Statement of Authenticity

This business plan is the original work of the undersigned. All facts and figures are authentic. All contributions from others have been appropriately acknowledged. We have not read, reviewed, or used any past Core plans in any way in the development of our plan. We did not misrepresent

ourselves to suppliers or to anyone else who contributed information to this plan.

We each understand that the ideas, analysis, and text contained in our plan are the collective intellectual property of our team

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Table of Contents

INTRODUCTION EXECUTIVE SUMMARY vii CORPORATE SOCIAL RESPONSIBILITY x INTRODUCTION 1 MARKETING_________________________________________________________________ MARKETING OBJECTIVES 3 ENHANCE PERCEIVED VALUE OF BRAND 3 BUILD FRIENDLY & MEMORABLE BRAND IMAGE 3 ACHIEVE TOTAL AWARENESS OF 60% BY YEAR 5 3 ACHIEVE ACV OF 34% BY YEAR 5 4 MARKET RESEARCH 4 PRIMARY DATA 4 SECONDARY DATA 4 MARKET SEGMENTATION 5 PRODUCT POSITIONING 8 COMMUNICATIONS, BUDGET, & CREATIVE ADVERTISING 8 INTEGRATED MARKETING COMMUNICATIONS SCHEDULE 8 PULL MARKETING: YEAR 1 9 PULL MARKETING: YEAR 2 10 PULL MARKETING: YEAR 3 10 PULL MARKETING: YEAR 4 11 PULL MARKETING: YEAR 5 12 PULL MARKETING: ADVERTISEMENTS 13 PULL MARKETING: PACKAGING 13 PULL MARKETING: PUBLIC RELATIONS 13 PULL MARKETING: ONLINE MARKETING 14 PULL MARKETING: POINT OF PURCHASE 14 PULL MARKETING: CREATIVE EXPENSES 14 PUSH MARKETING: TRADE SHOWS 15 PUSH MARKETING: TRADE MAGAZINES 15 EFFECTIVENESS OF COMMUNICATION 15 CHANNELS AND PRICING 16 CHANNEL CONFLICT 17 SALES VOLUME 18 SALES FORCE 18 SWITCHING POINT CALCULATION 19 MANUFACTURER’S REPRESENTATIVES 19 DISCOUNT PROMOTION 19 SALES PROJECTIONS 19 OPTIMISTIC & PESSIMISTIC SCENARIO ANALYSIS 20 OPERATIONS MANAGEMENT_________________________________________________ CUSTOMER REQUIREMENTS & PRODUCT DESIGN 22 TARGET COST 23 MAKE/BUY ANALYSIS 23 SUPPLIERS 24 TRANSPORTATION LOGISTICS 24

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FACILITY LOCATION 26 CENTER OF GRAVITY 26 FACTOR MODEL 26 FACILITY LAYOUT 27 ASSEMBLY PROCESS 29 BRAKE PRODUCTION PROCESS 29 HELMET PRODUCTION PROCESS 29 QUALITY ASSURANCE 30 ACCEPTANCE SAMPLING 30 STATISTICAL PROCESS CONTROLS 30 RFID QUALITY INSPECTION 30 CAPACITY & STAFFING 32 ORGANIZATIONAL STRUCTURE 33 MATCHING MONTHLY PRODUCTION WITH DEMAND 34 INVENTORY 35 FINANCIAL IMPACT OF SUPPLY CHAIN DECISIONS 36 IMPACT OF OPTIMISTIC & PESSIMISTIC DECISIONS 37 ENVIRONMENTAL IMPACT OF OPERATIONS 37 INFORMATION SYSTEMS_____________________________________________________ CRITICAL SUCCESS FACTORS & VALUE CHAIN 38 CRITICAL SUCCESS FACTORS 38 VALUE CHAIN 40 SOFTWARE COMPARISONS 41 MARKETING BEST OF BREED COMPARISONS 41 OPERATIONS MANAGEMENT BEST OF BREED COMPARISONS 42 FINANCE & ACCOUNTING BEST OF BREED COMPARISONS 43 FINAL BEST OF BREED SELECTION & MIDDLEWARE 44 ENTERPRISE RESOURCE PLANNING (ERP) SOFTWARE COMPARISONS 44 BEST OF BREED VS. ENTERPRISE RESOURCE PLANNING COMPARISON 46 HARDWARE, TELECOMMUNICATIONS, & EMPLOYEES 47 HARDWARE & TELECOMMUNICATIONS 47 EMPLOYEES 48 ENTITY-RELATIONSHIP DIAGRAM 48 REPORTS 50 RAW MATERIALS DEFECT RATE REPORT 50 FINISHED GOODS DEFECT RATE REPORT 50 PROCESS MODEL 51 WEBSITE DESIGN 51 SEARCH ENGINE OPTIMIZATION (SEO) 52 SEARCH ENGINE MARKETING (SEM) 52 WEB ANALYTICS 52 CONTINGENCY PLAN 53 CORPORATE SOCIAL RESPONSIBILITY 53 FINANCE____________________________________________________________________ FUNDING REQUEST 54 OWNERSHIP POSITIONS 54 PROJECTED NPV & IRR 54 NPV PROFILE & MINIMUM REQUIRED RATE OF RETURN 55

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BASE CASE FINANCIALS & COMPARABLE COMPANIES ANALYSIS 55 COMPARABLE COMPANIES 55 INCOME STATEMENT 56 BALANCE SHEET 56 TERMINAL VALUE 57 BREAKEVEN ANALYSIS 57 SENSITIVITY ANALYSIS 57 RISK MITIGATION PLAN 58 PRICE 58 SALES VOLUME 59 AWARENESS & ACV 59 VARIABLE COST 59 FIXED ADMINISTRATIVE & PRODUCTION COST INCREASE 60 REGULATION & POTENTIAL LAWSUIT 60 QUALITY ISSUE 60 COMPETITION 61 LIQUIDITY ISSUE 61 TERMINAL VALUE 61 NATURAL DISASTER & UNEXPECTED OCCURRENCES 61 ECONOMIC DOWNTIME 62 SCENARIO ANALYSIS & SUMMARY STATISTICS 62 PRODUCT UNIQUENESS 64 INVESTMENT PROPOSAL 64 CONCLUSION 65 WORKS CITED xii EXHIBIT 1: NEW PRODUCT SURVEY xvii

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Exhibits

MARKETING MK Exhibit 1:Parents vs. Grandparents Purchase Intent 6 MK Exhibit 2: Who is More Likely to Buy SmartHelmet 6 MK Exhibit 3: Full Segmentation Tree 7 MK Exhibit 4: Safe vs. Durable Perceptual Map 8 MK Exhibit 5: Word of Mouth Calculations 9 MK Exhibit 6:IMC, Pull Marketing Year 1 9 MK Exhibit 7: IMC, Pull Marketing Year 2 10 MK Exhibit 8: IMC, Pull Marketing Year 3 11 MK Exhibit 9: IMC, Pull Marketing Year 4 12 MK Exhibit 10: IMC, Pull Marketing Year 5 12 MK Exhibit 11: Year 5 Average Weighted Manufacturer’s Selling Price to Channel 18 MK Exhibit 12: Salary & Commission of KinderHelm Inc.’s Salesperson 18 MK Exhibit 13: Commission Paid to Manufacturer’s Representatives, Years 1-5 19 MK Exhibit 14: Demand Curve – Parents 20 MK Exhibit 15: Optimistic & Pessimistic Sales Projections 20 OPERATIONS MANAGEMENT OM Exhibit 1: Target Cost 23 OM Exhibit 2: Supplier Contact Information 24 OM Exhibit 3: Fulfillment by Amazon Fees 25 OM Exhibit 4: Factor Model 27 OM Exhibit 5: Facility Layout 28 OM Exhibit 6: Process Analysis Diagram 29 OM Exhibit 7: Increase in Demand 32 OM Exhibit 8: Machine Capacity Requirements 32 OM Exhibit 9: Year 3 Employees 34 OM Exhibit 10: Percentage of Shimano Sales 35 OM Exhibit 11: Inventory Levels 36 INFORMATION SYSTEMS IS Exhibit 1: Oracle JD Edwards EnterpriseOne Total Costing 45 IS Exhibit 2: Raw Materials Defect Reports 50 IS Exhibit 3: Finished Goods Defect Reports 51 FINANCE FE Exhibit 1: Minimum Rate of Return 55 FE Exhibit 2: NPV Profile 55 FE Exhibit 3: Accounting Breakeven 57 FE Exhibit 4: Optimistic & Pessimistic Assumptions Analysis 62 FE Exhibit 5: Weighted Average NPV & IRR 63      

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Appendices

MARKETING MK Appendix 1: Manufacturer’s Representatives Commissions 66 MK Appendix 2: Focus Group & Interview Summaries 67 MK Appendix 3: Breakdown of Segmentation Tree 68 MK Appendix 4: IMC Schedule. Year 1 68 MK Appendix 5: IMC Schedule, Year 2 69 MK Appendix 6: IMC Schedule, Year 3 69 MK Appendix 7: IMC Schedule, Year 4 70 MK Appendix 8: IMC Schedule, Year 5 70 MK Appendix 9: IMC Cost Breakdown 71 MK Appendix 10: IMC Online Ads 73 MK Appendix 11: Magazine Ads 73 MK Appendix 12: Transit Advertisements 74 MK Appendix 13: Packaging – Landry’s 74 MK Appendix 14: Packaging 75 MK Appendix 15: Point of Purchase Display 75 MK Appendix 16: Creative Advertisement – Smartphone Application 76 MK Appendix 17: Trade Show Booth 76 MK Appendix 18: Trade Show Brochure 77 MK Appendix 19: Sports Equipment Revenue Breakdown 78 MK Appendix 20: Sales Projection – Parents 78 MK Appendix 21: Sales Projection – Grandparents 79 MK Appendix 22: CSR-Adjusted Purchase Intent 79 OPERATIONS MANAGEMENT OM Appendix 1: House of Quality 80 OM Appendix 2: International Ocean Lead Time 80 OM Appendix 3: Lead Times 81 OM Appendix 4: Nationwide Rail Map 81 OM Appendix 5: Rail Prices 82 OM Appendix 6: Amazon Partnered Carrier 82 OM Appendix 7: Storage Fee for Amazon 83 OM Appendix 8: Facility Brochure 83 OM Appendix 9: Center of Gravity 84 OM Appendix 10: Employees for Year 1 84 OM Appendix 11: Throughput Times 85 OM Appendix 12: Forecasted Demand 85 OM Appendix 13: Yearly Demand 86 OM Appendix 14: PERT Distribution 86 OM Appendix 15: Inventory Equations 87 OM Appendix 16: Optimistic and Pessimistic Assumptions 87 INFORMATION SYSTEMS IS Appendix 1: Critical Success Factors 88 IS Appendix 2: Value Chain 89 IS Appendix 3: Marketing Best of Breeds’ Breakdowns 90 IS Appendix 4: Marketing Best of Breed Decision Matrix 90

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IS Appendix 5: Operation Management Best of Breeds’ Cost Breakdowns 91 IS Appendix 6: Operations Management Best of Breed Decision Matrix 91 IS Appendix 7: Finance/Accounting Best of Breed Decision Matrix 92 IS Appendix 8: Finance/Accounting Best of Breed’s Cost Breakdowns 92 IS Appendix 9: Microsoft Dynamics’ GP Total Costing 93 IS Appendix 10: Microsoft Dynamics’ GP Costing Assumptions 93 IS Appendix 11: Selected Oracle EnterpriseOne Modules 94 IS Appendix 12: Oracle EnterpriseOne Costing Assumptions 94 IS Appendix 13: Enterprise Resource Planning Decision Matrix 95 IS Appendix 14: ERP vs. BOB Decision Matrix 95 IS Appendix 15: Hardware & Telecommunication Total Costs 96 IS Appendix 16: Entity-Relationship Diagram 96 IS Appendix 17: ERD Entities 97 IS Appendix 18: ERD – Access View 98 IS Appendix 19: Process Model 98 IS Appendix 20: Website Landing Page 99 IS Appendix 21: Meta Description 99 IS Appendix 22: Keywords 100 IS Appendix 23: Banner Ad Costs 100 FINANCE FE Appendix 1: Financial Company Comparable 101 FE Appendix 2: Breakeven Analysis 102 FE Appendix 3: Sensitivity Analysis 103 FE Appendix 4: Summary of Scenario Analysis 104    

 

 

 

 

 

 

 

 

 

 

 

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Executive Summary The SmartHelmet is a revolutionary children’s bike helmet that not only protects

children’s heads from severe head injuries, but also ensures that they have their helmet with them

while riding their bikes. The SmartHelmet consists of two pieces: a helmet and a brake

attachment piece. Our product’s core functionality involves utilizing RFID technology in the

bike helmet and the brake. When the helmet is within 2 meters of the brake attachment piece, the

brake releases and allows the bike to be used freely. However, when the helmet is not within 2

meters of the brake attachment piece, the brake remains locked and the bike will not move.

While our closest competitor utilizes RFID technology to allow a parent to safely stop a child’s

bike via a remote control, SmartHelmet is the only bike product in the market that combines the

protective qualities of a helmet and the technological benefits of RFID proximity sensor

technology.

The market we will be entering is the protective sports equipment market. Modern helmet

technology has the power to keep children safer and prevent traumatic head injuries that result

from biking accidents. According to the Centers for Disease Control and Prevention, children

and young adults (ages 4-24) account for 60% of all bike related injuries seen in U.S. emergency

rooms. 1 Furthermore, in an abstract presented at the most recent American Academy of

Pediatrics National Conference, a study analyzing bike accidents involving children concluded

that only 11.3% of children were wearing their helmets when the accident took place.2 The best

way to reduce head injuries is by requiring children to wear their helmets. Thus, SmartHelmet

allows parents to have control over whether or not their children have their helmets with them

when they ride their bikes.

As a company, we will need capital to start production. In order to collect this investment,

we expect to receive 25% of our capital needs through friends, family and management, with the

remaining 75% coming from outside investors. Initial working capital will be used to rent space,

purchase manufacturing equipment, and hire workers. We will also use the capital to purchase

information systems and kick-start our marketing efforts for the SmartHelmet.

                                                                                                                         1 "Bicycle-Related Injuries," Centers for Disease Control and Prevention, 28 May 2013. Web. 23 Nov. 2014. <http://www.cdc.gov/HomeandRecreationalSafety/Bicycle/>. 2  American Academy of Pediatrics, “Only 11 Percent of Children Involved in Bike Accidents Wear a Helmet,” American Academy of Pediatrics. 26 Oct. 2013. Web. 11 Nov. 2014.  

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The target customers for our product are parents and grandparents of children between

the ages of 5 and 15. We have set four main marketing goals for our company to accomplish

within the first five years of business. Our goals are as follows: enhance the perceived value of

our brand, build a friendly and memorable brand image, achieve total awareness of 60% by Year

5, and achieve an ACV of 34% by Year 5. In order to accomplish these goals, we have

developed both push and pull marketing strategies that utilize the placement of advertisements

and promotional campaigns in magazines, in online blogs, on buses and bus stops in some of the

most active biking cities in the U.S, as well as in trade shows and trade magazines. We plan to

achieve an ACV of 34% by using Amazon as our online selling platform, in addition to relying

heavily on independent retailers, chain stores, and mass merchandisers. This multi-channel

strategy will allow us to reach a large number of customers and cultivate a brand image that

emphasizes our unique approach to children’s bike safety.

Operations management is an extremely important functional area of our business,

especially since SmartHelmet’s success rests heavily on product design and performance. Our

product design balances the needs of customers with the necessary manufacturing engineering

characteristics in order to deliver a bike helmet that combines safety, durability, and

attractiveness to children. We have found suppliers who will deliver the necessary materials and

fixed assets we need at a reasonable cost, and through both a factor analysis and a center of

gravity calculation, we found an ideal facility in Denver that will maximize our productive

capacity and allow for future expansion. By creating an aggregate plan, we forecasted

appropriate demand for each month and outlined the periods where we will need to add staff and

fixed assets in order to accommodate increases in demand. Lastly, we have created and will

implement acceptance sampling and statistical analysis processes to reduce the amount of

defective finished goods we will manufacture, as achieving a low defect rate is one of our

organizational goals as a manufacturer of a safety product.

In addition, our company’s information system links together every functional area.

Through the creation of four critical success factors (CSFs) and their corresponding business

processes, we outlined what organizational goals we hope to achieve. The two primary CSFs –

Achieving a 2% and 5% defect rate for finished goods and raw materials respectively, and

increasing sales by 30% in Years 1-3, and 15% Years 4 and 5 – will determine the future of

KinderHelm Inc. We conducted extensive research to choose our hardware, software, and

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telecommunications requirements that best fit the needs and goals of all other functional areas

and of our company as a whole. Our choice of Oracle’s JD Edwards EnterpriseOne as our ERP

software provides us with the most versatility to allow for future expansion as SmartHelmet’s

sales increase.

In terms of financial results, the SmartHelmet represents a relatively low risk investment

with potential for high return. The total required investment is $572,310, which is expected to

yield an NPV of $506,657 with a discount rate of 25% and an IRR of 48.3%. We expect 75% of

the initial investment to come from outside investors and the remainder to come from friends,

family, and management. Starting with sales of $792,664 in Year 1, we hope to reach $3,300,999

by Year 5. Similarly, by assuming a loss of $69,827 in Year 1, we expect to have net income of

$960,310 by Year 5. To adjust for variability in results, we developed a conservative optimistic

case as well as a pessimistic case. Given changes to our most sensitive and uncontrollable

variables, we estimated a weighted average NPV of $463,679 and IRR of 46.4% based on the

weighted average of our free cash flows.

Through the integration of all four of the aforementioned functional areas, SmartHelmet

and KinderHelm Inc. will not only generate returns for investors but will also create value for

society. Our organizational goal as a company is to promote the safety of children while riding

their bikes and to enhance the peace of minds of their parents/guardians, and we strongly believe

that SmartHelmet is the next revolutionary bike safety product.

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Corporate Social Responsibility As a company, we will implement two corporate social responsibility (CSR) initiatives in

Years 1-5. The two initiatives include utilizing 90% recyclable packaging and partnering with

various biking advocacy and non-profit organizations to promote wearing helmets and safe bike

riding. The first initiative raises intent to purchase by 0.9% among parents and by 1% among

grandparents. The second initiative raises intent to purchase by 1.7% among parents and by 1.3%

among grandparents. It is also worth noting that we are dedicating the majority of our creative

advertising budget to partnering with biking advocacy groups in Denver during National Bike

Month in May to host various biking events, which will be discussed in greater detail in the

marketing section of our plan.

We chose to pursue recyclable packaging as a CSR initiative because of its

environmental benefits and because it is a trend sweeping through the sports equipment industry.

For example, Recreational Equipment Inc. (REI), one of our potential retailers, is currently

focusing on “unpackaging products” in an attempt to reduce packing materials, leading to some

of its products simply not having packaging at all.3 In addition to REI, Trek Bicycles, one of our

competitors, uses 70-90% recycled packaging, and when recycled packaging is not available, the

company uses “material sourced from certified sustainable forests.”4 As the above proves,

sustainable packaging is becoming a way of life within the sports equipment industry rather than

just a trend. By pursuing a goal of 90% recyclable packaging, we will incorporate this lifestyle

into our business model and decrease our impact on the environment.

Our second CSR initiative, partnering with biking advocacy groups and non-profit

organizations to promote safety in all aspects of biking, stems from the SmartHelmet's focus on

safety. Therefore, working to promote biking safety is a natural fit for our company, as our

product will hopefully be at the forefront of this trend. A few of the groups we are looking at

partnering with are PeopleForBikes, Bike New York, BikeDenver, Youth Educational Sports,

Inc., CYCLE Kids, and the League of American Bicyclists. Not only will working with these

groups allow us to advocate for a safer, more bike-friendly America, it will also give us the

opportunity to raise awareness for our product as it fits in perfectly with the goals of each of

                                                                                                                         3 Starre Vartan, "Packaging the Future: REI “Unpackages” Five of Their Popular Products." 21 Dec. 2011. <http://inhabitat.com/packaging-the-future-rei-unpackages-five-of-their-popular-products/>. 4 Trek Bicycle Corporation, "We Believe in Bikes." 22 Nov. 2014. <http://www.trekbikes.com/us/en/company/products/>.

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these organizations. However, our main goal in partnering with these groups is to increase the

number of helmets worn by children and adults in the U.S.

Our CSRs aim not only to increase our company’s public image, but also to promote

safety and environmental awareness. Because we are a part of the biking industry, which places

such a strong emphasis on safety and environmental responsibility, our CSR initiatives are

necessary to our success.

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Introduction The SmartHelmet is an interactive children’s bike helmet that uses state of the art

technology to prevent children from riding their bikes without having their helmets.

SmartHelmet is the only helmet in the market that uses proximity sensor technology—the bike

brakes only unlock when the helmet is within 2 meters of the bike. When the helmet is outside of

the 2-meter sensor range, the brakes lock, thus preventing the child from riding the bike.

The technological advances in the radio frequency identification (RFID) industry and its

increasing use in everyday life will have the most profound impact on our product launch. This is

due to the fact that RFID is a rapidly evolving technology, one that has far from reached its full

potential.5 Therefore, we must acknowledge the volatility of this technology and plan

accordingly to ensure our product does not become obsolete the moment it hits the market. In

order to ensure our survival, we will hire an RFID specialist, whose job will be two-fold: first, he

is in charge of syncing all helmet and brake attachments as a worker on the assembly line, and

second, he must be up-to-date on all RFID-related information so that he can readily inform

management if a breakthrough occurs or if an issue arises.

In addition, we found some surprising statistics that illustrate why SmartHelmet is such

an important investment for a child’s future safety. “Young cyclists are more likely than adult

cyclists to die of head injuries,”6 and yet this demographic is the least likely to wear helmets.7

Helmets save lives, but many people, particularly children, are still very reluctant to wear them,

as children 11-19 “have the lowest rate of bicycle helmet use” at 31%.8 Based on this research,

not only will we market our product as the safest helmet on the market, but we will also take

steps to differentiate ourselves as a company that impacts society in a positive way by taking part

in bike safety campaigns and initiatives that promote wearing a helmet while riding a bike.

The product category in which we will compete, the protective sports equipment industry,

comprises helmets, pads, gloves, and shin guards and yields around $282 million in annual

                                                                                                                         5 Pat Toensmeier, “Report Predicts Major Growth in RFID Market,” Industry News. Oct 2013. Web. 16 Nov 2014. <http://news.thomasnet.com/procurement/2013/10/28/report-predicts-major-growth-in-rfid-market>.  6 Children’s Safety Network, “Bicycle Helmet Statistics,” Bicycle Helmet Statistics. June 2009. Web. 24 Nov 2014. <http://www.helmets.org/stats.htm#child>. 7 JT Finnoff and Laskowski, Altman, and Diehl, “Barriers to Bicycle Helmet Use,” National Center for Biotechnology Information. U.S. National Library of Medicine, July 2001. Web. 24 Nov. 2014. <http://www.ncbi.nlm.nih.gov/pubmed/11433083>. 8Ibid.

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revenue, 65% of which comes from helmets.9 Our direct competitors include the following firms:

Minibrake, Brontrager, Bern, and Bell, all of whom offer unique, safe, and durable children’s

bike products, as depicted in Intro Exhibit 1: Intro Exhibit 1: SmartHelmet and its Competitors

Name Price Description Strength Weakness SmartHelmet $ 60.00 Combination of

helmet and rim brake equipped with proximity sensors.

Automatic design that increases the likelihood of children wearing helmets when riding their bikes

Since our product is a children’s safety product with many technological components, it is more susceptible to electronic defects and potential lawsuits.

Minibrake €109.00 Remote-controlled brake that allows parents to stop the bike with the push of a button.

Parents can stop the children from riding too fast by controlling the brake.

This product cannot perform its function without the presence of a parent or guardian

Brontrager Solstice Youth Helmet

$39.99 In-mold composite skeleton, proprietary LockDown strap dividers, and a Micro-Manager II Fit System

This product is soft, comfortable, and washable; in addition, it absorbs moisture.

This product does not ensure that children have their helmets with them at all times when riding their bikes.

Bern Nino Zip Mold Helmet

$45.00 Tough polycarbonate shell with air channel design

Air channel design provides ventilation and expels heat for maximum comfort.

This product does not ensure that children have their helmets with them at all times when riding their bikes.

Bell Faction Helmet

$45.00 Acrylonitrile butadiene styrene hard plastic shell and dual density Expanded Polystyrene foam.

This product is certified for both bicycle and skate use, and its smooth, sleek design makes it attractive to kids.

This product does not ensure that children have their helmets with them at all times when riding their bikes.

All of our other competitors, with the exception of MiniBrake, are manufacturers of

assorted biking accessories, and their youth helmets are the products that we will directly

compete with. Unlike our competitors’ traditional helmets that require supervision to ensure

children actually wear them, our SmartHelmet utilizes the rapidly progressing RFID sensor

technology to offer the unique advantage of safety assurance. For the purposes of our business

plan’s analyses and conclusions, we define SmartHelmet’s “high-quality” as achieving a 5% or

less defect rate for raw materials and a 2% or less defect rate for finished goods while also

empowering our employees to have pride in the work they do. Achieving these goals and

monitoring our progress towards these goals will help ensure that SmartHelmet lives up to the

features and functions it espouses and adds value to society as a whole.

                                                                                                                         9 Britanny Carter, “Protective Sport Equipment Manufacturing in the US.”, IBISworld, 2014, <http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=5324>.

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Marketing Objectives Enhance Perceived Value of Brand

While we understand that entering the highly saturated protective sports equipment

industry will be difficult, we are confident that the unique safety features of our bike product will

differentiate it from our competitors, including MiniBrake and Bontrager. 10 According to

IBISWorld, one of the keys to success in this industry is the “ability to adopt new technology,”

as “patented technology can be an advantage when competing with imported products.”11

Therefore, we believe that SmartHelmet’s utilization of proximity sensor technology will be the

driving force behind enhancing the perceived value of our brand.

Our systematic advertising and promotional campaigns over the next five years will

highlight SmartHelmet’s value to society, namely emphasizing that it safeguards what matters

most: children. Thus, SmartHelmet’s slogan – “Protecting what matters most” – arose from the

idea that the product gives parents/grandparents a little more peace of mind when their

children/grandchildren embark on their next bike ride.

Build Friendly & Memorable Brand Image

Our second marketing objective involves establishing the SmartHelmet brand image. In

SmartHelmet’s case, the consumer and customer are two completely different people, as our

product is designed for children (the consumer) but purchased by parents/grandparents (the

customer). Therefore, our goal is to create a brand image that balances fun and safety. While it is

unrealistic to expect our product to be in our target markets’ evoked sets in the first four years,

we aim to get it there by Year 5.

We want parents/grandparents to feel that their children/grandchildren are safe, but we

also want the children to associate SmartHelmet with the joy of riding a bike. Even though the

entire premise of our product is that children cannot ride their bikes unless they have their

helmets, our brand image will not emphasize any “restricting” features.

Achieve Total Awareness of 60% by Year 5

We realize it is critical for a small startup company to generate enough awareness in

order to obtain growth in revenues and profits during its early years. In order to achieve our 60%

                                                                                                                         10 Britanny Carter, “Protective Sport Equipment Manufacturing in the US.”, IBISworld, Pg. 19, 2014 <http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=5324>. 11 Ibid.

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awareness goal, we will create a detailed integrated marketing communications (IMC) schedule

to outline our push and pull marketing strategies and their corresponding expenses.

We will place ads in family-oriented magazines, various mom-focused blog sites, as

well as on the backs of buses in select cities to cater to our target market and familiarize the

public with the SmartHelmet brand. We will also establish a strong presence on social media, all

while utilizing search engine marketing techniques to increase our online presence.

Achieve ACV of 34% by Year 5

SmartHelmet’s sales, to a great extent, depend on its availability in retail stores. We will

work with manufacturer’s representatives and their resources to gain access to a large number of

independent retailers (See MK Appendix 1). In Year 3, we will begin using our own sales force to

gain access to chain sporting goods stores and mass merchandisers. In Year 5, our goal is to

make SmartHelmet available in the three largest chain sporting goods stores – Sports Authority,

Academy Ltd, and Dick’s Sporting Goods – and the two largest mass merchandisers – Target

and Walmart. Obtaining sales in these chain stores, in conjunction with the sales earned via

independent retailers and our online outlets, will help us achieve a total ACV of 34% by Year 5.

Market Research Primary Data

The most common trend we saw in our recorded responses from the one-on-one

interviews and the focus group involved the price sensitivity of customers. They were not willing

to pay significantly more for the additional benefits our helmet provides, even though they

perceived the quality to be higher (See MK Appendix 2).

Moreover, the role children play in their parents’ or grandparents’ purchasing decisions

is larger than we expected. Many of the interviewees suggested that we should expand the color

options of our helmet because children have no desire to wear a helmet they find unappealing.

Therefore, the increased role children play in their parents’ purchase intent prompted us to

provide the helmet in four colors – black, white, pink, and blue.

Secondary Data

The protective sports equipment industry yields around $282 million in annual revenue,

65% of which comes from helmets.12 While the industry’s revenue is only expected to grow 0.8%

                                                                                                                         12 Britanny Carter, “Protective Sport Equipment Manufacturing in the US.”, IBISworld, Pg. 3, 2014 <http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=5324>.

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from 2014 to 2019, disposable income continues to rise, implying that consumers are more likely

to purchase “price-premium, domestic goods.” An increase in health and fitness awareness in the

United States, as well as a modest increase in sports participation over the past five years, will

also contribute to the industry’s growth.13

However, competition from “low-cost exports in a saturated market” has limited the

growth of the products produced in the U.S. Outsourcing is a major trend in this industry,

especially if manufacturers want to stay competitive and take advantage of lower labor costs.14

When analyzing our secondary data, we came across many statistics that support the

importance of wearing a helmet while biking, thus increasing SmartHelmet’s value to society.

According to an article published in the Journal of Safety Research, “Children ages 5-14 years

have the highest rate of bicycle-related injuries in the country.”15 While 21 states passed laws

that require young bike riders (typically aged 17 and younger) to wear their helmets while

biking,16 more than half of children in the U.S. do not wear their helmets.17 The arguments in

favor of wearing helmets are overwhelmingly convincing, and we want to capitalize on this

constant demand.18

Market Segmentation Collecting and analyzing secondary data was important for us to determine

SmartHelmet’s primary target markets. We used demographic factors to classify and separate our

two chief purchasers – parents and grandparents. Since the end users of our product are children,

we determined 5 to 15 to be an appropriate age range to target especially because teenagers 16

and above have more freedom when it comes to riding their bikes.

We began the segmentation process by filtering the American population by households

with household income greater than or equal to $30,000. Since SmartHelmet offers more benefits

                                                                                                                         13 Britanny Carter, “Protective Sport Equipment Manufacturing in the US.”, IBISworld, Industry Report 2014 <http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=5324>. 14 Ibid. 15 Ann M. Dellinger. “Bicycle Helmet use among children in the United States: The effects of legislation, personal and household factors.” <http://www.sciencedirect.com.ezproxy.bu.edu/science/article/pii/S0022437510000666>. 16 Insurance Institute for Highway Safety. “Pedestrians and bicyclists.” <http://www.iihs.org/iihs/topics/laws/bicycle-laws/table-bicycle-helmet-use?topicName=pedestrians-and-bicyclists>. Ann M. Dellinger. “Bicycle Helmet use among children in the United States: The effects of legislation, personal and household factors.” <http://www.sciencedirect.com.ezproxy.bu.edu/science/article/pii/S0022437510000666>. 18 Pacific Institute for Research and Evaluation. “Injury Prevention: What Works? A Summary of Cost-Outcome Analysis for Injury Prevention Programs (2014 Update.” <http://www.childrenssafetynetwork.org/sites/childrenssafetynetwork.org/files/InjuryPreventionWhatWorks2014Update%20v9.pdf>.

6

than normal helmets, it is priced higher (retail price for Years 1-5 is $60). Therefore, we are

assuming that households with incomes lower than $30,000 will not be willing to purchase our

product. We chose to target households because it allows us to target mothers, fathers, and single

parents.

We then further divided this segment into households led by parents or grandparents. As

mentioned above, we will only target those households led by parents with children ages 5 to 15

or those led by grandparents with grandchildren ages 5 to 15.

Even though a greater percentage of grandparents than parents would “Probably Buy” or

“Definitely Buy” our product at the price they expect it to be sold in retail stores (see MK

Exhibit 1), when we asked who was more likely to buy our product, the overwhelming answer

was parents (see MK Exhibit 2). We attribute this discrepancy to the fact that grandparents are

more willing to spend extra money on a product for their grandchildren, while parents are more

likely to buy safety products for their children because they are generally the primary caretakers. MK Exhibit 1: Parents vs. Grandparents Purchase Intent

MK Exhibit 2: Who is More likely to Buy SmartHelmet  

This data helped us establish parents as our primary segment, which we call “Safety

Freaks.” Grandparents, or “Anxious Ancestors,” are our secondary segment as they are less

likely to purchase our product, but nevertheless will increase our product’s purchase intent and

unit sales, a conclusion that is supported by our survey results.

We used population statistics from the 2012 U.S. Census Bureau to determine category

sizes, including the size of the U.S. population, the percentage of parents in the U.S. population,

and the percentage of children aged 5 to 15. Additionally, we used Peter Francese’s “The

Grandparent Economy” report to determine the number of grandparents in the U.S., which came

Parents(or(GrandparentsDefinitely(NotBuy

ProbablyNot(Buy Not(Sure

ProbablyBuy

DefinitelyBuy Grand(Total

Parents 11.51% 19.42% 28.78% 100.00%Grandparents 4.55% 18.18% 25.00% % % 100.00%Grand(Total 9.84% 19.13% 27.87% 36.61% 6.56% 100.00%

Purchase(Intent

Parents 79.41%Grantparents 20.59%Grand  Total 100.00%

Who  You  Think  is  More  Likely  to  Buy  This  Product

7

out to 70 million.19 One assumption we used to determine the percentage of parents with children

aged 5 to 15 and the percentage of grandparents with grandchildren aged 5 to 15 is that there are

1.5 children per parent in the U.S., as illustrated in the 2012 Census (See MK Appendix 3).20

Next, since SmartHelmet is a bike accessory, purchasers of our product will have access

to bikes, thus making bikes and SmartHelmets complementary goods. If a household does not

have access to a bike, it is highly unlikely that this household will buy our product. For this

reason, we further filtered the attributes of our target markets to only include those households

that have access to bikes. Based on a survey conducted by the National Survey of Bicycle and

Pedestrian Attitudes and Behavior average, 57.4% of households with annual income greater

than $30,000 have access to a bike.21 Thus, access to a bike serves as our final determining factor

for our target segments. MK Exhibit 3: Full Segmentation Tree

In order to generate sufficient revenues and profits, we must correctly target those

segments that are substantial in size, easily reachable, and responsive to our unique selling

proposition. There are a total of 2.83 million households in our Safety Freaks segment and 3.54

million households in our Anxious Ancestors segment. We also assume that our target segments

will grow at the same rate as the total U.S. population, which is 0.8% per year.22

                                                                                                                         19 Peter Francese. “The Grandparent Economy.” Grandparents.com, 2014, <http://www.grandparents.com/grandparent-economy> 20 Rose M. Kreider, “America's Families and Living Arrangements: 2012.”, United States Census Bureau,2014, <http://www.census.gov/prod/2013pubs/p20-570.pdf > 21 Dawn Royal and Darby Steiger, "Key Findings: Bicyclist Attitudes and Behaviors." National Survey of Bicyclist and Pedestrian Attitudes and Behavior. Vol. 1. 2008. 32. Web. Pg. 2 file: <///home/chronos/u-6f07efb8c7eca9d37261516b05c90e721112abaf/Downloads/810971.pdf> 22 "Population Growth (annual %)."Data. The World Bank. Web. 22 Nov. 2014. <http://data.worldbank.org/indicator/SP.POP.GROW>.

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Product Positioning

SmartHelmet’s positioning statement is as follows: “For parents and grandparents of

children ages 5 to 15 who want to ensure that their children have their helmets at all times while

biking, the SmartHelmet is a children’s bike product that utilizes proximity sensor technology,

encourages continual safety, and is unlike a generic children's helmet.” The safety of children is

the most crucial concern of households in our target segments, as proven by the fact that 176 out

of our 183 survey respondents ranked “safety provided by the helmet” as “very important” or

“extremely important.” Therefore, our company’s goal is to make the SmartHelmet the safest

bike helmet on the market. As our perceptual map demonstrates, we are well on our way to

achieving this goal, as potential customers ranked the SmartHelmet highest amongst our main

competitors in terms of safety. MK Exhibit 4: Safe vs. Durable Perceptual Map

Communications, Budget, & Creative Advertising

Integrated Marketing Communications Schedule (See MK Appendices 4-9)

Our Integrated Marketing Communications (IMC) schedule details what we believe to be

the best possible combination of push and pull marketing strategies for creating awareness within

our two target segments, Safety Freaks and Anxious Ancestors. While the IMC aims to reach

both segments, more effort and money will be put into generating awareness within the Safety

Freaks segment because they are our primary target. The main pull vehicle through which we

will generate awareness is magazine advertisements. Moreover, we will rely heavily on word of

9

mouth to generate awareness within our target segments after Year 1. Based on our calculations,

word of mouth should generate more awareness than the IMC depicts, and therefore we can

count on higher awareness numbers than shown in our IMC schedule. MK Exhibit 5: Word of Mouth Calculations

Lastly, we believe our push marketing strategy sets us up for success because we will

display the SmartHelmet at three of the largest trade shows within the outdoor recreation and

child accessories industries.23

Pull Marketing: Year 1

In Year 1, we will place four full-color, one-third-page advertisements in Scholastic

Parent & Child at a cost of $50,000 each. This will provide us with a base awareness of 4.6% in

the Safety Freaks segment and 3.7% in the Anxious Ancestors segment. In addition to these

magazine ads, we will use online advertisements, point of purchase displays, fairs and expos,

transit posters, public relations, and creative expenses to reach our target segments and arrive at

11.5% total awareness and 10.6% total awareness for our respective segments. MK Exhibit 6: IMC, Pull Marketing Year 1

                                                                                                                         23 Absolute Exhibits, Inc. "Top 100 USA Shows." <http://www.absoluteexhibits.com/Top-100-USA-Shows/>.

10

Pull Marketing: Year 2

Our Year 2 pull marketing expenses will actually decrease by about $250 to $339,118

even though we are not changing any of our marketing vehicles. This decrease occurs because

we will not have to pay for the cost of the trade show booth in Year 2, which will cause a

decrease in the overall cost of creative expenses. We chose not to change any of our marketing

vehicles in Year 2 because we generate word of mouth, which yields a high awareness (as

depicted in MK Exhibit 5 above). Additionally, our online marketing awareness numbers will

increase to 3%, and we will see 1% carryover awareness from Year 1. Combined, this will lead

to an increase in our total Year 2 awareness to 15.5% in the Safety Freaks segment and 15% in

the Anxious Ancestors segment, all at a lower cost to us. MK Exhibit 7: IMC, Pull Marketing Year 2

Pull Marketing: Year 3

We will increase our pull marketing expenses starting in Year 3, as we expand our transit

marketing into Seattle. This is the only adjustment we will make, but it will affect online and

creative expenses because they are percentages of the pull marketing costs and total marketing

costs respectively (see MK Exhibit 8 below). We chose to increase our pull marketing expenses

in Year 3 because, while word of mouth will generate a significant amount of awareness for us,

we have the capital and we want to maximize sales over our first five years. These changes, in

addition to competitors entering the market, will lead to the awareness numbers increasing to

25.1% for Safety Freaks and 24.1% for Anxious Ancestors.

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MK Exhibit 8: IMC, Pull Marketing Year 3

Pull Marketing: Year 4

Our pull marketing strategy will undergo three changes in Year 4. We will expand our

transit advertisements into Minneapolis,24 replace our fairs with four new fairs that reach a larger

market, and switch our magazine advertisement from Scholastic Parent & Child to Parents

magazine. While these adjustments will lead to increased pull marketing costs, they will also

lead to increased awareness, which in turn will lead to increased sales. The switch from

Scholastic Parent & Child to Parents will affect the awareness numbers the most, as Parents

reaches a much larger market than Scholastic Parent & Child.25 Parents magazine has a total

circulation of around 2.2 million, while Scholastic Parent and Child circulation is around 1.3

million.26 Once again, while our word of mouth awareness numbers will increase significantly in

Year 4, we feel that an increase in pull marketing expenses is acceptable because our awareness

numbers increase to 30.8% and 29.1% respectively.

                                                                                                                         24 Rodale, Inc. "America's Top 50 Bike-Friendly Cities." <http://www.bicycling.com/news/advocacy/america-s-top-50-bike-friendly-cities?slide=1>. 25 Alliance for Audited Media. "MAGAZINE Publisher’s Statement Six Months Ended June 30, 2013." 30 June 2013. Web. <http://www.meredith.com/mediakit/parents/print/pdfs/Parents-ABC.pdf> 26 Scholastic, Inc. "Scholastic: Parent&Child." <http://www.scholastic-parents.com/pdf/SPC_Print.pdf>.

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MK Exhibit 9: IMC, Pull Marketing Year 4

Pull Marketing: Year 5

In Year 5, we will replace the New York Bike Expo with the New York Toy Fair. We

chose to make this change because the Toy Fair reaches a larger market, we will have the capital

to participate, and it will increase our awareness numbers. Therefore, by Year 5, our overall

awareness for our segments will be 33.3% and 31.6% respectively. MK Exhibit 10: IMC, Pull Marketing Year 5

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Pull Marketing: Advertisements (See MK Appendices 10-12)

Our main banner ad (See MK Appendix 10 – Leaderboard) uses primary colors, namely

blue and yellow, to grab the viewer’s attention. There is reflective symmetry via the sensor

waves to direct the viewer’s attention to the communication occurring between the bike brake

and the helmet – the core functionality of our product. The two lines of copy – “SmartHelmet is

a children’s bike safety product that utilizes proximity sensor technology. The bike brakes only

unlock when the helmet is within 2 meters of the bike.” – further explain the product’s core

function.

Our full color ad (See MK Appendix 11 – Full Color) is the only piece of our advertising

portfolio that places the SmartHelmet directly in the context of intended use. The ad displays a

happy young boy sitting on a bike wearing a helmet, with SmartHelmet’s slogan – “Protecting

what matters most” – displayed in the top left corner of the advertisement. Overall, the full color

ad enhances the power of our marketing efforts, especially in Years 1-3, because we will use this

ad to great effect in Scholastic Parent and Child magazine.

Pull Marketing: Packaging

We based SmartHelmet’s packaging design on helmet packaging that currently exists in

retail stores (See MK Appendix 13). Therefore, our helmet will be placed in a box with an open

face covered in bright, primary colors. This allows both the parents and children to touch the

bike helmet prior to making the final purchase, a valuable part of the decision making process for

a sports equipment product.

Our 100% cardboard box, covered on all four sides with the same blue color as was

used in our banner and 4-color ads, secures both the helmet and rim brake in place with zip ties.

Printed on the front of the box are our company name, logo, slogan, and product name (See MK

Appendix 14). Using consistent colors, images, and fonts will help customers remember

SmartHelmet when exposed to these same images over time, thus relating to our organizational

goal of achieving 60% awareness by Year 5.

Pull Marketing: Public Relations

Throughout our five years of marketing, public relations will cost us $10,000 per year

and generate 1% awareness per year. We will generate awareness by reaching out to magazines

and blogs, with a focus on the parenting, children, and biking areas. The public relations kits that

we will send to these magazines and blogs will consist of sample SmartHelmets, along with a

14

brief description of the product, what our company does, and our CSR initiatives. It is important

that these media outlets know we are not only concerned with making a profit, but also have

goals to improve the community and the environment.

Pull Marketing: Online Marketing

Our online marketing targets three blogs – SNEWSnet.com (a trade blog), Cool Mom

Picks, and Family Education – and uses Google AdWords in order to gain awareness of up to 7%

in Year 5. The blogs we target will allow us to advertise via banner ads, floating ads, skyscraper

ads, and more. Google AdWords will allow us to increase our ranking on Google’s search engine

results based on the amount of money we bid and on certain search words, such as “bike helmet”

(See IS Appendix 18). Please consult the information systems section for a more in-depth

description of our online marketing plan (pg. 52).

Pull Marketing: Point of Purchase

We will use one consistent point of purchase (POP) display throughout our five years.

Our POP will feature a colorful design and a child riding a bike on top, allowing the display to

echo our advertising goal of colorful simplicity aimed at attracting all potential consumers (See

MK Appendix 15).  This display will generate 1% awareness per year and will cost a total of

$20,000 per year. We plan to use our POP displays during April, May, November, and December

because these are prime selling months for bikes,27 as they are in close proximity to two key bike

events: National Bike Month (May) and the winter holidays.28

Pull Marketing: Creative Expenses

We will use two different creative advertising strategies in order to gain a maximum of

2.2% additional awareness in Year 5. Our first creative strategy is the construction of a

smartphone application for children (See MK Appendix 16). The application will be a memory

game, similar to the card game, “Concentration.” The goal of this marketing strategy is to raise

awareness within the children’s segment because they are our main influencers. If children

discover our product via this app, their parents and grandparents will take notice. The creation of

this application will utilize most of our Year 1 creative advertising budget, but will cost us very

little in Years 2-5.

                                                                                                                         27 Shimano, Inc. “Summary of Financial Results.” <http://www.shimanousa.com/content/Corporate/english/index/financial-infomation/summary-of-financial-results.html>. 28 The League of American Bicyclists, "League of American Bicyclists."<http://bikeleague.org/bikemonth/>

15

Our second creative advertising strategy involves partnering with bike stores and biking

advocacy groups in Denver during National Bike Month in May to host various events that raise

awareness of both the joys of biking and the safety precautions that must be taken while biking.

Some groups we are hoping to partner with are BikeDenver and PeopleForBikes, and, in Year 5,

USA Cycling, because we are hoping to sponsor some of the children’s events held in the USA

Pro Cycling Challenge. Not only will this strategy increase our awareness numbers, it will also

add to our corporate responsibility initiatives, which in turn will make customers more receptive

to the SmartHelmet. We will only partake in one event in Year 1, as most of our creative budget

will be dedicated to creating our application, but we will participate in two events during Years 2

and 3, and at least three during Years 4 and 5.

Push Marketing: Trade Shows

We plan to participate in three trade shows throughout our five years, starting with

Playtime in New York ($6,975) and Interbike in Las Vegas ($8,820) in Years 1-3. After this

point, we will replace Interbike with the Outdoor Retailer Summer Market in Salt Lake City

($9,450). We chose these trade shows because they are the top trade shows in their respective

industries, meaning that we will generate more awareness, while also attracting the industries’

largest players. The reason for the switch in Year 4 is that the Outdoor Retailer expo garners

more national attention and also attracts more exhibitors and industry representatives.29 Our trade

show booth will be the same at each trade show because it fits in with both the children’s toy

industry and the bike industry (See MK Appendix 17-18).

Push Marketing: Trade Magazines

We plan to place advertisements in the same two trade magazines throughout Years 1 to

5, at a cost of $14,420 per year. The two magazines we will advertise in are Dealernews and

Bicycle Retailer, both of which target the bike industry, but still display children’s accessories.

We chose these two magazines because we believe that we must be accepted by the biking

industry if SmartHelmet is ever to become successful.

Effectiveness of Communication

Overall, we will measure the effectiveness of our communications strategies depicted in

the IMC schedule via multiple metrics, including customer relationship management (CRM)

                                                                                                                         29 Outdoorretailer.com. "Exhibitor List + Floor Plan." Exhibitor List + Floor Plan. Outdoorretailer.com, 2013. Web. 23 Nov. 2014. <http://www.outdoorretailer.com/summer-market/show-info/exhibitor-list-floor-plan.shtml>.

16

software, click-through rate, Google Analytics, and feedback from industry representatives at

trade shows. Our main mode of analysis will come from the CRM module of our ERP software,

which will provide us with information regarding sales. We can use the information this software

generates to analyze if our marketing strategies are affecting sales and make adjustments

accordingly. Additionally, we will use the feedback from industry representatives at the trade

shows to improve our product and our marketing strategies. Lastly, we will use click-through

rate and Google Analytics to measure the effectiveness of our online marketing strategies. Please

refer to the information systems portion of this plan to see a more detailed description of how we

will use these metrics to measure our online marketing effectiveness (pg. 52).

Channels & Pricing

In 2012, the protective sports equipment industry generated $282.3 million in revenue.30

To effectively increase our product’s market presence, we will adopt a multichannel strategy by

selling through online retailers, independent retailers, chain sporting goods stores, and mass

merchandisers.

We will use Amazon as our online selling platform throughout Years 1-5 because of its

heavy online traffic and relatively lower margin of 35% (versus a 50% margin to independent

retailers). Since Amazon is one of the largest online retailers in the world, its website will raise

the awareness of our product.31 However, we will depend less on this online channel in later

years as we enter chain stores in Year 3 and mass merchandisers in Year 4, since these channels,

together with independent stores, earn 82% of total industry revenue (See MK Appendix 19).

Starting in Year 1, we will cooperate with manufacturer’s representatives in order to

gain access to independent retailers. Our representatives can reach up to 80% of all independent

stores every year, and eventually 30% of those stores will carry our product. Since independent

retailers account for nearly 23% of industry sales, we will continue our cooperation with them

for all five years via the manufacturer’s representatives.32

We plan to enter chain sporting goods stores in Year 3, as we will have gained sufficient

market acceptance. We assume that the chain stores we enter will place our product in 50% of                                                                                                                          30 Britanny Carter, “Protective Sport Equipment Manufacturing in the US.”, IBISworld, Pg. 19, 2014 <http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=5324>. 31 Netonomy.NET. “Top 5 Largest Online Retailers – Who Are These Companies and How Did They Make it to the Top?” <http://netonomy.net/2013/01/30/top-5-largest-online-retailers-who-companies-how-did-they-make-it/>. 32 National Sporting Goods Association. "Sporting goods equipment sales by channel of distribution in the U.S. from 2008 to 2013." <http://www.statista.com/statistics/201225/sport-equipment-sales-by-channel-of-distribution-in-the-us-since-2006/>.

17

their stores in Year 3, and 70% in Year 4. We selected our target chain stores based on market

research we conducted on stores in the sporting goods industry in the U.S.33 We aim to enter

Sports Authority in Year 3, Academy Ltd in Year 4, and Dick’s Sporting Goods in Year 5. Our

retail margin from chain stores is 45%, and the retail price is $56 because we believe the quantity

we will sell in chain stores will outweigh the price reduction.  

We expect our product to be sold in mass merchandisers beginning in Year 4. The fact

that mass merchandisers offer a greater variety of products attracts larger amounts of customers,

providing us with the opportunity to increase awareness of the SmartHelmet. Target is our

preferred mass merchandiser in Year 4, because it is the second largest mass merchandiser in the

protective sports equipment industry.34 We also plan to sell our product in Walmart by Year 5,

after we have built up a strong brand name. The retail price in mass merchandisers will be $54,

along with a retail margin of 40%. The lower margin in conjunction with the lower retail price

lowers our company’s manufacturing selling price, but we believe the benefits, namely increased

sales and awareness, offsets the above costs.

Channel Conflict

Once we enter chain stores in Year 3, we estimate that we will lose 20% of the

independent stores that year, along with 25% in Year 4, and 30% for Year 5. The lower retail

prices offered by chain stores and mass merchandisers drive customers away from independent

stores, so less independent stores will be willing to carry our product.  

Even though we predict to lose 30% of independent stores by Year 5, we believe actual

channel conflict will be less than expected. Our reasoning behind this is that our bike helmet is a

specialty product, as it offers unique characteristics and benefits to customers. Consequently, a

higher price is reasonable. Thus, we do not believe that we will lose as many sales form

independent stores as expected, since customers who shop at independent stores are generally

searching for specialty products and are more willing to spend extra on high-quality equipment.35  

                                                                                                                         33 National Sporting Goods Association. "Sporting goods equipment sales by channel of distribution in the U.S. from 2008 to 2013." <http://www.statista.com/statistics/201225/sport-equipment-sales-by-channel-of-distribution-in-the-us-since-2006/>. 34 Ibid. 35 Britanny Carter, “Protective Sport Equipment Manufacturing in the US.”, IBISworld, Pg. 19, 2014 <http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=5324>.

18

Sales Volume

Sales from independent retailers will account for 31.5% of our total sales in Year 1 and

will peak at 44.7% in Year 2. However, due in large part to channel conflict, as was explained

above, independent retailers’ sales decline to 25.5% in Year 5.  Once we enter chain stores in

Year 3, 5.1% of our total sales will come from this category. This percentage will gradually

increase over Years 4 and 5 to ultimately reach 17.1% in Year 5. With regard to mass

merchandisers, we aim to enter Target in Year 4, which we predict will generate 7.3% of our

total sales in Year 4. With our planned entrance into Walmart in Year 5, a total of 21.2% of our

sales will come from mass merchandisers. MK Exhibit 11: Year 5 Average Weighted Manufacturer's Selling Price to Channel

 

We will sell our product online throughout Years 1-5. Online sales are of great

importance to us in Year 1 because they will comprise 68.5% of our total sales. However, online

sales will decline to 36.3% of total sales in Year 5 as we enter more brick and mortar stores. This

is because our product will become more visible and readily available in-person, as it will be

sold in prominent chain stores and mass merchandisers.

Sales Force In Years 1 and 2 we will only utilize manufacturer's representatives to sell our product.

Starting in Year 3, we will hire our own salesperson to interact with chain stores and mass

merchandisers. In the base, optimistic, and pessimistic cases, we will have only one salesperson

from Years 3-5. It is this person's responsibility to target and communicate with potential

retailers. Our salesperson will earn a base salary of $75,000 per year plus a commission of 3% of

sales made. This combined method of compensation will offer our salesperson a greater feeling

of job security and safety, since his/her pay does not rely only on the sales he/she generates. MK Exhibit 12: Salary & Commission of KinderHelm Inc.’s Salesperson

19

Switching Point Calculation

Using the base salaries and commission rates earned by the manufacturer's

representatives and our sales force, we were able to calculate the point at which using our own

sales force is less expensive than hiring manufacturer’s representatives. Supposing our revenue is

‘x’ and 10% represents the manufacturer’s representative’s commission rate, we generate the

following equation: 10%x=$75,000+3%x.

The solution, $1,071,429, represents the revenue at which we are no longer supposed to

use the services of manufacturer’s representatives and instead solely rely on our own sales force.

However, we decided to retain the services of manufacturer’s representatives over all five years

because we do not expect to have a well-established selling division and because sales to

independent retailers are vital to our company. Therefore, we will employ manufacturer’s

representatives from Years 1-5, and hire one salesperson in Year 3.

Manufacturer’s Representatives

Manufacturer's representatives will help us sell our product to independent retailers.

They will be paid solely on commission – 10% of the manufacturer’s selling price to

independent retailers. As a startup company with limited selling experience and business

connections, employing these representative will help us increase our presence in independent

retailers and build up our core competencies, especially in Years 1 and 2. MK Exhibit 13: Commission Paid to Manufacturer’s Representatives, Years 1-5

Discount Promotion

After conducting our financial analysis, we found that our NPV is highly sensitive to our

selling price (See FE Appendix 3). A small decrease in price can have a large negative impact on

profits. As a result, we will not offer any discounts on our price.  

Sales Projections (See MK Appendix 20-21)

  Our base case sales projection forecasts Year 1 sales of $862,332 and Year 5 sales of

$3,249,201, with an average annual growth rate of 30.4%. This sales projection is based on the

revenue-maximizing retail price and purchase intent we obtained from our survey results and

20

demand curve. Our demand curves indicate the same revenue-maximizing retail price for both

target segments, which is $60. MK Exhibit 14: Demand Curve – Parents

Our primary segment’s purchase intent is 16.8% at the price of $60, after adjustment for

CSR initiatives. Our secondary segment’s CSR-adjusted purchase intent is 24.7% at the same

revenue-maximizing price (See MK Appendix 22).

Since overlap exists between our two target segments (parents and grandparents could

potentially purchase the SmartHelmet for the same child), we adjusted for this overlap based on

our survey results. When we asked the question, “Who do you think is more likely to buy this

product, parents or grandparents?” 79.4% of our respondents answered parents. Thus, only a

portion of the revenue from our secondary segment is realizable. Therefore, we will only accept

35% of projected revenue from our secondary (grandparents) segment.

Optimistic & Pessimistic Scenario Analysis MK Exhibit 15: Optimistic & Pessimistic Sales Projections

In order to predict sales in the optimistic and pessimistic cases, we changed awareness,

ACV, and competition. To understand the impact of awareness on our sales forecast, we changed

the number of impressions required to make a consumer aware. In the pessimistic case, we

assumed it would take 5 impressions to make a consumer aware of our product. In the optimistic

case, we assumed it would take 3 impressions to make a consumer aware of our product.

For protective sports equipment industry, independent retailers and chain stores together

earn almost 50% of total category sales. We made our ACV assumptions based on sales by

21

independent retailers and chain stores. Starting in Year 3, we assume that the loss of sales in

independent stores due to channel conflict will decrease by 10% in each year. This change

increases sales. In the pessimistic case, we assume loss of sales in independent stores due to

channel conflict will increase by 20%. We chose to adjust channel conflict because it is the key

determinant of whether we can maintain our sales in independent stores after we enter chain

stores and mass merchandisers. Also in the optimistic case, in Year 3, instead of entering the

third largest chain store, Sports Authority, we assume we enter the largest one, Dick’s Sporting

Goods. In the pessimistic case, we assume our product will enter the fourth largest chain store,

REI, in Year 3, and that we will not enter Sports Authority until Year 5.

As a result, our ACV will increase to 35.4% in Year 5 in the optimistic case, and decrease

to 28.3% in Year 5 in the pessimistic case. We change these variables to fully capture the

possible results of our success in keeping sales in independent stores and entering chain stores,

because it relies not only on salespeople’s effort, but also market acceptance and our reputation,

which are highly subjective and unpredictable.

The last key assumption we make is the competition level. The competition level factors

in direct competitors entering the market based on how successful our business becomes. In the

optimistic case, we increase the competition level by 15% from Year 3-5, as our business

becomes more attractive and more competitors enter the market. The opposite holds true for

pessimistic case, in which we expect to face less competition because of our reduced profitability.

Therefore, we assume that competition level decreases by 5% from Year 3-5. We are uncertain at

this point about our competing firms’ reaction to our business, which is to some degree

dependent on our sales performance.

Taking into consideration all of these assumptions, we come up with sales projections for

optimistic and pessimistic cases. Ideally, in the optimistic case, we will have an average of 11%

increase in sales through five years. Similarly, we will experience an average of 12% decrease in

sales in the pessimistic case. Therefore, we believe that our assumptions about both cases are

realistic, and the results given those assumptions help us develop a better understanding of our

situation.

22

Customer Requirements & Product Design

The SmartHelmet is designed to promote safe bike-riding habits for children at an early

age. As children grow older and ride their bikes without supervision, it is more difficult for their

parents to ensure their children are wearing their helmets. We developed a house of quality

matrix in order to balance customer desires with what was feasible from an engineering

standpoint. The house of quality allows us to weigh customer attributes with engineering

characteristics, as well as compare our product versus competitors on customer attributes. This

helped us to develop SmartHelmet’s position in the market as well as its key differentiating

factors (See OM Appendix 1).

As with any product, price is essential to SmartHelmet’s success in retail stores. To find

the revenue maximizing cost we used survey data on our target markets. Our primary target

market is parents, while our secondary target market is grandparents. By comparing pricing data

with purchase intent, we found that revenue would be the greatest at $60 per unit. We believe

that consumers will be willing to pay an above average price in exchange for the added value the

SmartHelmet provides over a typical bike helmet. To deal with the variety of different bikes that

our product can be used on, we decided to manufacture the brake attachment piece. The

attachment piece serves to connect the rim brake to the bike and allows the product to be

customized to fit children’s bikes of different styles and sizes.

While parents/grandparents are the people actually purchasing the SmartHelmet, the

influencers are the children/grandchildren. Since they are the ones actually using the

SmartHelmet, it is important that the product is attractive to them and that they want to wear it.

Because of this important requirement, we thought it would be beneficial to have different colors

for our Helmet in order to make our product more appealing for the user. For the first five years,

we will carry black, white, blue, and pink. Offering these color options will encourage children

to want to use our product and incentivize parents to buy a product they know their children will

wear. At the end of the day, if our product is not being used, its purpose of protecting children is

not being fulfilled.

Many survey respondents were also concerned with the safety of the brake’s locking

mechanism around the rear wheel of a bike. The components most responsible for the brake’s

locking mechanism are the RFID tag and reader. In order to ensure these components are

working properly, we will test each unit during the manufacturing process. Lastly, our surveys

23

also suggested target consumers wanted a brake that was easily installable and configurable. On

the brake attachment piece, we added an adjustable ring that is placed below the seat of the

child’s bike and lowered into position around the back wheel, where it can lock and unlock the

use of the bike. The ring can also be tightened with a screw around the base of the bike seat to fix

its orientation around the back wheel. The ability to tighten the position of the brake on different

positions of the seat bar answers the customer desire for simple, customizable installation.

Target Cost

In order to obtain a target cost for the

SmartHelmet, we started with our retail price of $60.

After the standard 50% retail margin, we arrive at a

manufacturing selling price of $30 per unit. Our

fixed costs per unit are $6 for sales and marketing

costs (20%), $6 for general and administrative costs

(20%), and $3 allocated to profit for our company

(10%). By subtracting the appropriate fixed costs per

unit from the selling price, we achieve a target cost of $15 per unit. We allocated 70% of the

target cost, $10.50, to direct materials and direct labor, while we allocated 30% of our target

cost, $4.50, to manufacturing overhead.

Make/Buy Analysis

We chose to buy helmets because we wanted to focus on our core competency, which

involves the improving the functionality of a traditional bike helmet. However, one piece we will

manufacture is the brake attachment piece that will connect the rim brake to the bike seat.

Manufacturing this piece gives us the flexibility to create a product that can be used on nearly

any bike. This piece will be made out of steel and will be purchased from a supplier in China,

due to its lower costs than domestic competitors. The steel will be cut using a steel cutting

machine to create 6-inch pieces of metal small enough to be processed by the casting machine.

We decided it would be more cost effective to purchase the steel cutting machine from a Home

Depot branch in Denver close to our manufacturing facility, in case sudden issues or

complications arise. In order to make this part, the steel will be casted into the desired mold. The

process manipulates the steel by using extreme heat to form the piece and then cool it to solidify

OM Exhibit 1: Target Cost

24

OM Exhibit 2: Supplier Contact Information

the metal. The casting machine we intend to use will be purchased from Die Cast Machinery

Corporation, located in Waukegan, Illinois.

Suppliers

The SmartHelmet supply chain involves both domestic and foreign players, with the

majority of the raw materials coming from Alibaba suppliers in China. We have decided to

purchase most of the raw material components of the SmartHelmet in order to avoid the high

initial costs associated with investing in machinery, employees, and specialized training. While

domestic suppliers may offer higher quality goods than international suppliers, we do not believe

the benefit of purchasing these high quality goods outweighs the cost of purchasing domestically.

Based on our conversations with international suppliers (see OM Exhibit 2), we found raw

materials that fulfill our requirements in terms of price and quality.

Also, almost all of our suppliers are Alibaba Gold Suppliers, which means they have been

vetted and verified to ensure their work is consistent, their labor is legal, and they are properly

certified. Basic materials, such as screws, and packaging materials, including the cardboard box

and tape, will be purchased domestically. Purchasing materials domestically gives us greater

flexibility because lead time is shorter and the costs of shipping these materials overseas would

be unreasonable. We do not want to incur excessive holding costs for materials that we can

easily purchase in the United States and receive within several days.

Transportation Logistics

Our suppliers will transport the most important materials, including the brake, the RFID

sensor and tag, the motor, and the helmet to Long Beach Port, which will take 16.5 days, on

average (See OM Appendix 2). Lead times given by international suppliers include the

transportation of raw materials to the port of Long Beach (See OM Appendix 3). We chose Long

Beach as the entry point into the United States because of its ideal location as not only one of the

25

OM Exhibit 3: Fulfillment by Amazon Fees  

closest ports to China but also a connection to the rest of the country via the nationwide railroad

(See OM Appendix 4). The infrastructure for both inbound and outbound deliveries allows for an

effective transportation process, including access to nearby rail, air, and road transportation.

When the raw materials arrive at the port of Long Beach, they will first go through

customs, which takes about three days, and will then be loaded onto freight trains. From this

point, it will take about two days to reach Denver, Colorado, using a nationwide railroad. Using

Google Maps, we calculated the distance in miles (approximately 1,113 miles) from Long Beach

Port to Denver, Colorado.36 Using the price per mile, we calculated the total cost of railroad

transportation (See OM Appendix 5). Upon arrival in Denver, the raw materials will be

transported to our facility by trucks, with an average transit time of less than one day, as the

railroad is only a few miles away from our facility.

In order to sell to retailers around the country, we considered handling our own internal

transportation and logistics service but ultimately decided third-party logistics would be the best

option. We will utilize fulfillment by Amazon (FBA) as our third party logistics provider.37 We

chose fulfillment by Amazon because of the large variety of warehouse storage locations they

can provide to our company. Once our finished goods are ready to be shipped, our Chief

Operations Officer will select an Amazon warehouse location to store our product. Our finished

goods will be picked up by Amazon through Amazon Partner Carrier (See OM Appendix 6) and

transported to warehouses we designate. Utilizing FBA will allow us to react more quickly to

fluctuations in

supply chain

demand.

In

addition, the cost

of storing finished

goods will be

$0.48 per cubic foot per month from January to September and $0.64 per cubic foot per month

from October to December (See OM Appendix 7). Once we receive an order quantity from

retailers or directly from Amazon customers, we will relay this information to Amazon, and FBA                                                                                                                          36 “5360 Washington St, Denver, CO 80216 ,” Google Maps. <http://www.google.com/maps>. 37 FBA Overview, “Amazon.com Help: Fulfillment by Amazon,” <http://www.amazon.com/gp/help/customer/display.html?nodeId=200229160>. Web. 21 Nov. 2014.

26

will use its modes of transportation to deliver our product. There is an order handling cost of

$1.00 per order. Since our finished goods will be large standard size, there is a fixed cost of pick

and pack per unit of $1.02—Amazon will pick and pack units of its choosing to send to the

retailer whose order we will fulfill. Based on the weight of the goods Amazon delivers, handling

costs will be $1.34 plus $.39 per pound after 2 pounds.

The greater amount of warehouses Amazon offers around the country will allow our

products to travel to channel retailers faster and more efficiently. Transporting goods via our

own logistics service would require utilizing our own trucks and warehouses as well as hiring

truck drivers, paying them a salary, and accounting for the cost of gas. Therefore, we conclude it

will be more productive for us to use FBA as our third party logistic provider, since it allows us

to focus more on improving the processes of our core business rather than wasting time and

resources on expenses and transportation costs for our own logistics service.

Facility Location

Our manufacturing facility is located at 5360 North Washington Street, in Denver,

Colorado, and we intend to rent Unit A (See OM Appendix 8). Other locations we considered for

our facility included Omaha, Nebraska, due to cheap real estate prices and labor, and Long

Beach, California, near the Port of Long Beach where our raw materials will arrive. However,

Omaha's location and distance to major markets as well as California's expensive real estate and

high labor costs posed obstacles for us.

Center of Gravity

We then conducted a center of gravity analysis in order to find a central location with

respect to our retailers. Center of gravity takes into account the latitude and longitude of various

important locations, along with a weighted factor to choose the best location (See OM Appendix

9). We weighted locations using the number of bike retailers in the region because it correlates

well with the number of active bikers in an area.

Factor Model

Another tool we used to find a versatile location was a factor model. In this analysis, we

used five factors to rate our possible locations, which include real estate prices,38 income rate,

                                                                                                                         38 Land and Property Values in the U.S, “Lincoln Institute of Land Policy Home,” <https://www.lincolninst.edu/subcenters/land-values/land-prices-by-state.asp>. Web. 20 Nov. 2014.

27

number of wholesalers,39 minimum wage, and ability to attract employees.40 We calculated real

estate prices using average price per square foot for each state. This gives us a sense of what to

expect in regards to real estate prices for facilities and potential costs involved with expansion.

We calculated the income rate by using the tax rate; a lower tax rate allows more income to be

made per dollar of sales. Using the Yellow Pages, we found the number of retailers for bike

helmets and products each location offers, since this information impacts the number of

customers we will be able to reach. Lastly, the ability to attract employees is important in terms

of being able to staff and retain employees in our organization and facility. We used a CNBC

ranking that measured states in a variety of characteristics, such as average education level and

average home value, and then compiled all measurements to create a comprehensive ranking of

states.41

The center of gravity analysis led us to coordinates for an area in Colorado, with our

closest possible manufacturing site located in Denver, Colorado. Our factor model rated Denver

as the most compatible with our needs. In the end, a manufacturing site in Denver offers a central

location and is highly ranked in all of the characteristics we deem important to our business.

Facility Layout

The facility we chose in Denver is a 10,950 square foot industrial space that costs $5.95

per square foot per year. The entire complex contains four units, but we will only be renting Unit

A. The facility consists of a large portion of industrial space as well as office space, two

bathrooms, a kitchen, a maintenance closet, and 4 separate offices. There is also room to store                                                                                                                          39 YP.com - Yellow Pages, the New Yellowpages.com, “YP.com - Yellow Page the New Yellowpages.com.” <http://www.yellowpages.com>. Web. 21 Nov. 2014. 40 Overall Rankings 2013, “CNBC,” <http://www.cnbc.com/id/100824779>. Web. 21 Nov. 2014 41 Ibid.

OM Exhibit 4: Factor Model

28

incoming raw materials, work in process goods, and finished goods before they are shipped to

retailers. Currently, we only plan to occupy one unit of the building, thus leaving more space for

us to potentially expand if our operations outgrow the current space.

Within the manufacturing space of our facility, we are implementing a U-shaped layout

in order to maximize capacity and efficiency with the fewest number of workers. In the early

years, when demand is relatively small, the U-shaped layout will allow a few workers to work on

multiple stations in order to keep costs down. Also, since our staff consists of only 3 assembly

line workers in Year 1 (See OM Appendix 10), the U-shaped layout allows them to multi-task

and familiarize themselves with all stages of the assembly process, rather than limiting

themselves to only one process. As demand rises, the U-shaped layout will allow us to bring

more workers in and work in one steady space, so as to minimize errors and train the workers to

be knowledgeable in all aspects of production. OM Exhibit 5: Facility Layout

29

Another key benefit of this layout is that, since our facility includes only one loading

dock, the U-shape layout allows us to start and end the production process at the same spot,

enabling us to make use the loading dock more efficiently. We will store raw materials and

finished goods near the loading door, which allows us to minimize the labor of the warehouse

freight manager in unloading raw material shipments, getting raw materials onto the assembly

line, as well as storing finished goods and loading them onto delivery trucks.

Assembly Process

Brake Production Process

Our assembly process begins

with checking all raw materials

for quality, and then it branches

off into the helmet production

process and the brake attachment

production process. The brake

production process starts when

we cut 20-foot poles of steel with

a metal cutting machine. The

casting machine will heat and

cool the steel to our desired

molded shape for the brake. This

step in producing the brake is our bottleneck, since it takes approximately 48 minutes to produce

20 units of the molded brake attachment piece. The next step involves attaching the rim brake to

the molded brake extension using screws. We then connect the motor, battery casing, and then

the RFID reader to the brake.

Helmet Production Process

While this brake production process occurs, the helmet production process takes place

concurrently. The first step in this process includes cutting open the foam within each helmet,

inserting the RFID tag, and gluing the foam back together. Our product’s core functionality relies

on the RFID proximity connection, and we must ensure it works. Therefore, once the RFID

readers and tags are attached to the brakes and helmets, there will be one final quality check on

20% of each batch (100 units) to test whether the brake will lock and unlock depending on the

OM Exhibit 6: Process Analysis Diagram  

30

distance the helmet is from the bike. After this quality check, the last station will be responsible

for packaging all finished goods and storing them near the loading dock.

Quality Assurance

Ensuring a high-quality product is integral to the success of the SmartHelmet since our

company’s mission is to keep children safe while riding their bikes. Quality checks occur before,

during, and after the manufacturing process, and will be the only way to ensure the SmartHelmet

lives up to its safety guarantees. Our most important CSF is to achieve a defect rate of less than

5% for raw materials and 2% for finished goods each year, which can only be upheld if our

product undergoes detailed quality checks and acceptance sampling tests.

Acceptance Sampling

Our acceptance samplings will occur as follows: 20% of each raw material shipment and

each finished good batch (100 helmets of a single color) we receive will be checked for defects

upon arrival to the facility by the warehouse freight manager in Years 1 and 2. In Years 3-5, this

percentage will decrease to 15%, due to the fact that we will gain a better understanding of the

reliability of our suppliers. We will record the number of defects per batch and keep a log of the

percentage of defects from each supplier. Should the supplier not meet our goal defect rate of

5%, we will either work with that supplier to improve their processes or decide on a new supplier

to acquire our raw materials from. With respect to finished goods acceptance sampling, we will

keep a log of the number of defective SmartHelmets we produce. If we do not meet our goal

defect rate of 2%, we will break down the process to find the part that is contributing the most to

the rate.

Statistical Process Controls

Since our goal is to keep defect rate below 2% for finished goods, we will implement

statistical process controls in order to limit defective products should a machine malfunction. We

will purchase the Quality Management module to add to our Oracle ERP system. The system

generates alerts about deviations that may require corrective action. Using this system, our

warehouse freight manager will be able to shut down the entire manufacturing process should

significant deviations occur.

RFID Quality Inspection

The two most important raw materials whose quality we will test are the RFID units and

the helmets. Upon receiving shipments of the RFID units, the RFID-trained worker checks the

31

appropriate sample size for quality, such as the presence of broken pieces and missing

components. Since we receive the helmets already completely manufactured, once the shipments

arrive, we will check the sample size for defective components, such as faulty chin straps,

missing padding, and broken shell pieces. In addition, we will do a stress and impact test on 1%

of each helmet shipment to make sure the helmets conform to legal standards set by the

Consumer Product Safety Commission.42 The stress and impact test will destroy the helmet

tested, but it is worth the cost in order to make sure the helmets are safe and legal.

After we test the raw materials upon the arrival of each shipment, the next quality check

occurs during the manufacturing process. During this check, the RFID tags and readers will be

connected to each other digitally and assigned a specific identification number in order to isolate

a one-to-one relationship between units. After this point in production, the brake attachment

piece and helmet piece of assembly will come together as one SmartHelmet, and we will test the

entire finished good.

We will conduct acceptance sampling to make sure the RFID are connected and

communicate with one another. As mentioned above, we will test 20% of each finished goods

batch in Years 1 and 2, and 15% in Years 3-5. The test will involve determining the range over

which the sensors in the helmet and the brake communicate. The first part of the test involves

selecting an arbitrary distance above 2 meters to check if the brake’s locking function works. The

brake should always be locked when the helmet is not within 2 meters of the bike, so our upper

control limit for the test is 10 meters. If the brake is not locked at 10 meters, this indicates a

malfunctioning brake.

The second part of the finished goods test involves testing to see that the brake actually

unlocks within 2 meters. Our lower control limit for this second test is 1.8 meters, meaning that

any brake that does not unlock when the helmet is within 1.8 meters of the bike fails the test. We

chose 1.8 meters because this equates to a height of a little less than 6 feet, which encompasses

the heights of most children ages 5-15, thus ensuring taller children will not activate the locking

feature of the brake while riding the bike. We will use control charts to determine the average

distances over which the brake’s unlocking and locking features do not work. Our long-term goal

                                                                                                                         42 Darren Grant. "The Effect of Bicycle Helmet Legislation on Bicycling Fatalities." Journal of Policy Analysis and Management 23.3 (2004): 595-611. <http://www.cpsc.gov>. Web. 20 Nov. 2014.

32

is achieving a defect rate of no more than 2% each year, and this can only be possible if our

quality checks are thorough and supported by the collected data described above.

Capacity & Staffing

The process of molding the steel into the brake

attachment using the casting

machine is the bottleneck of the

production process, taking 48

minutes to produce 20 units. The

throughput time for 20 units is 138

minutes (See OM Appendix 11). In

our case, the staffing procedures

directly track our production

forecast. Since on average we

believe it will take 6.9 minutes for

a worker to make one SmartHelmet, a worker should typically be able to produce 1,322 helmets

per month. Demand for our product trends upward throughout our forecast of five years; because

of this, it makes fiscal sense to add more workers incrementally when demand exceeds capacity

instead of using overtime or part-time workers to compensate for increases in demand. We

believe additions in employees and machinery are necessary to accommodate the continual

increase in demand. Therefore, we will add another worker each time capacity exceeds a

multiple of 1,322. The casting process also is limited by the capacity of the casting machine. In

order to know when to add casting machines, we must find the point at which an additional unit

of labor provides less output than an additional unit of capital. We calculated that the optimal

time to add casting machines is at the beginning of Years 3 and 5, respectively, in order to

decrease the time of our bottleneck when demand exceeds capacity.

-

10,000

20,000

30,000

40,000

50,000

60,000

1 2 3 4 5

Uni

ts

Year

Units Demand

OM Exhibit 7: Increase in Demand

OM Exhibit 8: Machine Capacity Requirements

33

At the inception of our business, we will start with three manufacturing workers, as well

as one warehouse freight manager, whose job it is to load, unload, keep stock of raw materials

and finished goods, and assist the other workers during various parts of the production process.

Since we are using a U-shaped facility layout, we can compensate any number of workers to be

able to do multiple tasks in a small time frame because all stations are in close proximity with

one another. At the end of the forecasted period, we will employ 11 manufacturing workers.

Our manufacturing employees will be trained in all parts of the manufacturing process, as

it will be necessary for employees to handle more than one operation throughout the production

cycle. It will be the responsibility of the warehouse freight manager to organize and distribute the

manufacturing labor efficiently.

Organizational Structure

In Year 1 we will have 8 employees total. Our CEO will also act as CMO, receiving

compensation of $120,000 in Year 1. This executive will receive a 3% raise every year over the

next four years to account for cost of living expenses.43 We will also have one Chief Technology

Officer (CTO), who is responsible for the information systems and operations management

departments, and one Chief Financial Officer (CFO), responsible for the finance and accounting

departments. The CTO and the CFO will each be paid a $110,000 annual salary, along with a 3%

increase each year.

The three assembly line workers we have for Year 1 each will receive $10 per hour and

will work 40 hours per week and 45 weeks per year. This is above the $8 minimum wage in

Denver, since our aim is to have a low turnover rate. We will have a total of four assembly line

workers in Year 2, five in Year 3, eight in Year 4, and eleven in Year 5 to account for our

increases production. We will also have a warehouse freight manager in Years 1-5, who will

manage the inflow of raw materials and outflow of finished goods, including loading and

unloading trucks. We will also hire two customer service representatives in Years 1 and 2 who

will be paid $15 per hour. Beginning in Year 3, we will add one more customer service

representative, and all three representative’s salaries will be $17 per hour.

In Year 3, we will have separate operations and information systems departments, each

with its own chief officer who has a salary of $116,700. We will also have a chief marketing                                                                                                                          43 D. Johnson "ERP Software Cost Comparison: On-Premise, SaaS, and Hosted." ERP Cloud News RSS. N.p., n.d. <http://erpcloudnews.com/2011/03/erp-software-cost-comparison-on-premise-saas-and-hosted/>.Web. 21 Nov. 2014.

34

officer in Year 3 that will be paid $116,700 as well. Year 3 also marks the first time we will hire

our own internal salesperson, accounting for the fact that we enter chain stores at this time. The

salesperson will earn a $75,000 salary, plus a 3% commission rate based on his/her sales. As the

number of employees in our company increases, we are going to have a Human Resources

Manager beginning in Year 3 that will be paid $85,000 per year with the 3% salary increase each

year as well. Apart from the addition of more assembly line workers in Years 4 and 5 and the

inclusion of cost of living expenses factored into the salary increases, there are no other changes

after Year 3. OM Exhibit 9: Year 3 Employee Layout

Matching Monthly Production with Demand

In order to forecast production, we chose to base our demand on Shimano USA’s bikes

sales for the most recent fiscal year 2013.44 We broke the percentages of sales into four quarters:

Q1 accounted for 23% of sales, Q2 accounted for 26% of sales, Q3 accounted for 25% of sales,

and Q4 accounted for 26% of sales. Using Shimano USA as a comparable company for demand,

we used its percentage of sales to determine our monthly forecasted demand (See OM Appendix

12).

                                                                                                                         44 Summary of Financial Results. “Summary of Financial Results. N.p., n.d.” <http://www.shimanousa.com/content/Corporate/english/index/financial-infomation/summary-of-financial-results.html>.Web. 21 Nov. 2014.

35

OM Exhibit 10: Percentage of Shimano Sales

We are implementing a chase strategy for the first five years. Our goal is to hold a certain

amount of safety stock in order to handle fluctuations in demand. Although this will increase

total costs due to holding costs, it will offset potential losses should we run out of product. In the

last month, we will produce the difference of units between the safety stock and the amount of

ending inventory calculated so that our projected safety stock for the next period can be

accounted for.

Inventory

Inventory is necessary throughout all stages of production in order to meet anticipated

customer demand via anticipation stocks, smooth production requirements caused by seasonal

changes in demand, reduce risks of stock outs, and take advantage of order quantity discounts.

Quantities of inventory held include raw material goods, work in process goods, and finished

goods inventories. The goal is to minimize total ordering and holding costs. We generated

demand for our product using the Marketing Bases Model, with best and worst case numbers

calculated by ACV and Awareness (See OM Appendix 13). Using the Financial Impact of Supply

Chain Decisions45 document as a guide, we calculated the standard deviations of lead time and

demand, assuming a PERT distribution (See OM Appendix 14). With the formulas, (See OM

Appendix 15), we calculated total investment and quantities of raw material, work in process, and

finished goods. Since the helmets are sold in 4 different colors, safety stock increases to

accommodate for this variation. For raw materials, total investment increased for the components

with higher lead times and a need for greater safety stock. In subsequent years, as demand

increases for the SmartHelmet, inventory levels will increase at all stages to accommodate

increases in demand.

                                                                                                                         45 John Neale. “Financial Impact of Supply Chain Decisions, 2009,” All of Financial Impact of Supply Decision document, 2009 <https://smgtools.bu.edu/access/content/group/9c496855-23ac-43c8-b7a9-65ed8290a5be/OM/Class%20Materials/OM14/The%20Financial%20Impact%20of%20Supply%20Chain%20Decisions.pdf> Web. 21 Nov. 2014

36

Financial Impact of Supply Chain Decisions

There are a few operations decisions that significantly affect our financial statements.

The decisions that are especially important include choices on facility and equipment purchases.

Not only do these decisions create large upfront costs, but they also require continuous costs

throughout production process, since each machine requires a certain number of workers in order

to operate efficiently.

Our manufacturing facility is a 10,950 square foot unit located in Denver, Colorado, and

cost per square foot is $5.95 per month. Appropriated annually, this equals $65,153. Rent

expense is a significant part of our fixed costs, but it is obviously essential to our business. We

believe that the difference in this cost compared to cheaper alternatives in the Midwest are offset

by the advantages that a location in Denver would provide for us. In terms of financial

statements, 80% of the costs are allocated to direct materials, direct labor and manufacturing

overhead, while the other 20% are administrative costs. This results in a total manufacturing

overhead cost of $52,123 and a total office rent cost of $13,031.

We will need to purchase a casting machine in order to facilitate the creation of a

customized metal piece in order make the brake attachment piece of our product. The initial cost

of the casting machine is $37,500. This represents a large fixed cost that will be depreciated

using the straight-line method over the first five years of production, resulting in a depreciation

expense of $7,500 per year. Using a corporate tax rate assumption of 40%, this results in a

depreciation tax shield and increase of free cash flow of $4,500 per year.

In terms of manufacturing workers, we need three workers in our first year, and each will

earn $10 per hour. By paying our employees higher than minimum wage ($8 in Colorado), our

turnover will be low and we will be able to attract more workers to our company. A decrease in

employee turnover will decrease costs of training new employees. All of our manufacturing

OM Exhibit 11: Inventory Levels

37

workers will be full time workers and we expect them to work 40 hours per week. In the case of

a $10 hourly wage, each worker would represent an individual yearly cost of $18,000, assuming

45 workweeks per year, full time. By Year 5, we will employ 11 manufacturing workers. At that

time, all 11 workers will represent an annual cost of $198,000 per year. The annual cost of 11

workers at minimum wage is $158,400. Since the collective costs of employee turnover and

decreases in quality are greater than the difference between the annual cost of compensating our

employees $10/hour, it is the cost-effective, and therefore best, option.

Impact of Optimistic & Pessimistic Decisions

For both the optimistic and pessimistic cases in Operations, we manually changed direct

materials costs. In the optimistic case, we assume the cost decreases by 5%, and in the

pessimistic case, we assume the cost increases by 15% (See OM Appendix 16). As a new startup

company, we do not have much bargaining power to determine our prices. Since these prices are

out of our control, we manipulated these costs because these prices are determined by our

suppliers. Variable cost is relatively sensitive compared to fixed production costs, meaning its

variations have a greater impact on NPV.

Environmental Impact of Operations

As our operations develop, we will be able to implement more environmentally friendly

practices and materials. However, one aspect of our operation that can be sustainable from the

onset involves utilizing cardboard (which has a 91% recycle rate) as our packaging.46 By

recycling one ton of cardboard, we can save 46 gallons of oil, or 390 kWh of energy.47

Analyzing our cardboard and energy usage throughout the year will allow us to present figures in

our annual reports of our increasing contributions to the environment. The more successful we

become as a company, the greener we can become operationally, as we will have more capital to

allocate to environmentally friendly projects.

                                                                                                                         46 Brent Nau. "Environmental Impact on Recycling Cardboard Boxes."Business 2 Community. <http://www.business2community.com/infographics/environmental-impact-recycling-cardboard-boxes-0774979>.Web. 20 Nov. 2014. 47 Select an Area, “Recycling Facts & Tips,” <http://www.wm.com/location/california/ventura-county/thousand-oaks/recycle/facts.jsp>.Web. 20 Nov. 2014.

38

Critical Success Factors & Value Chain

Critical Success Factors (See IS Appendix 1)

Defining KinderHelm Inc.’s critical success factors (CSFs) is crucial to understanding

what business processes we will implement in order to achieve our organizational goal of

promoting both the bike safety of children and the peace of mind of parents and grandparents.

Our first CSF is to achieve an internal defect rate for finished goods of 2% or less for all five

years, and a defect rate of 5% or less for raw materials for Years 1-5. The most important

business processes related to this CSF involve quality testing and supplier relationship

management. For both finished goods batches and raw material shipments, we plan on

conducting acceptance-sampling tests on 20% of each batch/shipment in Years 1 and 2, and 15%

in Years 3 through 5.

Equally important for this first CSF to be successful is ensuring a low employee turnover

rate so we do not have to waste money re-hiring and re-training assembly line workers. We want

our workers to feel valued, and therefore we plan on paying them $10 per hour, $2 above

Colorado’s minimum wage. We will also conduct training every six months and formal feedback

sessions twice a quarter to ensure our workers are performing at the highest level possible.

Our second CSF involves increasing sales by 30% each year for the first three years and

15% each year for Years 4 and 5. Increasing sales is directly related to our ACV plan, since ACV

measures distribution of our product. We will sell SmartHelmet in independent stores from Years

1-5. We will enter chain stores in Year 3 and mass merchandisers in Year 4. In Year 2, we plan

to stay in all independent retailers we enter in Year 1, in addition to gaining 15% more

independent retailers. When we enter chain stores in Year 3, our goal is to stay in 95% of the

independent retailers we entered in Years 1 and 2. In Years 4 and 5, we aim to stay in 85% of

Year 3 independent retailers. Maximizing sales from our independent retailers will be crucial,

since they constitute 23% of all sales in the sports equipment industry (See MK Appendix 17),

and we will receive the largest contribution margin from these retailers.48

                                                                                                                         48 National Sporting Goods Association. “Sporting goods equipment sales by channel of distribution in the U.S. from 2008 to 2013,” Statista - The Statistics Portal, 2014. <http://www.statista.com/statistics/201225/sport-equipmentsales-by-channel-of- distribution-in-the-us-since-2006/>

39

Secondly, we aim to increase sales by taking part in National Bike Month in May in

Denver, where our manufacturing facility is located.49 We plan to be a part of at least one bike

event during May for Years 1-5. Lastly, we aim to use our $20,000 annual POP budget for Years

1-5 to attract potential customers while they are in retail stores.

Increasing sales also involves financial efficiency because, if our company accurately

forecasts future sales and projected demand, we can decrease the presence of back-orders,

shortages, and unhappy customers. We aim to increase sales in this area by conducting sales

forecasts each month for Years 1-5 to have a better idea of how many finished goods we need to

have on-hand and how many we need to ship to our retailers. Likewise, we will update cash flow

statements every month to ensure we have enough cash to fulfill payments and reinvest money

into marketing campaigns that will raise awareness. Lastly, our goal is to increase Accounts

Payable days by three days each year, on average, in order to have more cash on hand to devote

toward marketing expenses.

Our third CSF is to achieve total awareness (for both target markets) of 20% in Year 1,

25% in Year 2, 45% in Year 3, 55% in Year 4, and 60% in Year 5. This is closely linked to

increasing sales. Increasing awareness can only be achieved if we stick to the agenda provided

by our IMC schedule (See MK Appendices 4-9). Magazine advertisements will be key

investments toward promoting our product idea. Other outlets that will allow us to increase

awareness include transit ads, fairs and expos, and online marketing.

However, increasing awareness is not solely a marketing aspect. By establishing honest

relationships with our suppliers and meeting with them every six months, we can discuss our

common goals and strive for the production of high-quality goods. In addition, our aim is to

maintain at least a 99% service level for Years 1-5 to make sure stockouts are minimized; thus,

SmartHelmets will almost always be in stock at retail stores. By creating a relationship with

Fulfillment by Amazon (FBA), our third-party logistics distributor, we aim to take advantage of

their facilities and established infrastructure so our product is always on shelves at retailers and

there are no backorders or shortages throughout Years 1-5.

Our last CSF involves developing lasting relationships with our customers, which we will

measure via repeat purchase rate, as calculated through our customer relationship management

(CRM) software. Our goal is to obtain a repeat rate for parents of 15% in Years 1-3 and 30% in

                                                                                                                         49 League of American Bicyclists, “National Bike Month.”< http://bikeleague.org/bikemonth>

40

Years 4 and 5, and a repeat rate for grandparents of 18% in Years 1-3 and 35% in Years 4 and 5.

We strive to provide high-quality customer service, so we will answer all customer complaints

and questions within one business day. In addition, customer service representatives will undergo

training and quarterly service tests. Our goal is to minimize post-purchase dissonance and

encourage customers to buy the SmartHelmet again. We will send follow-up emails to everyone

who purchases a SmartHelmet two weeks after their purchase to gauge satisfaction and address

any concerns.

Value Chain (See IS Appendix 2)

In order to develop our value chain, we first examined our CSFs to determine the

weighting each area should receive. Because our most crucial CSF focuses on defect rate, which

is solely influenced by operations, we gave operations the highest weight with 33%. Marketing

and sales received the second highest weighting with 20% because they are involved in every

CSF except the one that focuses on defect rate. As these CSFs state, we must utilize a strong

marketing strategy in order to increase awareness, sales, and repeat rate every year. We assigned

service a weighting of 17% because we are expecting a high demand for customer service and

we are relying on this to increase repeat rate. Lastly, we assigned both inbound logistics and

outbound logistics weightings of 15% because, while we are aiming to achieve a service level of

no less than 99% for all five years, these two areas will not impact how successful our business

is to the degree that the other three areas will.

After assigning weightings to the five areas, we determined three business processes

associated with each area that will add value to our product and company. The most important of

these business processes is under the operations area and focuses on using robust design to meet

our target finished goods defect rate of less than 2%. In using robust design, we attempt to ensure

a lower defect rate because our product will be made to be more durable and last longer. In

addition to this business process, the process under marketing and sales that discusses providing

independent retailers with incentives is vitally important to the success of our business. This

process is important specifically because of the landscape of the sports equipment industry:

approximately 23% of sales in this industry come from independent retailers, a percentage that is

41

much higher than most other industries.50 This fact provides us with great motivation to keep our

product in as many independent retailers as possible in order to increase sales and the success of

our business. Lastly, two of our business processes, under inbound and outbound logistics, focus

on using Oracle’s Agreement Management Module to manage relationships with suppliers, not

only to make our supply chain flow smoother, but also to ensure we are receiving quality raw

materials, which in turn will lower our defect rate.

Software Comparisons

As a small startup company considering many software options, we first examined

whether we would operate on a server or via the cloud. Even though cloud-based operating

systems are still new, “Nearly 80 percent of U.S. small businesses intend to be fully adapted to

cloud computing by 2020.” KinderHelm Inc. wants to be a part of this revolution because its

benefits, namely “economies of scale, and flexibility,” are perfect for a startup like us.51

Marketing Best of Breed Comparisons

We focused on finding marketing software that fit our CSFs, specifically the focus on

increasing awareness over five years, which requires strong customer relationship management

(CRM) software. Based on this requirement, we found two marketing best of breed (BOB)

software packages – Salesforce Sales Cloud and Salesformics – and compared them using the

following criteria: costs, support and response time, scalability, and three main features we

thought were the most important to achieve our CSFs. We gave each criterion a weight out of 1

and ranked the two BOBs’ attributes on a scale of 1 to 10, 1 being extremely poor and 10 being

extremely good. (This system was used throughout the entire software comparison process). We

then determined a total weighted average for each BOB software and used this in conjunction

with other attributes to assess overall BOB performance.

Starting with costs, Salesforce charges a $250 per user per month subscription fee for the

unlimited plan, which includes upgrade and maintenance costs in addition to unlimited online

training and 24/7 support. Salesformics charges $99 per user per month, but does not offer

                                                                                                                         50National Sporting Goods Association. “Sporting goods equipment sales by channel of distribution in the U.S. from 2008 to 2013,” Statista - The Statistics Portal, 2014. <http://www.statista.com/statistics/201225/sport-equipmentsales-by-channel-of- distribution-in-the-us-since-2006/> 51 Joe McKendrick. “Four Out Of Five Small Businesses Soon Will Be Run On Cloud, For Many Reasons.” <http://www.forbes.com/sites/joemckendrick/2014/08/15/four-out-of-five-small-businesses-soon-will-be-run-on-cloud/>

42

training courses (See IS Appendix 3). Furthermore, support is rather limited for Salesformics,

since it operates out of the United Kingdom. Therefore, while Salesforce may cost more, it

provides us with more value, and therefore received a higher ranking (See IS Appendix 4).

Salesformics slightly outperforms Salesforce in the area of social media integration,

which received our highest weighting because it is necessary to raising awareness. Salesformics’

ability to integrate with LinkedIn, Eventbrite, Twitter, Buffer, and Constant Contact means that it

is constantly connected to social media, whereas Salesforce only integrates with Google Apps.

Lastly, with regard to lead and account management, Salesformics is strong, as

employees can view detailed information about leads, including activities, campaigns, and

appointments, all in one place.52 Salesforce, however, provides territory management features,

web-to-lead integration, and sales team functionality.53 Overall, our research revealed that

Salesforce is better suited to our needs as a manufacturing company because it offers more

product-centered features.

Operations Management Best of Breed Comparisons

The two supply chain management BOB software packages we compared were

TradeGecko and Unleashed. If we used TradeGecko, we would purchase the Small Business

Plan in Years 1 and 2, which is $79 per month billed annually. In Year 3 we would transition to

the Business Plan because it allows for ten users, but costs $169 per month billed annually. On

the other hand, Unleashed offers its Business Model, which allows for five users and charges

$159 per month billed annually. In Year 3 we would upgrade to the Enterprise Model, which

allows for unlimited users of the system but costs $9,500 annually for eight users (See IS

Appendix 5).54

With regard to service, TradeGecko offers 24/7 online support along with help blogs,

access to TradeGecko consultant information, and more. Unleashed offers online support via

help blogs, videos, and getting started demos, but additional support comes at a cost of $250 per

hour.55 Unfortunately, if we chose Unleashed, we could only use the online resources because

the others are out of our budget, and this would not provide us with sufficient support.

                                                                                                                         52 Salesformics. “CRM and Marketing Automation Pricing from Salesformics.” <http://salesformics.com/pricing/> 53 Salesforce, “How to Select the Right Sales Cloud Edition,” <http://www.sfdcstatic.com/assets/pdf/datasheets/DS_SalesCloud_EdCompare.pdf>. 54 TradeGecko, “Pricing.” <http://tradegecko.com/pricing/?_ga=1.172245547.926555748.1415746473>. 55 Unleashed Software, “Pricing Solutions to Suit Your Business,” <http://www.unleashedsoftware.com/pricing>.

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In addition to the above attributes, we compared Unleashed and TradeGecko on three

feature-related attributes: quality control, strong reporting features, and warehouse and inventory

management. As depicted in IS Appendix 6, the most important of these features are quality

control and warehouse and inventory management. We focused on these two features because

they relate most to our defect rate CSF. Beginning with quality control, Unleashed offers real-

time tracking and emphasizes its tracking “from pick to pack,” meaning all units are accounted

for from the moment they enter the facility to the moment they leave.56 Likewise, TradeGecko

allows for multi-stock adjustments to account for defective goods, and it provides detailed

inventory and stock-on-hand analysis.

With regard to warehouse and inventory management, TradeGecko creates detailed

inventory lists, product statuses, product histories, variants, shipping documentation reports, and

allows for sales order fulfillment information.57 It also syncs stock-on-hand with sales orders and

purchase orders. Conversely, Unleashed has a narrower, simpler focus, specializing in bill of

materials logs. However, the intricacies of our manufacturing process require that we use a more

sophisticated system. Therefore, we choose TradeGecko over Unleashed in the warehouse and

inventory management area, making TradeGecko our overall choice for operations software.

Finance & Accounting Best of Breed Comparisons

Our last BOB comparison involves two accounting software packages: Xero and Zoho

Books (See IS Appendix 7). Xero’s Premium Plan is priced at $70 per month for unlimited users,

while Zoho Books is priced at $24 a month with no limit on users (See IS Appendix 8). Both

software packages include minimal implementation costs and are relatively easy to implement,

but Zoho Books charges upgrade costs for add-ons, while Xero provides free upgrades via the

cloud.58 Xero outperforms Zoho Books in scalability, since it offers over 200 add-ons, while

Zoho Books offers only limited add-ons involving PayPal, CRM, Google Apps, and mobile

apps.59

                                                                                                                         56 Unleashed Software, “Features | Inventory Management Software | Unleashed,” <http://www.unleashedsoftware.com/our-product/product-overview>. 57 TradeGecko, “TradeGecko Features List.” <http://tradegecko.com/wp-content/uploads/2014/06/tradegecko_featurelist_june14.pdf?submissionGuid=46a1e59a-2c2d-4a48-8525-fce725487ce1>. 58 Zoho Books, “Project Management Tools | Features : Zoho Projects” <https://www.zoho.com/projects/zohoprojects-pricing.html>. 59 Xero, “Xero Demonstrates Value of Cloud Ecosystem with Seven Add-on Partners Exhibiting at CeBIT,” <http://prwire.com.au/print/xero-demonstrates-value-of-cloud-ecosystem-with-seven-add-on-partners-exhibiting-at-cebit-1>

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The two main features we compared these BOBs on were cash flow management and

integration with warehouse and supply chain management. Xero and Zoho Books are equally

strong with regard to cash flow management, with Xero offering bank feeds, bill tracking,

invoicing, expense claims, and reporting, and Zoho Books also offering invoicing and reporting,

in addition to a client portal. However, Xero outperforms Zoho Books with regard to integration

because Zoho Books does not integrate well with non-Zoho products.60 Xero, on the other hand,

is capable of integrating with over 350 apps and other inventory software packages, such as

Unleashed, making it the best accounting software option.61

Final Best of Breed Selection & Middleware

Our BOB picks are as follows: Salesforce, TradeGecko, and Xero. We will use OneSaas

as our middleware because it integrates Salesforce and Xero. Since Xero integrates with

TradeGecko, our BOBs will be seamlessly connected. We will use OneSaas’ Unlimited Plan,

priced at $99 per month, because it offers “unlimited transactions per month, up to 12 months of

historical data, free setup assistance phone call, and email [response within 2 hours].”62

Enterprise Resource Planning (ERP) Software Comparisons

After determining what BOB software we could use, we investigated possible ERP

software packages that would fit our company’s needs, settling on two industry-leaders’ ERPs:

Oracle’s JD Edwards EnterpriseOne and Microsoft Dynamics’ GP. The basis for this decision

stemmed from the fact that both ERPs offer substantial customization and scalability.

The first comparison we used to analyze these ERPs was price, starting with Microsoft

Dynamics’ GP. We discovered that there is a $5,000 license fee (one time cost) for three users

and a recurring cost of $200 per month per user. External research revealed an additional

licensing fee of $3,000 per user and a total cost of $16,000 for customization.63 The overall cost

to implement Microsoft Dynamics’ GP is $150,568 (See IS Appendix 9), but there are some

important assumptions that must be accounted for, such as an assumed 3% increase per year in

annual purchase price to account for the cost of living and a one-time implementation cost of 25%

of the initial purchase price (See IS Appendix 10).

                                                                                                                         60 Katherine Miller, “Zoho Books Review 2014 | Reviews, Ratings, Complaints, Comparisons,” <http://www.merchantmaverick.com/reviews/zoho-books-review/>. 61 Xero, “Pricing Plans.” <https://www.xero.com/us/pricing/>. 62 OneSaas, “Pricing,” <http://www.onesaas.com/pricing/>. 63 CAL Business Solutions RSS, “Software List Price,” <http://www.calszone.com/pricing-microsoft-dynamics-gp/software-list-price/>

45

With regard to Oracle, their EnterpriseOne costs, including one-time license costs and

annual service/upgrade costs, are listed online.64 From this data, we chose the appropriate

modules to fit our company’s needs and based our pricing on that (See IS Appendix 11).

Therefore, the total cost for using Oracle’s EnterpriseOne is $118,653, as is show in IS Exhibit 1.

This number contains various built-in assumptions including a one-time implementation cost of

$11,678, a training cost of $4,671 and $139 in Years 1 and 3 respectively, and a Year 3 upgrade

cost of $1,385 caused by the addition of more modules (See IS Appendix 12). IS Exhibit 1: Oracle JD Edwards EnterpriseOne Total Costing

Oracle’s total cost is significantly lower than Microsoft’s total cost due to the fact that

Oracle permits us to choose the modules we want in our ERP, whereas Microsoft requires us to

buy base modules that we cannot alter and only allows for the addition of extra modules in mass.

The lack of individual customization allowed by Microsoft is a huge drawback.

Not only did Microsoft rank lower than Oracle in terms of costs and customization, it also

ranked lower in two of the three areas that are most important to our CSFs: CRM and supplier

relationship management (SRM). Oracle offers a module, called “agreement management,” that

is specifically designed to provide companies with “enterprise capabilities to manage partner

relationships for your entire supply chain, regardless of partner size.”65 This SRM module is key

to our company’s success because we will be working with overseas suppliers, which increases

the likelihood of miscommunication and disagreement. If this does occur, having a module that

allows us to easily communicate with our suppliers will be invaluable.

With regard to CRM, Microsoft provides very limited CRM features, including only

orders and returns, help desk, sales force automation, and pricing and discounting. Oracle offers

all of these very basic CRM features and much more, so that we have the option to become very                                                                                                                          64 Oracle Corporation, “JD Edwards Component Global Price List.” <http://www.oracle.com/us/corporate/pricing/jd-edwards-price-list-070607.pdf> 65 Oracle Corporation, “JD Edwards EnterpriseOne Agreement Management - Data Sheet (2012),” 2012, <http://www.oracle.com/us/media/057427.pdf>

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CRM focused as our company grows.66 This ensures we can understand the needs of our

customers and build long-term relationships with them.

The projected growth of our company is another reason we are choosing Oracle’s

EnterpriseOne over Microsoft Dynamics’ GP: scalability. Oracle offers a wider range of modules,

ensuring that, as our company grows, our ERP can grow with us. On the other hand, Microsoft

provides a much simpler ERP, one that our company will grow out of quickly.67

While it may seem like Oracle’s EnterpriseOne is far superior to Microsoft Dyamics’ GP,

Microsoft does offer a couple traits that are very attractive to us. First, Microsoft Dynamics’

systems are considered easier to integrate, specifically because they offer a user interface that is

simple and familiar. Second, the system provides a strong material requirements planning

module that would be highly beneficial when it comes to scheduling the purchase of supplies and

planning inventory levels.68 However, neither of these traits is strong enough to overshadow the

two overwhelming defects that Microsoft Dynamics’ GP possesses: 24/7 customer service is not

included,69 and it does not host the ERP at its own facilities, which would force us to buy host

space from a third party. Therefore, we arrived at the conclusion that Oracle’s EnterpriseOne is

by far the best choice for our ERP software (See IS Appendix 13).

Best of Breed vs. Enterprise Resource Planning Comparison

The final comparison we must perform is between our BOB choices of Salesforce,

TradeGecko and Xero, and our ERP system of Oracle’s JD Edwards EnterpriseOne.

First, we chose to compare the price of each software, starting with the total cost of the

BOBs and middleware, which came out to $172,140. This far outweighed the price of Oracle’s

EnterpriseOne, which came to a total of $118,653. While price is not a huge factor in

determining our software because we want to focus primarily on functionality, it was still

beneficial to acquire this information (See IS Appendix 14).

                                                                                                                         66 Oracle Corporation, “JD Edwards Component Global Price List.” <http://www.oracle.com/us/corporate/pricing/jd-edwards-price-list-070607.pdf> 67 Panorama Consulting Solutions, “Clash of the Titans 2014: An Independent Comparison of SAP, Oracle, and Microsoft Dynamics,” <http://panorama-consulting.com/resource-center/clash-of-the-titans-2014-sap-vs-oracle-vs-microsoft-dynamics/> 68 Panorama Consulting Solutions, “Clash of the Titans 2014: An Independent Comparison of SAP, Oracle, and Microsoft Dynamics,” <http://panorama-consulting.com/resource-center/clash-of-the-titans-2014-sap-vs-oracle-vs-microsoft-dynamics/> 69 Microsoft, “Tiered Support Plans for Microsoft Dynamics CRM Online,” <http://www.microsoft.com/en-us/dynamics/dynamics-online-support.aspx>.

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After costs, we looked at the functionality and prowess of the software packages in the

three main functional areas: marketing, operations management, and finance/accounting. The

BOBs, because they are functionality-specific, bested the ERP in the marketing and finance areas,

but tied the ERP in the operations area because EnterpriseOne is operations heavy. While this

was expected, and the performance in each functional area is very important to our ratings, the

BOBs only slightly outperformed the ERP since the ERP is highly customizable.70

Oracle’s ease of customization, along with its scalability, integration/cohesion, and the

fact that Oracle provides host servers are four invaluable benefits. While the BOBs are easier to

implement and provide minimally better response time and service, they are severely lacking in

cohesion and scalability. Additionally, if we used the BOB software, we would be forced to

purchase host server space from a third party, which is a huge disadvantage because it increases

costs and adds another business with which we must communicate.

Based on this analysis, we determined that Oracle’s JD Edwards EnterpriseOne ERP is

by far the better choice for our company. While the BOBs may offer slightly higher performance

in the specific functional areas, they are underwhelming when it comes to scalability and

integration/cohesion, two key factors that are necessary if we are to grow our business.

Hardware, Telecommunications, & Employees

Hardware & Telecommunications (See IS Appendix 15)

The hardware we need to run our ERP software includes computers, telephones, an

Internet service provider, router and a VPN. We will purchase Dell Inspiron 20 3000 Series

(Intel®) Touch desktops, costing $1,115 each. Our laptop models, Inspiron 17 5000 Series, will

cost $906 each. We chose Dell because it maintains a good balance between price and quality,

while also boasting a lower failure rate over three years (18.3%) than the industry average

(31%).71 Additionally, all of Dell’s computers come with 500GB 5400 rpm hardware that will be

fast enough to handle the daily business of our startup company.

We will have three printers in total, two in our office and one in our warehouse for Years

1-5. We will use HP Officejet pro X576DW MultiFunction printers that cost $800 each. In the

                                                                                                                         70 Oracle Corporation, “JD Edwards Component Global Price List.” <http://www.oracle.com/us/corporate/pricing/jd-edwards-price-list-070607.pdf> 71 Austin Sands and Vincent Tseng, “1 in 3 Laptops Over 3 Years.” SquareTrade. 16 Nov. 2009 <http://www.squaretrade.com/htm/pdf/SquareTrade_laptop_reliability_1109.pdf >

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long run, this printer will save us money because it uses “50% less cartridge and packaging

material by weight compared with color lasers,” while printing up to 70 pages per minute.72

We will use Comcast as our telecommunications and Internet services provider. The cost

of the phone service is based on how many lines and phones we have, with per line costs

equaling $34.95 per month, and each line supporting up to five phones. The phone plan is $29.95

per month, which includes unlimited domestic phone calls.73 We will have eight phones in Years

1 and 2 and 13 phones in Years 3-5. The cost per month for the Internet and calling bundle is

$199.95, yielding a total Year 1 cost of $2,399. In order to increase the signal from the cable to

our warehouse, we will purchase a router from Cisco that costs $215, which includes a 3-year

warranty. The router comes with IP security site-to-site VPN as well as a built-in 4-port Gigabit

managed switch that can transfer the data faster for bandwidth-intensive applications. We will be

using a VPN, specifically the CyberGhost Premium Plus, which provides us with safe access to

the Internet in any part of the U.S.74

We are going to replace all the hardware by the end of Year 3 to account for the

expansion of our business. Depending on how well our hardware performs in Years 1-3, we may

shift brands when it comes time to update our hardware.

Employees (See OM Exhibit 9 & OM Appendix 10)

In Years 1 and 2 we will have one chief technology officer (CTO) who is responsible for

both the information systems and operations management departments. This executives starting

salary will be $110,00 and will increase in Year 2 by 3% to account for the cost of living. In

Year 3 we will split the information systems and operations departments into two separate

departments, each with their own chief executive who earns $116,700 in Year 3. This salary will

continue to increase by 3% per year over Years 4 and 5 to account for the cost of living, resulting

in a Year 5 salary of $123,800 for the chief information systems officer.

Entity-Relationship Diagram (See IS Appendix 16)

When creating our entity-relationship diagram (ERD), we chose operations-based entities

because our most important CSF relates to defect rate. The following entities include elements of

                                                                                                                         72Hewlett-Packard Development Company, L.P., “HP Officeject Pro X576dw Multifunction Printer.” <http://store.hp.com/webapp/wcs/stores/servlet/PDPStdView?urlRequestType=Base&catalogId=10051&categoryId=&productId=501693&urlLangId=-1&langId=-1&top_category=&parent_category_rn=&storeId=10151> 73 Comcast Corporation, “Business VoiceEdge Plans and Prices.” <http://business.comcast.com/phone/voiceedge/plans-pricing> 74 CyberGhost S.R.L., “CyberGhost VPN.” <http://www.cyberghostvpn.com/en_us>

49

our supply chain: Supplier, Manufacturing Facility, Finished Good, Logistics, and Retailer (See

IS Appendix 17). The attributes we chose for each entity relate to the amount of materials we

have on hand, ship dates and order dates, actual versus expected arrival times, number of

defective raw materials and finished goods, and order and shipment codes, among others. The

key assumptions regarding our diagram are that “finished good” refers to one finished

SmartHelmet unit and a “batch” refers to 100 units of the same color of our product.

We will focus on the most important attributes for each entity that correspond to the

business processes for our CSFs. In the Supplier entity table, the most important attributes

include lead times, raw material shipment codes, and quantity. We want to be able to track the

reliability of our suppliers, which is measured by lead time, in addition to tracking each

individual shipment. The raw material shipment code will serve as the primary key when this

data is entered into Microsoft Access (See IS Appendix 18). We will use this attribute (via a one-

to-many relationship) to connect the Supplier entity to the Manufacturing Facility entity.

The Manufacturing Facility entity contains both raw materials and finished goods

attributes, including the quantity of RFIDs, brakes, and helmets on hand, the finished goods

batch code, and the order code. The most important attribute for this entity is finished goods

batch code, as it links the Manufacturing Facility entity to the Finished Good entity in a foreign

key one-to-many relationship. There is only one finished goods batch code for the Manufacturing

Facility, but there are many finished good batch codes in the Finished Good entity because

multiple finished goods come from the same batch.

Moving onto the Finished Good entity, the main attribute and primary key is the finished

good bar code, because it is a unique identifier for each SmartHelmet. We are also going to use

finished good bar code as the primary key in the Logistics entity so that we can track the

progress of each individual SmartHelmet. This will allow us to link the Logistics entity to the

Finished Good entity in a one-to-one relationship using finished good bar code.

The Finished Good entity is also linked to the Retailer entity via the order code attribute.

The order code is the primary key in the Retailer entity, but it is only the foreign key in the

Finished Good entity because every individual finished good has a specific order code, but this

order code will repeat over many finished goods.

The order code will also link the Retailer entity to the Logistics entity in a foreign key

one-to-many relationship. Since we are using Amazon as our third-party logistics provider, we

50

have access warehouses throughout the country. However, this leads to the possibility that our

product will be shipped from different warehouses to the same retailer because Amazon offers

the option of shipping items of an order individually to speed up delivery, or shipping the entire

order at one time. Since the retailer decides which option to go with, we can assume some

retailers will choose the former, which will lead to multiple shipments of the same order code,

and therefore many of the same order codes within the Logistics entity.

Reports

Raw Materials Defect Rate Report

We used the entities and attributes from the ERD to create a report measuring the defect

rate of raw materials. We will be conducting quality checks for our raw materials when each

shipment arrives at our warehouse.

The below reports for the RFID and helmet raw materials illustrate how we would input

data from a quality check. The quality check examines the helmets and RFID units to ensure they

do not have any broken, missing, or dysfunctional pieces. We will check 20% of raw materials

per shipment in Years 1 and 2, and 15% per shipment in Years 3-5. Updating these spreadsheets

on a monthly basis allows us to continually evaluate the quality of our raw materials shipments. IS Exhibit 2: Raw Materials Defect Reports

Finished Goods Defect Rate Report

Before we ship our finished goods, we will run acceptance-sampling tests on 20% of the

finished goods in each batch in Years 1 and 2, and 15% in Years 3-5. This test involves

observing whether the brake feature locks or unlocks when the helmet is less than or more than

two meters away from the bike, respectively. If the brake fails either part of this test, then the

finished good is considered defective.

51

The defect rate for each batch will be recorded and monitored. If we find a batch has a

defect rate higher than 2%, we will then test every product in that batch to ensure we only ship

the finished goods that are not defective. We will sum up all of the defective finished goods in

that batch and record it in our database so that we can perform an analysis and improve our

working process to lower the defect rate. IS Exhibit 3: Finished Goods Defect Report

Process Model (See IS Appendix 19)

The process model we created depicts how the RFID would be checked for quality and

tested to ensure the tag and reader communicate with each other. We created this process model

because it gives a detailed view of the quality check that directly relates to our defect rate CSF.

The data inputted from this process model is used to create the report in IS Exhibit 2.

Upon receipt of the shipment, a stock worker will input this information into our raw

materials database and alert his manager of the shipment’s arrival. The database will alert a

worker trained in handling RFID technology so that he/she can perform the quality check. This

check consists of making sure there is a connection between the RFID reader and tag. If there is

a connection, the worker will allow the RFID to go into production; if there is no connection, the

worker will immediately alert the warehouse freight manager.

The warehouse freight manager’s job is to double check the raw materials sent to him/her

to see if there really is a defect present in the raw material. If the manager finds there is no defect

present, he/she will simply send the material back to the worker for a retest. If a defect happens

to be present, the handler will discard the raw material and record this event in the daily report.

Website Design (See IS Appendix 20)

We created the SmartHelmet website (kinderhelm.wix.com/smarthelmet) using wix.com

and incorporated graphically designed models that show customers exactly how our product

52

looks and functions. We designed our website to be kid-friendly, while also ensuring it is

professional enough to attract parents and grandparents. Potential customers may visit our

website to gather information about how our product works, and discover what features

SmartHelmet offers that other bike helmets do not. For current SmartHelmet customers, the

purpose of the website is primarily for replacement and service needs.

Search Engine Optimization (SEO)

One way we are going to increase the flow of visitors to SmartHelmet’s site is through

the use of free meta descriptions (See IS Appendix 21), that include popular keyword phrases,

such as ‘bike helmets’ and ‘kids bikes’ (See IS Appendix 22). The meta description is an

important SEO technique that acts as the hook that initially attracts visitors to our page.

Facebook, Twitter, and Instagram will allow us to spread the word about SmartHelmet

globally. Utilizing social media has two main advantages—Google’s crawlers like pages with

inbound links that attract users to our site, and our company will be able to build strong, ongoing

relationships with customers.75

Search Engine Marketing (SEM) Two specific investments that we will make to increase traffic to our website include

banner ads and Google AdWords. We plan on using banner ads on the following blogs for Years

1-5: Family Education, Cool Mom Picks, and SNEWSnet.com, a trade blog (See IS Appendix 23).

Banner ads are effective because they are “solid ‘introducers’ to brand messages”76 and are often

the first objects that the user sees when he/she opens a webpage. Google AdWords will allow us

to set a budget for displaying ads on Google searches based on our keyword index, as discussed

above. The benefits of using Google AdWords include the ability to advertise globally, measure

how many people click on our website link, and tailor our ads to our target markets.

Web Analytics

We will use Google Analytics to help us determine the number of visitors to our site and

where these visitors are coming from. We can also create customizable dashboards containing

                                                                                                                         75 Aziz Kharram, “Increase Search Engine Traffic by Getting Google to Recrawl Your Site.” Sitepoint PTY LTD. 10 Sep. 2014. < http://www.sitepoint.com/increase-search-traffic-getting-site-recrawled-often/>. 76Tom Gooseman, “In Defense of Banner Ads: Everybody Hates Them, but They Work.” N.p., 10 Nov. 2014. <http://adage.com/article/digitalnext/defense-banner-ads-hates-work/295782/>.

53

“widgets,” where we will analyze metrics related to impressions, bounce rate, and click-through

rate (CTR), which measures clicks as a percentage of impressions.77

We have three website goals we hope to achieve, all of which relate to our CSF of

increasing awareness. Our first goal is to achieve a high rate of customer service through our

website. We will track this by examining the average response time for each customer inquiry.

Our goal is to have every customer receive a response within one business day of making a

request. Third, we aim to achieve a 2% CTR in Years 1 and 2 and 3.5% CTR in Years 3-5. This

is a necessity because CTRs affect our advertisements’ quality scores, which in turn affect the

positions of our banner ads and keywords on landing pages.78

Contingency Plan

Our contingency plan consists of two items: Oracle Cloud backup and myPCBackup.com.

All data that is stored on Oracle’s Cloud is backed up by Oracle Cloud Services via replicating

all customer data “in physically separate facilities in order to restore full services in the event of

a disaster at a primary site.”79 Therefore, we are assuming that all of the data we create while

using our ERP will be backed up by Oracle and will be fully retrievable in the event of a disaster.

However, we are also accounting for the fact that Oracle’s backup may fail by enlisting

the services of myPCBackup.com, which we will use to backup any critical data created in our

ERP, along with any data not created in our ERP. The cost of myPCBackup.com averages

$1,000 annually, costs we are more than willing to incur for the protection they provide.

Corporate Social Responsibility

Our company’s two CSR initiatives are as follows: use 90% recyclable packaging and

form partnerships with biking advocacy groups in order to raise awareness about the dangers of

not wearing a helmet. These two initiatives relate directly to our CSF regarding increasing sales

over the five years because they both lead to an increase in purchase intent amongst our potential

customers. The recyclable packaging initiative raises intent to purchase by 1.9% for both

segments, while the partnership with advocacy groups initiative raises intent to purchase by 3%

for both segments. While neither of these increases are huge, they prove that consumers are more

willing to buy a company’s products if they are socially responsible.                                                                                                                          77Google, Inc., “Create and Customize Dashboards.” <https://support.google.com/analytics/answer/1068218?hl=en#add_widgets_to_your_dashboard>. 78 Google, Inc., “Clickthrough Rate (CTR).” <https://support.google.com/adwords/answer/2615875?hl=en> 79 Oracle Corporation. “FAQ. Resources. General.” Oracle Cloud. N.d. Web. 21 Nov. 2014. <https://cloud.oracle.com/faq#goto_2>.

54

Funding Request At the onset of our business, we will need initial investments in fixed assets, working

capital, and operating expenses, totaling $328,929. Furthermore, in order to cover our losses for

the first year, we will need additional investments of $243,381 throughout the first year. This

adds up to a total funding of $572,310, which represents the peak paid-in-capital and total

funding necessary.

Ownership Positions In order to cover our initial capital requirements, we will rely on investors to provide 75%

of our total funding. We will get the remaining 25% from friends, family, and management. We

believe it makes most the sense to distribute ownership based on capital contribution, so we will

grant 75% control to investors and the remaining to friends, family, and management. This will

also allow us to maintain an equal IRR for each party, which we believe is reasonable due to the

large potential returns for both parties.

Projected NPV & IRR We use a reasonable discount rate of 25% in our base, optimistic and pessimistic cases. In

our base case, we project our NPV to be $506,657 with an IRR of 48.3%, which is assigned a 50%

probability of occurring. In the optimistic case, the NPV of our project could increase up to

$892,977 with a corresponding IRR of 65.4%. Finally, in the pessimistic case, we calculated the

NPV to be negative $51,495, with an IRR of 22.6%. We assigned both the optimistic and

pessimistic cases a 25% probability of occurring. We will discuss the specific assumptions in the

optimistic and pessimistic cases in a later section, but taking all the cases into consideration, we

arrived at a weighted average NPV of $463,699 and an IRR of 46.4%.

55

NPV Profile & Minimum Required Rate of Return

As we can see from the graph in FE Exhibit 2,

NPV will only become negative with a discount rate of

49% or higher. Based on our comparable companies’

betas and current market rates, we found the minimum

rate of return to be 9%, which is much lower than the

25% assumed. As a disclosure, our company entails

more risk and volatility than the comparable companies,

making the minimum rate of return an underestimation.

However, at this rate of 9%, we would face an NPV of $1,341,690. In conclusion, we can say

that discount rate does not represent a tangible risk for our company based on the NPV profile.

Base Case Financials & Comparable Companies Analysis

Comparable Companies

For comparative purposes, we chose Dorel Industries as our COGS comparable and

Jarden Corporation as our Distribution Channel comparable. Dorel Industries is a large

recreational product manufacturer with a large presence in the bike industry, while Jarden

Corporation manufactures a variety of sports equipment sold through many independent and

                                                                                                                         80 "Dorel Industries Inc: TSE:DII.B Quotes & News - Google Finance."Dorel Industries Inc: TSE:DII.B Quotes & News - Google Finance. Web. 23 Nov. 2014. 81 "Jarden Corp: NYSE:JAH Quotes & News - Google Finance." Jarden Corp: NYSE:JAH Quotes & News - Google Finance. Web. 23 Nov. 2014.

$(1,000,000)

$-

$1,000,000

$2,000,000

$3,000,000

0% 10% 20% 30% 40% 50% 60% 70%

NPV

Discount Rate

NPV Profile

FE Exhibit 1: Minimum Rate of Return

Dorel Beta (Google Fin.)80 0.82

Jarden (Google Fin.)81 1.23

Average 1.025

Risk Free Rate 2.33%

Market Risk Premium 6.50%

Minimum Rate of Return 8.99%

FE Exhibit 2: NPV Profile

56

chain stores. For detailed key comparable ratios, please see FE Appendix 1 Financial Company

Comparable.

Income Statement

We expect to experience losses of $69,827 in the first year; however, in Year 2 we

anticipate positive net income of $288,259, which will grow at a CAGR of 35.1% over the next

four years.

Both comparable companies had COGS between 71% and 78% of sales over the past

three years, while KinderHelm Inc. will maintain COGS between 30% and 34% of sales. This is

because of the premium price we are able to charge due to our innovative product. However,

expenses such as SG&A and Marketing will be comparatively much higher mainly because of

proportionally high salaries and aggressive marketing efforts in order to break into the industry.

While our comparable companies experience SG&A between 14% and 21%, at KinderHelm Inc.

we expect to keep these ratios between 34% and 69%. Our Income Statement shows a healthy

and stable evolvement, which supports solid future performance and reliable returns.

Balance Sheet

In general, our estimates are based on comparable ratios used as long-term goals until we

achieve certain cash flow normalization. In order to maintain a healthy balance sheet, we

estimate to hold cash levels of 7.9% of sales, which is based on our company’s comparable cash

levels ranging between 1.3% and 15.4% of sales.

For days receivable and days accounts payable, we assume conservative scenarios given

our weak bargaining power as a small start-up. For days receivable we assume to start with 68

days which is the highest number of days from both of our comparable companies. This is

because as a small company, clients will demand longer payback periods. Similarly, days

account payable will start at 42 days, which is the smallest amount of days payable experienced

by our comparable in the last three years; as a small company, we expect suppliers to demand a

faster payback period. These estimates improve as our company grows, but we can

conservatively expect to achieve no better than comparative averages by the end of Year 5.

Finally, inventory days are expected to be between 37 and 51 for our company compared

to 87 and 108 from our comparable companies. The reason for our lower levels of inventories is

our smaller size, which allows us to better manage resources and customers. Other than accounts

57

payable, no liabilities are assumed. By keeping conservative estimates and healthy levels of cash,

we can assure investors safer returns.

Terminal Value For a terminal value we chose the liquidation calculation method for all of our cases

because of two reasons: first, we prefer to take on conservative assumptions; second, we prefer

that terminal value represents a lower proportion of our final valuation. We calculated terminal

value using the liquidation method by subtracting Total Liabilities from Total Assets, which

yields a terminal value of $1,181,308 at Year 5 for our base case. For illustrative purposes, the

perpetuity method, the growing perpetuity method, and the declining perpetuity method yield

terminal values of $3,094,955, $3,516,994, and $2,763,353, respectively, for our base case

(assuming 25% discount rate, 3% growth rate, and 3% declining rate).

Breakeven Analysis We expect to achieve positive Income and Cash Flow in Year 2. As we can see in FE

Exhibit 3, the margin of safety units in Year 2 is 40.2% for accounting breakeven, and this

margin increases dramatically over Years 3 through 5, arriving at a safety margin of 88.2% in

Year 5. Our NPV breakeven units analysis shows that our sales volume needs to be 16.6% lower

in all years in order to achieve an NPV of zero. Finally, similar to our accounting breakeven, our

cash breakeven starting in Year 2 starts with a safety margin of 44.8% and increases to 91.7% in

Year 5. In conclusion, given our large margins of safety, we can further reassure investors of

positive stable returns with reasonable margins of safety. (See FE Appendix 2).

Sensitivity Analysis

After a series of sensitivity analyses using our base case data, we found that the most

sensitive variables in our financial model are selling price, awareness, and ACV, all of which

FE Exhibit 3: Accounting Breakeven

58

have a sensitivity of less than 20%. Next, we will further elaborate on this analysis and show

possible risk mitigating strategies (See FE Appendix 3).

Our manufacturing selling price is determined by both retail selling price and margin

charged by distinct retailers. Meanwhile, we set the retail selling price as the revenue-

maximizing price based on market survey results, as explained in the marketing section (See MK

Exhibit 14). A merely 12% decrease in selling price will result in an NPV of zero, making price

the most sensitive variable in our model. Specific mitigation plans for potential drops in selling

price will be further discussed in the risk analysis section.

Although awareness directly affects our sales volume, we have limited control over the

actual effectiveness of our media campaign. In the financial model, we calculate annual

awareness based on assumptions about various media channels. Awareness turns out to be the

second most sensitive variable in the sensitivity analysis, since a decrease of 17.2% in awareness

can lead to an NPV of zero.

Equivalently, ACV has the exact same sensitivity of 17.2% as awareness. Similar to

awareness, ACV is calculated using both secondary sources and assumptions. We attribute its

sensitivity to the fact that ACV results are reliant on the effort and capability of manufacturing

representatives and our salesperson. If these supply chain members fail to get our products into

target retailers, our sales volume will be adversely affected.

Small changes in the above three variables can have large impacts on our profitability.

While price is a variable we can set and keep, awareness and ACV are determined by market

conditions. For this reason, we have decided to modify these two variables, among others, in our

scenario analysis in the proceeding sections. In the next section, we will highlight strategies we

used to mitigate the effect of these variables while also discussing other relevant risks for the

business.

Risk Mitigation Plan 1. Price (sensitivity of 12.0%)

Risk analysis: Decrease in the manufacturing selling price will cause our contribution

margin to go down and breakeven point to go up, ultimately hurting our profitability. Such

decreases in price can result from both growing competition and stronger customer buying

power. While we ultimately control the price, we have developed defensive strategies

against an involuntary but necessary decrease in price.

59

Mitigation Plan: We will strive to maintain our high standards for quality and functionality

by conveying this message to both consumers and retailers in our marketing campaigns. In

this way, consumers’ perceived value of our product will increase, thus lessening the

likelihood that our product’s price will fall.

2. Sales Volume (sensitivity of 17.0% )

Risk analysis: Sales is our sole source of income that will cover our expenses, yet there is

inherent uncertainty associated with it. Such uncertainty derives from the variety in

purchase intent, awareness, ACV, repeat rates, and repeat units, as any unexpected change

in these variables can negatively affect our sales volume.

Mitigation Plan: We will make an effort to stress our unique safety and customization

benefits in our IMC plan and rely on different media channels, such as magazine and banner

ads, to ensure an increase in awareness over the projected five years. We will also work with

manufacturer’s representatives to enter chain stores, in addition to hiring one salesperson to

target chain stores and mass merchandisers.

3. Awareness & ACV (sensitivity of 17.2%)

Risk analysis: Awareness and ACV are the most sensitive variables in our financial model,

since they are the most crucial determinants of whether or not we are able to reach our target

markets, and they directly affect our sales volume. However, we must work with retailers to

increase ACV, which increases the level of risk in our media and distribution plans.

Mitigation Plan: We will keep track of the progress of our IMC plan, evaluate its

effectiveness on a regular basis, and make changes in a timely fashion. In addition, by

offering both the manufacturer’s representatives and our salesperson the financial incentives

to over perform, we will increase our product’s presence in retailers.

4. Variable Cost (sensitivity of 44.4%)

Risk analysis: Assuming the price of our product remains constant, variable costs will

increase as sales increase, since more units are produced. However, if variable costs per unit

are increasing at a faster rate than sales, we will have a smaller contribution margin,

resulting in a need to produce more units to breakeven.

Mitigation plan: As sales increase, our company will be able to take advantage of greater

quantity discounts from our Chinese suppliers, decreasing the direct material cost per unit.

Variability in direct labor costs will be offset by increased productivity.

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5. Fixed Administrative Cost Increase (sensitivity of 46.6%) & Fixed Production Cost Increase

(sensitivity of 235.3%)

Risk analysis: If volume and sales increase in subsequent years and exceed the relevant

range, fixed production and administrative costs may increase to accommodate the increased

capacity and the next range of demand. These include increased facility costs, the need to

purchase new machinery, and increased salaries.

Mitigation plan: If the facility cannot accommodate increased production, then our company

will need to expand into neighboring units of our current rental facility or move locations to

minimize costs and avoid disruption of production. As for fixed administrative costs, we can

offer top management share of our company to reduce the cash we need to pay.

6. Regulation & Potential Lawsuit

Risk analysis: The Consumer Product Safety Commission developed a U.S. bike helmet

safety standard that has been in use since March 10, 1999.82 The standard requires all bike

helmets to pass certain tests in order to be certified as safe. Helmets must also withstand a

variety of impact tests and temperature tests. The regulation is a risk because if our helmet

does not pass testing standards, it cannot be legally sold in stores. There is the potential for

lawsuits to arise involving product defects and damages. Furthermore, there is also the

potential for other legal issues to arise, including, but not limited to: disputes with suppliers,

issues with the rental of our facility, internal conflict among employees, etc.

Mitigation Plan: Quality checks are implemented throughout the production process in

order to decrease the likelihood of defective finished goods reaching the end consumer (pg.

30). This will allow our helmets to be safe and to conform to the regulations set forth by the

CPSC. In the case of a legal dispute, this service will be outsourced to an external firm.

7. Quality Issue

Risk analysis: Supplier quality is a risk that could ultimately affect our product. Low quality

materials could affect the protection provided by our product and ultimately make the

product less useful. Production risk can also affect the quality of our product.

Mitigation plan: We will implement quality checks and tests, including acceptance sampling

(pg. 30) to test incoming raw materials and finished goods. We will test 20% of each                                                                                                                          82  "CPSC Issues New Safety Standard for Bike Helmets," U.S. Consumer Product Safety Commission., 1 Feb. 1999. Web. 24 Nov. 2014. <http://www.cpsc.gov/en/Newsroom/News-Releases/1998/CPSC-Issues-New-Safety-Standard-for-Bike-Helmets/>.

61

shipment/batch in Years 1 and 2 and 15% in Years 3 through 5. Quality checks and tests

ensure that our helmets are not only safer than the industry standard, but also that they live

up to their high-tech functionality and features.

8. Competition (sensitivity of 79.8%)

Risk analysis: We are a small start-up company, unlike most of our competitors, who are

well-established corporations. Even though there are no direct competing products to

SmartHelmet, there is the chance that our competitors may develop similar products once

they recognize our product’s unique benefits.

Mitigation plan: Gaining strong brand loyalty is the key to defending our market share.

Apart from our emphasis on high quality, we will also continuously enhance our customer

service by efficiently handling queries, complaints, and feedback.

9. Liquidity Issue

Risk analysis: As a startup, we will have little buffer in regards to our credit terms to

suppliers. Because of this and the fact that we will have to offer longer credit terms to our

buyers, we can eventually face a situation where, due to liquidity, we may have no cash.

Mitigation plan: In order to prevent bankruptcy, we will keep relatively larger and constant

shares of cash and try to offer incentives for buyers to pay us back earlier.

10. Terminal Value (sensitivity of 130.9% )

Risk analysis: Terminal value has a relatively low impact on the value of this investment,

since a terminal value of zero would still yield a positive NPV. However, there is a great

possibility that the terminal value will change depending on our performance during the

projected five years, thus significantly affecting returns.

Mitigation Plan: We will be discreet and conservative by adopting the liquidation method to

calculate our terminal value in order to reduce its contribution to our NPV and IRR. Thus,

the NPV of our project will be less sensitive to the change in terminal value.

11. Natural Disaster & Unexpected Occurrences

Risk analysis: The threat of natural disaster is present both where our suppliers are located

in China and where our manufacturing facility is located in Denver, Colorado. In China,

there is the risk of earthquakes, flooding, and typhoons.83 In Denver, there are risks of

                                                                                                                         83 "Foreign Travel Advice China." China Travel Advice. Web. 23 Nov. 2014. < https://www.gov.uk/foreign-travel-advice/china>.

62

earthquakes, extreme heat, flooding, hail and lightning, hazardous materials, tornadoes, and

winter storms.84 In dealing with goods in transit, there is the potential for damaged goods as

well as delays in transportation.

Mitigation plan: This risk is mitigated through inventory insurance and manufacturer's

insurance. Disruptions to production are diminished through the holding of adequate safety

stock to meet demand.

12. Economic Downtime

Risk analysis: Trends in industries and the economy can shift the demand for a product and

can ultimately crush even a previously successful business.

Mitigation Plan: In order to protect our company from succumbing to possible economic

downturns, we will try to keep as much cash in the company in order to provide a margin of

safety in the case of an economic crash.

Scenario Analysis & Summary Statistics In the scenario analysis, we vary

four key variables in the financial

model, which are awareness, ACV,

competition and direct material cost

(see FE Exhibit 2 - Optimistic and

Pessimistic Assumptions). We chose

these variables to generate the

optimistic and pessimistic scenarios

due to their relatively high sensitivity

as well as our limited control over them. Accordingly, we would like to examine how changes in

these variables will impact our business through scenario analysis. For detailed numbers of the

optimistic and pessimistic scenarios refer to FE Appendix 4.

In the optimistic case, we assume that the number of impressions to create awareness

decreases from 4 to 3, thus we will be able to generate more awareness while keeping the

marketing expenses constant. To raise ACV, we expect 10% less loss in independent stores

owing to channel conflict among independent stores, chain stores and mass merchandisers. Also,

                                                                                                                         84 "Office of Emergency Management." Potential Threats. Web. 23 Nov. 2014. <http://www.denvergov.org/PotentialThreats/tabid/391429/Default.aspx>.

FE Exhibit 4: Optimistic & Pessimistic Assumptions Analysis

63

FE Exhibit 5: Weighted Average NPV & IRR

the largest chain sporting goods store, Dick’s Sporting Goods, will carry our product in Year 3,

in contrast with the assumption that our product will only be sold in the third largest chain store

in the base case. In addition, competition will increase by 15%, as more competitors will be

attracted to entering this market due to our success. On the supply side, the cost of direct

materials will decrease by 5%, positively contributing to the contribution margin. As you can see,

we have also assumed a conservative better scenario. Accounting for all of the assumptions in

our optimistic model, we arrive at an NPV of $ 896,977 with an IRR of 65.4%.

In the pessimistic case, we vary the same variables as in the optimistic case, but with

more aggressive changes. For awareness, 5 impressions are needed to create one portion of

awareness. In terms of ACV, we assume that we will experience 20% more loss compared to our

base case in independent stores during Years 3 through 5 because of channel conflict. We also

assume own salesperson can only get our product into the fourth largest chain store in Year 3.

Competition decreases by 5% compared to the base case, as our business gets less attractive.

Nevertheless, direct materials cost is projected to increase by 15%, shrinking the contribution

margin and enlarging the break-even point. In spite of all these negative effects, our financial

model indicates that we are still able to offer investors an IRR of 22.6% but NPV of negative

$51,495. Note that we will have positive cash flow in Year 2 in the pessimistic case, so there is

no need to liquidate immediately after two years of operation.

Given the base case probability of 50% and the optimistic and pessimistic cases

probabilities of 25% each, we reach a weighted average NPV of $463,699 and IRR of 46.4%.

Please refer to FE Exhibit 3 for further detail.

64

Product Uniqueness One of the main problems faced children’s bike helmet category is that children refuse to

wear them. Standard bike helmets protect children’s heads, but only when the helmets are on.

The SmartHelmet differentiates itself by requiring children to have the helmet with them when

they bike. Parents and grandparents in our target segments will be drawn to SmartHelmet’s

unique safety benefits, as it helps keep their children and grandchildren safe. Because of this, our

company will be able to generate sufficient revenue and higher NPV, which provide a higher

return for our investors.

Investment Proposal

The SmartHelmet is a revolutionary children’s bike safety product that provides a

multitude of services that a standard bike helmet simply cannot compete with. An investment in

SmartHelmet is not just an investment in a safety product; rather it is an investment in the future

of safety. The technology used in bike helmets has stayed relatively the same over the past few

decades. Innovation in safety helmets has been limited to rethinking and improving on the

components of the helmet, instead of improving on the functionality of the helmet itself.

The SmartHelmet rethinks how a helmet can protect a child and therefore provides a

significant advantage over typical bike helmets. SmartHelmet brings modern day technology to

safety products for children and therefore provides an opportunity for investors to be part of a

step towards the future of children’s bike safety.

From a financial standpoint, KinderHelm Inc. offers investors a relatively safe investment

with a lot of upsides. Using our base case expected cash flows, we believe the net present value

of the KinderHelm Inc. to be worth approximately $506,657 in our base case and $463,699 in a

scenario weighted average basis. We also expect the internal rate of return of the project to be

48.3% in our base case and 46.4% based on our scenario weighted average. Even in our worst

case scenario, we expect the internal rate of return to be 22.6%, which results in a negative NPV

only because of a very conservative 25% discount rate. With acceptable returns on a worst-case

basis and great returns on a base case basis, KinderHelm Inc. is confident that SmartHelmet is a

worthy investment.

65

Conclusion By fusing the disciplines of marketing, operations management, information systems, and

finance, we expect the SmartHelmet to burst onto the protective sports equipment scene. The

SmartHelmet is an innovative children’s bike helmet that ensures that children have their helmets

while riding their bikes. By simply combining RFID technology, a brake, and a helmet, we are

able to provide a product that will fulfill a customer need that has been around since the

inception of children’s bikes.

Through aggressive promotional and marketing campaigns, we plan to go from selling

33,000 units in Year 1 to over 138,000 units in Year 5, reaching revenues of over $4.7 million.

Through constant surveys and creative marketing campaigns, our marketing division will provide

our operations management and information systems divisions with useful information in order

to better react to both our customers’ and company’s needs. Our operations management division

will then seek to fulfill demand by maximizing the use of our resources, such as materials and

time. Our information systems divisions will provide key support for our business by allowing

for the integration of our values and technology with the rest of the company. Finally, the finance

division will bring all of this together to monitor activities and make key decisions that will help

our business thrive. We believe that by allowing the four core divisions of our business to be in

constant interaction, we will evolve to better fit our customers’ needs.

We will not only provide our customers with a product that will satisfy their safety needs,

but we will also provide investors with outstanding returns. After an initial total funding of

$572,310, we expect a promising base case NPV of $506,657 and an IRR of 48.3%.

KinderHelm Inc. is not only about the product and the numbers. Our goal is to satisfy the

needs of our customers and provide society with an innovative product aimed at improving the

quality of life. We hope to achieve a culture of innovation. Through the integration of our four

business areas, we will be able to achieve our corporate social responsibility goals, create long

term relationships with our suppliers, provide our clients with solutions, and provide our

investors with safe but extraordinary returns.

66

Appendices

MK Appendix 1: Manufacturer’s Representatives Commissions

Manufacturer's  Representatives  Commission  

    Year  1   Year  2   Year  3   Year  4   Year  5  

Commission  (in  dollars)   $31,266   $77,395   $114,682   $120,723   $106,153  

%  of  total  manufacturer's  sales   2.61%   3.84%   3.80%   3.15%   2.25%  

67

MK Appendix 2: Focus Group & Interview Summaries

Focus Group – Conducted on October 01, 2014

Names of people in the focus group

Mazy Zen

Ahznad Megan

Lori May

Key takeaways:

• Very sensitive to price: no more than 50 dollars or no more than 5 over a regular priced helmet • Important attributes: safety, security, worry-free, protection, security • Have to make the product appealing to kids, color is extremely important • Before purchase, people will do online and in-store research • Additional features: safety stripes and the GPS tracker • Potential anti-theft feature is a huge thing we need to promote (especially if they forget to bring the bike

lock). And we also need to address the battery life issue if we go by sensor. • Creating good habits, reduce the worry of parents

One-on-One Interviews Takeaways

Key takeaways: Parents

• Riding bikes is a form of enjoyment and recreation rather than a way of transportation for their children • Value functionality, safety, fit, cost and high quality • Concerned about how we can make kids actually wear their helmets • Children’s influence on parents is significant; therefore, parents tend to choose helmets with cool designs

so their children are more inclined to wear them • Parents purchase helmets from either big retailers, such as Target and Wal-Mart, or sporting goods stores. • Our current price of $79.99 is too high for some, but just right or low for others

o Therefore, we need to start asking for household income because this could have been a factor that influenced the price points and we did not account for it

• Some parents will search online before purchasing a helmet, but some parents just go to the store and pick from the shelf

• Parents tend to have no strong brand loyalty, especially for first-time purchase; however, they are likely to continue buying the same brand as long as the helmets do not malfunction

Key takeaways: Grandparents

• Generally, grandparents are not as involved as parents in buying sports goods for children and are therefore our secondary segment

• Riding bikes is a recreational activity for grandchildren • Willing to pay extra for a bike helmet if they think it will be safer for their grandchildren, but they would

like to understand how the helmet works • Value safety, durability, style, good design and ability to customize/tons of fun designs • Would like to know about our customer service with regard to broken components • Prefer generic store brands for the younger kids, because they are reliable, affordable, and come in lots of

different styles o However, grandparents generally buy helmets in a more specialized store for the older kids,

because they are starting to do more dangerous things on their bikes

68

MK Appendix 3: Breakdown of Segmentation Tree

MK Appendix 4: IMC Schedule, Year 1

69

MK Appendix 5: IMC Schedule, Year 2

MK Appendix 6: IMC Schedule, Year 3

70

MK Appendix 7: IMC Schedule, Year 4

MK Appendix 8: IMC Schedule, Year 5

71

MK Appendix 9: IMC Cost Breakdown

72

MK Appendix 9: IMC Cost Breakdown (continued)

73

Skyscraper

Four Color Full Color

MK Appendix 10: Online Ads

MK Appendix 11: Magazine Ads

SmartHelmet

SmartHelmet is a children’s bike safety product that utilizes proximity sensor technology.

The bike brakes only unlock when the helmet is within 2 meters of the bike.

Protecting what matters mostv

KinderHelm

v

aasd-fasd

My brakes

won’t unlock!

That’s where I

come in! :)

Protecting what matters most

SmartHelmet

http://kinderhelm.wix.com/smarthelmet

SmartHelmet is a children’s bike safety product that utilizes proximity sensor technology.

The bike brakes only unlock when the helmet is within 2 meters of the bike.

KinderHelm

aasd-fasd

KinderHelmKinderHelm

My brakes

won’t unlock!

That’s where I

come in! :)

aasdfasd

Protecting what matters most

SmartHelmet

http://kinderhelm.wix.com/smarthelmet

SmartHelmet is a children’s bike safety product that utilizes proximity sensor technology.

The bike brakes only unlock when the helmet is within 2 meters of the bike.

Medium Rectangle

Regular Banner Ad

Leaderboard Banner Ad

74

Full Back Super Tail

Tail

MK Appendix 12: Transit Advertisements

MK Appendix 13: Packaging – Landry’s

75

MK Appendix 14: Packaging

MK Appendix 15: Point of Purchase Display

76

MK Appendix 16: Creative Advertisement – Smartphone Application

MK Appendix 17: Trade Show Booth

App Icon

77

MK Appendix 18: Trade Show Brochure

78

MK Appendix 19: Sports Equipment Revenue Breakdown

MK Appendix 20: Sales Projection - Parents

79

MK Appendix 21: Sales Projection – Grandparents

MK Appendix 22: CSR-Adjusted Purchase Intent

80

OM Appendix 1: House of Quality

 

OM Appendix 2: International Ocean Lead Time

 

81

OM Appendix 3: Lead Times

OM Appendix 4: Nationwide Rail Map

82

OM Appendix 5: Rail Prices

OM Appendix 6: Amazon Partnered Carrier

83

OM Appendix 7: Storage Fee for Amazon

OM Appendix 8: Facility Brochure

84

OM Appendix 9: Center of Gravity

OM Appendix 10: Employees for Year 1

85

OM Appendix 11: Throughput Times

OM Appendix 12: Monthly Forecasted Demand

86

OM Appendix 13: Yearly Demand

OM Appendix 14: PERT Distribution

87

OM Appendix 15: Inventory Equations

OM Appendix 16: Optimistic and Pessimistic Assumptions

         15%            -­‐5%  

88

IS Appendix 1: Critical Success Factors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89

IS Appendix 2: Value Chain

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

ü Use EnterpriseOne’s Agreement Management module to establish and maintain exceptional relationships with suppliers in order to ensure quality of goods provided is the best possible

ü Use EOQ model to determine optimal raw material inventory and to obtain a service level of at least 99%

ü Establish a quality check at suppliers’ facilities to decrease raw materials defect rate if our raw materials defect rate goal of 5% is not met after Year 1

15%

33%

15%

20%

17%

ü Standardize production so product is almost immediately available to customer – will help us meet our 99% service level goal for all 5 years

ü Use robust design of product to meet the 2% target defect rate for finished goods

ü Hire an RFID-specific assembly line worker in Years 1 & 2, and 2 in Years 3-5 to ensure only 2% defect rate amongst RFID connections between helmet and brake attachment

ü Quality checks performed on 20% of finished goods Years 1 & 2, and 15% of finished goods in Years 3-5 to ensure external defect rate of less than .5%

ü Operations Manager checks Amazon seller account daily to ensure we are filling all retailer and individual consumer orders as quickly as possible

ü Use EnterpriseOne’s Agreement Management module to establish and maintain exceptional relationship with Amazon in order to obtain maximum 5-business day delivery starting in Year 3

ü Increase banner ads by 5% per year in order to increase website traffic, which in turn will increase overall awareness

ü Obtain endorsements from cycling advocacy organizations in order to increase awareness – goal is 15 endorsements by Year 5

ü Provide independent retailers with incentives in order to stay in 85% of them gained over the first 5 years, because they account for 23% of sports equipment industry sales

ü Respond to customers within 1-business day

ü 3-year warranty on all products, with an additional year added if customers complete product survey

ü Customer service representatives will take intensive training programs when hired and will be subject to semi-annual tests to ensure highest quality service possible

90

IS Appendix 3: Marketing Best of Breeds’ Cost Breakdowns

IS Appendix 4: Marketing Best of Breed Decision Matrix

91

IS Appendix 5: Operations Management Best of Breeds’ Cost Breakdowns

IS Appendix 6: Operations Management Best of Breed Decision Matrix

92

IS Appendix 7: Finance/Accounting Best of Breed Decision Matrix

IS Appendix 8: Finance/Accounting Best of Breeds’ Cost Breakdowns

93

IS Appendix 9: Microsoft Dynamics’ GP Total Costing

IS Appendix 10: Microsoft Dynamics’ GP Costing Assumptions

94

IS Appendix 11: Selected Oracle EnterpriseOne Modules

Module Name Year Area License Price Update & Support Price

Minimum # Users

CRM Foundation 1 CRM $640 $140 5

Sales Force Automation 3 CRM $1,200 $264 5

Sales Order Management 1 CRM $4,595 $1,010 5

Agreement Management 1 Manufacturing & SCM

$4,595 $1,010 5

Apparel Management 1 Manufacturing & SCM

$3,995 $879 5

Inventory Management 1 Manufacturing & SCM

$4,595 $1,010 5

Manufacturing Management

1 Manufacturing & SCM

$4,595 $1,010 5

Quality Management 1 Manufacturing & SCM

$1,495 $329 5

Requirements Planning 1 Manufacturing & SCM

$1,495 $329 5

Transportation Management

1 Manufacturing & SCM

$4,595 $1,010 5

Warehouse Management 1 Manufacturing & SCM

$3,450 $759 5

Procurement & Subcontract Management

1 Supply Management

$4,595 $1,010 5

Financials 1 Financial Management Suite

$4,595 $1,010 5

Financials: Environmental Accounting & Reporting

1 Financial Management Suite

$1,995 $439 5

Health & Safety Incident Management

1 Health & Safety $50 $11 5

Human Resources 3 Human Capital Management

$185 $41 5

Payroll 1 Human Capital Management

$225 $50

IS Appendix 12: Oracle EnterpriseOne Costing Assumptions

95

IS Appendix 13: Enterprise Resource Planning Decision Matrix

IS Appendix 14: ERP vs. BOB Decision Matrix

96

IS Appendix 15: Hardware & Telecommunications Total Costs

IS Appendix 16: Entity-Relationship Diagram

97

IS Appendix 17: ERD Entities

98

IS Appendix 18: ERD – Access View

IS Appendix 19: Process Model

99

IS Appendix 20: Website Landing Page

IS Appendix 21: Meta Description

100

IS Appendix 22: Keywords

IS Appendix 23: Banner Ad Costs

101

FE Appendix 1: Financial Company Comparable

102

FE Appendix 2: Breakeven Analysis

103

FE Appendix 3: Sensitivity Analysis

104

FE Appendix 4: Summary of Scenario Analysis

xii

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Newegg, Inc. "Cisco Small Business Multifunction Wireless VPN Router." Newegg.com. n.d. Web. 22 Nov. 2014. <http://www.newegg.com/Product/Product.aspx?Item=N82E16833150142>.

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Exhibit 1: New  Product  Survey

           

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