MGMT650B Consulting Skills for Managers

Alan Law: 08933655Angelika Mehta: 09993004

Ivy Wong: 08936487Joanne Wong: 08936712

Rayman Wong: 08930225

PROPOSAL FOR

Dummy Pack

Pyramid

SituationMaxclean has an established market share of 60% of the

cleanroom market in China. Their revenue last year was US$240M worldwide

ComplicationThe US operation’s direct sales strategy is bringing in zero

profit as oppose to the forecasted $2.4M net profit. The revenue was 55% below the forecasted $20M US.

Pyramid

QuestionHow can we increase US revenue from $9M to $20M and

increase profit from zero to $2.4M net profit in the next 18 months?

Answers The Maxclean sales force should shift their focus to spend

their time building relationships with and selling through distributors.

BECAUSE…..

Distributors want to sell Maxclean’s product since it is beneficial for them to do so

Corporate end users prefer to purchase through distributors

Rationale

Going through distributors provides better economics for Maxclean

Distributors have

complete product

lines

Going through

distributors will save Maxclean

warehousing &

transportation costs, & therefore increase

gross profit

Going through

distributors will allow

Maxclean to sell high volumes

since distributors order more

product than direct

customers

Going through

distributors allows

Maxclean to extend its product

reach, since distributors can sell to

larger sales territory

Distributors will receive a higher

profit margin compare to

other brands

Distributors see benefits in

getting better payment terms with Maxclean

Better customer service

and faster delivery

Low investment costs since

logistic system already

established

US revenue and profits have under performed for TWO consecutive years

Real Data

Source: Maxclean, FY2007

US revenue and profits have under performed for TWO consecutive years

Real Data

Source: Maxclean, 2008

End users prefer distributors because…

Distributor

Source: Company reports of distributors

Real Data

Corporate end-users prefer purchasing all of their products from one location

Quote from Mrs Kim Yung(Sourcing Manager , Samsung Co Ltd)

source: Quote from an interview with a corporate end user Real Data

“We have diverse product requirements across multiple geographic locations and we expect our supplier to service our need from a single touch

point

End users are shifting procurement services to distributors since they carry a broader range

of products

Fake Data

Products demanded by end user A

Facemasks Sticky mats

Wipes Swabs Apparel Gloves

Maxclean X X X

Distributor A

Distributor B

Maxclean carries only a portion of the cleanroom products most often demanded by customers

Source: Interview with Distributor A

Real Data

End users who are located further away from Maxclean’s California warehouse, can get faster

delivery service from a distributor

Maxclean’s warehouse

DCs of Distributor A

Maxclean only has one warehouse in CA, making it difficult to deliver products to other states e.g. the eastern coast

On the other hand, distributors have DCs widely spread across the country, providing a much more efficient distribution network in terms of speed, coverage

Very low Investment Costs

Investment into new logistic

systems

Time costs on Relationship

building

Time costs on product search

Product costs

End user costs of engaging with new supplier

End user costs of engaging with existing distributor for Maxclean

Remove investment Costs

Product costs

Real Data

Total Costs

Maxclean’s value proposition to their distributors

Real Data

The top two attributes that distributors consider when looking for a supplier are price and quality

source: Surveys on corporate user & distributor

0

20

40

60

80

100

Price

Quality

Product varties

Delivery

Brand

Others

Real Data

Percentage of Respondents

Maxclean is on average 30% cheaper than its competitors

True Data

USD

Maxclean has on average, better quality products than its competitors

Fake Data

Maxclean

Maxclean offers better margin to distributors than competitors

True Data

Source: Market Survey and Maxclean internal data

Higher the sales volume, better the profit margin compare to other brands

Higher the sales volume, better the profit margin compare to other brands

Distributors can will get better payment terms with Maxclean because they are new in the

market

Payment term30 days as average

0 σσ

Maxclean Payment term50 days as average

Real Data

Source: Market Survey and Maxclean internal report

Distributors are not satisfied with their current suppliers

Quote from Mr. Doug Cwiertina(CEO of Polytek, a distributor of Cleanroom

products in land development sector)

source: Quote from interview with a distributor Real Data

“We feel like we should be able to get a better price for the cleanroom products that we purchase”

Distributors’ satisfactory level with their suppliers

Maxclean benefits from dealing with distributors

Source: Surveys and interviews with distributors Real Data

Maxclean

More cost effective to use distributors to lower direct costs therefore increase gross profit

source: Maxclean financial statement

2007 2008 2010 (projected)

Total Revenue (000) 4,134 8,992 20,000

Direct Costs

Material Costs 2,580 5,394 11,400

Warehouse Rent 189 289 0

Freight and logistic Charges

579 1,146 0

Gross Profit (CM) 786 2,163 8,600

Gross Profit in % 19% 24.1% 39%

Real Data

43%

Distributors allow for higher sales volumes

Fake Data

source: survey and interview from a distributor, Maxclean internal data

More effective to use distributors because Maxclean’s US office has a smaller reach compared to distributors who have a larger

geographic reach

source: Frost & Sullivan - CLEANROOM MARKET USA 2007

Percentage of Distributors that are located in each state

Real Data

% of US cleanroom distributors located in each State

77% of cleanroom products are sold through distributors and Maxclean can generate new sources of revenue through these

distributors

Source: Frost & Sullivan - CLEANROOM MARKET USA 2007

Real Data

Appendix

There is room for entry into distribution segment since 3/5 of distributors and 1/3 of corporate users are

looking for NEW suppliers

source: Surveys on corporate user & distributor

Real Data

Yes

No

Distributors

Yes

No

Corporate end-users

YES67%

YES31%

No69%

No33%

The majority of Maxclean’s current USD $9M sales is from 5 customers which indicates that there is room for sales force to

expand their network

US major clients: volume distribution in 2008

Company Name Share (%)

Applied Micro Circuits 9.14

Intel 19.35

Intersil 7.04

Trident Microsystems 6.77

Freescale Semiconductor 9.89

Total from 5 main customers 52.20

Others 47.80

Need to change this to a more friendly graph

Real Data

Implementation: Re-organize the sales force to focus on distribution instead of direct sales

There is a lack of distribution experience in current sales force

Therefore, need to hire a new sales director with solid experience in distributors channel to lead the existing team

70% of sales force time will be spent to build relationships with distributors

30% of time to maintain the revenue from current direct sales

Implementation: Focus on distributors by allocating

70% of time

Real Data

source: Maxclean, 2009

(based on 250 working days/year/salesperson)

US market share for cleanroom products industry in different states

source: Frost & Sullivan - CLEANROOM MARKET USA 2007

Texas

Interview schedule

  NAME POSITION   RELATION TO MAXCLEAN DATE TIME Interviewer

1 Mr. Christopher Simos Sourcing Manager 1 Potential Client (distributor) Sept 28 8am (US)Angelika, Ivy

2 Mr. Nicolas Freinze Manager 2 Potential Client (distributor) Oct 710am

(US)Angelika, Ivy

3 Mr. Shawn Yoon General Manager 3 Maxclean Korea Branch Sept 29 2pm (HK)Angelika, Joanne

4 Mr. Nick Rosens General Manager 4 Maxclean USA Branch Oct 10 9am (US)Angelika, Joanne

5 Ms. Kim Yun Sourcing Manager 5 Samsung Co. Ltd Oct 8 4pm (HK)Alan, Rayman

6 Mr. Douglas Cwiertina CEO 6 Existing Client (Distributor) Oct 9 9am (US)Alan, Rayman

7 Steve KowarskyEnd user in US

7 Potential user of Maxclean Oct 8 9:am (US)Rayman, Joanne

Action plan

Issue Hypothesis AnalysisData Sources Who Deadline Data received Status

Would attending tradeshow in related industries increase sales in later months?

Attending tradeshows in targeted industries can increase brand awareness and thus lead to more sales.

Review what tradeshow that Maxclean had participated in the past and the chance of getting new business.

Maxclean's marketing data

Joanne 25-Sep tradeshow attendedsample distributedsuccessful deals received

Complete

Would distributing samples in every major medical supplies retail store increase sales?

Distributing samples can increase Maxclean's brand awareness and encourage product trial and thus, lead to more sales

Review Maxclean's history of distributing samples to medical supplies retail store.Refine the budget cost for sampling.

Maxclean's sales information in US

Joanne 2-Oct no. of sample distributed from China office and US office

Complete

Would advertising on internet more effective to reach our designated distributors and end users ?

With more effective advertising on internet to reach our designated distributors and end users would increase sales by 15%.

Review historical performance with degree of advertising

Sales data from Maxclean Group

Joanne & Ivy

15-Oct Type of internet media used in China, US

Complete

Would adverting on TV, newspaper and specialty magazines more effective to reach our designated distributors and end users ?

With more effective advertising on TV, newspaper and specialty magazines to reach our designated distributors and end users would increase sales by 5%.

Review historical performance with degree of advertising

Sales data from Maxclean Group

Joanne & Ivy

15-Oct Complete

Would sales increase if country of origin is in US ?

Sales will increase by 10% if Maxclean made their products in U.S

Interview Maxclean US Sales Manager

Joanne & Angelika

10-Oct Complete

Sales are lower that expected

Forecasted sales & profit are much higher than actuals

Review 2008 data Maxclean US records Ivy & Alan 9-Oct Complete

Targeting end-users is not resulting in sufficient sales

One distributor can bring in much higher volumes than one end user

Review industry data: look at total sales volume and breakdown of distributor volume vs. one end-user volume

Industry report Angelika 13-Oct Complete

Action plan - continued

Issue Hypothesis Analysis Data Sources Who Deadline Data received Status

Would sales increase if Maxclean offer price is more than 30% cheaper than the competitors ?

Sales will increase by 5% if Maxclean offer price is more than 30% cheaper than the competitors.

Interview Maxclean US Sales Manager

Joanne & Angelika

10-Oct Yes Completed

Would sales increase if we do co-branding with distributors ?

Sales will increase by 10% if we do co-branding with the distributors

Is it important from the distributors' perspective to include their brand name on our product ? Would distributor brand add value to our own brand ?

Create questionnaire and conduct telephone interview with the distributors and end users

Rayman 14-Oct Yes

Completed

Would stock rotation program encourage distributors to carry additional inventory ?

Sales will increase by 15% if we develop Stock Rotation program

Would our distributors be interested in this program, what are their concerns in regards to inventory carrying, have they done this before with other suppliers ? What can Maxclean do to lower their risks of carrying some inventory ?

Create questionnaire and conduct telephone interview with the distributors

Rayman & Alan

13-Oct Yes Completed

Would higher discount rate encourage distributors to carry additional inventory ?

Sales will increase by 5% if we give volume discount

What are the other suppliers do when they want to boost sales when close to quarter end? How much inventory and risk would distributors willing to take considering the extra discount they will get during quarter end period ?

Create questionnaire and conduct telephone interview with the distributors

Rayman & Alan

13-Oct Yes Completed

Action plan - continue

Issue Hypothesis Analysis Data Sources Who Deadline Data received Status

Would extending the payment term to distributors increase sales?

Extending the payment term to distributors from X 2 to X2, sales revenue will increase

Look at historical data of Maxclean, i.e. Is this something they have done in the past with positive results?Interview with distributor in US to ask "would this be incentive for you?"Interview with US salesforce: "has this been a question you were approached with?"

Maxclean historical dataDistributor of cleanroom products in US: contact info from MaxcleanSales force from Maxclean office in US

Joanne & Angelika

17-Oct In progress

Would increasing individual sales commission increase sales ?

Sales revenue increase by 5 % if commission increase to 5%

Study past years of financial reports to determine the correlation between commission and sales revenue Use current commission scheme as benchmark to study the overhead cost

Maxclean historical data

Alan 17-Oct In progress