Midway
Performance Summary
Kaitlyn Halmi
Our Product
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Product Able in the Low Tech Market
Ideal customer positioning in 2025
6.8 Performance and 13.2 Size
Our positioning in 2025
6.7 Performance and 13.2 Size
Product Bravo in the High Tech Market
Ideal customer positioning in 2025
10.2 Performance and 9.8 Size
Our positioning in 2025
8.7 Performance and 11.3 Size
Product Able was introduced as our first product in 2022 specifically for the low tech market. It was initially positioned to satisfy moderate needs of both markets while our research and development department finished with our high tech product. We repositioned Able in year two and three and have been able to get it exactly where the low tech market wants it now that we have one product dedicated to each market. We are able to meet the low tech market’s ideal size and are only a tad under its ideal performance level.
Product Bravo was introduced in 2025 for the high tech market. This freed Able up for marketing only in the low tech market. Bravo did not see such a great first year, but this is to be expected as we adapt to the market’s needs. In its first year, we missed the mark in both size and performance level which caused us to overproduce and miss out on some of the market share. We are planning to adapt our strategy for Bravo in order to produce a higher performance product in a smaller size. This will appeal to the high tech market and allow us to sell Bravo at it’s peak price in line with our sales strategy.
Data on the release of Able affected its performance in the market. For low tech customers, age is ranked as second most important after price. This calls for an age around 3.0. Repositioning the product caused the age to stay low for its first three years. In year four, we left the product to age to 2.65, closer to the 3.0 mark, and it performed much better than in year three. This will be an ongoing strategy for future years. In the high tech market, age is also second most important but they prefer an age of 0 because they value innovation. This will be considered in future years as we continue to improve Bravo and look for new opportunities to launch other products.
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Production Analysis – Years 1 & 2
Year 1 – 2022
– Capacity at 800 for shift 1
– Started planning for high tech product
– Kept automation at 3.0
Year 2 – 2023
– Increase in capacity for Able (later retired)
– Pushed back launch for Bravo to year 4
– Kept automation at 3.0
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Production versus capacity can be seen here and the next slide according to year. To keep costs low, we strive to keep automation moderate and make use of our labor force. We also try to keep our capacity in line with potential demand so that we are able to satisfy the market as well as limit investment costs. We started out with 800 capacity for Able, which was mistakenly increased in year two instead of establishing new capacity for Bravo. In both years, we kept automation at 3.0, again to take advantage of our labor and resist the costs associated with upgrading it.
In year one, we used almost all of our capacity, which was perfect. In year two, we only used about half, but this was partly because of the increase in capacity. In year one, our production was right in line with that of our competitors, but in year two, we produced less than the top two producers. This was great for year two as we were in line with other competitors and we were able to forecast and produce fairly well for the demand and our potential market share.
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Production analysis – years 3 & 4
– Established 650 capacity for Bravo
– $11,700 investment was not properly financed
-Overproduced Able (341 leftover)
– Retired unused capacity for Able
– Introduced Bravo to market and produced 580 units
– Overproduced Bravo (289 leftover) and stocked out of Able
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Year 3 – 2024
Year 4 – 2025
In years three and four, we fixed the mistaken extra capacity as well as established 650 first shift capacity for Bravo. This investment cost our company $11,700. Due to miscommunication between departments, financing for this was overlooked and an emergency loan was needed. This will be discussed in more depth in the finance section. In this year we also overproduced for Able and had to carry over 341 units to year four.
In year four, we took the time to retire the extra capacity for Able as we haven’t needed to use it. This brought a bit of funds back to us to help offset the earlier emergency loan. We also introduced Bravo to the market, but unfortunately overproduced by 288 units. As discussed earlier, this was due to opening positioning that will be better considered in years five and six.
Going forward, we plan to aggressively hone in on accurate positioning and forecasting to avoid past inventory carry over issues. We also plan to potentially increase automation as we begin to increase profits and cash flow. Modest automation increases were always part of our strategic approach and we look forward to investing the capital needed in this area as we recover from our inefficiencies.
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Market Segmentation
Year One – 2022
Year two – 2023
Year three – 2024
Year four – 2025
Product Able Forecasting: 924 Units
– Low forecast causing stock out
– Potential: 23.4% – Actual: 12.5%
Product Able Forecasting: 1500 Units
– 35 units left in inventory
– Potential: 20.9% – Actual: 20.9%
Product Able Forecasting: 1600 Units
– 341 units let in inventory
– Potential: 14.5% – Actual: 14.5%
Product Able Forecasting: 1300 units
– Low forecast causing stock out
– Potential: 18.6% – Actual: 14.8%
Product Bravo Forecasting: 580 units
– 289 units left in inventory
– Potential: 4.7% – Actual: 4.7%
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In accordance with our broad differentiation strategy of providing premium products in both markets, we charge a premium price to meet the market’s expectations. Product Able is priced at $35.00 while product Bravo is priced at $45.00. Both are the maximum price customers expect to see in their respective markets. We also keep our sales and promotion budgets in line with our top competitors in order to maximize both awareness of and accessibility to each product. In year one, we spent $2,000,000 on promotion and $2,500,000 on sales. This was so much higher than our competitors that we lowered promotion to $1,400,000 and sales to $1,600,000 in year two. We stabilized our promotion budget at $1,500,00 and sales budget at $1,700,000 for Able in year three and established the same parameters for Bravo in year four. This worked well in year four and we continue to modestly increase these budgets as we become more profitable.
Forecasting has undoubtedly been a learning experience for our company. Year two was our most successful in terms of forecasting versus sales. We were left with only 35 units of Able in inventory at the end of the year. This did cause some carry over costs, but nothing that we couldn’t handle. It also allowed us to meet the demand for our segment of the market. We struggled in year three and were unfortunately left with 341 units of Able left in inventory which caused heightened holdover costs. In years one and four, we stocked out of Able products. This is better for avoiding holdover costs, but caused our company to miss out on sales and market share as you can see above.
Year four was the first year we forecasted for product Bravo. We overestimated in this area which is mostly due with our positioning not living up to the needs of the high tech market. We were left with 289 units in inventory, but were able to cover the holdover costs with our earnings and long-term loans. With our strategic repositioning in the next two years, we should be able to nail down forecasting for potential sales and avoid high levels of leftover inventory.
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Financial Performance
Use of Retained Earnings
– Used to pay for R&D efforts, marketing budgets, and production activity
– Used to avoid as much new debt as possible
– Reinvested into company for improvements in R&D, Production, and TQM strategies
Taking on Company Debt
– Required emergency loan in year three (2024)
– Sold unused capacity in year four (2025)
– Took on $3,500,000 in long term debt in year four (2025) to avoid secondary emergency loan
– Able to recover cash flow by the end of year four (2025)
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Due to our strategic approach, we rely on our retained earnings for most operational expenses including research and development, marketing, and production needs. This is in an effort to avoid taking on debt as much as possible. We also rely on retained earnings to make improvements in all areas, which is why no dividends have been paid out yet. In year three, investment into increased capacity for a new product was made and in year four, investment into total quality management strategies were made. Capacity investments were necessary for the launch into the high tech market. Total quality management investment was not completely necessary but was a step in the right direction to improve all aspects of the company. The most notable impact resulting from total quality management efforts was a 27% decrease in our R&D cycle time and 43% decrease in administration costs. We were also able to increase demand by over 6%.
Profits in year one were non existent as we navigated the complexities of the low tech market. We also used retained earnings to retire some common stock which attributed to the -$108,000 in profits. This was greatly recovered in year two due to more efficient forecasting and production. Profits in year two went up to $7,118,245, but dropped to $3,824,876 in year three due to overproduction. Profits again dropped in year four to $1,284,988 while the company recovered from its emergency loan.
The finance department saw struggles between year three and four. Due to lack of communication between production and finance, there was a lack of financing for plant improvements in year three. This caused the need for an emergency loan in the amount of $4,827,893. An excess of production of product Able also contributed to the amount of the emergency loan. To offset this, production in year four was kept modest to avoid added excess inventory. We also opted to sell unused Able capacity while taking on long-term debt in the amount of $3,500,000. These decisions allowed us to recover our cash flow issues by the end of year four as you can see in the cash flow summary chart here.
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2022-2024 Company Performance Summary
OL 421: Strategic Management and Policy
Prepared by Jerome Udit
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Products
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Perceptual Maps December 31, 2024
Able
Year Segment Age MTBF Performance Size Price
2022 Low 4.1 21000 6.4 13.6 $34.00
2023 Low 2.8 15000 4.8 15.5 $35.50
2024 Low 3.8 15000 4.8 15.5 $35.00
A_Excel
Year Segment Age MTBF Performance Size Price
2023 High 0.7 22000 7.4 12.6 $38.00
2024 High 1.7 22000 7.4 12.6 $42.00
Able was designed to be in the low-tech segment. At the end of 2022, it accounted for 19% of the market share and was the top selling product. The specs are as follows: Age – 4.1, MTBF 2100, Performance 6.4, size 13.6, and it was priced at $34.00. It was also the oldest product, but it was on par with the customers expectations in 2022 for the low-tech segment. In 2023, the specs did not change but the price increased to $35.50. The year end reports from 2022 suggested that the price should be increased to help achieve the desired 30% contribution margin, this strategy did help us to achieve a contribution margin of 30.9% but it led to a decrease in sales and increased inventory carry over.
In 2022 started R&D for a new high tech product A_Excel. The specs are: MTBF 22000, performance 7.4, and a size of 12.6. In 2023 it was priced at $38.00. By the time we hit the market, the specifications did not align with the customers expectations, but we did stock out. The ideal specs were 9.5 for performance, and 10.5 for size. The price and age were still on par.
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Production Analysis
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Dec. 31, 2022
Dec. 31, 2023
Dec. 31, 2024
Product Production Capacity
Able 1450 801
A_Excel Started R&D 1
Product Production Capacity
Able 1450 801
A_Excel 1300 1
Product Production Capacity
Able 1450 801
A_Excel 200 101
The graphs shown are from the year end reports and the charts provide an overview of our production and capacity. In 2022-2024 the production schedule and capacity were unchanged. The focus was on creating a new high-tech product but there were some miscommunications with the capacity needs so production was negatively impacted.
In 2024 the automation was slightly increased for Able, the low-tech product, and it had a negative impact on the organization. It contributed to the need for additional emergency loan funding. The high-tech product did not increase automation as a strategy to maintain a high quality and not add additional costs to the organization.
No products were discontinued.
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Market Segmentation
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Able
Year Price Promotional Budget Sales Budget Sales Forecast Production Ordered Contribution Margin
2022 $34.00 $1200 $1500 1400 1450 22%
2023 $35.50 $1500 $1500 1600 1600 31%
2024 $35.00 $1500 $1500 1200 1600 26%
A_Excel
Year Price Promotional Budget Sales Budget Sales Forecast Production Ordered Contribution Margin
2022 Started R&D
2023 $38.00 $1800 $1500 1300 1 29%
2024 $42.00 $1000 $900 200 200 35%
The tables show the product price, promotional budget, sales budget, sales forecast, production ordered, and contribution margin for each product each year.
In 2022, the difference between accounts receivable and accounts payable was a net income of $1,113. In 2023, this dropped to $219 and then we had a net loss of $390 in 2024. Due to the issues with production and capacity and carrying either too much or too little inventory, the debt increased significantly in 2024. In 2022 – 2023 we carried very little debt.
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Financial Performance
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Year Net Profit (loss) Sales Inventory Costs Dividends Paid Sales of common Stock Emergency Loan Cash Percentage
2022 $2,358 $49,155 $1,813 $1,045 $1,000 $0 36.6%
2023 $1,449 $38,444 $12,972 $0 $0 $767 0%
2024 ($1,230) $31,931 $30,097 $0 $2,000 $17,225 0%
This table provides an overview of the financial performance for the entire company from 2022-2024. R&D expenses, marketing expenses, and production were all funded by sales and stocks initially, but in 2023 and 2024 the emergency loan helped to cover the expenses as well. No bonds were retired, nor did we buy back any stock.
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Strategy Recap
Broad differentiator
Keep existing product line, introduce at least one more product, offer customers products that match their ideal criteria for positioning, age, and reliability.
Spend aggressively for promotion and sales, customers need to know about our excellent designs and make products accessible to customers. Price at a premium.
Grow capacity to meet demand, investigate modest increases in automation levels to improve margins.
Finance investments primarily with stocks and cash from operations, adverse to debt and prefer to avoid high interest loans. Keep assets/equity (leverage) between 1.5 and 2.0.
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This strategy will be beneficial in the long term, and we have met some of the objectives, such as adding a new high-tech product, spending aggressively for promotion and sales, pricing at a premium, and modest increase in automation.
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Summary and looking ahead
GOAL: Increase sales and profits to eliminate emergency loan
Immediate action:
Inventory management
Accurate forecasting
Capacity changes
Middle:
Increase automation
Increase TQM initiatives
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2022 was a successful launch year and provided valuable insight on the sensor industry and its market. In 2023 and 2024 there were some missteps and communication issues that led to poor management of inventory, trouble forecasting, and inefficient capacity changes that will all be addressed. Our top priority and main objective is to increase sales and profits to eliminate the emergency loan. Immediate action will be needed on inventory management, accurate forecasting, and capacity changes. Once those issues have been resolved, we will address our automation and try to increase it and invest in TQM initiatives to support our previous efforts. In 2025, we expect an overall upward trend. We will align our products will customer expectations and reposition ourselves as a top competitor in the market. Our efforts will be seen and measured by the sales, profits, and gradual elimination of the emergency loan.
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References
Capsim Foundation. (2021). Capsim Management Simulations, Inc. Retrieved from https://ww3.capsim.com/student/portal/index.cfm?template=reports
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