GRADE 55/60

Homework Assignment #2
Group A
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Homework Assignment #2
Group A
A)
Executive Report
OFFICE PRODUCTS COMPANY (OPC), an office supply company headquartered in Frankfurt
Germany, provides a mix of products ranging from paperclips to printers and copiers; as well as PC’s, notebooks, GPS, and mobile phones since 1996. Over the years the company experienced tremendous growth and in 1952 became a publically traded company, mostly owned by institutional investors of Europe and the USA. Operating in a very competitive buyers market, relying on customer loyalty, turnover and quality brand recognition. In 2009, OPC lost a major contract to a little known Brazilian product company, South Pacific, which offers lower costs and financing, which
OPC can’t and does not want to offer.
Management, although concerned about long-term impact, is focusing on declining profits in the western region of the USA. Digital dashboard analysis has shown a decline in Stockton, Modesto,
Turlock, Merced and Denair regions. Vice President of OPC is not sure of the problem in these 5 regions. The company’s objective is to identify the declining sales problem and effectively reduce the decline in profits and stock prices without compromising their business model.
By designing and implementing three new tables: Product, Cities and Sales, we can eliminate redundancy in the OPC database and report on inconsistencies. Taking a look at total sales by city, we now know that Stockton is bringing in the most revenue and Denair, by far, is bringing in the least. In a report ran on total sales by product, we know that Pen type B is creating the most revenue, while the eraser is generating the least.
We are carefully considering the possibility of outsourcing IT to avert expenses or decline in profit.
The benefits of outsourcing would include: advanced and updated software, cost savings from the IT dividing software expenses among multiple clients and savings due to OPC not needing a full-time staff. On the other hand, you would experience a decrease in responsiveness since the staff is not on hand, the level of service will be weakened, flexibility will be less and certain security risks will be inherited by not having your own in house security features and software restrictions. It is recommended that you outsource only a portion of IT to effectively merge the pro’s and con’s of IT outsourcing.
An additional consideration would be to consider closing operations in Denair or considering ways in which Denair can be made more profitable. good point!!!
There are many factors that would be considered before a decision can be made. Perhaps OPC could implement “CRM” (Customer
Relationship Management) in the hopes of increasing sales and improving marketing at this location.
OPC may also consider implementing a balanced scorecard to assist in determining ways in which to make Denair more profitable.
A logical step in remaining profitable is to search (identify) out those products that are not turning a great profit. To do so, we’ve taken our analysis of revenues further, and compared the total profits generated by each product in the mix. By doing this, we are able to confirm that the eraser and the box of staples are not creating favorable profits.
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Homework Assignment #2
Group A
With OPC’s stock price having fallen from its peak of 60 Euros to 45 Euros at the end of May 2009,
Kung-Fu.com, a Chinese company has put in a bid for OPC’s controlling stock at a 35% premium.
Considering the bid hostile, it is necessary to increase the company stock price to prevent a takeover. Shareholder value and company profits can be increased in two ways: by increasing revenues through effective marketing, selling additional products, providing better customer service and customer loyalty and. by decreasing costs though improved inventory control, and by lowering labor costs through increased productivity. OPC should concentrate on low-cost leadership in their industry, most effectively by improving current IT systems; both supply chain management and customer relationship management. The recommended systems to adapt are decision support systems to improve the flow of inventory
and a geographical information system to assist OPC in the acquisition of new potential customers.
Implementing these systems would increase shareholder value and rejecting Kung-Fu.com’s bid an easy decision.
B) Design & Implantation
1.
See Access Tables
Three tables should be created to eliminate the redundancy presented in the table provided for this case. The entities and attributes for each one of those tables are presented below.
Cities (City_Code [PK], and City_name):
Figure 1. Table cities
.
Product (Part number [PK], Part_description, unit_cost, and unit_price)
Figure 2. Table product
.
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Homework Assignment #2
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Sales (City code [PK], PartNo[PK], and Quantity_sold)
Figure 3. Table sales
.
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Homework Assignment #2
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2.
The relationship among the three tables defined above is shown in figure 4.
Figure 4. Relationship among tables.
Relationship among the tables:
Cities – Sales: o One city may have multiple sales. o
o Overall relationship
Product – Sales: o One product may be included in multiple sales o One sale may include multiple products. NO!!!, a row in sales contains only one product o Overall relationship
To eliminate the many to many relationships mentioned above, one could simply define both attributes in the table “sales” (citycode and partNo) as the primary key of that table. In this way one is able to eliminate redundancy with the data and guarantee simplicity as well.
Refer to the Microsoft Access database for questions 3 and 4 (all required queries and reports.)
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Homework Assignment #2
Group A
C) Additional Analysis
Through additional analysis performed, query and report entitled,
“Additional_Analysis_Total_Profit_by_Product,” OPC was able to pinpoint the products that were not turning acceptable profits. By analyzing the profitability, Total unit cost vs. total unit price, we are able to see that the box of staples and eraser are turning significantly less profit than the other products. On the contraire, pen type “B” and pencils (3) are very profitable. Being consistent with the conclusions drawn from revenue reports, it can be concluded that there are products being sold that may be worth dropping from the mix to keep profits up without compromising strategy.
D)
Office Products Company (OPC) is a large publicly traded company that supplies office products globally. OPC sells not only commonly used office supplies, such as note pads, staples, pencil, paper clips, etc., but has increased their product lines to include computers and cellular phones. However, the company is known to operate in a very competitive market and, recently, lost a large contract to another relatively unknown office supply company called South Pacific.
Due to the fiercely competitive atmosphere in selling the aforementioned undifferentiated office supplies, profits have been declining in five regions (cities) in the western USA. OPC’s stock price has fallen from its peak of 60 Euros at the end of December 2007 to 45 Euros at the end of May
2009, and, resultant, another company, KungFu.com, is attempting a hostile bid of OPC’s stock on
December 1, 2009 by offering a 35% premium over the May 31, 2009 closing price.
The fact that the acquisition by KungFu.com is termed a hostile takeover means that OPC is disinterested in being acquired. Therefore, in order to prevent a hostile takeover, OPC management will find it necessary to increase the company’s stock price by increasing shareholder value (OK) ; this, in turn, will decrease the credibility of the offer. Shareholder value and company profits can be increased by either increasing revenues or decreasing costs. OPC can also take advantage of its brand name and image since it is already synonymous with quality.
Revenues can be increased by improving sales through effective marketing, selling additional products, providing better customer service, adding more customers, and luring back previous customers. Costs can be decreased by improving inventory control in the areas of warehousing and distribution and by lowering labor costs through increased productivity.
It is evident that OPC’s greatest challenges in the office supply industry, where little product differentiation exists,
are providing customer satisfaction in terms of proper pricing of products as well as providing excellent customer service.
Per Michael Porter’s Competitive Forces Model, OPC faces traditional competitors, new market entrants, and customers who can easily switch to a competitor.
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Homework Assignment #2
Group A
OPC should concentrate on low-cost leadership
in their industry in the effort to increase sales volume, revenues, and profits. Information technology will be necessary to improve both supply chain management systems (SCM) and customer relationship management systems
(CRM). SCM will achieve lower costs in the area of Logistics and CRM will enhance customer sales.
Other means of lowering costs that should be considered would include cloud computing or outsourcing of its information systems.
The creation of an intranet and extranet would also enable the reduction of costs. In regard to the extranet, it would permit customers to access their orders which should improve their level of sales and retention. The intranet is a useful means of allowing employees to access the company’s data warehouse, thereby, increasing employee efficiency by allowing them to query data and perform analyses.
Management Information Systems (MIS) will generate reports revealing sales in the five regions, as well as shipments and inventory levels in the five cities. Decision Support Systems (DSS) can be utilized to provide a database which will accurately reflect the combination of office supply products that should be shipped and maintained in inventory (just-in-time) to maximize profits. A sensitivityanalysis would also be quite valuable in determining the likelihood of profitability under various costing and pricing scenarios. Geographic information systems (GSS), a category of DSS, can assist
OPC in acquiring knowledge of potential customers to whom the company could market.
Ultimately, company performance, leading to a higher stock price, can be enhanced by OPC executives initiating a balanced scorecard which measures the firm in four areas including financial, business process, customer, and learning and growth. This Executive Support System (ESS) will enable OPC to become more profitable as a result of both increased customer satisfaction and greater employee efficiency.
In light of the fact that a 35% premium over the 45 Euro closing price is 15.75 Euros, bringing the hostile bid to only 60.75 Euros, OPC should easily reject this offer. The instituting of the above information systems should enable OPC to assume a low-cost leadership strategy; this strategy will add shareholder value, increase profits, and drive up the company’s stock price to earlier levels and beyond.
E)
Market Basket Analysis is the study of the composition of a basket of products purchased by the consumer at a store, or even on-line, during any one shopping episode. Market basket analysis can be used to gain a competitive advantage because knowledge of these purchasing patterns will assist companies, such as Office Products Company (OPC), to market products in a manner to dramatically increase sales and, thereby, profits. This strategy is a means by which companies can “subtly” recommend groups of products that consumers find appropriate during the shopping experience.
The shopping by the consumer may occur in a retail or grocery store where the customer will find products in the same aisle or nearby; o r the consumer may be shopping on-line at a company’s web site. On the web site the firm may purposely advertise selected products on the same page that contains the consumer’s most desired purchase.
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Homework Assignment #2
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The marketing or “linking” of two or more products together for the consumer during the shopping trip will increase sales for the company plus the consumer may find this shopping experience pleasurable as certain products are, indeed, marketed together. This strategy provides the consumer a higher level of convenience during the shopping episode and, resultant, the consumer will likely return to the store or web site and become a regular shopper.
In analyzing the sales of various OPC products by city, I (WE) noted a couple of possible patterns. It appears that total sales revenues of yellow note pads, white note pads, and type B pens were consistently the highest in value. This seems interesting as type B pen’s markup over cost is 152%, and yellow note pads and white note pads are marked up only 33% and 40% over cost, respectively.
It is extremely possible that OPC is advertising its type B pen (a high profit item) along with note pads; of course, this is reasonable since one needs a pen to write notes on pads of paper.
Another interesting pattern appears to be a similar quantity of purchase for rubber bands and pencils. These two items are consistently purchased in the greatest amounts, with rubber bands still leading pencils in totals. However, it is notable that rubber bands have a markup over cost of only
13.5% and pencils have a markup over cost of 42%. It is highly possible that OPC is “recommending” in some fashion that buyers purchase pencils whenever they are shopping for rubber bands. (good)
F)
OPC is worried about declining profits and is considering outsourcing their IT to India. Below are a list of pros and cons related to OPC’s consideration.
IT Outsourcing
Pros
Advanced Software
Better Pricing
Cost Savings
Flexibility (Software/Employment)
Cons
Decreased Responsiveness
Level of Service
Flexibility (Service)
Security Risk
The pros of outsourcing IT to India include the fact that an IT outsourcing company will (may)b e up to date in the latest software trends. A concern for any company is that after initializing and training your entire staff in a particular software, it will be outdated. Outsourcing IT alleviates this risk. An additional benefit is the money that can be saved by outsourcing IT. This can save money on two ends 1) the IT company having purchased software to do work for many companies will have pricing deals with suppliers and will be able to offer lower prices to OPC. 2) OPC will not have to have a full time IT staff on hand, by outsourcing their IT; they will either pay a specific fee or based upon usage.
If OPC would require a full time staff, there are times when all members of the IT department are not needed and if employees are let go, there are times rehiring employees to fill the need can be difficult. Always having an IT department available relates to the 4 th pro of IT outsourcing. OPC can take on additional projects without worrying if their IT department can handle the additional business traffic as the outsourced IT will be available and be able to run on the most efficient and latest updated software.
The primary con of outsourcing OPC’s IT to India would be decreased responsiveness. By having an
IT department on staff, software/IT issues can be resolved immediately. Additionally, having an
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Homework Assignment #2
Group A individual who can immediately respond to a problem can in many ways be more beneficial than calling in to the India outsourced IT call center (what are you outsourcing???) . The level of service by speaking to an individual in your office who is on your staff will generally be more beneficial than calling in an IT problem to a call center. There is decreased flexibility by not having a member on your staff who you can have exclusively devote his full attention to an IT issue you may have. If an IT issue comes up while a client is being serviced outside the office, an IT member from OPC's staff can be a “first responder” to this issue as well. The 4 th con of IT outsourcing would be an increased security risk. An in-house IT department, you can have your own security features, restrictions on software, and IT security, by outsourcing your IT department to India, you are relying on their security features and controls which could possibly compromise secure client confidential information.
OPC must consider the pros and cons before making their decision regarding outsourcing their IT to
India. An effective approach may be to merge the pros and cons of both. If OPC were to only outsource a portion of their IT, for example to have the IT department in India on a contractual basis should there be an advanced IT issue or should there be an overflow which the in-house IT staff cannot handle. OPC would have their own security features and will have the flexibility and service of having IT members on staff (just enough employees to handle their standard amount of work) while not compromising future business should there be an increase in IT servicing needs. political stability legal issues
Loss of jobs
Infrastructure issues
G)
Requirements
A. Executive Report
(including recommendations, if any)
B. Part 1: ACCESS table:
Part 2: Define PK, FK and relationship among tables
Part 3: Queries
Part 4: Reports
C: Additional Analysis
D:: Hostile Takeover
E. Market basket analysis
F. Outsourcing
Maximum Points
6
10
10
3
3
4
4
10
10
Group Points
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Homework Assignment #2
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TOTAL 60
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