Shorefast Case Study B March 2013

give in of limit Introduction.. 1 Financial analytic thinking. .. . 1 Strategy Diamond Model7 national Analysis. . 8 Value perform up Analysis. .. 8 VRINE Analysis. 12 External Analysis13 Porters five forces13 PESTEL.. .. 14 Alternative Evaluations. 15 Fit digest. . 18 Conclusion.. . 19 Recommendations 19Introduction Plant Nutrients Inc. (PNI) is an international companion that supplied fertiliser ingredients used by its subsidiaries in 6 geographic atomic morsel 18a which atomic number 18 no.theastern United States, Eastern Canada, Europe, Australia, New Zealand, and South America. The general manager of PNI is Brian Dunwoodie and the food marketing manager is Dave Claussen. Mr. Dunwoodie and Mr. Claussen atomic number 18 the main decision makers indoors the establishment. They were meeting with severally other(a)(a) to de boundaryine the main issues of the companion, which how to improve alliances performance next year (1999).They came up with tercet emf alt ernatives, which are strengthening the existing business, subjoining a spill business and adding clearcutness rude operate to better PNIs performance next year. For choosing the surmount alternatives, this paper depart use different frameworks and models to take apart each alternative, for example financial analysis, strategy diamond model, internal analysis (Value Chain and VRINE), external analysis (Porters 5 forces and PESTEL). After analyzing all these parts, the fit between internal and external milieu leave alone be analyzed as well. Financial Analysis 1. Operating income statement (Exhibit 1)As Exihit 1 in the upshot shows that the main merchandise PNI had sold was Fertilizer, the total gross revenue of PNI in 1998 is $4,621,097, which consist of the gross revenue of Fertilizer( $3,339,097), the gross revenue of pesticides ($1,058,000) and the sale of attends ($224,000). The sales of fertilizer accounted for 72. 3% ($3,339,097/ $4,621,097) of total sales, t he sales of pesticides accounted 22. 9% in the total sales, and the servicing only accounted for 4. 8% in the total sales, so fertilizer product generate more than sales than pesticides and run and this also means the sales of pesticide and serve may guide colossal growth likely in the afterlife.Hence, PNI should focalise more on the sales of pesticide and service in the future. In addition, the gross strand of fertilizer was 20. 07%, and the gross margin of pesticides was 18%. Among these products, fertilizer was the major contributor of PNIs profit. In harm of the sales of each product, the analyst testament use the fol offseting t fittings to identify what the major markets and customers of these products. 2. Fertilizer sales No. 1 The component part of PNIs customers accounted in the Fertilizer Market. (Formula Number of Customers in PNI / Number of Customers in the solid market)Market AreaPNI Farm SizeSalesCustomersSalesCustomersMarket Share Small$1,128,000527$986 ,00040476. 7% average$10,635,0001578$1,259,00017110. 8% Large$3,631,00095$319,00099. 5% perfect(a)$15,394,0002200$2,564,00058426. 5% No. 2 The percentage of the fertilizer sales for the market and for PNI all over the total sales by customer segment, 1998 Market AreaPNI Farm sizeSalesSales Small7. 33%38. 5% Medium69. 1%49. 1% Large23. 6%12. 44% Total light speed%100% Market AreaPNI Farm sizeSalesSales Small100%87. 41% Medium100%11. 84% Large100%8. 79% Total100%16. 7% No. The percentage of PNIs fertilizer sales contribute to the market sales by customer segment, 1998 3. Pesticide Sales No. 4 The percentage of PNIs customers accounted in the Market. Market AreaPNI Farm SizeSalesCustomersSalesCustomersMarket Share Small$797000527$35600020939. 6% Medium$63120001578$4580001066. 7% Large$3,300,00095$244,00077. 4% Total$10,409,0002200$2,564,00032214. 6% No. 5 The percentage of pesticide sales for the market and for PNI over the total sale by customer segment, 1998 Market AreaPNI Farm s izeSalesSales Small7. 66%33. 6% Medium60. 64%43. 3% Large31. %21. 2% Total100%100% No. 6 The percentage of PNIs pesticide sales contribute to the market sales by customer segment, 1998 Market AreaPNI Farm sizeSalesSales Small100%44. 67% Medium100%7. 26% Large100%6. 79% Total100%10. 16% Interpretation of tables 1. plug-in No. 1 and No. 4 For both fertilizer products and pesticide Products, PNIs major customers are the teeny farm owner (Fertilizer 76. 7%, Pesticide 39. 6%), so the future trend for PNI is to take more forte and great farm size customers (Medium Fertilizer 10. 8%, Pesticide 6. 7% Large Fertilizer 9. 5%, Pesticide 7. %). 2. Table No. 2 and No. 5 in the market area, the sales of fertilizers, the strength farm account the monumentalst portion of sales (69. 1%). For the sales of pesticides, the medium farm still accounts the largest portion of sales (60. 64%). In the PNIs area, both the sales of fertilizers and pesticides to the medium farm customers charter the mel lowest percentage (Fertilizer 49. 1%, Pesticide 43. 3%) therefore, PNI should concentre on the sales of fertilizer and pesticide to the medium farms customers because it accounts the largest part of PNIs total sales. 3. Table No. 3 and No. The sales of PNIs fertilizers and pesticides to the small farms customers have already gained the largest sales in the whole market (Fertilizer 87. 41%, Pesticide 44. 67%). However, for the sales of PNIs fertilizers and pesticides to the medium and large farms customers account a rattling small portion of the total sales in the whole market (Medium Fertilizer 11. 84%, Pesticide 7. 26% Large Fertilizer 8. 79%, Pesticide 6. 79%). Hence, PNI should also indemnify more attention to attach the sales to the medium and large farms customers due to its huge growth potential drop. . According to the Exhibit 5 in the case, the large farm size prefer Materials and Regular fertilizers and it contributes al virtually 54. 3% of the material sales to total sales. in that respectfore, PNI should focal point on selling Materials to large farm size customers. However, the sales percentage of the pension and regular fertilizers, which in the medium farm size contributes the most to the total sales of the market, and the sale percentages are 53. 1% and 59. 7% respectively, and the Exhibit 4 showed that the Premium fertilizers and Regular fertilizers of PNI have the highest ($89. 5) and second highest gross margin ($66. 11) hence, PNI should focus on selling premium and regular fertilizers to small and medium farm size customers. In addition, it is unnecessary for PNI to focus on the sales to dealers because PNI domiciliate non stop the trend that the sales volume to dealers is decreasing year after year. reflection 1. Medium and large farmers have great grow potential. 2. Small and Medium farms prefer Premium blends fertilizers, which is the most profitable fertilizer product in PNI (gross margin $ 89. 95/ ton) Strategy Diamond ModelT he strategy diamond, which includes arenas, vehicles, differentiators, staging and pacing, and economic logic, shows how well a company do its business in a strategic level. Arenas PNIs current product and service lines consisted of fertilizers, pesticides, custom cover services and oil testing. The PNI in Lancaster is one of the subsidiaries in the 6 geographical regions, which are Northeastern United States, Eastern Canada, Europe, Australia, New Zealand, and South America. In cost of statistical distribution channel, the company outsource a trucking company to cut down on their distribution cost.Moreover, the company have modern equipment to go products and have the best trained operators to post services in the region. Vehicles There is no information about vehicle in the current situation. However, if PNI select the second alternative, which is adding a seed business in the near future, the company may alliance with Larson Seed, a regional seed producer, to post expertis e and sales training for PNI sales advisors. Differentiators PNI bundles their expenditures so that when a farmer buys their product the services are also included in the price.The services provided are also customizable to the farmers needs. They have the most qualified operators in the region, and because of this, they are able to provide the highest quality services. They have a bulletproof long lasting descent with their customers as they have been in the business for 20 long time. Furthermore, PNI is the only fertilizer supplier in the area with copy estimableed, premium fertilizers, had invested heavily over the years to develop and test their products. apiece customer needs different services that depend on that customers situation by creating value bundle.Staging and tempo There is urgency for PNI to do internal development because the company wanted to perform better in the next year (1999). So, the top management had come up with three alternatives to either adding n ew businesses or strengthening the current business. Economic logic There is a great potential for PNI to generate more profits when the company minimize its cost. The case mentioned that PNI didnt succeed its utmost might. For example, the capacity of PNI portmanteau word engraft is 14,000 tons/ year however, it rightful(prenominal) blended approximately 10,000 tons in 1998.By achieving the maximum capacity, the company chthonianside utilize the economies of scale to assign the fixed costs of the production into each process, so that the company cigarette make more profit. observances Overall, PNI didnt perform very well in 1998 because the operations within the government dont function well. The major reason of it is that the production level didnt meet the maximum capacity, which increases the cost of each product. When costs go up, the revenue will decrease (assume the volume sold is the same).Internal Analysis-Value Chain analysis The Value Chain is a tool to analyz e the internal environment of a company and determine where the business concentrates their efforts. Inbound logistics PNIs storage warehouse met the latest U. S. environment standards for fertilizer and pesticide fund however, its storage is able to handle a substantially larger volume than currently required. This means the company have high variable cost per item because it didnt fully utilize its storage. Operations The capacity of PNI blending plant is 14,000 tons/ year however, it just blended approximately 10,000 tons in 1998.This means PNI were not achieving the maximum capacity. The company has two types of application equipment, which are modern and in better working order. The graduation type is fertilizer equipment, which consist 25 bulk, full-typed broadcasters. The cost of the equipment is incorporated in the price of fertilizer, so it is publish for customers. However, customers just used bulk spreaders on about 80, 000 commonwealth in 1998, which is about 32000 acres per spreaders, which is little than a spreaders capacity of about 4000 acres. So, the company mint reduce the number of spreader it gave to customers to reduce costs. furrow spreader is more stringive to large and medium farmers. The capacity is 8000 acres per year under holy person condition, however, only 4000 acres in 1998, which is only half of the actual capacity. Consumers can choose to pay for it by bundling price of equipment to fertilizers or separate the price for spray equipment and fertilizers. The other type of application equipment is pesticide application equipment. There are two self-propelled applicators under pesticide application equipment, which are small building block applicator and larger unit applicator.The capacity is 8,000 acres per year for smaller unit and 10,000 acres per year for larger unit. In the last two years, these two units are fully utilized, which sprays a total of 18, 000 acres of land each year. The problem is two application units were fully booked, whether lack of application capacity major force play be constraining pesticide sales. The injury testing lab can handle 14000 samples per year however, it only handled 6000 samples in 1998. Outbound logistics PNI deliver raw materials by using an excellent rail service and a topical anaesthetic trucking firm handled all shipment to customers.Dunwoodie said that the outsourcing of PNIs trucking had reduced costs and investments substantially. marketing and sales PNI is the only fertilizer supplier in the area with proprietary, premium fertilizers, had invested heavily over the years to develop and test their products, which are urea and ammonium, regular N-P-K, and premium N-P-K. The last product was a proprietary product that carried the Nutri-Plus brand, which provides significant economic benefits to farmers and the sales of it accounted for half of sales in 1988 and an increasing percent percentage of PNIs total sales over time.Most of customers didnt as k about price, so they are less(prenominal) price sensitive. Dunwoodie estimated that to be about 40% of the total acres hard-boiled with chemicals sold by PNI. The market segments are depending on the size of farm, which are sorted by small, medium and large. There are up to 100 acres of crops in small farms, 100-500 acres of crops in medium farms and over 500 acres of crops in large farms. PNI charge on the basis of the customers ability and willingness to pay and are sharing in the benefits it prepare for the customers, which result in higher margin, premium products.However, PNI lost profit on the higher prices of these products due to high cost of service. The company had about $25,000 in its bud buy the farm for marketing. PNI spent most of them on PNI-sponsored events where 25-50 local farmers were treated to a meal, rough calculatetainment, and an information program. PNI also advertised in local newspaper and gave away hats, pens, and other premiums to customers and pro spects. Moreover, $5000 was spent on a corporate brochure in 1998. Service extensive agronomic services soil analysis, crop scouting, nutrient consulting, micronutrients analysis, and pesticide and fertilizer application.Sales representative do delivery, application, consultation, consultation, and billing to customers. Also, they kept latest product knowledge and attempted to build strong personal familys with each customer result in low customer turnover rate. Procurement Supplied by its mother company. Technology development PNI use modern equipment to produce products and advanced information system to provide more accurate data and feedbacks to the company. Also, if it decides to enter into the precision agricultural business, it needs to use GPS system and other AgriTechs, such as Yield Mapping and Remote detective work Mapping.Human resources management Brian Dunwoodie has 11 staves reporting to him that includes sales, marketing, accounting, production, administrative func tions. Staffs are flexible and em origined, so that they could do what needed to be done. Dave Claussen is responsible for developing PNIs marketing program. There are two services managers who work with sales consultant to determine the types of products and application rates for individual farmer clients. PNI is possible to use upper-level technical stick out because it use full time and better trained employees than competitors.Other company use part-time employees with little expertise with the equipment or procedures involved for applying fertilizers and pesticides. There are 4 sales consultants who is selling PNI products and services, working with existing customers, explaining soil test results, helping develop an annual fertilizer and pesticide program, providing general technical advice and attracting new customers. Average 30 days each year to sales and product training, compared to other competitors less than 15 days on training. Each consultant had a designated sales territory, which has approximately 140 customers. annotations 1.PNI have extra capacity of warehouse and machinery. 2. Outsourcing trucking service reduce the companys cost. 3. Staffs are well-trained and be able to provide banner services to customers. VRINE analysis VRINE is a tool to analyze the internal resources and capabilities to determine if a company has a competitive reinforcement over competitors. Value There is no unique resource within the organization because the engine room and resources the company use to produce the products is easy to access by other competitors. However, the company provide customized services and products to customers, which provide benefits to farmers.Also, PNI has the best operators within the organization to serve its customers, which helps the company to build a unsloped relationship with customers. It also used the win-win philosophy and dispatched sales representatives to keep a steady-going long-term relationship with its customers R arity The resources the company use are not rare, because it can be access by competitors too. Inimitability The applied science the company use to produce products is easy to imitate by competitors. Non-substitutability The chemical fertilizer product can be substituted by Biofertilizers, which is made from microorganisms.Pesticide can be substituted if farmers buy pest-resistant seed to remove the need to by pesticides. Exploitability PNI didnt manage its resources well because they have wasted a lot of resources in the process of operations. For example, the capacity of PNI blending plant is 14,000 tons/ year however, it just blended approximately 10,000 tons in 1998. Air spreader is more attractive to large and medium farmers. The capacity is 8000 acres per year under ideal condition, however, only 4000 acres in 1998, which is only half of the actual capacity. Observation 1.PNI has a non-sustainable competitive advantage. 2. The use of resource within the organization is poor. External analysis -Porters five forces Michael Porters five forces model, which determined perseverance profitability, included degree of rivalry, threat of new entrants, supplier power, buyer power and threat of substitutes. Rivalry (High) There were five companies sell fertilizers and chemicals to farmers around Lancaster. PNIs largest competitor is Lancaster County Co-op. It supplied both crop and livestock inputs and purchased grain through a separate division.It also offered application services-farmers were dissatisfied with the quality of these services and co-op didnt provide many value-added services, such as precision agriculture. another(prenominal) competitor is Smith Farm lend, which is an independent dealer. It only sold chemicals and fertilizers and provide custom application services using less expensive, poorly trained, part-time operators. Smith Farm Supply offered the best prices in the area. The other three competitors are Archibald Farm Supply, Henderson Farm Supply, Wilmington Crop Services they all focus on supplying chemicals rather than fertilizer.Threat of new entrant (Low) Since the competition is so fierce, there is less chance that new entrant want to enter into the market. Supplier power (Low) PNI can directly get supplied from its mother company. Plant Nutrients International supplied fertilizer ingredients to its subsidiaries. And their sales would not be influenced by the suppliers. Buyer power (High) The changeing cost for customers is very low, so no matter which company offer good service and lower price customers could switch forth and back. Threat of Substitutes (medium-high)Fertilizers potential substitute Customers may switch to biofertilizer, which is made from organism is applied either by coating seeds with the fungus, because peoples awareness of embody health. Pesticides potential substitute farmers may buy pest-resistant seed to remove the need to by pesticides Observation Overall, the profitability of the mar ket is not attractive because the competition is fierce, buyer power is high and there is some product can substitute the products the company currently sell. PESTEL AnalysisPESTEL analysis is used to analyze the external environment of a company it stands for Political, sociocultural, Environmental, Economic, Technological and Legal. Political PNIs warehouse met the latest U. S. environment standards for fertilizer and pesticide storage. Sociocultural Many of the small and some of the medium farms in Lancaster were owned by Amish farmers, they were hard-working farmers whose religious beliefs called stewardship of the land. Most of them are willing to adopt technology that supported stewardship of the land.Environmental The chemical fertilizers and pesticides PNI sell have a potential to begrime land, so the company should be careful about the environmental costs regarding ecological or environmental issues. Economic Asian financial crisis happened in 1997-1998, so it is not a tim ing to enter market into Asia. However, the financial crisis has limited influence to the United States economic environment. Technological The company use advanced selective information System to provide more accurate and detailed data on customers.Moreover, PNI is possible to use high-level technical support because it use full time and better trained employees than competitors. Legal Several federal regulations cover fertilizer manufacturing and transportation safety and limit their potential impact on the environment and security. Observation Overall, there are many factors outside of the company have the power to influence a companys decision and strategic plan. Alternatives Evaluation 1. Working the existing business harder Dunwoodie says that if they were to make no changes and just work their existing business harder they would be able to meet their objectives.They are lagging in the large farm segment and if they were to add 20 farms from that segment they would be able t o meet their objectives. They could use their prodigality capacity to spread out their fixed costs. Advantages a. It has a great potential to increase the number of customers from medium and large farmers. b. It can help the company to achieve its maximum capacity, which will reduce the cost of each product because it assigns the total fixed cost into more numbers of products. (Economies of Scale) c.Could meet the financial indebtedness within one year by attracting more medium farmers (the most profitable market segment) Disadvantages a. It is hard to attract larger farmers because they prefer low-priced products. If PNI wants to attract larger customers, it should reduce product price, which means the profit will decrease as well. b. They should shoot and train more sales consultant to meet the increasing number of customers, which increase PNIs cost too. 2. Adding Seed Business Dunwoodie thought that adding a seed business to PNI would add value to the company.With the new gen etic seed technology chemical sales would decline in the future thus creating more opportunities for seeds. Companies like Larson Seeds were already successful seed suppliers. Larson was looking for a distributer in Lancaster, but Dunwoodie was worried about the already existing competition in the seed market, the new staff they would need to hire, and the training for the employees and the company alike to get into this business. Advantages a. Its new genetic technology might increase seed sales. b. It can help PNI complete the product line. Disadvantages a. he new genetic technology can also decrease chemical sales in future, which conflict with PNIs current product line. b. Another challenge for PNI to access to the seed business was that it needed to partner with a good seed producer, so whether PNI can cooperating with a regional producer would became an important question for Dunwoodie to consider if he wanted to enter the seed business. c. This alternative is hard to meet th e companys one year financial obligation because it is a new business to add a seed business, PNI should take times to discover the right strategy to sell seeds. . the competitive market is fierce, for example, Monsanto is a giant in the seed business. It is hard to luxate market share from it. 3. Adding a Precision Agriculture Services If PNI was to adapt the precision agriculture they would be the low gear ones to market with this service, thus creating a huge competitive advantage. There would be a huge start-up cost to start such a venture, expenses like new staff, equipment, trucks, and training. With is new technology they would be able to better serve their customers allowing them to put together A-one agronomic packages.A lot of farmers were skeptical of the new technology but after reading the survey, I find that not many of the farmers are educated in the benefits of the new technology. It would be the sales forces job to educate the customer on the benefits to be able to make the sale. Advantages a. Many farmers were aware of precision agriculture and precision agriculture was a attack trend, so adding precision agriculture would improve the customer service and increase total sales. b. It can complete the companys services by providing more precise and accurate method to application service. . It will be a competitive advantage for the company, because no competitor enters into this service. Disadvantages a. High cost it would cost $10,000 to set up one pull-type spreader and $225,000 to purchase the truck with six separate tanks. Moreover, PNI still needed people, computers, software, and monitors and so on the investment would be extremely large. b. The survey found that many farmers had skepticism regarding the real benefits of the precision agriculture. c. It cannot meet the companys financial obligation in one year. FIT AnalysisInternal Internally PNI hires the best operators and most experienced sales consultants so that they are able to provide the best services and internal employees. By meet the companys goal, which is better financial performance in the next year, PNI should hire more sales consultant to meet the increasing number of customers. Moreover, the company should try to achieve its maximum capacity in the next year, because it will significantly reduce the COGS. External PNI has 5 competitors in Lancaster, which created a fierce competitive environment.However, PNI has its competitive advantage over other competitors, which is the customized and transcendent service it provided and also the relationship it built with customers are both the assets of the company Moreover, there are many factors externally have the power to influence a companys decision and strategic plan. Observation Overall there is a good fit between PNIs internal and external environment. It recruited full-time and well trained staff to provide superior services to customers, which is a competitive advantage of the company.External ly, customers and even competitors perceived PNI as superior services providers with knowledgeable sales reps in the region. Conclusion In conclusion we think that PNI has the resource and aptitude to either entering new business or strengthening the current business, because they havent achieve the maximum capacity of machinery and warehouse. Moreover, medium and large farmers have great growth potential and they prefer premium blends fertilizers, which is the most profitable fertilizer product in PNI.In addition, outsourcing trucking service reduces the companys cost. Furthermore, PNI staffs are well-trained and be able to provide superior services to customers. PNI has a non-sustainable competitive advantage, which means its competitive advantage can be imitate by competitors. In addition, there are many factors outside of the company have the power to influence a companys decision and strategic plan, such as governments regulation and sociocultural factors. RecommendationAfter analyzing the organizations internal and external environment, and all three alternatives, we recommend PNI choose the first alternative, which is working on the existing business harder. We also suggest that PNI focus on targeting medium farmer because of the following reasons 1. PNI have a competitive advantage over their competitors because of their superior quality and customer relations. At the same time, medium farmers value good services when buying products, which is what PNI good at to do. 2.They are less price sensitive than larger customers, which can help PNI increase sales. 3. Medium farmers prefer premium blending fertilizer, which is the most profitable products in PNI. 4. There are only 6. 7% of medium farmers buy fertilizers of PNI and 10. 6% medium farmers purchase PNI pesticides. This means there is a great potential for PNI to get more customers from medium farmer segment because the customer base is big. 5. It has a greater potential than other alternatives to h elp PNI achieve its one year financial goal.Other two alternatives need longer term than the alternative 1 to breakeven, because PNI needs cost more money to implementing the seed business and precision business. However, it costs the company less to implement the first strategy, because the company already have all capabilities and resources to implement the first alternative. However, it is not to say PNI should only target on medium customers. Instead, PNI should keep targeting small and large customers, because it is good to diversify the risk of targeting only one market segment. However, the medium farmers should be the priority of PNI.