KREATIVE KASUALS INC.
FOR MR.
GARY MASTERS
HASAN ALI & JAYSON WU
TEAM 8 CONSULTING
AGENDA
I.
Executive Summary
II.
Industry Analysis
III. Competitive Position
IV. Alternative Business Opportunities
V. Recommendations
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
EXECUTIVE SUMMARY
INDUSTRY ANALYSIS
COMPETITIVE
POSITION
• Prior experience with government contracts provides
competitive advantage
ALTERNATIVES
• Capacity increase required if tenders are successful
RECOMMENDATIONS
Agenda
• Textile industry suffered due to economic decline
Executive
Summary
Industry
Analysis
• Bid for open contract from Ministry
• Compensation for RCMP may be insufficient
Competitive
Position
Alternatives
Recommendations
INDUSTRY ANALYSIS
Reduced
Domestic Demand
Reduced Export
Demand
Foreign Cost
Undercutting
Private Sector Industry Decline
Increased Competition for Government Tenders
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
COMPETITIVE POSITION
Competitive advantages
• Prior government contract experience
• Attention to product quality
• Flexible access to labor
Competitive disadvantages
• Lacks financial capability relative to multinational
companies
• High economic dependence on government contracts
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
ALTERNATIVES
Bid for RCMP Trousers Contract
Bid for Open Volume Contract
Bid for both
Do not bid on either
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
ALTERNATIVES – RCMP TROUSERS
How much to bid for RCMP Contract?
• Based on cost plus method
• Likely cannot achieve 30% margin due to competition
• Bid by price per trouser not overall cost due to possibility of quantity
increases
Incremental Cost - RCMP
Trousers
Volume
Incremental Costs*
*Incremental Costs Schedule
Fabric / Unit
Valcro / Unit
Direct Labor / Unit
Incremental Cost per Unit
Agenda
Executive
Summary
Base
28,450
$340,181
Quantity
1.5
1
0.457
Industry
Analysis
Base + Opt
37,825
$452,279
Rate
$3.10
$0.45
$15.00
Competitive
Position
Max
43,250
$517,146
Bid Price Per Pair
Unit Cost
$4.65
$0.45
$6.86
$11.96
Alternatives
No Margin
$11.96
10% Margin
$14.61
20% Margin
$17.94
30% Margin
$22.21
Recommendations
ALTERNATIVES – RCMP TROUSERS
Additional capacity required
• Large volume required to be delivered by December 31, 2010
• Current process will not be able to meet demand in time
• Run two prod. lines at three shifts/day OR six prod. lines
Number of Production Lines
Capacity Analysis
1
2
3
4
5
Production per Day
35
70
105
140
175
Monthly Production
1,068
2,135
3,203
4,270
5,338
Production to December (5 Month) 5,338
10,675
16,013
21,350 26,688
Production Required
28,450 28,450
28,450
28,450 28,450
Surplus (Shortfall)
(23,113) (17,775) (12,438) (7,100) (1,763)
6
210
6,405
32,025
28,450
3,575
*Based on 35 units produced per 8 hour shift
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
ALTERNATIVES – OPEN VOLUME CONTRACT
Bid Price for
Cargo Pants and
Shorts
• More likely to
achieve higher
margin based on
prior contracts
with ministry
• Higher volume =
more cost
effective
Agenda
Executive
Summary
Industry
Analysis
Incremental direct variable cost
Fabric / Unit
Zippers etc. / Unit
Direct Labor / Unit
Incremental direct variable cost
Cargo
$4.93
$0.45
$6.86
$12.24
Incremental overhead allocated
Additional salary
Additional utility cost
Total additional overhead
Shorts
$3.94
$0.36
$5.49
$9.79
$20,000
$3,744
$23,744
Anticipated volume
Incremental overhead allocated
2000
$0.99
3000
$0.66
Total Incremental Cost / Unit
Base volume (2000/Month)
Higher volume (3000/Month)
Cargo
$13.23
$12.90
Shorts
$10.78
$10.45
Price Per Pair
No Margin
10% Margin
20% Margin
30% Margin
Cargo
$13.23
$16.17
$19.84
$24.56
Shorts
$10.78
$13.17
$16.17
$20.02
Competitive
Position
Alternatives
Recommendations
ALTERNATIVES – OPEN VOLUME CONTRACT
Additional capacity also required
• Volume fluctuations makes committing additional capacity
risky
• Use temp workers OR subcontractors
Capacity Analysis
Production per Day
Monthly Production
Monthly Production Surplus (Shortfall)
Base Volume (2,000 / month)
High Volume (3000 / month)
Single Shift Double Shift Triple Shift
35
70
105
1,068
2,135
3,203
(932)
(1932)
135
(865)
1203
203
*Based on 35 units produced per 8 hour shift
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
ALTERNATIVES – BID FOR BOTH
Additional Monthly Capacity
Required (Total Units)
9000
8000
7000
RCMP Only
6000
Open Vol Only
5000
Both
4000
3000
2000
1000
0
Months
Additional capacity required to meet quantity demand
• Monthly capacity up to 18,000
• Not an issue since you have reached 100,000 units/month
Requires extensive time commitment
• Takes away from your personal time with family
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
ALTERNATIVES – BID FOR BOTH
Also consider biding for polyester/rayon and cotton
dress shirts
• Labor characteristic similar to T-shirt
• Availability of material
Avoid moisture wicking dress shirt
• Material sourcing can be a challenge
• Lack of experience in this product can lead to labor cost overruns
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
ALTERNATIVES – NOT BIDDING
Additional personal time with family
• Almost at age of retirement
• Despite recession, had stable financial performance
Financial implications of not bidding
• Foregoing incremental profit from contract opportunities
• Economic recovery may relieve competitive pressure
• Can be risky if economy does not improve
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
RECOMMENDATIONS
Criteria
Weighting
RCMP
Open
Both
None
Financial Reward
40%
5
8
10
0
Level of Input
40%
4
7
3
10
Alignment with
Current Business
20%
6
8
4
0
4.8
7.6
6
4
Weighted Average
Weighted average decision matrix
• Bid for open contract
• Highest relative financial reward as well as alignment with current
operations
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
RECOMMENDATIONS
Compared to RCMP contract
• Level of compensation likely better than RCMP
• Do not have to rush to complete a large order
Alignment with current business model
• Continue to use temp workers and subcontractors
• Do not have to source materials from other supplier
• More likely to win contract due to reputation with ministry
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
RECOMMENDATIONS
Net profit estimate
Current
With RCMP
With Open
With Both
30%
24%
30%
25%
$1,203,531
$1,556,121
$1,846,838
$2,177,290
Direct variable costs
$842,471
$1,182,652
$1,292,786
$1,632,967
Contribution margin (Estimate)
$361,059
$373,469
$554,051
$544,322
Manufacturing overhead
$59,600
$59,600
$63,344
$63,344
Net profit before admin costs
$301,459
$313,869
$490,707
$480,978
Telephone & Internet
$1,800
$1,800
$1,800
$1,800
Salary
$60,000
$60,000
$80,000
$80,000
Net profit
$239,659
$252,069
$408,907
$399,178
Average contribution margin rate*
Incremental revenue (Estimate)
*Average contribution margin rate estimate taking into account dilution or accretion from additional products
Agenda
Executive
Summary
Industry
Analysis
Competitive
Position
Alternatives
Recommendations
Thank You. Questions?
We would be happy to go over details about our assumptions estimates .
TEAM 8 CONSULTING