Published on March 7, 2014
1 DIGBY 8 YEARS 16 LESSONS Team | Preeti |Swapnil | Anshika | Ajinkya
Key Learning 1: Realise your true potential and plan your capacity accordingly
Problem: O Suboptimal Utilization Causes: O Huge unused asset O Capacity exceed industry demand Effects: O Higher depreciation O Low plant utilisation Digby Plant utilisation Depreciation Ferris 70% 154.6% 9.7 Mil 5.6 Mil
Key Learning 2: Your mistake = competitor’s profit
Problem: O Conservative sales forecast and production Cause: O Underestimate our own products Effect: O Stock out O Loss of potential profit
Produc Potential market Actual market t share share Pot-Actual MS Total demand Units not produced Price Loss Daze 17.90% 15.20% 2.70% 8067 217.809 28.00 6098.652 Dell 20.00% 16.30% 3.70% 10009 370.333 20.00 7406.66 Dixi 21.00% 20.00% 1.00% 2967 29.67 40.00 1186.8 Dot 22.70% 15.90% 6.80% 2294 155.992 34.00 5303.728 Dune 17.50% 17.30% 0.20% 2347 4.694 35.00 164.29 25684 778.498 20160.13
Key Learning 3: Analyse the products and cut off the tail
Problems: O Products have low contribution margin Causes: O High variable cost Effects: O Low margin
O Performance segment – least profitable segment O Net margin of Dot = (0.6) mil O Baldwin realized this from round 1 and retired from this segment to focus on other segments which are more profitable
Key Learning 4: Accurate sale forecasts will lead to maximum profit
Problems: O Over-stocking Causes: O Overestimating our products O Underestimating our competitors O Aggressive prediction Effects: O Negative cash flow from operating activities
Products Daze Dell Dixie Dune Dude Dexter Dik EXCESS STOCK Inventory 1208 1025 88 13 98 146 431 3009
Key Learning 5: Making profit does not mean your business is doing well
Problems: O Positive profits but Negative cash flow from operating activities Causes: O Excess inventory due to poor sale forecasts Effects: O Your business is not making money
Key Learning 6: Give the customers what they want
Problems: O Dik did not sell in high segment Causes: O Over-engineering of product for high segment Effects: O Huge inventory O Negative contribution margin O Negative cash from operation
Performance What customers want? What we deliver? Products Dik Size 12.5-13.4 7.5-6.6 14.7 5.3 units sold 13 inventory production 431 444
Dik (,000) Sale $500 Total variable $1710 Contribution margin ($1210) Total Period cost $4360 Net margin ($5570)
Key Learning 7: Avoid Myopic Vision
Problem: O Insufficient Automation as compared to competitors Cause: O Estimated cost of automation to be too high vs reduction in labor costs Effects: O Higher labor costs and thus high variable costs in following rounds
Key Learning 8: Who’s Richer? You or Ambani?
Problem : O Paid off long term debt of $ 25 millions in Round 6 Causes: O Conditioned to pay off long term debt as soon as possible Effects: O Emergency Loan of $ 22 millions O Landed into trouble Erie Ferris Total liabilities 4.8 19 Profit 24 31.5
ODon’t let Finance drive your Business. Let your Business drive your Finance.
Key Learning 9: Right Decision at the Right Time
O Ideal Age for Low Segment: 7 yrs O Competitors did not reengineer low segment products O We re-engineered Dell in Round 3 to match Round 6 specs O Highest Market Share in Round 6: 31 %
Round 4 Round 6
Key Learning 10: “Never invest in a business you can’t understand” ~ warren buffet
Learning • Never read the guide = lack of preparations lead to lack of understanding of the game • No rehearsal = one step behind competitors • Man of principle = no cheating • In reality, the more information you have, the more cutting edge you have in the industry O “Learn from other people’s mistakes”
11. Playing the blame game when things go wrong O Everybody wants to be included for success O But O Nobody wants to be responsible for the failures O FROM WE TO YOU
12. In war everyone loses except… O There is enough pie for everyone O Going for a price war O You earn lesser so ----- you lost O competitors’ profit go down ----- they lost O So who win? OConsumers
13. Blinded by greed O Problem: O Pricing 4.50 $ above the normal price range on D Day. O O O O Causes: Wrong approximation of a Seller’s market Greed to maximize profit in Low Segment on D Day. Impatience to exploit Low Segment O Effects: O Very Low Sales (857 units) O Market Share of 7 %
14. Are you working for Digby or the Marketing Company ? Problems: High expenditure on sales and promotion wrt profit Causes: Lack of business understanding Effects: Wastage of resources in one segment , i.e. an Unprofitable Product
Key Learning 15: Exploit Seller’s Market
O In Performance Segment, we priced Dot higher than the range by 4.49 O Made huge profits due to seller’s market O We overestimated our competitors but they did not take advantage of seller’s market
16. Key Learning O When your competitors team up against you, remember they are scared of you and your product.
O Problem: Ferris & Erie go for a Cartel O Causes: Very good specs of our product Poor age of their products O Effects: No major impact on us, but they won’t trust each other ever.
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