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Recommendations for

Group #
WMP6004 WMP6005 WMP6007 WMP6008 WMP6009 WMP6012 WMP6015 WMP6052
CD (Group 2)
AKSHAY BANSAL AMIT AGARWAL ANKIT SURI ANKUSH VED ANUBHAV KUMAR JAIN BIKRAMJIT DE
BNATH CHANDER SHEKHAR SIBAL SUROJEET SADHU

Situation
 Small firm seeking ways to compete in an
increasingly intense competitive environment in pre-press printing.  The external
environment had changed with the advent of new technology, and new players ente
ring the market had increased the supply side of the industry.
COLORSCOPE needs CHANGE in its operation, marketing and cost strategy

Situation
Description Wages Depreciation Rent Others Total Overhead Labour hours Overhead
Rate or Absorption Rate or Driver Rate (Rate / Labour Hour) Floor Space
Job Preparation $ 8,000 $ 500 $ 2,000 $ 1,311 $ 11,811 160
$ $ $ $ $
Scanning 32,000 25,000 2,000 5,246 64,246 640
$ $ $ $ $
Assembly 64,000 10,000 8,000 10,492 92,492 1,280
$ $ $ $ $
Output 10,000 14,000 4,000 1,639 29,639 200
Quality Control Idle Space $ 11,000 $ 500 $ 1,000 $ 13,000 $ 1,311 $ 13,811 $ 13
,000 160
$ $ $ $ $
Total 125,000 50,000 30,000 20,000 225,000 2,440
$
74 1,000
$
100 1,000
$
72 4,000
$
148 2,000
$
86 500
$ 6,500
92 15,000
Note: A simplified activity-based costing system was used to measure customer pr
ofitability.
Cost of Activity Drivers: Output > Scanning > Assembly > QC > Job Preparation

Complications
 Because Colorscope was not the market leader, its
only option is to adopt a strategy emphasizing:
1. cost containment, and 2. quality control strategy

Questions

Based on the information provided in the case, the firm has to decide on questio
ns such as:
 Customer pricing, and  Process improvement decisions
Was there need for incremental or radical change in its operations?
Considering
the size of the operations and cost of rework, it needed to control costs while
maintaining quality and to manage customer profitability. The problem required i
nternal quality management and closer interaction with customers.
Pricing Strategy should be in sync with its Operational Costing

Analysis
Job
Revenue
Material Expenses
Gross Margin
Job Preparation 7 6 6 7 7 4 4 4 5 4 4 4 5 4 1 4 4 2 1 3 4 2 2 4 15 4 117
Scanning
Assembly
Output
Quality Control 5 6 8 9 8 4 4 6 5 4 4 5 4 5 1 7 3 1 1 8 7 1 1 3 30 7 147
Total Time
Net Profit
61202 61203 61204 61601 61003 61101 61102 61201 61902 61501 61405 61702 61401 61
404 61801 61502 61701 61602 62001 61002 61402 61603 61901 61403 61301 61001
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
23,000 22,000 20,000 20,000 23,000 12,000 11,000 11,000 12,000 11,000 9,800 10,0
00 7,800 9,000 4,000 11,000 8,000 2,000 9,600 8,000 1,400 2,000 8,000 50,000 9,6
00 315,200
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
3,300 3,400 3,200 3,300 4,500 1,800 1,500 1,500 2,200 2,200 2,000 2,500 1,800 2,
100 1,600 3,600 2,100 600 200 3,500 3,100 1,000 1,700 3,900 13,000 5,400 75,000
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
19,700 18,600 16,800 16,700 18,500 10,200 9,500 9,500 9,800 8,800 7,800 7,500 6,
000 6,900 2,400 7,400 5,900 1,400 (200) 6,100 4,900 400 300 4,100 37,000 4,200 2
40,200
32 34 30 26 40 16 16 16 19 21 20 20 14 22 5 20 20 5 1 24 19 5 5 20 130 32 612
58 64 58 60 75 30 28 32 42 39 36 41 32 36 11 40 39 10 2 38 32 11 12 34 250 42 1,
152
8 8 8 8 16 4 4 4 4 4 4 4 4 4 2 8 4 1 1 8 8 2 1 4 32 8 163
110 118 110 110 146 58 56 62 75 72 68 74 59 71 20 79 70 19 6 81 70 21 21 65 457
93 2,191
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
10,163 8,416 7,278 7,275 5,487 5,193 4,637 4,176 3,464 2,640 1,958 1,210 975 771
647 417 (73) (207) (753) (1,153) (1,405) (1,427) (1,451) (1,512) (2,554) (4,132
) 50,040

26 JOBS; 16 Profitable; 10 Unprofitable

Analysis
COLORSCOPE is making money with one group of customers and losing money with ano
ther large group of customers.

Analysis
 Colorscope found that many customers were
unprofitable, and a few customers were responsible for most of the firm's profit
s (80-20 Rule)  On further analysis, it was determined that rework, initiated thr
ough internal defects or by customers, formed a major cost item

Analysis
1. Rework due to change in specifications by customer 2. Quality Control initiat
ed rework of house errors

Analysis
Customer #
Job
Revenue
Material Expenses
Gross Margin Net Profit Net Profit (with error (with rework) demanded rework)2 $
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 4,200 6,100 18,500 10,200 9
,500 9,500 19,700 18,600 16,800 37,000 6,000 4,900 4,100 6,900 7,800 8,800 7,400
16,700 1,400 400 5,900 7,500 2,400 300 9,800 (200) 2 0,200 $ (1,038) $ 936 $ 5,
487 $ 5,193 $ 4,637 $ 4,176 $ 10,163 $ 8,416 $ 7,278 $ (713) $ 975 $ (1,405) $ (
1,512) $ 771 $ 1,958 $ 2,640 $ 1,618 $ 7,275 $ (207) $ (1,427) $ (73) $ 1,210 $
1,112 $ (988) $ 3,464 $ (753) $(21,840) 37,35 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ (4,132) (1,153) 5,487 5,193 4,637 4,176 10,163 8,416 7,278 (
1,655) 975 1,124 887 771 1,958 2,640 417 7,275 (207) (687) (73) 1,210 647 (1,451
) 3,464 (753) (21,840) 37,35
Net Profit (with error rework + demanded rework) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $ $ $ $ (4,132) (1,153) 5,487 5,193 4,637 4,176 10,163 8,416 7,27
8 (2,554) 975 (1,405) (1,512) 771 1,958 2,640 417 7,275 (207) (1,427) (73) 1,210
647 (1,451) 3,464 (753) (21,840) 3 ,765
Net Profit (without any rework)
$
315,200
$
75,000


Customer 10 Customer 10 Customer 10 Customer 11 Customer 11 Customer 12 Customer
12 Customer 12 Customer 12 Customer 13 Customer 14 Customer 14 Customer 14 Cust
omer 14 Customer 14 Customer 15 Customer 15 Customer 16 Customer 16 Customer 16
Customer 17 Customer 17 Customer 18 Customer 19 Customer 19 Customer 10
61001 61002 61003 61101 61102 61201 61202 61203 6120 61301 61 01 61 02 61 03 61
0 61 05 61501 61502 61601 61602 61603 61701 61702 61801 61901 61902 62001 Idle T
ime Capacity
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
9,600 9,600 23,000 12,000 11,000 11,000 23,000 22,000 20,000 50,000 7,800 8,000

8,000 9,000 9,800 11,000 11,000 20,000 2,000 1,400 8,000 10,000 4,000 2,000 12,0
00 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
5,400 3,500 4,500 1,800 1,500 1,500 3,300 3,400 3,200 13,000 1,800 3,100 3,900 2
,100 2,000 2,200 3,600 3,300 600 1,000 2,100 2,500 1,600 1,700 2,200 200
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
(1,038) 936 5,487 5,193 4,637 4,176 10,163 8,416 7,278 186 975 1,124 887 771 1,9
58 2,640 1,618 7,275 (207) (687) (73) 1,210 1,112 (988) 3,464 (753) (21,840) 28,
200

Analysis
NO REWORK
REWORK (Self-Error)
REWORK (On Demand)
REWORK (All Types)

NO REWORK
1. Colorscope has to come up with a new pricing policy, offering discounts propo
rtionate to the number of color images ordered. 1. Client 14 could have been the
4th most profitable customer if we had reduced self-committed errors. Colorscop
e should initiate quality improvement techniques, an incremental change, to limi
t in-house errors. 1. Client 10 could have been the 5th or better customer if we
had charged for repeated revisions. Implement new technology to get great price
advantage. 1. Colorscope can consider additional stock issues or bond issues to
raise funds for making this investment. 2. Alternatively, the management can co
nsider yielding a stake in the company to one of the large printing companies li
ke R.R. Donnelley Sons Co
REDUCE Self-Error
CHARGE Client-Revisions
REWORK (All Types)

Defensive Strategy
1. Colorscope has to learn not to put all eggs in one basket, meaning that it sh
ould not allow one customer account for more than 30% of its business. 2. It sho
uld try to retain the currently profitable clients by providing competitive pric
ing and specialized attention to the clientdeliverable.
Aggressive Strategy
1. Colorscope managers should probably start an aggressive marketing campaign to
recruit new clients

IDLE TIME
1. Colorscope has to change its operation sequence to reduce idle time during as
sembly. Since the company is following a sequential processing of jobs, a high i
dle time for assembly means that scanning is taking lots of time 2. Actually, it
may make no sense to install the technology currently used by rivals if a new t
echnique is in the making. Colorscope can consider purchasing the technology of
the next generation and thus be the first in the new field 1. Colorscope manager
s should probably start some allied service s to leverage the space (if they wou
ld require it in future) or sell the unutilized portion to reduce their overhead
s
IDLE SPACE

THANK YOU
Group #
WMP6004 WMP6005 WMP6007 WMP6008 WMP6009 WMP6012 WMP6015 WMP6052
CD (Group 2)
AKSHAY BANSAL AMIT AGARWAL ANKIT SURI ANKUSH VED ANUBHAV KUMAR JAIN BIKRAMJIT DE
BNATH CHANDER SHEKHAR SIBAL SUROJEET SADHU

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