Profitability Study for the Business Forms Division of Allied Office Products February 9, 2007...

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

http://fiveandone.wikispaces.com/

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



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)



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



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



Goals & Objectives

Review Current State Identify Areas for Improvement Increase ROI on TFC from 6% to 20%



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



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



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



Order Entry & Billing

Ensure requisition process /order entry / billing is a one-step process

Goal: Reduce redundant data entry



Desktop Delivery

Currently, no extra charge to clients for this time intensive activity

Implement desktop delivery fees



Freight

Cost coverage set fee is not equitable across customer base

Implement pass-through freight cost leveraging new computer system



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



Activity Based Cost Analysis



Activity Based Cost AnalysisIndividual Customer Profitability



Activity Based Cost AnalysisImpact to Bottom Line



RecommendationsActivity Based Management (ABM)

Management Philosophy Focus on cost reduction Make informed decisions Create & maintain a competitive advantage Reduce non-value added activities



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)



RecommendationsActivity Based Costing (ABC) Storage & Inventory Financing

Charge 1.5%/mo. for on-hand inventory > 9 months



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



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



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



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.”


Profitability Study for the Business Forms Division of Allied Office Products February 9, 2007...

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