For Office Use:

Grade

Communication For Managers

Individual Case Based Written Assignment 1

Case Analysis Report on

SchmidtCo (A)
Submitted By:

Name: Jyoti Nigam

Roll No: 141425
Section: D
Batch: MBA - FT (2015-2017)

Submitted To:

Prof.

Institute of Management, Nirma University

EXECUTIVE SUMMARY:
Word count: 100
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Bob landau is the president of Winston and Holmes (W&H) working in tobacco and mens
accessories shop. Two of his manager approached landau with expansions proposition for
Yorkville location. The Problem statement was to analyze the benefits of the proposed expansion and
customers appreciation with respect to the cost of expansion. In case of expansion, evaluate potential
consequence on the existing business. .To analyze the benefits of proposed expansion with respect

to the cost of expansion, To evaluate customer appreciation of expansion and efforts required to
maximize it.and to prepare list of business consequence of expansion and prepare a plan to
counter it . . Options are No expansion. Expand Yorkville location, consider expanding any other
location

SITUATIONAL ANALYSIS:

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SchmidtCo, was a family owned, Philadelphia based firm in the business of import and
distribution of Automobile replacement parts. It had Annual turn-over of $40Million. It distributed
10,000 SKU of different items having 20 million pieces of shipment in a year. The company had
90 employees distributed in three warehouses. A primary one in Philadelphia and satellite ones
in Los Angles and Mexico city. John Schmidt was the Operations manager of the company
which was founded by his grandfather and further runned by his father.The volume and
complexity of company operation was very high which made its information system backbone of
the operation.
SchmidtCo had decided to replace its 18 year old information system infrastructure with stateof-art one which run under new operating system. But its project to convert the information
system of his auto parts distribution business is in real trouble, putting the company at risk. John
Schmidt, the operation manager, must decide what his decision problem was and set
appropriate objectives as well as create a good set of alternatives from which to choose
Current system is 18 years old unreliable and obsolete. It is not state-of-art with technology and
functionalities of modern company operational needs. It is mainly an inventory management
system which is inadequate to handle the current operation complexity and needs. The vendor
of the original software was out of business. Therefore, firm used an independent consultant to
customize, enhance and maintain the system. This was very costly for the company. There are
severe limitations in two crucial functions- Inventory Management & Purchasing. Systems for
accounting and other aspects operated independently. Although there is minimum
integration with the current system and there are lot of manual works were required to get
information from one system to another.
As the business was expanding fast, there was need for state-of-art system capable for
handling complex and huge volume of operational information process. The new system
expected to integrate all information system in the company and assist in better control of
inventory and other operations .John assembled Selection team of eight managers from
different areas of companies to determine what functions needed SchmidtCo needed from
computer system. The

Decision was taken to implement an ERP (Enterprise Requirement

Planning) system. The new system was proposed by a cross-functional team of 8 managers.
Selection team surveyed for around 3 months and finally selected Dtech system because of its
superior functionality .The new system should have the following modules: Warehousing,
Inventory, Accounting, Purchasing, Sales & Customer Relationship Management. System
should be capable of reduction in overall inventory and improve service level. System was
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expected to give proper information about the timing and size of purchase from the suppliers. As
demand for SKU De fluctuated, information provided the system was crucial for placing and
receiving order.
For Automating of functions would result in reduction of staff by increasing operational
efficiency and reducing manual tasks. It was also expected to improve service level to the
customers.

PROBLEM STATEMENT:
To analyze the benefits of the proposed expansion and customers appreciation with respect to
the cost of expansion. In case of expansion, evaluate potential consequence on the existing
business.

OBJECTIVES:
1.
2.
3.

To analyze the benefits of proposed expansion with respect to the cost of expansion.
To evaluate customer appreciation of expansion and efforts required to maximize it.
To prepare list of business consequence of expansion and prepare a plan to counter it

OPTIONS:
Option 1. No expansion
Option 2. Expand Yorkville location
Option 3. Consider expanding any other location

EVALUATION OF OPTIONS:
1. No expansion
Because if the net increase in income is negative then we should
prefer no expansion.
Pros: If expansion is done it will involve leasing the adjacent unit.
Expanding the basement to increase the size.
Cons: If expansion is not done then size cannot be increase.
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2. Expand Yorkville location

If net increase in income is positive then we should go for option 2
otherwise option 1.
Pros: 1. Expanding Yorkville location would led to increase in
income.

Cons: 1. If net increase in net income is negative then it should not be

expanded .
3. Consider expanding any other location:
For this we should do cost benefit analysis if we want to expand
option 3.
Pros: if we get benefited from cost analysis then we must expand
location
Cons:

1. If we having negative impact of income then should not

expand it.

RECOMMENDATION:

by compare Step 1 and Step 6.

And we should see how many years will it take for income to pay off for the cost of expansion.
If there is increase in income, we should go ahead and expand.
If our income remains constant or falls down, we should not expand.
Thus it is recommended on the above basis one should take decision.

ACTION PLAN:
1. Expand Yorkville location
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2. No expansion

CONTINGENCY PLAN:

If the net income having positive impact then we

should expand the location .we should also perform cost benefit analysis.
Report Exhibit 1:
Exhibit -1
Approach followed:
Step 1. We will first calculate the total cost associated with the projects.
Step 2: We will then calculate the total increase in sales expected from the project which will give us net
revenue after expansion.
Step 3: We will then evaluated the cost of sales. (After expansion).
Step 4: We will subtract the cost of sales from revenue to get the profit numbers.
Step 5: We will then see how many years it will take to pay for the cost of expansion.

Step :1 Net Cost associated with the

Money (in dollars.)

Expansion project.
Total cost of expansion
Cost of management time required to

$ 5475,000
$ 1,100,000

take care of expansion

Cost already incurred in researching

$ 35,000

the expansion plan

Cost of the planned launched party.
Consistency construction budget

$ 50,000
$ 100,000

total cost till expansion uptill here

$ 6760000
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Step :2 Expected increase in sales

share of this location in total sales=

= 58 %

total sales for 1996 ,

= $ 5,100,841

share of Yorkville location

= 58 % of $ 5,100,841 =

Expected increase in sales of 1 years

$2,958,487.78
= 50 % of $ 2.958,487.78

( Expected increase is between 45 and

= 1,479,243.89

st

65 so we will consider its average

here )
Sales after end of 1 year

= $ 1,479,243,.89( increase in sales) +

$ 2,958,487.78( share of York ville
location) + $2142353.22( sales from

Expected increase for next 3 years

other location ) = $ 6,580,084

= 15 % to 20 % of total sale
compounded for each year = (Total

Expected increase after that =

sales) $ 6,580,084
2 % of 6 years = 2 % compounded on
total sales for 6 years.

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Step 3: Cost of sales.

Gross Profit % for 1996 = (gross profit/ cost of goods sold) * 100

Basically multiplying the percentage with sales figure in $ from step 2

Y axis: Gros profit % * Sales for each year.
X axis: year from 1996 to 2006

Increase in the expenses.

Advertisement in 1996

= 185,502.

Expected advertisement cost in 1st year (50%) = 278253

Advertising budget from 2nd year onwards = 10 % of increase budget. = 10 % of 92751 = 9275.1
Advertisement budget from 3rd year to 10 year = 9275.1

Step :4
Calculating the net income for the year.
Net income for any year will be equal to = gross profit for that year - expense for that year.

Step 5: To evaluate increase in income because of expansion.

our income will remain same if we don't expand, so subtract 1996's income from net income from step to
evaluate net increase in income.

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Page 10 of 11

UNDERTAKING:
To Whom It May Concern:
I, Jyoti Nigam, hereby declare that this assignment is my original work and is not copied from
anyone/anywhere. If found similar with sources, I take complete responsibility of action taken
thereof by WAC team.

Signature
NAME: Jyoti Nigam
ROLL NO: 141425
SECTION: D

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