Assignment 2: Office Product Office (OPC)

NO FKs or relationship (1:1 or 1:m or m:n) identified in PART 2

Reports for city and product should have overall totals (ACCESS)

grade =-2

While analyzing should look at profits, revenues could be misleading

Outsourcing look at global issues also

grade =-1

GRADE 57/60

GOOD WORK!!!!

Team B

Joseph Warren Cain

Pamela Catherine Ng

Sheza Nasir

Jeff Broglie

Assignment #2

EXECUTIVE SUMMARY

This report provides an analysis and evaluation of the current profitability and future

recommendations for Office Products Company (OPC) in the western region of the USA,

specifically focusing on Denair, Merced, Turlock, Modesto, and Stockton. OPC supplies office

products all over the world and is headquartered in Germany. Currently, management at OPC is

concerned about declining profitability and declining stock price. OPC is focusing on declining

profitability in the western region of the USA.

The methods of analysis include creating queries and reports with the cities, products,

and quantity of the products sold. The queries created include Total Sales by City, Total Sales by

Product, Sales Less Than 5 Units, Total Sales Less Than 150 Euro, Sales by City by Product,

Sales by City within City by Product, and Sales by Product by Region. All data can be found in

the corresponding document.

Analysis of the data revealed that Denair, Merced, and Turlock are the lagging regions in

regard to total sales. For Denair the total sales (profit more meaningful)are 93.39 Euros, for

Merced the total sales are 303.34 Euros, and for Turlock the total sales are 625.69 Euros.

Modesto and Stockton are faring better than the other three regions with Modesto at total sales of

1,143.15 Euros and Stockton at total sales of 1,403.46 Euros. The increased sales in these two

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regions is due to an overwhelmingly high sale of type A and B pens as well as staples, both of

which has the largest profit margins in OPC’s catalogue.

Office Products Company should deal with the challenges in the present. These (the

following???)recommendations will help the company increase profitability in the five regions

as well as increase the stock price. OPC could lower the prices of the pens since four out of the

five cities’ highest profit for the company is in the purchase of these pens. In addition, OPC

could slightly raise the price of rubber bands because four of the five cities’ highest quantity

purchased are rubber bands. Finally, for Denair, Merced, and Turlock the company can offer a

bulk discount on their purchase of the lowest selling product to give the cities an incentive to buy

more. In regards to general IT operations, it is recommended that OPC consider outsourcing of

many IT functions to a reputable vendor in India. Indian outsourcing of IT has the potential of

cutting OPC’s total costs by 9% and shifting the focus to its core competencies, which will

undoubtedly increase stock price and ease the transition of the aforementioned pricing model.

OPC needs to take the actions recommended in this report to turn around its declining

profits and stock price, which are making the company vulnerable to a hostile takeover. The

company needs to strengthen both its relationship with and the confidence of its shareholders,

customers, and employees. By doing so, the company can turn its current situation around and

hopefully withstand hostile takeover attempts.

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DESIGN AND IMPLEMENTATION

To reduce redundancy in the database, the data is grouped into three tables: Product

Table, City Description, and Quantity Sold. Product Table contains the descriptive information

regarding each product. The City Description table contains the city code and city name for each

of the five cities. The Quantity Sold table contains information concerning the quantity of each

product sold in each city.

For the Product Table, part number was chosen as the primary key (PK). Each part can

only have one part number, so each part number can only appear once in the table, thus making

part number a good choice for a PK. For the City Description table, city code was chosen as the

PK, since each city can only have one city code. For the Quantity Sold table, the PK consists of

two attributes, city code and part number. City code and part number were chosen together for

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the PK in the Quantity Sold table because either attribute by itself would not be sufficient to act

as the PK. Either one of these attributes by itself could repeat multiple times in the table.

However, these two attributes together can only appear once in the table, as each part sold in

each city can only have one quantity sold. The Quantity Sold attribute would not have been

sufficient as a PK because theoretically multiple parts could have the same quantity sold, even in

the same city. Including the attributes of part number and city code in the Quantity Sold table

also links this table to the Product Table and City Description table. The City Code is the PK

that links the Quantity Sold and City Description table; the Part Number PK links the Product

and Quantity Sold tables together.

Need to identify FK, relationship (1:1 or 1:m or m:n)????

ADDITIONAL ANALYSIS

When analyzing the results out of the five regions, Denair, Merced, and Turlock are the

apparent lagging regions in regards to total sales. For Denair the total sales are 93.39 Euros, for

Merced the total sales are 303.34 Euros, and for Turlock the total sales are 625.69 Euros.

Modesto and Stockton are faring better than the other three regions with Modesto at total sales of

1,143.15 Euros and Stockton at total sales of 1403.46 Euros. The increased sales in these two

regions is due to an overwhelmingly high sale of type A and B pens as well as staples, all three

of which have the largest profit margins in OPC’s catalogue.

Based on the database queries, on four out of five regions OPC has the highest profit on

their line of pens A and B. This is due to the fact that the pens A and B have the highest profit

margins in the catalogue, 2.00 Euros and 2.28 Euros, respectively. This information derived from

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the database gives OPC an opportunity to slightly lower the prices on these pens. This would

bring in more overall profit to OPC because the cities will buy a higher quantity of pens. In

addition, it will help OPC to develop loyalty from the cities, which will bring in business. Also,

four out of the five regions highest quantity purchase is rubber bands. OPC could slightly raise

the price of the rubber bands so the profit margin from this product can be higher than 15 cents

per quantity sold. In turn, this will lead to higher profit as well.

Along with these tactics, OPC should offer a slight discount to the three cities which are

lagging in total profit for the company. The company could offer a 10% discount on bulk orders

for the items which the cities are not purchasing. For example, for all 3 of the cities, staples ranks

as the lowest quantity product purchased. The company could offer an incentive to purchase 50

quantities and the cities would then receive a 10% discount on the order. This should increase

sales for OPC, by giving the cities an incentive to purchase, while developing customer loyalty.

different interpretation of problem. OPC is not supplying to cities but to their

stores in these cities..but OK

In addition to the recommendations stated in the preceding paragraphs, OPC may also

want to look into using a geographic information system (GIS) to help the company evaluate the

region and determine what external outside factors might be causing the drop in sales (Laudon &

Laudon, 2010). A GIS could reveal what new competitors have moved into the region recently,

as well as provide data on the demographics. Perhaps the declining sales in these cities are due

to factors such as unemployment or other businesses closing (good point). Stockton, Modesto,

Turlock, Merced, and Denair are located in very close proximity to each other, so perhaps OPC

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could use the GIS to determine if there is a more efficient distribution method to these cities

(Laudon & Laudon, 2010).

HOSTILE TAKEOVER

good points!!!

When confronted with a hostile takeover, a company can use several defenses. One defense is

the “poison pill,” although this defense has the potential to harm multiple parties involved in the

takeover attempt, including shareholders (Poison Pill, 2010). A common form of a “poison pill”

is a shareholder right plan, where current shareholders are issued rights to acquire more stock by

the target company (Poison Pill, 2010). This goal of this tactic is to make the takeover attempt

too expensive for the bidding company to sustain (Taulli, 2002).

Another defense that OPC could explore is the “white knight” defense. In a hostile

takeover situation, the target company will sometimes turn to a third company with which it has

a friendly relationship (Taulli, 2002) (White Knight [business], 2010). This third company, or

white knight, may offer a more favorable bid, thus pleasing shareholders and also keeping the

company from being overtaken by the unfriendly bidder (Taulli, 2002).

Unfortunately for OPC, there are issues with the two aforementioned defenses. In the

case of the shareholder right plan, a common aim of the tactic is to maximize the selling price,

which would be great for the shareholders (Poison Pill, 2010). However, the company would

still be taken over and the current management would most likely be let go. The white knight

defense allows the company to be sold to a friendly bidder and the current management may be

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allowed to remain (White Knight [business], 2010). However, the company still undergoes a

takeover.

If OPC wants to avoid a takeover, friendly or unfriendly, it should immediately undertake

a public relations campaign against the takeover bid by KungFu.com (Taulli, 2003). OPC needs

to reassure its shareholders that the current management can turn around its profitability and

stock price. Confidence needs to be restored that the company will be more profitable in the

long run by not allowing the hostile takeover to succeed (Taulli, 2002).

One important fact for OPC to stress is that although the company’s stock price has been

declining, the decline slowed in 2009 (based on the chart in the case). Through May of 2009,

OPC’s stock price only declined 5 Euros, while KungFu.com’s stock price dropped 10 Euros.

This resulted in KungFu.com’s stock price only being 5 Euros higher than OPC’s at the end of

May 2009. Clearly, the profitability of many companies is being impacted by the economic

downturn. OPC should try and instill doubt in the shareholders’ minds that KungFu.com can

turn around the company, since KingFu.com’s stock price is also declining.

It is important that OPC strengthen its relationships with its employees and customers to

build its case against the takeover (Taulli, 2002, 2003). The company should meet with its

employees and customers to discuss the negative consequences that could result from the

takeover and show why the company is better off under the direction of the current management

(Taulli, 2002). To strengthen its relationship with customers and increase sales, OPC should

invest in a customer relationship management (CRM) system. A CRM system will help OPC

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increase customer satisfaction and retention, both of which will raise revenues (Laudon &

Laudon, 2010). The only downside to this solution is that it will take OPC some time to

carefully choose and implement the new system. The results are not likely to be immediate

enough to thwart the hostile takeover. However, informing the current shareholders of this plan

may boost confidence enough to deter the shareholders from selling.

OPC’s business is based in part on customer loyalty and product quality, and the

company needs to make it clear to shareholders that a takeover by KungFu.com may result in a

drop in product quality and a loss of loyal customers. OPC should also stress to its shareholders

that management is taking the declining profits and stock prices seriously. Management should

inform the shareholders that the company is considering using market basket analysis and

outsourcing to gain a competitive advantage. Discussions on market basket analysis and

outsourcing can be found in the succeeding sections of this report.

MARKET BASKET ANALYSIS

Market basket analysis will help identify our customer’s purchasing habits. It would

provide insight on the combination of items that they are likely to purchase together. The set of

items that a customer buys together is called an item set. For example, if the customer

purchases a set of pencils, they are likely to also purchase an eraser. If they buy a set of

pencils but do not buy an eraser, the probability that they will buy Pen-type A or Pen-type

B is more likely (good points). These conditions are a conditional probability of the likelihood

combination that the customer would purchase an item set. The probability is referred to the

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confidence. Market basket analysis shows the possibilities of which product combination the

customer will purchase, when the products would be purchased, and in what sequence the

products will be purchased (Development, 2010). Having this level of understanding would

enable Office Products Company to put more focus on their most profitable products and

possibly eliminate or reduce production of their less profitable products. It can also be used to

encourage customers to buy items that they otherwise may have overlooked. For example, at

supermarkets, they place candy and magazines in the check-out aisle because those items are

attractive and more likely purchases while waiting to check-out.

Many purchases are bought on impulse. Market basket analysis provides possibilities of

what a customer might have bought if the idea had occurred to them. It provides insight on

consumer behavior. The first step of Market basket analysis can be used in deciding the location

and placement of products inside the store. The second level of analysis is called differential

market basket analysis (Information Drivers). Differential analysis compares variations of

purchasing results such as purchases between stores, between customers in different

demographic groups, between different seasons, between holidays, and between different days of

the week (Development, 2010).

If we observe that a particular store holds a purchasing pattern that the other stores do

not, then we know that there is something different about that store. Some possibilities are that

the clientele may be different because of the location or maybe that store is organized in a more

lucrative way than the other stores. This type of analysis would help Office Products Company

determine which ways they should change their store to improve their company sales.

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The Business Intelligence aspect of this would come into play from taking the possibilities from

the Market Basket Analysis and making business decisions out of them. A Business Intelligence

is also known as a Decision Support System, because it supports decision making. It gathers,

stores, and analyzes data to help make business decisions. Some business functions that Business

Intelligence provides are reporting tools, analytics, forecasting, business performance

management, and benchmarking ( Tech Target Corporate Web Site). It can analyze our sales

revenue by each product or the associated costs and profits by our different locations.

OUTSOURCING

When deciding to outsource IT operations overseas, many advantages and disadvantages

need to be identified before such a move is executed. The company’s needs and expectations for

overseas outsourcing need to be managed so that if they do decide to move IT operations and

infrastructure, there will be minimal drawbacks. The most popular purpose of outsourcing IT is

that it will save the company money by delegating tasks that are not core competencies to outside

vendors that will be completed for 30 cents on the dollar with the same quality and timeliness

(Overby, 2008). The company that outsources will have diminishing operating costs, which

increases the capacity for other projects, thus increasing profitability.

It is an established precedent, especially in the days of GE’s Jack Welch, that increased

focus on core competencies by outsourcing or eliminating tasks allows the company to add value

customers and increase razor thin margins. A study from the Outsourcing Institute concluded that

companies that utilized outsourcing realized a 9% decrease in total costs (Antonucci, 1998).

Furthermore, this percentage is expected to increase as more IT services are offered by vendors

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overseas especially server maintenance, mainframe maintenance, and end-user devices. Wipro

and TCS, two of the top Indian outsource vendors expect infrastructure management to be the

next highly profitable service to offer due to a rising uniformity and control in their own

infrastructure (Overby, 2008).

It is important to understand that outsourcing has numerous other benefits besides low

cost of labor. Overseas IT firms focus purely on IT, much like its client in the US will focus

purely on their core competencies when the contract is initiated. This one dimensional focus

from the vendor allows it to use state-of-the-art technology in a world where IT software and

hardware is constantly changing. It also allows the outsourcing vendors to have access to a wider

range of resources (Antonucci, 1998). Many CIOs believe that this aspect of outsourcing not

only subcontracts the labor, but also outsources the headache of training new employees, hiring

temporary employees, and purchasing software that will quickly become useless as the company

moves to more efficient platforms (Overby, 2008). The overseas firms providing the operational

support are in fierce competition with each other for the contracts from the US, so their

management, IT specialists, and technology must be as flexible as they are cost efficient or their

vendors will die off, emulating our own competitive capitalistic economy.

The disadvantages of outsourcing IT are expected to reduce as time goes on, but it is

imperative that any company considering the change take them into account. Choosing the right

vendor is a tricky decision in that most vendors require a long term contract for their services to

be rendered. This means that in the mutable market of hardware and software, the host company

needs to assess that the vendor will be able to update their services accordingly. In the long term

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contracts also give the vendor leverage when evaluating software updates and new purchases.

The decisions the vendor makes regarding these types of costs can easily be influenced by their

own agenda and not the companies they serve (Antonucci, 1998).

The most important disadvantage of outsourcing IT is similar to the disadvantage of

cloud computing, that being lack of control.(OK) Confidentiality of information in a foreign

country is a growing concern. Many vendors, if given a certain project they have no immediate

resources for, will outsource it themselves to local specialist subcontractors, all without the host

company’s knowledge. This can create issues with cost control, computer viruses, and overall lag

in communication (Antonucci, 1998). There are also concerns with disaster recovery and overall

vendor efficiency that can affect the 9% cost reduction, which further exemplifies the need for

the host company to research the vendor they choose.

Our suggestion for OPC is to evaluate the IT functions they can outsource with focus on

the lowest risk to stock price, customer service, and employee morale. These evaluations should

be taken into consideration simultaneously with OPC’s own IT expense controls. OPC should

first attempt data center consolidation and resource optimization before jumping ship to

international outsourcing for all of their IT needs (Antonucci, 1998).

Global issues to be considered

Legal issues

Employees morale

Political stability

Infrastructure issues

vendor reliability

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REFRENCES

Antonucci, Yvonne L (1998). The pros and cons of IT outsourcing. Journal of Accountancy.

Retrieved from http://www.allbusiness.com/human-resources/workforce-management-

hiring/680936-1.html

Development, D. M. (2010). Albion Research Development. Retrieved 2010, from

http://www.albionresearch.com/data_mining/market_basket.php

Information Drivers. (n.d.). Retrieved 2010, from http://www.information-

drivers.com/market_basket_analysis.php

Laudon, K. C., & Laudon, J. P. (2010). Management Information Systems: Managing the

Digital Firm. (11th ed.). Upper Saddle River, New Jersey: Pearson Education, Inc.

Overby, S (2008). Outsourcing: The Pros and Cons of Offshore Remote Infrastructure

Management. CIO.com. Retrieved from

http://www.cio.com/article/198450/Outsourcing_The_Pros_and_Cons_of_Offshore_Rem

ote_Infrastructure_Management

Poison pill. (2010, June 3). Retrieved from Wikipedia: The Free Encyclopedia on June 25,

2010. http://en.wikipedia.org/wiki/Poison_pill.

Taulli, Tom. The Complete M&A Handbook: The Ultimate Guide to Buying, Selling, Merging,

or Valuing a Business for Maximum Return. Roseville, California: Prima Publishing.

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Taulli, Tom. (2003, July 25). Hostility issues. Daily Deal/The Deal. Retrieved from

LexisNexis database.

Tech Target Corporate Web Site. (n.d.). Search Data Management. Retrieved 2010, from

http://searchdatamanagement.techtarget.com/definition/business-intelligence

White knight (business). (2010, April 17). Retrieved from Wikipedia: The Free Encyclopedia

on June 25, 2010. http://en.wikipedia.org/wiki/White_knight_(business).

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