Kootenay Bicycle Company ( Kootenay ) has been captured customers’ involvement over the past old ages for its high quality made-to-order bike ; nevertheless. a clear strategic way must be identified in order to guarantee continued growing and lead to profitableness.The undermentioned study identifies and buttockss:1. Internal and external environment2. Strategic and concern issues presently confronting Kooteany3. Strategic options available to the organisationIn add-on. this study provides recommendations that:1.
Offer clear way for growing2. Support the proposed growing scheme3. Supply solutions to operational issuesKooteany’s committedness to Product Leadership and quality merchandises support the mark client demands. Kootenay is known for high quality merchandises. and the recommendations of this study support the continued committedness to quality that is the foundation of the company’s success. A elaborate execution program follows that outlines how to put to death the recommended scheme and addresses cardinal operational issues pivotal to its success on through to financial twelvemonth ended 2009.SITUATIONAL ANALYSISA situational analysis of Kootenay is researched in order to urge the strategic way of the company. Exhibit1 provides a complete list of the company’s internal strengths and failings.
and its external chances and menaces. The following are identified as the cardinal factors or issues tie ining with Kootenay today: Internal EnvironmentKootenay’s cardinal strengths are the passions of edifice usage motorcycle frame in its employee – Shacketlon and Cullen. It has been translated to quality procedure. clearly defined merchandises and client satisfaction. Inventory degrees are minimized as a consequence of order-to-make gross revenues.
Although growing is one of its aims for Kootenay. operational efficiencies. capacity expandability. funding and direction are restricting it. External EnvironmentMultiple options have surfaced for Kootenay including installation enlargement.
funding and channel distribution. These chances can help Kootenay to turn to the turning demand in Canada and North American for high-quality customized frame bike market. Externally. Kootenay must vie with the low cost mass-manufacturer.
usage motorcycle shapers at all degrees and unexpected demands in the market. Fiscal AnalysisAs shown in Exhibit. profitableness has been a concern to Kootenay – gross borders are below industry norm of 28-50 % for its complete motorcycle merchandises ( Entree ; -0.
83 % . Dlux ; 7. 76 % . and Ultra ; -6.
73 % ) where stuffs have represented a high per centum of the costs ( 58 – 74 % ) . Selling frame entirely has shown stronger profitableness ( 23. 33 % ) but overall returns demands to be improved ( ROA/ROE are -14 % /-22 % ) . Activity ratio has shown the benefit of order-to-make or no overstocking of selling merchandises ( stock list turnover is 13. 07 yearss ) but Kootenay has an drawn-out aggregation period ( 18. 96 yearss ) . Its deficit of hard currency ( $ 780 ) discourages any short-tem duties. As for its coverage ratios.
a big portion of the equity is financed through owner’s investing. Besides. the allotment of 100 % salary to direct labor cost has masked any labor that should be regarded as fabrication operating expense. Mission Statement & A ; Owners’ PreferencePresently. Kootenay does non hold a mission statement but its owner’s penchant is to do name for the successful motorcycle makers. In order to pass on the strategic way of the company to its employees and clients. Kootenay. at this clip.
should make one as: “Kootenay is a usage frame shaper who strives to supply the best in category quality and craft to customer’s demand “ IDENTIFICATION AND EVALUATION OF STRATEGIC OPTIONSFrom the old analysis. it is apparent that Kootenay’s is at a hamlets and must make up one’s mind how best to turn to its immediate endurance and future growing issues. While Kootenay’s should concentrate on its long-run strategic way. it should besides be concerned with its short-run hard currency flow job and other of import internal issues.
Four strategic options are identified as follows. which should be evaluated in footings of feasibleness. abilities of turn toing current issues and compatibility with Kootenay’s nucleus competences and owner’s penchants:1. Independent growing2. Angel investor3. Retail concatenation shops4. Mountain High Bike ( MHB )Strategy Option 1: Independent growingProfessionals:– Core competency in alone designs and production procedures – Product repute every bit high quality.
customized bike – Owner will hold full control of the concern– North American market demand is switching from low-priced standardised bikes towards high-end customized bikes Cons:– Company is sing losingss– Lack of funding for current enlargement and future growing – Poor operational efficiencies in bringing and production – Lack of accounting system to maintain path of cost and labour – The company is deficiency of direction expertness– Maximized production capacity in infinite. frame-making staffsAlthough the market prospece is good and there is high potency that Kootenay’s will turn to productiveness issue in bend to better its profitableness. the strongest statement against this option is that Kootenay’s would non be able to happen dependable funding to fund its operations and fuel its growing. As resettlement and enlargement entail important influx of capital. this hard currency flow job would convey uncertainnesss to its growing and greatly undermine the feasibleness of this option.
Strategy Option 2: Angel investorProfessionals:– Will straight address the hard currency flow job– Capital can be obtained with no direct duty to refund the financess– Clear footings of the offer which mean less uncertainness about the optionCons:– Trouble in valuing the company because of assortment of methods and complex factors involved– The 50 % ownership involvement offer will give up equal control to the investor group– The 100 % ownership involvement offer is against owner’s penchant. which is to hold control over his concern– Owner would lose his occupation or even other chances in the industryThis option addresses the hard currency flow job. but at the cost of 50 % or full ownership of the company. which is non in line with owner’s penchants of keeping control. Further more. this option does non turn to any operational issue. such as supply concatenation.
distribution. logistics and accounting. This option does non look to convey equal benefits.
Strategy Option 3: Retail concatenation shopsProfessionals:– Guaranteed purchase from dependable distributers– Diversify channel distribution for merchandises for future gross revenues– Potential cost decrease through outsourcing to China makerCons:– Not in line with company mission of supplying quality. customized merchandises– Purchasing monetary value well lower than current cost of production– Must cut down costs and spread out production installations– Potential loss of intangible assets in merchandise design through outsourcing– Loss of bing clients and increased dependences to concatenation shops retail merchantsThis option would non appeal to Kootenay’s who targets high terminal customized bike market. Kootenay’s is non competitory in footings of cost against mass bike makers. This option would gnaw Kootenay’s competitory advantage in the long tally. rolling far from its nucleus competency. Strategy Option 4: Mountain High BikeProfessionals:– Will supply the interim funding– Production installations will be available rent-free for five old ages ; all indirect costs will be covered– Access to state-of-the-art picture installations– Purchasing. logistics.
accounting and distribution support available– Expansion of production up to 500 motorcycles per twelvemonth– Possible decreases in direct labour hours of 35 % to 40 %Cons:– Financial information of MHB non available– Potential struggle of direction manner and pattern– In five old ages. MHB will hold equal control of the concern– Shotgun clause in favour of stronger spouseThis option non merely solves the hard currency flow job but besides addresses operational issues such as supply concatenation. distribution and accounting. It is besides compatible with Kootenay’s mission and nucleus competences. This option appears to be the feasible option. STRATEGIC RECOMMENDATIONBased on the above analysis. it is recommended that Kootenay’s 1 ) enter into confederation with Mountain High Bike.
2 ) diminution the offer by the angel investor and the retail concatenation shops and abandon the option of independent growing. Among the four options. merely the MHB option addresses hard currency flow job. assorted runing issues and provides a feasible strategic way for the company. The deficiency of resources. high degree of competition and tight net income border do it feasible for an early-stage company like Kootenay’s to work together with a spouse that possesses complementary expertness to research broader market chances.
Through the partnership. a leveraged growing would be realized by prosecuting in activities and accessing resources outside Kootenay’s ain boundaries. In the long tally. when the spouses prove to work good together. a amalgamation would be executable that would enable the two spouses to joint attempts and research the profitable recreational bike market. The hazard associated with this recommended option should be addressed hrough the dialogue period. MHB’s recent fiscal statements should be requested for elaborate analysis of its public presentation and potency for growing.
Furthermore. milepost for each phase and an issue scheme should be in topographic point in instance the desired consequence can non be attained. Alternatively of reassigning ownership harmonizing to clip frame. Kootenay’s should negociate with MHB for result-oriented transportation footings. Revisiting Mission StatementBy implementing the recommended alteration. Kootenay is destined to run in a niche market whose competition is against usage motorcycle builder in the mountain motorcycle market. A revised mission statement is recommended: “Kootenay strives to be become a profitable usage frame shaper where every motorcycle or frame is produced with the best quality and process”OPERATION ISSUESMerchandise MixWe recommend Kootenay’s to maintain all three merchandise lines as they appeal to different client groups: The Ultra for bike loonies who merely want the best. the Dlux for clients who want the balance between quality and monetary value.
and the Entree for budget heads who want a quality customized bike for minimal monetary value. In order to keep its market place. Kootenay’s should pay attending to the industry engineering and now stuffs.
Kootenay’s should see following new stuffs such as C fibre or Ti [ 1 ] as the market demand displacements. ProductivenessTo inline with the mission and owner’s penchant. Kootenay’s should endeavor to better its productiveness without giving quality. We recommend Kootenay’s non to cut down the review criterions as review is a cardinal measure in quality control. By allying with MHB.
Kootenay’s should be able to better productiveness significantly through MHB’s modern installation. Detailed production projection can be found in exhibit 3. Production CapacityKootenay’s must proactively increase its production capacity to run into the excess demand from its market. In order to increase productiveness from 160 to 500 frames per twelvemonth as facilitated by MHB. Shackelton and Cullen must offload some non-value added activities or develop new frame shapers. We recommend Kootenay’s to convey in a trainee for assembly. packaging and review while being trained for doing frames during his first twelvemonth. In the 2nd and 3rd twelvemonth.
the trainee is expected to accomplish 50 % and 100 % efficiency in doing frames to Kootenay’s current criterion ( 57 or 113 frames/year ) . Besides. the procedure of motorcycle assembly. packaging and quality review should be dedicated for the trainee and hired assembly programs. Exhibit 3 provides the productiveness projection for the following 5 old ages with 3 trainees and a full clip assembly programs being hired at different clip.
The usage of clip card as suggested below would be a good monitoring tool of productiveness betterment. PricingTarget bing attack was used to revise current products’ pricing and bing to accomplish profitable border at industry degrees ( 28-50 % ) after 5 old ages. Please refer exhibit 3. A measure attack is employed for all merchandises to achieve 15 % . 20 % .
28 % . 35 % . 45 % gross borders or higher in twelvemonth 1.
2. 3. 4. and 5 severally. Not merely would client see a minimum monetary value addition ( ~6. 8 to 12 % on norm ) from old twelvemonth.
a cost decrease of 10 % for parts kits is factored as a consequence of MHB’s enhanced sourcing ability. Dlux’s and frame’s pricing will stay unchanged in the following 2 old ages to keep jutting gross borders. MHB accountant to reexamine suggested retail pricing by including existent stuff nest eggs from buying. AccountingThe deficiency of proper accounting and labour activities records resulted in improper fiscal coverage for Kootenay’s past old ages of operation. This besides cost Kootenay’s opportunity in obtaining funding from fiscal establishments. Besides. merchandises costs were ill allocated which is why Kootenay was unable to put monetary values decently. To decide these issues.
we recommend Kootenay to use industry criterion accounting system to maintain proper concern records and implement occupation card system to enter labour hours for each order for coverage and reappraisal intents. Activity-Based Costing ( ABC )Kootenay’s current costing system assumes all of Shackelton and Cullen’s labour hours apply to organizing tube bordering or complete motorcycle. Indirect fabricating activities such as telling parts from providers. parts and complete motorcycle review are charged to direct labour costs irrespective of merchandises or existent labour applied. These labour costs should be applied to Kootenay as fabricating overhead labour while direct labour cost merely represent the fabrication of tubing frame which includes cutting tubing. organizing trigon. mounting caput tubing and underside bracket shell every bit good as welding. Activity-based costing ( ABC ) that tracks fabricating activities in smaller pools of operating expense costs and charge against merchandise based on cost drivers is recommended by another study ( beginning ) and should be implemented after farther consideration of activities at MHB installations.
In add-on. consideration should be given to extra stuff cost for particular order such as outsize frame requested by clients. SellingTo day of the month.
Kootenay’s selling activity has been minimum. Although Kootenay hasn’t had job with orders to make full its full capacity. we believe targeted selling activities can assist Kootenay to set up the high-end image and beef up its place in the market topographic point. We recommend Kootenay to: Human Resource ManagementPresently. Kootenay is confronting two human resource issues. First. Kootenay has merely two frame shapers. They have to work drawn-out hours and Saturdays to maintain up production.
Even so. Kootenay’s capacity is badly limited. Second. Kootenay does non hold a concern director who can maintain proper accounting records. and pull off client histories and providers.
In light with the two issues. we recommend Kootenay to: 1 ) Expand capacity immediately. and guarantee human resource for farther enlargement in the hereafter. 2 ) Keep proper accounting record and manage customers’ histories and providers. Proper accounting records will help Kootenay to command cost and put proper monetary values.
Supply Chain ManagementKootenay hasn’t changed providers of all time since they started the concern. Although the provider ne’er raised monetary values. Kootenay may be paying premium monetary values for portion kits and stuff. By organizing confederation with Mountain High. Kootenay will be able to entree Mountain High’s sourcing web and supply concatenation.
We recommend Kootenay to utilize 10 % mark cost decrease in portion kits and stuff for the first twelvemonth. and add it into the contract with Mountain High as a status for ownership transportation. The new concern director should carry on a supply concatenation public presentation rating by the terminal of the first twelvemonth. IT SystemWe recommend Kootenay to better its IT system by redesigning its web site to better visual aspect and functionality. On-line payment option through company web site should add value to the company. IMPLEMENTATION PlanExhibit 4. Gantt chart.
illustrates the timelines associated with the following execution program. 1. Hire concern development director ( BDM ) : Cam Shackelton should be involved to engage a BDM instantly to maintain proper accounting record.
oversee customers’ histories. and negotiate monetary value with providers. The director should fix for timelines and obtain needed information for the MHB confederation. 2. Aliance with MHB:Cam Shackelton.
Bill Cullen and the new BDM should see MHB’s installation every bit shortly as possible so they can get down be aftering for the resettlement. Cam and Bill should work with MHB to develop a executable production program to use modern installations and better productiveness. This must be done prior to subscribing the concluding contract. The BDM should get down outlining the contract with MHB. The contract should stipulate the undermentioned footings: sum of funding MHB would supply for enlargement. precedence on shared installations between Kootenay’s and MHB. Supply concatenation.
logistic. distribution and accounting support. Performance should be evaluated every twelvemonth after the confederation. 3. Implement accounting package and public presentation measuring system: Diane Shackelton should buy Simply Accounting Basic™ package instantly in order to maintain accounting records. ( $ 149. 99 [ 2 ] ) Diane will get the preparation classs for usage of the plan.
Together. Cam and new concern director must develop public presentation steps utilizing the Balanced Scorecard to guarantee that the company’s ends are clearly communicated to the staff and that they are cognizant of their parts to the success of the company. 4. Implement ABC and Target Costing:BDM to use ABC with mark bing in Kootenay’s accounting system.
reappraisal bike production activities to organize proper cost pools for cost allotment. Time card to track labour hours spent on assorted activities to accurately find the cost of their merchandise. 5. Selling scheme and Use the web site:BDM should engage an IT adviser for bettering its web site. The new web site should be featured with merchandise information including images and pricing. a treatment forum leting bike fans to discourse cycling activities and merchandises. and on-line payment option.
Besides. it should put pay-per-click ads in major hunt engines ( Google. Overture ) to pull targeted clients to the company web site. Besides. the company should fall in national hobbyist association.
take part in trade shows and advertise in athleticss event. 6. Develop Supplier Relationship:Cam and the BDM should inform its current provider about the confederation with MHB every bit shortly as the contract is signed.
The BDM should negociate with current providers and new providers through MHB to accomplish a mark cost decrease of 10 % while maintain high quality. DecisionIn decision. Kootenay’s nucleus competencies are the accomplishment. experience and accent on quality in doing custom motorcycle. The strategic way recommended in this study does non merchandise off any of its nucleus competency. Shackelton’s penchant for Kootenay is to go the name for usage motorcycle maker with growing.
and the followers are recommended:• Accept MHB confederation proposal after item reappraisal of contract and analysis ; • Reject funding proposal from angel investor ;• Reject distribution proposal from retail concatenation shops ;By implementing the strategic and operational recommendation in this study. Kootenay should see both short and long term growing. go operational efficient and go profitable. Kootenay is destined to go a reputable name for usage motorcycle fabrication in Canada.
EXIHIBIT 1: Swot AnalysisStrength:– Owner’s passion for the work. and ability to better productiveness over the old ages ; – Experienced. adept employee with strong accent on quality procedure. parts ; – Long term debt free ;– Multi-purpose merchandises for transposing. winter siting. rushing on snow and sand ; – Product mix with clear boundary in stuffs. designs and characteristics ; – Customized merchandise with fecund client feedback and trueness ; – Highly skilled procedure to deter from copying design ;– Order-to-make theoretical account reduces inventory degree to lower limit ;Failing– High cost installation with deficient infinite that cost un-efficiency ; – Accounting – deficiency of experience.
proper coverage on labour hours. entering and a system to mensurate direct fabrication and overhead cost ; – Backlogging and delayed bringing ( 3 hebdomads behind 6-week promised lead clip ) ; – Lack of a mission statement and a strategic way of the company ; – No current trainee for possible enlargement of capacity ;– Lack of hard currency or maximized runing line of recognition for expandability ( installation ) ; – Lack of selling agencies in booklet. packaging logo. ill managed web site ; – Operating loss. low or negative gross borders in Entree/Ultra ; – No patent for designs ;– Lack of concern direction at corporate degree for stewardship.Opportunity– Increasing demand for motorcycle industry in North America [ 3 ] . West Coast Canada [ 4 ] ; – Swerve to travel from low-priced standardised bikes towards high-end customized bikes with high quality parts and frames [ 5 ] ; – Alliance chance with MHB to spread out capacity.
cut down overhead costs. obtain funding. diversify provider and distribution webs ; – Moving to new installation for productiveness betterment and expandible capacity ; – Retail concatenation shops chance that leads to vouch gross and outsourcing Entree/Dlux to China makers ; – Angel investor chance to obtain funding ;– Change of merchandise mix by selling frame set merely or mountain bike frames ;Menace– Copying design thoughts by little or big. seaward bike shapers ; – Custom frame rivals in pricing. design at all degrees from big makers to little local motorcycle stores ; – Low turnover rhythm of the merchandise ;– Seasonal demand form ;– Low cost foreign shapers come ining market ;