MAPUA INSTITUTE OF TECHNOLOGY
SCHOOL OF INDUSTRIAL ENGINEERING AND ENGINEERING MANAGEMENT
Strategy Formulation: Improving Net Income
at HG-Premiere
SUBMITTED BY:
SIAPNO, MARVIN
SUNGA TYRON
SUBMITTED TO:
DR. MA. CECILIA CARLOS
Adviser
0
Acknowledgment
It is a great feeling, indeed, to be able to finish this study and it is so because of the people who
were behind us to make this possible.
We would like to extend our sincerest gratitude to the following:
First and foremost, We would like to thank our dearest Lord God for giving us the strength and
determination we need, and this would not come to reality without his guidance.
Our earnest thanks to our family and relatives for their prayers, and for giving us moral and
financial support.
Our deepest thanks to my adviser Dr. Ma. Cecilia Carlos, for guiding us and for sharing us her
knowledge and wisdom to finish this study. Without her help, we think this study would not be
success. And also to our outside adviser Prof. Marvin Noroña for guiding us and helping us in
times of trouble. Dean Rex Robielos for also helping and giving words of encouragement and
also challenging us to work harder.
We would also like to thank our panelists, Prof. Josephine German, Prof. Christy Mendoza and
Prof. Jose Villegas for giving comments and recommendation to make this study a better one.
Our appreciation to Mr. Harold Guintu, President of HG-Premiere Int’l for allowing us to
conduct the study in their company and also provides us the necessary data we needed to
complete this study. And lastly, a heartfelt thanks to our friends, Racquel Alenaje and Jeffrey
Sedenio, who gave us their full support to finish this study and Ate Linda for cooking us foods
when we are hungry.
TYRON SUNGA
MARVIN SIAPNO
1
ABSTRACT
The study will focus generating strategies on increasing the net profit margin of HGPremiere Int’l with the objective of identifying the metrics that would augment Key Performance
Indicators and would serve as strategic value drivers for the company and also come up with a
thorough analysis of the operations of the company, and to be able to formulate the appropriate
strategies with the use of A Macro-Environmental Analysis of business, Identification of causes
of poor company performance, Identification of Key Result Areas, and Identification of Key
Performance Indicators.
With the current situation of the company, the concern is that they are generating a profit
lower than the standard which is 12% for the Logistics Industry. The company’s net profit
margin in 2010 of operation (January to December) is only 2%. The company’s target is to
increase its net income by 15 percent for the next three years of operation. In
this
study,
the
researchers were able generate the necessary strategies to help in achieving the company’s
objective:
•
Low product acquisition cost
•
Market expansion – sales representative
•
Focus on: High profit - low selling product and Low profit – high selling product
•
Safety investment for in-demand products.
2
TABLE OF CONTENTS
Chapter I
Introduction
4
Chapter II
Related Literature
15
Chapter III
Conceptual Framework
22
Macro-Environmenta Analysis
31
Porter’s 5 Forces Model (Logistics)
45
Porter’s 5 Forces Model (Exporting)
49
Business Process Review
52
Key Performance Indicators
58
Financial Statement Analysis/ Ratio Analysis
69
Nine Cell Analysis
78
SWOT Analysis
84
TOWS Matrix Analysis
85
Chapter IV
Conclusion
88
Chapter V
Recommendation
100
Appendices
101
References
104
3
Chapter 1
Introduction
Background of the study
Third-party logistics provider, or known as 3PL, is a firm that provides outsourced or "third
party" logistics services to companies for part or sometimes, all of their supply chain
management functions. According to Wikipedia, third party logistics providers typically
specialize in integrated warehousing and transportation services. These services can be scaled
and customized to customer’s needs based on market conditions and the demands and delivery
service requirements for their products and materials.
Companies outsource for many reasons: to reduce costs; shorten cycle time; improve shareholder
value; decrease inventory; focus on core competencies; gain information technology increase
expertise, and more. Also transport, warehouse, forwarder and other logistics service providers
want to provide outsource services. They want to improve profits, make a transition from being a
commodity service provider, gain volumes and throughput by leveraging existing core logistics
service, increase revenues, and more.
In the financial side, one net positive financial value of collaboration is to achieve a balanced
cost reduction strategy for both 3PL provider and for the customer. Additional benefits are
incentives for innovation and alignment of 3PL-customer key performance indicators with
drivers of total economic value.
Successful collaborations between 3PLs and customers are not without their challenges and
difficulties. Developing a strategic plan for the relationship can be of considerable value. As part
4
of the process of developing the plan, 3PLs together with their customers, should develop
checklists as tools for successful collaboration. Everyone involved should realize that a
successful collaboration should last longer than the people who are involved in its formation. To
effectively do this, 3PLs and customers should place a high priority on identifying the objectives
of their collaborative relationships and then develop a sound strategic approach for establishing a
truly collaborative business relationship.
An established, successful long-term relationship between any 3PL provider and customer is
directly influenced through the overall end value that is generated for the supply chain. 3PLs
should focus on satisfying its customers. Customer satisfaction is achieved by meeting or
exceeding customer expectations. Short-term metrics provide day-to-day guidance for 3PLs, and,
it is important to have these short-term metrics aligned with real long-term goals and objectives,
relating to both the customer and the overall supply chain.
Traditionally, in the process side of 3PL-customer collaboration, Key Performance Indices
(KPIs) are limited to internal metrics and vendor scorecards. Process design and execution are
confined to intra-company boundaries, and improvements are reactive in process resolution
between customer and 3PL. Shared KPIs and a joint focus on continuous process improvement
can be factors on how a 3PL-customer can assess both their performance and implement an ideal
system process.
5
Company Background:
HG-Premiere International Trading Inc. is a third-party logistics (3PL) firm which provides
warehousing and freight forwarding services to its two partner companies overseas, Pinex
Trading located in San Francisco, and Sunrise Foods in Los Angeles. HG-Premiere, Pinex
Trading and Sunrise Foods are three different companies but they work as one. HG Premier’s
two partner companies are categorized as distributors and wholesalers of food, beverages, and
other kinds of products to other small to large firms (supermarkets, grocery, retail outlets) in
their respective areas. The products that HG-Premier are exporting are mostly cosmetic products,
foods, and condiments. The percentage of products that are being exported is shown in Figure 1
below.
Figure 1. Profile of Exports, HG-Premier
HG-Premier
5%
5% 4% 1%
Canned Goods
25%
19%
19%
22%
Cosmetic Products
Snack Foods
Condiments
Source: HG Premier – Product List
6
Business Process of HG Premiere
Figure 2
One of the services of HG-Premiere is to supply products to Pinex Trading and Sunrise Foods.
HG-Premiere has several suppliers in the Philippines, among them Coca-Cola Philippines and
Nissin-Monde Philippines Inc. Aside from getting the products to the supplier, HG-Premiere also
manufactures its own products. Currently, HG-Premiere manufactures six kinds of products, as
shown in Table 1 (Products Exported by HG-Premiere).
7
Table 1.Products Exported by HG-Premiere
Description
Packing
GOLDEN YUM KAONG RED
24x12oz
GOLDEN YUM KAONG GREEN
24x12oz
GOLDEN YUM NATA DE COCO WHITE
24x12oz
GOLDEN YUM NATA DE PIÑA
24x12oz
GOLDEN YUM NATA DE COCO RED
24x12oz
GOLDEN YUM WHITE BEANS
24x12oz
The company has a minimum target of fourteen (14) 40-feet high cube containers a month. One
(1) container has a minimum value of P1.8 million depending on the prices of the products
contained therein. Of the 14 containers, eight (8) containers go to Pinex Trading and six (6)
containers to Sunrise Foods.
HG-Premiere outsourced its transportation services to Orient Star, a shipping company. Orient
Star is in charge of picking up goods from HG-Premiere’s warehouse and delivering these to
their respective port areas.
8
HG-Premiere Organizational Chart
HG-Premiere’s Organizational chart shows the interrelationships of positions within the
organization in terms of roles and responsibilities of all personnel. It shows how each department
of HG premiere works. It also explains the importance of each section in the company.
President
Documentation
Department
Operations
Department
Marketing
Department
Figure 2. HG Premiere’s Organizational Chart
The Marketing department is responsible for receiving customer’s purchase order (see Annex I
for Sample PO form) conscientiously and endorsing these orders to documentation for
configuration. Once configured, the purchase order is sent back to the marketing department as a
Pro-forma invoice and then forwarded to the customer for final approval. It is also the
department responsible in calling the suppliers for the orders.
Documentation is important in exporting. It must be precise. Slight discrepancies or omissions
may prevent merchandise from being exported, which results in not getting paid, or even result
in the seizure of the exporter’s goods by local or foreign government agencies. Documentation
9
Department configures the orders within the given constraints of a fully loaded container which
is 18,000 kg and 71 CBM.
The Operations department is in charge of coordinating with the freight forwarder. The
operations loads the container and once they are finished, they forward the final tally of goods
loaded to the documentations department.
Statement of the Problem
The most imposing crisis to HG-Premiere Trading is a difficult financial environment. HGPremiere has not been able to meet its expected profit due to some problems. Presently, the
company’s net profit margin in 2010 of operation (January to December) is only 2% (see Table
3: HG-Premiere Overview of Income Statement). The company’s target is to increase its net
income by 15 percent for the next three years of operation. This can be attained by meeting all
clients’ expected orders and through the use of the company’s operational strategies. Presently,
the company uses JIT (Just In time) approach that leads to difficulty in meeting the demands and
requirements of their customers. In using the JIT system, different factors in order to implement
a perfect JIT system are essential. HG-Premiere Trading needs to formulate strategies in line
with each of its departments - marketing, operations, and documentation. The company needs to
re-evaluate the use of the JIT system as their strategy and to develop a strategic plan in guiding
the relationship between the company and its customers to its desired direction. The company
and its customers must move toward collaborative and sustainable strategic plans over the long
term.
10
In addition, HG-Premiere does not have any Key Performance Indicators. The researchers aim to
identify metrics in order to formulate an effective strategy that can help the company reach its
objectives efficiently.
Table 3: HG-Premiere Overview of Financial Statement
Source: HG-Premiere Financial Statement
11
Objective of the Study
The objective of this study is to come up with a strategic plan for HG-Premiere that would
enable it to achieve its financial objectives. Also, the study aims to identify the metrics that
would augment Key Performance Indicators and would serve as strategic value drivers for the
company so that the company would be able to constantly meet or exceed their targets in line
with client’s expectations among the company’s offered service.
To come up with a thorough analysis of the operations of the company, and to be able to
formulate the appropriate strategies needed for it to achieve its objectives, this study will
endeavour the following:
•
A Macro-Environmental Analysis of business;
•
Identification of causes of poor company performance;
•
Identification of Key Result Areas;
•
Identification of Key Performance Indicators;
•
Formulation of business strategy; and
•
Formulation of functional strategies to achieve competitive advantage
12
Significance of the Study
Significance of a Strategy
Paper
Individual
Level
Organizational
Level
Others
This study would be very important since the company does not have existing Key performance
indicators. The researchers would like to establish Key Performance Indicators that would
quantify the performance of the company. Also, this study would provide the company an ideal
strategic plan for the betterment of the company’s system and would enable them to satisfy their
customers and build a good reputation.
Upon completing this study, it can be used as a reference by different individuals associated with
logistic topic researchers, employees, and upcoming practicum students to have an additional
viewpoint and approach with regards to operations in a logistics company.
The aim of this paper is to help HG-Premiere and other similar companies to identify Key
Performance Indicators that can help the company to improve its overall business performance.
Also, this strategy paper can be a great help to other groups or individuals that are planning to
enter this kind of business. Suppliers and investors can look at this paper to know the different
strategies that they can implement in order for them to become efficient.
13
This study could broaden the knowledge of the researchers regarding 3PLs services and
processes. It will provide a point of view on how to analyze a step by step process and will be a
good chance to practice the use of decision making tools and to sharpen decision making skills.
Scope and Limitations of the Project
This study covers all the departments in assessing the company’s overall performance and also in
creating a strategic plan for improvement.
Company data to be used in the study covers the whole period of its 2010 operations.
14
Chapter 2
Review of Related Literature
Competitive advantage and firm performance are two different constructs with an
apparently complex relationship. Overall though, studies have shown a significant relationship
between competitive advantage and performance. Indeed, the issue of heterogeneous firm
performance and the determination of such factors is an important issue in the field of strategic
management. Studies tend to link such performance differences to either industry-specific factors
or to firm-specific factors, with mixed results. In short, an effective performance measurement
system should be able to capture not only the financial aspect of business performance but also
the non-financial elements, so as to present a clearer and wider perception and dimension of
performance.
An article entitled “Strategic Competition, Valuation, Costs and Growth Potential: The
Example of Global Product Design and Development” by Ojah and Monplaisir (2003), stresses
that firms obtain higher returns from their global product development when they compete in
strategic complements than when they compete in strategic substitutes. The authors indicate that
firms with higher cash flows mostly compete in strategic complements but firms that are
dominant in their industry most likely compete in strategic substitutes. Also, global product
development contributes to the firm's growth potential when pursued in conjunction with high
multi-nationalism, aggressive competitive strategy, and high cost saving.
15
In a study done by Boyson, et. al. (1999), the authors specified that an effective way to
help U.S firms to achieve competitive advantage is to increase their customer service levels and
to reduce the overall logistics cost of the companies by outsourcing logistics functions. They also
said that the critical concern in this research is the maintenance of the internal capabilities to
manage a logistics outsourcing process. In addition, the researchers suggested that it is better for
the companies to take a strategic approach in their long term goals by outsourcing on a function
by function basis.
In the article “The Application of Performance Measurement in the Service Quality
Concept” by Pandelis and Zisis (2009), it was pointed out that organizations seek to understand
the importance of looking backward (suppliers) and forward (customers) within the supply chain
(SC). The authors state that the organizations should be able to identify shortfalls related to their
operations. In short the organization should examine every sole ingredient of their SC, in order to
have an accurate vision about the performance. The authors emphasized that it is difficult to
‘inspect the SQ into the processes’ of SC. However, they can control the process itself. While
proposing that using the ‘proper measures’ within the supply chain context, organizations are
able to observe and check frequently their processes in order for improvement to be achieved.
In their research, Sum and Teo (1999) observed the characteristics of different
Singaporean 3PL providers who are having difficulties in attaining competitive edge against their
competitor. The researchers have used the 5 Porters competitive analysis and found out the
companies that are using a cost and differentiation strategy has higher performance metrics and
performance indicators.
16
Gunasekaran (2001) in his article entitled “Performance measures and metrics in a
Logistics Company” indicated that in today’s world, “delivery performance is a key strategic
factor for increasing organizational effectiveness and for better realization of organizational
goals such as enhanced competitiveness, better customer care, and increased profitability. Most
of these companies realize that, in order to evolve an efficient and effective logistics process,
delivery needs to be assessed for its performance”. Based on a literature survey made by the
same author, an attempt has been made to develop a framework for measuring the delivery
performance in a logistics process. In addition, a list of key performance metrics was presented
in the study. The emphasis of the study was on performance measures dealing with suppliers,
delivery performance, customer-service, and inventory and logistics costs.
Cost Reduction Effects
Many international economics researchers have indicated collaborative international
production as an important means of minimizing production costs in an increasingly global
marketplace (Chen and Ross, 2003).
Specifically, Ohmae (2007) argues that increased
globalization has changed the game of successful strategic competition from a variable cost
reduction game to a fixed cost amortization game. These researchers said that to compete in the
global arena, the company has to incur and somehow defray immense fixed costs. Through
reduction of fixed cost, the expectations would be met and the global alliances would enhance
the firm’s value.
17
Strategic Management
Guan and Ma (2003) wrote that governing the market and fostering entrepreneurship are
the keys to competitive advantage. They also discussed seven entrepreneur innovative
capabilities namely; learning; Research and Development (R&D), manufacturing, marketing,
resource-exploiting ability; organizational capability; and, strategic capability adaptable to
competitive environments. The authors said that these seven innovative capabilities can help in
achieving an appropriate business strategy. Also, the authors said that the basis for a firm’s
competitive advantage are making intellectual assets less transferrable, increase the costs of
copying; and, generate market imperfections. The authors came up with a strategy that provides
more control and leads to more alternatives to react proactively to opportunities.
Performance Analysis
In an article written by Wang & Lo (2003), specific attention was accorded to
"performance" from the perspective of both "financial" and "non-financial" sides, the main
elements of which consist of "sales-based" and "organizational-based". These actions resulted in
coming up with a significant relationship between competitive advantage and sales-based
performance of organizations. In doing so, the researchers made a claim that the relationship
between competitive advantage and the organizational-based performance of organizations will
lead to performance measures dealing with suppliers, delivery performance, customer-service,
and inventory and logistics costs.
18
Performance Measurement (PM)
In an article by Parker (2000), Performance Measurement was a core theme on the
agenda of all organizations. The author also mentioned that a diversity of companies extending
from public and non-profit to private and for-profit organizations attempt to assess their
performance using measures. He also indicated strategic planning, where PM is regarded to be
one of the four key factors which enable effectual management. The author also discussed four
fundamental rules to be followed:
1) measures must ‘be aligned’ with the organization’s
strategic vision; 2) all the levels of an enterprise should be incorporated in the measurement
regime; 3) the measures should be easily understood from all the members within an enterprise;
and, 4) measures should be analysed and results should be reported infeedback as a basis for
performance improvement measurement.
Competitive Advantage
Gimenez and Ventura (2004) pointed out that the pursuit of competitive advantage is an
idea very much at the heart of the strategic management literature. By understanding the sources
of sustained competitive advantage it has become a major area of study in strategic management.
They indicated that other studies support the importance of this resource-based view. The authors
also stated that when this strategy is well-formulated and implemented, it can significantly affect
a firm's level of competitive advantage. The researchers also state that by using the resourcebased view, it would provide an avenue for organizations to plan and execute their organizational
strategy by examining the role of their internal resources and capabilities in achieving
competitive advantage. By doing so in this line of research, specific attention will be given to
"competitive advantage" from the dimension of "value and quality", the main elements of which
can be labelled "cost-based", "product-based", and "service-based". Previous studies have shown
19
a significant relationship between cost-based advantage and organizational performance,
resulting in firms that benefit from service-based competitive advantage compared to their rivals
and demonstrated comparatively better performance.
Business Process Improvement (BPI)
In 2009, an article entitled “Achieving Higher Levels of Business Process Improvement”
by Peter Green indicated that the creation of diverse values for stakeholders is facilitated with
process improvement projects within Business Process Management (BPM) initiatives. These
initiatives require the effective communication with key process stakeholders in order to
determine innovative and relevant improvements. The researcher cited that achieving higher
levels of BPI requires specific organizational capabilities such as sound risk management
capabilities and staff experienced in designing improved business processes. However, the
results will solely be based on the current business environment dominated by high competition,
virtual enterprises, and outsourcing. Organizations need to recognize and deal with much larger
pools of diverse stakeholders, imposing their own unique requirements on business processes.
The author also stated that top management can play a more effective role in BPI initiatives in
achieving higher levels of improvement. The researcher also found that better levels of time to
perform processes, accessibility, maintainability, accuracy, and ease of use, consistency, quality,
and end users’ satisfaction could measure the levels of improvement.
20
Financial Management
In an article titled “Global Business Models Based On E-LOGISTICS And its Financial
Measurements” by Radislav Jovović, (2010), It was stated that every business model should be
viewed from a financial perspective because of the ultimate objective of profit-maximizing. The
author points out that financial performance measures indicate whether the business model,
including its implementation and extension, are contributing to the planned improvement. The
author also states that more emphasis should be given to low coordination cost and connectivity
cost, reactivity to unpredicted changes, and transparency of selective information while covering
information from unauthorized partners at the same time.These will result to increased revenues
from satisfied customers and opportunity to capture customers from competitors in pricesensitive and value preferring market segments.
Logistics, Retail and Trade
In the public hearing of the Senate Committee on Trade and Commerce in 2009, Mr.
Roberto Claudio of the Philippine Retailers Association stated that Philippine retails and trade
are operating on a 20 to 25 percent net profit margin. This compares well with other Asian retails
and trade which are operating on 40 to 50 percent net profit margin and North American retails
and trade at 60 to 80 percent net profit margin. Gross margins are widely used as indicators of
the competitive pressure and/or efficiency in the distribution sector. Specifically, the lower the
margin is, the keener price competition is likely to be (and firms would have to be more efficient
to survive the competition). According to Alex See (Consultant of HG-Premiere) the average net
profit margin of a logistic company in the Philippines is 12%.
21
Chapter 3
Methodology
Conceptual Framework
Input
-Financial statement
-Other related studies
Process
-Kepner and Tregoe
-Macro-Environment Analysis
-Porters 5 Forces Model
-Analyzing the company's
business process.
-Financial Statement Analysis
-SWOT Analysis
-Nine Cell Matrix
-Operational Analysis
-Business Process Review
Output
-Formulation of Business
Strategies.
-Identified Key
Performance Indicators.
-Identified Key Result
Areas.
These are the tools that the researchers used in this study:
 Kepner-Tregoe
Kepner-Tregoe approach is a structured methodology for gathering information and prioritizing
and evaluating it. The researchers used this to isolate the problem situation and to find the
causes of the specific problem in every department.
These are the four basic steps of Kepner-Tregoe:
•
Situation appraisal - is used to clarify the situation, outline concerns and choose a
direction
•
Problem analysis – used to defined the problems and its root cause determine
22
•
Decision analysis - alternatives are identified and a risk analysis done for each
•
Potential problem analysis - the best of the alternatives is further scrutinized against
potential problems and negative consequences and actions are proposed to minimize the
risk.

Financial Statement Analysis
Financial Statement Analysis is defined as the process of identifying the financial strengths
and weaknesses of the firm by properly establishing relationship between the items of the
balance sheet and the profit and loss accounts.
The detailed financial statement analysis, particularly that of the income statement, will help
identify possible causes of the failure of the company to achieve its financial objectives. This
way will lead to the identification of the business activities which may not be contributing
positively to profit performance.
 SWOT Analysis
SWOT analysis is a simple framework for generating strategic alternatives from a situation
analysis. It is applicable to either corporate level or the business unit level and frequently
appears in marketing plans. The SWOT analysis can serve as an interpretative filter to reduce
the information to manageable quantity of key issues.
23
A SWOT analysis of HG Premier per business activity will be conducted in order to
determine which strategies are best for the company. After conducting SWOT analysis, it
will make HG Premier aware of its real standing in the competitive world.
 Porter’s 5-Forces Model of Competition
Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a
business situation. This will help to understand both the strength of current competitive
position, and the strength of a position the company is changing to.
Five Forces Analysis assumes that there are five important forces that determine competitive
power in a business situation. These are:
24
Figure 1
Source: 14th Edition Crafting and Executing Strategy by Thompson/Strickland/Gamble (2005)
Porter’s 5 forces analysis was performed in order for HG-Premier to evaluate its current
state in the industry and also provide an overview of its current competitive position.
25
 9 Cell Industry Analysis
The nine-cell matrix considers the attractiveness of the market situation and the strength of
particular business of interests. The figure below will further explain on how the 9 cell industry
analysis works.
Figure 2
A
t
t
r
a
c
t
i
v
e
n
e
s
s
High
Medium
Low
High
Medium
Low
Enterprise Strength
Source: 14th Edition Crafting and Executing Strategy by Thompson/Strickland/Gamble (2005)
The three cells in the upper left corner (Green Zone) define business activities in a
favourable position with relatively attractive growth opportunities. This indicates a "green light"
to invest in this product/service.
26
The three diagonal cells from the lower left to the upper right (Blue Zone) is viewed as
having medium attractiveness. Management must therefore exercise caution when making
additional investments in this product/service. The suggested strategy is to seek to maintain share
rather than growing or reducing share.
The three cells in the lower right corner (Red Zone) represent business activities that are not
attractive. The suggested strategy for this zone is that management should begin to make plans to
exit the industry.
The various business activities of HG Premier were evaluated to identify which activities will
be maintained, aggressively developed or stopped.
 Business Process Review
Business Process Analysis is a necessary first step to take before any efficient study of
performance improvement can be achieved. The performance of an employee, activity, or
business unit, cannot be known until its contribution to the business process and customer value
chains is precisely understood.
Task 1: Observation of Processes
During the on-the-job training the researchers were given the opportunity to review HGPremier’s business processes and procedures. Observations were supplemented by meetings and
interviews with the staff to validate data. The management of HG-Premier willingly provided
organization charts and initial reports to help get a clearer idea of the company and its
operations.
27
Task 2: Information Collection
A critical element of this BPR is the identification, collection, and critical assessment of data to
support a well-informed and rigorous analysis. This component is the key to demonstrating the
state of initiatives at HG-Premier and providing evidence required or necessary activities have
taken place. A review of documents was made in parallel with the interviews. In most cases, the
interviews did not occur until sufficient documentation was available in order to ensure that
specific topics could be addressed in a timely and efficient manner.
Task 3: Review Information and Develop Analysis and Findings
Critical Assessment of Available/collected Data – The collected data was reviewed for
completeness/responsiveness, apparent accuracy, and relevance. To the extent that any
information was found irrelevant or inconsistent/inaccurate; it was eliminated from the data set
used to develop the assessment.
Review of Standards, Policies, and Procedures – Standards, policies and procedures were
reviewed and key staff interviewed to evaluate their efficiency of and appropriateness.
Analysis of Potential Improvements- the researchers decided to develop and review the
information to identify new approaches to the business processes and provide implementation
plans to achieve the efficiencies.
28
Exhibit 1: Flowchart Analysis
Start
Observation
Data Gathering
Identifying gathered information
and sources
Compare through our technical and
business knowledge
Performing survey as
necessary
Documentation
Identifying Reports
Comparing past data
Evaluation
End
29
Task 4: Develop Conclusions and Recommendations
HG-Premier Senior Management participated regularly throughout the process. Initial findings
and recommendations were provided to management for review, through an organized
presentation of the information collected and developed during Tasks 1 through 3.
30
Findings and Analysis
Macro Environmental Analysis
In order for the researchers to formulate a good strategy for HG-Premier, the group needed to
analyze the macro-environment because it plays an important role in value creation opportunities
of a strategy. The group scanned the external macro-environmental in which HG-Premier
operates.
Economic Factors
Philippines’ Economic Growth
Source: http://www.neda.gov.ph/
31
The Philippine economic indicators for 2010 cited below are from an excerpt of the Country
Sections with Key Indicators report of the World Bank.
•
“The Philippine economy grew by a robust 7.9 percent in the first half of 2010 following
the rebound in global trade and the recovery in investor confidence. Growth was driven
mainly by strong increases in investment and exports.
•
The unemployment rate fell to 6.9 percent in July from 7.6 percent a year before,
helped by the creation of 800,000 new jobs mostly in the agriculture sector.
•
Minimum wages were raised from July in several regions of the country and a number of
price increases have been proposed.
•
The
country’s
external
position
remains
favorable
with
strong
growth
in exports and remittances. In the first half of 2010, exports grew at double digits,
partially recovering the declines in 2009. Remittances also grew strongly following
extensive deployment of overseas Filipino workers.
•
The government increased its borrowing requirements by over 0.5 percentage points of
GDP as of July 2010. With higher borrowings, the national government debt is projected
to reach 56.2 percent of GDP by the end of 2010.
•
The new government has initiated reforms to improve public finances and to strengthen
the investment climate for more inclusive growth. These are commendable and should be
pursued steadfastly and vigorously.”
32
Inflation rates
The Philippines is regarded as being one of fastest economically developing countries in the
South East Asian region. Economic growth of the Philippines can stand toe to toe with some
other rapidly developing South East Asian economies like India. However, the inflation rate in
the Philippines is high. Almost every year, the inflation rate in the Philippines is increasing,
while the inflation rate in the United States, where two of HG’s major clients are located, is
currently low.
Currently the world’s 12th most populous country, ranked between Mexico and Vietnam, the
Philippines is home to 98 million people. Its GDP—US$318 billion in 2008—is roughly the size
of Switzerland’s or Austria’s, and a little larger than Hong Kong’s. Nonetheless, with a 2008 per
capita GDP of US$3,300, the Philippines is a relatively poor country, comparable to Iraq and
Mongolia, and somewhat wealthier than India (US$2,900). In the 1950s, the Philippines were the
second wealthiest country in Asia after Japan on a per capita basis. It has progressed since 1950
in terms of wealth and living standards, but several other countries have since overtaken it.
33
Table 1
Comparative Data on the Philippines vs. Other Countries 2009
Sources: Book, Transparency, and Heritage Foundation.
A substantial proportion of Filipinos live abroad with a total of 15.4% of OFW’s, particularly in
the US, Japan, and other Asian countries. Remittances represent a substantial economic inflow
(about 10% of GDP in 2008), helping to stabilize the currency at the same time that emigration
has eased unemployment (7.4% in 2008) at home.
Figure 2 shows the real GDP growth rate, inflation rate, and several key interest rates from 1980
to 2009. The overall trend for the period has been toward higher growth, lower interest rates, and
lower volatility. Inflation has trended downward over time too, although it spiked upward last
year, as it did across the rest of the world. Thus, despite political turbulence, economic
conditions have been improving steadily over time.
34
Figure 1
Source: Economist Intelligence Unit. Note: The 2009 figures are EIU estimates.
The Internet and telecommunications revolutions combined with widespread use of English have
made the Philippines a key player in modern business outsourcing: call centers, medical and
legal transcription, etc. As one of the most mineral-rich countries in the world, mining is a key
sector likely to feed into China’s development needs. In manufacturing, the Philippines is a
center for electronics and automobile production. Finally, Economist Intelligence Unit research
identifies the tourism sector as relatively underdeveloped with high potential. In all these areas,
except perhaps business services, the Philippines’ aging and limited physical infrastructure is a
major constraint on profitability.
35
The majority of the products of HG-Premier that are being exported are food, beverages and
household equipments. As of now the company is not that affected in the yearly increase of the
items that they are exporting
Exchange Rate
There are several effects of a strong and a weak Philippine currency. A strong peso is good for
the Philippine economy; however some industries do not want a strong peso particularly in the
logistics industry because a strong peso means more cost to the exporters. It will increase the
production cost, the labor cost will also rise because there will be more dollars to convert to peso
to be spent for labor, and the net profit of the logistics company may fall and eventually will
result to company closure.
On the other side, a strong peso will be good to the Philippine economy because the quality of
peso in the world market is raised. The Philippines will need fewer pesos to pay its debt and
there will be more investors. More investors equal more jobs opportunities to the Filipinos.
36
Monthly Average Exchange Rate Peso-Dollar
Table 1
Month
2010
2009
2008
2007
2006
2005
Average
47.637
44.475
46.148
51.314
55.085
December
46.421
48.094
41.743
49.467
53.612
November
47.032
49.186
43.218
49.843
54.561
October
46.851
48.025
44.380
50.004
55.708
September
44.31
48.139
46.692
46.131
50.401
56.156
August
45.18
48.161
44.877
46.074
51.362
55.952
July
46.32
48.146
44.956
45.625
52.398
56.006
June
46.30
47.905
44.281
46.160
53.157
55.179
May
45.60
47.524
42.902
46.814
52.127
54.341
April
44.63
48.217
41.820
47.822
51.360
54.492
March
45.74
48.458
41.252
48.517
51.219
54.440
February
46.31
47.585
40.671
48.381
51.817
54.813
January
46.03
47.207
40.938
48.914
52.617
55.766
Source: http://www.nscb.gov.ph
37
The table above shows the monthly averages of Peso-Dollar monthly exchange rate from 2005September 2010. This year, the logistics companies are still in good shape because the rate of
peso is not that strong or weak.
U.S.-Philippines Trade Facts
In 2009, the Philippines ranked as the 34th largest U.S. trading partner, with goods trade of $13
billion. Bilateral services trade was $4.4 billion in 2009. The United States had a $1.0 billion
goods trade deficit and a $650 million services trade deficit with the Philippines.
Source: Bureau of Economic Analysis; News and Economics
Philippine Exports
Philippines exports continued to surge in July with a 35.9 percent growth to US$4.5 billion, the
National Statistics Office (NSO) reported.
The growth was supported by increases in exports of manufactured goods (40.0%), total agrobased products (16.7%), mineral products (15.9%), and petroleum products (26.8%).However,
38
on a month-on-month basis, total merchandise exports declined by 1.2 percent from June 2010 as
the pace of global economic recovery slowed down slightly. On a cumulative basis, export
revenues in the first seven months of 2010 amounted to US$28.2 billion, 37.4 percent higher
than the same period in 2009. The considerable rise in the outward shipments of semiconductors
(62.2%) followed the worldwide trend as global sales of semiconductors rose by a significant
37.0 percent.
There are opportunities for the industry to grow further even during slower economic growth due
to the continued expansion of semiconductors into a broader range of products.
US Imports
The Philippines was the United States' 34th largest supplier of goods in 2009, with total U.S.
imports of $6.8 billion. The five largest import categories in 2009 were Electrical Machinery
($2.8 billion), Machinery ($836 million), Knit Apparel ($573 million), Woven Apparel ($443
million), and Fats and Oils (primarily coconut oil) ($265 million).
U.S. agricultural imports from the Philippines totaled $724 million in 2009, with leading import
categories including tropical oils ($265 million), processed fruit and vegetables ($153 million),
and raw beet and cane sugar ($74 million).
U.S. imports of private commercial services* (i.e., excluding military and government) were
$2.5 billion in 2009. Other private services (business, professional and technical services),
passenger fees and travel account for most of U.S. services imports from the Philippines.
The attractive US export market as well as the presence of a substantial Filipino community
augurs well for exports of Filipino food items to the US.
39
Philippine Logistics Industry
Competitors in Logistics Industry
In the Philippines, there are 516 logistics companies that provide different kinds of logistics
services like sea and air forwarder, custom brokers, warehousing and other related logistics
services.
Logistics Companies in the Philippines
Table 2
Companies-Services
Inland transportation
112
Warehouse
87
Custom broker
150
Ship Owner charter
12
Air Freight Forwarders
248
Sea Freight Forwarders
456
0
50
100
150
200
250
300
350
400
450
500
Source: http://www.jctrans.net
Out of 516 logistics companies, 456 companies provide sea freight forwarding services, 248 are
for air freight forwarders, 112 provide inland transportation, 87 are engaged in warehousing, 12
are ship owners and 15 are custom brokers. Not all companies provide all kinds of logistics
services. HG-Premier is classified as a custom broker and there are 150 competitors in this kind
of service. The top 3 custom brokers in the Philippines are the NES Cargo Express Int’l. Corp.
Philippines, the Empirelink Logistics Co., and the Bestlogistics Freight Inc.
40
Logistics Companies in the Philippines (Service-Companies breakdown)
Table 3
Services-Companies Breakdown
250
200
150
100
50
0
1
2
3
4
5
Number Of services
5
4
3
2
1
Number of Companies
25
39
86
168
198
Source: http://www.jctrans.net
In the Philippines there are only 25 companies that provide 5 or more logistics services to its
costumers, 39 companies with 4 kinds of services, 86 companies with 3 kinds of services, 168
and 198 for 2 kinds and 1 kind of logistics services. HG-Premier provides 2 kinds of services as
a custom broker and a sea freight forwarder. The other service that HG-Premier provides is being
a custom broker, as the company outsources its sea freight forwarding services to Orient Star.
Starting a third party logistics in the Philippines is costly especially if you do not have the right
equipment and the right employees to operate it. It will need a lot of space for client’s products.
There are also certain issues involved such as the vehicles used when transporting the products,
the training of employees must be done correctly and the equipment that is going to used must be
made from high-quality materials to handle the whole process correctly
41
Current Industry Trends
Technological
The evolving technology will help the logistics industry to improve its customer services.
The internet has a major impact to the logistics services as some of the companies in the
Philippines use the internet to attract customers. Most of the established companies in the
Philippines have a website for easy access to and communicate with its customers. Some of them
have the ability to track the goods in terms of the location of the products. The companies with
website have an advantage over their competitors because they can advertise their companies in
the web. As for the HG-Premier, the company does not have a website as of now but they have
plans on having a website of their own.
Health Consciousness
Over the past years, consumers around the globe have turned health-conscious. The
consumers are unsure about the quality and safety of the different kinds of products that they
buy. They want to cut down calorie intake because of the alarming spread of lifestyle ailments
around the globe. In addition, changing lifestyles and work patterns have resulted in more diet
and health conscious consumers, which have led to a greater demand for healthier foods in recent
years.
According to the study of Food Standards Agency in the United States (http://www.food.gov.uk),
more consumers around the world are checking the nutritional information of food labels and
trying to eat more fruit and vegetables. Specific detail indicates that:
 53% of people now check labels for salt/sodium content.
42

48% check the sugar content; and

60% check labels for fat content.
This behaviour of the consumers has an effect in the marketing of products, especially for these
companies who do not manufacture their own products.
Political
International trade regulations and restrictions
The Philippines Customs is the government agency in the Philippines which is in charge
of the laws and regulations to collect and protect import-revenue and to document the flow of
goods in and out of the country. It is not difficult to export products if the company has complete
documents of the products that they will be exporting.
Here are the different kinds of products that need export permits or clearances and the
government agencies that issue them:
Live Animals and Meat
Bureau of Animal Industry (BAI)
Fruits and Plants
Bureau of Plant Industry (BPI)
Marine and Aquatic Products
Bureau of Fisheries and Aquatic
Resources (BFAR)
Firearms, Parts, Ammunition, etc.
PNP Firearms and Explosives Office
(FEO)
VHS, Tapes, CDs, DVDs, etc.
Optical Media Board (OMB)
TV, Movie, Film Print and
Negatives, etc.
Movie and Television Review and
Classification Board (MTRCB)
Transceivers, Communication
Equipments, etc.
National Telecommunications
Commission (NTC)
Endangered Species
Dept. of Environment and National
Resources (DENR)
Medicines and the like
Bureau of Food and Drugs (BFAD)
43
HG-Premiers products are more on canned goods and dried foods, so the government agency that
is in charge in giving clearance to HG-Premier products is the Bureau of Food and Drugs
(BFAD). According to the management of HG-Premier, they have not encountered any problems
regarding the international trade regulations.
44
Porter’s 5 Forces (Logistics)
The researchers analyzed the five competitive forces to determine the level of competition in the
industry and its profitability. The results of the analysis are as follows:
SUBSTITUTE
PRODUCTS
Substitutes- Medium
Intensity of Rivalry –
High
SUPPLIERS
Bargaining power of
Buyers - High
BUYERS
NEW
Bargaining Power of
Suppliers- High
ENTRANTS
Threat of Entry – Low
45
Threat of New Entrants – Low
Demands from other nearby industries – As the result of intense competition in their own
industries some of the company’s focus their service to one or two logistics activities like
warehousing, wholesalers that greatly increases the value of their services.
Capital requirements – before one can establish a logistics business there is a need to have a lots
of money in order to invest in different kinds of equipments and possess good technology to gain
leverage on the competitors. This requires large capital investment which can be a deterrent to
new entrants.
Experience – Experience in the logistics industry is a reason for survival in this kind of business.
A company needs to have the best employees in order for the business to operate efficiently.
Intensity of Rivalry – High
Competition is mainly based on price and service, because customers see cost reduction
as the main reason for logistics outsourcing. Many large companies target industries like retail,
automotive etc. Those market segments are intensely competitive and margins are very low. The
competition is high because there is a lack of differentiation among the logistics providers.
Substitutes - Medium
The substitutes in this kind of industry are the broad range of firms that specialize in
service specific areas like motor carriers, warehousing and the forwarders. Companies tend to
have strong capabilities in one area but weak in others and are rarely strong in all areas.
46
Bargaining power of Buyers - High
Due to the presence of many logistics services providers, customers feel confident that
they can always find an alternative service provider and may play companies against each other.
They also have the ability to easily switch providers.
Bargaining power of Suppliers – High
There are different kinds of suppliers in this kind of industry; it can be for products and it
can also be a service. As for HG-Premier in terms of products their main suppliers are the
manufacturers of the products that they are exporting while in terms of services the supplier is
the Orient Star which provides the transportation of goods. Since the source of business
operations of outsourced activities is highly dependent on the suppliers, the bargaining power is
high, especially if the suppliers are only the one who could provide the product/services.
In this industry the researchers finds that though logistics holds great potential in its
market locally and internationally, intense competition makes it hard because of various
alternatives due to the fain which every aspect of logistics can now be outsourced. By improving
in its service, the company may still hold its position in the logistic scene because demand is
very high. In terms of its attractiveness, the macro-environment analysis combined with the
Porter’s analysis still shows that the logistics industry has good business potential for companies
who could find a niche in the market or could differentiate their services from other providers.
47
Exporting
SUBSTITUTE
PRODUCTS
Bargaining power of
Buyers - High
Substitutes- Low
Intensity of Rivalry –
High
SUPPLIERS
BUYERS
NEW
Bargaining Power of
Suppliers- High
ENTRANTS
Threat of Entry – Low
Threat of New Entrants – Low
Export Trends- it is very important for new players venturing in exporting to regularly
check its trends because they rely on this to make profit for themselves. This includes watching
inflation rates and trade regulations within other countries.
48
Capital requirements – establishing an exporting business needs to have a lot of money in order
for it to have a variety of exported goods; capital is also needed to be able for them to get their
goods exported through sea or air fare.
Intensity of Rivalry – High
Exporting competition is mainly based on price of the goods and how its service works.
Many exporting companies in the country are now shifting to the new emerging markets of
exports such as merchandise goods only available to the Philippines. The competition is high
because the Philippines is a major exporting country.
Substitutes - Low
The substitute products in this kind of industry are very low because the products being
exported are distinct Filipino delicacies.
Bargaining power of Buyers - High
While the Philippines are being considered a major exporting country, it also shows that
many people venture into this industry. Because many exporters provide various services,
customers feel confident that they can always find an alternative provider and may play
companies against each other. They also have the ability to easily switch providers.
Bargaining power of Suppliers – High
The Philippines is blessed with many resources that vary from natural and
processed/manufactured. There are different kinds of suppliers in this kind of industry. As for
HG-Premiere in terms of products, their main suppliers are the manufacturers of the products
that they are exporting and in terms of services the supplier is the Orient Star which provides the
49
transportation of goods. Since the source of business operations of outsourced activities is highly
dependent on the suppliers, the bargaining power is high, especially if the suppliers are only the
one who could provide the product/services.
The researchers concluded that the exporting industry holds great potential because of its
increasing market around the world. Though competition is very high, this does not affect the
industry players because the demand is still increasing and the supplies can be easily accessed
within the country. Furthermore, the strong bargaining power of the suppliers as well as the
buyers can be negated by going into supplier and buyer contracts, a common business practice in
the exports industry. Overall the industry is very attractive for both current and incoming
players.
Macro-Environment and Industry Trends Analysis
After a comprehensive analysis of macro-environment and industry trends for the logistic
industry, the researchers conclude that the Philippines has one of the fastest economically
growing economies, with the economy growing by 7.9 percent in the first half of 2010 following
the rebound in global trade and the recovery in investor confidence. Growth was driven mainly
by strong increases in investment and exports. The country, however, must focus its concern on
its high inflation rates to be able to sustain and hold its growing GDP for its economic
development. On the other hand, the exchange rate must be kept stable because of the variety of
industries that rely on it. Others may gain if the peso is strong while others may not. Another
factor to consider is the Philippine-U.S trade because this aspect has the greatest impact when it
comes to logistics.
50
Seeing the increase of U.S import in manufactured goods is a good sign for a company
like HG-Premiere who also do trading. Philippine Logistics may have many competitors but it
does not adversely affect the industry as a whole because of the big export trade between the
country and the rest of the world. The technological side of a lot of things can help to improve
the current environment of the industry by which the use of internet which is a common tool
nowadays for businesses. International trade regulations also help in the industry because
Philippine exports are easily done with proper papers and documents.
51
HG-PREMIER PRESENT BUSINESS PROCESS
HG-Premier is composed of three departments: documentation, operation and marketing. The
Marketing department is responsible for receiving customer’s purchase order (see Annex I for
Sample PO form) conscientiously and endorsing these orders to documentation for configuration.
Once configured, the purchase order is sent back to the marketing department as a Pro-forma
invoice and then forwarded to the customer for final approval. It is also the department
responsible in calling the suppliers for the orders.
Documentation is important in exporting. It must be precise. Slight discrepancies or omissions
may prevent merchandise from being exported, which results in not getting paid, or even result
in the seizure of the exporter’s goods by local or foreign government agencies. Documentation
Department configures the orders within the given constraints of a fully loaded container which
is 18,000 kg and 71 CBM.
The Operations department is in charge of coordinating with the freight forwarder. The
operations loads the container and once they are finished, they forward the final tally of goods
loaded to the documentations department.
52
ANALYSIS OF THE PRESENT BUSINESS PROCESS
Export
HG-Premiere uses outsourced transportation in exporting the goods. Currently the
company uses JIT (Just in Time) procedure in handling all customer orders. The JIT process
proves to be a great inventory strategy to businesses because it reduces in-process inventory and
associated carrying cost, but not to HG-Premier. Currently, the company experiences losses
because of difficulty in meeting the demands and requirements of their customers due to the fact
that when orders has been made by Pinex and Sunrise, it will be processed automatically to
operations; thus any additional orders made would have to wait until the previous orders are
shipped. Also, the process does not have a proper monitoring of goods when delivered to the
customers and there the problem arises because Sunrise and Pinex will not take the goods if the
goods came to them in bad condition.
Brokerage/Trading
HG-Premier uses its brokerage to get additional income for the company. They get small
commission by having its clients perform trades in which the goods are bought locally. The
marketing department is the one responsible for finding customers and the goods, after
confirming the orders through a pro-forma invoice they sent the order form to the documentation
where they will confirm the orders from the customers for final approval. Operations, being the
responsible department will get the goods and delivery to the sea freight for forwarding.
53
HG-Premier’s Business Flowchart
START
Sends orders to
HG-Premier
Marketing Staff
verifies the orders
Verified orders
were input in a
excel format
HG-Premier Marketing
Department
No
Yes
Orders the goods
from supplier
Are
orders
correct?
Documentation Head
will configure orders
within constraints of
18000kg & 71 CBM
HG-Premier
Documentation
Department
Staff prepares and
sends Operations
details for shipment
A
54
A
Operations will
contact Orient Star
and fill them the
necessary details
HG-Premier Operation
Department
Orient Star will
pick-up the orders
in HG-Premiers’
warehouse
Orient Star will
transport the
products to Pinex
and Sunrise
END
55
HG-Premier’s Revised Business Flowchart
START
Sends orders to
HG-Premier
Marketing Staff
verifies the orders
Verified orders
were input in a
excel format
HG-Premier Marketing
Department
No
Yes
Are
orders
correct?
B
HG-Premier
Documentation
Department
Orders the goods
to supplier
Documentation Head
will configure orders
within constraints of
18000kg & 71 CBM
Staff prepares and
sends Operations
details for shipment
A
56
A
B
Operations will
contact Orient Star
and fill them the
necessary details
HG-Premier Operation
Department
Operations
confirms orders
and re-orders
No
Orders
finalized?
Yes
Orient Star will
pick-up the orders
in HG-Premiers’
warehouse
Orient Star will
transport the
products to Pinex
and Sunrise
END
END
This Revised Business Process would help HG-Premiere to remove the JIT system
that results in follow up orders not being processed. Thus, profit loss will no
longer be a problem.
57
Key Performance Indicators
In order for the group to come up with a good strategy, there is a need to identify the Key
Performance Indicators or KPI for the company. The group managed to identify the KPI that are
related to operations and financial. The identified KPI’s will help HG-Premier to improve on its
services, to increase its profit and to minimize its cost in every operation.
Definition of terms:
Average Score – the current rating of HG Premiers Indicators
Minimum – If the level of indicator falls in this level there must be a sign of problems in that
area.
Target – HG- Premiers objective.
*Maximum - If the level of indicator falls in this level it is a sign that the company is doing
great.
*not applicable for the number of complaints.
58
In financial performance, there are 3 areas that the company needs to focus on in order to improve their services. These are:
profitability, cash flow and pricing. The key performance metrics are indicated in the following table.
Financial
KPI
Definition
% of net
profit
margin
It determines if the company
has better control over its
costs
Average
collection
period
It measures the approximate
amount of time that it takes
for a business to receive
payments owed, in terms of
receivables, from its
customers and clients.
Freight bill
accuracy
It determines the errors that
are made in some of the
products. These errors can
be incorrect pricing,
incorrect weights,
incomplete information and
others.
Current
Benchmark:
Standing Minimum Target Maximum
DHL
1%
183.26
1.75%
1%
190
1%
15%
56
0
25%
30
2%
Measures
Goal
Percenta
ge (%)
Increase
net
profit
56.54
Number
of day(s)
Minimiz
e the
number
of days
0.0023%
Number
of
complain
t(s) per
year
Minimiz
e the
number
of
complai
nts
95%
59
% of net profit margin - The current rating of HG-Premier in this indicator is very poor. They
need to review each operation, to make a necessary adjustment in order for them to increase
income. The researchers used DHL as a benchmark because it is better than HG-Premiere. The
company’s target is to increase its net profit by 15% in the next 3 years of operations. Their
current rating is 1% which is very poor and according to the company their minimum net profit
margin should not be lower than 1%.
Average collection period - HG-Premiere should take a good look at this because according to
the average collection period ratio, it is very high and it may be a potential problem to the
company’s cash flow. The DHL collects their payment in a span of 56 days, while HG-Premiere
collects it payments from their clients in a span of 183 days. The researchers used DHL as a
benchmark because it is doing well in collecting their client’s payments; therefore HGPremiere’s target should also be 56 days.
Freight bill accuracy – Currently, HG-Premier has encountered 1.75% complaints from their
clients in all of its transactions in 2010 regarding the wrong labelling of some of the products. To
provide the best service to its clients, HG-Premiere’s target is zero (0) complaints from its
clients. In 2010 DHL encountered only 81 customers’ complaints or 0.0023% in their total
transaction in 2010. If the clients are happy with the service, they can be a good asset to the
company. It can build a good company customer relationship.
60
In Operations, the researchers identified 2 indicators that may help the HG-premier to improve
its operations.
Operations
KPI
Meeting
customers
back orders
Average
time of
export
transaction
Definition
Determines
whether your
customers
can make a
last minute
orders.
Measures the
average time
needed to
process and
complete an
export
transaction.
Current
Standing
0
18
Minimum Target
0
18
30
15
Maximu
m
Measures
Goal
40
Number of
backorder(s)
Maximize
number of
orders
Number of
day(s)
Minimize
the number
of day(s)
21
61
Average time of export transaction
25
20
15
10
5
0
Average time of export transaction
Current standing
Minimum
Target
Maximum
18
18
15
21
Meeting customers back orders – HG-Premiere uses a Just in Time system that’s why the
company has not been able to meet customers late or on the spot orders. Pinex trading and
Sunrise food has a total of 50 back orders in 2010. It is an opportunity loss for the company.
Thus, HG-Premiere’s target is to make a total of 30 back orders in 2011.
62
Average time of export transaction
25
20
15
10
5
0
Average time of export transaction
Current standing
Minimum
Target
Maximum
18
18
15
21
Average time of export transaction – The average days to complete an export transaction in
HG-Premiere is 18 days. In some cases the transaction can be made up to 21 days because of the
delay in picking-up the goods and the delay in the transportation itself. The target of HGPremiere is to make a transaction in 15 days according to HG-Premiere’s export manager.
63
Analysis
The identified Financial Key Performance Indicators (KPI) shows that the company has a major
problem on its net profit. The company can use DHL as a benchmark to help them think of better
ideas on how to operate their business. Although, DHL’s net profit margin is 95% it is much
better compared to HG-Premiere’s 1%. The researchers conclusion is to target DHL’s net profit
margin of 95%, if they can improve their NPM within 1 year, then HG-Premiere is doing a good
job on benchmarking DHL.
Based on the identified KPI in operations, the researchers can also conclude that HG-premiere
should take a look on its client’s behaviour, because if their clients keep on making a back order
request, then HG-Premiere should not use a JIT system. HG-Premiere should enter into a
supplier’s contract so that inventory is held by the supplier and not the company.
64
HG-Premier’s Income Statement (Consolidated)
Table 4
65
HG-Premiere’s Income Statement (Logistics)
Table 5
66
HG-Premiere’s Income Statement (Trading)
Table 6
67
HG-Premiere Balance Sheet
Table 7
68
Financial Statement Analysis
HG-Premiere’s Balance Sheet and Income Statement (Logistics and Trading) were analyzed
using Ratio Analysis and the resulting financial ratios were interpreted in order to analyze and
monitor HG-Premier financial performance in year 2010.
Liquidity Ratio Analysis
Ratio
HG-Premiere
Liquidity Ratio
Current Ratio
1
Quick Ratio
0.97
The current ratio of HG-Premier is 1.00. The company has the ability to pay back its short-term
liabilities (debt and payables) with its short term assets (cash, inventories, receivables)
The quick ratio of the company is only 0.97, meaning; HG-premier can meet most of its short
term obligation with its liquid assets.
69
Activity Ratio Analysis
Ratio
Services
Logistics
Trading
Inventory Turnover Ratio
61.36
60.37
Fixed Assets Turnover Ratio
22.23
22.46
Total Asset Ratio
1.78
1.8
Collection Period
175.07
173.86
Average Payment Period
25.91
26.34
Activity Ratio
The inventory turnover ratio of HG-Premier in logistics and in trading services is 61.36 and
60.37, respectively. It is high because the company uses Just In Time method therefore they only
have small amount of inventory and can convert the inventory to cash. A high Inventory
Turnover ratio implies strong sales or ineffective buying. As for HG Premier it implies strong
sales for both logistics and trading services. The fixed asset turnover ratio of HG-Premiere’s
logistics service is 22.23 while the trading has 22.46. It shows that both services are effective in
using the investment in fixed assets to generate revenues.
On the other hand, the collection
period is quite long at 183 and 175.07 days for logistics and trading respectively compared to the
payment period of only 26 days. This means that the company is actually advancing the cost of
goods it sells while still unable to collect from its customers.
70
Debt Ratio Analysis
Ratio
HG-Premiere
Debt Ratio
Total Debt Ratio
0.92
Debt/Equity Ratio
10.96
The total debt ratio of HG-Premiere in logistics and trading services is 0.92 which is less than 1,
indicating that the company has more assets than debt. The debt equity ratio shows s high level
of leverage.
Profitability Ratio Analysis
Ratio
Services
Logistics
Trading
Return on Assets Ratio
0.02
0.06
Net Profit Margin
1%
3%
Gross Profit Margin
7%
10%
Profitability Ratio
The return on assets ratio (ROA) of the company in logistics is 0.02 and 0.06 in trading. It shows
that the services that the company provides are not efficient in using its assets to generate
earnings. The higher the ROA the better, because the company is earning more money on less
investment. Meanwhile the net profit margin of HG-Premier is also bad because even if it is
profitable, profit is very low due to high costs. The NPM of the company is 1% for logistics and
3% for trading.
71
Benchmark:
The researchers used DHL Company as a benchmark for its logistics services and the researchers
used PSRC Trading Corp as a benchmark for the company’s trading services, currently DHL and
PSRC Trading Corp are one of the market leaders in the logistics and trading industry
respectively all over the world.
Ratio
Liquidity Ratio
Current Ratio
Quick Ratio
Activity Ratio
Inventory Turnover Ratio
Fixed Assets Turnover Ratio
Total Asset Ratio
Collection Period
Average Payment Period
Debt Ratio
Total Debt Ratio
Debt/Equity Ratio
Profitability Ratio
Return on Assets Ratio
Net Profit Margin
Gross Profit Margin
Company
HG-Premiere
(Logistics)
DHL
HG-Premiere
(Trading)
PSRC
Trading
Corp.
1
0.97
1.31
1.29
1
0.97
1.01
0.99
61.36
22.23
1.78
175.07
25.91
9.47
2.1
1.33
56.54
30.12
60.37
22.46
1.8
173.86
26.34
2.44
31.76
1.93
6.05
185.82
0.92
10.96
1
4.2
0.92
10.96
0.83
4.98
0.02
1%
7%
1.27
95%
97%
0.06
3%
10%
0.08
1%
16%
The computed ratios of DHL are pretty good, as one can see the net profit margin of DHL is
equal to 95% which is way better than HG-Premiere that has 1%. It only indicates that it is below
the industry average. The majority of the operations of DHL is better than HG-Premiere because
of the computed ratios. HG-Premiere can use DHL as a benchmark to improve their operation in
its logistics services and can be good as DHL. On the other hand, the researchers compared the
72
trading service of HG-Premiere to PSRC Trading Corp. Based on the ratios HG-Premiere’s ratios
are pretty good compared to PSRC; the net profit margin of HG-Premiere is also good compared
to PSRC.
73
HG-Premiere’s Products
Table 8
HG-Premiere: Summary of Products – Tradingducts –Trading
Gross
Profit/
Qty
Cost of
Goods
Total Sales
Gross Profit
Product
% of
Sales
3,200
491,802.00
590,162.40
98,360.40
16.67%
0.13%
6,800
118,344.00
136,096.00
17,752.00
13.04%
0.02%
700
131,223.00
150,906.45
19,683.45
13.04%
0.03%
1,000
548,475.00
630,746.25
82,271.25
13.04%
0.11%
KNORR LIQUID SEASONING
MOTHER'S BEST STEW MIX
(KARE-KARE)
3,500
2,586,575.00
2,974,561.25
387,986.25
13.04%
0.53%
700
263,270.00
302,760.50
39,490.50
13.04%
0.05%
MAGGI SAVOR CLASSIC
2,500
778,984.80
895,832.52
116,847.72
13.04%
0.16%
BOY BAWANG GARLIC
5,500
2,104,001.00
2,419,601.15
315,600.15
13.04%
0.43%
NAGARAYA
2,500
164,208.56
183,913.59
19,705.03
10.71%
0.03%
KNORR
1,550
1,919,360.00
2,149,683.20
230,323.20
10.71%
0.31%
89
20,932.50
23,444.40
2,511.90
10.71%
0.00%
MAGGI SAVOR CALAMANSI
CLARA OLE SPAGHETTI SAUCE
CHEESE
3,000
372,960.00
417,715.20
44,755.20
10.71%
0.06%
600
664,395.00
744,122.40
79,727.40
10.71%
0.11%
NESCAFE 3-IN-1
DEL MONTE SPAGHETTI SAUCE
FILIPINO
VICTORIA BANGUS SPANISH
STYLE
2,500
4,320,000.00
4,838,400.00
518,400.00
10.71%
0.70%
600
427,776.00
479,109.12
51,333.12
10.71%
0.07%
300
2,481,525.00
2,779,308.00
297,783.00
10.71%
0.40%
RICOA FLAT TOPS
MOTHER'S BEST SWEET SOUR
340g
MOTHER'S BEST SPICY STEW
(CALDERETA) MIX
EXCELLENT BIHON RICESTICK
50x8oz
350
135,000.00
151,200.00
16,200.00
10.71%
0.02%
800
432,000.00
483,840.00
51,840.00
10.71%
0.07%
600
1,928,420.00
2,159,830.40
231,410.40
10.71%
0.31%
5,800
732,535.00
820,439.20
87,904.20
10.71%
0.12%
SILVER SWAN SOY SAUCE
900
366,292.50
410,247.60
43,955.10
10.71%
0.06%
TEMPLE BLACK BEANS
399
641,910.00
718,939.20
77,029.20
10.71%
0.10%
3,200
253,318.00
283,716.16
30,398.16
10.71%
0.04%
ANDOKS LECHON SAUCE
800
244,230.00
273,537.60
29,307.60
10.71%
0.04%
CLARA OLE SPAGHETTI SAUCE
900
162,800.00
179,102.00
16,302.00
9.10%
0.02%
Item Description
EXCELLENT CANTON
FLOURSTICK
EXCELLENT BIHON RICESTICK
25x16oz
MOTHER'S BEST SWEET CHILI
SAUCE
HOKKAIDO MACKEREL IN
NATURAL OIL
SABA MACKEREL
SARSI IN CAN
74
ITALIAN
LADY'S CHOICE SANDWICH
SPREAD
2,500
648,000.00
712,800.00
64,800.00
9.09%
0.09%
MAGGI SAVOR GARLIC
2,500
600,000.00
660,000.00
60,000.00
9.09%
0.08%
500
7,830,000.00
8,613,000.00
783,000.00
9.09%
1.06%
600
810,000.00
891,000.00
81,000.00
9.09%
0.11%
1,500
9,180,000.00
10,098,000.00
918,000.00
9.09%
1.25%
KRAFT CHIZ WHIZ PIMIENTO
400
2,756,400.00
3,032,040.00
275,640.00
9.09%
0.37%
KING CHOC-NUT
KAMAYAN SAUTEED SHRIMP
FRY REG.
KAMAYAN SAUTEED SHRIMP
FRY SPICY
FIBISCO CHOCOLATE
CRUNCHIES
CLARA OLE SPAGHETTI SAUCE SWEET
550
108,795.00
119,674.50
10,879.50
9.09%
0.01%
400
643,260.00
707,586.00
64,326.00
9.09%
0.09%
400
3,103,890.00
3,414,279.00
310,389.00
9.09%
0.42%
200
438,605.00
482,465.50
43,860.50
9.09%
0.06%
750
609,350.00
670,285.00
60,935.00
9.09%
0.08%
OVALTEENIES
200
1,415,550.00
1,557,105.00
141,555.00
9.09%
0.19%
MOTHER'S BEST BBQ MARINADE
MOTHER'S BEST SWEET SOUR
560g
MOTHER'S BEST SPICED
VINEGAR
300
391,790.00
430,969.00
39,179.00
9.09%
0.05%
500
259,500.00
285,450.00
25,950.00
9.09%
0.04%
500
1,802,500.00
1,982,750.00
180,250.00
9.09%
0.24%
OISHI PRAWN CRACKERS
300
60,060.00
66,066.00
6,006.00
9.09%
0.01%
KRAFT CHIZ PLAIN
MOTHER'S BEST BARBECUE
MARINADE 750 ML
800
386,720.00
425,392.00
38,672.00
9.09%
0.05%
200
280,650.00
308,715.00
28,065.00
9.09%
0.04%
GROWER'S PEANUT GARLIC
200
420,975.00
463,072.50
42,097.50
9.09%
0.06%
MOTHER'S BEST SOY SAUCE
500
83,340.00
91,674.00
8,334.00
9.09%
0.01%
MOTHER'S BEST TOYOMANSI
MOTHER'S BEST MARINATING
(TOCINO) MIX
300
90,950.00
100,045.00
9,095.00
9.09%
0.01%
100
1,455,200.00
1,600,720.00
145,520.00
9.09%
0.20%
SENYORITA DRY PEAS
99
127,650.00
140,415.00
12,765.00
9.09%
0.02%
MOTHER'S BEST PATISMANSI
MOTHER'S BEST PATIS (FISH
SAUCE)
MOTHER'S BEST BARBECUE
MARINADE 350 ML
180
207,975.00
228,772.50
20,797.50
9.09%
0.03%
200
322,200.00
354,420.00
32,220.00
9.09%
0.04%
120
68,480.00
75,328.00
6,848.00
9.09%
0.01%
REGENT SNACKU
50
140,900.00
154,990.00
14,090.00
9.09%
0.02%
LILY'S PEANUT BUTTER
CHARANTIA AMPALAYA
TEABAGS
380
552,856.00
608,141.60
55,285.60
9.09%
0.08%
300
552,856.00
608,141.60
55,285.60
9.09%
0.08%
AJINOMOTO GINISA MIX
KAMAYAN SAUTEED SHRIMP
FRY SWEET
250
552,856.00
608,141.60
55,285.60
9.09%
0.08%
400
559,702.00
615,672.20
55,970.20
9.09%
0.08%
TANG MANGO
EXCELLENT CORNSTARCH
BIHON
DOLE JUICE
75
ALSA GULAMAN CLEAR
500
84,961.80
93,457.98
8,496.18
9.09%
0.01%
2,000
784,617.54
863,079.29
78,461.75
9.09%
0.11%
ROYAL TRU ORANGE IN CAN
200
2,431,000.00
2,673,000.00
242,000.00
9.05%
0.33%
LUDY'S SALABAT PLAIN
400
4,444,650.00
4,666,882.50
222,232.50
4.76%
0.30%
68,067
66,496,576.70
73,600,745.36
7,104,168.66
EIGHT O'CLOCK POWDER DRINKS
This is the summary of HG-Premiere in its trading service. It shows that the total amount of the
products that they purchased in its operations in 2010 is Php66, 496,576.70 and the total sales of
the company is Php73,600,745.36, while the company’s total gross profit is Php7,104,168.66
with an average gross profit margin of 10%. The 10% gross profit margins in the trading service
are good but the HG-Premiere’s total gross profit margin for its trading service is 1%. The
Exelent Bihon Rice Sticks is the product that contributes the most to its sales.
The products that contribute most to the gross profit of the trading service of HG-Premiere are as
follows:
Item Description
EXCELLENT CANTON
FLOURSTICK
EXCELLENT BIHON RICESTICK
25x16oz
MOTHER'S BEST SWEET CHILI
SAUCE
HOKKAIDO MACKEREL IN
NATURAL OIL
KNORR LIQUID SEASONING
MOTHER'S BEST STEW MIX (KAREKARE)
MAGGI SAVOR CLASSIC
BOY BAWANG GARLIC
Quantity
Cost of Goods
Total Sales
Gross Profit
Gross
Profit/
Product
3,200
491,802.00
590,162.40
98,360.40
16.67%
6,800
118,344.00
136,096.00
17,752.00
13.04%
700
131,223.00
150,906.45
19,683.45
13.04%
1,000
3,500
548,475.00
2,586,575.00
630,746.25
2,974,561.25
82,271.25
387,986.25
13.04%
13.04%
700
2,500
5,500
263,270.00
778,984.80
2,104,001.00
302,760.50
895,832.52
2,419,601.15
39,490.50
116,847.72
315,600.15
13.04%
13.04%
13.04%
These are the most purchased products of HG-Premiere but they are not that profitable in terms
of the total gross for the company. The company may increase their prices to contribute more on
their overall profit.
76
The products that contribute the most in the percentage of sales in the trading services of HGPremiere are the following.
Gross
Profit/
Item Description
DOLE JUICE
TANG MANGO
Quantity
Cost of Goods
Total Sales
Gross Profit
Product
% of
Sales
1,500
9,180,000.00
10,098,000.00
918,000.00
9.09%
1.25%
500
7,830,000.00
8,613,000.00
783,000.00
9.09%
1.06%
These products should be more visible to the market to attract potential buyers as these products
have the highest percentage of sales of all the products.
77
Analysis
Based on the financial ratio analysis, the researchers can conclude that most of the financial
ratios of HG-Premiere are in good shape but the net profit margin of HG-Premiere is very low.
The researchers used DHL and 7-eleven as a bench mark to back up the researcher’s analysis,
and based on the computed ratios of DHL and 7-eleven which is both 1 percent compared to HGPremier’s 0.01 percent. They conclude that HG-Premier’s should focus more on the services
where the company does well. Based on the Income statement, the company is generating more
profit in its trading services compared to its logistics activity.
9 Cell Industry Analysis
Every industry has different characteristics, and in order for the researchers to formulate a fine
strategy for HG-Premier, the researchers needed to measure the industry attractiveness level and
the competitive strength of the industry that are providing different kinds of services. Using the 9
cell industry analysis, the researchers evaluated the different kinds of services and came up
different strategies.
These are the industry attractiveness factors and competitive strength factors that can be used to
measure the overall attractiveness/strength level of every kind of services that HG-Premier
employs.
78
Industry Attractiveness Factors
Industry
Attractiveness
Measure
Definition
Industry Profitability
The ability of the industry to generate sales/profit
Seasonality
The industry availability in the market
Resources
Requirements
Political, regulatory,
environmental
factors
Emerging
Opportunities and
threats
The number of resources to operate a certain kind of business.
Is there proposed or pending federal or state legislation which could
impact the company?
The ability of the industry to compete to other related industries.
How your clients will know the services that you are providing.
Marketability
Industry uncertainty
The risk involve in your industry.
and risk
th
Source: 14 edition Crafting and Executing Strategy (Thompson Jr, Strickland III, Gamble)
Industry Competitive Strength Factors
Competitive Strength
Measures
Brand Image and
Reputation
Ability to match/beat rival
on key service that they
provide
Bargaining leverage with
suppliers and clients
Definition
The image of a product or brand can do a lot for their sales. The better,
more exclusive the image, the more the brand will sell. The image that
is not quite as good will not sell as well.
Quality, technology, reputation, etc., can affect customer demand and
competitive advantage.
To provide a strong competitive edge over the other businesses
Allows the firm to exploit opportunities or neutralize threats in its
Competitively valuable
external environment.
capabilities
th
Source: 14 edition Crafting and Executing Strategy (Thompson Jr, Strickland III, Gamble)
79
HG-Premier assigned the importance of the following factors according to their perspective. The
researchers then rated the logistics services that the group thinks is the best, based on the factors
given.
Industry Attractiveness Factors
Industry Attractiveness Measure
Importance
Weight
Industry Profitability
0.25
Seasonality
0.05
Resources Requirements
0.10
Political, regulatory, environmental factors
0.05
Emerging Opportunities and threats
0.30
Marketability
0.20
Industry uncertainty and risk
0.05
Overall Product Attractiveness Score
1.00
Industry Competitive Strength Measures
Competitive Strength Measures
Importance
Weight
Brand Image and Reputation
0.40
Ability to match/beat rival on key
service that you provide
0.35
Bargaining leverage with
suppliers and clients
0.10
Competitively valuable
capabilities
Overall Competitive strength score
0.15
1.00
80
The table below shows the computed overall attractiveness and competitive strength of every
services.
Industry Attractiveness
Measure
Industry Profitability
Seasonality
Resources Requirements
Political, regulatory,
environmental factors
Emerging Opportunities and
threats
Marketability
Industry uncertainty and risk
Overall Product
attractiveness score
Rating Scale:
Services
Sea Freight
forwarder
Trading
Rating
Score
Rating
Score
7
1.75
8
2
9
0.45
8
0.4
5
0.5
5
0.5
Importance weight
0.25
0.05
0.1
0.05
5
0.25
4
0.2
0.3
0.2
0.05
8
7
6
2.4
1.4
0.3
4
8
7
1.2
1.6
0.35
1
7.05
6.25
1 = Unattractive to company
10 = Attractive to company
Sea Freight forwarder
Rating
Score
8
3.2
Trading
Rating
Score
5
2
Competitive Strength Measures
Image
Importance weight
0.4
Ability to match/beat rival on
key service that the company
provides
0.35
8
2.8
5
1.75
Bargaining leverage with
suppliers and clients
0.1
5
0.5
5
0.5
0.15
9
1.35
5
0.75
Competitively valuable
capabilities
Overall Product attractiveness
score
Rating Scale:
1
7.85
5
1 = Very Weak
10 = Very Strong
81
5
9-Cell Matrix
3
2
Medium
1
Attractiveness
4
High
0
Low
5
4
Strong
3
2
Average
1
0
Weak
Legend
High Priority of the company
Strength
Medium Priority of the
company
Low Priority of the company
82
Analysis
In the 9 cell industry matrix, the services that have a high attractiveness level and with a strong
competitive level are the sea freight forwarder. It shows that this service is important to HGPremier since it generates 49.64% of their income. Meanwhile, the services with a medium
attractiveness and with an average strength level is the trading service this is also important to
HG-Premier because it is a main source of income since it produces 50.26% on their total
income. The group can now make a conclusion on what services that HG-Premier needs to focus
on, and the company should focus more on the services that they think the company is good at
such as being a trader.
83
HG-Premiere Inc. (Swot Analysis)
STRENGTH
 HG-Premiere products are marketed
under trademarks and service marks
owned by or licensed to the
company.
 They distribute quality products.
 Strong management commitment.
OPPORTUNITIES
 The arrival of new technologies
 Removal of international trade
barriers
 Strong import/export business
transaction
 Dollar-peso rate
Strength
HG-Pr
WEAKNESSES
 New to the industry
 No proper monitoring of goods
 Incapable of meeting customer’s
last minute orders
 Does not implement proper cube
utilization
 Not ISO certified.
THREATS
 Emergence of substitute products
 Shifts in consumer tastes away from
the firm’s products.
 Economic condition
 Increased trade barriers
 Pricing competition
 Customer complaints
 Unstable prices locally and
internationally
84
TOWS Matrix
Internal Strengths:

Internal Weakness:
HG-Premier products are

New to the industry
marketed under trademarks

No proper monitoring of goods
and service marks owned by or

Incapable of meeting customer’s last
licensed to the company.

minute orders

They distribute the best
quality products.

Does not implement proper cube
utilization

Strong management
Not ISO certified.
commitment.
External Opportunities:


SO:
 Make use of the exchange rate
The arrival of new
technologies
by broadening the products
Removal of
being traded
 Develop a new monitoring system to
properly help the monitoring of goods
 To further improve import/export the
 Research on more products that
international trade
company should apply for ISO
would entice their market abroad
barriers

WO
certification
 Make use of the removal of ITB to
Strong import/export
make name in the industry abroad
business transaction

Dollar-peso rate
External Threats:


Emergence of
ST
WT
 Develop and improve marketing
substitute products
strategies that would augment
Shifts in consumer
the company locally and
tastes away from the
internationally.

Remove threat of substitutes by
improving the quality of products.

Re-evaluate the use of JIT that cause
them problems and losses85
firm’s products.
 Must utilize and improve the

Economic condition
logistic aspect to reduce

Increased trade
costumer complains
barriers
 They must utilize and study the

Pricing competition
market trend to counter any loss

Customer complaints
that would come if prices

Unstable prices
fluctuate.
locally and
internationally
While HG-Premier has considerable strengths, heavy reliance on their customer abroad
has made them competitive in the 3pl industry, thus this TOWS analysis is done to further
improve their product and service.
Weakness and Threats (WT)
The factors in the external environment, particularly the emergence of substitute
products, economic condition, unstable prices, pricing competition and increasing complaints
constitute serious threat to HG-Premiere. When these threats are seen in relation to weakness the
best solution for the company is to remove such threats by improving the quality of their
products. Also they should re-evaluate their JIT that cause them problems and losses due to the
fact that follow-up orders cannot be processed immediately. By doing so not only do they
remove the increasing substitute but also it could help the company’s industry positioning.
86
Weakness and Opportunities (WO)
To further improve the quality of service within HG-Premiere changes must be done.
Improving of their monitoring system and applying for ISO certification are necessary to
increase the quality both in the company and their service to their customers. Making use of
regulation changes to their advantage would help the company build name in the industry.
Strengths and Threats (ST)
To cope with the threats in the external environment HG-Premiere may use their
strengths. Specifically, developing and improving their marketing strategy that would help in
company performance here and abroad. They can also use this in planning their pricing
competition against rival companies.
Strengths and Opportunities (SO)
HG-Premiere needs to use its strengths to take advantage of the opportunities. Their
strong management commitment and their brand quality, can effectively gather new customers
that could help in increasing their sales. Similarly, most of these strengths facilitate the
expansion into the international market. But the company should re-evaluate their strategy
implementation so that they can anticipate problems that may occur.
87
Chapter 4
Conclusion
The objective of this paper is to formulate a necessary strategy for HG-Premiere in order
for the company to achieve their objective which is an increase in net income of 15 percent in the
next 3 years of operations, Below are the summary of findings in the Environment where HGPremiere operates, and the formulated strategies that HG-Premiere can use to improve the
company’s operations/services.
Summary of findings in:
Economic factors
Philippines’s Economic Growth
 Growth was driven mainly by strong increases in investment and exports.
 The
country’s
external
position
remains
favourable
with
strong
growth
in exports and remittances.
 Remittances also grew strongly following extensive deployment of overseas Filipino
workers
 The government increased its borrowing requirements by over 0.5 percentage points of
GDP as of July 2010.
Inflation Rate
 The Philippines is regarded as being one of fastest economically developing countries in
the South East Asian region
88
 Economic growth of the Philippines can stand toe to toe with some other rapidly
developing South East Asian economies like India
 The overall trend for the period has been toward higher growth, lower interest rates, and
lower volatility.
Exchange Rate
 A strong peso is good for the Philippine economy; however some industries do not want
a strong peso particularly in the logistics industry because a strong peso means more cost
to the exporters.
US Export Market
 Bilateral services trade was $4.4 billion in 2009. The United States had a $1.0 billion
goods trade deficit and a $650 million services trade deficit with the Philippines, making
it an attractive export market. The presence of a huge Filipino community in the US also
makes it an attractive market for Filipino products.
 A Philippine export has had an increasing trend with the 2009 increases for specific
goods as follows:
manufactured goods (40.0%), total agro-based products (16.7%),
mineral products (15.9%), and petroleum products (26.8%). However, on a month-onmonth basis, total merchandise exports declined by 1.2 percent from June 2010 as the
pace of global economic recovery slowed down slightly.
 Other private services (business, professional and technical services), passenger fees and
travel account for most of U.S. services imports from the Philippines.
 Over the past years, consumers around the globe have turned health-conscious.
89
 This behaviour of the consumers has an effect in marketing products especially for those
companies who do not manufacture their own products.
Philippine Logistics Industry
 In the Philippines, there are 516 logistics companies that provide different kinds of
logistics services.
 Not all companies provide all kinds of logistics services.
 HG-Premier provides 2 kinds of services as a custom broker and a sea freight forwarder.
Current Industry Trends
 The evolving technology will help the logistics industry to improve its customer services.
 Companies with website have an advantage over their competitors because they can
advertise their companies in the web.
Political
 In the Philippines it is not difficult to export products if the company has the complete
documents of the products that the company will be exporting.
Financial Ratio Analysis
Liquidity Ratio
 The current ratio of HG-Premier is 1.00.
 The quick ratio of the company is only 0.97.
90
Activity Ratio
 The inventory turnover ratio of HG-Premier in logistics and in trading services is 57.49
and 60.37.
 A high Inventory Turnover ratio implies strong sales or ineffective buying, As for HG
Premier it implies strong sales for both logistics and trading services. The fixed asset
turnover ratio of HG-Premiere’s logistics service is 21.23 while the trading has 22.46 it
shows that both services are effective in using the investment in fixed assets to generate
revenues.
Debt Ratio
 The total debt ratio of HG-Premiere in logistics and trading services is 0.92, which is less
than 1, indicating that the company has more assets than debt.
Profitability Ratio
 The NPM of the company is 1% for logistics and 3% for trading.
 The 10% gross profit margins in the trading service are good but the HG-Premiere’s total
gross profit margin for its trading service is only 1%.
9 Cell Matrix
 In the 9 cell industry matrix, the services that have a high attractiveness level and with a
strong competitive level is the sea freight forwarder.
91
Detailed Strategy for HG-Premier
Mission
HG-Premiere is dedicated to doing their services in consistency and exceptional value at all
quality levels. HG-Premiere stands behind each brand product, displaying an image of assured
quality and guarantees these products conform to company’s stringent standards for food safety,
sanitation, and reliability. HG-Premiere will deliver the customer’s products without hassles.
Vision
HG-Premiere vision is to offer quality products to their customers and to transfer the goods
quickly between continents and across time zones.
By doing a comprehensive analysis of macro-environment and industry trends for the logistic
industry, the researchers can think of a number of strategies that can help HG-Premiere to attain
their goal of increasing the company’s net income by 15% in the next 3 years of operations. Also
the researchers would like to achieve the purpose of this study by focusing on the following
activity:
•
Freight Forwarding, Trading and Logistics
To know if the quotations they provide to the clients are profitable and useful to
the company and providing feasible charges that it will not compromise each
other service.
•
Business Process Re-Evaluation
To be able to regularly check and monitor its business process that would adapt in
every condition suited for the company and its services.
92
Strategies:
 Low product acquisition cost
Look for opportunities to buy bulk products from the suppliers. If they can get good discounts
from their suppliers HG-Premiere can sell their products on a higher selling price. In order for
the company to get discounts, HG-Premiere should enter into supplier’s contract that states that
if HG-Premiere buys numerous products, they can get discounts.
For example:
Without Discount
Purchase
Item
QTY
Price
Mother's Best Soy Sauce
500
PHP 281.80
Total Amount
PHP 140,900.00
With Discount of 8%
Purchase
Item
QTY
Price
Mother's Best Soy Sauce
500 PHP 259.21
Total Amount
PHP 129,605.00
If HG-Premiere can get a 8% discount in every 500 cases of Mother’s Best Soy Sauce, the
company can have a savings of PHP 11,295.00.
93
 Market expansion – sales representative
HG-Premiere should hire a sales representative to obtain and study information about clients’
products needs. A sales representative should have the following characteristics:
1. Ability to persuade and influence others, develop and deliver presentations, and
development of written materials. He should have strong interpersonal and
communication skills and knowledge of advertising and sales promotion techniques.
2. Visibility requires maintaining a professional appearance and providing a positive
company image to the public.
3. Work requires significant local travel to current and potential clients.
4. Work requires willingness to work a flexible schedule.
The results for HG-Premiere are to offer effective sales and to gain additional market overseas to
help the company to achieve its objective.
94
 Focus on:
High profit - low selling product
Low profit – high selling product
The products that contribute the most in the percentage of sales in the trading services of
HG-Premiere are the following.
Item Description
DOLE JUICE
TANG MANGO
HG-premiere should consider distributing brochure to help the product to be more visible
in the market. Here is a sample flyer that HG-Premiere can use for marketing its products.
This will able to improve the products visibility in the market.
95
While these are the most purchased products of HG-Premiere, they are not that profitable in
terms of the total gross for the company.
Item Description
EXCELLENT CANTON FLOURSTICK
EXCELLENT BIHON RICESTICK 25x16oz
MOTHER'S BEST SWEET CHILI SAUCE
HOKKAIDO MACKEREL IN NATURAL OIL
KNORR LIQUID SEASONING
MOTHER'S BEST STEW MIX (KARE-KARE)
MAGGI SAVOR CLASSIC
BOY BAWANG GARLIC
The company may increase their prices to contribute more on their overall profit.
For example:
Without increasing the selling price
Item Description
BOY BAWANG
GARLIC
Quantity
Purchase
price
Total
Amount
Selling
Price
Total
Amount
Gross
Profit
500
442
221,000.00
486.20
243,100.00
22,100.00
With increasing the selling price
Item Description
BOY BAWANG
GARLIC
Quantity
Purchase
price
Total
Amount
Selling
Price
Total
Amount
Gross
Profit
500
442
221,000.00
525.10
262,550.00
41,550.00
If HG-Premiere increased their selling price from PHP 486.20 to PHP 525.10, the company can
have an additional income of 19,450.00 in 500 cases of Boy bawang garlic. It can also apply to
other in demand products.
96
 Safety investment for in-demand products.
By computing the reorder point for the in demand products of HG-Premiere, the company can
solve the JIT concern of the company and to prevent stock out. (Inability to supply the last
minute orders of the clients).
Formula: Order Point = Maximum daily or weekly or monthly usage × Lead time
Gross
Profit/
Item Description
EXCELLENT CANTON
FLOURSTICK
ROP
EXCELLENT BIHON RICESTICK
25x16oz
ROP
MOTHER'S BEST SWEET CHILI
SAUCE
ROP
HOKKAIDO MACKEREL IN
NATURAL OIL
ROP
KNORR LIQUID SEASONING
ROP
MOTHER'S BEST STEW MIX
(KARE-KARE)
ROP
MAGGI SAVOR CLASSIC
ROP
BOY BAWANG GARLIC
ROP
Maximum per
month order
Cost of
Goods
Total Sales
Gross Profit
Product
Lead
Time
(weeks)
400
491,802.00
590,162.40
98,360.40
16.67%
2
=
400.00
x
2.00
=
800
950
118,344.00
136,096.00
17,752.00
13.04%
2
=
950
x
2
=
1900
250
131,223.00
150,906.45
19,683.45
13.04%
3
=
250
x
3
=
750
200
548,475.00
630,746.25
82,271.25
13.04%
1
=
200
x
1
=
200
350
2,586,575.00
2,974,561.25
387,986.25
13.04%
3
=
350
x
3
=
1050
250
263,270.00
302,760.50
39,490.50
13.04%
3
=
250
x
3
=
750
300
778,984.80
895,832.52
116,847.72
13.04%
3
=
300
x
3
=
900
900
2,104,001.00
2,419,601.15
315,600.15
13.04%
3
=
900
x
3
=
2700
97
While HG-Premier has considerable strengths, heavy reliance on their customer abroad
has made them competitive in the 3pl industry, thus this TOWS analysis was done to further
improve their product and service.
Weakness and Threats (WT)
The factors in the external environment, particularly the emergence of substitute products,
economic condition, unstable prices, pricing competition and increasing complaints constitute
serious threat to HG-Premiere. When these threats are seen in relation to weakness the best
solution for the company is to remove such threats by improving the quality of their products
through research. Also they should remove their JIT that cause them problems and losses due to
the fact that follow-up orders are not being processed. By doing so not only do they remove the
increasing number of complaints, it could help the company’s industry positioning by making a
name.
Weakness and Opportunities (WO)
To further improve the quality of service within HG-Premiere changes must be done.
Improving of their monitoring system and applying for ISO certification are necessary to
increase the quality both in the company and their service to their customers. Making use of
regulation changes to their advantage would help the company build name in the industry.
Strengths and Threats (ST)
To cope with the threats in the external environment, HG-Premiere may use their
strengths, by specifically developing and improving their marketing strategy with the use of
constant promotions for the company to attract more customers that would help in company
98
performance here and abroad. They can also use this in planning their pricing competition
against rival companies.
Strengths and Opportunities (SO)
HG-Premiere needs to use its strengths to take advantage of the opportunities. Their strong
management commitment and their brand quality, can effectively gather new customers that
could help in increasing their sales. Similarly, most of these strengths facilitate the expansion
into the international market and help in making a name in the industry so that they can get more
suppliers and get quality brand added to their products. But the company should re-evaluate their
strategy implementation so that they can anticipate problems that may occur.
99
Chapter 5
Recommendation
This study has been done to formulate strategies for HG-Premiere that would help the
performance of the company. In the previous sections, the researchers have identified the factors
in creating strategies and also made recommendations on how to improve the company’s current
business processes.
Directions for future research
It would give out better and reliable results in future studies of the company if they would focus
on other services like freight forwarding, trading and logistics. This will give them additional
information on the profitability of each service. This analysis was not done due to the absence of
segregated data.
Future research on the topic can also look into methodologies that company should do in order to
assess their other services. This could result in an in depth analysis of its present and incoming
strategy and present a set of recommendations in order to improve.
100
ANNEX I: FINANCIAL STATEMENTS
101
102
103
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