Jaguar
A computer simulation of the car industry.
Teacher's Notes
Download Program
Introduction
Companies
Explanation
of Year End Report Printout
Useful
Sentences / Vocabulary
Schedule Form
New Assembly Plant Form
A Computer Simulation of the Car Industry
Introduction
Jaguar is a computer simulation of the car industry in a small country. The simulation models many of the features of the real industry: company profit & loss calculations; production scheduling; pricing policies; assembly plant management; capital investment ventures; market forecasting; stock control; new model introductions; dumping charges etc.
Your Role
Your are a member of a domestic motor company supplying automobiles to consumers in a small country. You are in direct competition with four other companies. Your aim is to run a successful business. That is: try to maximize your profits; maintain and improve your market share; provide a good salary for your employees.
Starting Position
All companies start at the same position with the following data for year 2000:
* ASSEMBLY PLANT:
- Maximum Capacity : 40,000 units
- Production(2000) : 30,000 units
- Automation : 10%
- Productivity : 40 man hrs/unit
- Workers Pay Rate: : 35 $/hr
* MARKET:
- Market Share : 20%
- Selling Price :12,000 $/unit
* STOCKS: You have no cars in stock.
The total demand for automobiles by the consumer in year 2000 was 150,000 units
Next Year (2001)
Today's date is December 31st, 2000. You have to prepare your company's schedule for 2000. This should be a team decision. You don't have all the information that you may want, so you will have to make some EDUCATED DECISIONS. In general, what holds to be true in the real automobile industry will probably be true in the model.
The demand for cars will probably grow next year: so will the cost to make them. So you need to increase production and inflate the selling price a little. Keep an eye on the market and economic reports.
You also need to increase the worker's wages. It's your decision, but if they find out they are getting less per hour than others workers inside and outside the industry, their productivity will fall.
One way to improve the productivity at your assembly plant is to invest in automation. You have the option of doing this each year. As a rule of thumb $10 million invested in automation will increase overall plant automation by around 2.5%. This in turn will improve productivity by about 2 man hours per unit. (Note: improved productivity means a lower productivity figure, i.e. 38 hrs/unit is better that 40 hrs/unit.)
Market Share
Trying to improve your market share will be one of your biggest concerns. There are a number of factors that affect a company's market share:
ADVERTISEMENT:
- A = Money you spend on advertisement.
- B = Average money spent on advertisement by other companies
- 1. If (A-B) is positive, this will help improve your market share.
SELLING PRICE:
- SP = Your Selling Price
- SPt-1 = Your Selling Price last year(1992)
- SPave = Average Selling Price of other companies.
- CTM = Cost To Make
- 2. If (SP-SPave) is positive, market share will
decrease. If (SP-SPt-1) is very large compared to
inflation, market share will decrease.
3. If (SP-CTM) is very large, market share will decrease.
From the above it seems that a low selling price is best. However, you should remember that (SP-CTM) is the profit margin per unit. CTM increases every year. So if you set a low selling price your profit margin will be squeezed.
NEW MODEL CHANGE:
Changing you model will help improve your market share, but you can only make one model change during the simulation.
RANDOM FACTOR:
Each year a random factor will affect your market share either positively or negatively. You have no control over this.
You'll get more information later on how you can improve your company's performance. Now it's time to make a decision. You need to discuss you strategy as a team. Be positive - the most you will lose is a few million dollars! Good luck.
New Model Change
Your present model was introduced to the market in 2000 (Mark 1). Each company is allowed to carry out a full model change once (only) during the simulation. The cost of a new model is shown on the results sheet. It will increase every year.
Introducing a new model will help to improve your market share. The effect of a full model change on your market share is as follows: in the year of introduction (t=0) the market share increase will be about 5%, at t=1 it will be about 2.5% and at t=2 it will be about 0%. After this, the consumer will lose interest in your car and you will start to lose market: at t=3 -2.5%, at t=4 and subsequent years -5%. These figures are summarized below:
| Year after introduction |
0 | 1 | 2 | 3 | 4 | subsequent years |
| Effect on market share |
+5% | +2.5% | 0% | -2.5% | -5% | -5% |
The timing of your full model change is thus very important.
Remember, that if other companies carry out model changes at the same time as your company, the effect will be canceled out.
Opening A New Assembly Plant
A company is allowed to open up one new assembly plant during the simulation in order to increase production. (This is the only way of increasing your production capacity.)
- Basic Cost: $100 million
- Construction Period: One year.
- Design Parameters:
- Maximum Production: 20,000 units
- Initial Automation: 10%
You can increase the maximum production of the new plant. The cost is $50 million for an extra 10,000 units. This option is only available when you first specify the design parameters.
You can increase the initial automation of the plant. The cost is $10 million per 5% automation. This option is only available when you first specify the design parameters.
When the plant first starts operating, production will only be 50% of the maximum production. This will rise to 100% the next year. The following table indicates this:
Operating Year 1st 2nd
Production (% of 50% 100%
max)
Company No. Company Name Members
0 GM
1 Ford
2 Rover
3 BMW
4 Renault
Explanation Of Year End Report Printout
Financial
1. Turnover ($m): This is the money your company received by selling the cars. It is calculated by
Cars Sold x Sell Price.
It is your only source of income.
2. Total Costs ($m): This is the money your company used in making the cars. It is calculated by
Direct Cost + Fixed Costs + Automation Costs + Advertisement + Capital Costs + Stock Costs.
3. Profit ($m): This is the profit your company made this year. It is calculated by
Turnover - Total Costs
4. Cash in Bank($m): This is the total (cumulative) profit your company has made since the start of the simulation. It is calculated by
Profit(year 1) + Profit(year 2)...etc.
You use this money for capital investments such as building a new assembly plant, new model changes etc.
5. Direct Costs ($m): This is the money directly needed to build the cars. It is calculated by
Cars Prod x Factory Cost
Therefore it is a function of the number of cars you produce.
6. Fixed Costs ($m): This is the fixed costs involved with the assembly plant such as rent, heating, overheads etc. It is not a function of the number of cars that you produce. However it will increase every year with inflation. If you have two assembly plants, it will double.
7. Automations ($m): This is the money you spent on automation of the assembly plant this year.
8. Advertisement Costs ($m): This is the money you spent on advertisement this year.
9. Capital Costs ($m): This is the money you spent on new assembly plants, new model changes, fines and other extraordinary items that may occur.
10. Stock Costs ($m): This is the money you spent on keeping cars in stock.
Stock Costs = Total Stock x Stock Costs ($/unit)
Production/Stocks
11. Cars Produced (units): This is the total number of cars you produced this year.
12. Cars Sold (units): This is the total number of cars you sold this year. It may be more or less than Cars Prod
13. Cars To Stock (units): This is the total number of cars that were sent to stock this year. It is calculated by
Cars Prod - Cars Sold.
It can be positive or negative. If it is negative it means you are taking cars out of stock for sale.
14. Total Stock (units): This is the total number of cars in stock. It is calculated by
Cars To Stock(year 1) + Cars To Stock(year 2)... etc.
If your car sales are higher than your production in any one year then you can use cars in the Total Stock to meet these sales. Total Stock cannot be less than zero.
15. Stock Costs: This is the money required to keep one car in stock.
Market Report
16. Total Demand (units): This is the total demand by the public for cars in the year. It may be greater than the Total Sales.
17. Total Sales (units): This is the total sales of cars by all car companies in the year.
18. Potential Market (%): This represents the potential market share you have for your model.
19. Actual Market (%): This represents the actual market share for your model. It is calculated by
100 x Cars Produced / Total Sales
To understand the relationship between Potential and Actual market think of the potential market as an indication of the desire by the public to buy your car. If your car has a good price and you advertise it well there will be a strong desire (demand) to buy your car. However, if you don't produce enough cars you cannot meet this demand and your actual market will be lower than potential. This potential (desire) does not disappear immediately. The public still want to buy your car and if you increase production next year you may recover some or all of the potential market.
Conversely, if another company underproduces some of their customers will buy your car and your actual market will exceed your potential.
Assembly Plant
20. Production (units): This is the number of cars produced at the assembly plant. If you have two assembly plants there will be two figures.
Cars Prod = Production (Assembly Plant 1) + Production (Assembly Plant 2).
21. Parts ($/unit): This is the cost of parts for your cars as charged by the supplier. It will increase each year. Look at the yearly economic report for a prediction of the Parts Inflation figure.
22. Labour ($/unit): This is the cost of labour at the assembly plant. It is calculated by
LabHrlyCost ($/hr) x Productivity (hr/unit)
23. Other ($/unit): This is other costs associated with production of the car. It will increase with inflation each year.
24. Factory Cost ($/unit): This is the money required to make one car. It is calculated by
Parts + Labour + Other
25. Selling Price ($/unit): This is the selling price (as specified by you) to the public. The difference between Sell Price and CostToMake gives a rough estimation of the profit margin on each car. However, remember you must take into account the money spent on advertisement, automation etc.
26. Labour Wage ($/hr): This is the money paid to each worker for one hours work at the assembly plant. This is the prime method of motivating the workers to improve productivity.
27. Automation (%): This is the percentage of automation at the assembly plant. Increasing automation helps to improve productivity.
28. Productivity (hrs/unit): The productivity in man hours per unit at the assembly plant. Note 30 hrs/unit is better than 40 hrs/unit.
29. New Model Cost ($m): The cost to introduce a new model. This will increase every year.
30. Dumping Charge (%): If your company dumps cars on the market then you will be penalized. The Dumping Charge shows the penalty. The market cost of your car will be increased by this amount.
31. DumpSellPrice ($/unit): This is the new selling price after adding on the dumping penalty. It is calculated by:
DumpSellPrice = SellPrice x DumpingCharge / 100
If there is no dumping charge against a company, then this figure will not appear.
Competitors
Information that is generally available about your competitors (domestic and import companies) is given at the bottom of the printout. If you want further, more secretive information then you will have to ask the company involved.
32. Company: The name of the company
33. Model: The latest model mark . The mark is like the version number. The first mark is 1 (mk1). When a company makes a new model change, the mark increases by one to 2. Then it increases to 3 at the next model change.
34. Profit ($m): Same as 3 above.
35. Cash in Bank ($m): Same as 4 above.
36. Cars Sold (units): The number of cars sold this year by the company.
37. Selling Price ($/unit): The selling price of the car. Keep a close eye on these prices. You must skillfully adjust your price so that it is neither too expensive nor too cheap compared to the other cars on the market.
38. Pot Market (%): Same as 18 above.
39. Prodv (%): Same as 28 above.
Useful Sentences / Vocabulary
"Prices are increasing year by year."
"What is the effect of advertising on our market share?"
"Advertising doesn't have much influence on the market share."
"We should increase our selling price in line with inflation."
"How can we account for our low market share?"
"We need to improve productivity by investing in automation."
Default on Loan/Terms of Repayment
Profit Margin: The difference between the selling price and the cost to make.
PM = SP - CTM
"Our profit margin is being squeezed."
***********
Capital Investment: When a company spends a lot of money to buy a new plant or new machinery.
Payback Period: The time required to recover the initial capital investment.
Industrial Spy: Someone who illegally obtains information from a competitor.
Schedule For Year 20___
Company Name: ___________________
Production (units) _________________ (ap2: ____________)
Investment in
Automation ($millions) _________________ (ap2:
____________)
Labour Hourly
Wage ($/hr) _________________
(ap2:
____________)
Selling Price ($) _____________________
Advertising ($millions) _____________________
Capital Costs ($millions) _____________________
New Model Change (y/n) _____________________
(You must fill out the appropriate form for a new assembly plant)
New Assembly Plant
Year: ___________ Company Name: ___________________
Basic Cost: $100 million
Maximum Production: _________________
Extra
Cost: ___________
(Basic = 20,000. $50 million for each extra 10,000 units)
Initial Automation: ____________________
Extra
Cost:____________
(Basic = 10%. $10 million per extra 5%)
Total Cost: ___________________
(Plant will be ready for production next year at 50% of maximum)
Morning
In-brief
Business year 2001
Business Year 2002
Business year 2003
Business year 2004
Company Open Time
You are free to travel to and talk with any company you wish. All companies should be "open" and give any information that is requested by other companies. You can form strategic alliances, cartels etc.
Afternoon
Business year 2005
Business year 2006
Business year 2007
De-brief
Short presentation by each company showing year by year profit, market share and labour wage