22
3/20/2013 SYNERGY ISSUE ANALYSIS AND SOLUTIONS OF JOT Members: Sanjina Kowsar Mahmud Kazi Muhtashim Uddin Quazi Ayman Abedin Faiza Zubaida Bashir

Cima Gbc 2013 Report (2nd Stage)

Embed Size (px)

DESCRIPTION

CIMA 2013 Report

Citation preview

Page 1: Cima Gbc 2013 Report (2nd Stage)

3/20/2013

SYNERGY ISSUE ANALYSIS AND SOLUTIONS OF JOT

Members:

Sanjina Kowsar Mahmud

Kazi Muhtashim Uddin

Quazi Ayman Abedin

Faiza Zubaida Bashir

Page 2: Cima Gbc 2013 Report (2nd Stage)

2

TABLE OF CONTENT Page

Executive Summary 1. Introduction 2. Terms of Reference 3. Prioritization of Issues 4. Discussion of Issues & Recommendations 4.1 Faults in New Flying Spaceship Toy 4.2 Late Delivery of Christmas Product 4.3 Launch of New Range of Toys 9-11 Age Groups 4.4 Near-Shoring Proposal in Voldania 5. Ethical Issues 6. Appendix

Page 3: Cima Gbc 2013 Report (2nd Stage)

3

1.0 Introduction

Jot is a small European company, establishment in 1998, which designs and outsources

the manufacture of a range of children’s toys. Initially Jot used to design small range of

product that were manufacture in their home European country, which gain huge

popularity and that is the point where expansion plus diversion and innovation was

portrayed by the company.

Within 5 years of magnificent journey i.e. by 2003 it started to get orders from many large

toy retailers across Europe. In commencing of 2004, Jot begun outsourcing all of its

manufacturing to range of manufacturing companies in China to cull down its cost base

and to enable the company to price its product competitively. By the end of 2010 sales

revenue exceeded € 8 million i.e. a rise of 16% and almost 18% at the end of 2011.It is also

estimated that if these strategically sound growths continue by the cease of 2016 it will

reach a gross profit margin of 33.6% which is brilliant to reach its zenith.

2.0 Terms of Reference

This report will show the results of our analyses, which will help to provide solutions to the

problems the company is facing and to give assessments on the proposals presented in the

scenario.

Page 4: Cima Gbc 2013 Report (2nd Stage)

4

3.0 Prioritization of the issues facing Jot

Fault in new flying spaceship toy

There has been a report that the newly launched flying spaceship has been found faulty,

which, after a brief investigation has been found to be true. If a quick, proper action is not

been taken immediately, then it is going to damage the reputation let alone loss very badly

and will affect the business in the long run. So this is going to be our First Priority.

Late delivery of Christmas product

It has been notified by Gull, one of Jot’s manufacturer in China that they will not be able to

deliver the 2400 units ordered for delivery on November 4 2012 in one go, that were to be

sold during Christmas, rather the will be able to provide 75% of the order on time and the

rest 25% on December 15. Now the principal problem, i.e. whether to send that 75% to

Jot’s main customers or to share them out more equally so that the independent toy shops

can at least get some of their orders to sell during Christmas, is going to be the topic of our

second issue.

Launch of new range of toys for 9-11 age group

Entering an entirely new market i.e. developing applications for children without much

prior information may go in any ways. It can be an instant hit or may fail to attract any

customers at all in the midst of so many application developers making millions of apps

daily. As a result, this issue has to be dealt carefully, and so it comes in number three.

Page 5: Cima Gbc 2013 Report (2nd Stage)

5

Near-Shoring proposal in Voldania

As wage rate in China is increasing, Jot is considering near shoring its manufacturing to

Voldania, an Eastern European country. But on the other hand, even though the wage rate

is going to increase, China is still the best option as a high quality, low cost manufacturing

base and given the fact that Jot right now is quite reluctant regarding this issue as they

would review the situation at some future point, it is not the problem to look into right at

this moment and so its priority is at the bottom.

Page 6: Cima Gbc 2013 Report (2nd Stage)

6

4.0 Discussion of Issues & Recommendations

4.1 Fault in new flying spaceship toy

Financial Impact

Since the new flying spaceship toy have strong sales, flaws in the product will decline its

sales volume remarkable. It is estimated that around €240000 of sales revenue will be at

stake and hence profit margin will wane.

Strategic Analysis

It is vital for Jot to focus on the product safety arena, in order to sustain in these

competitive market. If Jot fails to produce safe toys, consumers will not be willing to buy

the product and therefore retailers will not be convinced to buy its inventory. In order to

combat this hazard Jot need to hire skilled technicians i.e. in practice, the product safety

should starts with the design process and safety aspects are addressed from concept

designed onwards. It is essential for JOT to recruit proficient employees so that there is no

accusation about the products and hence customer satisfaction magnifies.

Reputational Impact

The lack of producing limpid toys will diminish JOT brand image and will hinder its

longevity. Customers may be disappointed when expectations of new launches are not

fulfilled. This may lead to a reducing in customer satisfaction and customers will be

attracted to other toy brands.

Assessment of Potential solutions

Corrective measure to repair the faults

One of the potential solutions to cull these faults is to test the toy after designing so that

flaws can be detected and repaired instantly. Therefore, toy designers will know its

mistake and avoid repetition to occur. To be more assured about the product, Jot can hire

testing organization which is used extensively to assure toy safety, not only through

Page 7: Cima Gbc 2013 Report (2nd Stage)

7

product testing but also for doing risk assessments, giving advice on quality management

procedures, undertaking factory audits and inspecting products before shipment.

How to combat the fault in new flying spaceship

A number of customers and consumers reported a fault regarding Jot’s newly launched

flying spaceship. In fact this is the outcome of launching goods in the market without

testing. An inventory of 6000 units was sold and no further order has yet been placed due

to flaws. The retailers are complaining bitterly because of customer dissatisfaction towards

the product made them loose great deal of profit and are not willing to buy this new flying

spaceship toy. To eliminate this shortcoming, another €10 per unit should be spend on

improved installation (i.e. initially the product cost to make and distribute was €24, if €10

more is added then the final initial cost will be €34) and hence the product will be safe to

ship out to customers. But here comes the momentous point if cost of production

increases and especially in repairing a fault, Jot cannot increase its product cost to retailers

and therefore its profit margin decreases. Since no new order are placed and all the major

retailers are grumbling bitterly it would be better for Jot to write off this product

completely in order to save the reputation. Therefore JOT should never launch any

products with testing because EU government is taking rigid actions towards companies

who are not taking initiatives about toy safety and hence there is a high possibility of

losing trading license also.

Recommendation

Short-term

To retain its reputation, Jot should promptly repair the faults and help to satisfy customers

by providing it’s excellent after sales service so that consumers crave for Jot product even

after receiving faulty goods.

For getting more in-depth views of customers and consumers, Jot should create a

customer service program where customers needs, complains are mitigated .What level of

innovation is expecting from Jot are discussed and what not. If this sort of customer

service programs is introduced, Jot will able to predict its pros and cons of the product,

which will help the company to withstand all odds and hence become the most renowned

trusted toy brand ever.

Page 8: Cima Gbc 2013 Report (2nd Stage)

8

Long-Term

Jot should design its product in such a way which is transparent, has longevity and

certainty and in order to do so Jot should recruit skilled labors and take rigid

measurements towards toy safety.

The key objective should be:

(1) Obtain a comprehensive overview of the toy supply chain;

(2) Identify established practices and activities undertaken by different economic

Operators to ensure toy safety throughout the supply chain;

(3) Identify gaps and weaknesses in the existing system for ensuring toy safety; and

(4) Recommend concrete actions to improve the current situation.

The project should consist of a preparation phase in which the methodology was

developed and an expert group was established consisting of representatives of the main

stakeholders including manufacturers, importers, retailers, test laboratories, consumers

and Member States. Subsequently, activities were undertaken to identify the situation 'on

the ground' in the toy sector, including desk research, interviews and fact-finding visits

both in Europe and in China (as because Jot outsource all its product from Chinese

manufacturing companies)

4.2 Launch of new range of toy’s for 9-11 range

group

Suitability Factor

Market Analysis

Since its entry in the market, the demand for smartphones has outpaced the rest of the

mobile phone market. Even the European mobile market, as measured by active

subscribers of the top 50 networks is 860 million. So the idea of entering a new market and

developing a mobile phone application seems legit. However, a very recent survey done in

the fourth quarter of 2012 by the research firm IDC (Appendix#) shows that smartphone

Page 9: Cima Gbc 2013 Report (2nd Stage)

9

sales growth declined by 19%. In the previous year, its growth was 55%, which decreased

down to 36%. Now, this 36% may still seem a big number, but if the growth continuous to

slow down, developing a mobile application may become risky. Besides, the app store

itself is huge and diverse with developers releasing new apps almost regularly. So in order

to differentiate itself, the app developed by Jot has to be the most original, creative app

with graphics better than the others and not to mention the availability of the app to

download for free, all in order to attract and satisfy the target consumers.

Customer Evaluation

Even though letting children use smartphones may have some advantages, from our

recent survey, we found out that majority of the parents who previously bought products

from Jot are quite reluctant to let their children use smartphones and tablets at this age.

According to them age 16 is about the right time for kids to have a smartphone. One

reason for their unwillingness is the cost factor. In order for the children to use the app,

they need a smartphone, which is very costly for the likes of children of the particular age

Jot is targeting. And it is less logical for parents to buy their children a smartphone costing

from $100-$200, when they can buy innovative and creative toys at a much cheaper price,

ranging from 20 Euros to 60 Euros. Besides, there are also the issues regarding their health

that may arise for playing overtime in smartphones resulting in inadequate physical

growth and poor brain development.

Competitor’s Position

Potential competitors have yet to set their foot in this new market, which will make Jot to

be the first company if they go through with the proposal, as a result there will be no

learning from other’s mistakes and if this project fails then it is going affect both the total

sales and market share of the company let alone reputation.

Acceptability

There might not be many toy companies which are developing smartphone applications

but there are a lot of application developers who are developing thousands of application

regularly. As a result, market penetration will be tough. And even if it is successful in

entering the market then it will have to the better application than the competitor’s in

order to attract customers and satisfy them, which is quite difficult in this diversified

Page 10: Cima Gbc 2013 Report (2nd Stage)

10

market. All these barriers are making the success of this project questionable and

therefore, it's putting the money of the shareholders at risk, should they consider investing

in the proposal. With fewer chances of earning revenue and negatively affecting the gross

profit of the company, this proposal should not be put into action.

Feasibility

According to an investigation done by Jot, it is considered that the costing of initial design

of an application is as little as $ 30,000. So we carried out our own research and it reveals

that this proposal is not quite feasible to green-lit. We cross checked the Initial

development costs predicted by Jot with that of Angry Bird’s and the amount it took Rovio

for the initial development is 100,000 Euros, minus all the additional costs. Now, according

to our research an estimated amount needed to built the app from scratch till its release in

the market and afterward will vary from $8000-$250,000. A brief overview of this

estimation is given below-

Firstly, before developing an app, it has to be decided whether it should be made for

single-platform app or a multi-platform one? Currently, there are five operating systems

that are running the smartphones, and the chart of their market share (appendix#) shows

their unpredictable volatility. A single-platform app is much easier to handle, but will work

only for that particular platform and will not be sufficient to reach all the target customers.

However, in case of a multi-platform, the app will definitely reach all the target customers

but at the same time the expenditure on the developing it will increase five times than the

initial budget.

Secondly, the functionality of the app should be chosen. As Jot wants to build an

application that has both gaming and educational aspects, targeted for children, It is going

to cost much higher than actually estimated, the price ranging from $8000-$250,000. The

reason, for the expense to go up is the elaborate design that will be used in the app. It has

to be impressive, creative and original enough to immediately attract users in the midst of

so many other applications developed by other companies. The design will include aspects

such as an app icon, splash screen, tab icons and so on.

Now even though Jot has their own in-house team of designers, they are involved in

designing physical toys, not developing applications. As a result, a third party agency for

Page 11: Cima Gbc 2013 Report (2nd Stage)

11

developing the app has to be hired, who bills by the hour of working. This will substantially

raise the total costs, whatever the amount is.

Additional costs besides all that will include promotions regarding the launching of the

app, ongoing maintenances, future upgrades and app-store fees. Besides even if Jot

decides to pursue the project and if the budget goes beyond of what has been estimated

during its development phase, it will be tough for Jot to manage that required amount of

money, as they already have a bank loan of 1,600,000 Euros at an interest rate of 10% per

year, which are yet to be paid. Moreover, it has been indicated by the bank that for now

they will be unable to grant any more long-term loan request.

Recommendations & Proposals

Based on the above factors, this proposal should be rejected. This is due to the highly risky

and unpredictable market of smartphone and smartphone applications; uncertainty in the

success of the app; customer’s unwillingness to buy, when they can be happy with a lot

less; high competition in the market and lastly, too much expensive as a product for Jot to

develop right at this moment with fewer chances of even meeting the budget invested

behind it, let alone earn a profit, if the proposal was to be accepted.

Instead of developing an application, Jot can invest that same amount of money in their

licensed toys department, as these products of Jot currently account for almost 10% of

Jot’s sales, in terms of the number of units sold. And with the amount of money that was

to be invested behind the app project, the sales of this department can increase upto even

20%, if proper dedication is given.

4.3 Late Delivery of 4th Quarter (Christmas)

Product.

Financial Impact:

One of Jot Toy Company’s manufacturers, Gull is unable to produce their contractual order

of 2400 units by 4th November. The only feasible option for Gull is to send 75% of the

shipment now and 25% by 15th December. Due to this Jot will not be able to send all of

their shipments at once to their three warehouses. This will cause an increase in

Page 12: Cima Gbc 2013 Report (2nd Stage)

12

transportation costs and hamper the company’s exponential growth trend.In addition as

Jot is a young company banks are hesitant to loan them long term. Therefore such a

mistake during their peak sales quarter will affect them in the long run.

Strategic and Tactical Impact:

Strategically this late delivery of product from Gull will affect Jot in the future. If the

situation is not handled correctly it will expose Jots weaknesses to its competitors.

Furthermore it might even give Jots other suppliers the idea that they can follow Gulls lead

and not produce shipments on time.

Reputation and Status Impact:

Jots inability to correctly pick the right manufacturers tenders may affect their reputation

in the toy industry. Gull not being able to send the required amount on time will make Jot

rethink their negotiations next year as repeat dealing is a major part of their business

strategy. Since most of Jots toys are designed for smaller children, if they are unable to

send their toys to all their retailers and distributors as promised Jot will loose valuable

customers and future business opportunities

Potential Solutions:

1. Look for New Suppliers or Increase Volume of Toys

Jot has numerous suppliers under contract which they use every year, however recently

during their peak season toys are not being shipped on time. Therefore they should

terminate their contract with Gull immediately and contract another one of their suppliers

to provide the deficit. Also, instead of terminating the contract they might increase their

desired number of toys. This is because Gull is focusing on higher margin orders. In both of

these cases Jot should be aware that doing so will slow down their overall sales process.

Since, delivery time may fluctuate. During this time it is for Jots priority and best interest

to supply only to their top 7 distributors and then later equally distribute it among their

smaller retailers.

2. Set up Jots Manufacturing Centre In House:

Since, Jot is a young company and comparatively smaller then their competitors such as

Mattel and Hasbro, it might be in their best interest to start thinking of building a small

Page 13: Cima Gbc 2013 Report (2nd Stage)

13

manufacturing centre for situations such as this. In doing so they are able to control the

timeline of production and shipping if one of their suppliers is unable to provide the

correct amount on time. However, building a manufacturing centre takes time and money.

Since, banks are unwilling to provide large loans; Jot in order to grow might look for

outside investors instead.

3. Reevaluate Operational Planning

Mistakes regarding supplier output have been made twice the current year. This can

happen to any small company. However if this area is bleeding the company too much it

might be in Jots best interest to reinforce the operations sector. This can be done by either

hiring a new individual to run the area or bring in more experienced individuals to help

make the sector stronger. Also regarding the tender options Jot should implement

contingency models when deciding on which manufacturer to go with.

Recommendations:

Short-Term:

The issue Jot is facing is the suppliers’ inability to provide them with their goods on time at

their hour of need. Therefore, I would recommend Jot to search for a new supplier

immediately. Michael Werner should start contacting their other suppliers for product so

that they are able to satisfy their retailers and distributors during the fourth quarter.

Long-Term:

If Jot wants to correctly address the issue so that in the future these sorts of situations are

minimized, I would say they might think about undergoing the project of creating Jots very

own manufacturing centre. Since, toy manufacturing parts are relatively cheap and easy to

find this will be a fruitful investment. In addition being able to provide all of their

customers will help keep their reputation.

Page 14: Cima Gbc 2013 Report (2nd Stage)

14

4.4 Near-Shoring Proposal in Voldania

Why Jot is likely to adapt near-shoring proposal?

In actuality, off shoring costs are on the rise. The reason behind the hike is the start-up

costs and the wages of workers in China, all of which undercuts the cost-savings rationale

behind off shoring. Furthermore, off shoring carries potential risks, such as possible

political instability in overseas locations, less reliable civil infrastructure, exchange rate

volatility, less developed legal and regulatory systems, and risks to intellectual property.

If Jot accommodate to near-shoring concept it can generate jobs in the same territory

which would be beneficial for the current euro recession period. At the same time cost of

goods manufactured and distribution cost will be substantially less without compromising

the quality of product. Near-shoring also offers some advantages like similar time zones,

cultural affinity, geographical proximity, ease of immigration and other legal issues.

Strategic Analysis

China is no longer the dominant production location it once was. Studies have

shown rising labor costs, increased congestion in getting product through the ports, much

higher transport costs, and growing concern over ‘toxic toys’ where the paint used

contains carcinogens or lead. China also has a poor reputation for respecting the

intellectual property rights of outside firms. Near-shoring in Voldania would help Jot to

develop a more flexible, just-in-time, supply chain. Orders can be fulfilled and supplied in

4-6 weeks rather than 3 months with consequent benefits for adjusting supply to demand

and reducing inventory and transport costs

Financial Impact

According to simple accounting concepts if cost of production increases rapidly, its gross

profit margin will be less than expected and hence the net profit before tax will be low

therefore declaring a heavy loss in the business.

Page 15: Cima Gbc 2013 Report (2nd Stage)

15

Assessment of Potential solutions

1. Vivid Calculation for the next five years Near-shoring Proposal

Due to rapid increase of workers’ wages in China, Jot is intending to adapt near-shoring

concept i.e. Jot wants to outsource part of its manufacturing to Voldania, a country near

Eastern. The momentous reason to choose Voldania is because the labour charge per hour

in 1 year is €5 which will inflate at 2% per annum where as in China the labour rates

charged per hour in one year is €1.75, while there is a possibility to rise by 12% per annum.

Another factor comes under consideration is that; Voldania will use as many machines as

possible resulting 40% more machining cost in china. On the other hand around 25% of

labor hours will be less in Voldania compared to china. Since crude oil price have raised

unexpected heights at unexpected rates, distribution price per unit from china is relatively

way higher than Voldania. An extensive calculation is performed and the data is tabulated

in table 5.4(Appendix#) in order to decide whether near-shoring proposal is a feasible

concept to reduce manufacturing cost.

Near-shoring vs. China

The labor cost is rising, fast. Thanks to the Chinese government’s one-child policy, there

are fewer young people entering the workforce, and they are less eager to perform back-

breaking menial work that their predecessors had to accept. As a result, companies are

forced to raise wages to attract workers. Therefore switching to near shoring concept will

benefit Jot in order to generate profit substantially. To decide whether the manufacturing

operation should be performed in Voldania, Jot should have sound cognizance about labor

wages, machining cost and distribution cost. A prolonged calculation is performed

regarding these basic variables to drive decision on off-shoring or near-shoring and the

data is tabulated in 5.4 and is shown in appendix

Survey Government Policy of Near-shoring areas

Jot should investigate fully before shifting its part of manufacturing operation in Voldania.

They should comprehend whether Voldania’s government is willing to encourage overseas

companies to manufacture within the territory and also analyze the country’s economic

and financial stability. Jot should also keenly overview the political calamities of Voldania

so that in future dealing the political pressure don’t hurdle delivery dates.

Page 16: Cima Gbc 2013 Report (2nd Stage)

16

Total Landed Cost Arbitrage

Calculation of Total landed Cost is vital for Jot’s decision making purpose about the

selection of near-shoring or off shoring concept. The total Landed Cost (TLC) arbitrage is

the process of assessing the cost differential between EU total landed cost for

manufacturing a product and the total landed cost for a product manufactured in a Low-

Cost Country (LCC) while taking exchange rates in to account. This Total Landed Cost

differential can be calculated as follows:

TLC(EU) – [TLC (LCC)×exchange rate]= TLC( differential )

Recommendation

Short-term:

To cull down the manufacturing cost promptly and mitigate drastically changing customers

demand Jot can have a mix of off-shoring and near-shoring concept. This mix of concept

will increase manufacturing capacity with brilliant quality control and therefore customers

will to have Jots product.

Long-Term

A manufacturing strategy that meets consumer product and price demand must be

supported with sound information for decision making. In order to do so Jot should have a

vivid analysis of factors affecting manufacturing cost in Low-Cost Countries. A broad

illustration is shown in fig 5.2 so that Jot keeps these variables in accounts to decide near-

shoring objectives.

Low -Cost-Country

• Raw material Cost

• Labour Cost

• Quatily Cost

• Overhead

• Packaging

• Risk of distribution

• Exchange Rate

Transit

• Insurance Cost

• Port Charges

• Handling Cost

• Security Cost

• Banking Cost

• Transpotation Cost

• Potential Demurrage Duties

• Hike in crude oil

Home Country

• Local handling Cost

• Local transpotational cost

• Taxes

• Safety Stock

• Product Implication

• Enviormental Cost

• Maintanance Cost

Page 17: Cima Gbc 2013 Report (2nd Stage)

17

5.0 Ethical Issues

Product Safety

The key ingredient to retain a business infinite longevity is to produce goods in such a

way which is transparent and safe for the consumer as well as for the environment. Since

Jot outsource most of its product from China due to its low production cost, the Chinese

manufacture drastically fail to maintain the quality of products and hence causes product

safety at stake. The most hazardous risk associated with Jot toys are smoke coming from

lead batteries and too high levels of banned chemical substances such as certain heavy

metals and phthalates. If these sorts of elements are used to design the products then

people will not be able to trust any brand, therefore Jot’s reputation will demolish.

Product safety not only relies on how to avert accidents but it also depends on how the

composite element is reactive to human body and environment. For instant, Jot uses toxic

materials to paint the outer surface of toys which is perilous for users as well as for

environment. Due to rapid increase in global warming its Jot’s civic duty to use

compounds which is eco-friendly at the same time safe humans. Jot and its outsourcing

companies should be rigid with customer product safety and illustrated code of conduct

should be performed both at managerial post and first liners. If corrective measures are

not taken there is a possibility to losing its trading license. One of the remedies for this

issue is there should be an external testing lab so that the product is tested immediately

after its design and any flaws detected can promptly be solved. They should also use less

toxic/ecofriendly substances and colours while painting the toys or else, as they are

bought for children, they may be put into harm’s way.

Intellectual Property Right (IPR)

One of the biggest risks of outsourcing is the protection of IPR. Outsourcing companies

only manufacture the product, whereas JOT creates the product which is protected by

IPR codes so that Jot’s innovation doesn’t get copied before launching in the market.

These IPR codes are used because it involves lots of research, development studies,

designs, technological innovation in short ideas which are out of the box. Legal

protection of IPR’s are increasing at a rapid scale because the outsourcing companies

breaching the IPR which stake companies reputation heavily .One of the corrective

measure that can be taken is the government of the outsourcing countries (esp. China)

should take rigid actions against these unlawful act and therefore the patent company

should also be careful in choosing the right manufacturer.

Page 18: Cima Gbc 2013 Report (2nd Stage)

18

Page 19: Cima Gbc 2013 Report (2nd Stage)

19

Appendix 1

SWOT Analysis

Strength

Successful and fast growing company. Good product designs. Profitable company. High growth in sales revenue (almost 18% last year). Expanding geographical markets. Experienced and committed management team. Good safety record on its products.

Oppurtunity

To appoint one or more new outsourced manufacturers to produce products YY and ZZ. To appoint new outsourced manufacturers outside of China as Manufacturers B and C are located in another Asian country and in Eastern Europe respectively. Appoint a new outsourced manufacturer, P, to manufacture the licensed products. Improved control over outsourced manufacturers.

Weakness

Dependent on just seven customers for

68% of sales revenue.

Dependent on product designers and

key employees.

Reliant on only 20 outsourced manufacturers. Highly dependent on customers’ changing preferences. Seasonal business with peak sales in quarter 4. Jot has not yet published a CSR statement.

Threat

Poor quality of production by outsourced manufacturer Q. Inaccurate marketing literature and packaging for one product. Possible large write-down of Jot’s inventory. Need to comply with EU safety regulations. Competitors’ actions and price competition.

Page 20: Cima Gbc 2013 Report (2nd Stage)

20

Appendix 2

Page 21: Cima Gbc 2013 Report (2nd Stage)

21

Table 5.4

Year 1 Year 2 Year 3 Year 4 Year 5

Production

in units

60,000 100,000 140,000 180,000 220,000

Labour

Hours in

China for

production

units

36,000 60,000 84,000 108,000 132,000

Labors

Hours in

Voldania

for

production

units

27,000 45,000 63,000 81,000 99,000

Labor rate

charged per

hour in

China

€ 1.75 €1.96 € 2.1952 € 2.458624 € 2.7537

Labor rate

charged per

hour in

Voldania

€ 5 € 5.1 € 5.202 € 5.30604 € 5.4121608

Labor wages

for

production

units China

€ 63,000 € 117,600 € 184396.8 € 265531.39 € 363488.4

Labor wages

for

production

unit

Voldania

€ 135,000 € 229,500 € 327,726 € 429,789.2 € 535803.92

Machinery

cost per unit

China

€ 1.40 € 1.40 € 1.40 € 1.40 € 1.40

Machinery

cost per unit

Voldania

€ 1.96 € 1.96 € 1.96 € 1.96 € 1.96

Machinery

Cost for

Production

Unit China

€ 50400 € 84000 € 117600 € 151200 € 184800

Machinery

Cost For

Production

Unit

Voldania

€ 52920 € 88200 € 123480 € 158760 € 194040

Distribution

Cost for per

unit from

China

€ 3 € 3.18 € 3.37 € 3.57 € 3.78

Distribution

Cost for

Production

Unit from

China

€ 180,000 € 318,000 € 471,800 € 642,600 € 831,600

Total Cost

(China)

€ 293400 € 519600 € 773796.8 €1059331.39 €1379888.4

Total Cost

Voldania

€ 187920 € 317700 € 451206 € 588549.2 €729843.92

Page 22: Cima Gbc 2013 Report (2nd Stage)

22

0

500000

1000000

1500000

2000000

2500000

Year 1 Year 2 Year 3 Year 4 Year 5

Voldania

China €