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http://chw1986.blogspot.com/2010/07/allied-office-products.

html Allied Office Products


yesterday, I went to Monash Clayton for a seminar, Cover Letter Seminar, just for 1 hour, but I think it was useful. after this semester, i need to go for a work...there will be some similar seminars held on Monash Clayton in the next few weeks. i will go to there. after the seminar, i went home, but I totally lost in the Monash Clayton, becasue it is so huge...I study in Monash Caulfield, just few buildings in there. But Monash Clayton...I think 70 buildings in there...it took me 20 minutes to find the bus loop... next, I put on some old assignment, Advanced Managment Accouting. there were a lot of case study when I learned that unit, but now, the teacher was changed, so the assignment was changed... anyway, the requirements: 1. Conduct a SWOT analysis 2. Using the information in the text and in Exhibit 5, calculate ABC based service costs for the TFC business. 3. Using your new costing system, calculate distribution services costs for Customer A and Customer B. 4. What inferences do you draw about the profitability of these two customers? (hint: you can compare the old method to the abc method using customer profitability analysis in a table format; you can show this by: Sales less Product Costs less Service Fees = Gross Profit You can also show Gross Profit as a % 5. Should TFC implement the SBP pricing system? Give reasons. 6. What managerial advice do you have for Allied about the Total For Control (TFC) business? How does Exhibit 1 relate to this question? 7. Can lean manufacturing practices be implemented in a company such as Allied? Explain. 8. Google Allied Office Products. Are they still in business? What other information have you discovered on Allied? SOME ANSWERS SAMPLES: Allied Office Products Case 8.1 1) Conduct a SWOT analysis Under the Strengths: it was found that They used Value added services to differentiate itself from other companies. Especially they have 2 different divisions, warehousing and distribution. In the warehousing they use sophisticated computer systems network to monitor a clients activity history, so that means they can eliminate the time laps, running shortage of inventory. Under the distribution the staffs makes sure that they deliver the right products to right people by checking full cartons. This will increase the customer satisfaction.

They had a diverse product line providing 13 manufacturing locations +10 distribution centres better access and closer delivery points by using these monitory systems. Weaknesses found in the case study were that Because of Too much old data being used and most of the data was from 1990-1992. It is not accurate making decisions based on this information. And Due to the Different years data given, it is quite difficult to make comparisons. ROI has been decreasing for several years that could be happen for 2 reasons. One is reduced net profit after tax, other one is increase shareholder equity. This shows that the business is not being running managed well. And the Pick-pack and desk top delivery are both time consuming so a better form should be conducted. Moving on to the Opportunities: With new computer system the company can view particular clients past buying patterns so they can make pre arrangement for the next order. And Instead of charging more for some items, allied could offer a discount for those who buy cartons. For the regular clients who buy bulk in items the company can offer discounts for that bulk rather than charging individually. At last looking at the Threats: There is a strong industry competition because the competitive market each and every industry try to deliver the best service to grab more customers by using different sales strategies. Due to the business Inaccurate cost systems this results in uncompetitive pricing so the company is losing lots of money. Because their loose customers and they will reduce their sales revenue. 5) Should TFC implement the SBP pricing system? Give reasons TFC should definitely implement SBP pricing system to change out distribution services which will help TFC become more profitable since now they have a much better understanding of the drivers of costs involved in the distribution services. If TFC implement this system it will properly allocates costs And provide equality and fairness to all customers Further more, many customers will face reduced prices which are beneficial to the company. The system provides Profit opportunity as it is spread over many firms and allied is not as dependent on a small number of firms for positive profits which will give rise to Profits margins increasing. The TFC has 13 distribution centres, so applying the SBP system would resolve the fair to all customers has implemented their pricing based on there distribution centre. Another Version Background:

Allied Office Products was a corporation with annual sales of $900 million in business forms and specialty paper products, such as writing paper, envelopes, note cards, and greeting cards. In 1988 the company had expanded into business forms inventory management services.

1SWOT analysis. Strengths: 1) Well network---the sophisticated computer systems network to monitor a clients forms inventory, forms usage, and ordering activities. 2) Wide services, such as value-added, pick pack and desk top delivery 3) Good strategy: the right product at the right place at the right time. 4) A wide variety of products and a wide market (market share) 5) Distribution sales---understand the customer profitability.

Weaknesses: 1) Lack of competitive strategy. 2) Inventory turnover. 3) The channels of outsourcing and distribution. 4) Financial problems. 5) Accounts were similar only in the value of the product being sold but are different on the level of service they required from Allied.

Opportunities: 1) New market & new production. 2) New demands of customers. 3) Global information.

4) Competitors vulnerabilities.

Threats: 1) New competitors. 2) Policy changed in the industry. 3) Pricing fights. 4) Substitute production.

2. ABC based services cost: The ABC based services costs for the TFC business is $5708. Total storage expense 1550 Total requisition handing expense 1801 Total warehouse activity 1745 Data processing expense 612 Total $5708 3. Costs for Customer A & B: Customer A: $1500+$2250=$3750 Customer B: $50,000+$7500=$57,500

4. The profitability of two customers: Although customer A cost few, it doesnt make a bigger profit. Customer B buy lots of things, he may take a discount from the supplier and make a profit.

Sales 79320 Less Product Costs 49620 Less Service Fees 15541 Total: 14159

5. TFC implements the SBP pricing system: I believe that TFC will use the SBP pricing system. In face, TFC management will rework the information in the data base as if the accounts had been charged service fees based on actual usage, leaving net sales and product cost the same as before. They ranked the accounts according to profit contribution.

6. Allied operated its forms manufacturing and TFC activities as separate profit centers. The transfer of product to TFC was at arms length with the transfer price set at fair market value. Allied manufactured business forms in 13 locations. Although the company encouraged internal souring for customer orders, TFC salespeople had the option of outsourcing product if necessary.

7. The implement of lean manufacturing practices for Allied: Yes, Allied can lean manufacturing. In exhibit 6, TFC maintained 1100 separate accounts; a large portion of the business came from very few accounts. The top 40 accounts represented 48 percent of the companys net sales. Therefore, Allied should reduce the number of the account to reduce the cost and to improve the profit.

8. Other information discovered on Allied: Allied Office Products are still in business. To build a dynamic site from which corporate customers can log in, and within a secure and customized experience, view product catalog, place orders, and check order status and history. and I just find that, I do the presenation on that week, so I should prepare a report of that case, the report is shown as follow: Abstract

This report identifies different issues in the Allied Office products case study. Such as SWOT analysis, Activity Based Costing (calculations from the figures given and the explanations), Serviced Based pricing system, Managerial advice about the TFC business, implementation of Lean manufacturing and at last the other informations about Allied Office products Case study. Introduction Allied Office Products is a large corporation that builds its reputation on its annual sales of $900 million in business forms and specialty in paper products. Its paper products vary from envelopes to greeting cards and writing papers. Allied has incorporated a new program called Total Forms Controls (TFC) for its clients enabling Allied to separate this business form division to handle client accounts. TFC provides services of warehousing and distribution, inventory control and forms usage reporting. Further more Allied offers several other services such as pick-pack and desk top delivery (Govindarajan &Anthony 2007, p.348) to enhance their business operations. Allied clients vary from small to large and all use their distribution center. Allied has a total of 13 distribution centers thus giving them an increase in the services. SWOT Analysis

1) Conduct a SWOT analysis Strengths: Value added services to distinguish itself various merchandise line 13 manufacturing locations and 10 distribution centres better access and closer delivery points. New computer system upcoming on line to follow individual freight charges. Weakness: Too much old data; most of the data from 1990-1992. Different years statistics given, quite complicated to evaluate. Presently customers are charged a service fee is based on the cost of sales for that month regardless of level of service provided. ROI has been falling for a number of years.

Pick-pack and desk top delivery are both time consuming.

Opportunities: pick-pack and desktop delivery be able to generate flexible lease programs Latest computer system where based on historical figures, allied can build engagements with client to have a set of Deliveries per year based on usage. As an alternative of charging extra for some items, allied can offer a discount for those who purchase cartons. Threats: Strong industry competition all looking to make sales growth. incorrect cost systems follow-on in uncompetitive pricing If apply new SBP, a number of accounts would be charged more, may warn to leave. (http://www.mgmt.utoronto.ca/~mccrackn/323/Allied%20Office%20Products.PDF) Practical calculation of ABC 2. Using the information in the text and in Exhibit 5, calculate ABC based service costs for the TFC business. Storage $1550k Requisition Handling $1801k Basic warehouse stock selection $ 761 k Pick-up activity $ 734k Data entry $ 612k Desk top delivery $ 250k Total $ 5708k

Activities Cost Drivers The cost of storage average can be driven by number cartons in inventory. The cost of requisition Handling is determined by number of requisitions. The cost of basic Warehouse Stock Selection

comes from the number of lines ordered. The number of pick pack lines is the cost driver of pick Pack and the cost of data Entry is result in the number of lines. In addition, desktop Delivery by the number of deliveries Cost per activities can be found. Storage $1550k/350,000=$4.43 Requisition Handling $1801k/310,000=$5.81 Basic warehouse stock selection $761k/775,000=$0.98 Pick-pack activity $ 734k/697,500=$1.05 Data entry $ 612k/775,000=$0.79 Desk top delivery $ 250k/ 8500=$29.41

Calculation of distribution services costs 3. Using your new costing system, calculate distribution services costs for Customer A and Customer B. Customer A Customer B Average inventory 350 cartons@ $4.43=1550.5 700cartons@$4.43=3101 Requisitions 364@$5.81=2114.84 790@$5.81=4589.9 Number of lines 910@$0.98=891.8 2500@$0.98=2450 Pick-pack 910@$1.05= 955.5 2500@$1.05=2625 Annual freight cost $ 2,250 $ 7,500 Extra charging after 9 months nil $7000@1.5%*3=315 Desk top deliveries nil 26 per year@$29.41=764.66 Data entry 910@$0.79=718.9 2500@$0.79=1975 Total $8,483 $23321 Here is an example how to calculate the cost using the ABC method for customer B, there are 700 cartons inventories, 790 requisitions and 2,500 line all lines with pick-pack activity.

Besides, customer needs 26 times desk top deliveries which cost $764.66 more. In addition, for customer B there is $7,000s inventory stored over 9 months, the extra charging after 9 months should be $315. It added up to $23,320.56 for customer B. Results/findings 4. What inferences do you draw about the profitability of these two customers? Currently customer A & B both face the service charges of 32.2% of its total product costs $ 50,000 that is $16,100. Customer A: $16,100 8483 = $7617 Customer B: $23321 16,100 =$7221 As shown here, A was over charged $ 7,617 while B was under charged $ 7,221 From another viewpoint:

old method ABC method customer A customer B customer A customer B sales $79,320 $79,320 $79,320 $79,320 products cost $50,000 $50,000 $50,000 $50,000 services fees $16,100 $16,100 $8,483 $23,321 gross profit $13,220 $13,220 $20,837 $5,999 % in gross profit 17.0% 17.0% 26.0% 7.7% Compare the two cost analysis methods we could find that, the old method is difficult to figure out which activity is the major one while the ABC cost method can provide the clear information. Furthermore, its fair and wise to charge clients according to the service used by them but the old method just charge them at the same price despite the difference in service provided. Recommendation of implementation of SBP

5) Should TFC implement the SBP system? Give reasons TFC should implement SBP pricing system to change out distribution services to help TFC become more profitable.

Properly allocates costs Fair to all customers Many customers will face reduced prices Profit opportunity is spread over many firms and allied is not as dependent on a small number of firms for positive profits. Profits margins will increase. (http://www.mgmt.utoronto.ca/~mccrackn/323/Allied%20Office%20Products.PDF) Managerial advice Question 6: What managerial advice do you have for Allied about the Total Forms Control (TFC) business? Allied has several beneficial aspects in their operations in conducting their business such as having a greater proportion of distribution centers and services provided. However they lack in the way they service to their clients. Therefore improvements must be made in order to operate fairly to all clients in their business. As a manager, it is his/her duty to oversee and advice on any changes that must be made to enhance the business and bring it to a positive view. Managerial Advice: Adjustment of the management area to level of service. The reason for this is because although customer account A and B both make annual sales of $79,320 with cost of product being $50,000, the current system charged equal service fee. Although these accounts were same only in the products being sold, they were different in the level of service required by Allied. A review on the true and fair to the clients. That is all similar size clients need fair treatment. Service and treatment must be equal to all clients; whether small or large Fees must be charged for usage of distribution centre at level of services provided to clients. How does Exhibit 1 relate to this question? In exhibit 1, it portrays a value chain concept of TFC, Allied operates its forms manufacturing and TFC activities as a separate profit centre. The transfer price of product to TFC was at arms length with the transfer price set at fair market value. Allied manufactures business forms in 13 locations. Although the TFC sales people had the option to outsource products if necessary, internal sourcing was more encouraged for customer orders. Clients who participated in the forms management program kept an inventory of forms at one of Allieds 10 distribution centers.

The forms were distributed to the client as required. Usage of distribution center by clients incur extra charges to cover the cost of warehousing and distribution based on a percentage of the cost of sales of the products for that month, regardless of the specific level of service provided to that clients. Lean manufacturing Q7. Can lean manufacturing practices be implemented in a company such as Allied? Explain. Lean manufacturing practices can be implemented into Allied business, because it would benefit Allied with a lot of cost and time saving. Allied spends vast amount of money on proceeds, mostly labour. It also enables identifying and eliminating non value added activities. Lean manufacturing is an organisations value chain, it is collection of key activities perform to design, produce, market, deliver and support its products and services. It provides the opportunity to better understand the behaviour of differentiation. The external or industry value chain incorporates the value-creating activities which span the industry from the initial raw material to the end consumer. Q8. Google Allied Office Products. Are they still in business? What other information have you discovered on Allied? Allied Office Products is still in business. Allied provides information on: Office supplies Stationary Cleaning supplies Office furniture Computer equipment Printing & Office design Recommendation From the case, we find out there are two main issues in the company- the costing system and the pricing system. To improve the efficiency and to act effectively the company, as shown above, should introduce the activity-based cost system; it provides the company more clear information for each customer and its more fair to charge clients according the services actually provided. It will help the company to avoid overcharge or undercharge for the customers. Additionally, the pricing system, TFC should implement SBP pricing system to change out distribution services which will help TFC become more profitable since they have a much better understanding of the drivers of costs involved in the distribution services. By implementing these

two systems the ROI of Allied may be improved as the revenue is going up. The company only needs to change a little, but can run effectively and efficiently. Bibliography

Allied Office Products Case, Viewed 4th April 2008, http://www.mgmt.utoronto.ca/~mccrackn/323/Allied%20Office%20Products.PDF Anthony & Newton R, 2007, Management Control Systems, 12th edition, McGraw-Hill, Boston

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