Erpsim Game Report for Distribution Game

Final analyze and Game report of ERPsim Distribution Game To: Dr. Shirley Stretch-Stephenson Group C H Members: Iris Huang Ankit Sethiya Ken Chen Yuankai Wang (GS) After 2 trial rounds of ERPsim distribution game, our group got rank 2 out of 4 groups (actually climbing from rank 3 to 2). So everyone in the group is fully confident about the real game running in the upcoming week. After several discussions, we settled down our objective as the first seller of products 1L&500ml ClearPure bottled water. But the result coming from real running game is really out of anyone’s expectation.And the truth that we got rank 3 on Net Income ranking is some kind of shock on everyone’s mind. From my point of view, though, it is a great opportunity for us to look into all the operations and strategies we used, analyze all the rights and errors we made, discuss all the situation each member got into, perfect our knowledge and experience background on SAP ERP system. It is a failure, at the same time, is also a givengift. In this report, we will analyze the whole market as well as our company’s performance throughout the game.By comparing ourselves to the market, to the competitors, the differences will unveil the reasons: which part we did right, which part we made errors. Following the market analyze is our initial group objectives and strategy. Then we use section â€Å"discrepancy† to show the differences between our results to the objectives. After that, we analyze the whole group performance during the game by integrating the reports from each member. For results analysis section, we conclude all the problems we were facing and all the errors we made.Last but not the least, is the summary summarize concluding the whole reportvaluable lessons we got from this ERPsim game. Market Analyze: For the whole market, we will use several charts below to show the market demands in different termsperspectives. By products: [pic] Chart 01: Total sales revenu e for each product after 3 quarters From the chart 01, we can clearly see that the 1L & 500mL ClearPure are the major products on the market. They totally took 79. 35% market share of bottled water, within this 79. 35%, 1L took 42. 46%, and leaves 500mL occupied 57. 54%.So the 500mL ClearPure is the best product in this distribution game and 1L ClearPure follows closely. It is the same story when you check the quantities of each product sold on market in chart 02. By Areas: [pic] Chart 02: Total sales revenue for each area after 3 quarters From chart 02, we can conclude that the area has highest demand for bottled water is North area due to its highest sales revenue of $796622. 67, followed by West and South areas. By Competitors: [pic] Chart 03: Sales performance of each group in every quarter From the chart, we discovered all the groups as internal competitors in the classroom only took 54. 5% market share of the whole market. The rest 45. 95% has gone to those external competitor s: bottled water importer companies. Due to we didn’t have the total sales revenue for each quarter of the whole market, it is impractical to draw any conclusion on the performance of us our company quarterlyfor each quarter. But from the chart, all the teams together here has a relatively steady contribution to the market throughout 3 quarters. And under this condition, we can start to compare the performance of each team in every quarter. Group Objectives and Game Roles ReviewPerformance Objective: Our goal is to be the No. 1 distributor on sales of the product ClearPure bottled water (including 1L and 500ml) in Germany. The operational objective is keeping the inventory turnover rate of ClearPure as fast as we can. That means we should keep adjusting our B-01 and B-04 products’ price according to plan and having a steady stock level on these two products. Financial goal is keeping the gross margin over all of our products exceeds 7% in last time we played. Game Role Set: Ankit: oversee the Reporting transactions; report the situation every five days.Iris: adjust price of products in the Decision transactions. Ken: track Accounting transactions and make purchase orders. GS: follow Operational transaction, calculate requirements and forecasting. Discrepancies From the results of each round, our group got rank 4th after round 1st, 3th after round 2nd, and stayed in that rank after round 3rd. The result is hardly anyone’s expectation on that point. So, what are the differences and how those differences showed up as results of our game performance? In this section, let us first figure out what are the differences between our results and the objectives.From our Professor Dr. Stretch’s final report, we got full financial information for each round of the game. [pic] [pic] [pic] Comparing the afterwards performance to our objectives and chart 03 in Market Analyze section, our group found out that: speaking of our main goal: No. 1 seller of 1L&500mL ClearPure products; we only achieved it during quarter 2 (without knowing how much importers sold in quarter 2), but failed on overall, and totally failed on the goal of financial objective to keep 7% gross margin after 3 quarters due to the negative net loss we have.So how and why we come to this situation, what kinds of mistakes we made affected our company’s performance? Are there any good methods leftimprovements we could make if there is another chance? Analyzing the Game In this section, we will analyze each group member’s performance throughout 3 quarters according to his/her role in the game. Some methods we were taking should stay as a good model for future reference; some methods should refer as a lesson we learnt. Planning: GS in our group is in charge of forecasting and planning purchase orders in the whole game.The basic rule of this player is to understand the reports data from member overseeing the market and calculate then predict the future market demand as well as plan the stock level. In Quarter 1 Our Goal: Earn enough profit and make sure we have enough stock level at the beginning of quarter 2 since no procurement could be done in quarter 1. From the start, each group has 1000 units on each product. As prepared, GS (me) set the stock level of products B-01, B-04 (ClearPure) to 1500 units, the rest got 500 units.Due to the inability to make procurement order (as we understand in that way at that time, here is our major and most lethal mistake), there is not much I can do in this quarter. By following up the market report, I helped Ankit calculate the average market price from the report. Our sales were very slow during that time even Iris constantly decrease the price bit by bit. Only after overhearing other groups started to make purchase orders for inventories, we started to realize the procurement system under menu round2&3 can be used to increase stock level in round 1.I directly made my plan into purchase orde rs and let Ken to process the first purchase order on day 17. In Quarter 2 Our Goal: Sell as many as BO1 and BO4 as we can and also clear the stocks of the rest 4 products (here is our second big mistake) at the same time. In this quarter, my role was trying to decide the reasonable stock level for each of the product. To decrease the accounts payable liability, I chose 1000 units instead of 1500 for our main products B-01, B-04, left 500 units as the target level for the rest products.The truth is except B-01 and B-04, there is no any other product will have a stock level even close to 500 in the first 10 days of round 2. After the dreadful sales revenue from quarter 1, Iris directly dropped the prices closing to the cost (this is the move we should apply in round 1), and the sales wheel broke loose. The sales were flying; I was so busy trying to figure out when I should make the purchase order standby. Fortunately, the tight work didn’t break me and Ken. We managed always k eeping our inventories for our main products over 300 units (This is a pretty wise move to keep it over 300 units. ).Due to the nature of procurement system, if we started the purchase after the inventory dropped down to 300, when sales order larger than 250 came in we would face a period of time running out of inventory. If we started the purchase before the inventory went below 500, we would have a larger account payable and inventory cost when round was finished. At the later 10 days of quarter 2, I changed the stock level to 800. Although this would increase the risk of running out of inventory, we could have relatively low cost on main products, which directly increase our net income (although it is trivial to the losses on the cost of other products).Near the end of quarter 2, Ken spotted the inventory of B-06 500mL Sprintz was close to under 200 units. Thus he noticed and urged me to make a purchase order on it. I made the stock level of 300 units for that product and finishe d the purchase order (Here is another direct hit on our net income performance. Without this purchase we will decrease our net loss by $3844. ). In Quarter 3 Our Goal: All products had to be sold out and make maximize profit from BO1 and BO4 (Our third major error to consider the initial inventory will not reflect on the balance sheet. ).During quarter 3, the role for play was the same as in quarter 2. But I set an even lower stock level of 500 units’ later 300 units to B-01, 04 in order to achieve a lowest ending inventory on them. This would dramatically increase the difficulty of predicting when I should proceed the purchase order. Meanwhile it can give us a hope when the time reaches day 20, our inventory would be precisely close to zero. The plan was working, little by little our inventory dropped to around 300 units. Then I adjusted the stock level to 150 units as the sale speed started slowing down.At the end, we had 9 units of B-01 and 30 units of B-04 left in invento ry. Procurement Ken is the man in charge of procurement. His role mainly needs him to follow the planned stock level and inventory level, and decide when is the best time to finish one purchase order is. In Quarter 1 During the first quarter of the Game, our group’s product inventory did not significantly fluctuate since we set a relative high price to them and hoped this strategy could save some inventory for next quarter.Nonetheless, from the sales report of quarter 1, our group failed to acquire any market demand in day 7, 8, 18, and 19. It is such a factor that contributes to us ranking the 4th in both sales and net income in the first quarter. Although we maintained a reasonable stock level in the first quarter, Ken suggested us to lower the product prices in day 8 since bottled water is a price-driven product that retailers tend to choose the lower price while purchasing, though we didn’t follow. In Quarter 2 Ken didn’t finish any purchase order in quarter 1.Our first procurement delivered on day 21 quarter 2. Since then, whenever B-01, B-04’s inventory dropped to below the stock level at a certain rate, Ken would finish one purchase order to stay us in the competition. Ken and I had a very good time working together. We managed to keep inventory level away from zero but also had enough stock to sale except the purchase of B-06 500mL Sprintz 300 units. From our point of view, procurement is more like a delicate job than a difficult one as long as you got right stock level to maintain, though this job requires lots of efforts on requiring information.During quarter 2, Ken finished dozens of purchase orders. The first one is the biggest one of them all, as time passed to later half, the purchase orders became smaller because it the number purchased is the difference between your planned stock level and present inventory level. In Quarter 3 In quarter 3, the main purpose of procurement was to closely follow the order from planner and together keep the inventory level gradually lower down to zero. Ken just did that. Each time when I adjust the stock level of the main products, Ken would know the best time to replenish.When we passed the midpoint of day 10, the inventory level was around 300 for each product. At day 15, still in a tight purchase schedule, Ken was doing a great job to reduce the inventory level by increasing purchase frequency. At day 17, Ken stopped purchasing any more orders, and we were sitting on a very healthy inventory of 150 units. There we come to the final inventory level as chart 04 is showing. [pic] Price Iris is in charge of all the price adjustments due to her experienced retail background. As our professor pointed out, bottled water is a commodity highly sensitive to its price strategy and adjustment.So, in this section, we analyzed all our adjustments as well as the market average price based on the information Iris recorded. In Quarter 1 Our Goal: Earn enough profit and make su re we have enough stock level at the beginning of quarter 2 since no procurement could be done in quarter 1. Pricing Strategy: Skim Premium Pricing Strategy, we set the prices higher in the beginning and reduce prices periodically, to maintain the inventory level for quarter 2. Price Setting: We set the high profit margins and try to keep the quantities we sell to make sure we would earn enough profit.Since every team have the same 1,000 Initial stock for each of the 6 products for the first 20 days, the orders can only be purchased in the beginning of the Quarter 2, and need 1-3 days to the stocks and the market demand for the bottle water is high, so we set the prices a little bit higher to make sure we have enough inventory to last 20 days. Then we reduce prices periodically, to attract more retailers. The prices for both sizes of the ClearPure are higher than the initial prices and the prices for all flavors and all sizes of Sprintz and Lemon Sprintz are lower than the initial p rices. Material |$$-B01 |$$-B02 |$$-B03 |$$-B04 |$$-B05 |$$-B06 | |Name |1L ClearPure |1L Spritz |1L Lemon Spritz |500mL ClearPure |500mL Spritz |500mL Lemon | | | | | | | |Spritz | |Cost |$11. 99 |$14. 99 |$16. 99 |$16. 99 |$19. 99 |$22. 99 | |Initial price |$14. 99 |$17. 99 |$19. 99 |$19. 99 |$22. 9 |$25. 99 | |Our price |$16. 59 |$16. 99 |$17. 99 |$22. 59 |$21. 99 |$23. 99 | Chart 05: The prices for the D1 of Q1 Price adjustment: The prices adjustment is based on the available stock, the market reaction and the market average price (Here is another mistake we made. ). 1. If the product sells too fast, we would increase the price a little bit, to make sure we have enough stock for 20 days. For example the bestselling item BO1, was marked up 58% from the cost, but sold out 55 units and brought us $385 net profit.But it was most profitable with the 38% mark-up. 2. If the inventory is static for more than 2 days, we would mark down the price, close to the cost or even lower the cost to create sales revenue. Especially for product BO2, BO5 and BO6, the market less favorable products, we marked down their price even lower than the cost, in order that we would not left lots of inventory in the Quarter 3. Product BO1 prices changes and relative factors in the Q1 [pic] Product BO2 prices changes and relative factors in the Q1 [pic] Product BO3 prices changes and relative factors in the Q1 [pic] Product BO4 prices changes and relative factors in the Q1 [pic]Product BO5 prices changes and relative factors in the Q1 [pic] Product BO6 prices changes and relative factors in the Q1 [pic] In Quarter 2 Our Goal: Sell as many as BO1 and BO4 as we can and also clear the stocks of the rest 4 products (here is our second biggest mistake) at the same time. Pricing Strategy: Penetration pricing strategy, achieve high volumes and ultimately earning profits from high sales volumes, but low profit margins. Price setting: We cut down the profit margin for BO1 and BO4. Lower all the o ther prices, since some of the prices were setting too high in the Q1.The prices set for the D1 of Q2 were as below, |Material |$$-B01 |$$-B02 |$$-B03 |$$-B04 |$$-B05 |$$-B06 | |Name |1L ClearPure |1L Spritz |1L Lemon Spritz |500mL ClearPure |500mL Spritz |500mL Lemon Spritz | |Cost |$11. 99 |$14. 99 |$16. 99 |$16. 99 |$19. 99 |$22. 99 | |Initial price |$14. 99 |$17. 99 |$19. 99 |$19. 99 |$22. 99 |$25. 99 | |Our price |$12. 00 |$145. 7 |$16. 99 |$17. 00 |$19. 89 |$22. 88 | Price adjustment: Adjust the prices for the products based on the available stock, the market reaction and the market average price. Product BO1 prices changes and relative factors in the Q2 [pic] Product BO2 prices changes and relative factors in the Q2 [pic] Product BO3 prices changes and relative factors in the Q2 [pic] Product BO4 prices changes and relative factors in the Q2 [pic] Product BO5 prices changes and relative factors in the Q2 [pic] Product BO6 prices changes and relative factors in the Q2 [pic] In Quarter 3Our Goal: All products had to be sold out and make maximize profit from BO1 and BO4 (Our third major error to consider the initial inventory will not reflect on the balance sheet. ). Pricing Strategy: Penetration pricing strategy Price setting: Kept the prices close or lower to the market average price. The prices for the D1 of Q3 were as below, |Material |$$-B01 |$$-B02 |$$-B03 |$$-B04 |$$-B05 |$$-B06 | |Name |1L ClearPure |1L Spritz |1L Lemon Spritz |500mL ClearPure |500mL Spritz |500mL Lemon Spritz | |Cost |$11. 9 |$14. 99 |$16. 99 |$16. 99 |$19. 99 |$22. 99 | |Initial price |$14. 99 |$17. 99 |$19. 99 |$19. 99 |$22. 99 |$25. 99 | |Our price |$12. 99 |$14. 99 |$17. 00 |$17. 99 |$20. 00 |$22. 89 | Price adjustment: Product BO1 prices changes and relative factors in the Q3 [pic] Product BO2 prices changes and relative factors in the Q3 [pic] Product BO3 prices changes and relative factors in the Q3 [pic]Product BO4 prices changes and relative factors in the Q3 [pic] Produc t BO5 prices changes and relative factors in the Q3 [pic] Product BO6 prices changes and relative factors in the Q3 [pic] Overseeing Ankit is our guy for overseeing the whole market report for each five days. After each market report announced, he will first quickly calculate out the average price for each product (There is a good move in our group), and pass them to Iris for price adjustment reference. But he hadn’t reported the quantity sold on each products during five days (Here is another mistake we made). In Quarter 1After the first report came out, Ankit readily passed his estimate of average market price to Iris. Then Iris and Ken could revise the price according to the available inventory and also the market price. We were so focusing on price change and inventory level, thus only the slow sales speed did we discover, we neglected the total sales for five days on the report. At that time, we didn’t know the relationship between our own sales to the overall sal es. In Quarter 2 Ankit still kept his amazing work about reporting the market average price, the average price collected from the reports were proved to be very helpful.Each time we changed our price to be a little bit lower than the market average, the retailers would response to that immediately. Finally, after all the efforts we put down, the sales volume and orders really shot up. Beside the regular activity, Ankit also suggested us to cut down price of B-02, B-05, B-06, which was undergoing at the same time. For the rest of the quarter 2, he started to look into the sales quantity of five day on each product and tried to compare the number with our own. But at that time, he didn’t report on this matter which should be done from quarter 1.In Quarter 3 Directly following up the strategy from last quarter, the overseeing activity didn’t change its role in quarter 3. Ankit still reported on the average market prices as reference. Later he noticed the number of sales i n quarter 3 was much less than that in quarter 2. He gave us his estimation about market demand for bottled water was dropping. In order to move all the inventory, after group discussion, Iris continued her marking down on prices which inflict more harm on our profitability. Results analysis Financial Statement for Quarter1 [pic] [pic]After the Quarter 1, from the performance chart above, we were facing 2 problems. BO1, BO3 and BO4 were profitable and moving at certain rate, and BO2, BO5 and BO6 were selling lower than cost and without too much sales. Our team sold the least quantities and had the least net income among the 4 teams. Whether should we start to put money on marketing expense to promote our low price B-01 and B-04? Errors we made about Quarter 1: 1. We misjudged the market demand for products B-01 and B-04. As we expected, the initial market will be so thirsty about ClearPure products even we set premium price on them.So we could assure our profit as well as average sa les on it. The truth is even the market is very thirsty, retailers will always have choices between domestic vendors or importers. The competition directly drive down the demand for higher priced goods as the basic economic principle: Quantity and Demand would show. This is our major and most lethal mistake leading to a very poor performance on profit in quarter 1 and no turning back whatever we do in next two quarters. 2. We thought we can only make the replenishment in the beginning of Quarter 2, but actually the purchased orders were available in Quarter 1.The MD61 planning menu and purchase order menu are both under folder round 2&3. So our assumption is no purchase for the inventory in quarter 1. We build our strategy based on this assumption. The decision leads to two consequences: overvalued price and small sales volume. 3. It was 20 days in one quarter, but I told them it was 30 days, and then we missed the selling momentum. I should take this the responsibility for this err or. 4. The average prices setting were too high since the profit margin was too high as we already explained in error 1 and 2. 5.The person responsible of overseeing the market failed to report the relationship between our sales volumes to the whole market sales volumes during five days. If we applied this control method, we would discover our sales volumes were too low at the beginning period of quarter 1. So we would have 10 to 15 days to correct the wrongs. Without this powerful control method, we were totally blind during the first 5 to 10 days regarding to our sales performance. This error undermined our performance during the first one and half quarters, until Ankit and GS started to report. 6. Negligence of foreign import competitors.The reason we dare to set a very premium price on B-01 and B-04 is we didn’t realize there are foreign import company competing. If we took that into consideration at first time, we won’t choose premium strategy to earn profit and s ave inventory. The Financial Statement for Quarter2 [pic] [pic] After Quarter 2, from the performance chart, we were facing 2 problems. 1. We were losing money. Only BO1 and BO4 had positive income, the rest four were all negative. And the profit could not cover the cost. 2. The Profit Margins of BO1 and BO4 were too low. They were much less profitable in Q2 than in Q1. |Material Description |Qty |Total Profit | |Q1 |BO1-1L ClearPure |1124 |$3224. 2 | | |BO4-500mL ClearPure |868 |$2801 | |Q2 |BO1-1L ClearPure |4642 |$213. 06 | | |BO4-500mL ClearPure |4781 |$379. 5 | 3. There were still so many available stocks of BO2, BO3, BO5 and BO6. Errors we made about Quarter 2: 1. In this quarter, our goal contains clearing out the inventory of products B-02, 03, 05, 06; this is another big mistake leading us to a net loss at the end. The cost of 1000 units’ initial inventory is actually NOT a sunk cost according to the final financial statement. If we just set the price at the cost lev el and never cared about their sales, we will have all the positive net income from B-01 and B-04 as results, which will added up to over $10000 net income.As long as you keeping the prices higher than cost, B-02, 03, 05, 06 will contribute to the net income in certain ways. 2. A wrong decision was made on order purchasing. 300 units of product B-O6, which is the highest cost and lowest yield, were purchased at the end of Quarter 2. 3. In order to clear the inventory of those products and pursuit our objective of sales, the prices were set too low. The Total Sales was high, actually ranked 1st in that round, but we were trading our profit with sales volume. This will help us got closer to our goal, but it is not a wise move because it doomed the whole profit margin.Financial Statement for Quarter 3 [pic] [pic] After Quarter 3, from the performance chart, we can conclude our errors in this quarter, Errors we made about Quarter 3: 1. We continued the strategy applied in round 2 which are setting average prices way lower than cost for BO2, BO3, BO5and BO6, so we were continuing losing money. 2. The purchasing behavior of retailer stores for BO2, BO3, BO5 and BO6 was misunderstood. According to the sales reports, those products were purchased periodically, and less price sensitive than BO1 and BO4. 3.The prices on those four products were changing too frequently. The market could not react to the change, and the market needs a longer period to consume those products before repeat purchasing. Improvements If we ever have another chance to perform in this distribution game, we will keep our goals and objectives, though several improvements will be carried out as follows. In Quarter 1: 1. Prepare the whole game plan only focused on 1L&500mL ClearPure products, for other products, prices should be set slightly higher than cost. 2. Set the prices of our main products close to the cost in order to reate huge sales volume to meet our goals and objectives. 3. Prepare the inventory purchase order in quarter 1, and proceed the first purchase when the unit number hit 500. 4. The whole period is only 20 days, meaning day 10 will be the checking point to control team’s performancedecide whether we should adjust our strategy. 5. Analyzing the sales volume in the market reports, compare to our summary sales report data as a controlling method of sales volumes. Using the same information, we could evaluate the performance of our direct competitors and also foreign importers’. 6.Put $25 to $50 on marketing expense per day on B-01 and B-04, so more retailers could be attracted and establish relation with us. In Quarter 2 1. Stay in the price battle for main products, but do not directly cut the price under cost. 2. Maintain the price on other products; do not use pricing penetration strategy to increase the sales. 3. Better management on stock level and inventory level following the same code applied in game before. 4. Keep relatively stable pri ce on B-02, 03, 05, 06. Allowing time taken by market to consume the products. Do not rush into price war.In Quarter 3 1. According to the performance in quarter 2, we will adjust slightly on our game plan to respond. Still we should stay in the price war of our main products and avoid price war of other products. Sometimes without losing money is also earning money from the market. Summary From this 3-quarters ERPsim distribution game, our group learnt a lot about price sensitive commodity market. For the market, we start to understand why healthy, competitive environment is so vital to it. Two extremes, whether monopoly or simply price war,will not do any good to the industry.The harm inflicts on the different sizes of firms will later affects the market, and ultimately reflects on the end user: normal customers. For each company in the market, careful thought plus preparation are a must to whatever the project is. Always think big, move slow, check twice will help one company sta ys in healthy growing mode. To achieve that, every company will need practical control method to implement. How to set those control methods will need our knowledge and experience from all the courses we learnt here. And if a company is selling commodity products, DO pay attention to price competitiveness.Try to make sure positive profitability and high sales volume, at the same time avoid price war. It is not a wise move as our group showed in quarter 2, after actively involved in the price contest, we successfully grab the No. 1 seat of sales for one round, but lose heavily on profit. For each member in Group C, we had fun, argument, discussion all through our participation in the ERPsim game. We learnt, evolved, and developed our skills and abilities of marketing throughout the whole process. It doesn’t matter what results or rank at last, only those knowledge and friendship matter and will last forever.