Guide to Capstone 2024 and Capstone 2025
Please note that these are the fundamental principles behind Capstone. I have endeavored to make this guide as clear and accessible as possible. It is designed to help you avoid common mistakes that can adversely affect your company's performance. Should you have any questions, feel free to send me a private message or consult the Spreadsheet Marketplace post below this one.
Best of luck with your Capstone simulation!
1. TQM
TQM (Total Quality Management) initiatives will typically take effect around Rounds 3 or 4. It is recommended to allocate $1500 per initiative in the first round it becomes available, another $1500 in the second round, and finally $1000 in the third round.
This expenditure should be applied to every single initiative. TQM will significantly reduce costs, increase demand, and decrease R&D revision times, making it an essential investment. It is crucial not to underfund these initiatives.
TQM Implementation Strategy
TQM initiatives typically become effective around Round 3 or 4. It is advisable to allocate $1500 in the first round of its availability, followed by another $1500 in the second round, and finally $1000 in the third round.
This expenditure should be applied uniformly across all initiatives. Investing in TQM will significantly reduce costs, increase demand, and decrease R&D revision times. Therefore, it is imperative to invest adequately and not to underfund these initiatives.
2. R&D
Adjusting MTBF for Optimal Customer Satisfaction
Change the MTBF for all products to the maximum allowed by each segment as follows:
- Traditional: 19,000
- Low End: 17,000
- High End: 25,000
- Performance: 27,000
- Size: 21,000
While you may encounter advice to lower MTBF to reduce material costs, I recommend against it. Although MTBF may not be the most critical criterion, it is the most cost-effective way to meet Customer Buying Criteria. Any criteria percentage lost by lowering MTBF will need to be compensated with a reduced price, ultimately becoming more expensive.
Positioning Products for Optimal Performance
After adjusting the MTBF, position your products as close as possible to their ideal positions without extending into the following year. A common mistake is failing to calculate ideal positioning accurately. To determine the ideal position, refer to your Capstone Courier and locate the Round 0 ideal position under customer buying criteria for each segment. Apply the following drift rates to these positions:
| Segment | Performance Drift | Size Drift |
|---|---|---|
| Traditional | +0.7 | -0.7 |
| Low End | +0.5 | -0.5 |
| High End | +0.9 | -0.9 |
| Performance | +1.0 | -0.7 |
| Size | +0.7 | -1.0 |
By applying these drift rates, you can determine the ideal positions for each product. Adjust your products to these positions and reduce any revisions that extend into the next year, particularly for size and high-end products.
Specific Instructions for the Low-End Segment
The only product that should remain unchanged is the one in the Low-End segment. Leave this product at its original specifications until Round 4 or 5.
Revision Dates and Product Adjustments
Previously, a June 28th revision date was suggested, and this can still be applied for the first two rounds. However, after that, push your products' revision dates to December to avoid falling behind.
3. MARKETING
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Pricing
Determining the optimal price is challenging. Utilize your benchmark predictions to establish a price equilibrium. A useful strategy is to initially set all prices at the maximum allowed for each segment. From there, reduce the price in intervals of $0.50, recalculating and checking the Contribution Margin each time. If the Contribution Margin increases, the price reduction is beneficial; if it decreases, the price reduction is not advisable.
Recommendation for Round 1:
- Traditional: $29.50
- Low End: $21.00
- High End: $39.50
- Performance and Size: $34.50
Subsequently, decrease prices by $0.50 annually unless there is a product issue or a segment disruption.
Promotional and Sales Budgets
Never exceed $2000 for promotion of any product in a given year, as diminishing returns begin at this point. Do not spend less than $1000 to maintain awareness year over year.
To determine the optimal spending for Promotion and Sales, initially set all budgets at $2000. Similar to pricing, reduce the budgets in $100 intervals. Monitor the "Less Promo/Sales" number: if it increases, continue reducing; if it decreases, revert to the previous budget.
Forecasting
From the Market Share page in the Capstone Courier, take your last year’s potential market share and multiply it by the next year's demand for each segment.
To calculate next year's demand, multiply the current total demand by the growth rate. Then, multiply your market share by next year’s demand to forecast next year’s sales.
Another method is to take the number of units your product sold in its respective segment and multiply that by the segment’s growth rate. For example, if your Traditional product sold 1500 units last year and the growth rate for that segment is 9.2%, multiply 1500 by 1.092 to forecast 1638 units for the next round.
4. PRODUCTION
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Production Schedule
To determine the production schedule, use the following formula:
This formula ensures a cushion of inventory in case actual sales exceed the forecast, while accounting for existing inventory.
Example: If the sales forecast for our Traditional product is 1,638 units and we have 95 units in inventory, the production schedule would be:
Automation Rating
- Traditional: Increase automation by 2 points each round until reaching 10.
- Low End: Aim to reach 10 as soon as possible (increase to 8 or 9 in the first round, and ensure 10 by the second round).
- High End: Increase by 0.5 or 1 point each round, not exceeding 6.
- Performance: Increase by 1 or 1.5 points each round until reaching 7.
- Size: Increase by 0.5 or 1 point each round until reaching 7.
Workforce Complement
Ensure workforce complement is always maintained at 100%.
Buy/Sell Capacity
- Second Shift Production: Aim to keep below 80% to score well on the balance scorecard.
- If less than 20%: Sell capacity.
- If more than 50%: Buy capacity.
A good practice for maintaining capacity is to match it with the sales forecast. For example, if the forecast for the Traditional product is 1,638 units and the current capacity is 1,800 units:
In this scenario, sell 162 units of capacity.
Post-Decision Capital Investment
After finalizing production decisions, evaluate your capital investment:
- If there is leftover capital, prioritize spending on automation or capacity.
- It is advisable to sell some capacity in the first round to finance automation. Consider selling capacity for Traditional, High End, Performance, and Size products.
5. HUMAN RESOURCES
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You should allocate the maximum resources to human capital to optimize workforce efficiency and productivity. Therefore, it is advisable to invest the maximum allowable amount in recruiting and training.
- Recruiting Expenditure: $5000
- Training Duration: 80 hours
6. FINANCE
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Financial Strategy
It is prudent to maintain a cash position between $10,000 and $15,000 in December to avoid the need for an emergency loan.
To achieve a $15,000 cash position in the first year, follow these steps:
Calculate the Required Funds: Determine the shortfall. For instance, if your cash position is negative $15,000, you will need $15,000 to cover this deficit and an additional $15,000 to reach your goal, totaling $30,000.
Source the Required Funds: Obtain the necessary funds from the following three sources:
- Issue Stock: Raise $10,000
- Borrow Current Debt: Secure $10,000
- Issue Long-Term Debt: Obtain $10,000
This approach balances your financial ratios. Many students rely excessively on long-term debt, mistakenly believing it incurs no immediate cost. However, the high interest on long-term debt can adversely affect both your ratios and your financial health.
Other Financial Actions:
Retiring Stock: This is advisable when you have a strong cash position and surplus funds, allowing you to buy back stock from the market.
Dividends per Share: Distribute dividends when you have excess capital, providing returns to shareholders.
Retiring Long-Term Debt: Paying off long-term debt early can reduce interest expenses.
Finance management is intricate, particularly if you aim to maximize your scorecard performance.
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NOTE
Important: Do not be alarmed if your company does not generate profit in the initial round. It is common for companies to experience limited profitability in their first few years. Consider these early years as an investment period dedicated to establishing your strategy.
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