Allied Office Products

MCS Assignment -1
Group A1
Hemang Chauhan (P40015)
Narendra S. P. (P40086)
Veena Priya Lakshami V (P40106)

Date – 13 November 2020

Brief about the Case:
In 1988, Allied Office Products, company specialized in making business forms and specialty
paper products, launched “Total Forms Control” (TFC) programme for its corporate clients as
a value added service. It stablished a separate company within their business forms division
to handle TFC’s sales. Services provided by TFC included warehousing and distribution of
forms (including inventory financing) as well as inventory control and forms usage reporting
to its clients. As part of their services, Allied also offered “pick pack” and “desk top
delivery”. They charge a fixed 32.2% of product cost to client for their warehousing and
distribution services, irrespective of the services provided.

Central Point of the Case:

TFC’s declining profitability and very less ROI of 6%, set off the evaluation of the current
activities and the distribution charges. Various activities contributing to the cost and the
profits are analysed to understand the gaps. This includes the analysis of control systems and
the tools used such as the revenue models and the pricing methods and rejigging the same to
improve profitability.

Control Systems Discussed in the Case:

Purchase Control System is used for the purchase of paper from Allied by TFC and the tool
used is transfer pricing at fair market Value. The standard product price is marked up with
32.2% for the service costs and 20% for margins. TFC charges uniform margins across all its
clients. Here, the uniform pricing system is the control system and the tool used is the mark-
up pricing or cost-plus pricing. The management then decided to shift to Service Based
Pricing which acts as a control system and the margins across different revenue slabs acts as
the tool. The case mentions about the Inventory control systems and tools used can be better
aisle management, leasing programs and charging the client for dormant inventory. The case
also indicates the use of depreciation in the calculation of costs. Hence consistency principle
acts control system and WDV or SLM acts as the tool.

Learning from the case:

Given Allied is a service providing firm, their contribution is not directly proportionally to
product cost. Rather it is based on services provided against each account. Therefore they
should charge based on service provided to each client as opposed to being based on product
cost. The two accounts A and B had similar size, but had different level of service and so
based on the above reasoning, both would be charge differently. Service Based Pricing like
this will help Allied to differentiate the accounts that they should concentrate to improve
profitability.