Diving deeper into PharmaSim and other requested discussions

In Week 4, we discussed customer analysis in the first part of class and more about PharmaSim in the second part of class.  Prof. Spotts asked us to restart PharmaSim and perform some specific scenarios which included advancing to period 2 without making any changes.  This was an eye opener for me.  In my previous attempts, I assumed I was doing something right by making changes right away.  It turns out sales increased, anyway, without making any changes, so I was not so smart, afterall.  Then we were asked to look at the conjoint analysis and run period 3 with the preferred changes recommended and then replay with the non-preferred changes recommended and report on the results. 

The preferred changes included changing the price to $3.67 (price utility reference score of 0.333) and dropping alcohol from the formulation (product utility reference score of 0.187).  While sales skyrocketed to 139 million units (up from 118.8 million), net income was negative $13.1 million compared to a positive income of $75.6 million the previous period.  Stock price also dropped from $43.10 to $12.17 per share.  Yikes!  I guess this proves that you can’t always just give the customers what they want or you might be out of business in no time. 

While we’re here, I also want to discuss capacity utilization with regard to PharmaSim.  The guide says that “Plant capacity expands in 20 million unit increments automatically when demand exceeds current capacity by 10%.”  This seems a little unrealistic given the last scenario.  I don’t think any executive would automatically agree to increase capacity when net income falls from positive $75.6 million to negative $13.1 million and stock prices fall from $43.10 to $12.17 per share.  Exceeding 100% capacity is impossibility in my current position.  If we (Vermont Yankee) go above rated 100% capacity even for a short time, we are in serious trouble with our regulator (Nuclear Regulatory Commission) because we would be in an unanalyzed condition.  Serious fines and possible revocation of our operating license could be the result.  So this idea of operating above 100% capacity is more a little than foreign to me.  Adding capacity can involve a much larger decision than the simulation implies.  And now I’ll get off my soapbox and continue with the findings.

The non-preferred changes include changing the price to $6.11 (price utility reference score of -0.4) and keeping the formulation the same (product utility reference score of -0.133).  While sales fell to 103.1 million units (from 118.8 million), net income increased to $85 million compared to $75.6 million the previous period.  Stock price also dropped from $43.10 to $39.99 per share; not nearly as bad as with the preferred changes.  This was a valuable exercise because it shows that you can’t always give the customers everything they want and still stay in business.  You also can’t completely ignore the customer or you will continue to lose sales.  The tradeoffs curve shows that customers believe Allround costs too much for the benefits it brings with these non-preferred changes.  The key is to balance what the customer wants with what the business needs to stay in business.              

We were asked to provide comments on and compare and contrast two different classmates’ blogs.  It looks like my fellow classmates are procrastinating as much as I am this week, so I’ll discuss two classmates’ blogs in general.  I like the way Aleena adds humor to her blog posts.  Her posts last week were a little late last week, but I agree that her posts are enjoyable to read.  She’s also an engineer, so I guess I’m a little biased.  I’m also enjoying Ahmed’s posts, which appear very professional with sited references which are outside the required reading.  By the way, I still have a working Betamax, along with an 8-track player, turntable and all my old Beta movies, 8-tracks and records.  The wife wants me to get rid of them, but I just can’t bring myself to letting them go.  Both Aleena and Ahmed add pictures to their posts, which I like and was something I said I was going to try to do this week.  Unfortunately, time has gotten away from me, so I’ll try again next week.  Neither Aleena or Ahmed seem to be hitting all the points Prof. Spotts would like us to hit, which is something I’m finding a little more difficult each week, as well.

How do I make over the counter cold medication purchases?  I’ve developed brand loyalty to Contac tablets, especially when I want to get a good night’s sleep because it knocks me out.  I’ve found it is really the only product that gives me overnight relief.  Now that they have the day and night formula, it’s pretty much the only brand I’ll buy.  I’ve tried others (Nyquil, Dayquil, etc.), but none really works for me like Contac does.  With the amount of competition that’s out there, Contac doesn’t always get the shelf space I would like because I end up spending more time than I would like trying to find it.