Management for Engineers: Manufacturing Eco-plus Products - Case Study Example

EXECUTIVE SUMMARY Eco-Plus products shop is an environmental conscious shop born to provide high satisfaction by selling environmental friendly products, rendering excellent services, and creating an enjoyable atmosphere at a very moderate and affordable price. At Eco-Plus shop, we will sell products such as Paper Briquette Press and a saw horse. We will also maintain a friendly, fair, creative and innovative work environment, which respects diversity and new ideas and having the environment at the forefront of our activities. Our Mission: To offer environmental friendly alternative products and give our customers a better value for their money for each of our products they purchase. Eco-Plus Shop is aimed at specializing in the design, marketing and distribution of alternative fuel products and accessories. The business which expected to begin its operations in London by the 1st of January 2010 is expected to expand its operations to the entire country over the subsequent five years. Purpose – Eco-Plus Shop exists to provide fast, reliable, technical business to produce and sell a range of alternative fuel products, national and international. Eco-Plus shop sells solutions & result to the current fuel skyrocketing prices. Our Objective: The objectives of Eco-Plus Shop are to generate a profit, grow at a challenging and manageable rate, and make a margin of 15% within the first year of operation. The long term objective is to expand and become a leading alternative fuel developer and provider, forming a group of companies all over Europe and capturing about 30 percent of the market. Marketing Slogan: “Driving for the environment makes an excellent business” The timing is right for starting this new venture. In phase of rampant fuel shortages and rising fuel prices coupled with stringent and ‘difficult to interpret and understand’ regulations set forth by regulatory bodies; this shop has come to give its prospective clients just the products they much desire. The present situation of the world, the existing demand for alternative fuel products, as well as our ambition to one day start this business, and the procurement of highly professional and qualified personnel, has made this venture one of great potential. Location: We will strategically locate our sales point through franchising with existing fuel station sales point. These areas and sales points are reachable with little or no stress to all clients. That is why we have chosen as head office, London, the business center of the United Kingdom. Reputation: Our reputation and that of other seasoned personnel we will hire as providing superior auxiliary and personal service. Environment: We will provide a relaxed and friendly and welcoming environment to clients while offering them with the best environmental friendly products. Convenience: Offering clients a wide range of services in one setting, and extended (convenient-driven) business hours to match with their internal company schedules will be one of our main strength and above all, Relationships: developing loyal repeat customers – retainers who will work and grow with us in their respective businesses. Company Summary Eco-Plus shop will be a limited liability company owned by the founding three partners. Its operations will cover all business sectors, spanning from communications, retail and consumer shops, transport and logistic companies, manufacturing firms and other service firms like mail delivery, insurance and so on. Company ownership: The founding member will be the President and Chief Executive Officer of the company and will contribute and own 40% of the company capital while the other members each will contribute and own 20%. Profits and losses will be distributed in the same manner. The start-up capital will be used for the design, office supplies and equipment, heating and lighting of the office premise. Office supplies will amount to approximately £5,000, and the legal and other administrative charges will cost about £50,000. The founding partner, will invest £300.000 while the rest of the partners put in £150.000 each. In sum, a total of £568 800 will be used on office expenses and start-up while £402.500 will be required for capital expenditures as summarized on the table below. Start-up Summary. Start-up requirements Opening expenses: Office Supplies £ 5 000,00 Insurance £ 24 500,00 Lighting and Heating £ 80 000,00 Transportation £ 100 000,00 Salaries and Wages £ 309 300,00 Miscellaneous Expenses £ 50 000,00 Total Start-up expenses (I) £ 568 800,00 Start-Up assets Computers, Printers, and Faxes £ 25 000,00 Motor Vehicles £ 100 000,00 Furniture £ 12 500,00 Software programs £ 15 000,00 Research and Development £ 250 000,00 Total Assets (II) £ 402 500,00 Total Start-up Cash Required (I+II) £ 971 300,00 To achieve our objectives, Eco-Plus shop is seeking additional financing. This loan will be paid from the cash flows from the business, with the assets of the company, supported by our character, experience and personal guarantees as collateral security. 2.0 Situational Analyses Porter (1985) argues that, competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness. The researcher further claims that, “The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm’s behaviour.” (1985: 4) and through their own strategy a firm can take hold of these five forces. The researcher further contends that, firm’s can compete in either of a cost leadership, focus or differentiation position. Eco-Plus shop intends to use Porter’s generic strategies of cost leadership and differentiation. Eco-Plus shop differentiation-focus strategy thus, calls for the need to develop products or services that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competitors. Through, the creation of value added services for some of our products like the paper briquette press; we will charge a premium price. Here, Eco-Plus shop holds that the higher price will cover the extra costs incurred in offering the unique product. In situations where our suppliers increase their prices, Eco-Plus shop will be able to pass along the costs to its customers who cannot find substitute products easily. We envisage the following internal strengths at take-off: Access to a pool of financial and Technological facilities Access to leading research, advice and resources. Access to a highly skilled and creative networked team who are at the forefront of their profession. Strong Marketing & Service team with the ability to successfully communicate the perceived strengths of the product. Develop a reputation for quality and innovation. On the cost focus and leadership side of Eco-Plus shop generic strategy, the business will not only concentrate on a narrow segment but will offer alternative fuel for all. Because of the broad market focus, of its core activities, there will be high volumes and this in turn means less bargaining power with our suppliers. However, Eco-Plus shop may be able to pass higher costs on to customers since close substitute products do not exist. Some risks of focus strategies include imitation and changes in the target segments. Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out sub-segments that they can serve even better. 2.1.1 Pricing Strategies Porter (1990) in his ground breaking work of competitive strategies argues that, firms can compete by discovering better ways of doing things. Eco-Plus shop will use Porter’s generic competitive strategies of product differentiation involving creating a service that is perceived as unique to the target market. The main products will be paper briquette press , saw horse used as a line to introduced new services. Our unique features or benefits should provide superior value for the customers. Because our services will be positioned as unrivaled and unequaled, the price elasticity of demand tends to be fairly inelastic with customers being more loyal to the brand. The increasing call and concern for the environment gives our product a market break through. According to Porters (1990), a cost leadership strategy means placing great emphasis on efficiency in all organizational activities in order to reduce the overall costs of products and services delivered to customers or achieved through partnership with suppliers. A low cost leadership strategy will work effectively when the organization can provide products and/or services at a lower cost than the competitors. Figure 4 Porters Generic Strategies (source: Porter, 1985, p.12) On the other hand, a differentiation strategy is aimed at delivering products and/or services that are different from the product mix of the competition. Differentiated products are often marketed at premium prices in order to cope with added costs of differentiation, leading to higher profit margins. Apart from high costs, the potential risk associated with this strategy is that consumers may not perceive product and/or services as differentiated (Stalk et al 1992:63, Johnson & Scholes 2007:78). 2.1.2 Promotional Strategies Prior to its launching in January 2010, Eco-Plus shop intends to mass media advertising techniques such as the television titled green driving, mix with visual sounds pictures with a background echo, “Coming soon”. In addition, special print media will be printed and distributed to offices and house hold through direct mail, newspaper advertising. We are focusing our marketing effort on people from all walks of life. Our marketing budget will be 5% of gross revenue. At launching, we will invite VIP’s of the local business community. There will be high focus on public relations and community building activity. We also intend to use cross promotional opportunities with partners. Competitive Position Using the Five Forces According to Prahalad & Hamel (1990), “a competitive advantage is any aspect of the company’sresources, capabilities and competencies that provides an attractive relative competitive position. While the attractive relative position could be caused by something that the company does better”. At Eco Plus shop the core competences and competitive advantages include: co-branding, celebrity endorsement with famous artist and musicians, etc. Our, patents, trademark, resources rights strategic locations in major cities in the world and alternative fuel station the soft side of the organisation (its valuable employees and culture) are just some of the many resources the company is entitle to which are hard or difficult to copy. According to Prahalad &Hamel (1990:2) and Stalk et al (1992:6) firms compete primarily on the basis of capabilities which develop through their idiosyncratic experiences and become the source of competitive advantage or disadvantage. Porter (1985:4) contends that the Five Forces define the rules of competition in any industry and at the same time marks the bases for understanding a company’s success. Barriers to Entry There are a number of different factors that restrict the ability of new on competitors to enter and begin operating in Eco-Plus shop business. Though, with the growing call for environmental friendly products, competitors can easily entered the line of business, a new comer will find it hard to develop and acquire the necessary know how. A new entrant in this market would be required to make large investments in the physical environment as the major outlay and the capital costs associated with fit-out plus overheads to provide the same or similar level of services of that of Eco-Plus shop. It will require time and resources, but our unique values give us a competitive edge. With our individual family programmes and customer’s loyalty and points credit card we will discourage potential entrants. We will focus on developing our core competencies that can act as an entry barrier. Porters Five Forces Approach Application to Kids Computing UAE business Relationship with suppliers The suppliers constitute oil refinery companies, vehicle manufacturers Bargaining power of buyers High switching cost due to few options available to buyers. Large buyers have less power to negotiate Threats of new entrants Low threats of new entrants because of the human, time, material and financial resources necessary to set up the business Threats of substitutes products or services Customers become attached to differentiating attributes, reducing threat of substitutes Rivalry amongst established firms Rivalry cannot meet differential focused customer needs Our resources and core competences however, give us an edge over competition in the next five years. We hope to remain at the forefront of new service development, satisfying our customers as we turn them into partners. According to the resource-based view of the firm, in order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors Johnson & Scholes 2007). Eco-Plus shop staffs are made up of a seasoned team of experts. Our team are unique in the sector. Therefore, this will provide not an easy element to replicate by competitors. 3.0 Product Costing and Financial Plan Eco-Plus shop will be a limited liability company owned by the three partners “loving friends” and other associates. Its operations will cover all businesses in the world alternative fuel technology and products. One of the founding members will be the President and Chief Executive Officer of the company and will contribute and own 30% of the company capital while the other members each will contribute and own 20%. Profits and losses will be distributed in the same manner. The start-up capital will be used for the design, office supplies and equipment, heating and lighting of the office premise. Office supplies will amount to approximately £5,000, and the legal and other administrative charges will cost about £50,000. The founding partners will contribute will invest £300.000 while the rest of the partners put in £150.000 each. In sum, a total of £568 800 will be used on office expenses and start-up while £402.500 will be required for capital expenditures as summarized on the table below. Start-up Summary. Start-up requirements Opening expenses: Office Supplies £ 5 000,00 Insurance £ 24 500,00 Lighting and Heating £ 80 000,00 Transportation £ 100 000,00 Salaries and Wages £ 309 300,00 Miscellaneous Expenses £ 50 000,00 Total Start-up expenses (I) £ 568 800,00 Start-Up assets Computers, Printers, and Faxes £ 56000,00 Motor Vehicles £ 56000,00 Furniture £ 12 500,00 Software programs £ 15 000,00 Research and Development £ 25000,00 Total Assets (II) £ 164500,00 Total Start-up Cash Required (I+II) £ 733300,00 To achieve our objectives, Eco-Plus shop is seeking additional financing. This loan will be paid from the cash flows from the business, with the assets of the company, supported by our character, experience and personal guarantees as collateral security. 3.1.1 Projected Balance Sheet for Two Years FIXED ASSETS 2010 2011 Computers, Printers, and Faxes £108750 £14 063 Motor Vehicles £75 000 £56 250 Furniture £9 375 £7 031 Software programs £11 250 £8 438 Research and Development £25 000 £22 500 TOTAL £339 375 £288 281 CURRENT ASSETS Cash/bank £186000 £165000 Accounts receivable £50 000 £18900 TOTAL £1 053 700 £1 803 700 TOTAL ASSETS £1 393 075 £2 091 981 3.1.2 Projected Cash Flow Statement PROJECTED CASH FLOW FOR THE FIRST TWO YEARS 2 010 2 011 Net Profit after tax £68362.14 £88774.62 Add back Depreciation £5625 £90625 Amortization £10000 £25 000 Net cash flows from operating activities £83 987.14 £288386.76 Cash Flows from Investing activities Purchase of equipment -£112 000,00 0 Cash flows from financing activities* - - Loan from Bank £250 000 0 Start-up contributed Capital £600 000 0 Net cash flows £821987.14 £288386.76 3.1.2 Projected Income Statement for Two Years           Profit & Loss Statement - 12 Months               Period Starting: Year1 Year 2   Sales       Sales of childrens courses * 28,000 units 279,024 306900   Annual membership target year 1- 490 490,000 539000   Sales of parent courses * 580 units 310,520 341572   Party venue hire @ 165 units - 165000   Party extra revenues - -   Other   0   Total Sales - Gross Revenue 1079544 1352472           Less Cost of Goods Sold       Labor 60,000 65000   Inventory - -   Materials 235000 268000   Total Cost of Goods Sold 295000 333000   Gross Profit 784544 1019472   Operating Expenses       Salaries and wages 340,000 409000   Employee benefits 30,600 30,600   Payroll taxes 41040 71,040   Rent 78,000 78,000   Utilities (Heat & Light etc.) 5000 10,000   Repairs and maintenance 3,000 3,000   Insurances 4,000 4,000   Travel 5,000 5,000   Telephone 1,000 1,000   Postage 500 500   Technology 5,000 5,000   Office supplies 5,000 5,000   Advertising/Signage/Web 40,000 40,000   Marketing/promotion 40,000 40,000   Professional fees 60,000 60,000   Training and development 2,000 2,000   Legal fees 8,000 8,000   Depreciation 5,625 90,625   Market research 10000 25,000   Licenses 5,000 5,000   Total Operating Expenses 688765 892765   Net Profit 95779 126707           Interest income (expense)   0   Sub lease café 7,800 7,800   Total Non-operating Income (Expense) 7,800 7,800           Profit (Loss) Before Taxes 103579 134507   Income Taxes .34 .34 35216.86 45732.38           Net Income (Loss) 68362.14 88774.62           Cumulative Net Income (Loss)   157136.76         Annexure 1 Proforma profit and loss statement 5. 0 CONCLUSION Eco plus shop have a collection of seasoned and well WORKERS; the founding member has thirteen years of progressive business management experience. The rest of the team will be trained six months prior to take off. We want to be a well known name in Europe for our enormous contributions to the alternative fuel technology. These four, are just a perfect match such a partnership in this type of business. We intend to use our past experiences and social status both in negotiating new contracts, To avoid currency fluctuations and exchange rate risks, we will do all our purchases locally, hire some local staffs were appropriate and were necessary will borrow funds locally or arranged for back to back swaps were possible. Our analysis show the is a market for our services, as we hope to make profit in the first year. This is a great opportunity to bring a unique service offering to the world. At first glance the market and demand and depth of market is apparent for this service offering. The business could be replicated and become a multinational in less than five years References Buckley A. (1996). Multinational Finance. 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