CASE
28
Inner-City Paint Corporation (Revised)
Prepared by Name: Masud Rana ID: 11102205 Section: D Program: BBA
IUBAT- International University of Business Agriculture and Technology
Introduction Stanley walsh began inner-city paint corporation in a run-down warehouse, Which he rented, on the fringe of chicago’s “downtown” business area. The company is Still located at its original site Inner-City is a small company that manufactures wall paint. I. Current Situation A. Current Performance 1. Poor financials 2. High account receivables 3. Very disorganized system of business 4. Lack of Customer Confidence B. Strategic Posture 1. Mission: To produce a paint that was less expensive and of higher quality than what has been used commercial buildings, etc. 2. Reputation: Built on fast service; frequently supplies paint to contractors within 24 hours. 3. Primary Market: small to medium sized decorating companies 4. Policies: Walsh handles all mail, payments, and billings II. Strategic Managers A. Top Management * Consists of Stanley Walsh who handles all mailing/billing, payments, etc. * Office is managed by Mary Walsh (Walsh’s mother) with help of two part –time clerks * Plant Manager is an acquaintance of Walsh’s who only has experience as a painter.
III. External Environment A. Societal Environment 1. Economic a. The slowdown in the housing market combined with a slowdown in the overall economy caused financial difficulty for Inner-City Paint Corporation b. Now required to pay cash on delivery (C.O.D.) for its raw materials 2. Technological: Computers and Information Technology offers opportunity to better organize the business.
B. Task Environment 1. Rivalry High: Larger orders usually go to larger companies due to lack of customer trust. 2. Competitive Prices IV. Internal Environment A. Corporate Structure 1. Thirty-five employees (20 part-time); most unskilled workers who lack training 2. Lack of handing over: lacks employee empowerment and too much of workload is carried by the business.
Porter's Five Forces Industry Analysis
Threat of New entrants There are low entry barriers in the paint manufacturing industry. This is because it is based on the low costs to enter the market and product unanimity. This is due to an easy and cheap development stage. As for capital requirements, firms need to invest small financial resources before entering this market.
Rivalry Between Competing Firms Inner-City Paint is confronted by aggressive competition in its business. There are small paint manufacturers in Chicago that supply the immediate area. The market for paint is highly competitive. It doesn't compete with giants such as Glidden and DuPont. Competition among the giants isn't that fierce, but they lose their large orders to them.
Bargaining Power of Suppliers There is a high bargaining power of suppliers since the industry is highly dependent on component suppliers, a powerful supplier could exert pressure on the market, by supplying components at a higher price to increase his profits. their products are the primary raw material for the paint manufacturing companies. They could also erect high switching costs. Since Inner-City Paint is working only with few selected suppliers, the company is running at a higher risk than the average.
Bargaining Power of Buyers There is a low bargaining power of buyers this is due to high number of other paint manufacturers in the area in the industry and the customer has the options to take the cheapest and the best.
Threat of Substitutes There is a high threat of substitutes because there are larger companies that have demonstrated reliability and solvency that paint contractors can choose. There are also other small paint manufacturers in the area.
Marketing Marketing efforts are divided among dealer promotions, customer events, magazine and direct mail advertising, public relations. Strategic Factors affecting Inner-City Paint Corporation:
•
Environment: Mr. Walsh manages the company the same way he did when he
started the company. He doesn’t delegate or empower employees. He also doesn’t have a policy around recruiting and hiring the right employees for the job that is affecting the growth of the company because he can’t trust hiring new salesmen he is losing an opportunity to penetrate the market and getting a bigger share, the same issue exists with hiring unskilled laborers that is affecting his productivity level and the opportunity to serve larger clients and getting larger orders.
•
Product: Mr. Walsh didn’t anticipate possible change in the external environment;
he also didn’t have a strategic plan for company growth and the steps that he needs to take when his company grows. Therefore, he got lost and couldn’t deal with the problem of slow down in the housing market and economy overall and didn’t have an options. His inventory record keeping is also a major problem that is holding his customers from relying on him for big orders.
•
Competition and Market Entry: Inner-City Paint is confronted by aggressive
competition in its business. There are small paint manufacturers in Chicago that supply the immediate area. The market for paint is highly competitive. It doesn't compete with giants such as Glidden and DuPont. Competition among the giants isn't that fierce, but they lose their large orders to them.
•
Financial Structure: Inner-City Paint is in a difficult financial situation due to
the fact that they have to pay their suppliers and taxes and because they didn’t have an
audit because Me. Walsh didn’t want to incur the expense of it. Inner-City Paint Corporation Competencies:
•
Price: Inner-City Paint has been able to provide competitive prices for their clients
at a higher quality.
•
Delivery: Inner-City Paint Corporation supplied paint to contractors within 24
hours and built a reputation of speedy delivery.
•
Facilities and Equipment: Mr. Walsh has enough equipment to fill the orders of
his clients in addition to facilities at a low rate that can provide him with the ability to be competitive in the market in terms of pricing. SWOT Analysis: Strengths 1. Competitive price 2. Fast delivery for contractors 3. Steady growth in the market 4. Consistent growth of the company 5. Low cost of raw materials 6. Fast service 7. Consistent quality Weaknesses 1. Lack of handing over, employee empowerment and operating without management or financial controls 2. Lack of a consistent and reliable inventory control system Customer perception as a company that negotiates price and unreliable to fill large orders.
3. Low financial resources 4. Lack of domestic & international presence 5. Lack of management & financial controls 6. Unskilled employees Opportunities •
Increasing market share by taking larger orders
•
Purchasing a computer to organize business and reduce needless paperwork
•
Hiring professional salesmen to ensure consistent growth and consultants to identify
problems and provide solutions Threats 1. Slowdown in the housing market combined with the slowdown in the overall economy caused financial difficulty for the company. 2. Rumors abound that the company is in difficult financial straits, that it is unable to pay suppliers, and it owes a considerable sum for payment on back taxes. 3. No audit has been performed. This could lead to penalty by the Internal Revenue 4. Strong competition from Glidden and DuPont 5.Decreasing market 6.shipping costs 7.customers’ lack of confidence 8. Poor economy Review of Mission and Objectives Inner-City Paint Corporation's current mission and objectives aren't appropriate in light of the key strategic factors and problems. The mission and objectives are to general and can be expanded. With the companies’ strengths and opportunities, they should be able to overcome the threats and weaknesses. The company could expand the mission and objectives to supplying quality paint at a competitive price to Chicago or even the county.
The companies has grown considerably over the past years, but have focused on the immediate area. But now that the housing economy is low in that area the company is suffering. If it was able to expand to a number of areas where the market isn't as bad the company could continue to grow. Financial Analysis: Inner-City Paint Corporation's revenue for the year is $1,784,080. It experienced a Net Income of $ 17,610. Profitability Ratio: Return on assets = Net Income/ Average Assets for the Period 17,610/294,565 = 5.98% (This indicates that the company is very asset-heavy) Liquidity Ratio: Current Ratio = Current Assets/Current Liabilities 262,515/285,030 = 0.92 (Inner-City Paint Corporation has a problem meeting its shortterm obligations) With all of this information we can point out the following: •
Major problem that is facing the company is that Mr. Walsh didn’t include his income
taxes in his income statement; he owes $38,510 in taxes. •
Most of the expenses are attributable to Walsh's salary. His six-figure income is not
the average salary of a president in such a small company. •
High amount of bad debt.
•
Cost of goods sold is relatively high.
Recommendations: Time Period
Recommended Action
Rationale
Within 30 Days •
Collect bad debt from clients.
•
Hire salesmen and accounting managers
•
Pay his taxes before he gets audited.
•
Grow the business and solve current financial problems. Within 90 Days
•
Develop a computerized inventory control system.
•
Take a cut in his six figures salary.
•
Find and research new suppliers.
•
To be able to provide timely delivery for large orders.
•
Invest the money in growing the business and gaining more market share.
•
Minimize the cost of goods sold. Beyond 90 Days
•
Buy more equipment and trucks.
•
Improve management skills and create policies.
•
To earn the business of larger clients.
•
To manage the business and the growth of the company and to be able to acquire
companies in the future that will help him in obtaining a larger market share.
