Chat with us, powered by LiveChat MBA550 Value Chain ITP Fixit Paper | All Paper
+1(978)310-4246 credencewriters@gmail.com
  

A Value Chain is a network of facilities and processes that describes the flow of goods, services, information, and financial transactions from suppliers through the facilities and processes that create goods and services and deliver them to customers. The Value Chain is an identification of where in the Supply Chain value is added and how it is added. The Collier/Evans textbook discusses Value Chains throughout the book with special emphasis in Chapters 1 & 2. This assignment requires students to develop a Value Chain and explain why/how each component of the chain adds value to the ultimate product or service. The Value Chain should be based on the same company that you based your Supply Chain on.the ITP BP is the company we are using and the template is attached, i will also attach the supply chain design that is already completed and this assignemnt is based on it. i have not received feedback on it so i will add it once i have it.
itp_bp_mba550_template__1_.docx

mba550cht2part1.pdf

mba550cht2part2.pdf

value_chain_instr.docx

Unformatted Attachment Preview

ITP
Executive Summary
ITP is a company whose strengths lie in identification, development and promotion of innovative
products. The management team has proven their ability to rapidly evolve a new product from the
conception of the idea to commercialization.
The company’s launch product is FixIt, a long awaited solution to the often difficult repair, redesign
and installation of PVC pipe. FixIt provides both cost savings and increased efficiency.
ITP ’s competitive advantages lie in the identification and marketing of commercially viable new
products. For commercialization of FixIt, ITP requires access to an established manufacturing base and
distribution network. An incorporated joint venture will allow ITP to merge these competitive
advantages with a company whose complementary strengths lie in plastics manufacturing and
distribution.
The demand for FixIt is derived from the demand for PVC pipe which represents an enormous market.
Based on modest market penetration rates, sales revenues are expected to be $2.4 million in 1998,
growing to $23.3 in 2002. Net present value of the cash flows during 1998-2002 is $6.9 million when
discounted at 40% and with an IRR of 157%. In the worst case scenario, sales grow from $1.4 million
in 1998 to $11.9 million in 2002, with NPV of $3.1 million when discounted at 40% and with an IRR of
94%.
ITP offers to the investor a five year convertible note of $500,000 and a coupon rate of 35%; interest
paid quarterly. The note holder has the option to convert by 30 June 2000 for 25% equity in ITP .
Upon conversion, the note holders investment will yield an IRR of 89% and an NPV of $2.1 million.
ITP is offering you an opportunity to become involved in an innovative, exciting and highly profitable
venture.
The Company & the Product
The Company
In late 1996, Maarten Bell, Nick Basch and Nich Dove were introduced to John MacMan, an electrician
and inventor. One of John’s many ideas was for a novel poly vinyl chloride (PVC) pipe repair system.
He was resolute in his conviction that all enormous market existed for a product, which would make
broken PVC pipe a snap to fix. John dreamed of further developing this vision and one day providing
the market with his revolutionary concept. For six years, this vision consisted of little more than
diagrams, as John was unable to overcome the numerous obstacles, which an inventor faces when he
assumes the role of entrepreneur.
ITP (ITP ) has been formed to take advantage of this divergence between the inventor’s dreams and
market realities. ITP will guide new products from conception of the idea to commercialization. To help
convey this motion, the name ITP was chosen.
Since ITP ‘s formation in November 1996, John’s concept has undergone a rapid evolution. A
prototype of a split conduit repair solution was manufactured and test marketed in Australia in early
1997. Responses from this showed a substantial demand for a product that could do more than repair
straight PVC pipe. The market demanded a simple and cost effective total repair, redesign and
installation system, utilizing identical joining technology. To address the need for a total system, ITP
developed FixIt.
ITP has arranged for the production of FixIt by Marl Plastics for supply to Australia’s two
telecommunications companies and Ideal Electrical. Ideal Electrical is Australia’s largest independent
electrical wholesaler and will be marketing FixIt in their upcoming June catalog.
We now seek to secure a joint venture manufacturer and venture capital funding to launch the product
in the U.S. The successful launch of John’s invention will ensure that the company’s objectives of
identifying, developing and commercializing innovative products are realized.
FixIt
FixIt is the first total repair, redesign and installation system for PVC pipe. FixIt solves the problems
inherent in the existing piecemeal approaches; specifically the costly and time consuming process of
relaying large sections of pipe, the severing, removal and re-threading of encased electrical and
telecommunications cables, and the use of toxic resins.
FixIt is an integrated system comprising Straight, T-shaped, Y-shaped and Bend sections; it uses
joining technology consisting of interlocking compression joints on opposing sides of a split conduit. A
damaged PVC pipe can be repaired in seconds by snapping the required length of FixIt over the
break, thereby sealing and reinforcing the pipe. (See Appendix A for product diagrams). In
comparison to alternative repair methods, FixIt saves time and money. The product line will be
produced in a range of sizes to fit most commonly used pipe in the telecommunications and electrical
industries.
John’s company, Nard Pty Ltd, assigned the intellectual property rights for FixIt, which include a
Patent Pending and a Trademark application, to ITP . This assignment is effective for five years from
May 1997, with an option to renew for a further five years. Nard Pty Ltd will receive a royalty of 1% of
FixIt’s gross sales and 25% equity in ITP .
Market Need
A survey of selected firms in the telecommunications and electrical industries revealed a large
unanswered demand for a repair, redesign and installation system such as FixIt. This demand has
been long standing, as evidenced by the 40 patented pipe repair, redesign and installation systems
dating back to 1975. None of these systems have been able to adequately fill this need. The demand
for a total system such as FixIt is driven by the:




Cost of current repair, redesign and installation approaches
Time that other approaches take to apply in the field
Aging nature of the existing electrical cable networks
Telecommunications industry demand for fiber optic cable encased in PVC pipe.
Product Benefits
FixIt’s most substantial benefit is the cost savings that it delivers. Table 1 summarizes the major
benefits of FixIt.
Table 1 – Product Benefits
Product Benefit
1. Total system
Advantages to Users



Solution to repair, redesign & installation problems
Complementary products utilize identical joining technology
Available in Straight, T, Y and Bend sections
2. Product cost
savings



Economically priced
No need to use expensive materials such as resins and sealants
Eliminates the need to use specialized tools
3. Labor cost savings


Minimizes required excavations and time taken to effect the repair
Entire repair can be completed instantaneously with no need for
repeat repair treatments
4. Flexibility



Can be utilized for any length of repair
No need to carry specific lengths -just cut to length of repair
Wide variety of applications
5. Compatibility


Inside diameter of FixIt equals outside diameter of existing pipe
Produced in sizes ranging from 3/4″ to 4″ – compatible with majority
of pipe used
6. Environmentally
friendly



Manufactured from up to 20% of recycled PVC
PVC is safe, environmentally benign material
Reduces requirement for sealants
7. Health & safety



Reduces reliance on toxic resins
User reduces extent of interference with potentially hazardous cables
Less excavation reduces risk of injury
8. Ease of installation



Limited training costs
Narrower scope for error
No need to use protective equipment
9. Durability


Restores structural integrity of original pipe
Impact resistant, non-conductive, fire retardant, unaffected by most
chemicals, weather proof, and long life of repair
10. Lifetime warranty

Repair cost will not be incurred more than once on the same section
of pipe
Provides security and confidence to the purchaser

Competitor Analysis
As FixIt faces few direct competitors, the pricing structure is of reduced importance. The pricing
strategy for FixIt is to emphasize the total cost of repair, redesign and installation solution, rather
than the specific product cost. In broader terms, the PVC pipe industry is one which is characterized
by decreasing pricing scales, based on customer buying power.
FixIt’s closest competitors and its substitutes are analyzed below in Table 2. This table compares the
costs of each repair solution for a standard twelve-inch long break in a two-inch diameter PVC pipe,
encasing standard electrical cables, located three feet under-round. The analysis excludes common
excavation time.
Table 2 – Competitor Analysis
Repair
Solution
Repair Method
Material
Cost
Labor
Cost@$40/hr
Total
Cost
New PVC Pipe
Remove cables, fit new pipes & re-thread
cables
$1.00
$120.00
$121.00
3M Resin Kits
Repair cables, fit clear box, mix and pour resin,
$35.00
and allow time to cure
$60.00
$95.00
Fel-Pro
Fixmaster Kit
Fill crack with epoxy, wrap urethane
impregnated fiberglass tape around pipe &
allow time to cure
$30.00
$40.00
$70.00
Mayer Kreig
Lock Duct
Clamp split conduit together (difficult), apply
sealant along joint, and allow to dry.
$45.00
$20.00
$65.00
Carlon Split
Conduit
Fit split conduit together, apply joint sealing
$16.00
tape around both sections, tie with plastic strap
$10.50
$26.50
FixIt
Hand snap together around break without
disturbing cables
$3.50
$11.50
$8.00
Repairing with FixIt can provide a huge cost savings of up to 90% over alternative repair methods.
This feature will aid market penetration at corporate and small business levels. Furthermore, the
convenience and lower tooling costs will make FixIt the preferred solution to repair existing installed
pipe. A similar ease of use and time saving features also characterize the redesign and installation
applications of FixIt.
Marketing
Market Opportunity
The market potential for FixIt is enormous. Modern Plastics, a leading trade journal, reports that U.S.
sales of PVC pipe in 1996 were in excess of 5.36 billion pounds, an increase of 10% over 1995.
Furthermore, there has been an estimated 45 billion pounds of PVC pipe installed since 1980, a
Substantial amount is buried underground, encasing telecommunications and electrical cables. On
average 0.1% of the total installed pipe network fails and needs repair or replacement annually. This
is an average of 45 million pounds per year.
Launch Market – California
According to Tom Adam, of the Pacific Bell Engineering Department, there are very few sections of
California’s pipe network which have not sustained earthquake damage. For this reason, it has been
selected as the geographic launch market for FixIt. The region has an installed base of 6.2 billion
pounds of PVC pipe, 700 million pounds of it installed in 1996.
Converting this enormous number of installed pounds to feet of two inch pipe indicates that 29 billion
feet of pipe have been laid in California. In addition, an estimated 3.2 billion feet will be added to the
network in 1997. With a failure rate of 0.1% it suggests 29 million feet of PVC pipe will need to be
repaired in 1997.
FixIt’s expected and worst case scenarios for market share are based on: test market experience in
Australia and market surveying of selected U.S. telecommunications and electrical organizations.
These are set out below in Table 3:
Table 3: Expected and Worst Case Scenarios for Market Share for California
Market share 1998 1999 2000 2001 2002
Expected Case
Worst Case
1%
2%
3%
4%
5%
0.6% 1.2% 1.5% 2% 2.5%
Based on the above market share scenarios, the expected and worst case sales revenues of FixIt in
California are set out below in Table 4 and illustrated graphically in Figure 2.
Table 4: Sales Volume Projections for California
Sales Volumes(thousands of ft.) 1998 1999 2000 2001 2002
Expected Case
323
745 1,204 1,729 2,327
Worst Case
193
447
602
864 1,163
Business Strategy
ITP ‘s competitive advantages lie in the identification and marketing of new products. The
commercialization of FixIt also requires access to an established manufacturing base and distribution
network.
Establishing a manufacturing operation and distribution network is not cost effective for ITP .
Therefore, ITP ‘s strategy is to merge its competitive advantages with a company that has
complementary strengths in plastics manufacturing and distribution, and an existing customer base.
ITP will seek an incorporated joint venture who meet the following criteria:








be located in our launch market
have excess manufacturing capacity
have a distribution network covering the specified region
be progressive and growth oriented
be established in the industry
be an accredited member of the National Electrical Distributors’ Association
be compatible to managerial expectations
satisfy due diligence investigations.
The joint venture will allow shareholders to capitalize on each other’s strengths, ensuring mutual
benefit and success. Shareholders in an incorporated joint venture have the advantage of limited
liability protection.
At present, the PVC pipe industry is characterized by an excess production capacity of 10%. It is also
growing at a rate of 10% per annum. According to the California Manufacturer’s Register, there are 19
specialty PVC pipe manufacturers statewide and initial investigations have found that at least 10 meet
the above requirements. ITP has already commenced negotiations with the preferred candidate.
ITP ‘s joint venture contribution will be intellectual property and distribution rights to FixIt, $150,000
in working capital, management’s marketing expertise and customer service and support. In return,
the manufacturing company provides $64,000 in working capital, the manufacture and distribution of
the FixIt line, and access to their existing customer base.
Marketing Plan
The major consumers of PVC pipe can be divided into two distinct market segments: (1)
Telecommunications and power utility firms with installed pipe networks; and (2) electrical wholesalers
and contractors. According to the 1996 California Guide to Wholesaler’s and Service Companies, there
are 12 firms in Segment 1 and 776 companies in Segment 2. ITP has tailored its marketing strategies
to address the distinct characteristics of each market.
SEGMENT 1
The 12 firms in the first market are the heaviest users of PVC pipe and tend to purchase the vast
majority of this product in large quantities, at infrequent intervals. A series of informal interviews was
conducted with decision makers in this segment to identify their key purchasing criteria. The following
are the key purchasing criteria for pipe repair systems:
1.
2.
3.
4.
5.
Total installed cost – firm pays labor, material cost
Quality specifications – especially product reliability and lifespan
Product capabilities – meet expectations and claims
Delivery time – reliable, regular
Post sales service – customer support, education and training
FixIt provides the product benefits and advantages which meet these key purchasing criteria. One of
FixIt’s most significant product benefits is the total installed cost savings it provides. A second is that
FixIt is made of impact resistant PVC and sold with a lifetime replacement warranty. These specific
benefits coincide with this market’s most valued product criteria. Therefore, these attributes will be
highlighted when targeting this market. ITP will reach this market primarily through:
1. Creating awareness for the product by:


advertising in trade journals such as: Modem Plastics, Plastics News and PVC Insight
attending trade shows such as: The Western Building Show, Tube and Pipe International Expo
and the Plastics USA Exhibition.
2. Direct marketing by ITP ‘s sales force through:


providing demonstrations of product use and applications
creating a private internet site for every customer to facilitate on-line ordering and customer
support
3. Educational efforts targeting industry accredited trade schools, with the intention of establishing
FixIt as the repair standard.
4. Meeting the companies’ specific needs through individually negotiated:




packaging, product sizes and quantifies
prices
delivery
payment terms
SEGMENT 2
These companies purchase pipe in smaller quantities, at more frequent intervals. Surveys identified
their most significant purchasing criteria to be:
1.
2.
3.
4.
5.
Product retail cost – contractor may charge for labor, but pay for materials
Ease of installation – purchaser often effects the repair
Warranty – provides added guarantee as to the standard of the contractor’s work
Past performance record – desire for a proven repair solution
Quality specifications – provides a repair which meets industry specifications
When targeting this market, FixIt will highlight its retail cost competitiveness and its ease of use. ITP
will reach this market primarily through:
1. Indirect marketing, such as:




distributors
brochure mail outs
listing in catalogs of the joint venture partners
dissemination of a brochure describing FixIt’s benefits.
2. Direct sales by the joint venture partner’s manufacturer’s representatives.
3. In store promotions:


point of sale displays
free samples
4. Standardized packaging of the product with basic instruction details.
5. Publicly accessible internet home page to advertise ITP ‘s product ranges and provide customer
support.
Operations Plan
Financial Plan
Assumptions











Six month set-up costs shown as January 1998 expenses.
No allowance has been allowed for inflation.
Competitive markets reduce margins from 50% to 37% over a five year period.
2/3 credit sales are received within 60 days, and 1/3 within 90 days, after invoicing.
Substantial legal and research and development expenditure from 1999 onwards. No revenue
from Volnaps and Xzifix Anchors are included in financials.
All assets are leased where possible to minimize cash outflows in the early years. Major asset
purchases in 1998 are dyes and moulds for use in the extrusion and injection moulding
manufacturing process for FixIt.
An average rate of Federal and State taxation of 40%.
Dividends have not been declared in years 1 to 2 (despite available cash flow) so as to give
ITP necessary funds to develop future new product and other opportunities.
NPV and IRR are calculated on the first five years’ cash flow.
No interest is earned from positive cash balances.
Dividends paid after year two – 50% of Net Profits After Tax.
Financial Results – Summary (Expected Scenario)
Years
Sales($)
1998
1999
2000
2001
2002
2,414,203 5,032,623 10,107,251 15,348,591 23,329,825
EBIT($)
NPAT($)
Cash Balance($)
502,664 1,206,789
2,565,332
956,531
6,069,547
65,568
389,662
1,078,481
1,868,308
2,917,454
337,972
470,906
1,434,146
2,296,628
3,404,092
ITP ‘s Internal Rate of Return (IRR) is 157%. It has been calculated using the adjusted profits to
arrive at a net cash flow stream and an end of year five valuation using a price/earnings ratio of 10.
The net present value (NPV) is $6.9 million, discounted-at 40%. The IRR of the convertible note
holder has been calculated using an average of the first two years’ earnings and a price/earnings ratio
of 10. An IRR of 89% and an NPV of $2.1 million is achieved.
Proforma Financial Statements (Expected Scenario)
The following tables show that forecast Income Statements, Cash Flows, Balance Sheets for the first
five years operating under the Expected Scenario
Consolidated Income Statement (Expected Scenario)
Qtr Qtr Qtr Qtr
1
2
3
4
Tota
l Yr
1
Qtr
1
Qtr
2
Qtr
3
Qtr
4
Tota
Year Year Year
l Yr
1
2
3
2
Year
4
Year
5
199 199 199 199 199 199 199 199 199 199 199 199
2000 2001 2002
8
8
8
8
8
9
9
9
9
9
8
9
SALES
555 651 724 2,41 1,00 1,15 1,35 1,50 5,03 2,41 5,03 10,1 15,3 23,3
482,
,26 ,83 ,26 4,20 6,52 7,50 8,80 9,78 2,62 4,20 2,62 07,2 48,5 29,8
841
7
5
1
3
5
3
8
7
3
3
3
51
91
25
Less Cost of Goods Sold
Opening
Inventory
Add
Manufacturing
Costs
0
2,9 5,5 9,8
09 93 68
0
14,6 22,9 32,1 43,7 14,6
85
02
31
52
85
0
14,6 57,0 202, 296,
85
09 960 466
279 328 367 1,20
2,76 1 …
Purchase answer to see full
attachment

error: Content is protected !!