Exciting Times Predicted for EchoPen Industry

An influx of young managers with new ideas has led many analysts to predict growth and change in the EchoPen industry. Until now EchoPen companies have produced similar products with similar results. The new managers are expected to apply the best management strategies from around the world to give their companies a boost over the competition. With increases expected in Marketing, R&D, and Capital Investment, the industry should offer customers more choices with a wide range of styles, quality, and prices. "It is usually a good thing to try out new ideas," one observer noted, "but it is hard to predict in advance what will be most successful."

Read the introduction to the MESE competition.

Unemployment Benefits Set

Benefits have been established by the government for employees who lose their jobs due to factory closings or production decreases. Based on the new formulas, companies must currently pay $50 per employee each time they decrease factory employment. As one EchoPen factory manager noted, "We lay off employees when we reduce our capacity utilization which we have to do when inventory gets too high. Balancing layoff charges with storage charges can make production decisions pretty difficult. It works best if our marketing people can sell everything!"

Storage Firms Announce $5 Rate for EchoPens

Warehouse companies have announced new storage rates. The current charge for storing EchoPens is $5 per unit per quarter. This charge will be applied to all EchoPens that remain unsold from the beginning to the end of a quarter.

A Framework for Decision-Making

To do well in the HPGBC, it is useful to have a strategy or system for making decisions for your company each period. Successful companies are usually those that balance their supply with their demand while growing both from period to period.

Production determines supply in the next period while Capital Investment determines supply over several periods. Similarly, Marketing can impact demand in the next period while R&D builds demand over several periods. Lower prices increase orders while higher prices decrease orders.

It is useful to start decision-making by considering the number of units you would like to sell in the next period. Use the following spreadsheet to calculate the number of orders you would like to receive.

Calculating Funds Available for Decisions

Companies may not spend more on decisions than they have funds available at the beginning of a period when decisions are made. Available funds come from two sources: cash available to the company and unused borrowing capacity. Unused borrowing capacity may be calculated by subtracting Loans already taken out from the Loan Limit. Click the link below for a spreadsheet that allows you to verify that you have enough funds available to enter the decisions you would like.

If Funds Remaining is positive, the decisions may be entered. If Funds Remaining is negative, your company does not have enough funds for the decisions you have proposed, so you need to change the decisions to reduce the amount of funds they require.

Click the calculator to test your decisions and see if you have enough funds available.

It is better to err on the side of having inventory left over than to have orders you are unable to fill. Inventory left from one period can be sold in the next period while lost orders are gone forever.

How the line of credit works

Each HPGBC company has an automatic line of credit up to the Loan Limit, so loans are extended automatically without managers having to apply for them. This occurs at the beginning of the period when decisions are entered.

If a company does not have enough Cash to pay for its decisions, its Loans are increased to cover the cost of decisions. If the cost of a company's decisions are less than its Cash, then the extra cash is automatically applied to reduce its Loans.

Efficient Factory Operation

EchoPen factories achieve the lowest production cost per unit at 80% capacity utilization (calculated by dividing production by capacity). Operation above or below 80% utilization causes production costs to rise.

Larger factories produce at lower cost than smaller factories, so investment lowers the production cost per unit in addition to increasing capacity. The greater the increase in size, the larger the decrease in production cost per unit.