STRATEGIC PLAN PROJECTIONS

CREATED BY: ADNAN ALQARNI,FAVIOLA CARDENAS,

JUAN SANCHEZ AND SARAH TINOCO

BAD 490/BUSINESS POLICIES

NOVEMBER 6, 2016

1.1 Generic Business Strategy: Scope

• Claim your strategy: Broad Cost Leader

• Scope

• Andrews offer five products in five different market segments:

• Traditional: Able

• Low End: Acre

• High End: Adam

• Performance: Aft

• Size: Agape

• As a cost leader, Andrews focuses on low price markets, Traditional and Low End, to satisfy customers with below average prices made possible by low costs

1-PERFORMANCE & PLANNING MEASUREMENT

1.1 Generic Business Strategy: Competitive Advantage

• Competitive Advantage

• Andrews maintains low costs in:

• Research & Development

• Production

• Materials

• Automation

• Andrews competes in the market with below average prices

1.2 Business Model

• To generate revenue• Andrews operates in all five market segments (later four segments) to

reach the maximum amount of customers to sell to• Andrews maximizes its promotion and sales budgets to continue to

reach full awareness and accessibility of its products and each segment by designated customers

• To reduce costs• each year, Andrews increases automation for each product in their

respective segments• in Year 3, Andrews exited the High End market, eliminating Adam – its

most costly product

1.3 Financial Objectives

Objectives Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Round 7 Round 8

Sales $100,000,000 $105,000,000 $120,000,000 $130,000,000 $145,000,000 $160,000,000 $180,000,000 $200,000,000

Profits $6 Million $8 Million $10 Million $10 Million $12 Million $15 Million $20 Million $30 Million

Leverage 2.0 2.3 2.5 2.5 2.5 2.5 2.5 2.5

Stock Price $3.00 $1.00 $1.00 $1.00 $1.25 $1.75 $2.15 $2.50

Contribution Margin

27.5% 28.5% 30.0% 32% 33.50% 35% 37.50% 40.0%

Objectives Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Round 7 Round 8

CapacityNo

Change

Sell Capacity for 3

products

No Change No Change Buy Capacity (if needed)

No Change No Change No Change

Number of Products

5Trad, Low,

High, Pfm, Size

5Trad, Low, High, Pfm,

Size

4Trad, Low, Pfm, Size

4Trad, Low, Pfm, Size

4Trad, Low, Pfm, Size

4Trad, Low, Pfm, Size

4Trad, Low, Pfm, Size

4Trad, Low, Pfm, Size

PositioningIdeal Spots for

each except Low-end

Ideal Spots for each

except Low-end

Ideal Spots for each

except Low-end

Ideal Spots for each

Ideal Spots for each

except Low-end

Ideal Spots for each

except Low-end

Ideal Spots for each

except Low-end

Ideal Spots for each

except Low-end

CustomerAwareness

(Promo Budget)

50% 70% 80% 85% 90% 95% 100% 100%

Customer Accessibility

(Sales Budget)50% 60% 70% 80% 85% 90% 95% 100%

1.4 Strategic Objectives:

1.5 Projected Income StatementsColumn1 Round 0 Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Round 7 Round 8

Sales ($)101,073.00 106,555.00 101,483.00

117,883.00 133,843.00 149,803.00 165,763.00

181,723.00 197,683.00

Cost of Goods Sold (COGS) 72,513.00 76,485.00

76,917.00 76,280.00 83,055.00 89,830.00 96,605.00 103,380.00

110,155.00

Depreciation7,587.00 8,160.00 8,847.00 9,069.00 9,690.00

10,311.00 10,932.00

11,553.00 12,174.00

SGA8,978.00 16,868.00 20,133.00 20,101.00 24,742.00 29,383.00 37,024.00 44,665.00 52,306.00

EBIT11,996,365.00 3,788.00

3,774.00 (3,297.00) 3,638.00 3,979.00 4,320.00

4,661.00 5,002.00

Interest5,421.00

7,567.00 9,132.00 12,435.00 13,549.00 14,663.00

15,777.00 16,891.00 18,005.00

Taxes2,301.00 (1,323.00) (1,875.00) 5,506.00 (3,469.00) (1,432.00) 605.00 2,642.00 4,679.00

Net Income4,189.00 (2,456.00) (3,482.00) (10,225.00) (6,442.00) (2,659.00)

1,124.00 4,907.00 8,690.00

1.6 Projected Free Cash Flow Drivers

Equations used:

• Contribution Margin-[(Sales-Variable Expenses)/Sales]

• Net Working Capital / Sales- [(CA-CL)/Sales]

• WACC (Weighted Average Cost of Capital)- rD (1- Tc )*( D / V )+ rE *( E / V )

Round 0 Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Round 7 Round 8

Sales Growth Rate 9.2% 9.2% 9.2% 9.2% 10% 10.2% 10.4% 10.6% 10.8%

Contribution Margin 28.3% 28.2% 30.4% 35.3% 37.9% 39% 41% 43% 45%

Cash Tax Rate 25% 25% 25% 25% 27% 29% 31% 33% 35%

Net Working Capital / Sales

-28% -34% -40% -47% -54% -61% -68% -75% -82%

Fixed Assets / Sales 75% 77% 80% 75% 77% 80% 75% 77% 80%

WACC 7% 7% 7% 7% 7% 7.5% 7.7% 7.9% 7.11%

1.7 Projected Free Cash Flow

Column1 Round 0 Round 1 Round 2 Round 3 Round 4 Round 5 Round 6 Round 7 Round 8

Profits 4,189.00 (2,456.00) (3,482.00) (10,225.00) (6,442.00) (2,659.00) 1,124.00 4,907.00 8,690.00

Taxes 2,301.00 (1,323.00) (1,875.00) (5,506.00) (3,469.00) (1,432.00) 605.00 2,642.00 4,679.00

After Tax profits 1,888.00 (1,133.00) (1,607.00) (4,719.00) (2,973.00) (1,227.00) 519.00 2,265.00 4,011.00

Depreciation 7,587.00 8,160.00 8,847.00 9,069.00 9,690.00 10,311.00 10,932.00 11,553.00 12,174.00

Free Cash Flows 9,475.00 7,027.00 7,240.00 4,350.00 6,717.00 9,084.00 11,451.00 13,818.00 16,185.00

*FCF = (After-Tax Profits) + (Depreciation)

2-EXTERNAL ANALYSIS

Customer Buying Criteria

Traditional Low-End High-End Performance Size

Age 47% 24% 29% 9% 29%

Price 23% 53% 9% 19% 9%

Ideal Position 21% 16% 43% 29% 43%

Reliability/MTBF 9% 7% 19% 43% 19%

2.1-Customer Segments & Motivations

2.2 Project Market Sizes

Traditional Low End High End Performance Size

7,387 8960 2554 1915 1984

8,067 10,008 2,968 2,294 2,347

8,809 11,179 3,449 2,748 2,777

9,619 12,487 4,007 3,293 3,285

10,504 13,948 4,656 3,945 3,886

11,470 15,580 5,411 4,726 4,597

12,526 17,403 6,287 5,661 5,438

13,678 19,439 7,306 6,782 6,433

14,937 21,714 8,489 8,125 7,611

2.3 INDUSTRY – Wide Capacity

1st Shift INDUSTRY CAPACITY (assume constant capacity)

2nd Shift INDUSTRY CAPACITY (assume constant capacity)

YearTrad, 1st

ShiftLow, 1st

ShiftHigh, 1st

ShiftPerf, 1st

ShiftSize, 1st Shift

Trad, 2nd Shift

Low, 2nd Shift

High, 2nd Shift

Perf, 2nd Shift

Size,2nd Shift

0 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

1 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

2 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

3 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

4 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

5 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

6 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

7 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

8 10800 8400 5400 3600 3600 21600 16800 10800 7200 7200

INDUSTRY DEMAND

Trad. Demand Low Demand High Demand Perf. Demand Size Demand

7387 8960 2554 1915 1984

8067 10009 2967 2294 2347

8809 11180 3448 2749 2776

9619 12488 4007 3293 3284

10504 13949 4656 3945 3885

11471 15581 5410 4726 4596

12526 17404 6286 5662 5437

13678 19440 7305 6783 6432

14937 21715 8488 8126 7609

2.3 INDUSTRY – Wide Capacity Cont..

2.4 Chart of Supply & Demand

3.3 Resources & Capabilities

Tangible Resources Intangible ResourcesCapabilities

Financial:• We were able to raise money by obtaining

long term debt on every round.• We had money on hand from round 0 – 2.• We had an emergency loan on round

three. • We bought and sold capacity to raise

money.

Physical:• We have invested a lot of money on

machinery.

Technological:• We increased our automation level in the

first two rounds.

Organizational:• We work according to our strategic plan,

which is low cost.• We have an excellent evaluation for some

of our products.

Human:• All our employees are capable and well trained

to do their job.• All our headcount are trustworthy, which

helps the success of the company.• Every employee in the organization can share

any idea that can benefit our company.

Innovation & Creativity:• We are looking for ways to create and establish

products that can differentiate us from our competitors.

Reputation:• Our brand name is known for the quality of

our products and the low prices that we offer to our customers.

• We are focused on giving our customers what they want.

Leadership:• Our leadership team works hard on motivating

the individuals to achieve the company’s goals.

• We try to keep our employees happy; giving them great benefits.

• We have outstanding customer service for all our customers.

• We have great communication within the company in every area of performance.

• Our human resource team does a great job hiring, motivating and retaining human capital.

3- INTERNAL ANALYSIS

3.4 Testing for Core Competence

Potential Source of SCA

Valuable? Rare?Difficult to

Imitate?Difficult to Substitute?

Effect on Perform.?

Brand Image Parity, NoAdvantage

Innovation CompetitiveAdvantage

High Quality Products

Parity, no advantage

Financial TemporaryAdvantage

Human Skills Parity, no advantage

Competitive advantage rendered unsustainable

No advantage. Must be Valuable AND Rare for advantage