Micromatic Management*

1. Micromatic Management* Prof. A D Amar, PhD Seton Hall University *Based on Timothy Scott, Minnesota State Univ., Mankato, MN

2. Introduction • Simulate the workings of a small manufacturing business, integrating operations, marketing, and finance. • Each team in this class will play against each other • Computer just processes each company’s individual decisions in relationship to the others • Administrator (the professor) acts as the owner, banker, industry regulator, union negotiator, etc.

3. Goals • Understand the importance of your business and strategic plan to guide decisions • Understand the relationship between the three main financial statements—Income Statement, Balance Sheet, and Stockholder Equity Statement • Understand the relationship between marketing, operations, and finance • Understand the operational issues of production, inventory, plant, and labor force

4. How to approach the simulation Management is a balance of art (intuition) and science (analysis of facts) combined with group dynamics To Succeed you should: • Manage your time efficiently (stay focused) • Manage your business – do not guess at your decisions

5. To Succeed you should • Learn from your failures • Decision rules are the same for every round • Must learn to capitalize of success and recover from mistakes • Do not worry if a little confused at start • you will quickly move up the learning curve • Simulation requires applying your knowledge not just listening as in lectures (fundamental shift)

6. Four Functions of Management Planning Controlling Leading Organizing

7. The Manager as a Planner Must develop the Vision • Mission Statement & Statement of Goals & Strategies • Who are the customers, what are their needs and how will gain competitive advantage • What are your corporate values Low price / High volume Premium price / Low volume

8. The Manager as a Planner In the Simulation you are responsible for the planning in five main areas • Marketing • Production • Finance • Sales Forecasting • Management Dilemmas

9. Marketing – Production – Finance – Sales - Dilemmas Marketing Decisions • Pricing • Price sensitive marketplace unless enticed by stronger marketing efforts (oligopoly) • Promotion • Local newspaper advertising, trade publications, ad message, salesreps, WWW promotion, product features and quality • Market Research • Can buy Market Research Information (9 types) • Price, local newspaper advertising, trade publications, quality, WWW, salespersons, product features, units sold, all by Company, Future Sales Potential

10. Marketing – Production – Finance – Sales - Dilemmas Production Decisions • Ordering Raw Material (order + carrying cost) • Product Research and Development • # of Units to Produce • Must have raw material, plant capacity & # of workers • # of production workers to hire, fire or layoff • Begin with 54 workers; can add overtime • Amount of production capacity to buy or sell • $ to invest in Training • Improve productivity

11. Marketing – Production – Finance – Sales - Dilemmas Finance Decisions • Short Term Loans (Line of Credit) • Finance current operations • Long term Bonds (mortgages) • Finance expansion of plant capacity • Short Term investment deposits or withdrawals • Can invest excess cash into stable & conservative short term securities

12. Marketing – Production – Finance – Sales - Dilemmas Sales Forecast Decisions • Based your quarterly sales forecast on your current and future mix of pricing, advertising & investment in product quality • Use this forecast to set production parameters; but no guarantee you will reach these forecasts • If you misjudge your competitor's actions you will not make the forecast • Added complication is you do not know what the economy will do.

13. Marketing – Production – Finance – Sales - Dilemmas Management Dilemmas • Periodically will introduce various management dilemmas • Range from employee theft to union relations to substance abuse • There is no right answer in these dilemmas • Responses to the dilemmas will result in different consequences • Consequences can effect worker productivity, sales, cost of raw materials or interest rates

14. The Manager as an Organizer Must develop the Organizational Hierarchy • Organizational Chart • List of duties & responsibilities for each position • Staff the position • Remember the dual role (student -> friendship) and (manager -> work) • Teams that have an established chain of command do better than “the herd” • Herds tend to take narrow view and focus only on a single issue • Organized groups (specialized functions) tend to keep broader focus and are much more efficient

15. The Manager as a Leader Must decide how to influence and motivate members • Goal Setting • Balance of individual’s goal and organizational goal • Will you have management hierarchy or team approach? • How will you manage your company? • How will you balance the workload? • Your peers will evaluate your leadership ability in both a public and confidential manner • How will you motivate under performing members?

16. The Manager as a Controller Must deal with issues of control • Must establish a reporting system • Must develop performance standards • Must monitor key performance parameters and take corrective steps if necessary • Must know the breakeven points for the manufactured product

17. The Business Environment • All companies start from identical point • All companies manufacture identical products • Manufacturing process consists of forming raw material (components) into finished consumer product • Produce a commodity => No customer or brand loyalty => you must “earn” each quarters sales

18. Company publicly held • Company is in start-up position – only one quarter’s (Quarter 0) info is available • You will deliver reports to the board of directors • Initially no difference exists between you and your competitors’ products • This will change as you modify promotion, pricing, and product improvements

19. The Simulation Environment • Each decision period is 3 months (1 quarter) • Teams make approximately 50 - 100 decisions per Qtr Three stages: • Forecasting Stage: • Test “what-if” and modify decisions until have best case • Processing Stage: • Administrator accesses decisions of ALL companies to determine market share allocations and individual company profitability • Results Stage: • Teams analyze actual versus forecasted performance. Use this analysis to forecast next quarter.

20. To Do: • Read in detail the summary and study the decisions and reports and get familiar with the software. • Decide on Company name, organizational structure, individual job titles and responsibilities. • Begin to develop a mission statement & strategy, areas of responsibility, and duties

21. The Professor’s Role • Roles • Banker • Board of Directors • Regulatory Advisor • And other roles as necessary

22. As Administrator I Can Control • Economic variables (industry demand, costs, and weightings of performance variables) • Introduction of management dilemmas • The amount and availability of loans and mortgages • Frequency and Amount of fines (lost passwords, late submissions, failure to get proper prior approvals, etc.) • Introduce “External Substitute” products. If everybody takes a low promotion strategy I can introduce external substitutes which creates a loss of demand for ALL companies.