Recommendations for Group # WMP6004 WMP6005 WMP6007 WMP6008 WMP6009 WMP6012 WMP6015 WMP6052 CD (Group 2) AKSHAY BANSAL AMIT AGARWAL ANKIT SURI ANKUSH VED ANUBHAV KUMAR JAIN BIKRAMJIT DE BNATH CHANDER SHEKHAR SIBAL SUROJEET SADHUSituation Small firm seeking ways to compete in an increasingly intense competitive environment in pre-press printing. The external environment had changed with the advent of new technology, and new players ente ring the market had increased the supply side of the industry. COLORSCOPE needs CHANGE in its operation, marketing and cost strategySituation Description Wages Depreciation Rent Others Total Overhead Labour hours Overhead Rate or Absorption Rate or Driver Rate (Rate / Labour Hour) Floor Space Job Preparation $ 8,000 $ 500 $ 2,000 $ 1,311 $ 11,811 160 $ $ $ $ $ Scanning 32,000 25,000 2,000 5,246 64,246 640 $ $ $ $ $ Assembly 64,000 10,000 8,000 10,492 92,492 1,280 $ $ $ $ $ Output 10,000 14,000 4,000 1,639 29,639 200 Quality Control Idle Space $ 11,000 $ 500 $ 1,000 $ 13,000 $ 1,311 $ 13,811 $ 13 ,000 160 $ $ $ $ $ Total 125,000 50,000 30,000 20,000 225,000 2,440 $ 74 1,000 $ 100 1,000 $ 72 4,000 $ 148 2,000 $ 86 500 $ 6,500 92 15,000 Note: A simplified activity-based costing system was used to measure customer pr ofitability. Cost of Activity Drivers: Output > Scanning > Assembly > QC > Job PreparationComplications Because Colorscope was not the market leader, its only option is to adopt a strategy emphasizing: 1. cost containment, and 2. quality control strategyQuestionsBased on the information provided in the case, the firm has to decide on questio ns such as: Customer pricing, and Process improvement decisions Was there need for incremental or radical change in its operations? Considering the size of the operations and cost of rework, it needed to control costs while maintaining quality and to manage customer profitability. The problem required i nternal quality management and closer interaction with customers. Pricing Strategy should be in sync with its Operational CostingAnalysis Job Revenue Material Expenses Gross Margin Job Preparation 7 6 6 7 7 4 4 4 5 4 4 4 5 4 1 4 4 2 1 3 4 2 2 4 15 4 117 Scanning Assembly Output Quality Control 5 6 8 9 8 4 4 6 5 4 4 5 4 5 1 7 3 1 1 8 7 1 1 3 30 7 147 Total Time Net Profit 61202 61203 61204 61601 61003 61101 61102 61201 61902 61501 61405 61702 61401 61 404 61801 61502 61701 61602 62001 61002 61402 61603 61901 61403 61301 61001 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 23,000 22,000 20,000 20,000 23,000 12,000 11,000 11,000 12,000 11,000 9,800 10,0 00 7,800 9,000 4,000 11,000 8,000 2,000 9,600 8,000 1,400 2,000 8,000 50,000 9,6 00 315,200 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 3,300 3,400 3,200 3,300 4,500 1,800 1,500 1,500 2,200 2,200 2,000 2,500 1,800 2, 100 1,600 3,600 2,100 600 200 3,500 3,100 1,000 1,700 3,900 13,000 5,400 75,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 19,700 18,600 16,800 16,700 18,500 10,200 9,500 9,500 9,800 8,800 7,800 7,500 6, 000 6,900 2,400 7,400 5,900 1,400 (200) 6,100 4,900 400 300 4,100 37,000 4,200 2 40,200 32 34 30 26 40 16 16 16 19 21 20 20 14 22 5 20 20 5 1 24 19 5 5 20 130 32 612 58 64 58 60 75 30 28 32 42 39 36 41 32 36 11 40 39 10 2 38 32 11 12 34 250 42 1, 152 8 8 8 8 16 4 4 4 4 4 4 4 4 4 2 8 4 1 1 8 8 2 1 4 32 8 163 110 118 110 110 146 58 56 62 75 72 68 74 59 71 20 79 70 19 6 81 70 21 21 65 457 93 2,191 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 10,163 8,416 7,278 7,275 5,487 5,193 4,637 4,176 3,464 2,640 1,958 1,210 975 771 647 417 (73) (207) (753) (1,153) (1,405) (1,427) (1,451) (1,512) (2,554) (4,132 ) 50,04026 JOBS; 16 Profitable; 10 UnprofitableAnalysis COLORSCOPE is making money with one group of customers and losing money with ano ther large group of customers.Analysis Colorscope found that many customers were unprofitable, and a few customers were responsible for most of the firm's profit s (80-20 Rule) On further analysis, it was determined that rework, initiated thr ough internal defects or by customers, formed a major cost itemAnalysis 1. Rework due to change in specifications by customer 2. Quality Control initiat ed rework of house errorsAnalysis Customer # Job Revenue Material Expenses Gross Margin Net Profit Net Profit (with error (with rework) demanded rework)2 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,200 6,100 18,500 10,200 9 ,500 9,500 19,700 18,600 16,800 37,000 6,000 4,900 4,100 6,900 7,800 8,800 7,400 16,700 1,400 400 5,900 7,500 2,400 300 9,800 (200) 2 0,200 $ (1,038) $ 936 $ 5, 487 $ 5,193 $ 4,637 $ 4,176 $ 10,163 $ 8,416 $ 7,278 $ (713) $ 975 $ (1,405) $ ( 1,512) $ 771 $ 1,958 $ 2,640 $ 1,618 $ 7,275 $ (207) $ (1,427) $ (73) $ 1,210 $ 1,112 $ (988) $ 3,464 $ (753) $(21,840) 37,35 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (4,132) (1,153) 5,487 5,193 4,637 4,176 10,163 8,416 7,278 ( 1,655) 975 1,124 887 771 1,958 2,640 417 7,275 (207) (687) (73) 1,210 647 (1,451 ) 3,464 (753) (21,840) 37,35 Net Profit (with error rework + demanded rework) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (4,132) (1,153) 5,487 5,193 4,637 4,176 10,163 8,416 7,27 8 (2,554) 975 (1,405) (1,512) 771 1,958 2,640 417 7,275 (207) (1,427) (73) 1,210 647 (1,451) 3,464 (753) (21,840) 3 ,765 Net Profit (without any rework) $ 315,200 $ 75,000 Customer 10 Customer 10 Customer 10 Customer 11 Custometomer 12 Customer 12 Customer 12 Customer 12 Customer 13 Customer 14 Customer 14 Customer 14 Cust omer 14 Customer 14 Customer 15 Customer 15 Customer 16 Customer 16 Customer 16 Customer 17 Customer 17 Customer 18 Customer 19 Customer 19 Customer 10 61001 61002 61003 61101 61102 61201 61202 61203 6120 61301 61 01 61 02 61 03 61 0 61 05 61501 61502 61601 61602 61603 61701 61702 61801 61901 61902 62001 Idle T ime Capacity $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 9,600 9,600 23,000 12,000 11,000 11,000 23,000 22,000 20,000 50,000 7,800 8,0008,000 9,000 9,800 11,000 11,000 20,000 2,000 1,400 8,000 10,000 4,000 2,000 12,0 00 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5,400 3,500 4,500 1,800 1,500 1,500 3,300 3,400 3,200 13,000 1,800 3,100 3,900 2 ,100 2,000 2,200 3,600 3,300 600 1,000 2,100 2,500 1,600 1,700 2,200 200 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (1,038) 936 5,487 5,193 4,637 4,176 10,163 8,416 7,278 186 975 1,124 887 771 1,9 58 2,640 1,618 7,275 (207) (687) (73) 1,210 1,112 (988) 3,464 (753) (21,840) 28, 200Analysis NO REWORK REWORK (Self-Error) REWORK (On Demand) REWORK (All Types)NO REWORK 1. Colorscope has to come up with a new pricing policy, offering discounts propo rtionate to the number of color images ordered. 1. Client 14 could have been the 4th most profitable customer if we had reduced self-committed errors. Colorscop e should initiate quality improvement techniques, an incremental change, to limi t in-house errors. 1. Client 10 could have been the 5th or better customer if we had charged for repeated revisions. Implement new technology to get great price advantage. 1. Colorscope can consider additional stock issues or bond issues to raise funds for making this investment. 2. Alternatively, the management can co nsider yielding a stake in the company to one of the large printing companies li ke R.R. Donnelley Sons Co REDUCE Self-Error CHARGE Client-Revisions REWORK (All Types)Defensive Strategy 1. Colorscope has to learn not to put all eggs in one basket, meaning that it sh ould not allow one customer account for more than 30% of its business. 2. It sho uld try to retain the currently profitable clients by providing competitive pric ing and specialized attention to the clientdeliverable. Aggressive Strategy 1. Colorscope managers should probably start an aggressive marketing campaign to recruit new clientsIDLE TIME 1. Colorscope has to change its operation sequence to reduce idle time during as sembly. Since the company is following a sequential processing of jobs, a high i dle time for assembly means that scanning is taking lots of time 2. Actually, it may make no sense to install the technology currently used by rivals if a new t echnique is in the making. Colorscope can consider purchasing the technology of the next generation and thus be the first in the new field 1. Colorscope manager s should probably start some allied service s to leverage the space (if they wou ld require it in future) or sell the unutilized portion to reduce their overhead s IDLE SPACETHANK YOU Group # WMP6004 WMP6005 WMP6007 WMP6008 WMP6009 WMP6012 WMP6015 WMP6052 CD (Group 2) AKSHAY BANSAL AMIT AGARWAL ANKIT SURI ANKUSH VED ANUBHAV KUMAR JAIN BIKRAMJIT DE BNATH CHANDER SHEKHAR SIBAL SUROJEET SADHU