Information Technology Billings Interpretation
One-Time Costs With Information Technology Options
Profitability of Demand Drivers
Unfilled Orders and Retailer Inventory
“Why are we being charged for Information Technology on the Corporate P&L Statement? We're not currently using any information technology options.”
As described in the LINKS participant's manual, Information Technology billings include the $1,000 per output-page charge for financial reports as well as the charges associated with any Information Technology options.
Page count is only known after the Word doc output file is generated, which occurs after the current-rount financials are calculated. So, Information Technology costs for the current round are reported on the following round's financial reports.
“Some information technology options have initial one-time (setup) costs that occur when an option is first activated. If we activate such information technology options occasionally, turning them "off" in subsequent simulation rounds, and then turn them "on" in later simulation rounds, do we have to pay the one-time (setup) costs each time we turn "on" such an information technology option?”
Yes, you are correct. Such one-time (setup) costs are always charged when such an information technology option is activated for the "first time." "First time" means that the option is "on" in this simulation round but was "off" in the previous simulation round. Of course, if you continuously order such information technology options with one-time (setup) costs, only the on-going (per simulation round) costs accrue after the initial simulation round in which the information technology option is activated.
“We have unfilled orders for one of our products in channel #1 but channel #1 does have some inventory of our product (i.e., retailers aren’t stocked-out). What’s going on? If we have unfilled orders as a manufacturer, shouldn’t the retailers in channel #1 be stocked-out?”
If you look more carefully at the Retail Pipeline Report, you’ll notice that the beginning inventory in the retail channel is a lot higher than the ending inventory. (And, yes, the ending inventory is positive.) The ending inventory in the retail pipeline is a lot lower than desired (compare it to the beginning inventory level). Thus, channel #1 apparently wanted to purchase more from your firm (the manufacturer) but you (the manufacturer) couldn't provide it. Thus, the manufacturer observes unfilled orders even though there's some inventory available in the retail channel. But, this ending inventory is less than the retailers ideally want. Remember, retailers buy set-top boxes from manufacturers to sell to final customers but also to maintain some targeted level of inventory in the channel to service their (retailers’) final end-user customers.