Enterprises free essay sample

The budding entrepreneur Sam Marcus along with investor Mr. Walter saw the potential of dynamic growth in Mike’s cabinet making company and purchased a small 25 year old cabinet-making company from its founder 2 year earlier. The company competed in basically two segments, commercial and residential construction markets. Sam envisioned the company to grow to 70 Million in sales by 2007. Though commercial market offered the growth opportunity, the operating cycles were rigid because of bidding process which only has 32 % success ratio. On the other hand, the residential market was small but has the ‘got’ ratio of 70 %. The case raised many interesting facts about the value of the customer for an organization perspective. Blackstone being the biggest customer offered annual sales of about 2. 4 % to CMR, but does this relationship offered any value add to the CMR? In the end Sam Marcus must decide whether to continue this relationship without increasing prices or to increase prices thereby threatening a relationship with CMR’s biggest customer. We will write a custom essay sample on Enterprises or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Relationship with Blackstone: Clearly, initiating a relationship with the Blackstone was a complete strategic fit for the CMR enterprises. CMR wanted to increase its revenue 10 times in coming 10 years by creating a scalable and replicable business model. Blackstone will not only offer CMR high volume of sales but also will give them the strong foothold in the residential market share. More so, with aggressive growth strategy in mind, alliance with the Blackstone will gave CMR an opportunity to standardize its business processes in order to benefit from improved operational efficiencies that comes because of scale of operations. The following calculation specifies quantitative value of relationship of black stone for CMR enterprises. Blackstone contribution towards the CMR for year 1998 Fiscal year 1998 | Revenue| Total Residential | 1596000| Blackstone Contribution| 210314| % of contribution in Residential Segment | 13. 17757| Es CM | 65,344| Though the contribution of the sales given by Blackstone does give a positive contribution margin to the business of $ 65344, but with reference to the detailed calculation mention in the exhibit1, the relationship does hurt the CMR bottom line once the SGamp;A costs were taken into account. The overall effect was negative 3,444 which clearly mean that CMR has lost money on this account. Clearly I believe this wasn’t the case when Sam decided to initiate the relationship with Blackstone. So what went wrong and where for CMR? CMR relationship with Blackstone deteriorated over time because of the multiple implementation difficulties that arises over time. CMR was not able to garner the operational efficiencies which they thought they would be achieving, like for example, homeowners were still visiting showrooms of CMR for which CMR has to have a salesperson available in stores to serve them. Secondly, neither CMR and nor Blackstone was able to limit the involvement of the homeowners in the design phase, which again costs money to CMR. Also, as homeowners were working with many other sub-contractors, it created a project –coordination problem for both CMR and Blackstone, resulting in last minute design changes. Such changes entail last minute workings on manufacturing process and often results in loss of material and increases shop floor time etc. Hence I believe, because of the above mentioned reason, there exists a gap between the budgeted shop floor hours and the actual shop floor hours put in on the job. CMR will be right because they can justify the price increase but from the Blackstone perspective, any increase in price might results in non-conformance of the agreement that existed between CMR and Blackstone. Subsequent to my understanding of the above mentioned problems, mentioned below are some of my recommendations that can help CMR in improving the overall customer value chain. Improve the Operational Efficiency on the shop floor: As evident from the data, CMR was clearly not doing a good job in budgeting shop floor hours put in on the Job. It will be tough to believe that much of 69 % of unfavorable variance shown in exhibit 6 of case can be explained by above mentioned problems. Therefore, my hunch is that either the Project Managers/Design engineers were not making right assumptions about a particular job or it is the workforce who is putting inflated numbers on the shop floor time spent on one particular job. In both the cases, it is project manager’s job to improve the operational efficiency in order to reduce the difference between the actual and the budgeted hours. As evident from the calculation mentioned in the attached exhibit1 , if the revenues are to be calculated only using budgeted hours which means only the budged hours are spent on the Job , CMR can get the positive 16% value add on its EBIT / Revenues. Price based on Actual shop floor hours spent in the Job : Going forward, CMR can change its strategy and can start charging based on actual time spent on the job but such a strategy entails a risk that it will open up their margins to Blackstone which again can beat the prices down. This is the price increase option, but the price increase can be justified to the Blackstone management. Based on my calculation In Exhibit1 (If priced right Colum), using such a strategy will again bring positive contribution margin to CMR enterprises. Improve project coordination: As much of the problems results from poor project coordination, having a strong agreement in place will give both CMR and Blackstone an advantage if the other party fails to deliver on its promise. I recommend the penalty clause in the agreement if any party fails to deliver on its promises. CMR should make the agreement more strong like limiting the no of changes, requiring sufficient time to make changes, and pre budget approvals before initiating any change on the job. Similarly from Blackstone perspective, they can penalize CMR on late delivery or wrongful delivery, qualities issue, etc. By having a risk and reward relationship, the project coordination problems can be improved. CMR can selectively outsource some Jobs to different contractor: If CMR can’t bring in operational efficiency into their company on certain jobs or in fact as a whole, what they can do is to hire a subcontractor who can do the job for them in much less price. Rather than losing a complete business with Blackstone, what they can do is to pick and choose which project they would want to do and leave the rest for their subcontractors. This way they can really optimize their efforts and any risks associated with poor jobs get transferred to other sub-contractors. Increase the Prices: If CMR thinks they are right and believes that their price doesn’t justify the amount of work needed on the particular job, they can go ahead and increase their prices up to the minimum whereby they can make the positive return. As mentioned in the case, the market will follow sooner than later.