Shorefast Case Study B March 2013

Table of Contents Introduction.. 1 monetary compendium. .. . 1 Strategy Diamond Model7 interior psycho abbreviation. . 8 Value Chain Analysis. .. 8 VRINE Analysis. 12 External Analysis13 Porters pentad forces13 PESTEL.. .. 14 Alternative Evaluations. 15 Fit analysis. . 18 Conclusion.. . 19 Recommendations 19Introduction name Nutrients Inc. (PNI) is an international federation that supplied plant food ingredients apply by its subsidiaries in 6 geographic ara which be northeastern United States, Eastern Canada, Europe, Australia, New Zea bring down, and southeastern America. The general manager of PNI is Brian Dunwoodie and the grocery store manager is Dave Claussen. Mr. Dunwoodie and Mr. Claussen argon the main end makers within the organization. They were tucking with from each(prenominal) one some new(prenominal) to make up ones mind the main issues of the guild, which how to improve social clubs capital punishment next year (1999).They came up with collar authorization secondarys, which atomic number 18 fortify the existing undertaking, adding a microbe business and adding precision agricultural operate to better PNIs slaying next year. For choosing the best alternatives, this paper entrust part different frameworks and models to analyze each alternative, for example fiscal analysis, system diamond model, internal analysis (Value Chain and VRINE), immaterial analysis (Porters 5 forces and PESTEL). After analyzing all these parts, the fit amidst internal and external environment will be analyzed as wholesome. Financial Analysis 1. Operating income statement ( bear witness 1)As Exihit 1 in the case shows that the main harvest-feastion PNI had sold was plant food, the thorough gross gross gross gross r withalue 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 serve ($224,000). The gross gross revenue of pl ant food method of accountinged for 72. 3% ($3,339,097/ $4,621,097) of total sales, the sales of pesticides accounted 22. 9% in the total sales, and the service merely accounted for 4. 8% in the total sales, so fertiliser crossway generate to a greater extent sales than pesticides and run and this overly means the sales of pesticide and services whitethorn ready huge growth potential in the future.Hence, PNI should rivet more on the sales of pesticide and service in the future. In addition, the gross strand of fertiliser was 20. 07%, and the gross margin of pesticides was 18%. Among these products, fertilizer was the major contributor of PNIs profit. In terms of the sales of each product, the analyst will make occasion of the following tables to identify what the major commercialises and fashioners of these products. 2. Fertilizer sales no 1 The dowry of PNIs clients accounted in the Fertilizer Market. (Formula issuing of Customers in PNI / Number of Customers in th e whole market)Market AreaPNI bring forth Sizegross revenueCustomersSalesCustomersMarket Share dainty$1,128,000527$986,00040476. 7% strong point$10,635,0001578$1,259,00017110. 8% Large$3,631,00095$319,00099. 5% Total$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 prove coatSalesSales Small7. 33%38. 5% Medium69. 1%49. 1% Large23. 6%12. 44% Total100%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 sizeSalesSales 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. Table No. 1 and No. 4 For both(prenominal) fertilizer products and pesticide Products, PNIs major customers are the small arise owner (Fertilizer 76. 7%, Pesticide 39. 6%), so the future trend for PNI is to pull back more modal(a) and jumbo invoke 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 modal(a) provoke account the largest portion of sales (69. 1%). For the sales of pesticides, the strong point farm still accounts the larg est portion of sales (60. 64%). In the PNIs area, both the sales of fertilizers and pesticides to the medium farm customers gather in the soaringest percentage (Fertilizer 49. 1%, Pesticide 43. 3%) thitherfore, PNI should focalize 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 allow 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 very 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 pay more attention to plus the sales to the medium and large farms customers due to its huge growth potential. . accord to the Exhibit 5 in the case, the la rge farm size tell apart Materials and Regular fertilizers and it contributes al nigh 54. 3% of the material sales to total sales. at that placefore, PNI should focus on transporting Materials to large farm size customers. However, the sales percentage of the premium 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 kick in 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 back endnot stop the trend that the sales volume to dealers is decreasing year by and by year. Observation 1. Medium and large sodbusters start out great grow potential. 2. Small and Medium farms prefer Premium blends fertilizers, which is the most lucrative fertilizer product in PNI (gross margin $ 89. 95/ ton) Strategy Diamond ModelThe strategy diamond, which includes arenas, vehicles, differentiators, present and pacing, and economic logical system, shows how well a caller-out do its business in a strategical level. Arenas PNIs current product and service lines consisted of fertilizers, pesticides, custom finish services and oil seeing. 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 terms of distribution channel, the ac lodge outsource a hauling high society to cut down on their distribution be.Moreover, the union involve modern equipment to pose products and sacrifice the best tailed operators to hand over services in the region. Vehicles There is no information about vehicle in the current situation. However, if PNI select t he second alternative, which is adding a germ business in the near future, the company may alliance with Larson Seed, a regional plant producer, to bring home the bacon expertise and sales training for PNI sales consultants. Differentiators PNI bundles their outlays 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 subscribe tos. 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 strong long stand uping relationship with their customers as they have been in the business for 20 eld. Furthermore, PNI is the hardly fertilizer provider in the area with proprietary, premium fertilizers, had invested heavily over the years to develop and test their products. from each one customer demands different services that depend on that customers situation by creating value bundle.Staging and Pacing There i s urgency for PNI to do internal development because the company wanted to perform better in the next year (1999). So, the top attention had come up with threesome alternatives to every adding newborn businesses or strengthening the current business. Economic logic There is a great potential for PNI to generate more bread when the company minimize its comprise. The case mentioned that PNI didnt achieve its upper limit electrical condenser. For example, the cognitive content of PNI shading plant is 14,000 gobs/ year however, it just blended virtually 10,000 tons in 1998.By achieving the maximum electrical capacity, the company can utilize the economies of musical scale to assign the fixed tolls of the production into each process, so that the company can make more profit. Observations Overall, PNI didnt perform very well in 1998 because the operations within the organization dont lick well. The major reason of it is that the production level didnt accomplish the maximu m capacity, which subjoins the live of each product. When costs go up, the revenue will slack (assume the volume sold is the same).Internal Analysis-Value Chain analysis The Value Chain is a tool to analyze the internal environment of a company and determine where the business concentrates their efforts. Inbound logistics PNIs warehouse met the latest U. S. environment standards for fertilizer and pesticide storage however, its storage is able to handle a substantially bigger volume than soon required. This means the company have high versatile 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 somewhat 10,000 tons in 1998.This means PNI were not achieving the maximum capacity. The company has dickens types of use equipment, which are modern and in honorable working order. The for the first time type is fertilizer equipment, which consist 25 bulk, full-typed spreaders. The c ost of the equipment is incorporated in the price of fertilizer, so it is free for customers. However, customers just used bulk spreaders on about 80, 000 demesne in 1998, which is about 32000 state per spreaders, which is less(prenominal) than a spreaders capacity of about 4000 acres. So, the company can cut back the number of spreader it gave to customers to reduce costs. station spreader is more extractive to large and medium farmers. The capacity is 8000 acres per year under ideal condition, however, scarce 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 dickens self-propelled applicators under pesticide application equipment, which are small unit of measurement applicator and bigger unit applicator.The capacity is 8,000 acres per year for littler 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 might be constraining pesticide sales. The dishonor testing laboratory can handle 14000 samples per year however, it only handled 6000 samples in 1998. Outbound logistics PNI demo raw materials by using an excellent rail service and a local trucking firm handled all shipment to customers.Dunwoodie said that the outsourcing of PNIs trucking had reduced costs and enthronements 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 pro vides 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 ask about price, so they are less price sensitive. Dunwoodie estimated that to be about 40% of the total acres treated 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 rolls 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 reach 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 budget for marketing. PNI spent most of them on PNI-sponsored events where 25-50 local farmers were treated to a meal, some attaintainment, and an information program. PNI also advertised in local theme and gave away hats, pens, and other premiums to customers and prospects. Moreover, $5000 was spent on a corporate leaflet 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 relationships with each customer result in low customer turnover rate. procurance Supplied by its mother company. Technology development PNI use modern equipment to produce products and advanced information system to provide more accurate entropy 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 Sens ing Mapping.Human imaginations management Brian Dunwoodie has 11 lags reporting to him that includes sales, marketing, accounting, production, administrative functions. Staffs are flexible and empowered, 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 high-level proficient concentrate because it use full time and better trained employees than competitors.Other company use temporary 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 good advice and attracting new customer s. 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. Observations 1.PNI have supererogatory capacity of warehouse and machinery. 2. Outsourcing trucking service reduce the companys cost. 3. Staffs are well-trained and be able to provide well-made services to customers. VRINE analysis VRINE is a tool to analyze the internal resources and capabilities to determine if a company has a matched advantage over competitors. Value There is no unique resource within the organization because the engineering and resources the company use to produce the products is easy to entrance fee 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 good re lationship with customers. It also used the win-win philosophical system and dispatched sales representatives to keep a good long-term relationship with its customers peculiarity The resources the company use are not rare, because it can be access by competitors too. Inimitability The engine room the company use to produce products is easy to obey 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 exploit of resource within the organization is poor. External analysis -Porters five forces Michael Porters five forces model, which determined industry advantageousness, 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 with a separate division.It also offered application services-farmers were dissatisfied with the quality of these services and co-op didnt provide many a(prenominal) value-added services, such as precision agriculture. some other competitor is Smith Farm Supply, 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 argufyr 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. vendee power (High) The pitching cost for customers is very low, so no point which company offer good service and lower price customers could merchandise 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 tidy su ms awareness of body health. Pesticides potential substitute farmers may buy pest-resistant seed to remove the need to by pesticides Observation Overall, the profitability of the market 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 have 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 colly land, so the company should be careful about the environmental costs regarding ecological or environmental issues. Economic Asian fiscal crisis happened in 1997-1998, so it is not a timing to enter market into Asia. However, the financial crisis has limited influence to the United States economic environment. Technological The company use advanced Information System to provide more accurate and little 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 some(prenominal) 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 to meet their objectives. They could use their excess capacity to spread out their fixed costs. Advantages a. It has a great potential to improver 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 poesy of products. (Economies of Scale) c.Could meet the financial obligation 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 hire and train more sales consultant to meet the increasing number of cu stomers, which subjoin 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 genetic 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 electrical distributor 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 coo perating with a regional producer would became an serious question for Dunwoodie to consider if he wanted to enter the seed business. c. This alternative is hard to meet the 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 take away market share from it. 3. Adding a Precision Agriculture Services If PNI was to oblige the precision agriculture they would be the first 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 superior agronomic packages.A lot of farmers were skeptical of the new technology but later reading the surv ey, I find that not many of the farmers are better 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 overture 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 rattling benefits of the precision agriculture. c. It ca nnot 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 well-read 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 superior 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 in ternal 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.Externally, 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 capability to either entering new business or strengthening the current business, because they harbourt 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 pursue 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 remember 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 acquire 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. Thi s 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 help 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 enforceing 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.