Manufacturing Business Simulation

Course Outline

Teams learn how to monitor cash flow, make resource utilization improvements, and measure results in the balance sheet and income statement. They will explore the cause-and-effect relationships that govern a company’s financial statements – and develop an intrinsic business sense that will govern their future decisions in everyday work. They simulate three years of business performance, making improvements each year that improve financial results.

Day One (8 Hours)

• Introductions
• Group discussion: What is your company up against? Cash flow, customers, costs, competition, lead times, productivity, waste, quality, innovation, people, financial performance, etc.
• Lecture: How does cash flow through a company, and how is it converted into assets and back to cash?
• Participants set up a simulation board with given values for cash, raw material inventories, work in process, finished goods inventory, and accounts receivable.
• On the simulation board, participants run the case business for one year (three periods) as it has been run in the past, following a checklist. and moving value carriers from cash to purchase of raw materials, manufacturing, assembly, finished goods, delivery to the customer, accounts receivable and collected cash.
• Lecture: What are an income statement and balance sheet and what does each line on these documents mean.
• Using the values on the board at the end of the simulated year one, participants complete an income statement and balance sheet.
• Lecture: Are year one financial results bad or good?
• Lecture: What are Return on Assets and Return on Equity, and how are they calculated?
• Participants calculate Return on Assets and Return on Equity for simulated year one.
• Participants decide what to do to improve bad financial results. They implement a Lean program to create cash, They implement just-in-time inventory control and a pull system. They decide to reduce days outstanding on accounts receivable and with all the cash they create, they pay off loans. They implement these changes on the simulation board and create a new income statement and balance sheet and calculate the new Return on Assets and Return on Equity. Financial performance improves significantly without increasing prices.
• Lecture: Additional performance ratios, Contribution Margin, Profit Margin and Debt-Equity ratio and what they mean. What is working capital?
• Participants calculate Contribution Margin, Profit Margin, and Debt to Equity Ratio for improved year one and discuss the improvement.
• Participants simulate year two where the company must reduce prices to remain competitive. They make investments in equipment, Lean, marketing and sales and value-added services. The investments pay off. Prices are reduced without loss of profitability.
• Lecture: What is cash flow and how do you measure and manage it.
• Participants complete a cash flow statement for year two and identify what activities increase or decrease cash flow.
• Participant teams are given a list of possible improvement projects. They select the ones they feel will deliver the best financial results. They simulate year 3 and implement the projects they chose. They record the financial results and compare them with other teams. This is a fun, competitive exercise.
• Participants discuss improvement ideas for their company that will improve financial performance.