DIABOLO OnLine Take control of your company ! PARTICIPANT WORKBOOK SUMMARY… 1 - INTRODUCTION .......................................................................................... 1 1.1 –Educational purpose ................................................................................... 1 1.2 – Global overview of DIABOLO ..................................................................... 1 1.3 – DIABOLO in practice.................................................................................. 1 2 -THE COMPANY ............................................................................................. 2 3 - THE COMPANY’S RESOURCES ................................................................ 3 4 - YOUR MANAGEMENT TEAM ...................................................................... 4 5 -YOUR OPERATIONAL DECISIONS 6 - THE BUSINESS ENVIRONMENT ............................................................. 5 ................................................................ 7 6.1 – Economic outlook.................................................................................................................. 7 6.2 – Competition ............................................................................................... 7 6.3 – Company background................................................................................. 8 6.4 – Income statement for the last quarter........................................................10 6.5 – Current financial situation .........................................................................11 7 - DEVELOPMENT PATHS .............................................................................12 8 - PRACTICAL INFORMATION ......................................................................14 8.1 – Call for tenders..........................................................................................14 8.2 – Investments ..............................................................................................14 8.3 – Loans ........................................................................................................14 9 - YOUR STRATEGY ......................................................................................15 10 - MANAGEMENT TEAM DECISIONS …………………………….……. ..........16 11 – YOUR DECISIONS SCREEN ...................................................................17 V.03/20 The DIABOLO OnLine Business Game was created by IPAJE (Philippe Prévost, Michel Leroy and Gérard Deroulers). Any reproduction of this document, even partially, without prior authorisation from the authors is strictly forbidden. I.P.A.J.E. – www.ipaje-business-games.com – [email protected] DIABOLO BUSINESS SIMULATION 1 Introduction 1.1– EDUCATIONAL PURPOSE You will form a team to participate in an economic adventure consisting in managing a company through several years, in a competitive environment. This experience should allow you to get a “feel” for the strategic management of a business (forecast, anticipation, risk taking, arbitrations and joint decision-making) to understand the importance of the different services of the company in order to achieve its strategic goals. 1.2– GLOBAL OVERVIEW OF DIABOLO During the DIABOLO business simulation, you will be a spring water company, marketing and selling your production in a variety of forms (still water, sparkling water) in a fierce and competitive environment. You are part of the management team of this company, which is competing with other companies which are, at first, exactly identical to yours. Your mission will consist in leading the company to its next Shareholders’ General Meeting. 1.3– DIABOLO IN PRACTICE After having analyzed your situation and once your strategic choices are done, your team will take its operational decisions on the web-based Diabolo Online interface. Our software will simulate the demand, and will deliver your results and those of your competitors. The « decisions – results » process represents a period, ie a quarter of activity. Your company will thus live several quarters until its next Shareholders’ General Meeting. 1 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 2 The company The company, located in the middle of the moutains, will benefit from two water sources: one still water source and one naturally sparkling water source. The water is directly taken from deep groundwaters, then sent to your factories to be bottled: one factory for still water, and one for sparkling water. ‘‘ Our spring water is naturally preserved! Clients enjoy the seriousness of our company and our products’ quality. Over the past year, we have been able to build a real relationship of trust with our clients and local retailers, who are happy to find a proper alternative to famous brands, which do not allow them to earn enough money. . Our products are present in several major food supermarkets in a 150 km area. Our latest Management Comittee identified several business ideas, which we will explore very soon. says the company’s CEO. ‘‘ 2 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 3 The company’s resources FINANCIAL RESOURCES Share capital 4 000 000 € (4000 shares of 1000 €) Bank loans 2 000 000 € Financial resources, total 6 000 000 € TECHNICAL RESOURCES You have acquired 2 factories estimated at 5 000 000 € total 1 factory (called “Plate1”) dedicated to the « Still Water » range 1 factory (called “Gaz1”) dedicated to the « Sparkling Water » range Worth: 3 000 000 €, depreciated over 10 years Worth: 2 000 000 €, depreciated over 10 years Production capacity: 20 000 pallets in 3 months Production capacity: 12 000 pallets in 3 months STOCKS: As your production system is very specific, you do not store your products. Your just-in-time based policy with your PET bottle suppliers allows you not to store any raw material. PRODUCTION: the number of pallets produced depends on the efficiency of your sales team: you only produce what you will sell. DISTRIBUTION: distributing your products in supermarkets has a cost: investment charges, in the form of financial holdings in local stores of 100 000 €. In case of withdrawal from this distribution network, only 50% of your investments will be given back to you. HUMAN RESOURCES You hired 8 administrative employees, with a long-term contract. These people are “non-productive”. 5 administrative employees working in the «Still Water Plate1 » factory 3 administrative employees working in the «Sparkling Water Gaz1 » factory Production staff has fixed-term contracts, This production staff is hired depending on your needs (linked to your clients’ demand for your brand). Today, 11 production employees are working for the «Still Water Plate1 » factory Today, 7 production employees are working for the «Sparkling Water Gaz1 » factory 3 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 4 Your management team Your team is the new management committee of your company. Each one of you will pick one of the following roles: Chief Executive Officer (C.E.O.) Role: Managing the team. Strategic choices determined with the Management team. Leads and runs the management comittee. Key indicators: Depends on the strategy of your company. Chief Human Resources Officer (C.H.R.O.) Functions: Wage policy; social climate; Negociations with staff. Key indicators: Chief Financial Officer (C.F.O.) Role: Analysing the economical performances of your company (income statement, balance sheet). Plans your financial investments. Key indicators: Net results, profitability level, production costs, full cost accounting... Production Quality Manager Functions : Optimising production tools. Key indicators: Products quality, factories performances. Staff productivity. Commercial Department Functions: Deciding on the commercial strategy (selling prices, advertising expenses, commercial expenses) Key indicators: Sales, market shares, supply/demand adequacy 4 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 5 Your operational decisions Each period will require you to make decisions and determine… Your production decisions: and quality «Consumers are looking for hygiene and safety guarantees. But consumers are also looking for ecological and regional values, especially from local producers». «Consumer surveys clearly indicate that most people are drinking bottled water because they are convinced it is clean, pure, and noncontaminated. » Your Production Quality Manager can modify several parameters in order to take these elements into account: The technical effort dedicated to each factory (budgeting installation of internal laboratories to ensure daily quality control throughout the packaging chain) The Quality and R&D budget : this is a global Quality Insurance process to obtain the ISO9001 and HACCP certifications for both factories. Packaging innovations can also be studied by this department. Your marketing decisions: « We will do our best to meet the consumers’ demands and retailers’ wishes » the Sales Manager declared. To do so, he can use the standard mix marketing operating levers: Sales prices for each range of products: it is the price “per pallet » for your retailers, determined for a 3-month period. The company advertising budget, including all your products. Allows you to increase the popularity of your brand. Your budget does not give you access to TV advertising, but 4x3 billboards advertisements are possible. The commercial budget for each range: it allows you to focus your commercial efforts via very specific operations such as POS display (point of sale display), discounts (“15% of free product”, couponing), aisle head display offers, etc... Caution: All companies are on equal terms at the beginning of the competition. Consequently, they are considered identical by customers and retailers: “mid-range” quality, “average” popularity, satisfying value for money ratio. As all prices are equal, it is up to you to choose your positioning: low-end, middle-end or high-end. At the beginning, your price for sparkling water allows you a better margin than the low price for still water. You will discover, at the end of each period... • Your BUSINESS ACHIEVEMENTS: Market shares, competitive position, sales per product, competitors’ rates, competitors’ advertising budget... This gold mine of information will be analysed by your Commercial and Marketing department. • Your QUALITATIVE ACHIEVEMENTS: Your “technical image” and “quality image” will build up over time. However your Production Quality Manager will know every quarter if his efforts bear fruits. Moreover, he will be able to keep an eye on your competitors’ budgets available via market studies, and draw the appropriate conclusions from this information. • Your FINANCIAL ACHIEVEMENTS: Your income statement is the direct consequence of your business achievements. 5 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION Your income statement will mention your REVENUES : • “Sales on markets” (these are your current still and sparkling waters sales to supermarkets) and “Sales from tenders” (in case of a successful tender) Sales revenue = number of pallets sold x unit price • Interest income Your cash (money on deposit in the bank) is automatically placed and earns interest which are automatically calculated from your cash position. Your income statement will also mention your EXPENSES : « Purchase of raw materials»: Purchase of components required for bottling and packaging water, per pallet: 30 € for still water and 45 € for sparkling water. Staff: The administration staff is permanent and represents your Administrative staff wages. The production staff is temporary (fixed-term contracts), hired according to your needs: orders placed by your sales agents. They represent your Production staff wages. You will determine the wage of all your employees by using a wage index currently set at 100, which corresponds to an average wage of 25,000 € a year, 6,250 € per period. An 101 index indicates a 1% salaries increase for all your employees. A fixed index from one period to another indicates there has been no increase. Operating equipment: Plant-related fixed costs: these are permanent factories expenses (1% of their gross value), with a 3,000 € extra every 10,000 pallets sold. Depreciation expenses: this is about determining, in accounting terms, the depreciation in value of your factories. Your factories will be depreciated over 10 years (40 periods). For each period, 1/40th of the value of your factories will be charged as expenses. Technical, quality and R&D budget: This is the sum of your expenses in technical efforts budgets for your factories, and Quality and R&D budget for your whole range of products. Marketing costs: Market study: costs charged by the research company for providing you with prices and competitive information useful to your Commercial department. Selling expenses: these charges are caused by referencing your products in supermarkets... There are also costs for other distribution channels. They are product-related: sparkling water is more expensive than still water (4% of your sales revenue instead of 2%). Advertising and commercial budget: the sum of your advertising budgets on every distribution channel, and commercial budgets on every product/market couple. You will also be charged loan interests (loan-related interest expenses) and other interest (agios in case of overdraft). If you have obtained a positive “Net income before tax”, income taxes representing 33% of this amount will be charged by tax services. And finally, you will get the bottom line of your income statement, the “Net income After Tax” (NAT). 6 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 6 The business environment 6.1 – ECONOMIC OUTLOOK Please keep an eye on your mailbox (at the top right corner of your screen). You will receive an “economic newsletter” during almost each period: this will give you the main economic information of your sector, market trends indicators, economic and social movements, policies of the main economical actors of your sector (competitors, retailers etc.) … More information can also be sent to your mailbox. 6.2 – COMPETITION Three key elements will determine how attractive is your company with consumers: Your prices, The notoriety of your brand, The quality of your products. Your competitors (other teams), identical to your company, also are in the starting blocks: • IDENTICAL RESOURCES: • IDENTICAL BUSINESS SITUATION: • Same company experience (1 year) and starting capital, Same product (« local » spring water), same ranges of products (still and sparkling), Same kind of bottling factories (one “Plate1” and one “Gaz1”), Same number of employees… Same distribution channel (local supermarkets), Same selling prices, Equal market shares, Same corporate image… IDENTICAL FINANCIAL RESULTS: Since you all have the same sales revenue and production costs, your financial results will be strictly identical. 7 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 6.3 – COMPANY BACKGROUND The management team took several decisions throughout the first year (4 periods): «We are taking major steps forward» CEO interview in economic newspapers. MARKETING DECISIONS: Selling price to supermarkets (per pallet) Still Water Sparkling Water Per.1 Per.2 Per.3 Per.4 Per.1 Per.2 Per.3 Per.4 45 € 46 € 48 € 49 € 75 € 76 € 78 € 79 € Commercial budget per range of product Still water Sparkling water Per.1 Per.2 Per.3 Per.4 Per.1 Per.2 Per.3 Per.4 40 000 € 40 000 € 45 000 € 40 000 € 40 000 € 40 000 € 50 000 € 40 000 € Advertising budget on Supermarkets channel All products concerned (Still water and sparkling water) Per.1 Per.2 Per.3 Per.4 50 000 € 50 000 € 50 000 € 50 000 € PRODUCTION AND QUALITY DECISIONS: Technical efforts per range of product Still Water Factory Sparkling Water Factory Per.1 Per.2 Per.3 Per.4 Per.1 Per.2 Per.3 Per.4 40 000 € 40 000 € 40 000 € 40 000 € 40 000 € 40 000 € 40 000 € 40 000 € Quality and R&D budget All products concerned (Still water and sparkling water) Per.1 Per.2 Per.3 Per.4 40 000 € 40 000 € 45 000 € 45 000 € 8 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION … here is the evolution of your commercial and financial results over the last year (4 periods): Your sales over the last period (number of pallets)... Still Water Sparkling Water Per. 1 Per. 2 Per. 3 Per. 4 Per. 1 Per. 2 Per. 3 Per. 4 19 162 18 978 18 750 18 367 11 760 11 486 11 538 11 392 Sales performance 1st period 2nd period 3rd period 4th period 1 year total return 1 744 290 € 1 745 924 € 1 799 964 € 1 799 951 € 7 090 129 € Evolution of EBIT (Earnings Before Interest and Taxes) 1st period 2nd period 3rd period 4th period 1 year total return -11 588 € 8 010 € 44 918 € 77 930 € 119 270 € Evolution of NAT (Net Result After Tax) 1st period 2nd period 3rd period 4th period 1 year total return -46 588 € -20 717 € 17 873 € 51 614 € 2 182 € ... and here are the results discussed by the operation managers during interviews in professional journals. In “Marketing News”: "The demand is encouraging!" the sales manager declared. "We clearly represent a credible alternative for supermarkets looking for a healthy, safe, and quality product, which sells well and allows for good margins. Concerning our competitors, it is clear that our niche is a bit crowded these days. I would even say this market area is congested! But some of our competitors must expect to suffer in the coming months." In “Plants & Factories”: "We have just obtained the approval of the Ministry of Health for the composition of our polyethylene terephthalate chips with which we inject and blow our bottles. We are also very proud of our new controlled atmosphere and hygiene rooms. The atmosphere in these rooms is filtered and over-pressurized so as to preserve the bacteriological quality of our source water. The bottles are immediately sealed, labeled, and gathered for conditioning. We have an exceptional production tool, but it is close to its maximum capability", explains the quality and production manager “Our staff, be they permanent or temporary, is fully involved in the company's success. Our productivity is satisfactory.” the HR director tells us before meeting with the trade unions, who demand that the salaries of every employee be increased by several salary index points. The salary index has remained at 100 since the creation of the company. « The financial results are in a reasonable range according to our budget targets. They will reassure our shareholders. But it is clear that the intensification of the competition that the experts have foreseen in our business will have a negative impact on these results. I can say without a doubt that our competitors will suffer most from the announced battle" warns the Financial Director during an interview for a financial website. 9 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 6.4– INCOME STATEMENT FOR THE LAST QUARTER EXPENSES REVENUES Sales breakdown Répartition des in en value ventes valeur Purchase of raw material Thanks to the experience effect and the purchased volumes, the unit Eau Sparkling water gazeuse 50% 1 061 523 costs are slightly under the forecasted 30 and 45€. Eau Still plate water 50% Sales on markets 1 799 951 Production staff wages Productivity = 1800 pallets per employee per quarter, which equals to 18. Average charged salary = 6250€ / period. Plant-related fixed costs = 1 % of the gross fixed assets +3000€ extra every 10000 pallets sold 112 500 Sales breakdown in volume 59 000 Sparkling water Selling expenses 2 % of the still water turnover and 4% of the sparkling water turnover. Administrative staff wages (5+3) employees at 6250€ charges included Advertising and commercial budget 53 998 50 000 Eau 38% gazeuse 38% Stillplate water Eau 62% 130 000 62% Technical, quality and R&D budget 5 000 125 000 Depreciation 125 000 Market study 5 000 000 € depreciated over 40 periods Interest on loans (first loan interest rate: 7%) Income taxes 33 % (+carry over of losses from previous periods) Net income after tax 29 750 1 075 51 614 Interest income 4 510 Your money in the bank earns a 3% interest 1 804 461 € 10 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 6.5– CURRENT FINANCIAL SITUATION COMPANY OPENING BALANCE SHEET ASSETS LIABILITIES Gross fixed assets 1 plant worth 3 000 000 € + 1 plant worth 2 000 000 € Financial holdings (investment in the supermarkets distribution channel) Cash 5 000 000 4 000 000 Share capital (4000 worth 1000€ each) 100 000 900 000 2 000 000 Long term financial debt (loan = 2 000 000 € over 20 periods, granted with a 7% interest rate) 6 000 000 € BALANCE SHEET NOWADAYS ASSETS LIABILITIES Shareholders equity = Net fixed assets 2 plants worth 3 000 000 €+ 2 000 000 € (gross fixed assets) after deduction of four 125 000 € depreciations Financial holdings (The supermarkets distribution channel investments are non-depreciable assets) 4 500 000 4 000 000 Share capital + 2 183 100 000 Accumulated retained earnings Long term financial debt Receivables (60 % of your clients pay you in the following period) 1 600 000 1 079 971 743 066 Cash 665 279 (amount of the outstanding loan after the first 4 quarterly payments. = 2 M € - 4 x 100 000€ = 1.6 M€) Payables (70% of the value from the purchase of raw material are paid during the following period) 6 345 249 € 11 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 7 Development paths Internship report extracts by Sandrine W., Intern consultant at GEOSTRAT.net "The company operates in the market segment of regional source water. The end consumer considers the famous "value for your money" as important, as well as the image of health and well-being that the brand created. But he is also attracted by more personal elements, such as the brand, its story, the values it represents... In short, the image that this young company succeeded in creating." "Today, this niche is starting to get a bit crowded, to the point that some have said it was "congested" (quote from my Sales Manager in “Marketing News”)." "Furthermore, if management is willing to prevent head-on competition with other local competitors, and considering the huge resources of the industry's mega-providers (Danone, Nestlé), two pathways seem possible today." The first pathway is a new product: flavoured water." The segment of flavoured water has experienced a double-digit growth over the last 3 years. There is some space left in this segment, especially for a small business like ours, whose reduced size allows to launch projects quickly, and thus seize market opportunities as soon as they arise. Experts have valued this market at one third of the still water market." "A new packing chain would then be required. The investment amounts to € 1.6 million for a capacity of 8000 pallets/quarter. This plant has three permanent employees." "The specific costs for this product are higher than those of existing products: the "raw materials and packaging" amount to € 40 per pallet. Indeed, the choice, selection, and incorporation of natural flavours induces higher production costs as compared to regular still water. Furthermore, selling expenses are high: they amount to 7% of the turnover. Shelf space is becoming a rare commodity, and supermarkets bring pressure on producers to obtain such a percentage. Finally, the financial entry ticket to obtain the placement of this new reference by our distribution partners costs 50 000€.” […] 12 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION […] « The second pathway the company can consider is taking up a new distribution channel: commercial and collective catering, and more particularly Hotels, Restaurants, and Catering (HoReCa) » "Even if major brands in this channel have a significant competitive advantage (Vittel, Evian, Perrier), the market is, however, not closed to new entrants." "Two examples can confirm this statement: the Italian sparkling waters San Pellegrino and Ferrarelle, who managed to impose themselves during the last few years. Furthermore, my research has shown that certain brands have managed to enter the HoReCa market by playing the card of regional connotation." "It therefore seems to me that this segment is within reach of our business, if we manage to properly exploit our brand image. Of course, the distributed volumes are not as important as those of Supermarkets, who represent ¾ of the volumes. But we can hope that competition will be less harsh in this niche." “The specific costs are the same as for the Supermarkets segment. It takes a 50 000 € entry ticket per product range to be referenced by the wholesalers who supply this distribution channel. The cost of the products are equal to those destined to the supermarkets channel, and distribution costs (2% of the turnover for still water, and 4% for sparkling water, and 7% of the turnover for flavoured water) remain the same in the HoReCa segment." "These two projects are now on the Management agenda. The first studies that I have conducted played an important role in doing so, and are encouraging. But a comprehensive overview, especially a competitive study, would be necessary to assess all the implications these options bear with them, in terms of company's strategy. This assistance mission could be a new mission that I would be happy to complete for you." Information sources: aquamania.net website. 13 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 8 Practical information 8.1 – CALL FOR TENDERS You might have to answer to call for tenders, that means «one-shot» sales of products to new clients who are outside your usual commercial sphere of action. After negotiations, the market will be attributed to the company proposing the best offer. 8.2 – INVESTMENTS You possess two factories at the beginning of this simulation (one « Plate1 » factory for still water, and one « Gaz1 » factory for sparkling water – see table below-). In order to develop your company, you are able to acquire new production units at any time. It is crucial to talk with your trainer about this, as he will play the role of a banker. These units will be fully operational during the period following their purchase. They will be depreciated over 40 periods (10 years), starting from their production launch. 7 production units are available: STILL WATER Plant name Plate0 Factory Value (M €) Production capacity (per period) Number of administrative employees (longterm contracts) Plate1 Factory (bought at the beginning) FLAVOURED SPARKLING WATER Plate2 Factory Gaz0 Factory Gaz1 Factory (bought at the beginning) WATER Gaz2 Factory AROM Factory 1,5 M € 3M€ 4M€ 1,2 M € 2M€ 3,5 M € 1,6 M€ 8 000 pallets 20 000 pallets 30 000 pallets 6 000 pallets 12 000 pallets 25 000 pallets 8 000 pallets 3 5 7 2 3 6 3 Under the supervision of your trainer, you will also be able to resell any production unit on the secondhand market at a rate equal to 96% of its net book value at the end of the period. The unit will keep producing and will be depreciated during the divestment period. You can resell at the end of each period, your company will then collect the money for this same period. You cannot buy or resell production units to other companies. 8.3 – LOANS As soon as you would like to invest, you will be able to borrow from banks, which will be represented by your trainers. Any loan will have to be negotiated (amount, duration). 14 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 9 Your strategy Now, what will you do with your company? It is your decision: what will be your strategy for the coming years? Will you keep your Supermarkets channel distributing your two products? Will you acquire as many market shares as possible? How much is your goal? On which markets? With which products? Will you increase the profitability(1) of your activity? With which profitability rate? Will you increase your sales revenue? By how much? Or will you ensure a strong financial profitability(2) to satisfy your shareholders? Additional elements for your strategic thinking: Will you try the HoReCa channel (Hotels, Restaurants and Catering)? How much of your production will you dedicate to Supermarkets on one hand and HoReCa on the other hand? Should you try selling this new flavoured water product? Should you evolve your production tools? (1) Improving the « Net result After Tax/ Sales revenue» ratio. (2) Improving the « Net result After Tax / Shareholders Equity (beginning of each period) » ratio. Nota : Equity = Net position = share capital + accumulated retained earnings. 15 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 10 Management team decisions Company name Our slogan (Visible to all, this sentence reflects our identity/or why we are different from our competitors) Our strategy (How do we picture our company in the long term (6 to 10 periods)) Our ambition (This message must be understood by all your staff (uniting and motivating message)) Our target figures (Which (measurable) values do we want to get by applying our strategy) 16 © IPAJE / [email protected] DIABOLO BUSINESS SIMULATION 11 Your decisions screen 17 © IPAJE / [email protected]
