1. Introduction
Portfolio Display, established in 1985, is a display and advertising products manufacturer, and started out supplying to car dealerships. Over the past ten years the company has diversified mainly due to the internet and we now supply products into other markets. We are a small family business employing sixteen staff with an expected turnover this year of £1.5 million. As part of a large product portfolio we sell high volumes of car top roof display products to the motor trade, the main product being a magnetic car top base that can display a printed advertising panel. We were buying this injection moulded product from a competitor until we came across a make or buy decision. At the time profit margins were tight and sometimes we would struggle with supply due to the manufacturer having no stock. We eventually decided to improve the design of the product and invest in making our own. This was mainly to increase our profit margin and our value proposition. We designed the shape in-house and took the drawings to a local manufacturer with injection moulding capabilities. The tooling was going to be expensive but the manufacturer agreed on a joint venture and paid half the tooling costs. We have now sold this product for one year and I have identified the potential to sell this product in America. Our previous supplier has gone into liquidation and had only targeted sales within Europe. Recently we have had a distributor in America take an initial order and they are very keen to sell a lot more. There are two very large distributors of auto display products based in Michigan who are very interested in our product. However I propose to contact the car manufacturers direct and sell directly to them and cut out the middle- man. Our own tooling and injection moulding could be carried out in the same region.
2.1. Servitization
Goedkoop 1999, discusses how services can be integrated into the product offering.
I looked into how we could imply a service with our product. For example; if we supplied the “Rallye” base at cost and then offered a service to look after the print of the panels which slot inside the base. I think this could cause cash flow problems and monitoring the print of the panels would be difficult. I considered renting the “Rallye” bases out but when taking into consideration the cost of the base in relationship to the profit margin involved in selling a car, the costs are minimal. I think the price of the product is too low to attract a business model derived from servitisation.
2.2. Modularity
According to Gershenson and Prasad 1997a, 1997b modularity arises from the decomposition of a product into subassemblies and components. This can be helpful if other products can be made from similar parts. Modularity can help reduce costs by acquiring off the shelf parts. At the time modularity wasn’t considered, as the “Rallye” base was made fit for a purpose. There is one part which potentially could be used in the making of a new product, and that is the magnet assembly. Investment has been made into the tooling to produce the magnets to a certain size and specification. There is a competitive advantage to be had by none of the components being sourced from components available to third parties. Each component has been made fit for purpose. As more products are launched under the “Rallye” brand we will look at how modularity can be used to reduce costs.
2.3. E-Business
Our website has the capability to take orders electronically twenty four hours a day, seven days a week. We would optimise our dot com website to suit the American culture and style. According to the WDI database 72.9% of the population in America used the internet in 2007. Orders can also be received by e-mail and processed via Sage 200 and monitored by the dedicated customer relationship manager software. Our e-business model has cut costs by eliminating sales representatives and cutting down on marketing expenditure. Cagliano et al (2005, page 152) describes the purchasing function in today’s world and explains that “the role of purchasing has evolved dramatically in the recent past…”purchasing is more relevant than in the past, to the point of achieving strategic importance”. I agree with Cagliano, all our purchasing is done electronically which helps to cut costs. I wouldn’t say we have a strict lean manufacturing policy but we try to minimise waste as much as possible. We forecast our sales and purchase enough stock to last three to four months, this helps us to achieve economies of scale and reduce costs by buying in bulk.
3.0. Our proposed business model using Osterwalder’s nine building blocks
3.1. Value Proposition
Our value proposition is to offer a new product to the American motor trade used for advertising. This product is called the “Rallye” magnetic car top base. The “Rallye” base is injection moulded from ABS and has two rubber coated magnets attached to the bottom to enable it to be attached to car roofs. The top of the base can display a panel which slots into a spring loaded slot to enable the panel to sway in the wind. The base has been wind tunnel tested and stronger magnets have been developed to take a bigger display panel. The ability to take a large display panel is aimed at the American market, due to the size of some popular vehicles. America’s popular Sports Utility Vehicles used to be highly popular. These are now in decline mainly due to rising fuel prices with the recent demise of Hummer according to BBC news. The panels, which can be customised to suit the dealer, could be bundled or un-bundled with the “Rallye” base. This will create extra value for the distributor because it provides them with a decision to make or buy the printed panels. The distributor can add their own value by arranging the artwork and print to the panel. To the end user however bundling the printed panel and the base together could provide them with a cost saving. The design of the product will help to add value, the sleek shape will help compliment the body lines of today’s modern car and also help to reduce drag while sat stationary in windy weather. The practicality of the “Rallye” base design ensures the base can be placed or removed easily using the handles incorporated. We have created a registered trademark for the “Rallye” base to add value by creating a brand and in the future more products will be launched under the “Rallye” trademark.
3.2. Identifying Potential Customers (Customer Segments)
I have identified a niche market for the “Rallye” base. Potential customers include selling on to car manufacturer’s directly. The three biggest car manufacturers in America are General Motors, Ford Motor Group and Chrysler. We could make the “Rallye” to order, this would help to reduce our stock levels and ease cash flow. The car manufacturer would then sell them onto the car dealerships. Another option is to sell the “Rallye” to distributors of automotive sales aids to add to their portfolio. However the control of how the product is then marketed and sold would be out of our control. We could contact new and used car dealerships directly but the volumes would be too low to manufacture them to order and we then would have to carry large stocks.
Car companies sold 13.2 million cars in 2008 in the U.S. according to BBC News and sales for 2009 were expected to drop around 10.5 million. Although China has seen the largest sale of vehicles in 2009 of around 13 million the U.S. seems more accessible to sell our product on a large scale. This is mainly due to ease of communication and greater cultural similarities than China. Due to a decline in car sales in America I think car dealers need to speculate more to attract potential new customers. Our product will help to promote special offers, benefits and corporate branding as there is nothing in America like it. Exporting to the US from the UK is favourable at the moment. The US dollar is strong at the moment according to BBC Money March 2010 the rate is 1.5 dollars to the pound. The exchange rate would help sell greater volumes in America.
3.3. Distribution Channels
Osterwalder 2009 explains there are five distinct channel phases:
3.3.1. Awareness
To get our product into America we would build a relationship initially by e-mail and video conferencing with the car manufacturer. We would direct them to our website to view the “Rallye” base and sell them the benefits of having the product
3.3.2. Evaluation
We would go to America to let the manufacturer evaluate the “Rallye” base and talk through the benefits in person. We would provide them with literature on the product and explain the benefits of the brand associated with the product.
3.3.3. Purchase
Our website is capable of taking orders but I think the majority of orders will be received by e-mail.
3.3.4. Delivery
The car manufacturer could potentially be a distributor of the sales aid to the car dealerships. Our relationship can grow with the manufacturer and we would produce more products for them under the “Rallye” brand. We would hopefully cut out the typical middleman distributor so we will be in total control of the marketing and image of the “Rallye” base.
We would initially export the “Rallye” base via a container to America.
STANDARD CONTAINERS:
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In one 20′ container we could deliver 3000 “Rallye” bases from the UK to Detroit for one dollar per base. In one 40′ container we could deliver 6000 “Rallye” bases for 60 cents each. Since the invention of the container in 1956 the container has enabled to increase globalisation. We can export large volumes of the “Rallye” base for a minimal cost when broken down per unit.
If sales increase, the potential to have them made in America is possible. Injection moulders have been sourced near Detroit in Michigan and are capable of making the tooling required for production. This would cut down on transportation costs, export duties and lead times. We can pass some of these savings then onto the customer making it a more interesting proposition for volume orders. Having separate manufacturing capabilities in the U.S. and the UK would increase our output.
3.3.5. After sales
Providing the customer with a dedicated person’s contact details from our sales team, we can provide follow up emails and phone calls to check everything is to their satisfaction.
3.4. Customer Relationships
We have recently installed a CRM package to monitor customer relationships in an organised way. It focus’s on meeting the customer’s needs on a personal level rather than targeting a specific group of customers. A high level of customer service can be sustained with the help of this software. The software can analyse data which can in return improve the product and the service we offer. The software can create substantial revenue opportunities and the potential to generate more business. High levels of customer service are essential to any business model. To achieve a competitive advantage we invest in the latest training programmes and technology essential to maintain a high level of personal customer service.
3.5. Revenue Streams
The most successful way of creating a revenue stream for the “Rallye” base would be to sell it as an asset sale. We would give full rights of ownership of the product to the customer. I have looked at ways of creating other streams such as lending. I think because the product has a relatively low purchase price the customer wouldn’t be able to realise any benefits of renting. The price of the “Rallye” base would be volume dependent, the more is purchased the lower the cost to make the product. Car manufacturers can take up to ninety days to pay so incentives to pay within thirty days must be made. Payments would be mostly taken by BACS transfer although other online payments could be taken through Sage pay and Paypal.
3.6. Key Resources
Our business is made up of physical and intellectual resources.
The physical side comprise of:
- In house wide format digital printers – These enable the “Rallye” panels to be printed full colour with excellent quality. By having this technology in-house helps to provide a fast turnaround and a creates a reduced lead-time.
- Excellent distribution channels enabling to deliver next day almost anywhere in the UK.
- Low staff turnover increases knowledge and identity within the company.
- Customer relationship management software providing added value.
The intellectual side comprise of:
- Registered trade mark and registered design.
3.7. Key Activities
One stop shop approach – looks after the customers needs and saves them time and money searching for various suppliers.
- We can easily adapt to changes in the market due to a large product range.
- We have a strong web presence with an informative web site enabling customers to order online.
- Extensive product knowledge.
- In house design studio, new product innovation.
- Fast turnaround.
- Family business offering a personal service.
- Established company with a good reputation.
3.8. Key Partnerships
We don’t have injection moulding capabilities in-house so we have out sourced this to be done by a local manufacturer. The delivery charges are virtually free and face to face communication aids the relationship. If the sales increase rapidly of the “Rallye” base in America we will look at producing the product there. This would be to cut down distribution costs and decrease lead times. There is also the possibility the “Rallye” base would be cheaper to purchase in America which would cut costs.
3.9. Cost Structure
The cost structure is having a balance between cost-driven and value-driven extremes. Costs need to be minimized where possible but not affect the overall quality of the product. The product has little competition so doesn’t have to so much compete on price. The “Rallye” base has value creating features, which in return increases the price of what the customer is prepared to pay.
4.0. Findings
It is highly possible our “Rallye” base can be sold in America to car manufacturers.
At the moment the “Rallye” base sells on average for £20.50 each and costs £10.20 to manufacture, in the first year we have sold 5,000 units in the UK. We would aim to sell the product for around $35-40 each delivered to the customer depending on volume taken. Based on our first year of sales and that new car sales in America were 5 times greater than the UK’s, I estimate we could sell 25,000 units in one year. The tool is capable of producing all the plastic parts in one mould. The injection moulding machinery has the capability of producing one unit every two minutes. Meeting supply would not be a problem and we could ship the “Rallye” bases via container. In one 40′ container we could fit four hundred boxes with each box containing fifteen “Rallye” bases. This equates to 6,000 units which could be sent in one 40′ container. Each base weighs 1kg and each 40′ container can carry 26,780 kg so weight would not be a problem. I have found a manufacturer based in Michigan with the potential to manufacture the “Rallye” base. Michigan is home to the big three manufacturers General motors, Ford motor co and Chrysler. Michael Porter 1996 describes how value can be added to the supply chain, I particularly chose Michigan to have the “Rallye” base manufactured to cut down transportation costs along the supply chain.
We import some products from America and China into the UK and they both invoice us in dollars. We would set up a dollar account to cater for exports and imports. This would save money from having no currency exchange costs from Sterling into Dollars. We wouldn’t have to rely on currency exchange rates due to trading with the same currency. The revenue from the export sale of the “Rallye” bases would then pay for importing stock products from China and America. The revenue from the sales of the imports in the UK would then pay the UK supplier of the “Rallye” base aiding cash flow.
5.0. Conclusion
I have decided to initially export the “Rallye” base on a made to order basis directly to the motor manufacturers in Michigan. We can create extra value by offering the printed advertising panels so they can forward them on to the car dealer network. A slow decline in US new car sales demonstrates the manufacturers need to increase their advertising. The manufacturers need something innovative to advertise their new ranges of vehicles. The standardization of the container has enabled the “Rallye” base to be easily available to the American market. Due to the size and cost effectiveness of containers available they would be ideal to send the “Rallye” bases from the UK to America. Once sales start to increase we can then look at manufacturing them in Michigan. For now we can easily monitor the quality of the manufacturing and the rest of the supply chain.