This week your business analysis and decision making skills will be utilized in the business simulation.? You will submit your budget for the year. You will have financial targets t

INDUSTRYWEEK.COM | SPRING 2021 | 31

DEPARTMENTS | SUPPLY CHAIN

Seven Strategies for Creating Business Resilience Learn how to be prepared for unpredictable supply chain disruptions.

In order to survive in an unpredictable supply chain environ- ment, businesses need to be incredibly resilient. While it is im- possible to predict the future, there are many steps that busi-

nesses can take to prepare for it. Companies need to be prepared for the abundant, unpredictable variables in supply chains, such as natural disasters, cyber-attacks, labor shortages, and, as we have seen over the past year, global pandemics and foundational changes in the way consumers purchase products.

We have compiled some key best practices to help companies create business resilience from within. Implementing these practices will best position your business to mitigate the supply chain variables that may arise.

1. Plan for the Worst-Case Scenario No one can predict the future, but everyone can plan for it. Compa-

nies that have already considered possible future disruptors, created plans for the worst-case scenarios and created contingencies around those plans will be better-equipped to adapt and respond quickly and effectively, fostering a much more resilient business.

2. Leverage Integrated Systems and Technology Eliminating siloes within your business is a critical component to

creating business resilience. Having disparate systems will stand in the way of creating synergy and collaboration, which is critical to resilience. Integrating the systems and technology within your business bridges gaps you may not even know you have, allowing teams and departments to stay connected and react more efficiently to potential challenges.

3. Improve Inventory Visibility and Flexibility Inventory is a large source of capital within a business but can of-

ten be mismanaged, decreasing resilience. Companies can often tie up most of their working capital in inventory by not knowing how to properly optimize and manage it. In order to remain resilient against future disruption, businesses should have consistent, real-time visi- bility into where inventory is located and how it can be redeployed, as well as the confidence that it can easily be adjusted depending on market conditions.

4. Establish Robust Forecasting and Planning Processes

When a major disruptor hits, supply and demand patterns are often the first critical processes to be disrupted. Companies that frequently deal with disruptors, such as unstable weather conditions, are more often prepared for impacts to supply and demand and have contin- gencies in place. However, companies that reside in more consistent and stable networks are more likely to be unprepared when disrup-

tors occur, because they have not created a plan for those conditions. Companies significantly increase their resilience when they enable quick adjustments to supply and demand patterns such as inventory allocation and fulfillment strategies.

5. Establish Flexible Manufacturing Processes Having flexibility in manufacturing processes is vital to responding

quickly to changes in demand. Whether a company is using lean or another system for process improvement, manufacturing should be flexible to fluctuating demand.

6. Reduce Lead and Cycle Times for Fulfi llment and Replenishment

Top executives all agree that longer delivery times and lack of busi- ness resilience are strongly correlated. If your business is unable to provide its customers with the products and services that they want, when and where they want them, customers will look elsewhere. Reducing cycle times is key to enhancing customer satisfaction and loyalty during periods of disruption.

7. Drive Continuous Improvement and Innovation The companies excelling during these disruptive times are consis-

tently creating and innovating. Finding new and inventive ways to meet customers’ needs is what will keep your reputation fresh and positive in the market. Driving innovation should start at the leader- ship level and be ingrained in your company’s DNA.

Next Steps Supply chains are always going to face curve balls—that much is

inevitable. It is how you prepare your business for those curve balls that will ultimately determine success versus failure. While, altogether, the above seven keys to success can seem daunting, taken one at a time, they can create lasting, positive change in the supply chain.

In moving forward, rather than attempting to implement them all at once, prioritize the strategies that will create the most value for your business and solve for your most critical business challenges. Imple- ment the above seven strategies to maintain customer satisfaction and profitability, even among disruption.

Gene Bornac is chief strategy o� cer at enVista, a software, con- sulting and managed services provider. He has more than 32 years of experience in the retail and consumer products industries.

By Gene Bornac

Credit: 163646283 © Josepalbert13 | Dreamstime.com

Copyright of Industry Week/IW is the property of Endeavor Business Media and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.

“Growing Your Business” – A Management

Simulation

Our Educational Objectives to Growing a Business,

while not Exhaustive, Necessitates that Future Leaders can:

• Derive a Strategy from an Understanding of SWOT and Porter’s Five Forces in Uncertain,

Ambiguous and Complex Global Environments,

• Convert that Strategy into an Executable Plan in the Short Term while Investing and Creating

Options for the Long Term,

• Make Decisions under Time Pressure, Scarce Resources, Limited Information and Divergent

Opinions,

• Communicate and Negotiate with Internal and External Constituencies for Win-Wins,

• Manage the Interdependencies across Functions,

• Measure, Interpret and Explain the Financial Impact of Decisions in an FP&A Methodology of

Variance Analysis

• Have a responsible mindset in Meeting Commitments within an Ethical Framework, and

• Be a Coach and Teacher to everyone within their sphere of influence.

All in the Context of Creating Shareholder Value !

To:New Management

From:Stanley Sloane

Welcome to Hisco Welcome to the Hisco Corporation! We're delighted to have you join us. I promise you two things: A lot of

hard work to turn this company into a profitable enterprise, and an opportunity to achieve the goals and

objectives that you set for yourself.

You can catch up on the history of Hisco when you have time to read the enclosed materials. The important

facts are clear. We've been in business for 2 years, and we're not doing well. Losses exceeded $130,000 last

year and all our cash is gone. We have used our entire credit line, and we are concerned about our ability

to stay in business. We have a good product and a market with tremendous potential. We currently have

excessive manufacturing capacity in place; we need to grow sales to stay afloat.

We know engineering; this is probably one of our strengths. We need to develop our skills in manufacturing

and marketing to become more competitive and learn where and when to invest our resources for results.

Most important, as we face the next year of operation, we need a new business plan. We need a set of goals

and objectives, a strategy to get us there, and a system to monitor and measure our progress.

Our two competitors are not sitting still. They are also re-organizing and building their ability to compete

in the same market with similar products. Redex has been good in manufacturing, and Matek has an edge

in marketing. We need to offset their advantages without losing our own engineering strengths. The

business environment is excellent. Our product is in the infancy phase of the life cycle, and we believe that

exponential growth is possible. We need to compete with a quality product at an attractive price, and we

need to let people know how good we are. We must invest in our future now and continuously. Pricing will

be critical for our success, and I do not want you to move price more than +/- 20% per quarter. We cannot

afford to sacrifice earnings for market share; I will be watching product margins closely and expect to see

significant improvement next year. Do not forget about the product quality. Our products help nurses

improve the quality of care at the hospital, and we cannot afford to jeopardize our reputation in the

marketplace.

I have assembled some memoranda to fill you in on where we have been and where we are now. The

information is mostly historical, yet it gives you a starting point. I am more concerned with where you take

the company rather than where it has been. I assume you will share that concern.

The primary reason the prior management team is no longer with us was their inability to plan and budget

for growth. The prior management team submitted a plan with approximately $240,000 of Net Income. This

target is unacceptable. Your net income commitment for the coming year needs to be between $300,000

and $400,000 to convince me that you can truly grow this business. Executing on this plan is fundamental

to our value of meeting commitments.

The Board and I wish you well. We will monitor your progress.

Regards,

Stanley Sloane

Chairman

To:Functional Managers

From:William Sellums (Marketing Manager)

Product & Industry Background We are developing an advertising theme, which will focus on the history of our product, its labor-saving

and productivity features, and its high degree of reliability. We will be asking each of you for your input as

we develop the advertising plan.

Most of you are aware of the background of our product and our industry. To summarize:

• Three companies entered the Reader technology business in 2021 and began selling products

in the first quarter of 2022. The Reader was developed to satisfy a need to reduce the time

hospital nurses devote to paperwork and administration. Several independent studies revealed

that approximately 40% of a nurse's time was consumed in non-patient activities. Trial

installations of standard computer terminals at nurse's stations have not solved the problem

because data entry and computer training requirements placed resource demands on the

hospital staffs that were unattainable.

• Hamada, Ltd., a Japanese electronics producer, developed a pick-up cell constructed as a solid-

state magnetic sensor using tunnel diodes and special ceramics. This pick-up cell detects marks

made with magnetic ink and records their position on a predesigned form. The cell is extremely

tolerant of registration errors and allows the remainder of the Reader device to be relatively

simple and inexpensive to build using off-the-shelf materials. The Reader is an input peripheral

that can be programmed to work with virtually all hospital computer systems. Each Reader

requires one pick up-cell.

• When installed, a Reader system includes a Reader, a special pen containing magnetic ink, and

preprinted, computer-generated patient forms. These forms are coated with a special chemical

compound similar to that used on heat-sensitive paper for fax machines. Using the pen

provided, a nurse marks the form to indicate procedures, drugs, dosages administered, and other

information relating to the patient. The form is inserted into the Reader, which converts the

marks to computer sensible form for transmission to a database.

Like our competitors, we sell Readers to hospital equipment distributors who package the Reader and its

ancillary components for sale to some 5,300 hospitals in the United States. We believe that we make a

quality product that will get better. We sell at a competitive price. The industry is healthy and on the verge

of tremendous growth. Aggressive advertising, marketing, and pricing strategies will stimulate demand.

TO:Functional Managers

FROM:Ferris Futrell (Finance Manager)

Discretionary Operating Plans 2024

(Company Use Only)

During our November 2023 planning meeting, we agreed on the following discretionary budget for 2024:

Quality Engineering:

$150,000

R&D:

$295,000

Marketing:

$219,000

Advertising:

$90,000

Lean Six Sigma:

$128,000

However, since that time, each functional manager made increases in one or more areas. I have heard from

you that we need to increase overall investment to successfully improve the product, the manufacturing

process, and our market position. Clearly we have limited cash resources at this time, and although we have

a line of credit, we must be sensitive to our cash position so that we do not exceed that credit limit.

I suggest that we revisit the planning decisions for 2024 during our next staff meeting to ensure that our

spending is consistent with our competitive strategy and the availability of resources. At that time, we may

wish also to continue our discussions on our resource allocation policies. For example, some of you have

suggested that discretionary expenditures in your functional area should increase as our sales volume grows.

We must come to agreement as to how this should be done.

Product pricing is extremely important to our fiscal strategy and corporate profitability. The market may be

receptive to a higher price until demand is satisfied, but we must watch this carefully. Be aware that Stanley

Sloane will not approve any price changes exceeding 20% up or down in one quarter. Control of our

production costs is essential if we are to be competitive and profitable. Marketing and Manufacturing must

address these topics if we are to be profitable.

TO:General Manager

FROM:Ferris Futrell (Finance Manager)

Line of Credit

In response to your question about State Street Bank's method of determining our adjustable line of credit,

I am providing a portion of the most recent bank letter from Loan Manager, Francine Friendly, on the

subject.

“. . . Our analysis of your industry reveals consistent, modest growth during the past year with little

fluctuation in price or terms.

After discussions with your parent company regarding the prior quarter’s performance and your company’s

increased cash needs to align with potential industry growth, we are pleased to extend your credit line to a

minimum of $425,000. We will continue to review your position and adjust your credit line every quarter,

as we do with all new companies. Your credit line will increase as your company grows, but it will not go

below $425,000. In each quarterly review, we will allow:

1. $100,000 for personal collateral now held;

2. Sixty percent of Accounts Receivable;

3. Thirty percent of the value of all finished goods inventories.

Your total line of credit will be either the sum of the above or $425,000, whichever is greater.

An interest rate of 15% per annum (3.75% per quarter) will be charged on money borrowed. Borrowing up

to the limit of the credit line will be automatic. As cash is received, repayment will also be automatic. In

any quarter, interest will be charged based upon the outstanding loan amount (i.e., your negative cash

balance) at the end of the previous quarter. You may, therefore, borrow automatically against your credit

line during any quarter, and you will pay no interest until the following quarter. We will inform you of any

changes in our policies or interest rates.

When a line of credit is exceeded, dependent upon the severity of the overdraft and the company plan to

remediate the issue, the bank will determine the appropriate actions. In the quarter following the overdraw,

the current rate of interest will be charged on money borrowed up to the credit line; a loan restructuring

fee of $3,500 will be charged, and an interest rate of 21% per annum may be charged at the bank’s discretion

on money borrowed in excess of the credit line. If such an incident should occur, the bank and the company

will make every effort to resolve the overdraw condition immediately. Should that not happen and should

a successive overdraw occur, the bank may invoke additional remedial steps.”

I hope this clarifies any questions you have on the terms of the line of credit. Please note that exceeding the

credit line is not acceptable operating procedure. I recognize that certain negative business conditions may

be unforeseen, but for the most part, I would recommend appropriate sensitivity analysis to avoid an

overdraft situation.

TO:General Manager

FROM:William Sellums (Marketing Manager)

Market Growth

During our first 24 months of operation, we have gone from sales of 422 units in the first quarter to 829

units during the last quarter. That's nearly 100% growth since we started.

We are convinced there is tremendous potential growth for our product in the market. Growing demand

will follow expanding sales, marketing and advertising investment and decreasing prices. To get a major

share of that growing market, we need to be price competitive with a quality product, and we must make a

major dollar investment to market our product. Even though we have been in business for over a year now,

our name is still unknown; it will take the right balance of marketing and advertising monies to build our

brand image. The marketing dollars will support our distributor in his efforts to get “air time” with our end-

users. Our distributor charges 10% of the selling price to the customer as his margin to cover pre and post

sales costs of supporting our products. For example, if our price to the distributor is $630, the price to the

customer is $700. The distributor receives 10% of $700 or $70 per unit.

Our expenditures for 2022/2023 were as follows:

2022/2023 EXPENDITURES

ADVERTISING

MARKETING*

1st Quarter 2022

$36,000

$31,000

2nd Quarter 2022

$36,000

$31,000

3rd Quarter 2022

$36,000

$31,000

4th Quarter 2022

$39,000

$34,000

1st Quarter 2023

$18,000

$35,000

2nd Quarter 2023

$23,000

$38,000

3rd Quarter 2023

$28,000

$42,000

4th Quarter 2023

$31,000

$46,000

*Includes the cost of the MAA Marketing Report.

We recommend an aggressive marketing program – we should be looking at investing 15% of sales into

marketing and 5-10% of sales into advertising each quarter in 2024. This market will not reach its potential

without stimulation, and we cannot depend on our competitors to do the stimulating for us.

Of course, there is a downside to this life cycle phenomenon. At some point, the "mature" phase follows the

"growth" phase. Demand begins to level off and eventually declines. The marketing challenge is to anticipate

when that is going to happen. We must balance our manufacturing and marketing efforts to be able to serve

the market when the demand exists and to curb manufacturing before demand declines.

Our manufacturing capacity is of real concern to me. Our projection for major growth must be matched by

manufacturing expansion to keep up with that growth. There is more at stake than losing a few sales. An

industry that lacks the manufacturing capacity to meet increasing demand often keeps prices high and loses

sight of keeping costs low. Such an industry offers a tempting opportunity for a low-cost producer to enter

into the market with a significantly lower price.

Whenever we have shortage of capacity to meet the demand, we lose all of the unfulfilled demand. There

is no backlog that would roll forward to the next quarter. We cannot afford to allow any unfulfilled demand.

TO:Functional Managers

FROM:William Sellums (Marketing Manager)

Marketing Plan 2024

(Company Use Only)

MARKETING PLAN

2024

ASSUMPTIONS:

1. Demand for the product will increase as the product gains acceptance. The market is stimulated by

advertising and marketing expenditures and value pricing.

2. Product quality will become a major factor in product selection. Competing manufacturers will emphasize

quality improvements.

3. Costs to produce will be reduced through efficiencies and manufacturing improvements so that cost

savings can be passed on to customers through more attractive prices and/or payment terms.

OBJECTIVES:

1. Achieve a 36% market share by year-end 2024.

2. Price the product competitively to gain and maintain share; avoid erratic price shifts regardless of the

competition; keep the price consistent with reasonable profit margins.

3. Increase our marketing investment as quickly as possible to 15% of sales, and maintain reasonable levels

of investment through year end. Periodically evaluate our investment needs as our product offering evolves.

4. Stimulate market growth by attaining a 7% of sales advertising investment, and maintain reasonable

investment through year-end.

5. Position the company to take advantage of an exploding market fed by innovation to drive expanding

demand for our product.

TO:Functional Managers

FROM:William Sellums (Marketing Manager)

Market Analysis and Quality Surveys

Marketing Analysis Associates (MAA), which covers our industry in depth, has provided us with survey

results and forecasting data which we have found useful in the past year. We assume our competitors receive

the same data.

MAA estimates that there are approximately 5,349 hospitals in the United States suitable for our product.

The nature of the equipment (technical and computer integrated) and the distribution channels available

for hospital equipment suggest that we will sell most effectively through equipment distributors. The

optimum use of the product is one Reader for every ten hospital beds. Initially we should target hospitals of

100 beds or more because the product requires an existing computer system in place. The following table

illustrates demand potential.

# Beds/Hospital

# Hospitals

Total # Beds*

Total # Readers

100-199

2,209

331,425

33,143

200-299

1,155

288,750

28,875

300-399

720

252,000

25,200

400-499

477

214,500

21,450

500 or More

788

472,500

47,250

Total

5,349

1,559,175

155,918

MAA offers quality surveys of our product and those of our competitors. For a small fee, MAA will analyze

the product's t

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