Getting Hands-On With a Manufacturing Company

My team and I were working on a business simulation over this semester. The situation required us to turn a manufacturing company around. They were in the dinnerware industry. It was pretty interesting since it will be a while before I ever get a chance to run a real company. With this said, I would like to show you guys how my team and I approached this.

Our beginning mission was to have the company turn around as soon possible. Our long term goal was to make the company as profitable as possible, while expanding in capacity and selling a high end version of our product.

During this simulation, the stakeholders were basically my team and I, since we were graded on our performance and how we ran the company. This was determined by factors such as our stock price, return on investment, sales growth, retained earnings, credit rating, earnings per share, current ratios, and debt to equity. They impact our strategy in terms of how we would prepare the company a certain way whenever we were evaluated I feel. The earnings would look a lot better whenever we were graded upon.

Looking at the Porter’s Five Forces, the dinnerware industry has its ups and downs. As we competed amongst 6 other groups, the rivalry seemed average. This was because there was a feeling that this industry is up for grabs and as long as you make the right moves, it can easily be yours. However, at some point of the simulation, earlier decisions you’ve made can come back to haunt you. Looking at the threat of suppliers, I would say that it is from medium to high. This is because one really doesn’t have a choice between several buyers, but as long as you planned for the future and buy at the future price, you are getting a better deal than paying the spot price. Next, the threat of buyers seems to be low to medium because there were firms that sold their products for a higher price than the rest and was still able to sustain high earnings. Offering your product for a low price also seemed to work and this worked out for my firm several times. The threat of substitutes seems to be medium since the customers always have a choice and our sales ranges different according to the market conditions. The threat of new entrance was not a factor in our simulation, but if we disregard that, the industry depends on capacity and capital is something the new entrant must have coming into this industry. They would be competing against firms that already have the capacity to breakeven much quicker than the newbie. With that said, the industry is somewhat attractive, because as long as you have the capital and the right mind set for running your firm, you have a chance to be at the top. There was however some discrepancies with the economic index for the next quarter and one’s pricing. The forecast might be wonderful, but making the price of your product higher may not result in better payback from your sales.

During the beginning of our simulation, we were really focused on our product and selling it, more than expanding our capacity. We spent a lot of our resources on advertising and paying our employees. What puzzled us was that our sales weren’t as high as the first time we raised their commission and salary. Our products did not pick up even when we spent so much on advertising, quality control, R&D, and engineering. We thought that by marketing and selling high, we would develop a competitive advantage. We even lost a sales person as our sales began to plummet, which was quite puzzling since we didn’t know what went wrong. We gave them a pretty high salary, along with a good commission. At the time, we were so caught up with our situation that we fell behind with adding new capacity.

We had lagged behind on adding capacity, but eventually we caught up, and were able to take advantage of the new capacity and implement our pricing plan. Some of the ways we tried to attract the market to our firm was by lowering our prices while trying to provide a quality product. We had a more balanced attack this time focusing on avoiding overtime and subcontracting while advertising aggressively. There was definitely a jump in our sales and it worked out pretty well for parts of our second year.

To evaluate our firm, I felt that we could’ve done better. There was a lot of trial and error that we went through that could’ve been avoided had we been more careful. Our ignorance for going overtime and subcontracting really killed us at the expense end. I was glad that we followed through with what we wanted to do and was able to pick up on our mistakes and quickly turn things around. There were a lot of ups and downs for us in terms of earnings and how we viewed the markets. If we were given a chance to continue the simulation or a chance to start over again, my focus would be on capacity and a better control on our expenses. There were a lot of things we over spent on, in the beginning which decreased our earnings. Some other things that I would’ve done different is our forecast for the next quarter and also get a better understanding of the economic index.

With all that said, this was a great experience. Being able to put together all the things that we learned over these several years, and trying to implement them in a business of our own without losing any money was pretty cool. It is a chance to look at the bigger picture that we will not get at the start of our careers, but hopefully something we will come upon later on.

Why so many failures?

Businesses come and go, but that’s not a surprise. Especially when a majority of the businesses that entered at the start of the year, leaves at the end of the year. But there are stores and companies out there that we never expected to pack their bags and leave, yet they do. Does anyone remember “The Wiz?” “Nobody can beat the Wiz,” or so it might have been. That store has been around since I was a kid and I was surprised it failed. The same goes for Sharper Image, whom recently filed for Chapter 11 bankruptcy. The business has been around since 1977 and they have stores in many of the malls in the US. If you search the web, there are probably many different opinions of why they failed. It would range from the decline of sales, competition, economy, anything goes. However, these things could’ve been predicted by how Sharper Image has been functioning even if you didn’t look at their financial statements.

Here are some of the so call “symptoms” of Sharper Image’s failure:

Too much diversification: Products sold to several unrelated customers/markets – When a company’s product targets the wrong type of customers or market, they usually don’t last long. Why? They won’t get enough sales. This is a simple implication of a failing business, but who would’ve thought this would happen to Sharper Image? As you walk by the store, or even go into the store, there are usually many customers, well, potential customers anyway. Sharper Image’s products can be pretty cool I admit, but people go in there usually to play with the products more than purchasing them. The price range is another factor that pushes their unique products away from consumers. Some people even claim that the only people lining up to the register most of the time are tourists, more than local customers. If your store is targeting the wrong customers, no matter how cool your products are, they will not help your business succeed.

The company does not have much product variety compared to competition – When companies are too focused on one or two of the products that they are selling more than everything else; they are bound to hit obstacles sooner or later. Sharper Image has been known for their Ionic Breeze Air Purifier, which has been turned against them by lawsuits. It is one thing if your product is out of style or the trend is heading another way, but when it is being sued and you have to recall your product, that’s suicide. How many other things can one recognize from Sharper Image besides their purifiers? Their massage chairs? Trump’s Steak? Their other electronics aren’t much of a sale since customers can buy them else where with a better selection and probably at a cheaper price. That was what hurt Sharper Image the most; counting on their purifiers, massage chairs, and Trump’s Steak. Going back to targeting the market, their products are sometimes just targeting a risky portion of the market.

Shaper Image is a wonderful store. They have great ideas and innovative products. But when you start counting on things that aren’t a necessity in a consumer’s life and aren’t backed up by anything else, it can be a hard business to sustain. The lawsuit was another factor toward their road to bankruptcy, but this was also because Sharper Image did not have another product to pick them up or be their cushion. I’m not saying that selling innovative products or high end electronics will set a business toward failure, but when there is no backup plan, it is hard to pick up the business if they hit obstacles such as the purifier situation. For Sharper Image to recover, they would need a new and amazing invention or a better way to attract customers. Since the economy plays a great factor, if Sharper Image keeps pushing the same strategy, their products will only be going against the current.