Investment in Production Automation

The business Andrews initially focused on the cost leadership. The main object of this strategy is to reduce the production cost as much as possible (Rothaermel, 2015). This would enable the company to reduce the selling prices as low as possible and that would be the main competitive advantage of the company in the market.

Following the business strategy the company at the initial phases invested heavily production automation. Here the effect is the reduction in the overall production cost (Säfsten et al., 2007). At the end of the 1^st round the 2^nd round result shows that total asset position of the Andrews is $110320 and there the 2^nd highest asset in the industry is of Digby at $80733. The result is similar after the round 3 also where the total assets of Andrews stand at $113173 and the nearest asset position is $93427 of Digby.  The investment in the plant and equipment keep on increasing in Andrews but the pace slowed down compare to the competitor from the round 4 onward. 

In the marketing planning the traditional segment of the market is targeted initially. In the 2^nd round it is 30% of the industry. In this segment the price determines 23% of the consumer buying decisions. In this segment the main purchase deceiving factor is age but Andrews is focusing on the cost leadership (Jain and Haley, 2009). So it was wrong segment to focus and the result is that after round 2 Andrews acquired around 15% of the market where as Eric the market leader get almost 30% of the market. The round 3, 4, 5, 6, and 7 are also showing the similar trend of fewer than 15% and in round 8 the company crossed the 15% mark. On the other hand the low end segment of the market makes around 39.2% of the market. This segment is most prices sensitive and that affects the consumer buying decision by 53%in the round 2 Andrews received around 20% of the market as market leader in this segment. All stock of the Acre at the end of round 5 was sold. 

Andrews heavily invested in the production automation throughout the business cycle to achieve the cost advantage in the market ((Rothaermel, 2015). The business was able to produce much more than its original capacity of production. In the round 2 the inventory of the company was high and that is $17919. Then the company consciously decided to reduce the stock position maintain the low inventory level. In the round 3 the level is $9858, in round 5 and 6 the level touched at the lowest which is around $1500 mark. The company also changed its segment focus that is from the traditional segment to low end segment. For that reason also the inventory got cleared up quickly and after the round 5 the company invested in 500 more capacity. From the round 7 and 8 the stock again started to build up because the product almost doubled the capacity. It would have be wise to build capacity for Acre prior as there the company could have increased the profitability and sales revenue further.

Marketing Strategy

Andrews tried to balance the financial planning with the operational need of the company. Initially the investment in the R&D and automation cost the company.  The result is that the long term debt of Andrews were highest at the round 2 and that were at $ 61750 which is almost double that of industry average. Up to round 4 the long term debt position of the company was industry highest. But the leverage ratio of the company was not so bad compared to industry average (Brigham and Ehrhardt, 2013). In the round 2 it was at 2. The return on sales figure is very low compare to the industry figure for Andrews at the end of the round 2 because of the high investment in the R&D. The profit level for the company is lowest in the industry at the end of the round 2 which is at $704187. The nearest competitor there makes $4317189 as profit. But the contribution margin of the company is at industry average and that is at 35%. This shows that large investment has eaten up the margin contribution (Chandra, 2011). The result of the investment in the R&D and automation improved the contribution margin in the round 3. Here Andrews has 46.5% and that is 15% higher compare to the second highest in the industry. The margin continuously keeps on increasing in the later rounds. At the end of the round 8 the contribution margin peaked at 63.3%.

The sales revenue of the company at the beginning was below per the industry average. At the end of the round 2 the sales figure is at $116121004. There the industry leader Digby makes around $150494860. At the end of the round 8 the sales figure stands at $231570504 and the industry leader Digby has $337855589. So the sales figure improved for the company but it is around the same industry level. But the remarkable thing is that the return on sales which became negative after the round 3 reached industry highest of 21.2% after the round 8. The increase ROS is the result of the achievement of the high margin and that in turn is the result of the investment in automation (Brigham and Houston, 2012). So the low cost strategy of the business is paying off at the end of the round 8 result. In the mean time the organisation targeted the right segment in comparison to business strategy and that is the low end segment. This change in the marketing strategy helps to maximise the revenue and in combination with business strategy the profit of the company also increased. At the end of the round 8 the profit level of the company became highest in the industry. This is a huge improvement in the financial position of the company in the market.

Financial Planning

The analysis of the cash flow statement would give the liquidity position of the company. After the round three the cash flow from the operating activity is not only the lowest at $1643 in the industry for Andrews but also much lower compared to nearest performer that is Baldwin at $9029. So the cash available from the internal source is very low for Andrews (Brigham and Houston, 2012). But the cash out flow in the investment section is highest in the industry that at $31600 and there the second highest is Digby at $19020. The company took here the longer debt rout for the financing the investment and that is why the cash inflow from the financing activity is highest in the industry at $22000. Comparing this with the round 8 figure the marked improvement can be seen. The cash flow from the operating activity here improved a lot at $57826. There is no investing activity in this segment. The cash flow from the financing activity in the round 8 shows that the good health of the company as the company is able to give the dividend of $49404 to the investor. The company was also able to purchase $18877 amount of stock from the market. This approach makes the stock value of the company improved in the market (Chandra, 2011). The position can be seen from the stock price of the company. At the time of closing the value is highest in the industry at $165.12. The market capitalisation is also highest that is $408m. So after the long process the business of Andrews is showing much favourable position.  

Andrews invested in the total quality management. In the round 3 the total expenditure for the process was $15000 and that was industry highest. At the end of the round 8 the expenditure was $5000. From the beginning a good investment in the TQM has paid off the company (Kumar et al., 2009). At the end of the round 8 the cost reduction due to material was at 11.80% as highest in the industry.  The reduction in the labour cost was at 14% in the round 8 as industry highest for the Andrews. All these cost advantage helps the company in the cost leadership strategy.

The HR policy of the company was also according to the business strategy (Noe et al., 2006). At the round 2 Andrews recruited low number of new employee in the industry that is 53 this is the result of automation. But the total HRM cost of the company is highest in the industry and that is at $1235. In that round the productivity index is showing as101.2% for Andrews as highest in the market. In the following round also the business continues to invest in the HR process. the result is that after round 8 the productivity reached at 124.7% where as other competitor in the market did not improve half as much as Andrews.

Cash Flow Statement

This simulation is a long process. Throughout this process lot of business decisions are made for the profitability of the business. The competitive advantage development was also important for the business. The first decision of the business is to follow the cost leadership in the market. To follow the strategy the production cost of the company need to be lower. In that context the appropriate decision is to invest in the R&D and automation process. The decision was tough at the beginning as that required lot of investment and there was lot of risk attached (Rothaermel, 2015). Now the strategy needs to be reflected in all the process in the company. The marketing, finance, HR, quality management and production needs to be in line with the strategic decision. In the next process the company need to align the marketing strategy with the business strategy. But the marketing strategy at the beginning somehow missed the approach. In the market the biggest market share is of the low end segment of the market. In this segment the customers are most prices sensitive. But the Andrews focused on the traditional segment of the market where the age is the most influencing factor of the purchase decision of the buyer. As a result the company missed out the initial opportunity to increase the market share by focusing on the low end segment of the market (Jain and Haley, 2009). After few round the company readjusted the marketing strategy of the business and focused on the low end segment of the market. The increased margin from the product and the higher sales revenue improved the profit figure there. But forecasting is one of the important factors in the business for the better decision making (Black, 2009). Here the forecasting of the higher demand of the Acre product would have helped in the capacity development for to meet the demand. The arrangement is done after the round 5 by increasing the capacity by 500. An earlier arrangement would not have made the situation for no stock situation. To follow the cost reduction in the operation the business need to focus in the quality management to reduce the wastage as well as keep the quality high with reduction in cost. The HR policy is was in line

Reference

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Brigham, E. F., and Houston, J. F. (2012). Fundamentals of financial management. Cengage Learning.

Chandra, P. (2011). Financial management. Tata McGraw-Hill Education.

Jain, S. C., and Haley, G. T. (2009). Marketing planning and strategy. Cincinnati South-Western Publishing Company 1985..

Kumar, V., Choisne, F., de Grosbois, D., and Kumar, U. (2009). Impact of TQM on company’s performance. International journal of quality & reliability management, 26(1), 23-37.

Noe, R. A., Hollenbeck, J. R., Gerhart, B., and Wright, P. M. (2006). Human resource management: Gaining a competitive advantage.

Rothaermel, F. T. (2015). Strategic management. New York, NY: McGraw-Hill.

Säfsten, K., Winroth, M., and Stahre, J. (2007). The content and process of automation strategies. International Journal of Production Economics, 110(1), 25-38.