OM Scott and Sons Case Analysis & Corporate Strategy

De La Salle University Ramon V. Del Rosario- College of Business

Financial Management FCN535M

“O.M Scott and Sons Comany!

Case Analysis & Corporate Strategy

"ndividual Reort of #essica #aye S. Ranieses

Submitted on: November 19 !"1# Submitted to: Dean $tty. #oe-Santos Balagtas Bis%uera

M$A %roessor

&'ecutive Summary

'ocated in ()io (*M* Scott and Sons Company is in t)e business o processing clean +eed,ree grass seed* C)anges in its distribution met)od allo+ed t)e company to gro+ t)eir business resulting to increased product line and )uge s)are in t)e mar-et* Advances in distribution met)ods )elped enable t)e irm to e.pand t)eir business nationally as +ell as increase t)eir product line to dominate t)e outdoor )ome economic mar-et* /)e company is revie+ing t)e its perormance or t)e year 19#1 and urt)er preparing or 19#!* 0)ile sales s)o+ continuous increase net income s)o+ed ot)er+ise or t)e years 19#" to 19#1* (ne o t)e actors limiting t)e companys gro+t) t)at t)e management sees is t)e inability o t)e dealers to carry a suicient amount o stoc- or customers especially t)at t)e products are aected by seasonality* (ro)lem "nstitutional

S)ould t)e company continue its current policy o combination o seasonal dating and trust receipt plan2 Oerational

Considering its current policies or revised ones )o+ +ill t)e company -eep up +it) its goal o a !5 annual gro+t) rate in sales and proit2 Cororate O)*ective

/o be a leader in t)e general la+n care and grass industry* $reas of Consideration &nvironmental Oortunities + ,reats Macro-&conomic "ndicators (olitical

0it) 4o)n F* ennedy as president many Americans )ave believed t)at t)e 19#"s are t)e 6da+n o t)e golden age*7 8e promised policies and reorms directed to+ards eliminating inustices and ineuality* ;n 19#< 4F +as s)ot and )is successor %resident 4o)nson developed programs aimed at eliminating poverty* &conomic

/)e 19#"s +as c)aracteri=ed by 6long uninterrupted economic e.pansion71* /)e )ousing and computer industry gre+ more t)an t)e leading industries in t)e 195"s +)ic) are t)e automobile industry c)emicals and electrically, po+ered consumer durables* 1 http://elcoushistory.tripod.com/economics1960.html 4essica 4aye S* >anieses November 19 !"1#

O.M Scott and Sons Comany

!

Demograic

/)is period +as t)e time o t)e 6baby, boomers7 +)erein birt) rate gre+ double and triple or t)ird and ourt) c)ildren respectively* Socio- cultural

Muc) o t)e 19#"s +ere c)aracteri=ed by civil rig)ts movement by blacpeople and gro+ing number o student activists* Maret (rofile + Outloo

;n 1959 upon revie+ o t)e companys progress management believed t)at Scott +as still not mar-eting its products as eectively as possible* ;t +as estimated t)at an annual mar-et potential o ?1"" million e.isted or Scott products* ;n its ot)er product lines Scott is acing competition against nationally -no+n c)emical irms* /)is led management to conclude t)at t)e most eective +ay or Scott to preserve its preeminent mar-et position +ould be to pus) or immediate urt)er mar-et penetration* Cometition

Competition in t)e ot)er product lines o Scott are getting tig)ter* ;n terms o its main products its e.periencing lost sales to competitors +)en Scott dealers could not supply t)e demand due to lac- o enoug) inventory* ,ecnology

/ec)nology in t)e 19#"s is c)aracteri=ed by continuous gro+t) and innovation* /)is enabled Scott to continue developing its products* Resources Cororate /rancise

/)e main corporate ranc)ise o Scott is its upgraded grass seed lines* Sareolders Mareting (rofile

4essica 4aye S* >anieses November 19 !"1#


3

(roduct

@rass seeds c)emical +eed and garden pest controls and special, purpose la+n ertili=ers* (rice

%rice is not e.plicitly stated in t)e case* (lace + Distri)ution

Scott started selling its product in small local mar-ets in ()io* ;t t)en e.panded to distributing its products t)roug) small retail stores and garden centers across t)e country* (romotion + $dvertising

0it) t)e success o its mail, order business Scott started advertising e.tensively and added a ree maga=ine called 'a+n Care in its orders* /inancial (rofile (rofita)ility

Scotts product development program continued apace +it) t)e buildup in t)e direct selling orce* $y t)e end o t)e 195"s t)e company +as enganged in t)e purc)ase processing and sale o grass seed and t)e manuacture and sale o ertili=ers +eed and pest control products mec)anical spreaders and electric la+n mo+ers* ;n 1959 sales increased to ?3"*# million and proits to ?1*5 million* A large proportion o t)ese sales comprised ne+ products t)at )ad been developed and patented by t)e company +it)in t)e past e+ years* /inancial Leverage

Scott decided to pursue gro+t) strategy due to t)e t)reat o ne+ entrants* /)e company decided to )ire more people sales increased as +ell as inventories and t)e manuacturing capacity +as not able to -eep up* Furt)er accounting systems and controls o t)e company +as not prepared +it) t)e gro+t)* /)is resulted into problems o cas) budgeting and proection* Scott also )ad problems collecting its receivables* 8uge amount o cas) is also pent in >& activities* Cometitive $dvantage

;ts national ield sales organi=ation +as able to address t)e problems o t)e companys dealers in terms o accessibility o its products by t)e customers* $lternative Courses of $ction



<

$lternative 01 Continue te seasonal dating lan and trust receit olicies and ee te target gro2t rate of 345

%ros: • •

ealers are able to -eep t)eir inventory investment eeping t)e target gro+t) rate o !5 +ill enable Scott to -eep its mar-et s)are*

Cons • •

;ncrease in dealers inventory investment is inanced by Scott Seasonal datings and trust receipts resulted to increase in receivables since dealers +as not able to pay on time due to t)e seasonal nature o t)e business*

$lternative 31 Continue te seasonal dating lan and trust receit olicies and lo2er te target gro2t rate of 345

%ros: •

ealers are able to -eep t)eir inventory investment

Cons: •

• •

•

Seasonal datings and trust receipts resulted to increase in receivables since dealers +as not able to pay on time due to t)e seasonal nature o t)e business* ;ncrease in dealers inventory investment is inanced by Scott 'o+ering t)e target gro+t) rate may result to loss o mar-et s)are and competitiveness in t)e mar-et 'o+ering t)e target gro+t) rate is inconsistent in Scotts obective in being t)e mar-et leader

$lternative 61 Discontinue te seasonal dating lan and trust receit olicies and ee te target gro2t rate of 345

%ros: •

• •

ealers and ield sales orce are simulated into inding eicient +ay in managing t)eir inventories eeping t)e target gro+t) rate o !5 +ill enable Scott to -eep its mar-et s)are* Management can ocus in establis)ing procedures to better collect receivables t)us improving t)e inancial position o Scott

Cons: •

ealers mig)t ace problems in increasing its supply o Scott products Conclusion + Strategic Direction



5

;t is recommended or Scott to -eep t)e annual gro+t) rate o !5 )o+ever t)e company +ould )ave to discontinue its seasonal dating plans as +ell as its trust receipt plans* /)ese t+o policies are resulting to )ig) receivables* ;n order to sustain !5 gro+t) rate Scott must also increases its cost o sales and e.penses t)us presenting t)e need or Scott to inance t)is* Scott already )ad problems collecting its receivables and introducing t)e trust receipt policies made t)e situation even +orse* 7rand Design

(*M Scott must: 1* /)oroug)ly e.plain to t)e dealers t)e reason or t)e discontinuance o t)e seasonal dating plans and trust receipt* !* Fi. t)e accounting system and controls inside t)e company* 3* Assist t)e dealers and ield sales orce in establis)ing eicient +ays in anaging t)eir inventories*



#

8istorical

Net sales Cost o sales and operating e.penses @eneral and administrative researc) and development e.penses epreciation and amorti=ation ;nterest C)arges arnings beore ta.es on income Federal and state ta.es on income Net income ater ta.es


(ro*ection 9345 annual gro2t rate:

0;<0 =06;>

0;<3 46?;34.06

0;<6 <@?=><.=0

B3<<<"*""

B
B53#<3*3D

B3<""*""

B<E13*3#

B#"1#*D"

!D"" B13#"*""

BD3D*1# B1<1<*3D <"<5*5< B!"E!*3D

B9!1*<5 B1D#D*9D 5"5#*93 B!#"!*9D

0?;<6.0@

3?=46.;<

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OM Scott and Sons Case Analysis & Corporate Strategy

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