final rkic casestudy presentation

Business: 6020

Terrance Sanford

Bradley Ross

Adding the Ducati and BMW models would

add an estimated $49,791 of additional

annual profit to RK Industrial Corporation.

3

Some equations

Units sales x ave sales price = revenue

Revenue x GPM = gross profit

Current profit

225 x $12,320 = $2,772,000 Revenue

$2,772,000 x .05 = $138,600 gross profit

Number of sale required to make same profit with a

2% reduction in GPM

$138,600 / .03 = $4,620,000 Revenue

$4,620,000 / $12,320 = 375 unit sales

Bottom line – Bad Idea

We would have to sell an additional 150 Yamahas to make

the same profit due to a reduction in the GPM to 2%.

4

Using Yamaha local sales figures as our base and comparing it to

the national average gives an estimate as to the number of units

anticipated to sale in the future for each product line.

Yamaha: 225 motorcycle units locally

620,000 national units

0.04% local % Yamaha units

or base % of local units

Triumph:37,800

national

units Ducati:30,100

national

units BMW:47,700

national

units

0.04%

local % of national

sales 0.04%

local % of national

sales 0.04%

local % of

national

sales

15

estimated unit

sales 12

estimated unit

sales 19

estimated

unit sales

Yamaha

nat'l

units

620000

X

solve for "X“

(BMW national

units)

Yamaha

mkt

share 16.9% 1.3% mkt share BMW

X =

47,692.31

or 47,700

5

Estimated market share annual sales for each new product line are:

Yamaha Triumph Ducati BMW

Profit = Revenue - Costs Profit = Revenue - Costs Profit = Revenue - Costs Profit = Revenue - Costs

5.00% Reveune - Costs 7.50% Reveune - Costs 15.00% Reveune - Costs 10.00% Reveune - Costs

$616 12,320 Costs $855 11,399 Costs $2,174 14,495 Costs $1,247 12,470 Costs

$616 12,320 11,704 $855 11,399 10,544 $2,174 14,495 12,321 $1,247 12,470 11,223

Yamaha Triumph Ducati BMW

Profit per Unit $616 $855 $2174 $1247

Estimated Unit

Sales 225 15 12 19

Total Gross Profit $138,600 $12,825 $26,088 $23,693

Estimated annual sales and profits for each of the product lines are:

Ducati returns the best profit per unit sale followed by BMW based on projected local

market share sales

6

The calculations are based off the sale of one unit at the average cost for each brand.

Credit Line Considerations

Principles of Production Possibilities Curve

Total Line of Credit $500,000 New Product Credit Line Required

Yamaha motorcycles and scooters $225,000 Triumph $85,000

Yamaha four-wheel ATVs $75,000 Ducati $70,000

Polaris watercraft $65,000 BMW $50,000

Line of Credit Remaining $135,000

7

Ducati

Triumph

Not a possible combination

BMW

Ducati

Credit Line Use = $120,000

Profit = $49,781

BMW

Triumph

Credit Line Use = $135,000

Profit = $36,518

BAD OK BEST

NOTE: The x and y axis’ represent the

Line of Credit usage for each Brand

Credit Line Considerations (Floor-plan

Financing)

Adding both Ducati and BMW to the RKIC product

offerings would maximize sales and profits.

Based on the credit line limitations we could

have no more than 5 Ducati’s and 4 BMW’s on the

floor at one time.

The additional annual profit for RKIC

$49,781

8

Activity

Activity

Cost Driver

Activity Cost

Driver Rate

Perform

Repairs

$20,525 Repairs

Completed 325 Cost per Repair $63.15

Diagnose

Problems

$6,750 Problems

Diagnosed 845

Cost Per

Diagnoses $7.99

Generate

Repair

Orders

$1,650Repair

Orders

Generated 345

Cost to

generate each

repair order $4.78

Counter Idle

Time

$2,600Hours of

Counter

Idle Time 52

Cost per hour

of counter idle

time $50.00

Maintain

Service Area

$2,425 Hours

Maintaining

Service

Areas 242.5

Cost per hour

maintaining

service area $10.00

Store

Vehicles

$3,550 Vehicles

Stored 420

Cost per

vehicle stored $8.45

Process

Service

Documents

$1,644Service

Documents

Processed 137

Cost to process

each service

document $12.00

TOTAL $39,144

10

ABC Pro-Forma P&L

As-Is ABCRevenue $82,543

Direct Labor $12,315

Materials/Parts $8,210

Gross Margin $62,018

Diagnose Problems $6,750

Generate Repair

Orders $1,650

Counter Idle Time $2,600

Maintain Service

Area $2,425

Store Vehicles $3,550

Process Service

Documents $1,644

Total Activity

Expense $18,619

Operating Profit $43,399

Profit Percent 52.58%

11

The main areas that need addressing are the

Diagnose Problems, Counter Idle Time, and

Store Vehicles.

Diagnostic represents the 2nd largest service

expense.

Idle time is never good as it usually means

product/services are sitting between cycles.

Vehicle storage process is the 3rd highest

expense.

12

Diagnostics could stem from poor quality parts on motorcycles or perhaps consumers are not educated on how proper maintenance.

Talk with the service manager and list out the most common diagnosed problems to see if the issue is related to workmanship or poor consumer up-keep.

Counter Idle Time should be investigated to see why there is a wait time between processes.

Does the equipment need to be updated?

Are workstations set to far apart?

Is there excessive setup time due to one machine doing multiple tasks?

Would a JIT system benefit the company?

13

Store Vehicle Process

Talk with the service manager about any delays

between finished repairs and customer pickup.

Are we allowing excessive days for customers to pick

up his/her motorcycles?

Is so, should a per day fee be charged?

Is there an area being used to house old motorcycles

for parts after there is a trade in?

14

Sample Cost Reduction Strategy

Option 1: Reduce TAE by conducting

process improvement

Option 2: Use historical data of Total

Activity Expenses to increase repair

revenue by 25% of Total Activity

Expenses.

Option 3: Use a hybrid of Options 1

and 2 (find efficiencies and increase

revenue based on local area

competitive prices).

The math for options 1 through 3

TAE x 25% = TAE reduction from

process improvement or repair

revenue increase

$18,619 x .25 = $4,655

15Note: Options 1 and 2 are used to illustrate the effects on gross marginal profit if $4,655 was saved in costs

due to finding efficiencies (option 1) or if solely passed on to customers as an additional charge (option 2).

ABC Pro-Forma P&L

As-Is ABC Option 1 ABC Option 2 ABC Option 3 ABC

Revenue $82,543 $82,543 $87,198 $87,198

Direct Labor $12,315 $12,315 $12,315 $12,315

Materials/Pa

rts $8,210 $8,210 $8,210 $8,210

Gross Margin $62,018 $62,018 $66,673 $66,673

Diagnose

Problems $6,750 $5,062 $6,750 $5,062

Generate

Repair

Orders $1,650 $1,238 $1,650 $1,238

Counter Idle

Time $2,600 $1,950 $2,600 $1,950

Maintain

Service Area $2,425 $1,819 $2,425 $1,819

Store

Vehicles $3,550 $2,662 $3,550 $2,662

Process

Service

Documents $1,644 $1,233 $1,644 $1,233

Total

Activity

Expense $18,619 $13,964 $18,619 $13,964

Operating

Profit $43,399 $48,054 $48,054 $52,709

Profit

Percent 52.58% 58.22% 55.11% 60.45%

Increase Revenue Increase Production

Raising Prices Sale More of Existing

Products

Increase Customer Value Adding New Product

Line(s)

17

GUIDE FOR SUCCESS: INCREASE REVENUE

18

Strategic Objective Initiative Measure Target

Increase revenue by raising prices

Research market to compare prices. Assess demand base of proposed price increase

Competitiveness of product and service prices

Product and service prices within 5% of competitor prices

Evaluate ways to increase customer satisfaction

Service Department satisfaction surveys Customer Satisfaction

Greater than 95% satisfaction in all categories

Courtesy calls to customers one month after purchase Number of calls made

100% contact with customers

GUIDE FOR SUCCESS: INCREASE PRODUCTIVITY

19

Strategic Objective Initiative Measure TargetIncrease production through introduction of new product line

Increase product line: Best option - add Ducati and BMW

Increase annual sales based on profitability

Achieve 100% of sales goals for each product each year

Determine potential outcome of selling more of existing product line

Calculate the gain/loss of market share Market Share

Increase market share annually by 5%

Marketing campaign to widen name recognition Increase of annual sales

Increase annual sales by 20%

Customer satisfaction Repeat customers

Increase market value Attract new customers

20

GUIDE FOR SUCCESS: INCREASE CUSTOMER

SATISFACTION/NAME RECOGNITION

21


Increase customer satisfaction in the motor sports market

Perform studies on the useful life of product. Contact past purchasers to determine satisfaction and likelihood of repeat purchase.

Number of repeat customers

Increase repeat customers annually by 25%

Increase name recognition in the region to attract new customers

Develop market strategy to include random surveys to potential buyers asking what shopping experience brings them to a showroom

Number of new customers

Increase new customers annually by 30%

Relationship w/Suppliers Efficient service department

Customer management

22

GUIDE FOR SUCCESS: INCREASE OPERATIONAL

EFFICIENCY/INVEST IN INNOVATION

23


Decrease costs for vehicle storage

Per day fee for vehicle storage after repairs complete

Customer vehicle pick up rate

95% of vehicles picked up by customer within three days of repairs

Research diagnostic problems for commonalities

Talk with suppliers concerning quality of products Part quality

Reduce failures of commonly failing products by 40%

Increase customer satisfaction with the service department

Provide care information pamphlets and care clinic tip videos in waiting room

Pamphlet and video availability

100% availability during normal working hours

Obtain/Maintain highly skilled technicians and salesmen

Technicians and sales staff are properly trained and certified Percent of qualified staff

95% of staff fully trained and certified

Employee Knowledgeable People

Cost-Benefit Analysis on Equipment

Understand Organizational Culture

Market Analysis on Product Line

24

GUIDE FOR SUCCESS: MAINTAIN/INCREASE VALUE FOR

CONTINUED GROWTH

25


Assess Cost-Benefit of replacing equipment

Measure whether new equipment would decrease idle time between processes Service throughput 25% reduction in repair times

Administration throughput95% reduction in administrative errors60% increase in administrative efficiency

Knowledgeable staff/continuing education

Provide staff with continuing education opportunities

Staff enrolled in continuing education events 85% enrolled

Introduce pay for performance or gain sharing rewards Employee productivity

25% annual increase in employee productivity

Increase knowledge base of motorcycle enthusiasts

Talk with motorcycle owners/understand needs to shape organizational policy

Number of employees able to make customer service decisions that are in the best interest of the company and the customer

100% of management staff trusted to make sound customer service decisions

Thorough understanding of product lines

Employee attendance at conventions and conferences. Key employees attend and return to train remaining staff Product familiarity

100% of employees familiar with product lines

Adding New Product Line(s)

Raise Prices

Employee Knowledgeable

People

Cost-Benefit of Equipment

Market Analysis on Products

Understand Organizational

Culture

Sale More Existing Product

• Introduce new

product line that

maximizes profit

• Re-evaluate the cost

of existing products

and the markup

charged

• Research service

department for

efficiencies

• Effective

communication of

new products to new

potential customers

Metrics for SuccessRepeat Customers

Attract New Customers

Increase customer

satisfactionImprove Market

Share

Increase Customer

Value

• Maintain and

Improve

Relationship with

Suppliers

• Efficient use of

floor space.

Customer

Management ThemeInnovation ThemeOperations Theme

26

Revenue Growth Strategy

Productivity Strategy

Be recognized as a top regional distributor of motor sports products

• Effective

customer

management on

sales and service

• Courtesy calls to

customers

• Efficient Service

Department

• Best equipment to

service products

• High skill level of

employees

• Executives must communicate the strategy

• Have employees submit suggestions for efficiency.

• Ensure sensible measures are used

• Use web-based software to make the Balanced scorecard visible to everyone

Tips for Management