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Trade & Commerce

Trade & Commerce. EUE43E ‘Understanding Business’ Robert J. Williams. Introduction to ‘Understanding Business’. Following this session you should understand: What this module is about & how it will operate How you will be assessed Your module timetable

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Trade & Commerce

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  1. Trade & Commerce EUE43E ‘Understanding Business’ Robert J. Williams

  2. Introduction to ‘Understanding Business’ Following this session you should understand: • What this module is about & how it will operate • How you will be assessed • Your module timetable • Why we are using a Business Simulation • How the Business Simulation operates • What you need to do to get started?

  3. Using financial information effectively Understand accounts Analyse & interpret financial information Evaluate financial performance Report on financial matters Financial planning Identify sources of finance Collect, analyse & present financial data Identify appropriate methods of presentation ‘Understanding Business’

  4. ‘Understanding Business’ • Financial control systems • Identify key financial indicators • Recommend action • Making financial decisions • Relate to specific business functions • Consult & communicate • Appraise financial consequences & make decisions

  5. Assessments • See Handout • Assignment 1 – Team Presentation (40%) • Assignment 2 – Individual Report (60%) • Use Assignment Cover with your details

  6. Your Teaching & Learning Schedule...

  7. The Formula One analogy forlearning Business Management?

  8. The Formula One analogy forlearning Business Management?

  9. Teams?

  10. Teams & Competitive Structure

  11. Simulation Briefing – e-Decisions: Periods 2+? HTM508 11

  12. Simulation Briefing… • £400,000 personal share capital @ £1/share • £300,000 invested in “fixed capital” (fixed assets) • £180,000 for factory (non depreciating) • £120,000 for machinery & equipment depreciated straight line £4,000 per period • £100,000 available for “working capital” to carry out trading activities i.e. run the business

  13. Introducing Gema & Lucy...

  14. Raw Material Stocks Production line 1 Production line 2 Gema Lucy Finished Goods Stocks Finished Goods Stocks Market Gema - price - advertisements Market Lucy - price - advertisements Customer (debtor) Pays 2 mths later (credit given 1 period) Customer (debtor) Pays 2 mths later (credit given 1 period)

  15. Simulation Briefing • Production accounted for over decision periods that equate to 2 months (8 weeks) of trading i.e. 6 periods per year • You & your team set up the company from scratch & play for 6 periods (i.e. 12 months of simulated management of your trading company) • Competitive Market Structure: • Market 1 - Teams 1 to 5 • Market 2 - Teams 6 to 10

  16. Maximum share value after 12 months (6 periods) of trading Factors affecting share value: Accumulated profits/losses to that date Market share (%) Borrowing in excess of £150,000 at that date (i.e. high gearing/leverage) Simulation Briefing - Management’s Objectives

  17. Business Simulation Share Prices Prague Gp A- 2009

  18. Business Simulation Share Prices Prague Gp B- 2009

  19. Business Simulation Share Prices – Euromaster 2006

  20. Business Simulation Share Prices Euroman5 - 2008

  21. Business Simulation Share Prices Euroman6B - 2009

  22. Simulation Briefing – Decisions: Period1 only?

  23. Simulation Briefing – e-Decisions: Periods 2+?

  24. Simulation Briefing – Decision 1: Team Name?

  25. Very important Period 1 Decision Business Simulation Production Process 400,000 shares @ £1/share = £400,000 share capital £300,000 Fixedcapital £100,000 Working capital Raw Materials (plastic granules) Premium £360/1000 kg immediate delivery immediate payment no order cost Basic £150/£300?/1000 kg delivery + 2 mths payment + 2 mths after (credit) £1,000 order cost Raw Materials Stocks

  26. Simulation Briefing –Products & Market Research Product Wholesale Price Market Forecast £’s/doll 1 Gema Doll £1.50 50,000 dolls/period 2 Lucy Doll £2.50 30,000 dolls/period Estimated total market = x the no. of teams in the marketplace. i.e. x 5 = 250,000 Gema /period x 5 = 150,000 Lucy /period • Unsatisfied demand re-distributed to competitors

  27. Simulation Briefing – Materials & Labour Manufacture up to 2 products (dolls) Product Material Labour kgmins Gema 0.25 8.00 Lucy 0.333 12.00

  28. Simulation Briefing –Decision 2: Materials? • Premium materials @ £360/tonne, all delivered in period ordered and paid in period received; no order cost… and/or • Basic material sourced at start of simulation at £150 - £300/tonne with variable delivery reliability? • Basic material ordered 1 period ahead of when needed and paid for 1 period after received; order cost £1,000 per order • Basic material costs 2% of average value to store • Basic material not received is on back order

  29. Simulation Briefing - Labour • Recruited / made redundant 1 period ahead • 40 hr working week (max. 10 hrs overtime /week/operator) • £4.00/hr & £6.00/hr overtime • Labour efficiency @ start 85% (34 effective hours) but… • Employing extra reduces efficiency • Redundancies reduce efficiency • Can only change number of operators by + or – 50% in any period • 1 supervisor @ £6.00/hr needed per 10 operators (or part thereof) – do not need to be ordered & no overtime

  30. Simulation Briefing – Decision 3: Labour? • Operators available in period (ordered previous period) need to be allocated to one or other production line. • Other manufacturing ‘overhead’ costs: • Machine depreciation: £4,000 • ‘Other’ production costs: £10,000 + £1/op.hr • Other business ‘overhead’ costs: • Administration costs: £10,000 + £1,000/supervisor • Warehousing costs: 3% average opening & closing Finished Goods Stock

  31. Simulation Briefing – Decision 4: Finance? • Economic environment no inflation • Overdraft interest rate 2%/period (12% APR) max. £50,000: £5,000 penalty if exceeded • Flexible term loan interest rate 2.5%/ period (15% APR) – no restriction on borrowing • +ve cash balance needed in bank account at start of period before loan can be repaid • Borrowed & repaid in multiples of £10,000

  32. Simulation Briefing – Decision 5: Marketing? • Either or both dolls? • How many can you expect to sell? • What price & what is price elasticity of demand? • What advertising & what is advertising sensitivity? • 70% period placed & 30% residual • effectiveness reduced if price changes • effectiveness reduced the more used • Unsatisfied demand shared with competitors

  33. Simulation Briefing – Decision 6: Research Information? • What is the market doing? • What are your competitors doing? • How well are they doing? • Competitors pricing information available free

  34. Resources Available to You – 1 • Module Timetable – will agree decision times (critical) • Module Assessment – see handout & online • Business Management Simulation Manual (B.M.S.M.) • ‘Bosscat Player’s Notes’ Chapter 1 (pages 6 - 12) • ‘Financial Accounts’ Chapter 2 (pages 13 - 24) • *’The Bosscat Accounts’ Chapter 3 (pages 25 - 38) • *Appendix 3 - Example Results Period 3 (pages 44 – 47) *cross referenced • Appendices 1 & 2 Decision Sheets

  35. Resources Available to You - 2 • Useful Textbook - McLaney, E. & Atrill, P. 2002. Accounting: An Introduction. 2nd ed. Prentice Hall, Hemel Hempstead. • Optional Textbook - Pindyck, R. & Rubinfeld, D. (2009). Microeconomics. 7th Edition. Pearson Education International. • Online Business English/Czech translations • Decision Sheets Period 1 available as paper copy • Decision Sheets for Periods 2 and after(P2+) available electronically online

  36. Teams & Competitive Structure 36

  37. Revised Teams

  38. Getting Started 1 Elect a Team Leader TeamLeader - responsibility for operational issues for your team: Give your team a Name? Team Leaders to e-mail these to me at: rjwilliams@plymouth.ac.uk‘Subject’ eg “Team 2? Name is ‘Devine Dollz’” post e-decision sheets (2 +) on time - as e-mail attachments (see teaching & learning schedule) Late decisions excluded Results e-mailed back to Team Leader keep your own e-file of all Decisions (D) & Results(R) for your Team 38

  39. Getting Started 2 • Now... • ‘Business Simulation Complete Budget Sheet’ • ‘Business Simulation Trend Analysis Data Sheet’ • At end of simulation... • ‘Business Simulation Inter-firm Comparative Analysis Data Sheet’ (but completed with Period 6 Data for all teams in your market) • All Team’s in your market’s results for all periods

  40. Getting Started 3 ......think about what you can do to develop a “Competitive Advantage” and consider what are likely to be the “Critical Success Factors” that you must get right if you are to be the most successful company? Set yourselves some: aims - guiding principles relating to how you want to see your business run (may need to be flexible) objectives - approximate targets over time relating to achievements 40

  41. Getting Started 4 …get your decision support spreadsheetsorganised as soon as possible… using my basic templates to get you started Experiment a little to see how the business responds to different tactics? 41

  42. Getting Started 5 • Make 1st set of decisions (D1) on paper ‘Decision SheetPeriod 1 only’ and get checked out by me before 14.00 in here today? • Seek clarification - if needed? • Follow guidance in Teaching & Learning Schedule • Read the Business Management Simulation Manual – Chapter 1: PLAYERS NOTES

  43. Bosscat Decision Sheet – Period 1 only

  44. Bosscat e-Decision Sheet – Periods 2+ 44

  45. Getting Started 5 Questions?

  46. ‘Understanding Business’ The End Robert Williams

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