RFF AND SWOT

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Year13ReflectionandSWOT.docx

Year 13 Reflection

Note: This year we took a more aggressive approach to try to overtake Company A and B with the following decisions.

1. Compensation and Training

· Decision: We raised base wages and supervisor pay 1% in NA and AP. Incentive pay is $0.50 NA and $0.25 AP. Fringe benefits are 2,500 NA and 1,250 AP. Best practices training is 800 in each plant, and supervisors are at 30:1.

· Results: Workforce quality and productivity support the higher S/Q, at a modest labor-cost increase.

· Cause: Better pay, training and supervision raise output and quality and cut rejects (NA 6.5%, AP 8.4%), which offsets the added cost.

2. Branded Production

· Decision: We run 400 models, $22k styling, $3.50 TQM and about 70% (NA) and 80% (AP) superior materials. We produce 5,470 pairs in NA and 5,900 in AP.

· Results: Projected S/Q is 6.9 NA and 7.0 AP, against rivals' assumed 5.5 to 5.6. Supply covers demand in all four regions.

· Cause: We invested in quality, style and materials to justify premium prices and win share. Production is sized to forecast demand plus required inventory.

3. Production Facilities

· Decision: We chose Option B improvements in NA and AP, and added 750 (NA) and 1,000 (AP) pairs of new equipment.

· Results: Capacity, with overtime, covers the production plan with a small surplus.

· Cause: The quality and ad push raised demand, and the extra capacity was needed to avoid a shortfall.

4. Distribution and Warehouse

· Decision: The NA plant ships 2,941 to NA and 2,173 to EA. The AP plant ships 574 to EA, 2,186 to AP and 2,644 to LA.

· Results: Every region is supplied, with 0 pairs unallocated.

· Cause: Shipping from the nearest plant keeps freight and tariff costs down. Shipping to LA from AP is about 19% cheaper because of exchange rates.

5. Internet Marketing

· Decision: Retail prices are NA 86, EA 88, AP 82 and LA 87. Search ads are 5,500 / 5,500 / 4,500 / 4,500, with no free shipping.

· Results: Internet sales stay profitable at premium prices.

· Cause: Our quality lead lets us price above rivals' assumed $71 to $79 while search ads keep us visible.

6. Wholesale Marketing

· Decision: Wholesale prices are 63 / 66 / 63 / 65. Brand ads are 22,000 / 17,000 / 19,000 / 18,000. The rebate is $4 and delivery is 3 weeks. Retailer support is 4,500 / 4,000 / 3,500 / 4,000.

· Results: Projected wholesale share is 28.1% NA, 28.4% EA, 27.5% AP and 32.5% LA, with image at 85.

· Cause: Heavy advertising and retailer support, plus quality, outweigh our higher prices. They also push image above the 72 target.

7. Private-Label

· Decision: We offered no private-label pairs.

· Results: All capacity goes to higher-margin branded pairs.

· Cause: Private-label margins are lower and would compete with our branded sales for the same pairs.

8. Celebrity Endorsements

· Decision: We bid Billy 2,000 (priority 1), Chef Curry 1,000 (priority 2) and Taylor 1,300 (priority 3), with a 3,500 spending cap. (Confirm the Chef Curry bid is entered.)

· Results: The outcome depends on whether we win; the effect on image and demand likely starts in Y14.

· Cause: Billy has high appeal in NA, and Chef Curry is strongest in LA, where we already have our biggest share.

9. Corporate Citizenship

· Decision: We spent about $4.3M, with no charitable contributions.

· Results: It supports image at a controlled cost.

· Cause: We focused spending on sales-driving image levers rather than donations.

10. Finance and Cash Flow

· Decision: We took a $40M 5-year loan, set the dividend at $1.50 and repurchased 626 shares.

· Results: EPS $8.27, ROE 57.9%, credit rating A, net profit $154.9M on $827.4M of revenue, and ending cash $25.8M.

· Cause: The dividend and buybacks support the stock price and ROE. Operating profit comes from premium prices and quality. About $1.65 of EPS is a one-time exchange-rate gain in LA, and cash is only about $5.8M above the $20M floor.

Year 13 SWOT Analysis

Strengths

· Profitability: Projected EPS $8.27 and ROE 57.9%, far above the 3.50 and 23% targets.

· Quality: Projected S/Q of 6.9 (NA) and 7.0 (AP), against rivals' assumed 5.5 to 5.6.

· Brand: Image of 85 versus a target of 72, backed by the heaviest brand advertising and retailer support in the industry.

· Balance sheet: Credit rating A, debt-to-assets 0.31 and interest coverage 27.8.

· Supply: All four regions are supplied, with 0 pairs left unallocated.

· Workforce: Higher pay, incentives and best practices training raise productivity and cut rejects.

Weaknesses

· Thin cash: Ending cash of $25.8M is only about $5.8M above the $20M floor, so a sales shortfall could force borrowing.

· One-time earnings: About $1.65 of EPS comes from LA exchange-rate gains, which are not operational.

· High costs: Heavy advertising, premium materials and TQM spending squeeze margins.

· Reject rates: AP at 8.4% and NA at 6.5% add waste.

· Image gap: Our 85 trails the best rival's 87 by about 2 points.

· Leverage: The $40M loan and buybacks inflate ROE and add interest cost.

Opportunities

· Celebrities: Chef Curry is strong in LA (appeal 100) and Billy in NA (100), and the effects likely start in Y14.

· Credit: Moving from A to A+ would add about 1 point of score.

· Share gains: We can take more share in regions where rivals cut ads or quality.

· Quality lead: It lets us hold premium prices even if rivals cut theirs.

· Capacity: The new equipment gives room to meet higher demand in Y14.

Threats

· Rival improvement: Blueprint Athletics (G-T-D 108) and AKinetix Footwear (105) are expected to improve in Y13.

· Exchange rates: The LA gain may reverse when rates reset in Y14.

· Price and ad wars: Rivals could cut wholesale prices, raise rebates or boost brand advertising.

· Weaker sales: Sales 5% below plan would squeeze cash, and surplus inventory would add carrying costs.

· Celebrity risk: A rival could win Billy, and Taylor and Chef Curry bids may fail.

· Stock price cap: The BSG simulation credit for stock price stops at $91, so extra price gains add nothing.