Bayonne Case

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Tan-Hien Nguyen 500410383 BUS 800- 071 Professor: Philip Walsh Individual Assignment- Bayonne Case Study November 21st, 2013

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EXECUTIVE SUMMARY This report is to study and analyze Bayonne’s operation issues, which caused the company a significant loss in October 2011. Subsequently, all possible solutions for each issue are discussed thoroughly to generate the final recommendation that the president should follow. The first issue Bayonne needs to amend is the weak corporate culture, which is unsupportive and unaligned in different departments. There is an absence of not only a clear vision statement from the top management, but also sufficient communication to solve any unexpected efficiency issues. Secondly, customers are unsatisfied with delivery services from Bayonne. The quantity of orders that are either late or incomplete has been increasing vastly in October. Last but not least, the quality of Bayonne’s product was one of the main factors for the financial loss in October 2011. The fact that customers rejected 1.5% of Bayonne products, and 6% were found defective (See Appendix 3B), respectively, decreased Gross Sales, and increased Cost of Goods Sold. These numerical factors are analyzed in more details below (See Appendix C) After a thorough analysis of all factors presented in the Bayonne Case, it is evident that Bayonne should start remodeling the current operation system and identifying a clear vision statement. Since the company wants to penetrate a new market, Bayonne should increase its operation capacity given the fact that its ability to handle the current volume of customer orders is questionable. As a result, delivery service should be outsourced. Bayonne will be likely able to invest more capital resources in additional equipment and ensure more frequent maintenance. INTRODUCTION Bayonne Packaging, Inc., a sub-chapter S corporation founded by Rand’s father 48 years earlier, is operating in the packaging industry. The top board members were originally formed with family members (See Appendix 6B.a). The company’s main business is to provide its industrial customers with customized and complex-design packaging for promotional materials, software, luxury, beverages, and gift food and candy (See Appendix 3B). Furthermore, Bayonne co-operated closely with its customers to develop artwork and package design (See Appendix 3B). Despite a quite long-term profitable period since the start of Bayonne’s establishment, the company witnessed a financial loss of $365,694 in October 2011 (See Appendix C). The main reasons are due to Bayonne’s inefficient operation system, along with weak corporate culture. It would be in the best interest of Bayonne that the president considers all the factors analyzed in determining issues and recommendation within this report. ANALYSIS Issue #1: Weak corporate culture- unsupportive and unaligned. The main cause of Bayonne’s weak corporate culture is due to lack of a strong strategic vision statement (See Appendix, 1B). Strategic vision statement illustrates management’s aspiration for the future and portrays the company’s strategic course and long-term direction (Ryerson University, 21). Moreover, it helps manoeuvre the resources of company personnel in a common direction to company’s main goal. Undeniably, an unclear strategic vision statement will create differences in employee perspectives. Moreover, the board was composed of family

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members (See Appendix 6B.a) and there is no solid compensation or performance evaluation that promotes corporate culture (See Appendix 6B. h). Another cause is lack of communication among departments: ● Managers at each department use different personal practices to determine how an order is processed without sufficient communication (See Appendix 6B.c). This eventually creates pressure on the following department ● No one felt a real need for accurate terminal-base shop floor production reporting (See Appendix 6B.g). Printed schedule is inaccurate. Schedule generated by computerizing system twice a week is not aligned with actual operation (C-41) ● Scheduling department does not inform sales department of late deliveries (See Appendix 6B.a) Issue #2: Delivery Issues Due to the fact that Bayonne was late more than 20% of the time in October (C-38), some customers eventually decided to adjust the due date to receive product sooner (See Appendix 2A). Moreover, the percentages of late orders and partialed orders are extremely high (C-39). The root cause is due to insufficient communication and understanding of the whole company operation system. For example, Sean Quinn does not know that not all departments can gang up orders like he does (See Appendix 6B.e). Some orders then cannot be completed and delivered to customers timely. Issue #3: Quality Issue-excess or lack of glue The October report retrieved from Bayonne Case illustrates that 6% of Bayonne products were defective due to glue problems (See Appendix 3B). Moreover, 1% of shipped products were rejected by customers due to the same reason (See Appendix 3B). The number of customer’s reject was significant in October, which contributed to a considerable increase in Cost of Goods Sold compared to the previous months (See Appendix, C). The major reason for quality problems lies in Fold and Glue department: ● There is no frequent maintenance schedule for the key machines at the department (See Appendix 6B.D) ● Pressure on finishing orders timely, and being pushed aggressively without knowing from the manager at Composition, Sheeting, Printing, and Die-Cut department (See Appendix 6B.E) ● The machines seem to be old, and unable to handle high volumes of orders (See Appendix, 6B d). Hot melt glue guns and belts are not synchronized efficiently (C-42)

DISCUSSION Based on issues identified above and factors analyzed in the appendix, the following alternatives are strongly recommended for Bayonne Inc to take into account. The pros and cons of each possible solutions are also discussed .

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Issue #1: Weak corporate culture- unsupportive and unaligned. The alternative to address such issue of Bayonne is that the company should remodel the whole operating system, with more vivid vision statement. Moreover, it should establish a more solid and fair performance evaluation system, which is aligned with the company’s core value. This will eventually enhance the unification of employee ethics supporting Bayonne’s core value. However, this method is considered to be time-consuming, expensive, and to require longterm employee’s cooperative commitment. Another alternative to improve Bayonne’s weak corporate culture is to provide many job rotation opportunities for each department, and entertainment events for employees to improve their relationship. Although employees will have a deeper understanding of Bayonne’s operation system, this method cannot serve this issue in the long run due to the company’s lack of clear vision statements. Issue #2: Delivery Issues In dealing with this issue, Bayonne may consider obtaining delivery service from outsiders. This will cut down on operation duties and the company can spend more resources on other departments to enhance efficiency. Moreover, this method is likely to increase better delivery service customer; thus, improve customer experience. However, outsourcing delivery service may create more conflicts with the schedule of Bayonne’s other internal operation; especially, the Dying and Gluing departments as they are required to finish products more punctually. Bayonne’s management can also consider applying different rewards and incentives that encourage its staff with meeting deadlines and pleasing customers. Despite being a short-term and/or mid-term solution for this problem, the rewards will probably mislead Bayonne’ overall productivity. For instance, meeting deadlines can be the expense of product quality, which is currently a big issue for Bayonne. Employees will tend to pay less attention to such a matter. In order to please customers, sales employees may offer more discounts than they are supposed to. As a result, this reduce the company’s net income. Issue #3: Quality Issue-excess or lack of glue The main root causes of Bayonne’s quality problem are the pressure of meeting deadlines and insufficient maintenance at the Fold and Glue department. Consequently, Bayonne may need to hire more personnel to ensure regular maintenance, while investing in additional equipment to create more capacity. In spite of being costly at first, this method ensures that the company is able to improve its products quality and to handle increased orders when penetrating new market segments. To meet internal deadlines among different departments, Bayonne can introduce prework order jacket. The report will be sent to different departments when the prior one starts working on an order. This will inform the later department of what orders are on the way in couple of days. The main disadvantage of this method is that Bayonne’s each department is too used to working independently and rarely depends on printed work schedule. This corporate culture will likely reduce any positive effect of this method.

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RECOMMENDATION Overall, the company’s top management should remodel Bayonne’s operating system, providing a clear statement of vision. It plays an integral role in setting supportive employees mindset towards any company’s common goal, which is success. This practice is not only a long term solution compared to job rotation method, but it can also solve the root cause of weak corporate culture at Bayonne. The company can also apply job rotation method as a short-term or mid-term solution. Since Bayonne is penetrating new market, a more unified operating system is more desirable. In terms of delivery issue, should Bayonne provide rewards encouraging employees to meet deadlines, there may be negative effect on “already poor” products quality. Employees may be misled by the rewards and pay less attention to the quality. As a result, it is strongly recommended that Bayonne should outsource the service. Bayonne will be able to spend more capital resources on other investments, which include obtaining additional equipment and hiring more personnel for frequent maintenance at Fold and Glue department. This will improve Bayonne’s product quality, and the capacity to handle increased quantity of customer orders. In conclusion, it is important to note that the above selected solutions for each issue have a strong cohesion. Developing a clear vision statement enhances supportive corporate culture, as human capital resources will be directed in a common way. This will likely solve most of the current efficiency operation issues, especially inability to meet internal operation deadlines among departments. Subsequently, outsourcing delivery service will not put any unnecessary pressure on the Fold and Glue department when all products are finished punctually. It also allows Bayonne to increase the current operation capacity by other strategic investments.

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EXTERNAL ANALYSIS (APPENDIX A) 1A. strategically relevant factors in the macro-environment (PESTEL analysis)? Political Economic

•Not enough evidence in the case •Bayonne suffered from the bursting effect of the dot-com bubble and the subsequent migration of software sales and distribution from CDs to the Internet (C-35)

Sociocultural

•Bayonne sells a piece of an expensive promotional campaign. Customer’s marketing distribution channels varies from Internet, direct marketing, coupons, and commission payments. (C-38)

Technology

•Not enough evidence in the case

Environment

•Not enough evidence

Legal

•Compliance with FDA restrictions regarding coatings, adhesives, and liners (C-40)

The legal and sociocultural are the main factors in the packaging industry. Changes in customers marketing distribution channel will affect Bayonne’s business, and the FDA impacts Bayonne’s product design. 2A. Industry’s competitive forces (Porter’s 5F Analysis) There is not enough evidence to draw a conclusion appropriately. However, it does Threat of new entrants (Unknown) •Not enough evidence in the case.

Suppliers Power (Moderately Favourable) •Suppliers can restock within 1-2 days (C-41)

Substitute threat (Moderately Unfavourable) •Substitutes include social networking, internet, newspaper, etc. •Strong relationship with Sociocultural factor

Buyers Power (moderately unfavourable) • Willing to purchase at higher price for smaller piece orders (C38) •Can adjust due date to receive products sooner (C-39) •Can reject unsatisfied orders (C-36)

Intensity of Rivalry (Unknown) •Not enough evidence in the case. •There is no competitor discussed in the case. •The company is a ficticious one.

confirm that customer satisfaction plays the main key in Bayonne’s success, and the company is vulnerable to changes in sociocultural factor. 3A. Industry change drivers Technology  Innovation in product designs to draw more customers (C-40) Advancement Reusability  Increased awareness of environmental sustainability leads to higher demand for products used recycled materials Flexibility and  The business of Bayonne consists of providing customized packaging (C-35).The Creativity more flexible the product design is, the more competitive advantage Bayonne is Advertising  This will change Bayonne’s customer advertising distribution channel, and has method impact on Bayonne’s business (see Appendix 1A)

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These driving forces play a part in shifting any company’s business strategy in the packaging industry. Customer preference has the most significant influence on the industry. They tend to require high flexibility and creativity in design, which is important to their advertisement. 4A. Strategic Group map (Not enough evidence in the case, there is no competitor in the case) 5A. Framework for competitor Analysis (Not enough evidence in the case, no competitor) 6A. Key success factors  Timely delivery service: Bayonne’s product is crucial to customer’ campaign-“it’s all schedule to hit on a specific date. If our product isn’t there, the customer goes nuts” (C-38).  Financial Strength: It allows company to invest in additional equipment and human capital resources to extend operation capacity limit.  Ability to serve multiple market segments: customization is a key in attracting customers from different markets, and follow changes in Sociocultural factor (See appendix 1A)  Product quality: Customers will be unsatisfied with poor product and reject orders. (C-36) 7A. Industry Outlook Generally, the packaging industry is conductive to good profitability. Customers need products from this industry for their promotional or advertising campaigns (C-38). It states that the paper packing industry grew considerably in the 1980s and early 1900s (C-35). In order to sustain profitability, companies within the industry must continue to be innovative in operation process and product designs. Bayonne seems to have issues with some of the Key Success Factors identified above. Consequently, management should take actions to solve those issues. INTERNAL ANALYSIS (Appendix B) 1B. Company’s current strategy: 1) Vision, Mission and Objectives a) Vision: unclear. The case does not give any information regarding vision statement. This is an issue. b) Mission: offer essential services from design assistance through final delivery (C-35) c) Objectives: minimizing costs, obtaining good quality and meeting delivery promises (C-36). 2) Business and Functional Strategy a) Business Strategy: i) Obtaining competitive advantage due to market diversification (C-35) ii) Developed complex product designs for large orders (C-35) iii) Allows customization (C-35) iv) Generic Strategy: Cost Leadership (C-36)-minimizing cost. b) Key Functional Strategies: i) Sales Department: Price aggressively in the new market to increase more volume (C-40) ii) Production Department: Composition Department: develop package and printing designs for orders, finalize printing plates and die-cutting dies ordered (C-40).The Print department: print the sheets (C-40).Dye-Cut Department: cut the printed sheets into blanks, and printed papers are to be folded and glued into finished product (C-40) iii) Schedule: Schedule products for delivery, and schedule what need to be done (C-42) iv) Quality Control Department: ensure product quality meet the stated standard (C-36). 3) Key Performance Indicators: a) Customer satisfaction based on measures of timely delivery and high quality: Bayonne has been receiving complaints from customers regarding product quality and delivery (C-36) b) Net income: Negative net income in October

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c) Cost efficient system: Cost seems to be high in October, including scrapped (C-37) 2B. VRIN analysis Resources or Capacity

     

Physical resource (Die-cut machine, Fold & Glue equipment)

Intangible resource (Artwork and package printing & design application)

Valuable  The machines allow Bayonne to customize artwork and print for packaging products (C-38)  Technology, any software, provides unique features of image and design to customer orders (C-36) Rare ? ?  Assume that these machines are expensive and that only a few firm can afford.  It is probable that any competitors are providing same service as Bayonne Inimitable ? ?  Competitors can purchase the machines if they have enough financial resources  The same intangible asset can be purchased by the competitors Non-Substitutable X  Assume these expensive machines are only tool can be used in this packaging industry.  In-house artwork are non-substitutable as this is unique medication from Bayonne’s customers 3B. SWOT analysis Strengths Weaknesses Offers in-house artwork printing and packaging  Unclear strategic vision design (C-35)  Lack of communication and support among management team members (C-41,42,43) Innovation in complex package design in different market (C-35)  Low quality products in October- 6% defective (C36) Able to Glue & Fold with complex blanks (C-42) Good relationship with suppliers-“ suppliers can  No incentive/reward system restock in 1-2 days (C-41)  Customer reject 1 % of orders- 1.5% of Sales (C-37) Opportunities Threat Expansion to new market and attract more  Shift from advertising method to Internet (C-35) customers (C-40)  Changes in PDA restriction may increase cost of operation (C-40) High profitability in Manhattan (C-40) 4B. Value Chain Primary Activities

Supply Manageme nt chain •Not enough evidence

Sales Management •Deal with late delivery issues (C-42) •Price products strategically in markets (C40)

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Production •Develop package and print designs for customer orders (C-40). Orders are finished at Fold & Glue department (C-42), then are scheduled for delivery by finishing department (C-42)

Fold & Glue is to finish the product (C42).

Finishing Department is to schedule workflow and make priority for products to be delivered (C-42)

Secondary Activities: Technology and System Development: Allows in-house artwork and design with customers (C-35)

Profit margin

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 

HR management: There is not enough evidence Payroll & General Administration: There is not enough evidence. In conclusion, Bayonne lacks several essential secondary activities to support the primary operation 5B. Representative weighted Competitive Strength Assessment: Not enough evident, there is no competitors in the case 6B. Ten basic managerial tasks of the strategy execution process a) Staffing the organization: -The board members consisted of all family members (C-35). As a result, the board is not competent enough to lead the whole organization effectively. There is a need for a leader who will revise the current strategy and identify a clear vision for Bayonne. - Managers seem to be experienced. However, they are not cooperative towards the common goal; for instance, conflict between sales and production departments (C-41). This creates misleading assumption among departments, and efficiency problems. - There is not enough personnel at the Quality Control (QC) department and Fold & Glue department. There is only one inspector of the QC shifting from Composition to Die-cut department, and another one from Fold & Glue to Finishing department (C-36). - In terms of training current employees, Bayonne lacks job rotation programs through different tasks. Moreover, the company also does not provide any incentives or rewards encouraging employees to improve work productivity, or any performance evaluation. b)Building the organizational capabilities - Bayonne has a competent team of employees; however, there is no solid programs to update and develop that team. c) Creating a strategy-supportive organizational structure - Due to the absence of clear vision statement and sufficient communication among departments, the business structure at Bayonne is unsupportive. There is no frequent discussion between all the managers and the board members to discuss issues. Each manager seems to have to deal with his issue by using personal experience and assumption. For instance, the Scheduling manager rarely reports late delivery because he believes that would create more unnecessary work (C-42). And he will just likely deal with the issue by himself. Moreover, Sean Quinn sends Rick Gomes a lot of orders that are one or two days from the due date, or even late already without knowing that Gomes cannot gang orders as he can (C-42). Subsequently, Rick Gomes deal with the issue by using his way, which decrease the quality product (C-42) d)Allocating sufficient resources to strategic execution - Resources are allocated effectively. The Fold & Glue department requires more additional equipment and more frequent maintenance schedule. The machines at this department cannot gang many orders at once and are old (C-42). e) Instituting policies and procedures that facilitate strategy execution - There is no clear set of procedures determined how an order should be treated (C-43). As a result, the workflow is inconsistent and does not facilitate strategy execution. f) Adopting best practice and business processes that drive strategy execution activities - It is not illustrated in the case that Bayonne’s management takes efforts to study the best practice, or to compare with other competitors. The previous VP of operation mind set was “we’ll have to try harder” (C-36) without a clear strategy. This might likely affect other manager’s mindset negatively.

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g) Installing information and operating systems that enable company personnel to do their strategic roles proficiently. - The information and operating systems are inconsistent. The schedule system is not helpful, since it does not reflect the actual workflow. Information or data of workflow, schedule to work or inspect product are manually recorded (C-42, 43). As a result, the information is greatly exposed to human error. “No one felt a real need to follow production reporting” (C-43) h)Tying rewards and incentives directly to the achievement of strategic and financial targets - There is no rewards or incentives packages mentioned in the case to promote performance or retain any skilled employees in Bayonne Case. i) Instilling a corporate culture that promotes good strategy execution - There is little cohesion and supportive engagement among departments. This is due to lack of vision statement from Bayonne’s senior executives. -The current culture is not aligned with Bayonne’s generic business strategy, which is cost leadership in the market. Lack of communication puts more pressure on the Fold and Glue department, which in turns increase number of defective products (C-42). This increases Cost of Goods Sold. j) Exercising the internal leadership needed to propel strategy implementation forward -Bayonne needs to have a competent leadership at the top level to create and guide the corporate culture aligned with the company’s core values. Moreover, leadership at the lower levels is also desired to be able to deal with unexpected issues. In conclusion, Bayonne is unable to perform the 10 basic managerial tasks well to ensure its strategy execution. The main reasons are lack of discussion regarding issues, clear vision statement, and consistent work procedures. 7B. Managerial Issues  How can Bayonne improve or revise the current corporate culture? The current corporate culture is considered to reduce operation efficiency at Bayonne. There is insufficient communication among the board members and managers to analyze issues and come up with solution. People tend to mind their own jobs and deal with their issues based on personal experience and assumption. It is time that Bayonne need to revise this culture  How can Bayonne improve delivery issue? Should it outsource it or improve the service internally? Bayonne’s products are very important to customers businesses. As a result, delivery issues will harm Bayonne reputation. There are several customers taking action to either switch to another firm (Appendix C) or adjusting the due dates to receive orders sooner (C-39)  How can Bayonne deal with quality issues? Bayonne is struggling with quality issue-either excess or lack of glue. 6% of products were scrapped due to being defective, and 1% of products were rejected by customers due to quality issues (C-36). These factors increased Cost of Goods sold. Moreover, it tends to reduce gross sales as customers are unsatisfied with products quality.

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FINANCIAL ANALYSIS (Appendix C)

Gross Sales % annual change Customer Rejects % annual change COGS Shipped Materials % annual change (Scraps) % annual change Regular DL % annual change OT DL % annual change IL supervisory % annual change Mfg OH % annual change Total COGS % annual change Other expenses % annual change Net Income % annual change

Oct-11 5,140,467 15.82 -75,455

Sep-11 4,438,500 44.30 -33,834

123.02

58.47

3,285,673 21.49 597,671 47.49 525,748 32.62 116,495 55.58 29,884 19.03 40,520 -29.24 -4,595,992 25.46 834,714 55.33 -365,694 -279.32

2,704,465 48.57 405,229 50.77 396,420 45.83 74,879 512.91 25,107 64.40 57,261 10.28 -3,663,360 50.11 537,369 51.67 203,936 -21.45

Aug-11 3,075,860 -21,351

1,820,380 268,781 271,835 12,217 15,272 51,924 -2,440,409 354,302 259,618

2011 40,337,633 8.81 -386,117

2010 37,071,038 5.71 -222,426

2009 35,069,202

73.59

26.85

23,761,050 14.33 3,532,893 35.04 3,421,679 19.05 365,120 23.86 189,111

20,782,617 0.08 2,616,251 0.21 2,874,192 0.13 294,789 11.16 125,285

19,296,302

646,454 -12.28 -31,916,307 16.36 4,877,494 27.27 3,157,714 -43.47

736,972 0.57 -27,430,107 0.09 3,832,256 -2.89 5,586,250 -3.73

732,771

-175,346

2,163,419 2,547,251 265,193 139,575

-25,144,513 3,946,495 5,802,848

 Bayonne’s net income has been decreasing since 2009, in spite of sales’ growth. This should be an indicator that inefficient operation system has increased Cost of Goods Sold (CGS). Furthermore, diminishing increase rate in 2010 gross sales reflects that customers may not be unhappy with Bayonne’s products; thus, they are switching to another company.  Net income in 2011 decreased by 43.47% compared to 2010, due to significant loss of $365,694 in 2011. This loss is a consequence of percentage growth in Customer Rejects (123.02%), which decreased Gross Sales. Moreover, CGS in October was affected by increase in unnecessary expenses of Scraps, 47.49% compared to September. Around 6% of products were found defective in October and then scrapped (C-36)  Owing to inefficient operation, the following expenses- Materials, Direct Labour, and total Overhead- went up at higher rates than increase in Gross Sales. The numerical changes are illustrated in the table above. As a result, CGS increased at higher rate than Sales.