Macintosh Grant

1 Introduction Mackintosh-Grant, a leading clothing and footwear designer, headquartered in United Kingdom is formed by merger of two companies in 2008. It designs, manufactures, markets and distributes a large range of high tech leisurewear and footwear products through Europe, United States of America and Asia Pacific. With 700 employees at its three sites in Eastern Europe supplies products to over 6 million customers in 20 countries. Let’s analyse the potential of this highly lucrative clothing and footwear industry. Solely Shoe Industry has an annual revenue of about $360.1 billion. Europe is the largest market of shoes all over the world, while Asia-Pacific has the fastest growing shoe market at 7.9% CAGR. From 2007 to 2011, the percentage of shoes bought online has doubled. Average monthly household spending on shoes in US is $21.

Global Clothing revenue is around $500 billion in 2015 and expected to increase at a steady rate of 6.5% over the next 5 years. There has been a shift from traditional growth centres like US, Canada, Europe to South Asia, ASEAN Nations and China. US, Canada and European countries have become the greatest consumers of apparel market.

3 lines of Business Model followed by Macintosh Grant

2 Issues needed to be addressed at Macintosh Grant 

Insufficient Dividends: Shareholders have been disappointed with the company’s performance over the last 3 years. However they have remained loyal and supported the Board in its attempts to move the company into profit. The institutional shareholders are now looking for increased growth and profitability combined with a strategic vision for future. Dividends per Share (DPS) has been zero for two years prior to last year, and just a miniature increase in the following year.

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Capital Budget Overspends: Internal Audit Department has reported that there has been repeated budget overspends than the levels authorized by the board. However overspending has been justified as original budgets were inadequate and in order to not jeopardise the capital projects, overspends were necessary. Also due to lot of customization on products leads to difficulty in predicting costs being incurred.

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Organisational Structure: Macintosh-Grant is organized along the 3 lines of business (described in previous section) since 1990 and continued after the merger in 2008. An HR consultancy in 2008 suggested alternative structures which Macintosh-Grant could employ to its advantage. However, Macintosh-Grant’s board did not allowed any changes in the organizational structure.

3 Our Approach: Increase the revenue and Decrease the Costs The company has been going into profits since the merger in 2008. The operating profits have also grown at nearly 95 percent per annum. Despite such increase in profits, the dividends per share paid to the shareholders was zero for 2008 and 2009, and a slight increase to 0.058 in 2010. This gives an idea that the whole profit earned by the company is being invested and nearly nothing is being paid to the shareholders. Our Idea is to increase the profit margin such that the investment is not compromised for paying dividends to the shareholders. 3.1 Increasing the revenue a) Organisational Structure Changes: 

Primary Footwear Products(FWD):(i) As per current company’s strategy, FWD products are targeted at customers aged 12-30 years. Now, since Primary Foot wears are something which can be used by customers of even further age. We have decided to increase the target customer base to 12-45 years. (ii) Its 90% sales come from UK and Europe Markets. Since the average product price is in lower quartile, the segment has a huge untapped potential in the Asia Pacific. Asia Pacific has a huge population base of 4.2 billion, of which 1.7 billion are in 30-45 years age group which seemed to be ignored in the previous business strategy. (iii) There is also a scope of new innovative products in Primary Footwear Products. The company can launch Diabetic shoes or therapeutic shoes which is intended to reduce the risk of skin breakdown in diabetics with coexisting foot disease. Such shoes coupled with good marketing strategies can be a huge success as according to IDF (international Diabetes Federation) reports show a staggering 285 million people having diabetes worldwide.

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Specialist Sportswear Products(SSWD):(i) This segment has the least Operating Profit despite having highest revenue amongst all division, hence least Profitability. The company strategy is to target only 25-45 years for specialist sportswear products, but a lot of sports enthusiasts aged 12-25 are not considered in this segment. (ii) Moreover, After 35 hardly people tend to use specialist sportswear. We have decided to divide this SSWD segment into two fragments. One 12-35 and the other 35-45. Manufacturing wise 12-35 products would be made robust and stronger as these are the ones which will be used more frequently by the users.

(iii) 135 million 12-25 population in UK, Europe itself which are highly sports oriented. In North America also teenagers are very enthusiastic about sports like rugby, football, and athletics. However, since the price of the product is in upper quartile. Therefore, its scope is limited in Asia Pacific owing to lower income levels and lesser awareness about sports. (iv) The company can form tie-ups with the popular European football clubs like Manchester United, Barcelona, Real Madrid etc. and manufacture their merchandise as these clubs have huge fan following all over the world. Studies have shown that such tie-ups can generate a revenue of as high as $35 million per annum for one club. Predicted Change in Revenue due to the Organisational Changes:The revenue model used is the saturation of revenue model which have been applied in various business studies, according to which the change in revenue is directly proportional to the extra population targeted and income levels of the populace. ∆𝑅 = 𝑘∆𝑃𝐼 ∆𝑅 = (1 − 𝑒 −𝑥 )∆𝑃𝐼,

𝑤ℎ𝑒𝑟𝑒 𝑘 = (1 − 𝑒 −𝑥 )

Where ∆P and I are the additional population targeted and income levels of the new consumer base respectively. k is the saturation constant taking into account the penetration level and competition in the existing market of the company in the given demographic area. ∆R is the increase in revenue due to the increases population base and considering the income levels and competition in the market. For example, for FWD products which has 90% of its sales coming from UK and EU markets, it can be assumed that the market is somewhat saturated in this geographical location, hence the new initiatives may not yield high results in this area. However, for areas which does not have high sales in FWD segment, major part of the revenue increase will come from those demographics. Using this revenue model, the expected revenue increase in FWD segment in Asia Pacific alone is 17.1 million pound whereas in UK, EU it has predicted an increase of 5.2 million pounds. Considering the new innovations in mentioned in FWD sector like anti-therapeutic shoes, tie-ups with sporting clubs, there is an additional increase in revenue 21 million pounds. Overall Revenue increase in FWD segment is 20.46%. Similarly for the SSWD sector, the increase in revenue in NA is expected to be 81% and an overall increase of 16.2% in total revenues.

b) Exploring the Online Avenues:   

Macintosh-Grant can consider to sell their products at online retail stores. Studies have shown that 54 percent of business has reported more than 20 percent increase in revenues after establishing their online presence. It is also recommended for the company to develop an e-catalogue that will be put on its website, and will be accessible to all retailers and wholesalers who wish to collaborate with the designers of Macintosh-Grant. As stated earlier, Merchandise of popular football clubs

c) Demographic Marketing Segmentation 

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The Company is operating in 20 countries with very different demographics and socio-economic conditions. What we suggest that Macintosh-Grant should take care of basic factors like demographics and income of the population. Demographics taking care of the trending apparels and Footwear while Income taking care of the financial strength of the population. Macintosh-Grant should segment the various countries according to their respective GDP per capita. Acccording to a research conducted by Forbes, countries having GDP per capita above $18,000 p.a. are considered to have a higher purchasing power parity (PPP) and for GDP per capita greater than $10,000 but less than $18,000 have moderate PPP. Considering these parameters we have subdivided the regions in three categories as shown below.

3.1.1 Long Term Recycling Strategy For athletic shoes that have reached end of their useful life, Macintosh-Grant can install Shoe drop-off locations, which combines with the manufacturing waste to become grind material. Each shoe is cut into three slices rubber outsole, foam midsole, and fibre upper. These materials can be reused in various ways: Grind Rubber made from the shoe outsole is used in track surfaces, interlocking gym flooring tiles, playground surfacing. It can also be used in trim items like buttons and zipper pulls.  Grind Foam made from shoe’s midsole is used as a cushion outdoor basketball and tennis courts, as well as futsal fields.  Grind Fibre made from shoe’s upper fabric is used in creation of cushion pads for facilities like indoor synthetic courts and wood courts. Such initiatives are expected to require more cost than the returns in the initial stages of its operation but after a threshold time interval, the shareholders can reap huge dividends from it.

3.2 Minimising the Cost Final price of footwear or apparel products consists of various components. Price determination is done in the company using the following model: Primary Cost = Direct Material Cost + Direct Wages + Direct Expenses Factory Cost = Primary Cost + Factory Overheads Total Cost = Factory Cost + Administration overheads + Selling Overheads + Distribution Overheads Net Price = Total Cost + Profit

In order to maintain the same quality of finished products, same raw materials are used, hence there is no scope of deduction in the direct material costs. No change in design and material is incorporated with constant operating time thus leading to no change in direct wages and direct expenses. Assuming that there is no change in manufacturing methodology and labor time the industrial overheads are same. Thus, to reduce the costs incurred, administrative overheads; selling overheads; and distribution overheads need to be reduced. To reduce the costs, Administrative, Selling and Distribution overheads challenges must overcome: a) Purchase order management challenges  Lack of complete purchase order visibility to trading partners (sales offices, factory, raw materials supplier, ticketing, consolidator, transportation, Distribution Center) to manage supply chain and lead time and inventory.  Difficult to extend internal systems to link different supply chain parties.  Difficult to implement customer specific services (labelling, mark-for-store). b) Transport Logistics Management  Different carriers, different way to trace and track.  Non completeness of consignment check points.  Manual processes of small carriers.  Last minute inventory management difficult. 3.2.1 Conventional information exchange Communication Methods: Fax, Mail, Site Visits, Proprietary File transfer etc.

Proposed way Workflow, Message Alerts, Back office Integration with reporting capabilities

Advantages:  Increased operational efficiency through electronic transmission of order information directly into factory systems - i) improved data accuracy ii) reduced administration cost through data inheritance  Neutral and common platform compared to different system for each shipper and supplier.  Purchase order history and version control logs benefits factories.  Dashboard design with “TO DO LIST”,”OVERDUE TASKS”, and “ALERTS” for each user level.

3.2.2 Traditional method of listing company’s range of products by use of Catalogs

This method is less effective, costly and cumbersome because customers are increasingly seeking specially designed custom made products. The costs include:  Cost of printing catalog  Cost of storing image in CDs  Shipping Costs

Digital Asset Management A central repository for all digital assets capable of handling all of MackintoshGrant image types. It is a workflow system that enables a stream-lined process for creating and approving digital assets. Benefits:  Cost Reduction  Improved brand Image  Enable communication with distribution partners and customers requiring digital images.  Allows the use of digital images in all executive dash boards.

(i) Self-service model for image requests: Reduction of CD creation cost  Reduction of shipping cost  Reduction of product catalog printing costs  Instant fulfillment – reduced time to market (ii) Reduced Network Traffic  Automated upload of product assets via FTP and not Email  View thumbnail and only download high resolution if required (iii) Improved worker efficiency by providing a one stop location for product images and product data  Product data from Mackintosh-Grant’s line planning system automatically mated with appropriate asset  Built in search tools 4 Budget Overspends: An Investigation by Internal Audit department has revealed that less attention is paid to expenditure authorization levels approved by board. The overspending is justified on the grounds that original budgets were inadequate and in order to not jeopardize the capital projects, overspends were necessary. It is perceived by designers and most staff members that the need to allow great deal of customization on products leads to difficulty in predicting cost being incurred. Causes of Budget Overspend       

Sales and Consumer interaction during receiving specific information from consumers. Flexible Manufacturing system, example - higher capital investment in inventory management. Requirement of new machineries. Production planning of intricate requirements of custom products. Training of workers to carry out multiple small activities. Investment in small activities. Retail Distribution.

Ways to counter-act budget overspends     

Postponement strategies: helps garment vendor in preventing costs of misplacement of activities due to imprecise planning information. Through EOI, retailer is in position to get access to first hand customer information about their requirement and preferences. EOI increases switching costs for the customers, retailer builds stable relationships with its clients &‘re-using’ existing customers for additional sales. Made-to-stock approach in mass customization helps in elimination of inventory in distribution in supply chain. Reduced fashion risk as consumers put their custom orders taking into account the current fashion.

5 Conclusion According to our analysis, Macintosh-Grant faces mainly a dual challenge; first being insufficient dividends being paid to the shareholders and second is the capital budget overspends in the various capital projects. Our team analysed the numerous reasons for them and suggested the suitable changes citing its proper justification. To increase the revenue so that sufficient dividends are paid to the shareholders, we have suggested initiatives like re-organisation of basic structure, exploration of online avenues, and demographic marketing segmentation according to economic condition of the respective country. For decreasing the costs, we analysed the different components of price determination and found which component has room for price reduction and suggested suitable reforms in it. We also analysed the conventional information exchange which has too many hassles, and proposed an alternative way of information

exchange. Digital asset management structure is also changed and more emphasis is put on digitization of catalogues, product varieties and potential collaboration with wholesalers who have similar aims.

So now we can see that previously company was using all its profit in the investments and the shareholders were not getting dividends but now since the profit of the company has increased dividends can be paid to the shareholders on regular basis keeping the investment same or even increasing it.

6 References 1. http://www.indexmundi.com/united_kingdom/demographics_profile.html 2. http://www.indexmundi.com/european_union/age_structure.html 3. http://www.geohive.com/earth/population_age_1.aspx 4. http://healthintelligence.drupalgardens.com/content/prevalence-diabetes-world-2013 5. http://www.idf.org/latest-diabetes-figures-paint-grim-global-picture 6. http://www.slideshare.net/businessdesign2011/apparel-industry-sectoral-analysis-ppt-1?qid=4746adb6-8c73-425b-a8c69d10f82b021d&v=qf1&b=&from_search=4 7. http://www.businesstoday.in/current/corporate/retailers-revenue-rises-as-they-go-online-presence-study/story/211776.html 8. http://www.who.int/diabetes/facts/world_figures/en/index5.html 9.https://books.google.co.in/books?id=h8oltKzawYEC&pg=PA431&lpg=PA431&dq=how+many+shoes+not+sold+each+year&sour ce=bl&ots=prqntWG5Ez&sig=0ZDdEWdczt9ZtRPO7HpTr7qdcrA&hl=en&sa=X&sqi=2&ved=0ahUKEwj7iP27iN_JAhXDUY4KHcfRDAI Q6AEIVDAJ#v=onepage&q&f=false 10. http://www.slideshare.net/Tanel/cost-reduction-strategiesfocus-and-techniques 11. http://www.slideshare.net/RRSingh3/cost-control-cost-reduction-management-accounting?qid=7e8eaeea-9d6e-4227-8a73366b9ed93369&v=default&b&from_search=15 12. http://www.slideshare.net/dtracy4/flevy93e2previewpdf?qid=7e8eaeea-9d6e-4227-8a73366b9ed93369&v=default&b&from_search=20 13. http://www.slideshare.net/PaulEllis9/inventory-reduction-model?qid=7e8eaeea-9d6e-4227-8a73366b9ed93369&v=default&b&from_search=19 14. http://recyclenation.com/2012/08/nike-reuse-shoe-program 15. http://www.unescap.org/sites/default/files/SPPS-Factsheet-Population-Trends-v3.pdf 16. http://www.slideshare.net/firojmdshah/levis-project?related=3 17. http://www.slideshare.net/PaulEllis9/inventory-reduction-model?qid=7e8eaeea-9d6e-4227-8a73366b9ed93369&v=default&b&from_search=19