until your prediction meets your strategic objectives. Perform this exercise in all four decision rounds.
7. Second and third round decisions:
   1. Analyze the outcome of your decisions and its impact on profit, market share, and inventory based on the parameters analyzed in year 1 - review any changes and comment on adjustments you are making based on the data from the previous year.
   2. Analyze your competitors - what were there actions (price, formulation) and how did it impact them?
   3. Re-adjust your decisions that impact demand (see round 1) based on what you learned.
   4. If there were any price changes, calculate price elasticity of demand as before to inform your strategy
   5. Check if your decisions on marketing and geographical location were effective?
   6. Did your demographic targeting work?
   7. Make your production volume decision as in round 1, with iterations based on projected profit. How well did the production forecast work in the previous year? Why? What are the consequences?
   8. Based on the trajectory in the market (market share and profitability gains/losses, contemplate how your competitors will react and try to address their behavior with your strategy
8. Year four
   1. Perform and document your analysis as in years 2 and 3
   2. Additionally, reflect upon your results after four years and contemplate lessons learned
      1. What would you do differently?
      2. What did you learn about using data for decision making?
      3. What was most surprising/ educational in this exercise?

Answer rating: 100% (QA)

To successfully navigate the simulation exercise follow these stepbystep instructions 1 Prior to Your First Decision Round for Year 1 Analyze historic... View the full answer