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NEW Glo-Bus - AC Camera and UAV Drone - Business Strategy - Making Decisions - Part 2/4

NEW Glo-Bus - AC Camera and UAV Drone - Business Strategy

New GLO-BUS — 2017 Edition

NEW Glo-Bus 2017 - AC Camera and UAV Drone - Business Strategy

Action-Capture Camera Design

UAV Drone Design - Making Decisions   - Part 1/4

NEW Glo-Bus 2017 - AC Camera and UAV Drone - Business Strategy

Action-Capture Camera Design

UAV Drone Design

Making Decisions   - Part 2/4

 

UAV Drone Marketing Decisions

At the top of this third decision page is a section displaying the 6 marketing-related decisions for UAV drones. Initially the numbers appearing in the decision entry fields (or beside the decision filed for product R&D) are the entries from the prior round (year). Just below the entry fields for marketing decisions is a section labeled Market Segment Statistics.

The first two lines show your company’s (1) actual sales of drones in the prior year and projected sales in the current year and (2) drone market share in the prior year and projected market share in the current year. The last line of this section displays the number of third-party online retailers marketing your drone models at their websites in the prior-year and the current year—the current-year number was updated at the end of the previous year to reflect the year-end appeal of your company’s drone models and there’s nothing you can do in the current year to attract additional 3rd-party online retailers (the updated numbers of 3rd-party online retailers willing to stock and merchandise each company’s drone brands in the current year are reported in the

Competitive Intelligence Reports). Each time you enter a value for any of the marketing decisions, you will see the effects on projected unit sales and projected market share. The third section of the UAV drone marketing page shows price-cost-profit breakdowns flowing from the marketing decision entries and the projected sales volumes in each region.

At the bottom of the decision page is a section for entering your anticipated changes in the industry averages for 8 of the 10 competitive factors affecting each company’s sales/market shares in each region. The current-year industry averages for 2 of the 10 competitive factors—the number of third-party retailers merchandising each company’s drone models and company brand reputation—are already known (and can always be viewed in the Competitive Intelligence Report).   

Just as was the case with the AC Camera Marketing Decision page, before you get very far along in making entries for the 6 drone marketing decisions, it makes sense to first enter your anticipated updates of the industry averages for the 8 competitive factors in the Competitive Assumptions section at the bottom of the page. Again, your entries are “guesstimates” and can be expected to vary from the actual industry averages appearing in the Competitive Intelligence Reports.

But sales/market share projections based on your best judgment of what rivals are likely to do may be a less risky basis for evaluating the profit prospects of alternative marketing decision entries than relying on sales/market share/ profitability projections based on what rivals did a year ago.

But bear in mind that the chances are good that the competitive efforts of rivals will, on average, be stronger in the current year than in the prior year, both because poorly-performing companies have strong incentive to initiate actions to boost their competitiveness and overall company performance and because some top-performing companies may try to strengthen whatever prior-year competitive edges they had on certain competitive factors.

Even if you overestimate the strength of competition from rivals in the current year (which, in turn, will lower the projected sales/market shares for a given level of marketing effort on the part of your company) and actually end up with bigger sales/market shares than projected, your company will still assemble, ship, and sell the unexpected units demanded provided your company has sufficient idle workstation capacity to fill the unexpected orders from buyers.

It is far better to have the pleasant surprise of selling more than the projected sales volume (and enjoying the accompanying extra revenues and profits) than having the unpleasant surprise of selling less than the projected sales volume because you underestimated the strength of the competitive efforts from rivals.    

Note: In the first several decision rounds, making adjustments in the competitive assumptions admittedly involves more guesswork than insightful judgement because there’s little hard evidence about what actions rivals will take. Thus, it is usually wise to be cautious and make relatively small adjustments in the averages.

But making reasonably accurate guestimates become easier as the number of completed decision rounds increases; this is because with more data points, trends in one or more of the industry averages become more evident and because careful analysis of the data in the Competitive Intelligence Reports about what rivals are doing gives you sound basis for judging what they are likely to do next.

Your task on this decision page is to try out a variety of combinations of the 6 market decisions in each region and search for a set of entries which, in conjunction with your company’s P/Q ratings for drones and number of drone models (as determined from your entries on the Product Design page), number of 3rd-party online retailers, and prior-year brand reputation, produces an overall competitive effort versus rival companies with appealing projected outcomes for unit sales, market shares, operating profits, and operating profit margins.   

Exchange Rate Adjustments.

Exchange rate adjustments in the company’s selling prices for drones have to be made for all the same reasons as for action cameras and the adjustment procedures are identical. The adjustments appear in the section labeled Price-Cost-Profit Breakdown on the line just under selling price labeled “± Exchange Rate Adjustment.” As explained earlier, a negative adjustment represents an unfavorable shift in exchange rates that results in the company receiving net revenue per drone sold that is below the company’s selling price in the region.

A positive adjustment represents a favorable exchange rate shift that causes net revenue per drone sold to be higher than the posted selling price. It is up to you to decide whether to just ignore favorable/unfavorable exchange rate shifts or whether to make proactive adjustments.

One option is to adjust sales and marketing efforts in a manner that results in (1) added sales in regions where the exchange rate adjustments are positive (favorable) and (2) somewhat smaller sales where the exchange rate adjustments are negative (unfavorable).

Another option is to raise the selling prices in regions with negative revenue adjustments by amounts sufficient to recover the lost revenue and preserve the company’s profit margins.

There will be no exchange rate adjustments in Year 6.

 The prevailing real-world exchange rate values at the beginning of Year 6 and the real-world rates at the beginning of Year 7 will serve as the base for calculating the Year 7 exchange rate adjustments. The real-world changes in the exchange   rates between the beginning of Year 7 and the beginning of Year 8 serve as the basis for exchange rate adjustments in Year 8. And so on throughout the exercise.

 

Compensation, Training, and Facilities Decisions

The top section of this page contains 4 decision entry fields for compensating workers engaged in assembling action cameras and 4 decision entry fields for compensating workers engaged in assembling drones.

The compensation decisions are the same for both types of workers: (1) how much to raise/lower the base pay of PAT members, (2) whether and by how much to change each PAT’s assembly quality incentive payment per unit assembled, (3) whether and by how much to alter the annual bonus for perfect attendance, (4) whether and by how much to raise/lower payments for fringe benefits. It is up to you whether to establish identical or different compensation packages for the two types of workers.  

 PAT Productivity. Just under the compensation-related decisions is a field for entering the amount management wishes to spend for training PAT members and improving PAT productivity.

The productivity of each four-person PAT (how many units they can assemble in a given year) is influenced by 8 factors: Annual base wage increases—Annual increases in base pay of 2% or more lead to higher levels of productivity, chiefly because higher annual base wages help attract and retain workers with better skills and work habits and because higher base wages make workers feel better about their jobs and enable higher standards of living for them and their families. The maximum annual base pay increase is 10%.

Cuts in base pay are allowed, up to a maximum of 15% in any one year; as might be expected, base pay reductions act to reduce PAT productivity. Small pay cuts do not entail a “big” drop in productivity but cuts of 5-15% will have a major negative impact.   •

The assembly quality incentive—Experience indicates that bigger assembly quality incentive payments per unit increase productivity and reduce warranty claims. PATs have responsibility for fully testing the functioning of each action camera/UAV drone assembled and correcting any performance problems, including replacing malfunctioning components— the costs of replacing defective or malfunctioning parts/components are borne by suppliers.

Prior management instituted the practice of paying each PAT an assembly quality incentive for each unit assembled, the thesis being that such incentives spurred PAT members to propose ways to cut assembly and testing times while still accurately assembling and thoroughly testing each camera or drone after assembly.

Thus far, PAT members in the assembly facilities have taken pride in coming up with better and more efficient procedures that help reduce warranty claims and boost productivity. In Year 5, the incentive payments were $2.40 per camera per PAT and $4.80 per drone per PAT; these payments are divided equally among all PAT members.   

  • Attendance bonus—Absenteeism on the part of PAT members has a strong negative impact on the functioning and performance of the remaining team members. When team members fail to show up for work a team’s assembly procedures are disrupted; and substitutes must be assigned to fill-in for the person(s) absent or else the team must try to assemble units as best it can.

To discourage absenteeism, prior management instituted the practice of paying an $800 year-end bonus to each PAT member with a record of perfect attendance (defined as working 2000 hours per year—50 weeks at 40 hours per week, with 2 weeks off for holidays and personal leave); missing as much as ½ day during a 2000-hour work year constituted disqualification for the bonus. Prior management believed the attendance bonus was successful in keeping absenteeism at a tolerable minimum, thereby enabling most PATs to operate at full-strength and assemble at least a reasonable number of cameras/drones each shift.

However, you have the authority to discontinue the practice of paying a bonus for perfect attendance, to continue the program as is, or to raise the size of the bonus periodically as you see fit. It is up to you to determine whether diverting the $800 bonus per PAT member to other types of compensation (such as bigger incentives or higher base pay or bigger fringe benefits) could lead to even better PAT productivity.  

  • Fringe benefits package—PAT members and other company personnel view a generous company-paid fringe benefits package (health insurance, disability insurance, term life insurance, and retirement plans) as an important element of a “good job” because the components of fringe benefit packages add to the employee’s overall well-being.
  • Total compensation—How well your company’s PAT members are being compensated relative to rival companies with regard to base pay, assembly quality incentives, the perfect attendance bonus, and fringe benefit packages is a major factor in the company’s ability to attract/retain better-caliber, more productive employees. The best, most productive workers are inclined to leave jobs at lower-paying companies for jobs at higher-paying companies. Likewise, job seekers that exhibit motivation, pride of workmanship, good work habits, and aptitudes for teamwork are drawn to work for those companies having the best overall compensation package. Thus, PAT productivity tends to be higher at the companies with the highest total compensation packages per PAT member.
  • Best Practices / productivity improvement budget—The productivity of PATs is enhanced by training PAT members in better assembly techniques, post-assembly product testing, ways to reduce warranty claims, and overall productivity improvement. You have the authority to raise/lower annual spending per PAT for such training. While spending greater amounts per PAT increases productivity, the benefits from greater annual training expenditures per PAT are subject to diminishing marginal returns (that is, the benefits become smaller and smaller, eventually reaching a point where the added costs outweigh the added benefits). A company can always reduce annual training expenditures per PAT without losing the previous productivity gains
  • Product R&D expenditures (cumulative)—A portion of R&D expenditures is always devoted to improving the designs of all camera/drone models in ways that reduce the amount of time it takes PATs to assemble and test them, thus increasing the annual productivity of PATs.
  • Number of models—Increasing the number of models in a given year will reduce PAT productivity, due to lower PAT proficiency in assembling more models and increased model change-over time. Reducing the number of models boosts productivity because PATs have fewer assembly and post-assembly product testing procedures to master and less model change-over time.
  • The total compensation of camera PATs versus drone PATs—A small difference between the compensation packages of a company’s camera and drone PATs will be tolerated by PAT members. However, a significant disparity in the compensation packages of camera and drone PATs can cause dissatisfaction among the PAT members receiving the smaller compensation package, thus negatively affecting productivity. In Year 5, the compensation packages of camera and drone PATs were identical.

At the end of year 5, the productivity of PATs assembling action cameras was 3,000 units annually.There is reason to believe that over the next several years the productivity of camera PATs can beincreased to 3,500 to 4,000 cameras annually. Productivity could go even higher, if managersaggressively pursue productivity gains via attractive compensation, additional training, and robotassisted assembly techniques.

At the end of year 5, the productivity of PATs assembling drones was 1,500 units annually (drones assembly is more complicated and involves assembling the built-in action camera, as well as the drone itself; moreover, thoroughly flight testing all the performance features of a UAV drone is considerably more time-consuming). The productivity of drone assembly PATs could rise to perhaps 2,000 units annually, if company managers are willing to invest in attractive compensation packages, additional training, robot-assisted assembly methods, and expedited flight testing procedures (via product R&D).   

Assembly Capacity, Facilities Expansion, and Workstation Additions.

The remainder of this decision page is devoted to decision entries and on-screen calculations that enable you to (1) fill growing buyer demand for your company’s cameras/drones by having PATs work overtime—the   maximum number of cameras/drones that can be assembled at overtime is 20% of annual PAT productivity (the number of units a PAT assembles each year), (2) add additional workstations as may be needed to fill incoming orders for cameras/drones during the current year, (3) initiate projects to expand the size of the assembly facility for cameras and/or drones whenever additional workstation space is needed, and (4) order a robotics upgrade for all existing camera and/or drone workstations that enables the size of PATs to be reduced from 4 persons to 3 persons and that also.

Your company’s AC Camera assembly facility for currently has space for 300 workstations, but only 280 workstations have been installed (thus, there is enough vacant space to add 20 more workstations). The UAV Drone assembly facility currently has 110 workstation spaces, but only 100 drone workstations have been installed and 10 spaces are vacant (which can be filled with workstations whenever you see fit).

New camera/drone assembly workstations can be installed at a cost of $100,000 each; adding workstations can be done quickly (usually during a single weekend) at the beginning of each year.

Your company will in all likelihood need to expand both the camera and drone assembly facilities in the years to come in order to have enough workstations for PATs to assemble the numbers of cameras and drones it will take to meet growing buyer demand.

Additional space for camera/drone workstations can be built at a cost per space that declines as the size of the space expansion increases. Space expansions are undertaken at the beginning of a year and take several weeks to complete; however, both the camera and drone assembly facilities have enough extra storage area to accommodate the immediate delivery of additional workstations and set them up temporarily in the extra storage space until a facility expansion is completed. This gives you the ability to gain full year assembly capability for newly-purchased camera/drone workstations pending completion of a workspace expansion project.   The capital costs of new workstations, facilities expansions, and robotics upgrades are paid in full in the year they occur.

The company has enough land at its Taiwan plant site to permit expansion of the camera assembly facility to accommodate 1000 workstations and expansion of the drone assembly facility to accommodate as many as 800 workstations (although it is highly improbable that you would ever need this many workstations). Fixed assets (primarily facilities, workstations, robotics upgrades, office equipment, and furnishings) are depreciated over 20 years at the rate of 5% annually.

The two big camera/drone assembly-related decisions that have to be made each year concern (1) how many new workstations to add and (2) whether additional facility space for workstations is needed and, if so, how many workstation spaces to add. Just below these decision entry fields are several on screen calculations that will be of assistance. There is a line showing the number of units that can be assembled with and without the use of overtime (given the projected productivity of PATs).

There’s a second line showing projected unit sales (which could prove too high if you have underestimated the strength of rivals’ competitive efforts or too low if you have overestimated the strength of rivals’ competitive efforts) and a third line showing whether you will be unable to assemble the number of units to fill expected orders.   

It is up to you to determine whether it is more economic to have PATs work overtime to fill incoming orders from buyers (which can have the benefit of delaying the purchase of additional workstations and/or the expansion of assembly facilities) or whether it is more economical to always have in place sufficient workstations/workstation space to avoid paying PATs 1.5 times the regular hourly rate for overtime assembly. It is a quick exercise to view the on-screen projected cost-profit outcomes of using overtime, then make the “what if we add workstations/expand facilities by amounts sufficient to avoid overtime” entries, view the projected cost-profit outcomes, and decide which option is “best.” If the on screen calculations show a shortfall in the number of units assembled (meaning that projected buyer demand for your company’s brand of cameras/drones exceeds assembly capability with maximum use of overtime, then more workstations and/or workstation space will definitely be needed (assuming you wish to be able to fill all of the projected orders), and it is your responsibility to enter numbers for any new workstations and/or workstation spaces.

The GLO-BUS system will automatically employ the “optimum” number of PATs needed to fill actual incoming orders for cameras/drones.

Here is how it works:   

  1. If actual orders turn out to be less than assembly capability without the use of overtime then the GLO-BUS system will “right-size” the workforce, staffing only the number of workstations needed to assemble the units ordered.
  2. If actual orders are greater than assembly capability without the use of overtime, then the GLO-BUS system will have PATs work overtime (up to the maximum 20% of annual PAT productivity) to assemble enough additional units to satisfy buyer demand.
  3. If actual orders for cameras/drones exceed assembly capability of all installed workstations with maximum use of overtime, then your company is stuck with a shortfall in assembly capability and orders in the amount of the shortfall will go unfilled (forcing the affected buyers to purchase rival brands). The company maintains an updated list of several hundred appropriately-skilled workers living within commuting distance of the company’s assembly plant that it can draw upon to form new PATs to staff any idle workstations that are needed to fill incoming buyer orders. These workers have sufficient experience and qualifications that they can be adequately trained in a matter of days to assemble cameras/drones at productivity rates equal to the company average.

 

Robotics Upgrades. You have the option to shift to robotics-assisted assembly of cameras and/or drones—there is a section near the bottom of this page for entering decisions to shift to robot-assisted assembly.

The manufacturers of robots have recently developed small robots capable of performing some of the tasks in assembling both action cameras and UAV drones. Installing one of these robots at each workstation enables the size of PATs to be cut from 4 members to 3 members. These robots cost $150,000 each. If the company decides to shift from manual assembly to robotics-assisted assembly, all existing workstations in a camera or drone assembly facility must be upgraded to include the use of a robot at a cost of $150,000 each, and all future workstations the company purchases for that facility must include use of a robot (which means that the capital cost of each additional workstation for that assembly facility will increase from $100,000 to $250,000).

Robot-assisted assembly can be used in one facility and manual assembly can be used in the other facility, either indefinitely or until such time as management decides to shift over to robot-assisted assembly. Once robot-assembly has been adopted for a facility, it is not feasible to revert back to manual assembly.   

The on-screen calculations will help in evaluating the cost impact of a robotics upgrade. Cash outlays for capital costs associated with robotics upgrades of existing workstations and any new robot equipped workstations are incurred in the year of purchase. Depreciation of these assets occurs over 20 years at the rate of 5% annually. As with all types of capital expenditures, the associated cash outlays can be paid for from cash on hand, by issuing new shares of stock, or by borrowing. Shifting to robot-assisted assembly also results in added annual maintenance costs of $9,000 per workstation, pushing the total maintenance cost per workstation from $6,000 annually to $15,000 annually.

 

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