If you landed here you are most likely enrolled in a class that is running the Capsim business simulation software. Capsim can be a lot of fun but it is multifaceted and understanding all of the intricacy’s is tough. To make it more confusing there are 1000s of webpages claiming that they have the secret recipe when in reality there is no one perfect strategy.
TQM can play a big role in your success with Capsim and if overlooked will give the competitive advantage to your competition. I will try to keep conjecture to a minimum and show actually numbers from our simulation.
all figures are in 1000s
First Know the Rules
- More than $1500 in any category in one round will give you diminishing returns. You will still see a benefit from more investment but not as significant as the first $1500
- After $4000 total in any one area additional funds in additional years will result in diminishing returns
- For an initiative that offers great benefit the optimum investment by round would be $1500+$1500+$1000
- Any investment less than $500 will not result in a meaningful benefit
- Advantages gained are cumulative and will carry over to the following year.
TQM has ten initiatives that you can invest in. Each initiative helps in one or more of three general categories.
- Reduce Cost
- Speed Up R&D
- Increase Demand
Finally the Tips and Tricks
- Your instructor may suggest you do your TQM first however we have found it much better to do at the end just before the financing step. This makes sense as you then see how your expected net profit will be affected on the income statement by your TQM choices. Once your forecast your worst case scenario this allows you to finance your cash buffer taking into account the benefit or cost of the TQM choices.
- In the simulation it is extremely easy to see what impact a change will have on your bottom line. Save your original decision and have one person keep it open on their laptop. If you are doing the sim solo print out your income statement. Change each value one at a time in TQM to the maximum of $1500, save your decision and check out your income statement. The changes you made will be reflected most importantly in net profit. Remember initiatives that reduce cost may increase your net profit however items like “Concurrent engineering” will lower your net profit because of the cost but will enable you to bring your products to market quicker. (Much Quicker)
- Items that increase demand are hard to calculate ROI because there are so many factors like accessibility, awareness, positioning, and price that convolute how the sim is calculating an increase in demand. In the graphic below you can see an example of how much reported increase we saw in demand at a given level of investment
- After you adjust an R&D initiative go to the R&D tab and see how it has affected your revision dates. Many times it will allow you to make larger changes to get closer to the ideal position in a more reasonable amount of time. This can make the difference between having a product in the sweet spot for 9 months of the year or only 3.
- If you adjust initiatives that affect cost and are not impressed by the change in the net profit on the income statement head over to the production decisions menu. You may now see a significant increase in your contribution margin. If this is an area that you have been struggling with spending TQM dollars to better a contribution margin can be a useful tool.
- It has been observed that the computer based teams tend to spend conservatively on TQM. First round spend for the four computer teams in our sim was exactly $3750. Our first round spend was $12000. You can see the actual resulting benefits of this below.