Costal Climate Supplies Ltd.

(CCS)
From:
Soleman Mancha
To:
Management of Costal Climate Supplies Ltd. (CCS)
Date:
Summary
CCS is facing many challenges related to.
This report is prepared to analyze CCSs current environment and strategic alternatives considered by the
company, namely:
1.
The report recommends that CSS to.
Pursuing these options will achieve goals set of.
It is not recommended that CSS to
Recommendations regarding major operational issues include:
1. Improve decision making process and hire a Board of Directors
2. Issue a Code of Conduct and improve hiring practices
3. Revisit and modify the profit sharing plan
4. Outsource IT system
5. Improve web site for marketing
6. Develop long term risk management strategy
Introduction
The purpose of this report is to address how CCS can best .
To this end, the report includes the following: an internal analysis; analyses of the strategic issues and
alternatives; strategic recommendation; analysis of and recommendations for the operational and
implementation issues; and an action plan for implementing the recommendations.
Internal Analysis
Mission Statement
The mission of CCS to be the premier wholesale supplier in the Canadian HVACR industry, providing
products, service and support to keep Canadian business and homes comfortably cool in spring and
summer and warm in fall and winter.
Vision Statement
Our vision is to be the largest and fastest growing provider of HVACR products and services in Canada,
delivering cost-effective, reliable and environmentally friendly products, providing excellent customer
services, attracting superior staff and making a positive contributing to the communities in which we live
and work.
Goals
Constraints
KSF

Convenient locations
Knowledge staff
High quality products
Timely deliver

Stakeholders preferences
Environmental Scan
An internal and external environmental analysis is provided in Appendix A.
Financial Analysis (Appendix B)
Since 2012, the following trends were observed:
1. Liquidity is decreasing as current liabilities (especially bank line of credit and AP) increased faster
than current assets. However, liquidity is still adequate when compared to industry.
2. Coverage is improving as use of debt decreased while reliance on equity continued to increase.
Coverage is more than adequate when compared to industry.
3. Assets turnover has been declining as less revenue is being generated while assets were
increased and is lower than industry benchmark, indicating that CCS is not as efficient as the
industry in turning its assets (due to high inventory and high AR).
4. Profitability is decreasing as costs of goods sold continues to increase. Gross profit % of CCS is
lower than that of the industry.
5. Return on assets of CCS is higher than that of industry, indicating that CCS is more efficient in
converting investment in assets to net income.
Profitability by Division (Appendix C)
Comparing sales and distribution divisions reveal the following trends:
1. Gross profit and profit margin for distribution sector is higher than those of sales
2. Gross profit and revenue per distribution centre are also higher than those for sales centre
Financing Available (Appendix D)
Alternatives
Recommendations:
It is recommended that
E, F, G, H

Action Plan
Action plan is provided in Appendix I
To mitigate cons of the proposed recommendations:

Change management communication

To ensure successful implementation of the action plan presented, CCS should issue a memo to all staff
outlining the change management approach and defining the new goals of the company to prepare
people for change and develop an environment to support change. Ralph is responsible for implementing
change management communication.
Others
To mitigate cons of weaknesses and threats:

Performance Measurement & Human Resources Issues:

Issue 1: Employees are not happy with the current profit sharing plan (Plan) because it is based 50/50
profit sharing when some branches are less profitable than others. The plan clearly does not clarify what
employees have to do earn their share. It is therefore recommended that Ralph, Marc and Kay to revisit
the plan and to consider the following:
1) Develop a methodology for making individual awards (based on department profit margin %)
2) Use key performance indicators to track performance vs rewards. Ensure monitoring is provided
by mangers and mechanism is in place to report deficiencies
3) Communicate to the employees changes in the plan
CCS should ensure that employees perceive the plan fair and understand that the plan is part of their
compensation (especially when some of the employees were unhappy with wages lower than industry).
However, Mancha should conduct a salary benchmarking and compare the results to CCS salary plus
profit sharing plan benefits. If compensation paid by CCS is lower than that of the industry, salaries should
be adjusted.
Issue 2: Informal decision making as Ralph, Marc and Kay Lewis has no defined roles. It is therefore
recommended that Ralph will be appointed as Chief Executive Officer to whom Marc will report as VP of
Operations and Kay as VP of Finance, HR and Administration. Mancha will report to Kay while Poirier will
report to Marc. Mancha will be responsible of executing this plan. The owners should send a memo to all
employees outlining changes and defining their roles.
Issue 3: Currently all managers at CCS are men. The practice of not hiring women for management
position might be perceived unethical and not aligned with CCSs mission statement of attracting superior
staff. Therefore, it is recommended that Mancha to start a rotation program whereby some of the women
working in administrative positions move to the warehouse and sales to gain familiarity with operations.
When CCS expands its operations, these women should be promoted to department manager level. This
practice will also ensure that CCS will have trained warehouse staff when needed as opposed to hiring
non experienced staff and also reduce the threat of shortage of skilled retail staff.
Issue 4: Sales centres staff have no clear defined roles and this is creating conflict in duties. Sales centre
managers should therefore prepare clear and defined roles and responsibilities for staff. These
responsibilities should be communicated to the staff. The staff could be divided into internal/counter sales
and warehouse, following division of roles used by distribution centres.
Issue 5: Allocating cost of head office to centres (especially after implementing performance monitoring
and tracking) will result in understating these centre profitability and inhibit efficiency. Therefore, Mancha
should consider having head office cost as a separate division in the company instead of allocating it to
sales and warehouse centres.

Governance
Issue 6: CCS has no Board of Directors (BoD) to review company goals, governance and strategic
options. Therefore, it is recommended that the owners will form a BoD and hire an additional industry
expert. The BoD should meet quarterly to review strategic direction of the company.
Issue 7: Ralph should prepare and issue a Code of Conduct to outline company ethical and fair hiring
practices. All employees should receive training on the Code and the company should host questions and
answers session to address any concern.
Financial Reporting
Issue 8: The owners receive internal financial statements in two months after the end of each month
because Mancha prefers to use actuals. This practice is concerning because financial statements should
be made available to make operational and short term investment decisions. These decisions in most
cases cannot be delayed for 2 months. The owners therefore should advise Mancha that financials should
be prepared before end of the month and that forecast should be used for this purpose.
Marketing & IT:
Issue 9: CCS uses limited marketing. The company should use its Website as a tool to market its
products. The Website should provide customers with tools to select and purchase products, background
on managers, updates on the companys activities & community involvement. Mancha and Poirier should
use the internal Web designer to improve the Website.
Issue 10: CCS has an outdated IT system which is expensive to maintain. It is recommended that CCS to
outsource the IT to reduce investment, operation and labour cost. CCS could focus on operating the IT
system instead of managing and maintaining it. Kay is tasked with seeking a company to use to host
CCSs IT systems.
Internal Control:
Issue 11: Part of the company strategy is to maintain large amount of inventory, resulting in increasing
assets and having assets turnover lower than the industry. Although having large quantity and variety of
parts in inventory is considered a current strength, the following actions should be considered to minimize
inventory:
1. Distribution centre managers should ensure all merchandise retuned within warranty are either
shipped to the manufacturer or sold at discount price.
2. Purchasing manager should provide suppliers with long term forecast to reduce order lead time.
3. Ralph should consider entering into EDA with manufacturers to better manage inventory and
returns.
Issue 12: Part of the company strategy is to maintain 60 days receivable, resulting in increasing assets
and having assets turnover lower than the industry. Mancha should negotiate with customers to speed up
collection by offering favourable terms (such as 2% discount for payment with 30 days).
Risk Management:
Issue 13: There is a threat that manufacturers sell to end user directly. CCS should develop a strategic
risk management strategy. Ralph should consider entering into long term contracts with manufacturers or
using EDA. CCS should communicate this risk to its customers and its employees and ensure roles and
responsibilities for risk monitoring are defined.

Action Plan - Appendix I

What
Issue Change
management
communication
Review and modify profit
sharing plan
Conduct salary benchmark
Define owners role
Start a women rotation
program
Define roles and
responsibilities for staff
Consider head office as a
separate reporting division
Form BoD
Prepare and issue code of
conduct
Ensure financials are be
prepared before end of the
month
Improve web site for
marketing
Outsource IT

Who
Ralph

When
Q1 2015

How much saving (cost)

N/A

Ralph, Marc & Kay

Q1 2015

N/A

Mancha
Mancha
Mancha

Q1 2015
Q2 2015
Q3 2015

N/A
N/A
(15,000/ year)

Sales centre managers

Q1 2015

N/A

Mancha

Q1 2015

N/A

Ralph, Marc & Kay

Ralph

Q3 2015
Q3 2015

(5,000/year)
N/A

Mancha

Q1 2015

N/A

Mancha and Poirier

Q3 2015

Kay

Q3 2015

Improve inventory
management

Distribution centre
managers, purchasing
manager and Ralph
Mancha

Q3 2015

10,000/ year increase in

sales
Cost 50,000/ year ;
saving 100,000/ year in
savings (maintenance
and salaries)
N/A

Q3 2015

N/A

Owners and BoD

Q1 2016

N/A

Negotiate with customers

to speed up collection
Develop risk management
strategy
Net saving (costs)

55,000/ year

Financial Forecast
Financial forecast is provided in Appendix H
The results for 2015 are expected to be as follows:
1)
Conclusion
In conclusion, CCS should

Internal and external environmental analysis - Appendix A

Strengths
Locations are accessible by customers
CCS provides after hours emergency assistance
Weaknesses
The company hires warehouse staff with limited experience
Employees unhappy with wages lower than industry
No formal Board of Directors (BoD)
Opportunities
Exclusive distribution agreement provides an opportunity to sell specific products
Increasing consumer understanding for the need for regular professional HVACR maintenance
Threats