Allied Office Products Case Presentation v2
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Transcript of Allied Office Products Case Presentation v2
Profitability Studyfor the Business Forms Division of
Allied Office Products
February 9, 2007
Proposal Team: Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge, Mike Taylor, Carlos Villarreal
February 9, 2007 Allied Business Forms Division 2
Overview
Background Goals and Objectives Options Situation Analysis Activities Based Cost (ABC) Analysis Potential Threats / Risk Mitigation Recommendations Summary
February 9, 2007 Allied Business Forms Division 3
Background
Annual sales of $900 million Forms Manufacturing
Business formsSpecialty paper
Business Forms Inventory Management Services - Total Forms Control (TFC)Warehousing Inventory control
Inventory financing Distribution
Forms usage reporting (Pick pack & desktop delivery)
February 9, 2007 Allied Business Forms Division 4
Background
TFC Inventory Storage 10 distribution centers
PricingClients charged flat monthly fee on product cost plus 32.2%, regardless of level of serviceCovers warehousing, distribution, cost of capital for inventory & freight expense (based on 1990 aggregated financial data)
Profit Margin Sales force charges average of 20% of product & services; individual accounts can vary from standard formula
February 9, 2007 Allied Business Forms Division 5
BackgroundValue Chain Concept - TFC
Industry Chain
The TFC Chain
Trees PulpPaper
Forms Mfg.
Forms Sales TFC
Customer Purchasing Manager
Customer Receiving
Forms User
Storage & Inventory Financing
RequisitioningStock Selection & Pick Pack
Order Entry & Billing
Desk Top Delivery
Freight
February 9, 2007 Allied Business Forms Division 6
Goals & Objectives
Review Current State Identify Areas for Improvement Increase ROI on TFC from 6% to 20%
February 9, 2007 Allied Business Forms Division 7
Storage & Inventory Financing
Inventory Obsolescence Excess Inventory Cost of Capital
Customer does not pay for inventory until requisition submission
“Don’t you think we should do something to get that old inventory moving?” --Tim, Kansas City, MO Distribution Facility
February 9, 2007 Allied Business Forms Division 8
Requisitioning“I’ve gotten to the point where I know the customers so well, that all the order information is easy. The only thing that really matters is how many lines I have to enter.” Hazel Nutley, Data Entry Operator
310,000 requisitions per year Each requisition – average 2.5 lines Reduce data entry - incorporate purchase history in
requisition process; determine frequent reorders Institute minimum requisition requirements; under $X, extra fee
charged
February 9, 2007 Allied Business Forms Division 9
Stock Selection / Pick Pack
90% of all orders are pick packReduce pick pack orders: Work with
Allied to reconfigure cartons to meet top 40 accounts buying patterns
“Almost is everything pick pack nowadays. No one seems to order a carton of 500 items anymore.” --Rick Fosmire, Warehouse Supervisor
February 9, 2007 Allied Business Forms Division 10
Order Entry & Billing
Ensure requisition process /order entry / billing is a one-step process
Goal: Reduce redundant data entry
February 9, 2007 Allied Business Forms Division 11
Desktop Delivery
Currently, no extra charge to clients for this time intensive activity
Implement desktop delivery fees
February 9, 2007 Allied Business Forms Division 12
Freight
Cost coverage set fee is not equitable across customer base
Implement pass-through freight cost leveraging new computer system
February 9, 2007 Allied Business Forms Division 13
Activity Based Cost AnalysisActivity and Cost Drivers
Activity Cost Driver Activity Based Cost
Storage Number of Cartons 1.550
Requisition Handling Number of Requisitions 1.801
Basic Warehouse Stock Delivery Number of Requisition Lines 0.761
Pick Pack Number of Pick & Requisition Lines 0.734
Data Entry Number of Requisition Lines .612
Desktop Delivery Number of Desktop Deliveries .250
Total 5.708
February 9, 2007 Allied Business Forms Division 14
Activity Based Cost Analysis
February 9, 2007 Allied Business Forms Division 15
Activity Based Cost AnalysisIndividual Customer Profitability
February 9, 2007 Allied Business Forms Division 16
Activity Based Cost AnalysisImpact to Bottom Line
February 9, 2007 Allied Business Forms Division 17
RecommendationsActivity Based Management (ABM)
Management Philosophy Focus on cost reduction Make informed decisions Create & maintain a competitive advantage Reduce non-value added activities
February 9, 2007 Allied Business Forms Division 18
RecommendationsSupply Chain Management (SCM)
Optimize Warehouse SpaceReconfigure aislesConsider consolidation of DC’s for TFC LOB
Optimize Customer Inventory LevelsIncorporate Just In Time Inventory (JIT) System with Allied (for 179 customers that represent 72% of sales)
February 9, 2007 Allied Business Forms Division 19
RecommendationsActivity Based Costing (ABC) Storage & Inventory Financing
Charge 1.5%/mo. for on-hand inventory > 9 months
February 9, 2007 Allied Business Forms Division 20
Recommendations
Establish Preferred Vendor Price Strategy (PVPS) with Allied 1. Preferred price list at __% of retail2. Eliminate sales force outsourcing option
Engage Fiveandone for Competitive Market Analysis (CMA)
Implement Services Based Pricing Structure If CMA reflects optimal market timing,
implement Supply Chain Management Plan
February 9, 2007 Allied Business Forms Division 21
Potential Threats
Stakeholder Acceptance Will the sales team perceive plan will decrease commissions?
Customer Acceptance Will customers view this positively or negatively?
Competition Market Timing Response to our new strategy
February 9, 2007 Allied Business Forms Division 22
Risk Mitigation
Get Our Sales Team On Board! 1. Prepare account analysis for each account manager2. Train account managers thoroughly on client benefits
Make Sure Our Customers Understand Our Value Proposition
1. insert verbage
Understand Our Competitor’s Position1. Competitive advantages/disadvantages2. Understand competitors’ past, present (and most importantly) future pricing strategies3. Provide basis to develop strategies to achieve competitive advantage in the future4. Predicted competitor response to new pricing strategy
February 9, 2007 Allied Business Forms Division 23
Summary
Preferred Vendor Price Strategy+
Competitive Market Analysis+
Distribution Optimization Plan=
Allied Business Forms Division Success!
Allied Philosophy
“We know what you need… the right product at the right place
at the right time.”