The case is analyzing a company, provide alternatives and recommendation

The case is analyzing a company, provide alternatives and recommendation. The information about the company is attached as a word document.

Parts include:
Executive summary/case synopsis (3 marks)
-brief history of company, what industry is in
-who is involved, where is the target market and what is your recommendation
-maximum 6 sentenses.

Problem statement (5 marks)
-should be comprehensive
-be clear, sometimes is about a decision the company should make

Environmental analysis
-Porter's five forces (2 marks)
-SWOT analysis of company (8 marks)
-explain the relevance of Porter's/SWOT to the business problem identified (2 marks)

Identification and analysis of alternatives (15 marks)
-alternative solutions that could address the business problem identified
- 3 alternatives needed
-need address pros and cons of each alternative
-need include relevant financial reference to issues such as production value and costs

Recommendation (5 marks)
-clearly stated, address and solve the business problem identified
-need include financial reference

COMPANY BACKGROUND

Cloudwalkers was started in 1970 by Frank Fodemesi, Rick's father. Frank, an experienced shoemaker, decided to specialize in the area of footwear for people with sore feet, a market that had not been fully developed. He originally concentrated on children's and custom-made shoes, but eventually expanded into footwear for women. As time passed, women's shoes became his major retail segment.

Over the years, the company's image had evolved from catering to "foot problems" to one of providing "functional" styles. As these styles became more popular, Cloudwalkers' reputation for value (good quality at a reasonable price) attracted a customer base that, while not very large, was loyal and was growing gradually.

In 1996, Rick joined his father in the small family business, after studying Business Administration at Sheridan College. 

The manufacturing and retail facilities were located in the same building in Streetsville. Two product lines were manufactured: Cloudwalkers, a casual sandal with moulded insoles and designed to "let you walk as if in bare feet"; and Reactivators, a dress sandal for women.

These lines sold in the company's own retail store and were also distributed to a small number of selected stores in southern Ontario. Other lines carried in the retail store but not manufactured by Cloudwalkers included Alden, Miller, and Gantner, all imported.

For some time, Rick had wanted to increase the company's manufacturing activities, so as to make better use of its underutilized plant facilities. Expansion was also planned on the retail side, including an increase in both the number of retailers and additional product lines, by adding footcare products such as insoles and arch supports.

MEETING WITH SEARS

A representative from Sears had been impressed by an advertisement for Cloudwalkers in a footwear trade journal. Fodemesi was contacted, and a meeting was arranged at Sears’ Jarvis Street headquarters in Toronto in February 2006. The Sears purchasing agent expressed interest in distributing Cloudwalkers sandals to all of their major retail stores and featuring it in their catalogue.

First year volume was estimated by Sears to be as high as 20,000 pairs. However, when the topic of price was raised, it became apparent to Rick that Cloudwalkers' regular wholesale price of $26.00 was totally unacceptable to Sears. Although the meeting ended without a counter offer from Sears, Rick got the impression that Sears wanted a price in the $20.00 to $23.00 range. It was decided that the two parties would be in contact in a few weeks when Rick would send the agent several pairs of sandals for closer examination.

THE COSTING OF CLOUDWALKERS SANDALS

The costs of a pair of Cloudwalkers sandals consisted of materials, labour and overhead.

Material costs included:

• outsoles:                  $2.50 per pair
• insoles:                      4.50 per pair
• leather:                     4.00 per pair
• packaging:                1.00 per pair
• labour cost:             $6.00 per pair, based on time studies.

• overhead costs:     $4.00 per pair, calculated as follows: overhead (fixed) costs of $24,000 per

                                                     year divided by the current production level of 6,000 pairs per year.

Although only 6,000 pairs of Cloudwalkers were currently being manufactured annually (about 500 pairs per month), production of 26,000 pairs per year (over 2,000 pairs per month) could be accommodated by the plant.

Rick estimated that if production were increased to the level required by the Sears contract, the costs of gearing up production capacity to the higher level would be about $.80 per pair produced.

THE DECISION FACING RICK

One of Rick's major corporate objectives was to increase the company's manufacturing activities, as the plant was underutilized. However, he was not sure whether the contract with Sears was the best way to do this. He was extremely reluctant to lower his wholesale price, since he was already undercutting his major competitor by 20%.

On the other hand, he realized that a contract with Sears would allow the Cloudwalkers brand to become established across Canada within a year. He felt that being carried by a major department store could enhance his company's image, and that it would be easier to deal with one customer with a large volume of sales. However, Rick was also concerned by the prospect of devoting about 80% of his capacity to one customer.

He might also face problems with his suppliers, especially his insoles from Germany, shipments of which tended to arrive late. At the current low level of production, this was not a major problem. However, Rick was unsure how this problem would affect his company at the much higher production levels involved in the Sears contract.

He also wondered whether or not a functional shoe was suitable for mass merchandising, and what effect the possibility of a lower retail price by Sears might have on his own retail business and on his sales and prices through other retailers. In addition, expansion would mean the hiring of additional workers.

As he drove back from Toronto to Streetsville, Rick realized that his decision could drastically change the nature of his company. His initial reaction was that he could not afford to lower the wholesale price, but he wanted to expand production and knew that $26.00 would not be an acceptable price to Sears. Within a few weeks he had to contact Sears, and wondered what he should do.