Running head: 2018 AND 2019 ANNUAL REPORT 1

BALDWIN SENSORS, INC

2018 And 2019 Annual Report

Prepared By:

CAPS 794
Davenport University
Dr. Young
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Table Of Contents

Introduction 3
Mission Statement 3-4
Research and Development 4-6
Marketing 6-8
Production 8-11
Financial Report 11-13
A Look to the Future 13
References 14-15

Introduction

From the inception of Baldwin Sensors, Inc., our goal has been to set ourselves apart

from the other competitors and create sensors that are exactly what our customers’ demand. In

doing this we will create the type of brand loyalty that is necessary to drive this organization into
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the future. Baldwin Sensors, Inc. will strive to accomplish this by offering high quality products

at affordable prices to our customer base.

Due to the government split up of the sensor monopoly into five equal companies, we at

Baldwin Sensors, Inc. needed to devise a strategy using strategic analysis to see where we could

best position ourselves in this new competitive pool. We based our strategy on our review of

product demands and expected growth rates. After reviewing the data, Baldwin Sensors, Inc.

decided to position ourselves as a niche differentiator. The niche differentiator strategy is one

where the organization targets a specific consumer or range of consumers that can appreciate an

excellent product and do not mind paying the extra premium for such a product (Agrawal, 2016).

In the case of Baldwin Sensors, Inc., the niche differentiator strategy would have us place our

focus on high tech sensors market, which includes the high-end design, performance design, and

small size design. Though, our focus would be within these markets, we also decided to keep a

presence in the traditional and low-end sensor markets and not completely abandon those sectors.

Mission Statement

We cannot overlook the importance of a mission statement. According to Leuthesser and

Kohli (2015), the mission statement defines our organization and identifies the scope of our

operations in terms of our products and target markets. The mission statements lets our

stakeholders know how we intend to stand out and set ourselves apart from our competitors.

The mission of Baldwin Sensors, Inc. is to provide our customers within the sensor

industry with high tech, high performing and small sized sensors that are both reliable and

competitively priced. The production and R & D of our sensors will be according to the latest

established market research to make sure they exceed the customers’ needs and expectations.

Research and Development

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The research and development, also known as R&D, phase in an organization is

extremely important in that it can set the company on a path to success or failure depending on

how the products are received. The designing and development of new products can be a

fundamental factor in an organization’s success. Many industries change rapidly and it is

necessary for organizations to continually revise their designs and introduce new products

(Griffin, 1997). R&D can be conducted within the organization or it can be outsourced to a

contracted partner. It relies heavily on predicting consumer interest via market research and

consumer feedback.

The market research includes statistics such as the current industry conditions and the

level of competition that exists at the time. A percentage of the revenues are invested R&D and

varies depending on the type of organization. The more technological a company, the greater the

revenue percentage is utilized. With Baldwin, the strategy was to invest a small amount in R&D

in order to slowly gain market share as well as get the products out to the public as quickly as

possible. The goal was to alter enough to be competitive but in smaller leaps in order to be able

to produce the necessary inventory. The data analysis, based on market research and how past

products have fared, allowed Baldwin to see what consumers preferred. The products being sold

fell into a number of categories and the customer buying criteria changed depending on the

category.

Baker falls in the traditional segment with consumers placing greater importance

on the age of the product, the ideal age being 2.0 years. Bead, found in the low-end market

segment, with consumers placing greatest weight on the price of the product, expectations fell

between $15.00 and $25.00. Bid is part of the high-end market with consumers expecting ideal

performance and size in comparison to the competitors. At the initial round, performance was
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ideal at 8.9 and size was optimal at 11.1. The fourth product Bold is geared towards the

performance market with reliability being at the forefront of consumer expectations, MTBF

(mean time before failure) expectations were 22,000-27,000 hours with ideal position being the

second important factor. The last product, Buddy, was of the size market with ideal position

being the most important consumer factor; performance was ideal at 4.0 and size at 10.6.

During the first round, the strategy was to invest in the products that needed to be

tailored to be competitive. From strategizing, only four of the five products needed to be changed

during the R&D phase in order to fulfill consumer expectations. The size for Bead was changed

to 3.0, Bid was changed to 8.6, with performance to be adjusted to 11.1, Buddy saw a

performance improvement to 10.8 and finally Bold MTBF was increased to 26,000. MTBF is not

changed drastically because of the heavy costs associated with improvements to that specific.

Baker was not improved at this time because it fell within range of consumer expectations and

Baldwin expectations for the product were that it would sell well without improvements in R&D.

At the conclusion of 2018, Baldwin inventory had sold out however the market share for each

product was less than the competition.

For 2019, the market research exhibited the new parameters in which consumer

expectations fell in and similar efforts were made to bring current parameters to meet or nearly

meet the consumer expectations. Revenue was used in order to improve Baker this year in order

to maintain its competitiveness in the market. Bid was further improved as well to bring it closer

to consumer expectations in order to grab more of a market share. Buddy was slightly improved

in terms of performance to be able to stay competitive as well. Bead was not improved due to its

current specifications falling within or near the consumer expectations.

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We then passed the R&D changes made each year to the Marketing department so they

could find the right avenues to get our products into the consumers hand more readily than our

competitors could.

Marketing

Working on the marketing section of Baldwin Sensors, Inc. was an enjoyable experience

for 2018 and 2019. We immediately identified our strategy as Niche Differentiator (High

Technology) and made every decision with that in mind. A Niche Differentiator strategy focuses

on the high technology segments (High End, Performance and Size). The company will gain a

competitive advantage by distinguishing its products with an excellent design, high awareness,

easy accessibility (Team member guide, 2017). We knew that we had to make improvements as

well as enhancements on the products that we were looking to promote the most so we decided

to do some environmental forecasting. We understood from the data analysis that the more we

altered the product the longer it would take to reach the market, so we only made minor

specifications in the R&D area.

Once we moved on to the Marketing section we decided to focus on three products; Bid

(high), Bold (PFMN) and Buddy (Size). We decided to only increase the prices with these three

products because we made enhancements in R&D. Subsequently, we wanted to give the

customer a better product so we raised the price to increase the Brand recognition of these three

products. Our goal was to build strong brand identification by using a Product Differentiation

Strategy. A Product Differentiation strategy creates a barrier to entry by forcing entrants to spend

heavily to overcome existing customer loyalties (Dess, McNamara, Eisner, 2016). By

implementing this strategy, our objective was to make our rival; Andrews spend heavily to

overcome our brand loyalty while also making a name for ourselves in the industry. We likened
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it to Apple and Android; Apple is known to most as a prestigious brand (Apple, p.C117).

Consumers spend hundreds of dollars on their product, and in turn receive an exceptional

product with above average features and more resources for games, storage, media options and

the like. Apple has built a solid reputation and the numbers prove it. Consequently, any company

that is in competition with Apple will have to overcome many barriers to stand side by side to

Apple. This was our same philosophy. In the beginning of the competition, we all had the same

amount of market share, by the end of Round 1 we held 15% of the market share, beating out

Andrews at only 11%. Both Bold and Buddy came in second at 19% and 18% consecutively

gaining a large part of the market share. Though it was a competitive environment, we

understood that there would be intense rivalry so we integrated a few tactics from the book that

we believed would assist us in gaining a competitive advantage.

Pricing

We increased the price of Bid, Bold and Buddy by $2 per product. We did this to

essentially develop a brand reputation. We wanted our sensors to be recognize as high quality,

technologically advanced sensors. For Baker (Traditional) and Bead (Low) we dropped the

prices by $1. We decided this was best because we did not make any major Research and

development changes, and subsequently decided that since we were not pouring money into the

product it did not make sense to keep our price at the top of the pricing scale.

Sales and Promotion

For these two sections, again we implemented our Niche differentiator strategy. We

increased Bid, Bold and Buddy and decreased our two other products. While Bid, Bold and

Buddy benefitted from having 1400 apiece in promo and 2100 in sales, their accessibility and
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customer awareness increased as well. Bid held the highest number in 2018, for customer

awareness, and tied with one of our competitors for highest in accessibility. It is believed that

two factors that prevented us from having the highest market share in the High-end segment; 1.)

Not forecasting enough sensors to sell 2.) Having the highest price point at $40.00. In 2019, Bid

continued at the same price point and customer awareness increased, market share increased, but

despite our best efforts, we did not totally dominate the high performance area. Bold dropped a

percentage in market share but still had the highest customer accessibility as well as high

customer awareness. One thing rang true throughout our first two years, we made sure that each

one of our products maintained a strong level of sales and marketing. Being in such a

competitive market, we had to ensure that we could overcome the threat of new products being

created, the price differentiation of our competition and what tactics Andrews would use to lure

our customer base away from us.

We took the marketing information to Production so they would be able to adjust the

production schedule accordingly.

Production

The monopoly break up was at the end of 2017 so at this time all five sensor companies

were equally positioned within the sensor market. We based our production for 2018 and 2019

on established market analytics, which allowed us to make as accurate forecasts as possible,

though we are unable to account for all market variables and consumer habits.

A bottom-up forecasting equation used by our Marketing team guided our production

facility. This is a data heavy method whose accuracy depends on the reliability of customer input

divides the market into sectors and then determines the demand for each product (Drechsel &

Scheufele, 2013). The formula used for forecasting was as follows:

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Sales Forecast = [(Total Sales * Growth) + Total Sales] * Baldwin’s Market Share

Baldwin used the above formula from Drechsel & Scheufele (2013) in 2018 and 2019 to

calculate our sales forecasts for each sensor sector. We also had to factor in any current

inventory as well as an agreed upon unit buffer in hopes to keep a small amount of inventory in

stock and not sell out causing us to lose potential sales.

To start 2018 we had an inventory of 189,000 Baker sensors, 39,000 Bead sensors,

40,000 Bid sensors, 78,000 Bold sensors, and 62,000 Buddy sensors. We used our bottom-up

forecasting, but we were worried about over production and sales so we went more conservative

on production for our first year and we ordered the production of 850,000 Baker sensors,

1,725,000 Bead sensors, 425,000 Bid sensors, 376,000 Bold sensors, and 350,000 Buddy

sensors. During this first year we also increased the plant automation of the Bead sensor from 4

to 6 (maximum is 10) so that we could offer that sensor at a more competitive price, the

following year, since increasing automation will decrease labor costs (Anderson, 2016). We

opted not to change our production capacity in 2018 or 2019; we wanted a couple years to see

how our strategy pans out. For 2018, we underutilized our plant capacity running from 47% to

62% for all, but one sensor (Bead) where we ran at 122% capacity causing us to utilize our

second shift employees to pick up the extra 22% production. As for our sales, at the end of 2018

we sold 894,000 Baker sensors, 1,747,000 Bead sensors, 461,000 Bid sensors, 450,000 Bold

sensors, and 405,000 Buddy sensors. With those numbers, it meant we had completely sold out

of the Bead, Bid, and Bold sensors.

At the start of 2019 we had 137,000 units of the Baker sensors left from the prior year

and only 4000 Buddy sensors left in inventory all other brands of our sensors were sold out. We

used the same bottom-up forecasting, but this time we were more aggressive with production and
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wanted to make sure, we did not lose sells to our competitors for under producing. For 2019, we

ordered the production of 871,000 Baker sensors, 2,100,000 Bead sensors, 900,000 Bid sensors,

600,000 Bold sensors, and 600,000 Buddy sensors. This year we utilized more of our factory’s

capacity and ran Bid, Bold, and Buddy, our target consumer groups, at 99% capacity. We ran

Bead at 149% capacity, utilizing our second shift employees to produce the extra 49% and we

ran Baker at only 48% capacity as that is what fit with our forecast and we did not want to

severely overproduce, since we were worried about inventory storage costs and depreciation. As

for our sales, at the end of 2019 we sold 999,000 Baker sensors, 2,079,000 Bead sensors,

673,000 Bid sensors, 484,000 Bold sensors, and 377,000 Buddy sensors. With those numbers, it

meant we had completely sold out of Baker and Bead and we had a small inventory of Bid, Bold,

and Buddy sensors. We opted not to make any plant upgrades in automation or capacity this

year.

We could improve our forecasting process with regards to how many units we would like

to have as a buffer, though the bottom-up method worked well leaving us slightly

underestimating sales in the traditional and low-end sectors, even with our 200,000 unit buffer.

The bottom-up approach was right on the mark with our main target high-tech sectors, leaving us

with our 200,000 unit buffer or just slightly less. As for the years to come we will closely

monitor the markets with the same data analytics we used these past two years and make

adjustments in forecasting and production as necessary. Now that we have two years behind us,

we will look to make more plant improvements in the future to further bring our costs down and

allowing us to pass some of these savings on to the consumer.

After having R&D, Marketing and Production submit their expenditures it was up to our

financial department to make sure we would have the cash to carry out our plans.
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Financial Report

“Understanding how to generate cash in relationship to your business’ time horizon is

essential to survival.” (Nykiel, 2011, paragraph 10). The best way to generate requires

developing a concept, at the beginning of 2018; Baldwin had a positive cash position with a net

cash amount of $3.3 million. This indicated that Baldwin’s overall liquidity was good and that

the company had assets that could be quickly converted to cash if needed. In addition, the

positive cash position indicated that Baldwin had enough cash to cover its debts. However, after

a thorough review of Baldwin's overall financial status, we discovered that the company had

more liabilities than cash.

After a review of the 2017 report, Baldwin decided that the company needed to increase

its cash position in an effort to offset its liabilities and increase its capital. Being that the

operating cash flow is often time used to determine the health of a company (Keythman, n.d.),

Baldwin focused on increasing its net operating cash. Financial executives at Baldwin came up

with a strategy to increase the net operating cash by issuing stock and borrowing long-term debt.

Executives made the decision to refrain from borrowing current/short-term debt in 2018 because

it would have to be repaid within the year. Baldwin’s overall financial goal in 2018 was to

increase its net cash position from $3.3 million to about $8 million in order to have a “financial

cushion” which would reduce the company’s chances of going into the red and requiring an

emergency loan from the bank as well as increase its stock price. Financial executives for

Baldwin decided to issue $5 million in stock to improve its overall cash position however, due to

external forces beyond the company’s control; Baldwin was forced to submit their decisions

before making other necessary changes to the financial area.

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The financial results of 2018 were better than expected; Baldwin began 2019 with net

operating cash of about $14.6 million, an increase of $11.3 million. The company decided that in

2019, it would be best to continue with the strategy of increasing its market share in both the

traditional and performance markets. Executives at Baldwin believed that both the high and

traditional markets were profitable for the company, which helped to increase its net operating

cash in 2018.

According to an article published on Forbes website, operating cash flow is the greatest

indicator of financial health for investors and the lifeline of a company (Wayman, 2010). Many

investors use operating cash flow as a guide because they believe operating cash flow is a better

indicator of financial health for two reasons. First, cash flow is harder to manipulate under

GAAP than net income and secondly “cash is king” and when a company does not generate cash

over a long term, it will eventually meet its demise (Wayman, 2010). Therefore, Baldwin

decided to focus on increasing its net operating cash once again in an effort to strengthen the

financial health of the company. In 2018, Baldwin’s financial goals were to increase sales, keep

its leverage low, increase its return on assets, return on equity, and increase profits, all of which

helps to increase net cash operations.

In order to achieve these goals, executives decided to focus more on cash management.

Baldwin invested more money into research and development and marketing as well as increased

its variable cost by about $9 million dollars. Financial executives also decided to borrow $6.2

million in short term debt as a safety net to cover the increase that were made in variable costs

and SGA in case the sales for that round were lower than forecasted. The financial investments

made in these areas in 2018 were positive. Baldwin saw an increase in sales of about $17.8

million dollars and profit sharing increased significantly. Stock price increased $4.81 per share
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also, net income increased by about $6 million. Baldwin has had two financially successful years

thus far, which indicates that the company will continue to have financial health if cash flows are

managed correctly. Baldwin plans to continue to make increasing its net operating cash and

profits the main goals, which will be done through proper cash management and investments.

A Look to the Future

With our first two years behind us we are going to continue to build off of our original

strategy, niche differentiator, and continue to attack the market with cutting edge, reliable and

competitively priced sensors. Should market conditions change we are prepared to shift our focus

and exceed the new demands set forth by our customers. We will stay true to our mission and

keep towards our financial goals.

References

Agrawal, H. O. (2016). An Approach to Business Strategy. Handbook of Research on

Promotional Strategies and Consumer Influence in the Service Sector, 154-182.

Anderson, J. (2016). The high-speed trend: automating manufacturing processes with high-speed
2018 AND 2019 ANNUAL REPORT 14

3-D vision improves quality and drives down costs. Quality, 55(3).

Dess, G., McNamara, G., & Eisner, A. (2016). Strategic management: text and cases. New York,

NY: McGraw-Hill Education.

Drechsel, K., & Scheufele, R. (2013). Bottom-up or direct? Forecasting German GDP in a data-

rich environment (No. 7/2013). IWH Discussion Papers.

Griffin, A. (1997). The effect of project and process characteristics on product development

cycle time. JMR, Journal of Marketing Research, 34(1), 24-35. Retrieved from

http://search.proquest.com.proxy.davenport.edu/docview/235212435?accountid=40195

Keythman, B. (n.d.). What Are Healthy Signs in the Cash Flow Statement? Retrieved June 1,

2017, from Chron website: http://smallbusiness.chron.com/healthy-signs-cash-flow-

statement-37344.html 

Leuthesser, L., & Kohli, C. (2015). Mission Statements and Corporate Identity. In Proceedings

of the 1996 Academy of Marketing Science (AMS) Annual Conference (pp. 145-148).

Springer International Publishing.

Nykiel, R. A. (2011, June 17). Matching financial strategies with your business goals. Retrieved

June 1, 2017, from BDN Maine website: http://bangordailynews.com/2011/06/17/

business/matching-financial-strategies-with-your-business-goals/

Wayman, R. (2010, October 7). Operating Cash Flow: Better Than Net Income? Retrieved June

1, 2017 from Forbes website: https://www.forbes.com/sites/investopedia/ 

2010/10/07/operating-cash-flow-better-than-net-income/#4d358090fd8a