BUSINESS SIMULATION THROUGH ACTIVITIES OF A MANUFACTURING COMPANY Developments in Business Simulation & Experiential Exercises, Volume 14, 1987 183 BUSINESS SIMULATION THROUGH ACTIVITIES OF A MANUFACTURING COMPANY Lewis R. Selvidge, Jr. ABSTRACT “Man, Technology and Manufacturing is a course offered at Georgia Southern College that introduces students in all academic fields to how a manufacturing enterprise functions within the private enterprise system. The course consists of a “simulated” company in which students are engaged in the operations of carrying out the activity areas and functions of a “real” manufacturing company. The course has undergone over sixteen years of development, and is offered in up to three sections of competitive companies each academic quarter. All members of the class serve in ownership, management, and manufacturing and sales roles in the company Competitive companies literally develop, mass produce and mass market a product at a profit. Students earn wages, salaries, commissions and cash dividends on their investments. INTRODUCTION The philosophy behind our free enterprise system in the United States goes back to 1776 when Adam Smith wrote The Wealth of Nations. In this book, he described the foundation upon which the United States’ capitalistic economic system is based. This freedom of enterprise in our country gives individuals the right to engage in competitive, profitable business. The law of the free marketplace causes competition among the various businesses, which creates variations in the quantity, quality and cost of the products that are in demand by the consumer. There are numerous misunderstandings of exactly how the private enterprise system works, and how a manufacturing firm functions within it. These misunderstandings are the result of the public not having received basic knowledge of or not having engaged in a competitive business that operates under our economic system. A better understanding of the business world can be achieved through our education system by involving students in the laboratory simulation of private company activities. BASIS FOR AUTHENTICITY The course is a study of the activity areas of real manufacturing companies: Company Organization ,Company Management, Systems Analysis, Research and Development, Production, Marketing, Finance and Control, Personnel Administration, External Relations, and Secretarial and Legal. The course consists of a simulated, but very real company in which students are engaged in the operations of carrying out these activity areas and functions of an actual profitmaking manufacturing company. Both the authority and authenticity for course content and activities are provided by the Association of Consulting Management Engineers, Inc., in their publication entitled Common Body of Knowledge for Management Consultants [2]. The course has under- gone over sixteen years of development by the author who serves as teacher consultant in up to three sections of competitive, simulated companies each academic quarter. Out of this development has evolved a textbook entitled The Manufacturing Enterprise [1], which is used extensively throughout the course in guiding students through company activities. COURSE OBJECTIVES The specific objectives of the course are to provide students with opportunities to: 1) gain an appreciation of the profit motive and competition in the free enterprise system; 2) acquire a basic understanding of the major activity areas mentioned above, their functions and sub-functions, and of the interrelationships between these elements; 3) gain an awareness of themselves in the areas of interest, attitude and aptitude associated with success in ownership, management, and labor and sales roles in manufacturing enterprises; 4) acquire practical experience associated with career roles exercised in these enterprises; and 5) gain a positive mental attitude which is essential for a happy successful career in life. COMPANY ACTIVITIES Through the purchase of common stock at two dollars per share, the student stockholders finance and own the company. A company president and eight departmental vice presidents compose the board of directors of the company after being selected by the class through the use of a secret ballot election. While the president serves as the company chief executive, including serving as chairperson of weekly stockholder’s meetings, the vice presidents fill the top management positions in the eight company departments of Systems Analysis, Research and Development, Production, Marketing, Finance and Control, Personnel Administration, External Relations, and Secretarial and Legal. Company departments are composed of a total of twenty-six functional divisions for which division heads are hired. Student personnel serving in the total of thirty-five management positions are responsible for carrying out management functions of establishing objectives, directing the attainment of objectives, evaluating results, promoting innovation, and developing people. Division heads, division staff, and manufacturing and sales employees are hired through the analysis of employment applications and interviews. The following outline identifies company departmental titles and division titles therein: Systems Analysis Applications and Programming Research and Development Research Development Product Engineering Production Plant Engineering Developments in Business Simulation & Experiential Exercises, Volume 14, 1987 184 Industrial Engineering Purchasing Production Planning and Control Quality Control Marketing Marketing Research Advertising Sales Promotion Sales Planning Sales Operations Physical Distribution Finance and Control Finance Control Personnel Administration Employment Wage and Salary Administration Industrial Relations Organization Planning and Development Employee Services External Relations Communication and Information Public Activities Coordination Secretarial and Legal Secretarial Legal All members of the class serve in ownership, line and staff, and manufacturing and sales roles in the simulated company. A sample of specific activities undertaken are identified by department titles below: Systems and Analysis Department Electronic data processing hardware is set up. Research is conducted to identify data processing program applications. Programs are developed, run and maintained. Printouts are distributed and interpreted. Data processing software is protected. Research and Development Department Scientific experiments are conducted to determine properties of materials and products. New company products are developed and old products are redeveloped. Real product prototypes are produced and tested. Product working drawings are produced. Quality standards for developed products are established. Product operation and service manuals are developed. Production Department Capital equipment inventories are taken, and physical plant (laboratory and classroom space)is maintained. Production methods are established. Operational, materials handling and inspection tasks are sequenced. Production process and flow charts are prepared. Production schedules are prepared. Jigs, fixtures, patterns and inspection gauges are designed and produced. Raw materials are purchased from the best vendors. Products are manufactured in quantity using mass production methods. Quality assurance methods are established and applied. Marketing Department Marketing research surveys are conducted. Product follow- up surveys are conducted. Advertising and sales promotion campaigns are developed and conducted. Sales tools are developed and produced. Sales policies and goals are established. Packaging for products is developed. Salespersons are recruited, hired and trained. Product warranties are developed and administered. Manufactured products are sold and delivered to consumers. Products returned by customers are serviced. Finance and Control Department Working capital needed by the company is forecasted. Breakeven point analysis is conducted. Price/profit alternatives are analyzed. Funds received as a result of loans made and the sale of company stock shares and manufactured products are protected in a local bank account. Funds are paid out by check for goods and services purchased, notes payable with interest, wages and salaries of employees, sales commissions, stock redemption and cash dividends. All financial records are audited. Financial statements are prepared and reported to the stockholders. Personnel Administration Department Division heads, division staff and production workers are recruited, hired, trained and placed on the job. Job specifications and descriptions are written. Wage and salary rates for employees are established. Policies concerning employee absences are established and enforced. Incentive programs are developed and administered. Rules of conduct for employees are established and enforced. The role of industrial labor unions is considered. Personnel organization charts are developed and displayed. On-the-job safety rules are established and safety education programs are conducted. Services to promote employee job satisfaction are provided. External Relations Department Information about company activities are communicated to the public, including the immediate families of company personnel. Programs are developed and conducted to establish goodwill between the company and the public. Efforts are made to coordinate the activities of the company with those of civic and other organizations. Company tours are conducted. Secretarial and Legal Department All necessary legal instruments are designed, prepared and revised concerning the incorporation, operation and liquidation of the company. Secretarial functions are performed including maintaining custody of company legal instruments and other paperwork, typing and duplicating paperwork, developing and maintaining a filing system, recording minutes and conducting roll call votes at stockholder’s meetings. Patent documents are prepared for company products. Students are conditioned to consider the class a “company,” not a class; and to consider themselves “company personnel,” not students. Academic majors represented in the classes range approximately as follows: business, fifty percent; education, twenty- five percent; and technology, twenty-five percent. Total student monetary investment in individual companies amounts to an average of about $425.00. Company fixed and variable costs average approximately $500.00 each quarter. Revenue from product sales has ranged from just under $200.00 to over $1,200.00. Net profit as a percent of sales revenue has averaged about thirty percent for quarterly companies, a profit rate understood by the students to be highly unrealistic in the real world. Out of more than one hundred sections of the class, only one has suffered a negative return on its investment. Developments in Business Simulation & Experiential Exercises, Volume 14, 1987 185 Over the past sixteen years, a sample of popular products which have been manufactured and marketed include glass top coffee and end tables, folding patio chairs, clocks, photo galleries, lap desks, leather belts, message boards, plant stands, cassette cabinets and coaster sets. Quantities manufactured range from approximately twenty to fifty each depending on the complexity of the product design. CONCLUSION Through active participation of students in a “simulated” company which actually develops, mass produces and mass markets a product, insights are gained into the internal and external affairs that are involved in keeping a "real" profitmaking company on a successful, competitive basis. In carrying out the activities of the various departments, the students encounter the problems that any modern, private company would encounter. They are able to seek and find feasible solutions to these problems by using methods that real companies would use to solve their problems. After having taken financial risks and obtaining first-hand experience working in various company positions, meeting specified company requirements, delegating authority, and accepting responsibility; students gain an appreciation of how modern business firms function successfully within our free enterprise economic system in the United States. REFERENCES [1] Nelson, Rex A., and Selvidge, Lewis R., Jr., The Manufacturing Enterprise, Revised Edition (Statesboro, Georgia: Southern University Press, 1986). [2] Sub-Committee on the Constituent Elements of Management, Common Body of Knowledge for Management Consultants, Revised Edition (New York: Association of Consulting Management Engineers, Inc., 1976). Table of Contents Volume 14, 1987 Simulation Gaming as An Experimental Context for the Study of Multicriteria Decision Making How to Multiply Your Management Game Grading the Personnel In-Basket Exercise Simulation: The Players™ Perspective The Acute Susceptibility of Nominal Grouping to Negativity The Relative Value of the National ABSEL Meetings: An Analysis of Perceptions by Faculty and Deans A Survey of Behavioral Labs Used by American Business Schools A Structured Framework for Applying Conceptual Models to Problem Analysis: Hardening Up An Expert System Approach for Teaching Marketing Case Analysis From Theory to Practice: A Model for Teaching Beginning Advertising The Use of a Simple Forecasting Technique During an Interactive Computerized Business Game An Investigation of the Relationship Between Formal Planning and Simulation Team Performance and Satisfaction The Exponential Logarithm as an Algorithm for Business Simulations Learning macroeconomic Theory and Policy Analysis Via Microcomputer Simulation Laptop: A Principles of Marketing Simulation Teaching About Sampling in a Marketing Research Class Integrating Decision Support Systems and Business Games Demand Generation in a Service Industry Simulation: An Algorithmic Paradox ABSEL - At a Crossroads? Research on Predicting Performance in the Simulation An Expert System for Financial Planners "Developing Various Student Learning Abilities Via Writing, the Stock market Game, and Modified Marketplace Game in Beginning Macroeconomics" Professional Activity Reports: Getting back to Basics Œ A Preliminary Investigation "A Comparison of Performance, Attitudes, and behaviors of MBA and BBA Students in a Simulation Environment: A Preliminary Investigation" Decision Styles and Student Simulation Performance: A Replication Personal Power Strategies: An Experiential Exercise LTL I: A Trucking Simulation Game Total Enterprise Business Games: An Evaluation Can the Skill of Management be Taught? Developing Critical Thinking and Effective Communication Meaningful Notebooks and Enhanced Learning Using a Totally Menu-Driven Data base and Decision Support (DSS) Program Using a Computerized Menu-Driven Data Entry and fiWhat-Iffl Program as a Pedagogical Enhancement for Management Simulation Using a Joint Project Involving MBA Marketing Management and Undergraduate Marketing Research Students to Teach Marketing Research Testing the PAGE Technique: Results and Further Developments A Comparison of Student Perceptions with Accepted Expectations for Business Simulations "Conflict Management in Action: Verbal Strategies, Nonverbal behaviors and Conflict Styles" Dramatic Monologues as Surrogates for Experiential Learning Influencing One™s Superior: An Assessment and Exercise Personality Traits and Organizational Cultures: Two One-Hour Experiential Learning Exercises Computype: A Strategic Marketing Game Open System Simulations and Simulation Based Research "Teaching Forecasting to the Masses: Little Decision Support Training, But a lot of Answers" Goal Setting and Performance Evaluation with Different Starting Positions Œ The Modeling Dilemma The Gamesmanship of Pricing: Building Pricing Strategy Skills Through Spreadsheet Modeling Teaching MPR Experientially Through the Use of Lotus 1-2-3 Business Simulation Through Activities of a Manufacturing Company Simulated Stock Broker Teaching Employee Counseling Skills to Management Students: A Simulation Airline: A Strategic Management Simulation Developing Simulations and Experiential Exercises on the Personal Computer: Some Critical Issues A Powerful Tool Œ For What? An Integrative Systems Approach to Simulating Free Enterprise in a Small Business Course in a Business School Profits: The False Prophet The Use of Expert Systems to Develop Strategic Scenarios: An Experiment Using a Simulated Market Environment An Interdisciplinary Workshop: Spreadsheet Modeling and Case Analysis Techniques for Beginning Executive MBA Students An Innovative Approach to an O. D. Class Œ The Creative Interaction The Application of Spreadsheet Software Technology to Complete Taxpayer Elections Experiential Learning as the Cornerstone of an Industry Management Course "Identifying, Exercising and Enhancing Right Brain Skills in the Business Classroom" Utilizing Envisionary Technology in the Business Policy Course: An Experiential Pedagogy Business Simulation in the Policy Course: A Survey of American Assembly of Collegiate Schools of Business The Moving Van: Vehicle to Success of Disaster for the Two-Gender Work Force Oil and Gas Well Investment Analysis Using the Lotus 1-2-3 Decision Support System Team Cohesion Effects on Business Game Performance