Peanut Detective Business Plan
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Peanut Detective Business Plan as PDF for free.
More details
- Words: 27,435
- Pages: 113
2007
A device that detects peanut traces in foods, helping those with peanut allergies avoid potentially deadly allergic reactions.
SM 323 Spring 2007 Section X4 Team 2 PTA: Professor Donald Santini April 17, 2007
This business plan is the original work of the undersigned. All facts and figures are authentic. All contributions from others have been appropriately acknowledged.
Frederick Hoang
Leora Kadisha
Alejandro Moreno‐Paz
Roman Nurik
Salonie Patel
Ryan Shore
Danielle Varney
Table of Contents Executive Summary .............................................................................................................................. 1 Product Need ......................................................................................................................................................... 1 Product Description ............................................................................................................................................ 1 Marketing ................................................................................................................................................................ 1 Operations ............................................................................................................................................................... 2 Information Systems .......................................................................................................................................... 2 Finance...................................................................................................................................................................... 2 Introduction ............................................................................................................................................ 3 Food Allergies ........................................................................................................................................................ 3 Peanut Allergies .................................................................................................................................................... 3 BSure Diagnostic Devices, Inc. .......................................................................................................... 4 Organizational Goal ............................................................................................................................................. 4 The BSure Peanut Detective ............................................................................................................................ 4 Revenue Sources .................................................................................................................................................. 6 Critical Success Factors ..................................................................................................................................... 6 Industry, Trends and Competitive Analysis ................................................................................ 8 Industry .................................................................................................................................................................... 8 Competitive Environment ................................................................................................................................ 9 Positioning the Peanut Detective ............................................................................................................... 11 Competitor Response ...................................................................................................................................... 12 Marketing Plan ..................................................................................................................................... 14 Communication Objectives ........................................................................................................................... 14 Segment Analysis .............................................................................................................................................. 14 Promotional Plan ............................................................................................................................................... 16 Push Strategies ................................................................................................................................................... 17 Pull Strategies ..................................................................................................................................................... 18 Advertisement Design ..................................................................................................................................... 20 Distribution ......................................................................................................................................................... 21 Pricing Strategy .................................................................................................................................................. 23 Sales Projection .................................................................................................................................................. 25 Operations & Manufacturing Plan ................................................................................................. 27 Product Design ................................................................................................................................................... 27 Patent Information ........................................................................................................................................... 29 Plant Characteristics ........................................................................................................................................ 30 Management Level Employees .................................................................................................................... 32 Supply Chain ........................................................................................................................................................ 32 Direct Sales .......................................................................................................................................................... 41
Situational Analysis .......................................................................................................................................... 42 Continued Development ................................................................................................................................ 43 Information Systems Plan ................................................................................................................ 44 Plan Overview ..................................................................................................................................................... 44 Achieving Critical Success Factors ............................................................................................................. 45 Value‐Adding Activities .................................................................................................................................. 46 Core Application Software ............................................................................................................................ 47 Web Strategy ....................................................................................................................................................... 49 Supporting the Business Model .................................................................................................................. 52 Hardware and Telecommunications ........................................................................................................ 53 Data Security ....................................................................................................................................................... 54 Personnel .............................................................................................................................................................. 55 Implementation Schedule ............................................................................................................................. 55 Costs ........................................................................................................................................................................ 56 Summary ............................................................................................................................................................... 57 Financial Analysis & Plan ................................................................................................................. 58 Internal Rate of Return & Net Present Value ........................................................................................ 58 Investment ........................................................................................................................................................... 58 Cash Flows ........................................................................................................................................................... 60 Ratios Analysis ................................................................................................................................................... 62 Risks ........................................................................................................................................................................ 63 Scenarios ............................................................................................................................................................... 65 Why Invest? ........................................................................................................................................... 68 Beyond Year Seven ........................................................................................................................................... 68 Conclusion ............................................................................................................................................................ 68
Table of Exhibits General Exhibit 1: Product Image ..................................................................................................................... 4 General Exhibit 2: Competitive Products .................................................................................................... 10 General Exhibit 3: Product Positioning A .................................................................................................... 11 General Exhibit 4: Product Positioning B .................................................................................................... 12 MK Exhibit 1: Segment Psychographics (Children & Teen Segment Separated) ....................... 15 MK Exhibit 2: Promotional Plan (Year 1) .................................................................................................... 17 MK Exhibit 3: Product Packaging ................................................................................................................... 21 MK Exhibit 4: Holder Purchase Intents ........................................................................................................ 23 MK Exhibit 5: Cartridge Purchase Intents .................................................................................................. 23 MK Exhibit 6: Holder Price Points .................................................................................................................. 24 MK Exhibit 7: Cartridge Price Points ............................................................................................................ 24 MK Exhibit 8: Product Lifecycle ...................................................................................................................... 24
MK Exhibit 9: BASES Sales Forecast .............................................................................................................. 25 OM Exhibit 1: Consumer Attribute Importance Preferences ............................................................. 27 OM Exhibit 2: Distributor Locations ............................................................................................................. 30 OM Exhibit 3: Factory Layout ........................................................................................................................... 31 OM Exhibit 4: Supply Chain Diagram ............................................................................................................ 33 OM Exhibit 5: Supplier Map .............................................................................................................................. 33 OM Exhibit 6: Holder Lead Times ................................................................................................................... 35 OM Exhibit 7: Cartridge Lead Times ............................................................................................................. 36 OM Exhibit 8: Holder Process Time ............................................................................................................... 36 OM Exhibit 9: Cartridge Process Time ......................................................................................................... 38 IS Exhibit 1: Information Systems Plan Summary .................................................................................. 44 IS Exhibit 2: Information Systems Value Chain ........................................................................................ 46 IS Exhibit 3: Implementation Schedule ........................................................................................................ 56 IS Exhibit 4: Pre‐launch IS Costs (w/o $60K in Salaries) ..................................................................... 56 FE Exhibit 1: IRR & NPV ...................................................................................................................................... 58 FE Exhibit 2: Contribution & Ownership..................................................................................................... 59 FE Exhibit 3: Contribution Details ................................................................................................................. 59 FE Exhibit 4: Cash Flows (years 0‐7) (data table values in thousands) ........................................ 60 FE Exhibit 5: Summarized Income Statement........................................................................................... 61 FE Exhibit 6: Breakeven for Cartridges ....................................................................................................... 61 FE Exhibit 7: Company & Industry Ratios .................................................................................................. 62 FE Exhibit 8: Sensitivity Analysis ................................................................................................................... 64 FE Exhibit 9: IRR & NPV for Optimistic, Base, and Pessimistic Cases ............................................. 65 FE Exhibit 10: IRR & NPV for Investors (Opt./Base/Pess.) ................................................................. 66 FE Exhibit 11: Cash Flows for Optimistic, Base and Pessimistic ....................................................... 67
Table of Appendices General Appendices ........................................................................................................................... 69 General Appendix 1: External Product Design ..................................................................................... 69 General Appendix 2: Internal Product Design ...................................................................................... 70 Marketing Appendices ...................................................................................................................... 73 MK Appendix 1: Segmentation Tree ......................................................................................................... 73 MK Appendix 2: Press Release .................................................................................................................... 73 MK Appendix 3: Instruction Manual Contents ..................................................................................... 74 MK Appendix 4: Survey & Result Summary .......................................................................................... 76 MK Appendix 5: Online Post‐Purchase Survey .................................................................................... 79 MK Appendix 6: Focus Group Summary ................................................................................................. 80 MK Appendix 7: Marketing Budget Expenses ....................................................................................... 81 MK Appendix 8: Base Case Sales Forecast ............................................................................................. 82
MK Appendix 9: Online Rebate ................................................................................................................... 83 MK Appendix 10: Introductory Advertisement ................................................................................... 83 MK Appendix 11: Web Commercial Storyboards & Snapshots ..................................................... 84 MK Appendix 12: Magazine Advertisements ........................................................................................ 85 Operations Management Appendices .......................................................................................... 86 OM Appendix 1: House of Quality .............................................................................................................. 86 OM Appendix 2: Organizational Chart (Year 1) ................................................................................... 86 OM Appendix 3: Supplier Information ..................................................................................................... 87 OM Appendix 4: Component Price Breaks ............................................................................................. 87 OM Appendix 5: Economic Order Quantities ........................................................................................ 88 Information Systems Appendices .................................................................................................. 89 IS Appendix 1: Preliminary Operations/Manufacturing ERD ....................................................... 89 IS Appendix 2: Preliminary Data Flow Diagram .................................................................................. 89 IS Appendix 3: Microsoft Dynamics GP Resources ............................................................................. 90 IS Appendix 4: peanutallergy.com Screenshots ................................................................................... 91 IS Appendix 5: Website Details ................................................................................................................... 92 IS Appendix 6: Information System Cost Schedule (w/o IS Manager Salary) ........................ 93 Finance Appendices ............................................................................................................................ 94 FE Appendix 1: Cash Flows & Returns ..................................................................................................... 94 FE Appendix 2: Income Statement ............................................................................................................ 95 FE Appendix 3: Balance Sheet ..................................................................................................................... 96
Executive Summary 1
Executive Summary Product Need Currently, the three million people who are diagnosed with peanut allergies have no means of detecting peanuts in their food. They must rely on incomplete nutrition labels and other inaccurate means to decide if there are peanut traces in foods. The Peanut Detective will fulfill this need for a diagnostic device by accurately and quickly informing the consumer of peanut contents within a food item.
Product Description The Peanut Detective, which will be slightly larger than a USB flash drive, is comprised of two components, a holder and a cartridge. The holder will contain the electronics of the device, including the LED lighting, which will illuminate green if the food is safe to eat and red if the food contains peanut traces. The cartridge, which will be one time use only, will contain the chemicals necessary for the device to work. The chemicals will be contaminated after each usage, which warrants the one time use.
Marketing The Peanut Detective is targeted towards children and teens, ages 2‐17, and adults 18 and older. These two markets are made up of 2.5 million people, whose reactions to peanut ingestion lead to hives, vomiting, and anaphylaxis. Marketing towards the first segment will target parents and guardians, for they will be the buyers. These advertisements will appeal towards a mother’s maternal instincts. Advertisements targeting the adult segment will be more light hearted, portraying slightly comical situations. The Peanut Detective will be distributed through major drug stores including CVS, Walgreens, and Rite Aid. Consumers will also be able to purchase the Peanut Detective online (www.bsuredd.com), where a subscription plan can be set up and customized to the consumers’ needs. The holder will sell for $41.99, assuming a 39% retailer markup. The cartridge will sell in boxes of 16, for $58.40, and boxes of eight for $29.20, assuming a 35% retailer markup. $8 rebates will be included with the larger cartridge boxes, and can be redeemed at the BSure website.
Executive Summary 2
Operations All thirteen components needed for production will be purchased from suppliers. However, none of the production process will be outsourced. The variable costs per cartridge unit are $1.68 in year 1, where price breaks will not be available. Eventually, cartridge price will drop to $1.62 per unit due to price breaks. The holder will cost $1.92 to produce in year 1, dropping to $1.87 once demand enables price breaks on plastics and packaging. Labor costs are minimized through the usage of part time labor. Machines, needed for cartridge production, will cost $100K; one machine will be necessary in year 1 and eight machines in year 7. BSure will use a chase strategy to keep inventory levels low, necessitated by expiration dates on the cartridge and holder, which limit the amount of time each unit can spend in finished goods holding.
Information Systems Information systems will be used in order to achieve the following three critical success factors: exceptional product reliability, rapid customer base expansion, and secure intellectual capital management. IS will also integrate and monitor all aspects of inventory management in order to keep inventory levels low and track quality throughout the production process. A web site will be set up where consumers can learn about peanut allergies as well as purchase the Peanut Detective.
Finance BSure will provide investors with a rate of return of 55% and a net present value of $2.6 million. Within four years, investors will recover their initial investments and receive increasing cash flows through year 7. To achieve these cash flows, investments of $1.4 million are needed from investors over a three year period. By the end of year 7, 286K holders and over 30 million cartridges will have been sold. After year 7, with a terminal value of $15 million dollars, BSure will explore the option of expansion into diagnostic devices for other food allergies such as tree nuts and egg, which are two of the more prominent food allergies.
Introduction
Introduction 3
Introduction Food Allergies Food allergies are irregular responses to food that are triggered by a reaction in the immune system.1 They are characterized by symptoms ranging from hives to anaphylaxis, which is a severe respiratory reaction involving the closing of the throat. According to the Food Allergies Initiative, over 11 million people in the United States are affected by some form of food allergy, and that number is growing.2
Peanut Allergies Peanut allergies are characterized by reactions to peanuts or peanut bi‐products. They are the most common form of food allergies in the United States—of the 11 million food allergy sufferers, an estimated three million people are diagnosed with peanut allergies.3 The biggest concern with this allergy is the severity of its reactions: “As the most common cause of life‐threatening allergic reactions, peanut allergies account for 80 percent of fatal or near‐fatal allergic reactions each year.”4 At this time, peanut allergy sufferers have unreliable ways to prevent these potentially deadly allergic reactions. There are no preventative medications or devices currently available on the market. Reactionary medications currently available include Merck’s EpiPen, Pfizer’s Benadryl, and calamine lotion (see Competitive Environment for further information). Other alternative methods include examining food labels for packaged foods, asking restaurant waiting staff for assistance about ingredients in the meal, and avoidance altogether. "food allergy." MedicineNet. MedicineNet Inc., 2001. Answers.com 11 Apr. 2007. http://www.answers.com /topic/food‐allergy‐2 “food allergy information.” Food Allergy Initiative, Food Allergy Initiative (FAI)., 1970. 11 Apr. 2007. http://www.foodallergyinitiative.org/section_home.cfm?section_id=3 3“Peanut Allergy, the shocking facts.” MecicineNet, MedicineNet Inc., 2002. PeanutAllergyResource.com 11 Apr. 2007. http://www.medicinenet.com/script/main/art.asp?articlekey=15618 4 “Peanut Allergy” Mayo Clinic, 2006. Mayoclinic.com 11 Apr. 2007. http://www.mayoclinic.com/health/peanut‐allergy/DS00710 1 2
BSure Diagnostic Devices, Inc. 4
BSure Diagnostic Devices, Inc. Organizational Goal The organization’s overall goal is to capitalize on the unmet market need for a reliable, preventative measure against peanut‐related allergic reactions. To achieve this goal, BSure has developed the Peanut Detective, a consumer device that detects peanut traces in foods. The organization’s success also depends on the Peanut Detective’s ability to become the leading prevention method in the United States within five years.
The BSure Peanut Detective With the Peanut Detective, consumers will be able to test a large variety of foods before consumption to verify that there are no peanut traces present. The product will enable users to avoid allergic reactions and help prevent uncomfortable or painful usage of medication or unnecessary hospital visits. Key attributes of the product include: • • • • •
99.99% accuracy Easiness of use, can be taught to children five and older Ability to test a large variety of foods 45 second response time Discrete size General Exhibit 1: Product Image
BSure Diagnostic Devices, Inc. 5
Product Usage To test foods, the consumer inserts a disposable Peanut Detective cartridge into a reusable holder. Next, he or she takes off the cartridge cap, brushes the device over the food, snaps the cap back on, and pushes the “test” button. In 45 seconds, the Peanut Detective holder will indicate, with either a green or red light, whether the food contains traces of peanuts. A red light indicates that the food has traces of peanut bi‐products and should therefore not be consumed, while a green light indicates that the food is safe to eat. In a situation where there is not a proper sample size or the test is inconclusive, the test will show a red light, indicating the presence of peanut. This default feature is to prevent false negative results. However, with an accuracy of 99.99%, consumers will be able to trust the outcome in all but very rare cases. Consumer research has indicated that over 76% of people diagnosed with peanut allergies alter their frequency of eating outside their home to avoid potential reactions.5 The Peanut Detective will help alleviate this problem, allowing consumers to feel safe in many locations such as restaurants, camps, friend’s or relative’s houses, and their child’s school, among other desired locations. The Peanut Detective will be able to test a large variety of foods at these locations, including cookies, pasta, sauces, and meats. Generally, any food with a consistency similar to or thicker than oil can be tested with the product. Consumers using this product will be able to ease food‐related anxiety and experience a tremendous positive lifestyle change. Worrying about a peanut allergy influences many daily decisions; with the Peanut Detective, consumers will be able to trust the foods they eat knowing that they can use a device that can protect them against the consequences of an allergic reaction. There are currently no preventative products on the market, and the need for protection against these severe reactions is growing.
5
Peanut Allergy Survey. WebSurveyor.
BSure Diagnostic Devices, Inc. 6
Revenue Sources The Peanut Detective will generate revenues through two distinct channels. The product will mainly be sold in traditional drug stores such as CVS and Walgreens. Direct internet sales, which will include refill subscription plans, will provide a steady alternate revenue stream.
Critical Success Factors The Peanut Detective’s, and consequently the organization’s, success depends tremendously on a variety of critical success factors, each relying on different functional areas of the organization. Product reliability, consumer base expansion, and intellectual capital management were each carefully considered in the development of the Peanut Detective plan. Exceptional Product Reliability (Operations, IS) The Peanut Detective must maintain 99.99% accuracy for each usage of the product because of the potentially deadly consequences of false negative results for customers. Although both the holder and cartridge are designed for high accuracy, effective supply chain management and meticulous manufacturing control will be crucial to achieving high reliability. Rapid Customer Base Expansion (Marketing, IS) Because the market for peanut allergy products is relatively small, it is important for a company in this industry to achieve high segment awareness levels to generate sufficient revenues. BSure will strive to achieve 25% segment awareness by its peak year of demand. More specifically, the goal will be to increase awareness anywhere from 3‐5% each year. The organization will also strive to achieve a 95% customer satisfaction level by the second year of operations. Satisfied customers will contribute word‐of‐mouth awareness thus increasing sales.
BSure Diagnostic Devices, Inc. 7
Secure Intellectual Capital Management (Information Systems) In a such a high technology operation, intellectual property must be carefully managed. BSure will aim to stay ahead of the technology curve by obtaining at least one medical technology patent per year after year 1. To keep human and structural capital within the organization, BSure will focus on retaining its employees and keeping its data secure.
Industry, Trends and Competitive Analysis 8
Industry, Trends and Competitive Analysis Industry The Peanut Detective will be classified in the Chemicals and Allied Products industry under the sub category of In Vitro6 and In Vivo7 Diagnostic Substances. This category is SIC code 28358 and NAICS code 3254139. The device is classified as an in vitro device as it performs the chemical test inside a controlled environment and outside a living organism (e.g. after the airtight cap is applied and the chemical pouch is pierced). The product however will be categorized as a self diagnostic device. The self diagnostics device industry has grown over the past few years as the population in general has become more health conscious and comfortable using technology. It has also grown due to lower prices and easier to use product designs.10 Many large corporations are part of this industry. Among the largest is Switzerland’s Roche Group with a 17% market share of global diagnostic devices. Closely following is Abbott Laboratories with a 15% market share and Johnson & Johnson with an 11% market share.11 While all of these companies manufacture self diagnostic devices, none make a peanut detection device. BSure will therefore be creating a new niche sub industry within the self diagnostic device industry. Trends There are a variety of socioeconomic trends that will impact the success of the Peanut Detective. Immigration into the United States has been steadily increasing and has brought with it exposure to new cultures and subsequently new cuisines. Asian influence in the Reaction occurs outside of the body Reaction occurs inside the body 8 "In Vitro and in Vivo Diagnostic Substances." Standard Industrial Classification. U.S. Department of Labor. 1 Apr. 2007. 9 "In Vitro Diagnostic Substance Manufacuring." 2002 NAICS Definitions. 5 May 2003. U.S. Census Bureau. 1 Apr. 2007 . 10 Marquez, Rachelle C. "Home Self‐Testing Market Grows as Medial Costs Rise." The Business Journal 15 (1997): 6. 11 Pearce, Lynn, ed. "In Vitro and in Vivo Diagnostic Substances." Encyclopedia of American Industries. 4th ed. 2 vols. Thomas Gale, 2005. 6 7
Industry, Trends and Competitive Analysis 9
United States is growing, as 200 to 300 thousand people from Asian countries immigrate to the United States each year. As a result of this immigration influx, sales of Japanese, Thai, Vietnamese and other pan‐Asian cuisines rose 250% between 1996 and 200012. BSure has found through market research that people with peanut allergies avoid Thai and other Asian restaurants because of the high concentration of peanuts in such cuisines. Travel also has a big impact on the Peanut Detective. In 2000, 61 million Americans made trips overseas, representing over 20% of the United States population.12 Less regulation of food labels in foreign countries represent a vital time in which the Peanut Detective can be used to test foreign and unknown foods. In some European countries for example, an ingredient is required to appear on a label only if it constitutes more than 25%13 of the product. Ingredients like peanuts that are usually used in small quantities are many times omitted. In other foreign countries, regulation is even more lax.
Competitive Environment The product’s chief competitors will be those who make products that are reactionary, as there are no currently available preventative products against peanuts. A company named Tanox was recently developing a preventative drug named TNX‐901 that they hoped would increase sufferers’ resistance to peanuts14. Legal issues, however, prevented the drug from entering the market15. Future competitors for the Peanut Detective are those companies developing similar drugs that will fight allergic reaction to peanuts. BSure does not believe that such drugs will be released and widely adopted during the main years of operations. A comparison of current competitive products can be found in General Exhibit 2, followed by a brief description of each.
"Emerging Ethnic Foods." Mintel Reports. Mintel, 2002. 1 Apr. 2007. Nicolas, Nathalie, Joyce W. Yu, Ann Clarke, Rhonda Kagan, Nina Verrault, Lawrence Joseph, and Yvan St. Pierre. "Accidental Ingestions in Children with Peanut Allergy." The Journal of Allergy and Clinical Immunology 118 (2006): 471. 14 Merz, Beverly. "Studying Peanut Anaphylaxis." The New England Journal of Medicine 348 (2003): 975‐976. 15 Pollack, Andrew. "Wrangling May Delay Peanut Allergy Drug." The New York Times 13 Mar. 2003, Late ed., sec. C: 1. 12 13
Industry, Trends and Co ompetitive An nalysis 10
Gen neral Exhibit 2: Competitiive Products
EpiPen
Benadryl
TNX‐901
by Merck
by Pfizeer
by Tanox
Caalamine Lotio on
Speed
Fasst
Slow
Slow
Slow
Preventio on Type
Reactive
Reactivve
Preventatiive
Reeactive
Ease of Usse
Haard
Medium
Medium
Eaasy
Comfort LLevel
Painful
Distastteful
N/A
Uncomfortablee
Market Availabilitty
Avvailable
Availab ble
Not Availaable
Avvailable
Product P Photo
EpiPen byy Merck16 This dev vice deliverss the fastesst results an nd is the mo ost highly eeffective treeatment afteer an anaphylaaxis reactio on has occurrred. While this devicee is the indu ustry standaard, it has ssome major side effects aafter a painful injection n, such as aa quickening heart beaat, dizzinesss and sweatingg. Benadryll (Pfizer)17 This medication yieelds slow results and is only mild dly effective. Side effects are min nimal compareed to the EpiPen and in nclude fatigu ue, dry mouth and blurred vision. Calaminee Lotion18 This gen neric type of skin lotion n delivers sslow resultss and has m mild effectiv veness in geetting rid of hiv ves and itch hiness. Side effects inclu ude rashes aand irritatio on on the sk kin.
"Allergic R Reactions & Anaph hylaxis Allergy." E EpiPen. Merck & Co. 1 Apr. 2007 <. 18 "Calamine Lotion Informatiion." Drugs.Com. 1 Nov. 2002. 1 Ap pr. 2007 . 16 17
Industry, Trends and Competitive Analysis 11
TNX 901 (by Tanox)19 This drug is currently being researched and developed by Tanox, a biotherapeutics company. It will not be designed as a cure to peanuts allergies, but rather will defend against a reaction when small quantities are consumed or touched. TNX 901 will not be released within the lifetime of the Peanut Detective, however, it is still in the early stages of development and the company behind the drug is currently facing legal problems.20
Positioning the Peanut Detective Although the EpiPen is the most commonly used product21 to treat peanut‐related allergic reactions, it is painful to use—this discomfort in usage is a quality of many reactive treatments. Antihistamines such as Benadryl and skin lotions such as calamine lotion are also slow to react and can only help if the reaction is not too severe. The Peanut Detective will be positioned as the only reaction prevention method for consumers; it will also be positioned for quick response time (45 seconds). A positioning map illustrating these dimensions can be found in General Exhibit 3. General Exhibit 3: Product Positioning A
, Beverly. "Studying Peanut Anaphylaxis." The New England Journal of Medicine 348 (2003): 975‐976. Pollack, Andrew. "Wrangling May Delay Peanut Allergy Drug." The New York Times 13 Mar. 2003, Late ed., sec. C: 1. 21 "Allergic Reactions & Anaphylaxis Allergy." EpiPen. Merck & Co. 1 Apr. 2007
Industry, Trends and Competitive Analysis 12
In comparison to other methods of coping with food allergies, the Peanut Detective is reliable and gives fast results. Other coping methods such as asking restaurant wait staff are less reliable because of human error and negligence. The Peanut Detective will be 99.99% accurate and thus extremely reliable. A positioning map for these dimensions can be seen in General Exhibit 4. General Exhibit 4: Product Positioning B
Competitor Response The organization expects to be the only peanut detection device on the market until at least the third year of operations, as it will take the competition time to develop a product similar to the Peanut Detective. In the third year, the organization expects to have at least one competitor enter the market. BSure will maintain the majority of the market share due to the fact that by year 3 the product will have had built up consumer loyalty and trust through proven reliability of the product and through the usage of the company’s community‐driven website (see Web Strategy). Another foreseeable response from potential competitors is the buyout of the company in the future. The self diagnostics industry has witnessed a fair amount of consolidation over the past few years involving larger companies acquiring smaller ones in order to provide
Industry, Trends and Competitive Analysis 13
lesser known products with more marketing muscle.22 Larger corporations such as Johnson & Johnson and Abbott Laboratories may acquire BSure Diagnostic Devices once the Peanut Detective proves its profitability.
"Self Diagnostic." Mintel Reports (2004). 1 Apr. 2007.
22
Marketing Plan
Marketing Plan 14
Marketing Plan Communication Objectives BSure is focusing on four primary marketing objectives: • • • •
Gain the target segments’ trust in the Peanut Detective by the end of year 2 Achieve a national awareness of 25% by year 7 (spurring customer base expansion) Develop the website as an information hub, partly by partnering with four doctors by year 2 for web‐blogging Have online revenues account for 20% of total sales by the end of year 7
The success of the Peanut Detective will be dependent upon BSure’s ability to build trust with its consumer base by gaining the support of respected doctors. Through an effective marketing campaign, the Peanut Detective will gain the trust needed to build consumer loyalty among peanut allergy sufferers and their guardians.
Segment Analysis BSure identified three market partitions in the category of peanut allergy sufferers; those who experience mild irritations, such as an itchy throat or small rashes, those who experience hives, vomiting, and anaphylaxis if peanuts are ingested, and those who experience severe reactions from touching or smelling peanuts. BSure plans to target those who experience hives, vomiting and anaphylaxis if peanuts are ingested. This is the largest target market, with 2.5 million people. The Peanut Detective will not be targeting the other two categories because research analysis has indicated that people with mild irritations are not concerned enough with their allergy to purchase the Peanut Detective. In contrast, those who experience a severe reaction by merely touching or smelling traces of peanut would not use this device because it would not fulfill their needs (see MK Appendix 1).
Marketingg Plan 15
MK K Exhibit 1: SSegment Psycchographics (C Children & Teen Segment SSeparated)
Child dren (2‐12) This catego ory enjoys going to zoos, playying on sports tteams, and attends school fo or the majority of their day. Theey look for new w, fun productss that help them stand out am mong their frien nds. To avoid p peanuts, they ssit at a separate table during lunch and do n not share snaacks with their classmates. In n their backpacck is an EpiPen just in case of an allerrgic reaction.
Teens (13‐17) On weekend ds, this segment likes to go to the mall, thee movies, and h hang out with friends. Theey dress, act, aand listen to th he same music as their friends. It is importaant to fit in and hid de embarrassing traits. To prrevent a peanu ut reaction, theey avoid new foods, new restaurants an nd carry an EpiPen in their pu urses and backkpacks for emergenciees.
Adults (18+) Between co ollege, work, an nd seeing frien nds, this segmeent has little tim me to worry ab bout themselves. They do thinggs at a fast pacce, and requiree services to bee quick and efficient. Th hey are interessted in buying stylish clothingg and new elecctronic products. To avoid a p peanut reaction, they ask wait‐staff for meaal ingredients aand search thee internet forr nut free products.
Children and Teens Through h market reesearch, BSu ure discoveered key pssychographiics (see MK K Exhibit 1) that affect the purchase intent of eaach segmen nt. The mostt important of these disscoveries sh hows hough children and teeens—betweeen the agess of 2 and 17—would be the prim mary that alth users of f the Peanutt Detective, the primarry buyers would w be thee parents of o these chilldren and teens. Therefo ore, adverttising mustt target parents ratheer than ch hildren. Parrents, especiallly mothers, are alwayss seeking altternative fo orms of prottection and reassurancce for their chiild or teen w with an alleergy; the Peeanut Detecttive fulfils this need. Th his segment has an appro oximate sizze of 875K consumers,, with an esstimated grrowth rate of 5% per year, which reeflects the y yearly increaase of children who deevelop peanut allergies.23 This segm ment 23
Sicherer, SScott, Anne Muñozz‐Furlong, and Hu ugh Sampson. "Prrevalence of Pean nut and Tree Nut A Allergy in the Uniited States Determ mined by y Means of a Rand dom Digit Dial Telephone Survey: a 5‐Year Follow‐U Up Study." J Allergy Clin Immunol 112 (2003).
Marketing Plan 16
is also likely to use the Peanut Detective at a variety of locations from schools and camps to restaurants and malls. Adults With a population size of over 1.6 million people and a growth rate of 1%, this segment is categorized as being self‐purchasers, indicating they will purchase the Peanut Detective for themselves or someone in their demographic, such as a spouse. Consumer research has shown that 75% of those who eat out are influenced by their peanut allergy. Survey data also indicates that half of this target segment eats at restaurants about four times per week. The Peanut Detective is specially positioned and marketed to capitalize on these lifestyle needs by advertising its minimalistic design, quick response time, and portability (see MK Appendix 10).
Promotional Plan Marketing Budget BSure will begin rolling out the Peanut Detective nationally in January 2008. A summary of promotional activities can be found in MK Exhibit 2. In year 1, BSure is setting aside $400K for marketing and promotional purposes, which will be distributed amongst the push and pull strategies highlighted below. For years 2 through 7, the marketing budget will increase with sales, although at a lesser rate. The year 2 marketing budget will be $460K and continue to grow to $1.1 million in year 7.
Marketing Plan 17
MK Exhibit 2: Promotional Plan (Year 1) PULL Magazines Web MD Online Advertising Peanutallergy.com Allergykids.com Blogs Rebates PUSH Promotions Doctor's Kits Press Kits Eastern Allergy Conference MD&M East
Jan Feb Mar April May June July Aug Sept Oct Nov Dec
Push Strategies Doctor Kits The most effective way to reach allergists and related professionals is to send customized doctor kits. Included within these doctor kits will be the product itself and a BSure informational CD. The CD will include a thorough medical and scientific explanation of the product as well as testimonials from respected allergists from around the country. It will also educate doctors on the benefits of the Peanut Detective and how to use this product correctly. Doctor kits will ship out until the end of year 3, at which point the Peanut Detective will have built up enough trust and credibility among consumers. Press Kits In order to generate buzz and awareness, BSure will provide 150 low‐cost press kits to large and small magazines as well as talk shows. At an annual cost of $200, these press kits will build 0.65% awareness. Starting in year 1, BSure anticipates at least two annual write‐ ups from magazines with high circulations. An example press release that would be packaged in press kits can be found in MK Appendix 2.
Marketing Plan 18
Medical Conferences BSure will enter two medical conferences each year. These medical conferences are held once a year in different states across the country. In the first two years, BSure will set up booths at the Medical Design and Manufacturing (MDM) conference as well as the Eastern Allergy (EA) conference. These conferences showcase medical devices and other ways of coping with different types of allergies. The MDM conference will be replaced in year 3 by the larger and more respected Florida International Medical Expo (FIME) to reach new audiences. Even though these three conferences only generate a total awareness of 0.31%, they are a reputable way of getting the product noticed by doctors, allergists and medical specialist.
Pull Strategies Online Ads Not only does PeanutAllergy.com reach a population magazines cannot, but it is also the most cost‐effective and valuable outlet for advertising. Costing only 6% of the first year marketing budget (see MK Appendix 7), it contributes over 35% of the total awareness generated due to the fact that the website is accessed and read by many people in both Peanut Detective target segments. Another inexpensive website BSure will be advertising on is AllergyKids.com. This site has received national exposure on major media outlets. Allergykids.com helps parents cope with their children’s food allergies. Advertising on these two websites will be vital for the Peanut Detective in creating segment awareness and thus boosting sales. The BSure Website Given the scope of the product’s distribution, the primary goal of the company website is to become a trusted web resource for expert advice as well as the latest information about peanut allergies. Accordingly, the website will include news, information, and discussion sections that doctors are encouraged to participate in. Doctor web‐blogs about peanut allergies will only amplify BSure’s credibility as a trustworthy brand (see Web Strategy).
Marketing Plan 19
An equally important goal of the website will be to sell the Peanut Detective directly to the consumer. By selling directly to the customer, BSure will be able to obtain much higher profits than if sold through retailers, whose markups nearing 40% require a lower manufacturing selling price. The website will account for 5% of sales in year 1 and rise to 20% of sales by year 7. However, BSure will make certain that the website’s public image centers around distributing information and establishing community. To appear unbiased and impartial, this website will feature alternative means of dealing with allergies, such as Benadryl, EpiPen, and calamine lotion; further increasing the site’s credibility (see IS Appendix 5). Magazines Reaching a target market that is distributed on a national level can be expensive, especially for a startup business. A solution to this problem is to communicate via far‐reaching and expansive mediums such as magazines. The Peanut Detective will appear in highly circulated magazines such as WebMD and Health. WebMD is a medical magazine sent to 85% of medical waiting rooms across the United States24. This magazine reaches millions of readers each month, many of them concerned about their health and the health of others. It is very likely that users in the target segments viewing a Peanut Detective advertisement in this magazine will ask their doctor about the product during their visit. Health magazine’s target audience includes young professionals as well as parents. Each month the magazine publishes articles about allergies and methods to cope with them. As a result many parents of children with peanut allergies read this publication each month. Both WedMD and Health will hit the desired target segments generating awareness of 1.92% and 0.76% respectively. Health magazine will not be part of the promotional plan until year 3 as their ads are costly and the organization’s budget will be tight. WebMD, on 24 Haskin, John. "Patients in waiting rooms throughout the United States".The Magazine Group. 9 April 2005 http://www.themagazinegroup.com/clients‐case‐studies‐webmd.asp
Marketing Plan 20
the other hand, will be part of the promotional strategy from the start as their ads are less costly.
Advertisement Design Since mothers have the final buying power and influence over the children and teens segment, BSure will deploy a specialized campaign targeting maternal responsibilities and instincts. The tone and mood for this campaign will be dramatic and emotional to specifically attract the attention of mothers. Visually, this campaign will utilize images of children, toddlers, and families to stimulate the connection between family members (see MK Appendix 11). BSure expects mothers to respond passionately and become emotionally attached to the Peanut Detective’s message. The focus is not just on the product’s immediate benefits but also on whom the product is affecting and their lifestyle. In order to keep this campaign fresh, ads will periodically be presented in a clever and light‐hearted tone. Unlike the children and teens segment, the adult segment is difficult to reach due to media saturation. Therefore, comical ads will be used to engage the 18‐24 year old age range, which will have a stronger impact than a scientific or educational approach. Furthermore, because this segment is young and computer savvy, online video advertisements will be used at peanutallergy.com and allergykits.com (see MK Appendix 11). The objective will be to reach as much of the adult segment as possible by differentiating the Peanut Detective as a preventative device. Brochures and Packaging The Peanut Detective holder will come packaged with four cartridges and an instruction manual. Both the holder and cartridge packaging will clearly indicate how to use the product, the chemicals involved in the process, the name of the primary website (www.bsuredd.com) and a phone number (1‐800‐2BE‐SURE) for customer service available five days a week. The packaging will emphasize BSure’s token green and maroon colors, which will be prevalent on most of BSure’s products and advertisements (see MK Exhibit 3).
Marketingg Plan 21
MK Exhibit 3 3: Product Pa ackaging
The prod duct brochu ure will con nsist of a write w up abo out the com mpany, prod duct informaation and statiistical facts about pean nut allergiess. It will alsso clearly diisplay the B BSure websiite as well as ccontact inforrmation (see Attached B Brochure). Measurin ng Effectiveness To meassure the efffectiveness of BSure’s ad campaiign, the com mpany will offer an online rebate w with the purrchase of a 16 cartridgge box. Thiss is to enticce the custo omer to visiit the website and fill outt a post purrchase surv vey in orderr to go through the reb bate process. By encouragging consum mers to purchase a 16 ccartridge bo ox, BSure w will reduce th he cost of in n‐box surveys, and increasse revenuess.
Distribu ution Retail BSure w will use a nattional rollou ut strategy b because pottential consu umers are sspread relattively evenly th hroughout tthe country. The self diiagnostic deevice catego ory consists of productss that are prim marily sold through t dru ug stores. The T sale of such produ ucts througgh supermarrkets
Marketing Plan 22
has been declining at a steady rate, according to a recent Mintel industry report.25 Market research has shown that consumers trust products that are purchased from drug stores rather than supermarkets.26 Given the nature of the Peanut Detective and statistics from the industry report, BSure has decided to retail solely through drug stores. In year 1, BSure will target three of the major players in the drug store industry: CVS, Walgreens and Rite Aid; selling through these stores will achieve an all‐commodities‐ volume (ACV) of 3.15%. This strategy was chosen because the biggest three drug stores, with a market share of 47.3%, are the most effective outlets for reaching the peanut allergy population. Furthermore, CVS, Walgreens, and Rite Aid all have nationwide stores; this helps to enact the nationwide rollout. In the subsequent years, BSure will strengthen its position on the coastlines. In year 3, the Peanut Detective will be sold at Longs Drug Store, which has a prominent market share on the west coast. In year 4, BSure will complement this position with more east coast exposure by offering the product in Duane Reade, New York’s most popular drug store. The estimated store penetration rate will be 20% in year 1 and will swell to 85% by year 7. Sales Force BSure will employ sales representatives to maintain relationships with individual retail stores. To simplify sales force management, the organization will divide the country into three regions: east, central, and west. The east and west coasts are top priorities due to higher population densities; they will require two sales representatives to target “A” level drug stores, which are the 20% of stores that generate 80% of total sales for a corporation. The organization estimates that there are 912 “A” level drug stores nationwide. Specially trained sales representatives are preferred over third party sales representatives for a number of reasons. Trained sales representatives are paid a salary and bonuses, ensuring their loyalty to the company. Third party sales reps on the other hand, depend entirely on commission and usually work for multiple companies, often dedicating the “Self Diagnostic." Mintel Reports (2004). 1 Apr. 2007. Focus Group, MK Appendix 6: Focus Group Summary.
25 26
Marketing Plan 23
greatest effort to the employer offering the largest reward. Therefore, BSure will employ two sales representatives for year 1, and three additional representatives in succeeding years to meet increasing distribution requirements.
Pricing Strategy The Peanut Detective consists of two parts: the holder and the cartridge. The holder is priced at a revenue maximizing retail price of $41.99 (according to surveyed purchase intent, see MK Exhibit 4) and includes four one‐time use cartridges. Each cartridge will be priced at a revenue maximizing retail price of $3.65 (see MK Exhibit 5); therefore, 8 and 16 cartridge boxes will sell for $29.99 and $58.99, respectively.
MK Exhibit 5: Cartridge Purchase Intents 40%
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Expected Purchase Intent
Expected Purchase Intent
MK Exhibit 4: Holder Purchase Intents
R² = 0.993
35% 30%
R² = 0.852
25% 20% 15% 10% 5% 0%
$0
$20
$40 Holder Price
$60
$0.00
$80
$1.00
$2.00 $3.00 $4.00 Cartridge Price
$5.00
$6.00
As previously mentioned, the box of 16 cartridges will contain a coupon for an online rebate of $8. According to customer research, 41% of buyers are willing to purchase the packages of 16 cartridges.27 Of these buyers, an estimated 5% will fill out the online rebate. To avoid channel conflict, website prices will reflect the estimated markup retailers will use on the Peanut Detective, although retail and online sales events may differ in timing.
Peanut Allergy Survey. WebSurveyor.< http://desktop.vovici.com/Default.aspx>
27
Marketing Plan 24
Starting in year 4, the price will drop by 5% for the holder and by 1% for the cartridge every year to help battle entering competition in year 3 (see MK Exhibit 6 and MK Exhibit 7). By year 7, peak product demand will be reached due to competition and the potential entrance of competitive new drugs (see MK Exhibit 8). MK Exhibit 6: Holder Price Points Holder Retail Price per Unit Retail/Distribution Margin (39%) BSure Selling Price per Unit Variable Cost
Year 1 $41.99 $11.78 $30.21 $8.61
Year 2 $41.99 $11.78 $30.21 $8.66
Year 3 $41.99 $11.78 $30.21 $8.75
Year 4 $39.89 $11.19 $28.70 $8.80
Year 5 $37.90 $10.63 $27.26 $8.85
Year 6 $36.00 $10.10 $25.90 $8.88
Year 7 $34.20 $9.60 $24.61 $8.91
Year 6 $3.54 $0.92 $2.62 $1.65
Year 7 $3.51 $0.91 $2.60 $1.65
MK Exhibit 7: Cartridge Price Points
Cartridges Retail Price per Unit Retail/Distribution Margin (35%) BSure Selling Price per Unit Variable Cost
Year 1 $3.65 $0.95 $2.70 $1.63
Year 2 $3.65 $0.95 $2.70 $1.63
Year 3 $3.65 $0.95 $2.70 $1.64
Year 4 $3.61 $0.94 $2.68 $1.65
Year 5 $3.58 $0.93 $2.65 $1.65
MK Exhibit 8: Product Lifecycle $35 M $30 M
Revenue
$25 M
Growth Phase
$20 M
Decline Phase
Maturity Phase
Total Sales
$15 M
Intro Phase
$10 M $5 M $0 M 0
2
4
6
8 Year
10
12
14
16
Due to the nature of the industry and the product, consumers have to trust the product before using it. BSure will have by then established significant customer loyalty through its reputable reliability as well as its community‐driven website. BSure will also have a competitive edge over new similar products because of its industry experience and obtainment of design patents. Furthermore, the declining pricing strategy will maintain
Marketing Plan 25
growth by limiting competition‐related effects resulting in no higher than 20% of sales in years five through seven.
Sales Projection Base Case The base case was calculated assuming that it takes four impressions to make a person aware of a product. Furthermore, a 33.7% purchase intent was calculated by analyzing 277 surveys28 and based on the 80/30 rule of thumb. In addition, a repurchase rate of 37.5% was projected for the holder and 76% for the cartridge. As shown in the BASES model (see MK Exhibit 9), BSure will generate a demanded quantity of 2,661 for the holders and 281,931 cartridge units in year 1. These projections are calculated using the previously determined 7.28% awareness rate and 3.15% ACV figures. MK Exhibit 9: BASES Sales Forecast
Year 1
Target Market
Year 2
Year 3
Year 4
Year 5
Year 6
2,500,000 2,560,000
2,622,350
2,687,161
2,754,549
2,824,638 2,897,554
Purchase intent
34%
34%
34%
34%
34%
34%
34%
Adjusted Target Market
843,250
863,488
884,519
906,379
929,110
952,750
977,345
Awareness
7.28%
8.17%
11.50%
14.68%
17.63%
21.37%
27.66%
ACV
3.15%
7.09%
18.46%
22.49%
23.99%
32.98%
33.98%
Holder units
2,661
6,880
23,240
34,966
43,235
73,871
101,052
Cartridge Units
281,391
727,533
2,457,515
3,697,466
4,571,875
7,811,556 10,685,745
Peanut Allergy Survey. WebSurveyor.< http://desktop.vovici.com/Default.aspx>
28
Year 7
Marketing Plan 26
Optimistic Case In the most optimal case, BSure expects that it would take three impressions to make a person aware of the product. The repurchase rates in this case are estimated to increase from 37.5 % to 45% for the holder and from 76% to 85% for the cartridge. Store penetration used for ACV calculations is estimated to increase from the base figure of 20% in year 1 to 25% in the best case. Thereafter best case penetration continues to increase at a faster rate than base case. This results in a demand of 17.9 million cartridge units and 160K holders in year 7. Pessimistic Case In a pessimistic scenario, it would take five impressions to make a person aware of the product. The repurchase rate could decrease from 76% to as low as 65% for the cartridge and from 37.7% to 30% for the holder. Store penetration could be as low as 15% in year 1, resulting in a worst case demand of approximately 1,500 holder units and 146K cartridges in year 1. The pricing strategy would also differ in this scenario—beginning in year 3, the price would begin to drop by 5% for the holder and 1% for cartridges.
Operations & Manufacturing Plan
Operations & Manufacturing Plan 27
Operations & Manufacturing Plan Product Design Customers purchasing a peanut detection device put their complete trust in the product. The consequences of the products’ failure are severe, in some cases even fatal. Customers therefore demand a product that not only tests a large variety of foods, is easy to use, quick responding, portable, and visually appealing, but most importantly, customers require extreme accuracy (see OM Exhibit 1). Accuracy is crucial to any device when false responses could lead to severe side effects, ranging from hives to possible death in the more extreme cases. While severely allergic people may not trust peanut detection devices, it is still BSure’s number one priority to guarantee the product works flawlessly, every time, without exception. Therefore, all aspects of the Peanut Detective, from initial design (the details of which can be found in General Appendix 2), to the production process, to the final shipping methods are designed with accuracy in mind. OM Exhibit 1: Consumer Attribute Importance Preferences
Test Large Variety of Foods Consumers highly prioritize the ability of the Peanut Detective to test a large variety of foods. There are many different forms of peanuts found in everyday foods; from traces in candy bars, to peanut oil in Asian cuisine, to the homemade cookies at a friend’s house. As a result, the cartridges need to have a tip that is both capable of scraping a candy bar while also having the ability to capture even the lightest pasta sauces. Therefore, each cartridge tip (also referred to as “metal mesh”) is made of high grade sterilized steel wool. The steel
Operations & Manufacturing Plan 28
wool is strong enough to be rubbed against solids, coarse enough to take a bite out of a candy bar, and yet airy enough to suspend sauces and other liquids. This ensures that the tip can provide a large enough sample to provide the required device accuracy. Minimize Parts The BSure Peanut Detective is manufactured with as few pieces as possible, thus minimizing complexity that can lead to product failure. Additionally, reducing excess parts and complexity allows the Peanut Detective to be relatively inexpensive to construct, which carries over to a lower cost to the consumer. This is a product that has the ability to change the way people live by allowing them to feel confident while they eat. It was therefore of upmost concern that the Peanut Detective be easily obtainable by the general public, which is accomplished through a relatively low retail price compared with other self diagnostic products, made possible by low manufacturing costs. In effect, the Peanut Detective can be priced as a convenience item opposed to a shopping item.29 Small Inconspicuous Design Through surveys, consumers between the ages 18‐24 indicated they do not want to be liberated from their fear of an allergic reaction if it meant being embarrassed by public attention. Therefore, the product was designed to be as small and inconspicuous as possible (see General Appendix 1). The goal in the design was to make the holder no larger than a USB flash drive. While certain requirements mandated a slightly thicker design, the end product is not only small, but it is designed to fit on a keychain, thereby ensuring the consumer never leaves home without it. As for the actual appearance of the Peanut Detective, it is purposefully clean and minimalistic so as to minimize attention. Moreover, the red and green LED lighting would most likely be mistaken for a computer device; this will increase the designers’ attempts to have the Peanut Detective appear similar to an ordinary USB Flash Drive, opposed to an attention grabbing medical device.
29 Kerin, Roger A, Steven W. Hardley, William Rudelius. Marketing The Core. 2. New York, McGraw‐Hill. 2007 p.215.
Operations & Manufacturing Plan 29
Ease of Use Another advantage to the small minimalistic design is ease of use. There will be no buttons to decipher, no assembly required, and symbols to decipher. Simply insert a cartridge into the holder, which would be possible to insert in only one direction, press a clearly marked button on the holder, and wait for a red or green LED light to illuminate, indicating the presence of peanuts. It is simple, easy, and the true test—even a child can do it, as focus groups demonstrated. Quick Response Time Designers at BSure acknowledge that even if the consumer slipped the device into their food unnoticed, it might be obvious if he or she had to wait several minutes before eating, especially with other people at the table starting to eat. Therefore, the compact design is further utilized to guarantee results in less than forty‐five seconds. This is because with a small design, chemicals do not have to move as far, thereby eliciting quicker reactions. As a result, the consumer can be quickly informed of the presence of any allergens in the food being tested. Minimal distances for chemicals to travel means the Peanut Detective requires less chemicals per cartridge, thus each chemical will be even more diluted with the food being sampled. This helps ensure 99.99% accurate results.
Patent Information In order to protect the technology behind the Peanut Detective and maintain a competitive advantage through intellectual capital and technology advancement, BSure will patent the Peanut Detective and all subsequent products. BSure, which would apply as a small entity, would have to pay an initial filing fee of $665, with an additional fee of $450 due in the middle of year 3.30 The patent, which would last throughout the product life span, ensures potential competitors will face the struggle of developing a similar product using an alternative method, which would require significant time to develop and produce. This
30 United States. United States Patent and Trademark Office. FY 2007 Fee Schedule. 08 Dec. 2004. 30 Mar. 2007.
Operations & Manufacturing Plan 30
would give the Peanut Detective ample time to generate awareness, and more importantly, trust among consumers.
Plant Characteristics All raw material suppliers, such as packaging, plastics, and chemicals, handle their own shipments to the BSure factory at a price included in the cost of the raw materials they supply. Therefore, BSure has chosen to minimize costs by choosing a plant location that is central to the CVS, Walgreens, and Rite Aid distribution centers, with minimal consideration for supplier locations. BSure will incur the cost of shipping to the distributors, which make up the majority of its product destinations. CVS, Walgreens, and Rite Aid distribution centers are located primarily on the East Coast, as is a concentration of major cities. Accordingly, location analysis has projected that to minimize costs, optimal location for the BSure headquarters and factory will be in Louisville, KY (see OM Exhibit 2). Louisville, being a large city, offers access to major highways, the Louisville International Airport and nearby railroad transportation centers. Having many different means of transportation helps avoid the risk of transportation backup caused by unforeseen circumstances affecting either road, rail, or air travel. OM Exhibit 2: Distributor Locations
BSure
Space Allotment The factory itself will be rented for $57,375 per year, with a five year lease to prevent rent from increasing with inflation, property tax, and other fluctuations in the real estate
Operations & Manufacturing Plan 31
market. While this lease amount is significant, the cash required to purchase a factory would be excessive for BSure to incur in its startup years. Of the total 135,000ft2 facility, BSure will be renting an 11,250ft2 space, which includes 2500ft2 of air conditioned office space. The remaining area, which is fan cooled, will be dedicated to the assembly areas, inventory holding areas, a research and development center, and break rooms for the factory workers. Adjacent to each of the three inventory holding areas—cartridge raw materials, holder raw materials, and finished goods holding—is a dock high door for easy loading and unloading of trucks. While holder demand will be small enough that only one person is necessary for production, more thought had to go into the cartridge production area where eight massive machines and over fifteen employees will be working by year 7. A vibratory feeder will be placed in front of each machine, feeding raw materials through. After the machine produces the cartridges, materials will be put onto conveyor belts lining the outside walls, which will bring finished goods through the inspection department and back to the final inventory holding area. This layout minimizes employee movement and keeps all movements in the same direction as shown in OM Exhibit 3. OM Exhibit 3: Factory Layout
Operations & Manufacturing Plan 32
Management Level Employees Overseeing all operations at BSure will be the President, who will have an MBA degree and extensive sales and marketing background. The president must have at least seven years of experience, particularly in starting and running a small to midsize company. The manager and director of operations will also require a college degree and a minimum of three years of experience in running a production line. Another manager will be added in year 6 to maintain close control over expanding production. All managers as well as the president must be strong proponents of supply chain management so that lower level employees will follow their example. All executives will undergo training in supply chain management, especially in terms of integrating suppliers smoothly into the supply chain, since BSure requires thirteen suppliers (see OM Appendix 3). Maintaining a competitive edge through new technologies requires a scientist to head a research and development department. The scientist must have a strong background in the food allergy field, so that BSure can eventually expand into different types of food allergies. With the growth of the company, the research and development department will also grow in order to continually stay ahead of the competition by maintaining secure intellectual capital, which is one of BSure’s critical success factors.
Supply Chain With thirteen suppliers and only two distributors, the Peanut Detective’s supply chain has a much larger supply component than demand component. Accordingly, most efforts have been focused on streamlining the supply side of the supply chain, from the suppliers of raw materials to production of the Peanut Detective. All efforts have been made to minimize the costs of raw materials, production, and distribution in order to maintain an affordable product.
Operations & Manufacturing Plan 33
OM Exhibit 4: Supply Chain Diagram
Choosing Suppliers The first link of the Peanut Detective’s supply chain is the suppliers (see OM Exhibit 4). BSure strategically chose suppliers based on key characteristics; suppliers were measured and compared based on quality guarantees, location of facilities, cost of materials, lead times, quantity discount programs, transportation methods to BSure’s factory, and lastly whether or not the suppliers had open communication channels. These communication channels include electronic data interchanges (EDI), which enable BSure’s ERP (see Core Application Software) to have access to the suppliers’ purchase orders, shipment details, and invoices.31 BSure has decided to keep all major suppliers within the
OM Exhibit 5: Supplier Map
United States (see OM Exhibit 5). The decision to stay national was based on quality assurance and lower lead times, both of which are crucial to the key raw material, chemicals. Quality assurance ultimately influences the product’s defect rate,
BSure
which must be kept low in order to reduce costs and build a reliable reputation. Accordingly, BSure will maintain a supplier policy of “3 Strikes, You’re Out.” This policy dictates that when a supplier is responsible for defects in a production batch on three separate occasions, it will be replaced by a secondary supplier. BSure’s information system will allow the tracing of defective product batches by maintaining detailed records linking finished goods to the raw material suppliers. Stevenson, Willam. Operations Management. 8. USA: McGraw Hill, 2005. Pg 700
31
Operations & Manufacturing Plan 34
Raw Materials: Make/Buy Analysis Analysis has indicated that it would be more cost effective to buy all raw materials. Buying raw materials also allows BSure to minimize inventory; complicating the production process by manufacturing certain parts would make inventory management less precise and allow more room for breakdowns. Because the chemicals involved have expiration dates, delays in any one components’ production would possibly mean having to abandon massive amounts of chemicals. While any manufacturing plant can have machine breakdowns, factories specifically equipped to make certain raw materials will be better equipped for machine failure and quality assurance. This will help ensure that all raw materials arrive at BSure facilities on time and in functioning condition. Raw Materials: Order Quantity Raw material prices will fluctuate in years 2‐7 due to inflation and quantity discounts (see OM Appendix 4). BSure has been able to utilize quantity discounts for plastics, packaging, springs, and o‐rings. Using discounted pricing will decrease variable costs on both the holder and the cartridge, thereby offsetting the additional holding cost associated with larger ordering quantities. All other ordering quantities are based on the Economic Order Quantity model (see OM Appendix 5), which assumes holding costs are 30% of the manufacturers selling price, and order costs are 10% of the manufacturer selling price. However, adjustments to ordering costs had to be made in order to get more accurate quantities that include extensive quality inspection costs. Accordingly, year 1 ordering costs for the holder are $104.98 and ordering costs for cartridge are $164.25. Because most suppliers are small scale manufacturers, providing small initial order sizes is feasible, especially since few of the raw materials require specialization with the exception of the plastics. However, because plastics have the highest lead time of 30 days, holding excess plastic inventory, mandated by minimum order sizes of 1,000 units, will help hedge against inventory shortages. Chemicals used in the cartridge have a shelf life of approximately six months. This constraint will require that contracts between BSure and chemical suppliers ensure low lead times, fixed or fixed percentage increases of price, and guaranteed quality, measured by defect rate. When the computer indicates inventory levels have reached the
Op perations & M Manufacturingg Plan 35
reorder point, raw materials w will be ordered from th he BSure facctory. Comp puters will ttrack the locattion of the m materials, ass well as reccord invoicees associated with each h order. Raw Matterials: Movvement and Inventory P Policy Deliveriees will be m made to the shipment d docks on th he east side of the BSure factory. Once shipmen nts arrive, employees w will unload the suppliees and inspeect the raw materials. A After passing inspection,, employeees will scan n the shipm ments into o the ERP database. Once entered, a worker w will confirm m that the raaw materiall quantities match the purchase order. Next, an n employee uses the fo orklift to move m raw materials m to their appropriate storage. Cartridgge and holdeer raw mateerials must be separateed due to FD DA regulations. Holderr raw materialls will be brrought to a a storage arrea located near the ho older assem mbly area, while w cartridgee raw mateerials must be stored in freezers and sanitized stockro ooms. Oncee raw materialls are appro opriately stored, they will w be scan nned at a sttorage checckpoint and d raw materialls inventory y will be updated. The ERP prograam will then n monitor in nventory veersus expected d productio on levels, an nd reorder inventory based on lead time per unit (seee OM Exhibit 6 6 and OM Exxhibit 7) and d the desired 98% serv vice level, wh hich is used d to calculatte the safety sttock needed d in each year. Becausee the cartrid dge compon nents have aa holding co ost of merely $ $0.26 and holder demaand is relativ vely low, 98 8% will adequately pro otect BSure from stock ou uts with min nimal costs o of holding in nventory. OM Exhibit 6 6: Holder Lea ad Times
30 0 Days
10 Days
8 8 Days
7 Days
Tim me 0
•P Plastic Shells
Board •Circuit B
•Battery
•Packagiing
•Prroduction Daay
Op perations & M Manufacturingg Plan 36
O OM Exhibit 7: : Cartridge Leead Times
30 Dayys
10 Days
8 Days
7 Daays
3 3 Days
Time 0
•Plastiic Shells
•Spring •Enzyme
dy •Antibod •Substraate
•Buffer •O‐rring •Pacckaging
•Pin •Steel Wool •Cotton Strip p
•Producttion Day
Outsourccing Producttion BSure will w not ou utsource beecause its product cannot c hav ve any defaaults, thereefore mandating close insspection at every process to ensure that all gglitches are caught. Witth so many diffferent raw materials ssuppliers, it would overrly complicaate the supp ply chain to have to coord dinate prod duction with h outsourceed components. BSuree also valuees the pateented knowled dge behind the Peanutt Detective. Even with h a patent, outsourcingg would exxpose many of BSure’s ttrade secretts.
Holder P Production P Process and C Capacity The hold der production processs commences when raw r materiaals are rem moved from raw materialls and scann ned into thee organizatiion’s ERP sy ystem (see Core Appliccation Softw ware), OM Exh hibit 8: Holdeer Process Tim me
prompting the computer to o place them m into the work w ocess inventory. The holder h is theen assembleed in in pro
Time e (Sec))
Process
the ho older produ uction area.. Once the holder h is piieced
10
Snap Circu uit Board Into Shell
togeth her, it trav vels to quality contrrol followed d by
10
Insert Tesst/Ejection Button
packaaging and finally f placeement into finished goods g
20
Insert Battery
storagge. The entiire process takes 150 seconds, with w a
10
Attach TTop Half of Shell
cycle time of 50 seconds (seee OM Exhib bit 8). Given n the
50
Te est Holder
50
Package an nd Send to Holdingg
150
Total Process Time
demand for hold ders and the low cyccle time, ho older assem mbly will be b perform med solely by part time workeers who require r minimal traaining in basic b assem mbly. One part p time worker will be b sufficien nt for
Operations & Manufacturing Plan 37
holder production through year 5 of operations, at which point another part time worker will be added to increase capacity. Quality Control: Holder During assembly, employees will be encouraged to stop production of both the holder and cartridge if they observe quality problems. They will then submit quick defect reports at the nearest floor computer. At the end of the holder assembly line, each holder will go through an inspection process. A quality technician will hold the unit under a portable fluorescent light and confirm that the optic sensor is working properly. This test is to ensure that the optic sensor can test for chemical reactions. Again, any problems will be reported and entered into a computer so that the cause of the defects can be understood and dealt with. Cartridge Production: FDA Requirements Because the Peanut Detective will require FDA approval as a medical diagnostic device, many precautions must be taken in order to meet the FDA’s stringent requirements of a Class II medical diagnostic device. A Class II device, which is a device used externally from the body, requires special labeling that is carried out by the packaging and plastic suppliers, performance standards, which are executed by BSure quality technicians, as well as post market surveillance, which is done through customer feedback. Furthermore, the FDA requires that chemicals in raw materials be kept in a freezer at all times until production32. The production must be kept sterile, which is accomplished by separating the holder production area from the cartridge production area to prevent contamination. Additionally, workers must wear medical gloves at all times. Machines involved in production must pass daily sanitary inspections. Cartridge Production Process The production of cartridges is completely automated, requiring a highly accurate custom built Flow Animation machine for assembly. Materials include metal mesh, pins, springs, United States. United States Food and Drug Administration. CBER Guidances / Guidelines / Points to Consider. 2007. 10 Apr. 2007.
32
Op perations & M Manufacturingg Plan 38
and smaall amountss of chemiicals; therefore a labo or intensivee assembly y would no ot be appropriate given the high demand fo or technolo ogical proficiency and d accuracy. The materialls are scann ned by a bar b code scaanner and inventory amounts a arre electroniically transferrred into wo ork in proceess. Next, an n employee feeds raw materials in nto the macchine via vibratory feedeers. The machine m theen indexes, orients, an nd presentts the partss for assembly y. The mach hine producces a batch o of fifteen caartridges every minute,, and can ru un for the entirrety of an eiight hour w work day. Th he cartridges then pass through qu uality contro ol. At this stattion, a skilleed employeee will test one out off every sixtty cartridgees. After passsing through quality co ontrol, the cartridges are packeed and scaanned into finished goods g inventorry. While the machine iis completely automateed, one worrker will be required to o run each maachine, whicch can be handled h by part time workers w un ntil full timee employeess are needed. It is BSure policy to have h no more than 100 0K cartridges per mon nth produceed by part tim me employeees, mitigatiing reliancee on part time t peoplee who willl not alway ys be availablee. 100K carttridges is th he equivalen nt of one parrt time worker workingg approximately fourteen n days a mon nth. Cartridge e Production n Capacity BSure uttilizes a chase strategy for producttion, meanin ng capacity will closely y match dem mand, with cap pacity consttraints being workers aand machin nes. Thereforre, there is zero tolerance for mach hine
OM Exxhibit 9: Cartrridge Processs Time
breakdown. Accord dingly, a full time mecchanic will be
Tiime (SSec)
Process
present from year 1 on, which h would mo ore than offfset
1 10
Vibratory Feeds into Macchine
the costts associateed with baacklogs due to mach hine
1 15
Maachine Run Time
4 45
T Test Cartridges
1 10
Shrink k Wrap and Packaage
failure. Furthermo ore, full tiime speciaalized quality control technicians t will be prresent at all times. Wh hile the aggrregate plann ning shows high capaccity utilizatiion, which iss characterisstic of a chaase strategy y, the plann ning
schedulee anticipatees safety sto ock being consumed c e every period d, which is highly unliikely. Howeverr, BSure is prepared for f excessiv ve demand in order to o prevent backlogs, b ass the backlog policy explaains.
Operations & Manufacturing Plan 39
Quality Control: Cartridge At the end of each work day, a quality technician will prepare a viscous solution, consisting of water, starch, peanuts, and a phosphate buffer. This mixture will test the accuracy, sensitivity, and specificity of the cartridge. After boiling the solution, the mixture will be placed in a refrigerator overnight to thicken. The following day, an employee will test one cartridge in every batch of sixty, by inserting the trial cartridge into a holder and then sticking the Peanut Detective into the viscous solution. The results should conclude that there are peanut traces, turning the red light on. Should the cartridge fail this test, the entire batch will be discarded. When cartridge defects are found at quality control, the quality technician will generate a report at his or her workstation. Operations managers will then be able to generate monthly defect reports to make decisions on supplier reliability and manufacturing process tweaks. These quality check points are important to measure the amount of defects as well as recognize any problems along each of the assembly lines. Their proper implementation will allow managers to cut scrap costs and prevent lawsuits by producing an accurate product. Finished Goods At the end of each production line, holders and cartridges will be placed into bar coded boxes. An employee will scan each box, prompting the ERP system to enter the item into the BSure database as finished goods. Employees will then place the appropriate number of holder and cartridge boxes in a pallet according to each purchase order. From this point, the inventory will sit in storage until proper shipping arrives to deliver batches to distributors. Meeting Demand Peaks with Finished Goods BSure’s chase strategy was chosen to reduce excessive finished goods inventories, which is necessitated by the expiration on the chemical components of the cartridge as well as the holder battery; it is important to get the cartridges to the consumers as soon as possible. Holding holders and cartridges in inventory for extended periods of time will mean each unit will be less valuable to the consumer, for they will get the product for a smaller portion of its six month lifespan. In order to properly meet seasonal demand forecasts, BSure has
Operations & Manufacturing Plan 40
made the assumption that May and August will require higher than usual finished goods inventories in order to meet June and September demand peaks, brought about by children leaving for camp and school, respectively. Production is therefore increased significantly when necessary in the months preceding these demand peaks, ensuring there are always finished goods ready to be shipped out when the orders come in. It is also expected that during summer months while children are away at camp, demand will lessen slightly compared with normal levels, which will allow finished goods inventories to rejuvenate for the upcoming September demand peak. While most years do not require any inventory buildup to meet the demand peaks, years of strong growth, such as years three and seven, when marketing efforts and store distribution peak, will require a slight break from the chase strategy in order to meet demand. However, slight inventory buildup avoids needlessly increasing capacity through machine purchasing and hiring costs. Backlog Policy BSure will implement a zero‐backlog policy, ensuring consumers receive the product when they need it. From a goodwill standpoint, consumers will come to rely on the Peanut Detective, often for daily eating habits. Therefore, failure to provide the product on time will result in an unfavorable reputation, which is especially harmful to a new company trying to build trust among its consumers. From a financial standpoint, the backlog cost per holder unit is nearly $125, and about $6 per cartridge, which includes lost margin per unit plus additional lost margin of future sales. Distributors will also reduce their orders to BSure if orders cannot be fulfilled on time. CVS imposes fines and the right to reject any orders that are not complete. Because most of BSure’s lead is comprised of raw materials’ lead time opposed to the production and shipping process, keeping stringent inventory records will help prevent any backlogs, as will the very high 98% service level.
Operations & Manufacturing Plan 41
Distribution Distribution channels will handle the logistics involved in delivering the Peanut Detective to appropriate retailers.33 CVS, Walgreens, and Rite Aid handle their own distribution, as do the smaller drug stores which will be added later on in the product life cycle. These major stores specify which carriers to use for shipment to different warehouses. When shipments leave the BSure facility, employees will scan the pallets with bar code scanners, taking that inventory out of the database, thereby indicating goods have been sold. As an inventory policy, BSure loses ownership of the inventory upon delivery to distribution. BSure is not liable for any damages to property once distributors receive their orders.
Direct Sales In addition to distribution channels, BSure will be selling the Peanut Detective online through the BSure website. The advantages of using this channel are that distribution margins will be eliminated and the purchase orders will be directly connected to the inventory system, ensuring accurate inventory numbers. Consumers will go to www.bsuredd.com and select the amount of holders and cartridges they would like to purchase. After submitting the order to the website, the purchase order information will electronically transfer to the BSure database. After payment confirmation, employees will either begin production of the order, or remove the purchase from finished goods and arrange for appropriate shipment through FedEx, UPS, or the United States Postal Service, depending on customer preference, since customers will incur the cost of shipping. Measurement of Supply Chain Efficiency To ensure that the supply chain is maximizing revenues and helping to reduce costs, the company will cross reference target numbers to actual ones in these areas: •
Amount of time it took to receive raw materials from suppliers
"Distribution Channels." Encyclopedia of Small Business. The Gale Group, Inc, 2002. Answers.com 11 Apr. 2007. http://www.answers.com/topic/distribution‐channels
33
Operations & Manufacturing Plan 42
• • • •
The amount of scrap in each of the raw materials Inventory turnover Finished goods scrap Amount of time it took to ship finished goods to distribution
Situational Analysis Base Case Base case calculations were made assuming marketing is able to achieve all of its objectives and forecasting is accurate, leading to demand that closely matches expectations. Price breaks will be used to effectively reduce variable costs as demand increases based on the forecasted numbers. Variable cost per cartridge unit should drop from $1.92 in year 1 to $1.87 in year 7. Holder variable costs will be reduced from $1.68 in year 1 to $1.61 in year 7. In the base case model, initial capital investments, which include the factory, equipment, and other factory furnishings, will be more than sufficient to meet demand through year 7. As the factory layout plan shows (see OM Exhibit 3), there will be excess room, even in year 7, for cartridge production as well as excess office space. The holder production area also has excess room throughout the Peanut Detective life cycle. Optimistic Case The best case scenario projection is cartridge demand of 18 million and holder demand of 160K in year 7, which assumes 9% increase in repurchase rate for the holder and cartridge as well as increased ACV and awareness. This results in a 50% increase in demand over the base case scenario. In order to cope with the extra cartridge demand, four more cartridge manufacturing machines, at a total cost of $400K, will be required. However, the factory already has space built in for cartridge production expansion, thereby negating the need to expand the BSure facilities. Each new machine will require an operator, at a total annual cost of $80K. Also, as in the base case scenario, quantity discounts will reduce variable costs, although the discounts will be active earlier on in the Peanut Detective life cycle. Holder requirements will easily be met by adding an additional worker to the already abundant workspace provided for holder production, adding an additional $7K in labor, which is relatively low because part time workers handle holder production. However, because all added capital is a direct cost of production and costs such as machine
Operations & Manufacturing Plan 43
mechanics will now be dispersed over a larger quantity of production, contribution margin per unit will increase with the increased demand. Pessimistic Case Worst case estimates have year 1 production at 1,500 holders and 146K cartridges. While very little of the factory would be utilized at this production level, production can easily match low demand by varying the amount of part time workers, which will make up most of the work force in year 1. Capital requirements in factory equipment will not change because year 1 is already using the minimum of one cartridge production machine. Price breaks on the O‐ring and packaging will not be feasible until year 4, thereby keeping variable cost for holders at $1.92 and for cartridges at $1.68.
Continued Development As previously mentioned, an integral part of BSure is its value on patents, shown through extensive research and development costs. The goal is to have as many products patented as possible, in order to maintain the technological advances on which BSure is founded. Therefore, future products, which include detectors for other types of allergens, will be the main objective of the research and development department, as will be improving the existing Peanut Detective design based on customer feedback. While the product has an estimated life cycle of seven years, development of new products ensures the life of the organization will far exceed that of the Peanut Detective. Given the similarities between the Peanut Detective and further products, it will be easy to convert production in the main factory from one product to another. Furthermore, the machines used to produce the Peanut Detective will be able to construct other detection devices as well, with minimal changes required. Therefore, the factory is very well equipped for the diverse future of BSure products.
Information Systems Plan
Information Systems Plan 44
Information Systems Plan Plan Overview BSure will utilize information systems to integrate the main functional areas—marketing, operations management, and finance—as well as help them in making the best decisions possible. An effective IS implementation requires the right combination of application software, hardware, telecommunications infrastructure, and personnel. A brief summary of BSure’s information systems plan can be seen in IS Exhibit 1. IS Exhibit 1: Information Systems Plan Summary System Selection Component
Reasons for Selection
Feature Highlights
Application Software
Microsoft Dynamics GP 9.0
• Implemented and serviced by industry‐tailored vendor • Tight Office & Exchange integration • Familiar Outlook‐like UI minimizes training costs, human error
• In‐house ERP • Runs on MSSQL backend • Fully supports EDI • Custom dashboards • Developer API for web site linking
Server Hardware
Dell Servers and • Proven industry standards Workstations • Top of the line, at fairly low costs
• Quad‐proc. servers • Desktop and laptop workstations
Telecom.
BellSouth DSL & • Available near plant location Phone • Inexpensive (~$1,000/mo. will handle all internet needs and 800 number customer service calls)
• 6 mbps DSL • < $0.10/min. for
• Simple, proven off‐site backup
Backup Solution
LiveVault 5GB backup
Website Hosting
ASPwebhosting. • Vendor reputation com • Supports ASP.NET (MS standard)
Personnel
1 IS Manager + ERP partner support staff
solution
• Small businesses do not usually require large IT/IS staffs • ERP certified partner staff is experienced in mfg. solutions
800 number calls
• Upgradeable for higher data volumes • $225/mo. • Dedicated server • IS manager must be very well qualified
Information Systems Plan 45
Achieving Critical Success Factors BSure’s implementation of information systems will directly influence the achievability of the organization’s critical success factors. Specifically, the chosen system must accurately capture, store, process, and report certain data for use by functional area managers in their analyses. Valuable metrics such as defect rates, website hit counts and poll data are examples of data that must be easily accessible for the organization to realize its critical success factors. High Product Reliability To achieve the reliability success factor’s objective of 99.99% accuracy, both the supply chain and manufacturing process must be under complete control. For example, in order to enforce the supplier policy of “3 Strikes, You’re Out” (for defective‐material prone suppliers) BSure’s information system will trace defective product batches by maintaining detailed records linking finished goods to work in process inventory. As the operations‐ specific ERD depicts (see IS Appendix 1), each Production Batch “uses” multiple Material Batches; both entities are referenced by their unique ID numbers, which are tracked by barcode scanners. This simple tracking mechanism would be impossible without information systems in place because of massive volumes. Holder assembly and cartridge QA employees will have the ability to submit quick defect reports at their closest floor computers. Operations managers will then be able to generate monthly defect reports to measure the reliability success factor and make decisions on supplier dependability. Rapid Customer Base Expansion BSure’s web presence will be very important in gaining product awareness and thus expanding the customer base. To contribute in achieving the demanded 3‐5% annual growth in awareness, the website will aim to reach 100K monthly page hits by the peak year of demand. Website‐related market research consisting of weekly user poll and web analytics metrics will also help measure awareness growth (see Tracking Segment Awareness in Web Strategy for details).
Information Systems Plan 46
Intellectual Capital Superiority BSure will aim to hire two full time research scientists by year 4 to be on the forefront of new technology exploration to revise the product design and lower costs. The research and development team will be provided with industry‐leading software such as Wolfram Research’s Mathematica 5 and Adobe’s Creative Suite 3 to help develop their ideas.
Value‐Adding Activities The primary activities in the organization’s value chain, which are shown in IS Exhibit 2, are described in accordance to the Porter’s value chain model34. IS Exhibit 2: Information Systems Value Chain
Technology Human Resources Procurement Research & Development Inbound Logistics (15%)
Operations & Mfg. (40%)
Outbound Logistics (5%)
Marketing & Sales (30%)
Customer Service (10%)
Operations and manufacturing adds the most value (40%) to the organization because it determines the quality and thus the reliability of the product, which is one of the organization’s critical success factors. Inbound logistics (15% value added) also plays an important role in product reliability because suppliers must deliver chemical materials on time to keep cartridge shelf lives long. Marketing and Sales (30%) will largely determine the organization’s ability to expand its customer base and thus generate revenues. Marketing and sales activities are similarly crucial to the success of the business.
The Value Chain. 2006. 11 April 2007
34
Information Systems Plan 47
Supporting Activities Each of the supporting value chain activities influences different primary activities, as is depicted by the colored dots (
) in IS Exhibit 2. The most important of the
supporting activities in the organization’s value chain is technology, which affects all primary activities, as well as secondary activities.
Core Application Software Microsoft Dynamics GP As shown in the information systems overview, BSure will use Microsoft Dynamics GP 9.0 to manage core electronic business processes. Dynamics GP is an in‐house ERP solution that Microsoft purchased and redesigned in 2000. The software is customized, implemented and serviced through Microsoft Certified Partners; BSure will employ JourneyTEAM, LLC.35 as the Dynamics GP liaison because of the company’s excellent track record with organizations dealing with manufacturing of durable consumer goods36. Dynamics GP, like many other ERP solutions, is capable of handling all aspects and functional areas involved in BSure’s Peanut Detective operations. Contribution to High Product Reliability Dynamics GP allows users to create custom views and “dashboards” (screens with customized pieces of information chosen per user), giving managers the ability to have the information they use most often readily available37. This functionality will allow operations managers to track progress for achieving high product reliability. OM managers will have single‐screen access to current production rates in comparison to aggregate planning forecasts, as well as supplier‐specific defect summaries for effective three‐strike supplier policy enforcement. Dynamics GP’s standardized data export functionality will also allow OM managers to run statistical analysis on quality levels in MS Excel when needed. JourneyTEAM Homepage. 5 April 2007. 37Microsoft Dynamics GP for construction companies. 9 April 2007 . 35 36
Information Systems Plan 48
Software Selection Process The major choices for core application software types were: separate best‐of‐breed systems, a SaaS ERP system and an in‐house ERP system. Best‐of‐breed systems were eliminated because of the unnecessary overhead costs involved and the lack of a unified user interface across business processes. Overhead would include separate implementation, training, and maintenance costs for each package. A more advanced IT department would also be required for best‐of‐breed system implementations38. Integrated systems are also more streamlined, giving managers quicker access to cross‐functional data. Software‐as‐a‐Service (SaaS) ERP systems were also eliminated because of their reliance on internet up‐time. Internet service providers that could provide adequate bandwidth and reliability levels would cost thousands of dollars each month. It would not make sense for a manufacturing firm to run daily operations over the internet. Thus, it was determined that an in‐house ERP was the best solution for the BSure business. In‐house ERP Decision The two candidates considered were Microsoft Dynamics GP and SAP Business One. Other Dynamics and SAP products (Dynamics AX, CRM, SAP All‐in‐One) were not considered because of either lack of experience or too large of a scope.39 Although SAP is the world renowned leader in ERP solutions, Dynamics proved to be a more ideal solution for the organization because of its extremely familiar and consistent user interface and tighter MS Office integration. The primary reason that BSure will be using Dynamics GP over SAP Business One, which is a slimmed down version of All‐in‐One, is its user interface. Axel Angeli, an expert in ERP packages, states: Dynamics looks fresh and attractive and navigating around it is easy for everybody familiar with applications like Microsoft Outlook… Beyond the look and feel, the way
Best of Breed Vs. Integrated Systems. 2 April 2007. Karasev, Andrew. Microsoft Dynamics: GP, AX, NAV, SL, CRM – Merge or Coexistence? 1 June 2006. 11 April 2007 . 38 39
Information Systems Plan 49
individual program components are controlled is pretty homogeneous within Dynamics, while every transaction within [SAP] R/3 sports a high degree of individualism.40
Joe Gulino, another expert in the field, also states in the same article: Most employees who work for midmarket companies use Microsoft Outlook… How many of these employees have had formal training in Outlook? The answer is very few…One of the biggest reasons ERP implementations fail is the inability to get employees to adopt the system.40
A more familiar user interface will result in lower training costs and human error due to confusion. Minimizing human error is a key method of ensuring that the organization’s high reliability critical success factor is met. Dynamics GP also integrates more natively with all MS Office products, as well as MS Exchange for e‐mailing purposes.41
Web Strategy The organization’s core web strategy is to create a website, the “BSure Center for Peanut Allergies,” to be an online community for people who are in some way affected by peanut allergies. The website, which is currently located at http://peanut.nurik.net, will eventually be located at www.bsurecfpa.org, www.bsuredd.com, and at www.peanutdetective.com. The strategy focuses on the critical success factor of rapid customer base expansion as well as customer retention. There are few active web sites that provide information and community resources for the Peanut Detective’s target segments. Of those few, peanutallergy.com is the most highly visited, based on their own estimates (7‐35 thousand hits per month) as well as their Google’s search ranking.42 For screenshots of peanutallergy.com, please see IS Appendix 4. The BSure Center for Peanut Allergies website will also advertise the Peanut Detective wherever possible. However, it will not push the product on users; instead, users will have SAP All‐in‐One vs. MS Dynamics. 22 November 2005. 7 April 2007. 41 SAP Business One vs Microsoft Dynamics GP ‐ Highlights for Consultant. 3 April 2007 . 42 Google Search for "peanut allergy". 9 April 2007 . 40
Information Systems Plan 50
a variety of resources at their disposal that describe the benefits of various allergy coping methods, cleverly promoting the benefits of the Peanut Detective. Reaching the Target Segments It is currently relatively difficult to find concrete information about the Peanut Detective’s target segments; Consumers in the target segments are geographically spread out and are not clustered in any specific region due to the ubiquitous nature of peanut allergies. This makes it difficult to reach consumers for market research and product awareness purposes. The community website will create a new, very valuable communications channel between BSure and its consumers. This will greatly aid in providing marketing managers with a new source of market research data. This data will empower managers to make more accurate projections and thus make better decisions. Tracking Segment Awareness Because customer base expansion will be measured partially by segment awareness, it will be important to have access to accurate metrics for this data. The website will utilize the free Google Analytics web software to track page views and unique hits.43 Information systems personnel will have daily access to see how well the website is progressing in reaching the 100K page views/month goal. Web server logs will also provide user IP addresses, which can then be cross‐referenced with a free online geo‐location database for access to user geographical information.44 Weekly website user polls, controlled mostly by the marketing department, will also provide valuable market research useful for calculating the product’s customer satisfaction rates and product awareness. Conveying Product Information The website will also contain content describing the Peanut Detective family of products under the “BSure Products” section. Product usage videos and reference information such as the instruction manual and customer service phone number will be available at this Google Analytics Homepage. 23 March 2007. 43 44
Information Systems Plan 51
location. “Add to cart” links will also be visible on the product pages for easy online ordering. Website Structure The basic website structure, which is detailed in IS Appendix 5, is positioned as an information resource. The homepage will aggregate industry news and doctor articles (see DocBlog below) to compel visitors to bookmark the page. The homepage content will also be available in newsletter and RSS45 forms to maximum circulation and availability. FeedBurner will be used to monitor RSS usage rates for market research purposes.46 The homepage will always contain advertisements for the BSure Peanut Detective so that users are aware of the organization supporting them. DocBlog (doctor’s blog) will be a weekly article posting (similar to a blog post) by doctors that will partner with the organization. DocBlog articles will promote doctors’ opinions about how to deal with peanut allergies; the marketing department’s distribution of doctor’s kits will provide incentives for doctors to promote the Peanut Detective. An example of DocBlog is shown in IS Appendix 5. The community aspect of the website will allow users to communicate with each other by discussing their stories in forums (message boards). Each user will have the ability to share their relationship to peanut allergies (“My Story”) by editing their user profile. This will provide a simple way for users to quickly become part of the community. Other website resources will include comparisons of various peanut allergy coping methods as well as links to internet articles on peanut allergies. This will promote the website’s position in Google’s PageRank search rankings because it will act as a “hub” site by hosting useful outbound links.47 RSS (Really Simple Syndication) allows users to embed live content on their personal homepages and in other news aggregation software. 46 FeedBurner Homepage. 4 April 2007. 47 Google Technology. 25 March 2007
Information Systems Plan 52
Building Competitive Advantage BSure’s main competitive advantage will be the amassment of consumer trust in the Peanut Detective. Consumer trust is crucial to the success of customer base expansion and the overall success of the firm. Doctor sponsorship via the DocBlog will help tremendously in gaining this necessary trust. Consumer trust is also vital to the growth of word‐of‐mouth awareness. Because none of the Peanut Detective competitors have great online presences, providing a community‐intensive website and thus earning consumer trust will promote the BSure brand and provide a significant competitive advantage. Web Site Implementation BSure will enlist the services of a contracted web developer experienced in ASP.NET and other Microsoft technologies such as IIS to develop and maintain the website. The website will be hosted at ASPwebhosting.com on a dedicated server, guaranteed with 99.95% uptime, and allowing for 100 gigabits/mo. throughput.48 The web developer will also be in charge of developing the shopping cart module and subscription services. ASP.NET will be the core web technology used because of its ability to integrate with Dynamics GP’s developer API (application programming interface). Finally, the web developer will be asked to create a simple content management system (CMS) to provide easy web content control to other managers in the organization. One example of a CMS‐enabled process is marketing managers’ creation and monitoring of user polls. Because the web developer will be contracted for maintenance as well as development, managers will easily be able to request more dynamic content updates as well.
Supporting the Business Model The BSure Peanut Detective business model offers a robust variety of revenue streams and distribution channels, including drug store distribution, direct online sales, and even a Dedicated Server Hosting from ASPwebhosting.com. 11 April 2007.
48
Information Systems Plan 53
product replenishment subscription service. The organization’s information systems were coordinated to handle and deliver data from and to all of these sources. Retail Drug Store Sales Because drug store retail sales will be the primary source of revenue for the Peanut Detective, the organization’s information system was coordinated to best handle large volumes of external data. Microsoft Dynamics GP has built‐in electronic data interchange (EDI) support that fully meets the requirements of BSure retailers such as CVS and Walgreens. Internet Sales Because only 5% of those surveyed said that they would initially purchase allergy‐related products over the internet49, BSure will not concentrate on single purchase online sales; instead, web marketing efforts will be focused on pushing direct subscription sales, orderable by internet or phone, which will be one of BSure’s top revenue streams. Survey data shows that 25‐50% of the target segments would be interested in purchasing such a plan. Users will receive paper statements or online statements made available under the “My Account” section of the website. Both types of online‐submitted orders will be communicated from the web server to the organization’s in‐house application servers via a secure line. The contracted web developer will work in coordination with the marketing and information systems managers to ensure that both types of internet sales run smoothly. Subscription plans benefit both the consumer and the organization—consumers have the comfort and security of quick and easy home delivery and the organization secures a profitable customer relationship.
Hardware and Telecommunications The organization’s IT infrastructure is designed around the chosen ERP solution, Microsoft Dynamics GP. Dynamics GP requires at least two servers—an application/transaction Peanut Allergy Survey. WebSurveyor.< http://desktop.vovici.com/Default.aspx>
49
Information Systems Plan 54
server, and a dedicated MS SQL server.50 These servers will sit behind two APC Smart‐UPS (uninterruptable power supply) systems to prevent damage due to power outages. The factory floor will also require five or more client workstations for USB‐connected barcode scanning and manual data entry. Managers will require laptops for both in‐office and from‐ home work. Dell was chosen to satisfy all server and workstation computing requirements because of their long standing reputation for cost effectiveness, on‐site support, and B2B expertise. All supporting hardware will be purchased over the internet from CDW, a well‐known business computing retailer. All machines will be networked together using a business‐ ready 16‐port Cisco VPN router, which also provides firewall security. Wireless routing can quickly and easily be implemented if necessary and if it is allowed by FDA regulations. BellSouth (now AT&T) business DSL and local/long distance phone service will be purchased to handle the organization’s telecommunications needs. The long distance phone service provides access to an 800 number at a very affordable cost ($0.10/min.). This line will be used for supplier and retailer relations, customer service and for taking direct consumer purchase orders. Carroll Communications’ Partner Phone System will be purchased for the phone system’s hardware components—the system is designed for small businesses with up to 20 phones.
Data Security There are inherent security benefits when using software from Microsoft. Automatically installed software patches provide up‐to‐date security for the operating systems and productivity software installed on servers and workstations. Microsoft has a colossal reputation of dedicating extensive development efforts towards security of their products. Also, the tighter integration that comes with having a single software vendor implies smaller chances of security leakages. The organization will also standardize the usage of 50 System requirements for Microsoft Dynamics GP 9.0. 12 April 2007.
Information Systems Plan 55
Symantec AntiVirus Corporate Edition on all servers and workstations. For offsite data backups, LiveVault’s 5GB backup service will be used and incremental data will be backed up nightly, with full backups weekly.
Personnel A single information systems manager with significant MIS and IT (troubleshooting, networking) experience will be sufficient maintenance personnel throughout BSure’s years of operations. The reason is that the bulk of application support can be handled by the Dynamics GP liaison, JourneyTEAM, and hardware support will be enacted by Dell via three year on‐site warranties and upgrades. The IS manager, who will be promoted to chief information officer in later years, will communicate with the servicing departments of these organizations whenever trouble arises. The IS manager will also be in charge of ensuring that employees are familiar with the system and that they can positively exploit all of the available features of the ERP for maximum efficiency. As mentioned in the organization’s web strategy, a web developer will be contracted for initial web development as well as continued maintenance and upgrades. BSure’s IS manager will also support this web developer in meeting hardware and data access needs.
Implementation Schedule The implementation of the system will begin seven months before launching the product. First, the founding IS manager will order Dynamics GP and work with JourneyTEAM to customize the ERP solution. Hardware and other software will also be purchased at this time. System testing will then be performed by JourneyTEAM and the IS manager to ensure that all business needs are met and that business processes are operating smoothly. After the product launches, the IS manager will continue to work closely with JourneyTeam to enact IS system servicing. The IS manager will also be in charge of basic network administration. Over the first few years of operations, hardware will be upgraded and new servers and workstations will be purchased from Dell as necessary. IS Exhibit 3 illustrates BSure’s basic information systems implementation schedule.
Information Systems Plan 56
IS Exhibit 3: Implementation Schedule Order Dynamics GP and install with JourneyTEAM L‐7 mo.
Train employees and test system
Add new hardware, upgrade software, request new features as business grows 1‐2 year after launch
L‐2 mo.
Launch product and website L‐4 mo.
L‐6 mo. Order and install computer hardware
1 month after launch Analyze system performance and request changes as necessary
Hire web developer and communicate requirements
Costs Because information systems will be such an integral part of BSure’s Peanut Detective operation, the costs will be relatively high. Pre‐launch costs will be around $86K and total costs after a single year of operation, including the IS manager’s salary and benefits, come close to $205K. Web developer contracted work was estimated at $50/hr for 50 hours to develop the initial web site. The cost of maintenance was also estimated at $300‐$500 monthly (average of 6‐10 hours per month of minor updates). A summary of pre‐launch and year 1 IS costs are presented in IS Exhibit 4. IS Exhibit 4: Pre‐launch IS Costs (w/o $60K in Salaries) Component
Total Cost
Core Application Software
$42,755
Core Hardware
$19,600
Support Hardware
$5,147
Information Systems Plan 57
Component
Total Cost
Support Software
$5,048
Services & Resources
$13,634
Total
$86,184
After the first year, information systems costs fluctuate due to bi‐annual hardware upgrades and new purchases due to estimated workforce and operation expansion. An IS costing schedule for the first seven years of BSure’s operations can be seen in IS Appendix 6.
Summary Information systems play a crucial role in the success of BSure’s Peanut Detective product. If the product is to become the leading preventative measure against peanut‐related allergic reactions, the implemented information system must run smoothly. The system must be able to facilitate, support, and monitor the organization’s critical success factors of reliability, customer base expansion, and intellectual capital security. The founders of BSure Diagnostic Devices, Inc. are confident that these requirements will be satisfied and exceeded with the described information systems plan.
Financial Analysis & Plan
Financial Analysis & Plan 58
Financial Analysis & Plan Internal Rate of Return & Net Present Value Company BSure Diagnostic Devices will have a healthy internal rate of return of 61% and a net present value of $4.7 million based on a 25% discount rate (FE Exhibit 1). FE Exhibit 1: IRR & NPV
IRR
NPV
Total
61%
$4.73M
Investors
55%
$2.60M
Friends, Family & Management
76%
$2.13M
Investors Investors will receive an internal rate of return of 55% and have a net present value of $2.6 million. The investor will receive positive cash inflows by year 3 and every year thereafter. Friends, Family & Management Friends, family and management will receive an internal rate of return of 76% and have a net present value of $2.1 million (see FE Exhibit 1).
Investment Ownership Share for investors will be 60% while friends, family and management will receive a 40% stake (see FE Exhibit 2). BSure believes this is a reasonable ratio since friends, family and management invented and developed the Peanut Detective, but feel outside investors should get majority ownership since their investment is ¾ of the total cash needed and the investment has significant risks associated with it.
Financcial Analysis & & Plan 59
FE Exhibit 2: Co ontribution & Ownership
Ownersh hip
Tottal Contrib bution
% C Contribution
Total
100%
$1.96M
100%
Inve estors
60%
$1.47M
75%
Frie ends, Family & & Management
40%
$0.49M
25%
Contribu utions
Contribution of Fu unds
In orderr to launch and operatte properly,, BSure Diagnostic
Investors Friends, Faamily, and Man nagement
Devices will need a a total inveestment of $2.0 million. This
$0.5 M (25%)
investmeent will not be needeed immediately, but ov ver the course of o 2.5 yearss in order to t offset neegative cash h flows. Investorr contributio on will be 75% of the total investm ment or
$1.5 M (75%)
$1.5 milllion, whilee friends, faamily and managemeent will contribu ute 25% or $ $0.5 million n. BSure Diaggnostic Dev vices will ask for $0.5 m million in staartup investmeent in order to cover startup exp penses, rentt and produ uct develop pment. Investors will therrefore need d to contribute $0.4 miillion whilee friends, family and management m t will invest $0 0.1 million b before operrations begin n (see FE Exxhibit 3). FE Exhibit 3:: Contribution n Details
Inittial
Year 1
Ye ear 2
Total
$0.5M
$0.8M
$0 0.6M
Investors
$0.4 4M
$0.6M
$0 0.5M
Friends, Fam mily & Managem ment
$0.1M
$0.2M
$0 0.2M
The follo owing two y years will require conttributions frrom investo ors of $0.6 aand $0.5 miillion in years 1 and 2 resspectively aand friends, family and d managemeent of $0.2 aand $0.2 miillion in yearss 1 and 2 as a well. Th hese additio onal investm ments will be used in n order to keep operatio ons running at an efficieent pace by hiring new w employeess and contin nuing to incrrease
Financcial Analysis & & Plan 60
marketin ng, as sales will takee two years before th hey find trraction and d acceleratee the company y into positiive cash flow ws in year 3 3.
Cash Flo ows As menttioned earlier, cash flo ows will rem main negatiive in the fiirst 2½ yeaars of operaation. The com mpany’s inittial costs arre substantiially high du ue to the faact that thee organization is providin ng a medicall device which needs a higher leveel of quality y to both inccrease reliab bility and accu uracy for thee end user ((see FE Exhibit 4). FFE Exhibit 4: C Cash Flows (yyears 0‐7) (data table values in thousands) $20M
Cash Flows
$15M $10M $5M $0M ($5M) Term minal Value
0
1
2
3
4
5
6
7
‐
‐
‐
‐
‐
‐
‐
$15.2M
FFM M
($0.1M) ($0 0.2M) ($0.2 2M)
$0.0M
$0.5M
$0.7M
$1.3M
$2.1 1M
Inveestors
($0.4M) ($0 0.6M) ($0.5 5M)
$0.0M
$0.8M
$1.1M
$2.0M
$3.2 2M
Year
Assumin ng paymentt of dividen nds every month, m inveestors shou uld expect to t recover their investmeent in 4.77 7 years or 4 4 years and d 8 monthss. Thereafteer investorss should exxpect increasin ng cash infflows until the end off year 7. Future cash flows werre calculateed by obtainin ng the terminal value off BSure at th he end of yeear 7. Terminal value fo for the comp pany, at $15.2 million, waas calculated d by taking the presentt perpetuity y of future cash flows w with a discountt rate of 25 5% and a sh hrinkage raate of 10%.. This declin ning rate due d to increeased competittion, was caalculated baased on the product liffecycle of th he Peanut Detective (see MK Exhibit 8 8).
Financial Analysis & Plan 61
Profitability and Breakeven BSure will experience negative net income in years 0 through 2 (see FE Exhibit 5). Breakeven analysis shows that for years 1 and 2 the company would need to sell an excess of 1 million cartridges in order to turn a profit (see FE Exhibit 6). Only cartridge breakeven has been analyzed as holder sales are much less relevant. By year 3, the company will turn a profit of $0.8 million, due to sales more than doubling between years 2 and 3. This large increase in sales is mainly due to an aggressive marketing campaign in the first three years that builds up both brand awareness and reputation while also increasing customer retention. Thereafter net income continues to increase, surpassing the breakeven point by a large margin as a larger quantity of both holders and cartridges get sold. FE Exhibit 5: Summarized Income Statement Year
0
1
2
Total Sales
$0K
$856K
$2,233K
$7,606K $11,382K $13,999K $23,792K $32,376K
Total COGS
86K
645K
1,416K
4,416K
6,570K
8,098K
13,727K
18,737K
Gross Profit
0K
211K
817K
3,191K
4,812K
5,901K
10,065K
13,639K
371K
SGA
0K
941K
1,227K
1,814K
1,986K
2,236K
2,534K
2,749K
Depreciation
0K
18K
18K
32K
47K
61K
71K
118K
(371K)
(748K)
(428K)
1,344K
2,780K
3,605K
7,459K
10,772K
0K
0K
0K
537K
1,112K
1,442K
2,984K
4,309K
($371K)
($748K)
($428K)
$806K
$1,668K
$2,163K
$4,476K
$6,463K
Start up Costs
EBT Taxes Net Income
3
4
5
6
7
FE Exhibit 6: Breakeven for Cartridges Year
1
2
3
4
5
6
7
1,029
1,303
1,875
2,099
2,414
2,796
3,112
Forecast Units (Cartridge)
281
738
2,458
3,697
4,572
7,812
10,686
Breakeven Total Revenue
$2,913
$3,829
$5,976
$6,917
$7,979
$9,829
$11,329
$856
$2,233
7,606
$11,382 $13,999 $23,792 $32,376
Breakeven Units (Cartridge)
Forecast Total Revenue
Financial Analysis & Plan 62
Ratios Analysis The product team has conducted extensive analysis of both industry ratios in the diagnostic substances industry (SIC 2835) as well as ratios of two leading companies in the self diagnostic business: Roche Pharmaceuticals and Abbott Laboratories (see FE Exhibit 7). Roche is a Swiss‐based company and the leader in diagnostic products.51 Abbott Laboratories is a U.S. based company and second in terms of its market share of diagnostic devices.52 Unlike Roche, Abbott is not performing as well year‐to‐year. While both companies make products similar to the Peanut Detective, neither makes a product to detect the presence of peanut and thus they are indirect competitors, but may become competitors in the future. FE Exhibit 7: Company & Industry Ratios
BSure
Industry
Roche
Abbott
Cash % of Sales
7%
20%
7%
6%
Current Ratio
3.12
3.6
3.22
0.94
Quick Ratio
3.08
1.7
2.78
0.71
Gross Margin
39%
61%
73%
56%
Profit Margin
16%
(6.3%)
18%
7.6%
Cash to Sales Ratio BSure Diagnostic Devices will hold a cash to sales ratio of 7%. This is similar to the cash to sales ratio of both Roche Pharmaceuticals as well as Abbott Laboratories which are 8% and 6% respectively. The industry however holds on to 20% of cash, the reason being that they want high liquidity in case of litigations or recalls. While the organization expects to hold more cash in later years, the first few years will require investments in new machines and
Figures and Reports. Roche. Annual report, 2006. 10 Apr. 2007. Annual Report. Abbott. Providence, RI, 2006. 12 Apr. 2007 . 51 52
Financial Analysis & Plan 63
equipment, employment of new workers and aggressive spending in marketing in order for the product to turn a profit. Current/Quick Ratio BSure Diagnostic Device’s current ratio is 3.12 and a quick ratio of 3.08. This compares favorably with Roche which has a current ratio of 3.22 and a quick of 2.78. Abbott’s current and quick ratios are both below zero, indicating that their liabilities are weighing heavily on the company. The industry as a whole has a current ratio of 3.7 and a quick of 1.7. This indicates that there is a large amount of inventory accounted for on the balance sheet. To deal with this problem, BSure is utilizing a chase strategy and thus its inventories are efficiently used and kept in small quantities. Gross/Profit Margin BSure’s gross profit margin is 39% while its net profit margin is 16%. Gross profit margins in both the industry, Roche and Abbott Laboratories are high at 61%, 74% and 56% respectively. BSure’s gross margin is significantly less because it is a startup company with high variable costs and less bargaining power then its indirect competitors. The 16% net margins, however, are in line with Roche and Abbott at 18% and 7% respectively and are well above the industry at ‐6.3%. The industries negative net margin is due to large fixed assets and the fact that many of these companies have a diversified line of diagnostic devices. The company’s net margin will remain positive by focusing efforts on the Peanut Detective in the first few years thus maximizing factory and administrative efficiency in that one product.
Risks BSure Diagnostic Devices has analyzed some of the greatest risks that will adversely affect the company. They include four cartridge variable costs, the distribution price for cartridges, repurchase rate and entering competition (see FE Exhibit 8).
Financial Analysis & Plan 64
FE Exhibit 8: Sensitivity Analysis Legend
Cartridge
Chemicals
Other
Variable
Original
New
% Change
$2.70
$2.40
11%
190
134
‐29%
Antibody
$0.80
$1.71
114%
Competition (years 5‐7)
20%
47%
135%
Shell/Window
$0.24
$1.10
358%
Substrate
$0.24
$1.15
380%
Enzyme
$0.21
$1.12
434%
Cartridge Selling Price Repurchase Rate (Cartridge)
Cartridge Variable Costs There are four variable costs that go into making the cartridge that if changed could have a hefty negative impact on the company’s financials. These four costs in order of biggest impact are the antibody, plastic shell, substrate and enzyme. The antibody, substrate and enzyme are the series of chemicals inside the cartridge that combine to create the chemical reaction needed to detect peanut traces. The plastic shell encloses all of the chemicals inside the holder. These four materials are the most expensive variable costs; as a result, a very slight change in the price of any of these chemicals or plastics can have a large impact on cartridge profit margins. Because the cartridge represents the majority of revenues, these price changes can indeed negatively affect all of the financial statements. The company currently plans to hedge prices with its suppliers in order to minimize this risk; however, unexpected problems with one of the suppliers could hinder the organization’s ability to maximize margins. Cartridge Pricing Another variable that can have a large effect on the health of the company is the cartridge selling price. Because each cartridge has a low margin, a small change in the manufacturing price can have an adverse effect on sales. If competition increases their cartridge margins more effectively than BSure, forcing the company to cut its distribution costs, this will have
Financial Analysis & Plan 65
a negative impact on the company’s financials. BSure will minimize this risk by gaining more purchasing power by years 3 and 4 when competition enters, by establishing relationships with suppliers as price setters rather than price takers. Repurchase Rate BSure projects repurchase rates of cartridges to be 190 per person per year. Sensitivity analysis concludes that the project NPV would be zero if the repurchase rate fell to 134. This 29% drop is significant—if the product’s marketing strategy is not able to convince peanut allergy sufferers to trust the Peanut Detective’s testing accuracy and promote repeat usage, this decrease in repurchases could dampen financials. The organization must therefore make certain that the Peanut Detective meets customer requirements so that repeat purchases increase, thereby increasing cartridge sales. Competition An unexpected rise in competition in years 5 through 7 could have significant effects on financial figures. A spike from 20% to 47% lost revenue from competing products will result in a zero NPV. To hedge this risk, BSure will invest in design patents, making it difficult for competition to make a product similar to the Peanut Detective.
Scenarios Throughout this report, estimates have been discussed as to how BSure will grow, turn a profit and then divide ever increasing returns to its shareholders. In addition, optimistic and pessimistic company financials will be analyzed. Optimistic Scenario
FE Exhibit 9: IRR & NPV for Optimistic, Base, and Pessimistic Cases
Under the optimistic scenario BSure Diagnostic Devices’ internal rate of return will be 105% and its net present value will be $13.7 million (see FE Exhibit 9).
IRR
NPV
This leaves the investor with an IRR of 96% and an NPV Optimistic
105%
$13.70M
of $8.1 million (see FE Exhibit 10). The reason for the Base
61%
$4.73M
jump in both IRR and NPV in the optimistic scenario
‐14%
($1.89M)
Pessimistic
Financial Analysis & Plan 66
is that the Peanut Detective will both increase store penetration and retail acceptance. In the first few
FE Exhibit 10: IRR & NPV for Investors (Opt./Base/Pess.)
years retailers will be more willing to stock the product on store shelves as they will have gained trust Optimistic in the product quicker than expected. End users will Base also trust the product more readily than expected and Pessimistic
IRR
NPV
96%
$8.06M
55%
$2.60M
‐18%
($1.47M)
repurchase rates will be higher than expected, from 37.5% to 45%. Furthermore, accounts receivable days will decrease from 40 days to 30 days as BSure Diagnostic Devices will have more purchasing power and retailers will want to keep BSure’s business, so in turn will payback short term debts quicker. The company’s accounts payable days will increase from 35 to 40 days because it will have stable relationships with suppliers and they will allow the organization to pay back short term debts at later dates. Investors’ cash flows will remain negative until year 3, similar to the base scenario, however by the end of year 3 cash outflows will be significantly increased, from $0.02 million to $0.7 million. Investments will be paid back to investors in exactly 3.0 years from the initial investment date. Pessimistic Scenario Under the pessimistic scenario, BSure Diagnostic Devices’ net present value will be ‐$1.9 million and an internal rate of return of ‐14% (see FE Exhibit 9). This will leave investors with an NPV of ‐$1.5 million and a loss of $1.4 million of their investment (see FE Exhibit 10). A positive point to note is that despite the negative IRR and NPV, cash flows will become positive in year 4 and thus investors will be able to recoup some of their losses. In this unlikely scenario, it is possible that Peanut Detective will not be easily trusted by store retailers and thus there will be both a decrease in store penetration as well as acceptance. This will be compounded by increased competition in year 3 and 4 that will take market share at a more aggressive and faster rate than predicted. Furthermore, customer retention will decline and this will affect the repurchase rate declining the holder rate from 37% to 30% and cartridge rate from 76% to 65%. While these numbers seem unfavorable to the investor the chances of such an event occurring is very slight.
Financial Analysis & Plan 67
FE Exhibit 11: Cash Flows for Optimistic, Base and Pessimistic Year
0
1
2
3
Optimistic
($548K)
($540K)
($115K)
Base
($548K)
($783K)
($629K)
$36K
Pessim.
($548K)
($907K)
($1,007K)
($703K)
4
5
$1,120K $3,090K $5,454K $1,337K $1,765K $104K
$213K
6
7+
$8,369K
$42,579K
$3,329K
$20,460K
$325K
$950K
Investors will lose money if these unfavorable circumstances take shape and there seems to be no positive outlook in the future barring significant events such as a major increase in demand or an interested party acquiring the BSure brand and facilities. If these conditions do take place, the company will cease operations and salvage equipment and raw materials in order to payback investors.
Why Invest? 68
Why Invest? When you invest in BSure Diagnostic Device’s Peanut Detective, you are investing in a product that can potentially save lives. The product will satisfy an unmet need by pioneering a new reaction prevention method for peanut allergy sufferers. The investment does come with a fair amount of risk. The main revenue stream comes from selling cartridges. The company’s margins are significantly lower on cartridges than they are on holder units. Variable price fluctuations or a decreased cartridge distribution price could put a significant strain on the operation. However, with these risks come substantial financial rewards. If the product does indeed follow estimated projections, investors will reap the majority of the benefits. The project’s current IRR is high (61%), so it inherently allows for volatile deviations from estimates.
Beyond Year Seven The long‐term effects of competition will begin to decrease demand starting in year 7. After reaching peak demand levels, the Peanut Detective will be in the decline stage. At this point, the product will have an estimated terminal value of $15.2 million (assuming a ‐10% growth rate and a 25% demanded rate of return). The Peanut Detective itself will be harvested while new spin‐off products such as the Tree Nut Detective and Egg Detective (other top prominent food allergies) are developed and prepared for launch.
Conclusion While there are definite risks in this investment, the upside exceedingly outweighs the downside. Investing in the Peanut Detective is a great opportunity to profit from an innovative product while improving the quality of life for millions of people.
Appendices
General Appendices 69
Appendices General Appendices General Appendix 1: External Product Design
¾”
3”
Test Button Eject Button not shown (on other side)
⅔” ½”
Holder and Cartridge Cap (Cartridge hidden)
1 ¾”
Cartridge
Holder and Cartridge
General Appendices 70
General Appendix 2: Internal Product Design
Peanut Proteins Peanuts and peanut by‐products contain universal proteins called Ara H 1. This protein, also known as an antigen or allergen, has a high resilience to heated environments and therefore can survive normal cooking or baking temperatures.53 Ara H 1 can be found in common foods ranging from cupcakes to soups. Even peanut residue on a dinner table can be effectively dangerous to anyone who is sensitive enough to it.
Extraction Ara H 1 is relatively easy to extract, even after having been processed. Peanut antigens are particularly prone to a saline solution called NaCl—sodium chloride. Once this antigen has been extracted, a widely used technique, called ELISA, which short for Enzyme‐Linked ImmunoSorbent Assay, can be used to visually identify these proteins.54
ELISA There are three main methods to ELISA; indirect, sandwich, and competitive. Due to procedural restraints of indirect and sandwich methods, the Peanut Detective employs a variation of the competitive technique. Essentially, this technique traps Ara H 1 and restricts it from proceeding further. Once Ara H 1 is trapped, further steps can be to taken to quantify the presence of this antigen.
Detecting Ara H 1 The competitive technique requires the use and preparation of three separate chemicals. The first of these substances is called an antibody. Antibodies are cells that can be specially cultured to locate and attach to Ara H 1. The next chemical required comes in a pair, enzymes and substrates. These chemicals are useless without one another; enzymes react to substrates by releasing energy. Depending on the type of enzyme and substrate used, this energy can be visible to the
Pomes, A, R Vinton, and M.d. Chapman. "Peanut Allergen (Ara H 1) Detection in Food Containing Chocolate." Journal of Food Protection 67 (2004): 793‐798. 54 Pomes, Anna, Ricki M. Helm, Gary A. Bannon, Wesley A. Burks, Amy Tsay, and Martin Chapman. "Monitoring Peanut Allergens in Food Products by Measuring Ara H 1." Journal of Allergy and Clinical Immunology 111 (2003): 640‐645. 53
General Ap ppendices 7 71
n naked eye as a a fluoresscent glow or color ch hange. The last chemiical requireed is a supeer saline e extraction b buffer, as exp plained abo ove.
P Preparatio on B Before any a actual proceesses can occcur, these chemicals h have to be p prepared. Th he phosphate saline b buffer has to o be mixed w with Ara H 1 specific antibodies. T These antibo odies have aan enzyme aattached t to it. Next, t two cotton sstrips are required. Th he first strip p, seen in th he diagram,, has more A Ara H 1‐ s specific anttibodies attaached to itt. The secon nd strip is laced with h substrate chemicals that are d designed to react to enzzyme‐linked d antibodiess.
P Product Pa arts Inteernal
External
Internal Prrocess Flow w
T first steep (1) of prrocess is to press the ““Test” butto The on. After prressing the “Test” buttton a pin p pierces the phosphate buffer/enzy yme‐linked bag, as seen in step (2 2) of the pro ocess diagram. As a
General Appendices 72
result, the solution within the bag flows through the tube and through the mesh. In step (3), the solution dissolves the sample stuck on the mesh. There are now two different scenarios. Sample with Peanuts If there are any antigens present, enzyme‐linked antibodies will attach to them. Step (4) is where the solution/sample mix gets absorbed in the exposed strip. Assuming again the sample has Ara H 1, the enzyme‐linked antibodies will not advance beyond this strip. The rest of the solution then moves onto step (5). Since the antigens, along with enzyme‐linked antibodies, were filtered in the first strip, there will not be any kind of glow. In step (6) the optic reader analyzes the last strip for signs of fluorescence. In this case there is no glow therefore indicating that the food does contain traces of peanuts. Sample without Peanuts Assume now, that in step (3), the sample had no antigens. The solution with the sample dissolved will continue to get absorbed by the first strip. However, since there is no Ara H 1 to become attached, the enzyme‐linked antibody will make it to the last strip. In step (6) the optic reader analyzes the last strip for signs of fluorescence. At this point, the enzyme‐linked antibody will react with the substrate and release a fluorescent glow indicating that the food does not contain traces of peanuts.
Visual Detection The detection of fluorescence is fairly simple. It is a technology widely used among pregnancy tests and other function‐similar applications.55 Optical sensors scan the last strip of the cartridge. Even the minutest glow is detectable.
"Clear Blue ‐‐ How Pregnancy Tests Work." Clearblue.
55
Marketing Ap ppendices 7 73
M Marketing Appendicces M MK Appendix x 1: Segmentaation Tree
U.S. Population (30 01M) Peanut Allergy Sufferers (3M) Mild n Irritation (0.3M)
Hives,, Vomiting, A Anaphylaxis if Ingested (2 i 2.5M) Children & Teens (87 75K)
Other Foo od (8M)
No Food Alle ergy (29 90M)
Severe Reeaction to Touch o or Smell (0.2 2M)
Adults (1,625K)
M MK Appendix x 2: Press Rele ease PRESS RELEA P ASE C Contact: (Pre ss only)
For Rele ease 9 a.m. ES ST Occtober 1, 200 07
Leora Kadisha L S Senior Vice Pr resident of M Marketing leora@bsured dd.com Sure Diagnosttic Devices, In nc. unveils Peeanut Detectiive BS New Devicce that detectss peanut tracees in foods. ((LOUISVILLE, Kentucky – O October 1, 200 07 ‐ BSure Diaggnostic Devicees, Inc.) Today y, BSure Diagn nostic Devicess, Inc. introduced d a preventatiive device meaant to detect p peanuts in foo od. The device, slightly larger than a tube of T o lipstick and d fit for a key y chain, is meeant for thosee with peanu ut a allergies. To teest foods, thee consumer brrushes the Peanut Detective over their food/liquid, f an nd pushes thee T Test button. In n 45 seconds, the device will w show, with h a green or red r light, wheether there is a presence of o p peanut in the c consumer’s fo ood. The holdeer expires everry six months through usagge. ““This is the peerfect productt for counselo ors to carry arround with th hem at camp, teachers to h have at schooll, k kids to have in n their pocketts, moms to haave in their baags. There’s n nothing like th his on the marrket and we‘ree h hoping it will b be a big hit,” says Leora Kad disha, Senior V Vice Presidentt of Marketingg. Key characteriistics include 99.99% accurracy, ability to test a large variety of foods, and a 45 seccond responsee K t time. The Pean nut Detective ccan be purchased at CVS, W Walgreens, Ritee Aid and www w.bsuredd.com m. For more info F ormation on t the Peanut Detective and r related products visit: www..bsuredd.com
Marketing Ap ppendices 7 74
M MK Appendix x 3: Instructio on Manual Co ontents
B BSure Pean nut Detecttive Instructions W What is the B BSure Peanut Detective? The BSure Pea T anut Detective is a device thaat detects tracces of peanut iin foods and ccan be used to test food prio or to c consumption. T The BSure Pea anut Detective consists of a T Test Holder an nd a Test Carttridge Instructions
1 Remove th 1) he Test Cartrid dge from the ffoil wrapper. 2 Assemble the Test 2) a) Find tthe arrow on tthe Test Holdeer b) Line u up both arrow ws c) Insertt the Test Carttridge into thee Test Holder u until it clicks iinto place
3 Remove th 3) he cap
4 Perform th 4) he test a) Stick ttip of Testing Cartridge into o desired food d to get a samp ple b) Place cap back onto o Cartridge n c) Press “TEST” button
5 Wait for th 5) he test to com mplete. Within 45 seconds a GR REEN or RED llight will appeear. 6 See your rresult 6)
The foo od tested doess not contain peanutss, with 99.99% % accuracy.
The food DOES CONT TAIN peanuts. It mption by anyone is not saafe for consum who maay experience an allergic reaction n.
7 Dispose off the cartridgee 7) a) You m may now presss the Eject Buttton to removee the Test Cartridge b) Your rresult will rem main on the Diisplay for 15 m minutes.
F Further Infor rmation D Disposing of yo our Test Cartriidge
O Once your resu ult has been d displayed, disp pose of the Tesst Cartridge w with your norm mal household d waste. To do this,
Marketing Appendices 75
press the Eject Button on the Test Holder. The Test Cartridge will automatically be released. When you eject the Test Cartridge you may notice a color due to the chemical reaction that took place on the test strip. This must be disregarded; only refer to the Green or Red indication light on the Test Holder. Using the Test Holder Again
If you have bought a pack containing a Test Holder and more than one Test Cartridge, you can use the Test Holder again. While testing the Test Holder may have been splashed with some of the previous food sample. Ensure that you wipe it clean. A further test is not possible during the initial 15 minutes after the previous test was conducted. The result from the previous test will remain lit for 15 minutes after the test was taken. When you are ready to use the Test Holder again, repeat the instructions from step 1. Refill Test Cartridges are available for use with the Test Holder. Frequently Asked Questions
1. How accurate is the BSure Peanut Detective? The BSure Peanut Detective is 99.99% accurate in laboratory tests. 2. How does BSure Peanut Detective work? Peanuts contain a universal protein called Ara H 1, which causes allergic reactions in sufferers. This protein, also known as an antigen, can be detected using a highly sophisticated method called ELISA (enzyme‐linked immunosorbent assay). When you swipe the cartridge over your sample and hit the “Test” button, in 45 seconds you will receive a red or green light indicating the presence of Ara H 1 or not. 3. What might affect the accuracy of the result? The food tested must have a high enough consistency to be sufficiently sampled by the cartridge’s metal mesh. If the mesh does not pick up enough of the food, the test will result in an error and the red light will flash. 4. Can I use the Test Holder with any other Test Cartridge? No. The Test Holder can only be used with the Test Cartridges made by BSure Diagnostic Devices Inc., specific to the relevant food allergy. 5. I have used the Test, but no result has started flashing for over 45 seconds. What does this mean? The test has not been performed correctly. The red light will start flashing, indicating an error, within 10 minutes of testing. 6. What if the Test Holder gets wet? Some splashing of food or liquid will not damage the Test Holder, but if it becomes very wet it may be damaged. If so, both lights will start to flash indicating an error. 7. My result is still flashing. I have another Test Cartridge in the pack; can I insert this and do another test? No. Wait until the light stops flashing before testing again. Please refer to ‘Using Test Holder again’. The BSure Peanut Detective is specially designed for easy use at home, restaurants, day school etc. However, if you have any questions about the Test, please call the BSure helpline at 1‐800‐2BE‐SURE 24 hours/ 7 days a week. Our specially trained staff will be glad to give you confidential and helpful advice.
Disclaimer The customer service phone number is 18002BESURE. Visit us on the web at www.bsuredd.com. Store at 36° 86°F (2°30°C). Do not freeze. Child safe. Do not use if foil containing test cartridge is damaged. Do not use Test Cartridge past its expiration date.
Marketing Ap ppendices 7 76
M MK Appendix x 4: Survey & Result Summ mary
P Peanut All ergy Surve ey We are studentts from Boston University and W d are currently developing a new n product id dea. The inform mation provided d b below will be us sed for our research purposess and will allow w us to determiine what consumers desire fro om our productt. will remain con A All information nfidential.
1) Who in yourr family has a p 1 peanut allergy y? (Check all th hat apply) Myself (32.6%) Spouse (1.4 4%) Child/Child dren (66.9%) Other (pleaase specify (4.5% %) If you selectted other, pleasee specify: 2) How many c 2 children do you u have with pe eanut allergiess? { 1 (64.8%) { 2 (4.8%) { 3+ (0.3%) { None (30.1 1%) 3) What type of allergies do t 3 the members o of your househ hold have? Myself M My sp pouse Child/Children Otherr/Relative 31.5% 1.4 4% 64.3% 5 5.6% Peanut Tree nut 19.2% 1.7 7& 36.2% 3 3.6% Dairy 3.1% 3 1.9 9% 13.1% 1 1.9% Wheat 3.6% 3 0% % 5% % 6% Soy 5.6% 5 0.8 8% 8.6 6% 1 1.1% Egg 5% 0.3 3% 16.7% 1 1.9% 4) What sympttoms have you or others you've known exp 4 perienced from m an allergic re eaction? Myself My spouse Child/Childrren Otheer/Relative 27% 1.1% 31.5% Shortness of breath 4.7% Hives 24.5% 2.2% 59.3% 6.4% Vomiting 16.7% 0.8% 31.5% 3.9% Anaphylaxxis (closing of throat) 27.9% 1.4& 28.1% 3.3% Other 14.8% 3.6% 26.7% 2.2% If you are not the individuall with the peanut allergy, pllease fill out th he rest of the survey with rrespect to yourr c child or depend dent. 5) What products do you currently use to c 5 cope with allerrgic reactions? (Please check k all that apply y) Antihistam mines (83.6%) No one (1.9%) Skin Ointm ments (23.7%) Other (please spe O ecify) (11.4%) EpiPen (91.9%) If you selectted other, pleasee specify: 6) Where you d 6 do currently pu urchase allerg gy related prod ducts? (Please check all that apply) Pharmacy (92.2%) Conveniencee Store (13.1%) Doctor's Offfice (13.9%) Internet (5.3 3%) None (1.9% %) Other (please specify) (5.3%) If you selectted other, pleasee specify: 7 7) How import tant is it for you u to detect traces of peanutss in foods? (1 = = Not importan nt, 5 = Very imp portant)
Marketing Appendices 77
{ 1 (0.8%)
{ 2 (0.6%) { 3 (2.8%) { 4 (5.4%) { 5 (90.4%)
8) What worries you most about your peanut allergy? (Please check all that apply) Consequences of an allergic reaction (98.1%) Embarrassment caused by an outbreak (11.7%) Boredom from eating the same foods (14.5%) My allergy does not worry me (1.9%) 9) How frequently do you eat outside of your home? { Frequently (8+ times a week) (8.1%) { Somewhat frequently (4‐7 times a week) (21.3%) { Not frequently (1‐3 times a week) (57.9%) { I never go out to eat (12.9%) 10) Does your allergy influence the frequency of eating outside of your home? { Yes (76.1%) { No (23.9%) 11) Where do you eat out most often? { Restaurants (47%) { Friend's house (4.3%) { Relative's house (14.3%) { School (24.6%) { Work (2%) { Other (please specify) (7.7%) If you selected other, please specify: Product Description In development is a device that can accurately detect traces of peanuts in foods as a precautionary measure for those who suffer from peanut allergies. The device, which would be slightly larger than a tube of lipstick (and able to fit onto a keychain), would quickly identify peanut traces in foods after sticking the tip of the device into the food. After less than a minute, a green or red light would indicate either no peanuts or peanuts in the food, respectively, thereby avoiding an allergic reaction while still enabling people to try new foods. This product would expire every six months through usage. 12) After reading the above description, how likely are you to buy this product? { Definitely would buy (43.1%) { Probably would buy (23.2%) { Maybe would buy (25.5%) { Probably would not buy (6.7%) { Definitely would not buy (1.4%) 13) Would the six month expiration on the holder deter you from buying this product? { Yes (55.3%) { No (35.4%) { Maybe (9.3%) 14) How much would you be willing to pay for this product? { $30‐39 (45%) { $40‐49 (20.6%) { $50‐59 (16%) { $60‐69 (4%) { $70+ (14.3%) 15) What is the maximum price you would pay for this product in dollars?
Mean = 69.28 Median = 50.00 Min = 10.00 Max = 999.99
16) Where would you use this product? (Please check all that apply) Restaurants (91.1%) Friend's house (68.8%) Relative's house (64.6%) School (62.4%) Work (28.7%) Other (please specify) (12.8%) If you selected other, please specify: 17) What attributes (listed on the right) would be the most important for this product to contain? (Rank by importance, 1st = Most important, 6th = Least important) 1) Portability (14.1%) 2) Accuracy (28.7%) Response Time (16.5%) 3)
Marketing Appendices 78
4) 5) 6)
Ease of Use (17.5%) Tests Large Variety of Foods (18.2%) Appearance (5%)
18) How often would you expect to use this product on a weekly basis? { 5+ days a week (28.1%) { Less than once a week (15.4%) { 3‐4 days a week (27%) { I would not use this product (2.5%) { 1‐2 days a week (27%) 19) Would you feel uncomfortable using a peanut detection device in public? { Yes, I would only use it in private (3.1%) { Yes, but I would still use it (23.2%) { No, not at all (73.7%) 20) Which of the following attributes would increase the likeliness of your child using this product? (choose N/A if not applicable) { Bright colors (9%) { Cartoon prints (9%) { My child would use it regardless (51.5%) { N/A (30.4%) Cartridge Description This product would require the use of disposable cartridges that would be inserted into the device because chemicals involved are not reusable and each cartridge must remain sterile. The cartridge tip is what is actually inserted into the food. Each cartridge could only be used one at a time, but they would be small enough that you can carry many at once. 21) How many cartridges would you want in a pack? (Based on usage) { 4 (10%) { 8 (19.4%) { 12 (28.8%) { 16+ (41.9%) 22) What is the maximum price you are willing to pay for a refill cartridge a.k.a per usage? Mean (all responses) = 3.30 Median = 4.00 Min = 1.00 Max = 5.00 23) How interested are you in an "Automatic Refill Plan" where a certain amount of refills and a holder are sent to you at intervals chosen by you through the company website? { I would use this plan for holder repurchasing (7.5%) { I would use this plan for cartridge repurchasing (10.4%) { I would use this plan for holder and cartridge repurchasing (31.7%) { I would prefer to buy this product through a store (50.4%) 24) Would you have more than one peanut detection device for multiple locations, such as one at home and one in a child's backpack? { Yes (33%) { No (24.6%) { Maybe (42.4%) The following questions are for statistical purposes only. Please fill them out for yourself, not for your child or dependent. 25) Age { 18‐24 (22.9%) { 25‐34 (23.7%) { 35‐44 (42.4%) { 45‐54 (9.9%) 26) Gender { Male (13.2%) { Female (86.8%) 27) Marital Status { Married (69.5%) { Divorced (2.8%) { Single (27.7%) 28) City and State Thank you for participating in our survey. We greatly appreciate your input.
{ 55+ (1.1%)
Marketing Ap ppendices 79
M MK Appendix x 5: Online Po ost‐Purchase Survey
P Post Purch hase Surveyy 1.
Wheree did you purchaase the productt? o CVS o Walgreens o Longs Drugsstore o Rite Aid o Internet o Other ____________________________________
2.
How d did you hear abo out the Peanut D Detective? o Through a frriend o Recommend ded through docctor/ allergist o Advertisemeent o Other ____________________________________
3.
How saatisfied were yo ou with the Pea anut Detective product: (1 being the worst, 5 b being the best) 4 5 1 2 3
4.
Who b bought the prod duct? ______________________________
5.
Who w was the productt purchased for?? ______________________________
6.
Would d you purchase tthe product agaain? o Yes o No
7.
Gender:
8.
Age: _______
Male
Female
Marketing Appendices 80
MK Appendix 6: Focus Group Summary
Focus Group 1 Date: February 11, 2007
Age of Participant: 18+, Independent
Time: 4:00 PM
Location: Dexter Part, 175 Freeman St.
• • • • • •
Benadryl is not effective enough, usually takes 20 minutes before relief. Usually eat our everyday – checking pasta oil would be very helpful. Always concerned about a potential allergic reaction when eating out. Trust is a factor – if 99.99% is truly the accuracy rate then yes they would try the product. Would rather buy holder at a drug store – cartridges may be purchased on line. Liked BSure logo – very appealing.
Focus Group 2 Date: February 21, 2007
Age of Participant: Guardians of Dependents
Time: 11:00 AM
Location: Boston University School of Management
• • • • • •
Always worried about an allergic reaction, especially when they are not present to watch their child. (School, friend’s house, camp) Child carries an EpiPen in their backpack in case of an emergency. School nurse is notified of this medication. Children have been taught which foods they should not eat. Trust is a major issue – However, if a product like this worked it would reduce anxiety. Needs to be kid friendly, easy to use is important – quick testing results, less than 2 minutes. Design needs – small enough to fit on a key chain. Lacking precautionary devices for food allergies.
Focus Group 3 Date: March 9, 2007
Age of Participant: 18+, Independent
Time: 2:00 PM
Location: University of California, San Diego
• • • • • • •
Main line of defense: EpiPen. Using it is a scary and painful experience. Trust factor – would it really work? Doubtful of product at first glance. Has to be small – it is embarrassing to be testing food in a restaurant. Always concerned about an allergic reaction when eating out. If this product came out, they would like to use it in restaurants. Logo response – They liked the logo BSure. Price – one individual was willing to pay up to $1000 for product. Another individual did not have serious allergies and was not willing to spend more than $10.
Marketing Appendices 81
MK Appendix 7: Marketing Budget Expenses
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Push Strategy
Kits
$208
$208
$208
$208
$208
$208
$208
$118,258 $118,258
$118,258
$0
$0
$0
$0
Press Kits Doctor Kits Conferences
$2,835
$2,835
$0
$0
$0
$0
$0
$0
$0
$7,000
$7,000
$7,000
$7,000
$7,000
$2,150
$2,150
$2,150
$2,150
$2,150
$2,150
$2,150
Pull Strategy
Magazine
$240,000 $306,000
$374,544
$445,707
$519,567
$596,204
$675,697
MDM East FIME Eastern Allergy
WebMD Health
$0
$0
$353,736
$360,811
$460,034
$469,234
$478,619
$24,000
$24,480
$24,970
$25,469
$25,978
$26,498
$27,028
$6,480
$6,610
$6,742
$6,877
$7,014
$7,154
$7,298
$0
$0
$0
$0
$0
$0
$0
$393,930 $460,540
$887,607
$848,221 $1,021,951 $1,108,448
$1,198,000
Web peanutallergy.com allergykids.com Other Word of Mouth Total Cost
Marketing Appendices 82
MK Appendix 8: Base Case Sales Forecast Year Competition % Online Demand % Child, Teen Segment Adult Segment Total Segment Size Purchase Intent 34% ACV Awareness Initial Buyers Holder Repurchase Rate 37.5% Repurchases/Year 1 Subtotal Holder Demand Demand Lost (Competition) Total Holder Demand Target Retail Price 39% Manufacture Price Online Demand Total Holder Retail Revenue Total Holder Revenue Cartridge Repurchase Rate 76% Repurchases/Year 190 Subtotal Cartridge Demand Demand Lost (Competition) Total Cartridge Demand Target Retail Price 35% Manufacture Price Online Demand Total Cartridge Retail Revenue Total Cartridge Revenue Total Retail Revenue Total Revenue Total Costs of Goods Sold Gross Margin
1 0% 5% 875,000 1,625,000 2,500,000 843,250 3.15% 7.28% 1,935
2 0% 8% 918,750 1,641,250 2,560,000 863,488 7.09% 8.17% 5,004
3 10% 10% 964,688 1,657,663 2,622,350 884,519 18.46% 11.50% 18,780
4 15% 13% 1,012,922 1,674,239 2,687,161 906,379 22.49% 14.68% 29,917
5 20% 15% 1,063,568 1,690,982 2,754,549 929,110 23.99% 17.63% 39,304
6 20% 18% 1,116,746 1,707,891 2,824,638 952,750 32.98% 21.37% 67,156
7 20% 20% 1,172,584 1,724,970 2,897,554 977,345 33.98% 27.66% 91,865
726 726 2,661 0 2,661 $41.99 $30.21 133 $106,149.62 $85,972.75
1,876 1,876 6,880 0 6,880 $41.99 $30.21 516 $267,225.77 $229,503.45
7,042 7,042 25,822 2,582 23,240 $41.99 $30.21 2,324 $878,259.33 $799,630.20
11,219 11,219 41,136 6,170 34,966 $39.89 $28.70 4,371 $1,220,450.07 $1,177,803.30
14,739 14,739 54,043 10,809 43,235 $37.90 $27.26 6,485 $1,392,658.54 $1,424,484.00
25,183 25,183 92,339 18,468 73,871 $36.00 $25.90 12,927 $2,194,049.90 $2,378,681.09
34,449 34,449 126,314 25,263 101,052 $34.20 $24.61 20,210 $2,764,861.56 $3,177,601.69
1,471 279,456 281,391 0 281,391 $3.65 $2.70 14,070 $975,724 $774,113 $1,081,874 $860,085 $482,761 $377,324
3,803 722,529 727,533 0 727,533 $3.65 $2.70 54,565 $2,456,332 $2,018,667 $2,723,558 $2,248,171 $1,222,252 $1,025,918
14,273 2,711,792 2,730,572 273,057 2,457,515 $3.65 $2.70 245,751 $8,072,935 $6,876,945 $8,951,195 $7,676,575 $4,106,907 $3,569,668
22,737 4,320,043 4,349,960 652,494 3,697,466 $3.61 $2.68 462,183 $11,690,694 $10,329,873 $12,911,144 $11,507,676 $6,125,518 $5,382,158
29,871 5,675,539 5,714,844 1,142,969 4,571,875 $3.58 $2.65 685,781 $13,901,976 $12,751,050 $15,294,634 $14,175,534 $7,571,438 $6,604,095
51,038 9,697,290 9,764,445 1,952,889 7,811,556 $3.54 $2.62 1,367,022 $22,823,906 $21,748,031 $25,017,956 $24,126,713 $13,043,251 $11,083,461
69,817 13,265,316 13,357,182 2,671,436 10,685,745 $3.51 $2.60 2,137,149 $29,972,878 $29,695,351 $32,737,740 $32,872,953 $18,172,849 $14,700,104
Marketing Appendices 83
MK Appendix 9: Online Rebate
MK Appendix 10: Introductory Advertisement
Marketing Ap ppendices 84
M MK Appendix x 11: Web Com mmercial Sto oryboards & SSnapshots
T TARGET: Pa arents of Pe eanutAllerrgic Childre en and Tee ens
* * Image cred dits: Getty Im mages T TARGET: Fe emale 18+
TARGE ET: Male 18 8+
Marketing Appendices 85
MK Appendix 12: Magazine Advertisements
* Image Credits: “Boys on a Tree” via LaSalle Council Boy Scouts of America
* Image Credits: “Cookies for Santa” via Microsoft Clipart
Op perations Management Ap ppendices 8 86
O Operations s Managem ment Appe endices O OM Appendix x 1: House of Quality
Relationship Legend 9
Strongg
P
Peanut De.
3
Medium
B
Benadryl
1
Weak
E
EpiPeen
Custtomer Perception 1 = worst 5 = best
1 2 3 3 4 5 Extremely High Accuracy
9
9
Quick Respon nse Time
8
9
1
1
3
Tests Large V Variety of Foods
7
9
3
3
9
Easy to Use
6
1
Safe for Child dren
5
3
Portable
4
9
Residue No Leftover R
3
Easily Dispossable Tips
2
Long Productt Lifetime
1
Importance W Weighing Numb ber
9
B
1
9
9
9
9
Target Value
98 5” 1.5
E
E E
9
B
P
B
E, P P
9
83
204
.5”
ABS
P
B, P
3 P
3 222
9
9
3
3
B
P
1
9
E, P
60 3”
3
1
1
39
108
55
.6”
Red, R Grreen
1
E, P
B
O OM Appendix x 2: Organizattional Chart ((Year 1) Pre esident $ $70K
Sales Rep. $45K
Science e Technolo ogy Consultant
Acco ountant
OM Manager
IS Managerr
$1 16/hr.
$55K
$60K
$35/hr..
Machinistt $15/hr.
Assem mbly Lin ne $12.50/hr.
Jaanitor $18K
Customer C Service
Quality Technician n
$ $16.50/hr.
$15/hr.
Operations Management Appendices 87
OM Appendix 3: Supplier Information
Cartridge
Holder
Component
Supplier
Location
Plastic Shell
DA Pro Rubber
Newburyport, MA
Circuit Board
Holtek Semiconductor
Davenport, FL
Optic Sensor
Holtek Semiconductor
Davenport, FL
Battery
Dantona Battery
Wantagh, NY
Packaging
Multi Packaging Solutions
Louisville, KY
Metal Mesh
Sunny Metal Inc
Fairborn, OH
Shell/Window
DA Pro Rubber
Newburyport, MA
Antibody
AbD Serotec
Raleigh, NC
Enzyme
R&D Systems
Minneapolis, MN
Substrate
AbD Serotec
Raleigh, NC
Buffer
Fisher Chemicals
Agawam, MA
Spring
Murphy and Spring
Palmyra, NJ
Pin
W.H. Bagshaw
Nashua, NH
O‐Ring
Apple Rubber Products
Lancaster, NY
Packaging
Multi Packaging Solutions
Louisville, KY
OM Appendix 4: Component Price Breaks Holder Component
Unit Cost (0‐100K)
Unit Cost (100‐250K)
Unit Cost (250K+)
Plastic Shell
$0.5670
$0.5470
$0.5270
Circuit Board
$0.8793
$0.8793
$0.8793
Battery
$0.4000
$0.4000
$0.4000
Packaging
$0.0700
$0.0650
$0.0600
Unit Cost (0‐100K)
Unit Cost (100‐250K)
Unit Cost (250K +)
Metal Mesh
$0.0019
$0.0019
$0.0019
Cotton Strip
$0.0025
$0.0025
$0.0025
Plastic Shell
$0.2406
$0.2106
$0.1906
Antibody
$0.8000
$0.8000
$0.8000
Enzyme
$0.2100
$0.2100
$0.2100
Substrate
$0.2400
$0.2400
$0.2400
Buffer
$0.0100
$0.0100
$0.0100
Spring
$0.0500
$0.0450
$0.0400
Pin
$0.0050
$0.0050
$0.0050
O‐Ring
$0.1200
$0.1200
$0.1150
Packaging
$0.0050
$0.0044
$0.0038
Cartridge Component
Operations Management Appendices 88
OM Appendix 5: Economic Order Quantities
Holder
EOQ1
EOQ2
EOQ3
EOQ4
EOQ5
EOQ6
EOQ7
Plastic Shell
249
401
736
903
1,004
1,313
1,536
Circuit Board
249
401
736
903
1,004
1,313
1,536
Battery
249
401
736
903
1,004
1,313
1,536
Packaging
249
401
736
903
1,004
1,313
1,536
Cartridge
EOQ1
EOQ2
EOQ3
EOQ4
EOQ5
EOQ6
EOQ7
Metal Mesh
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Cotton Strip
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Plastic Shell
18,830
100,000
250,000
250,000
250,000
250,000
250,000
Antibody
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Enzyme
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Substrate
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Buffer
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Spring
18,830
30,277
100,000
250,000
250,000
250,000
250,000
Pin
18,830
30,277
55,646
68,255
75,898
99,210
116,035
O‐Ring
18,830
30,277
55,646
68,255
75,898
99,210
250,000
Packaging
9,415
15,138
27,823
100,000
100,000
100,000
100,000
Information Systems Appendices 89
Information Systems Appendices IS Appendix 1: Preliminary Operations/Manufacturing ERD
Data Dictionary Excerpt Production Batch – one batch of product • Type – holder, cartridge • Status – work in process, finished inventory, sold Equipment – one production machine • Type – type and function of machine • Location – where it is in the plant • Training Required – level of employee training required IS Appendix 2: Preliminary Data Flow Diagram
Information Systems Appendices 90
IS Appendix 3: Microsoft Dynamics GP Resources
Desired Report Samples
Dynamics GP Screenshot (note the MS Outlook similarity)
Information Systems Appendices 91
Dynamics GP Inventory Report (continued previous Appendix)
…
IS Appendix 4: peanutallergy.com Screenshots
Informatio on Systems Ap ppendices 92
IS Appendix 5 5: Website De etails Note: the web N bsite may currently be v visited at http p://peanut.nurik.net. Thee f final web add dresses of thee website will b be www.bsur redd.com, w www.bsurecfp fpa.org, and w www.peanutd detective.com m.
Home (News & & DocBlog) BSure Prroducts ¾ Pean nut Detective What is it? W How does it w H work? ¾ Refilll Cartridgess Online Store ¾ Indiv vidual Itemss ¾ Subscriptions My Account ¾ My Subscription ns ¾ Favorites ¾ My Story (Profile) Commun nity ¾ Forums ¾ Stories, etc. Resources ¾ Inforrmation What is pean W nut allergy? Other guides O s & links ¾ Copin ng Methodss Products P Techniques T
Information Systems Appendices 93
IS Appendix 6: Information System Cost Schedule (w/o IS Manager Salary)
Year 0
Core Software
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Microsoft Dynamics GP
$23,000
$5,658
$5,187
$6,601
$8,016
$9,430
$11,788
$14,145
JourneyTEAM Markup
$17,250
$4,244
$3,890
$4,951
$6,012
$7,073
$8,841
$10,609
$2,505
$1,209
$1,047
$1,209
$1,371
$1,371
$1,695
$1,695
SQL Server 2005 Standard Ed. Core Hardware
Dell PowerEdge 2900
$5,900
‐
‐
$15,000
‐
$25,000
‐
$7,500
Dell PowerEdge SC1430
$2,900
‐
‐
‐
‐
$1,000
‐
‐
Dell Optiplex 320 Desktop
$6,300
$1,800
$900
$1,800
$2,700
$2,700
$4,500
$4,500
Dell Latitude D620 Notebook
$4,500
$1,500
‐
$1,500
$1,500
$1,500
$4,500
$4,500
Support Hardware
Barcode Scanner
$800
$320
$160
$320
$320
$320
$320
$320
$2,000
‐
‐
‐
‐
‐
‐
‐
Linksys 10/100 16‐Port VPN Router
$435
$435
$435
$435
$435
$435
$435
$435
300’ Belkin CAT5e Network Cable
$250
$150
$100
$150
$150
$150
$150
$150
50’ Belkin CAT5e Network Cable
$200
$75
$50
$75
$75
$75
$75
$75
APC Smart‐UPS 750VA
$832
$416
$416
$416
$416
$416
$416
$416
Samsung ML‐2510 Printer
$130
‐
‐
‐
‐
‐
‐
‐
Xerox Phaser Color Multifunction
$500
$500
$500
$500
$500
$500
$500
$500
Carroll Partner Phone System
Support Software
Exchange Server 2007
$1,369
$134
$67
$134
$201
$201
$335
$335
Adobe CS3 Web Premium
$1,799
‐
‐
‐
‐
‐
‐
‐
Mathematica 5.2
$1,880
‐
‐
‐
‐
‐
‐
‐
Services & Resources Website & Online Store Dev.
$2,500
‐
‐
‐
‐
‐
‐
‐
BellSouth (AT&T) DSL Internet
$660
$1,320
$1,320
$1,320
$1,320
$1,320
$1,320
$1,320
BellSouth (AT&T) Local Phone
$300
$600
$600
$600
$600
$600
$600
$600
BellSouth (AT&T) Long Distance
$5,424
$10,848
$10,848
$10,848
$10,848
$10,848
$10,848
$10,848
ASPwebhosting.com
$1,750
$3,100
$3,100
$3,100
$3,100
$3,100
$3,100
$3,100
LiveVault data backup
$1,200
$2,400
$2,400
$2,400
$2,400
$2,400
$2,400
$2,400
Website Maintenance
$1,800
$6,000
$6,000
$6,000
$6,000
$6,000
$6,000
$6,000
$86,184
$40,709
$37,019
$57,359
$45,963
$74,439
$57,822
$69,448
Total
Finance Appendices 94
Finance Appendices FE Appendix 1: Cash Flows & Returns
Year 0
Year 1
Year 2
Initial Investment in Fixed Assets
($127,459)
Net Income
($371,005) ($747,562) ($428,228)
+ Depreciation
$0
‐ ∆ Net Wkng. Cap.
($50,000)
‐ ∆ Fixed Assets Net Cash Flow
$18,208
Year 5
Year 6
Year 7
$4,475,583
$6,463,256
$71,429
$118,208
$806,233 $1,667,707 $2,162,703
$18,208
$32,494
$46,780
($54,076) ($218,638)
($702,539)
($277,484)
($358,284) ($1,018,282) ($1,076,923)
($100,000)
($100,000)
($100,000)
($200,000)
($200,000)
$36,188 $1,337,002 $1,765,484
$3,328,730
$5,304,541
$0
$0
($421,005) ($783,430) ($628,658)
Terminal Value of Business Growth rate of ‐10%
NPV
IRR
Project
$4,730,587
61.33%
Investors
$2,601,720
54.76%
Friends, Family and Mgmt
$2,128,867
76.26%
$61,066
Year 4
$0
Returns
Year 3
$15,155,832
Finance Appendices 95
FE Appendix 2: Income Statement
Year 0
Total Units For Holder
Year 1
Year 3
Year 4
Year 5
Year 6
Year 7
2,661
6,880
23,239
34,965
43,234
73,871
101,051
30.21
30.21
30.21
28.70
27.26
25.90
24.61
41.99
41.99
41.99
39.89
37.90
36.00
34.20
8.61
8.66
8.75
8.80
8.85
8.88
8.91
$81,953
$213,916
$729,426
$1,052,372
$1,247,676
$2,043,858
$2,680,324
281,391
727,533
2,457,515
3,697,466
4,571,875
7,811,556
10,685,745
2.70
2.70
2.70
2.68
2.65
2.62
2.60
3.65
3.65
3.65
3.61
3.58
3.54
3.51
1.63
1.63
1.64
1.65
1.65
1.65
1.65
$774,113
$2,018,667
$6,876,945 $10,329,873 $12,751,050 $21,748,031 $29,695,351
$0
$856,066
$2,232,583
$7,606,370 $11,382,244 $13,998,725 $23,791,889 $32,375,676
Variable Cost (Holder)
0
22,924
59,600
203,311
307,676
382,715
656,079
900,622
Variable Cost (Cartri.)
0
459,020
1,187,952
4,039,053
6,083,286
7,529,966
12,879,988
17,639,118
86,005
162,782
168,056
173,501
179,122
184,926
190,917
197,103
86,005.00
644,726
1,415,608
4,415,865
6,570,084
8,097,607
13,726,984
18,736,843
211,340
816,975
3,190,505
4,812,160
5,901,119
10,064,905
13,638,833
Price Per Holder Internet
0
Year 2
Variable Cost (Holder) Total Holder Sales
8.88
Total Units For Cartri. Price Per Cartridge Internet
0
Variable Cost (Cartri.) Total Cartridge Sales
1.70
Total Sales
Fixed Mfg. Costs Total COGS Gross Profit
Start‐Up Costs
371,005
Fixed Admin. Costs
546,764
766,455
926,683
1,137,648
1,213,597
1,425,723
1,550,531
Marketing Costs
393,930
460,540
887,607
848,221
1,021,951
1,108,448
1,198,000
Depreciation
18,208
18,208
32,494
46,780
61,066
71,429
118,208
(371,005)
(747,562)
(428,228)
1,343,722
2,779,511
3,604,505
7,459,305
10,772,094
0.0
0.0
0.0
537,489
1,111,804
1,441,802
2,983,722
4,308,837
($371,005)
($747,562)
($428,228)
$806,233
$1,667,706
$2,162,703
$4,475,583
$6,463,256
Earnings Before Tax Taxes Net Income Other Ratios
COGS % of Sales
75%
63%
58%
64%
64%
63%
63%
Gross Margin
25%
37%
42%
47%
46%
46%
46%
Profit Margin
‐87.3%
‐19.2%
10.6%
16.1%
17.0%
20.6%
21.8%
Finance Appendices 96
FE Appendix 3: Balance Sheet
Year 0
Minimum Cash Balance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
50,000
59,925
156,281
532,446
723,091
892,573
1,522,362
2,078,675
Accounts Receivable
0
93,815
244,667
833,575
1,132,041
1,397,375
2,383,346
3,254,285
Raw Materials Inventory
0
10,162
52,346
65,230
51,634
115,754
36,088
147,100
Finished Goods Inventory
0
1,997
5,163
17,442
25,979
31,802
53,794
72,851
Current Assets
50,000
165,899
458,457
1,448,692
1,932,745
2,437,504
3,995,590
5,552,911
Gross Fixed Assets
127,459
127,459
127,459
227,459
327,459
427,459
627,459
827,459
0
18,208
36,417
68,911
115,691
176,756
248,185
366,393
127,459
109,251
91,042
158,548
211,768
250,703
379,274
461,066
$177,459
$275,150
0
61,363
135,268
422,949
629,502
775,960
1,315,746
1,796,126
0
61,363
135,268
422,949
629,502
775,960
1,315,746
1,796,126
Depreciation Net Fixed Assets Total Assets Accounts Payable Current Liabilities
$549,499 $1,607,240 $2,144,514 $2,688,207 $4,374,864 $6,013,976
Paid in Capital
$542,784 $1,321,874 $1,945,591 $1,945,591 $1,945,591 $1,945,591 $1,945,591 $1,945,591
Retained Earnings
(365,325) (1,108,087) (1,531,360)
Dividends (Cumulative) Total Equity Total Liabilities and Equity Net Working Capital Balance
317,395
1,734,765
4,987,411
9,845,960
0
0
0
39,242
747,975
1,768,109
3,873,885
7,573,701
177,459
213,787
414,231
1,184,292
1,515,012
1,912,247
3,059,117
4,217,850
$177,459
$275,150
50,000
104,536
(722,057)
$549,499 $1,607,240 $2,144,514 $2,688,207 $4,374,864 $6,013,976 323,189
1,025,744
1,303,244
1,661,544
2,679,843
3,756,784
List of Sources Used “Allergic Reactions & Anaphylaxis Allergy." EpiPen. Merck & Co. 1 Apr. 2007. “Barcode Scanners." BizRate. 04 Apr. 2007 . “Benadryl." Benadryl. Pfizer. 1 Apr. 2007 . Best of Breed Vs. Integrated Systems. 2 April 2007 . Boys on a tree. LaSalle Council Boy Scouts of America. 2 April 2007. “Calamine Lotion Information." Drugs.Com. 1 Nov. 2002. 1 Apr. 2007 . “Clear Blue ‐‐ How Pregnancy Tests Work." Clearblue. “Consumer, Media, and Market Research." Mintel. 14 Apr. 2007 . Eastern Allergy Conference. American Academy of Allergy, Asthma & Immunology. 25 Mar 2007. “Emerging Ethnic Foods." Mintel Reports. Mintel, 2002. 1 Apr. 2007. “Food allergy information.” Food Allergy Initiative, Food Allergy Initiative (FAI)., 1970. 11 Apr. 2007. http://www.foodallergyinitiative.org/section_home.cfm?section_id=3 “Food allergy." MedicineNet. MedicineNet Inc., 2001. Answers.com 11 Apr. 2007. Error! Hyperlink reference not valid. “Food Allergy." Wikipedia. 6 Apr. 2007. 22 Mar. 2007
FeedBurner Homepage. 4 April 2007. Figures and Reports. Roche. Annual report, 2006. 10 Apr. 2007 . FIME International Medical Exposition, Inc. 25 Mar 2007. GettyImages.2April2007. “Google Maps." Map. http://maps.google.com/maps?hl=en&tab=wl&q=. Google. 12 Apr. 2007 . Google Analytics Homepage. 23 March 2007 . Google Technology. 25 March 2007 . Homepage. Website, Long Island. Peanut Allergy. 15 Mar. 2007 . “In Vitro Diagnostic Substance Manufacuring." 2002 NAICS Definitions. 5 May 2003. U.S. Census Bureau. 1 Apr. 2007 . “Industrial Distribution Center." Map. LoopNet. Commercial Real Estate Online. 12 Apr. 2007 JourneyTEAM Homepage. 5 April 2007 . Kerin, Roger A, Steven W. Hardley, William Rudelius. Marketing The Core. 2. New York, McGraw‐Hill. 2007 p.215.
Lack, Gideon, Debrorah Fox, Kate Northstone, and Jean Golding. Factors Associated with the Development. Avon Longitudinal Study of Parents and Children Study Team. New England School of Medicine, 2003. Leung, Donald, Hugh Sampson, John Yunginger, Wesley Burks, and Lynda Schneider. Effect of Anti‐ IgE Therapy in Patients. TNX‐901 Peanut Allergy Study Group. New England School of Medicine, 2007. Long, Aiden. "The Nuts and Bolts of Peanut Allergy." New England Journal of Medicine 346 (2002). 03 Mar. 2007. “Map of Peanut Allergy Meetups." Meetups. 12 Feb. 2007. Marquez, Rachelle C. "Home Self‐Testing Market Grows as Medial Costs Rise." The Business Journal 15 (1997): 6.Marquez, Rachelle. “Home Self‐Testing Market Grows as Medical Costs Rise.” Business Journal. 1997 p Medical Design and Manufacturing. MD&M East. 25 Mar 2007 Merz, Beverly. "Studying Peanut Anaphylaxis." The New England Journal of Medicine 348 (2003). Merz, Beverly. "Studying Peanut Anaphylaxis." The New England Journal of Medicine 348 (2003):975‐976. Metzger, Henry. Two Approaches to Peanut Allergy. Massachusetts Medical Society. New England Journal of Medicine, 2003. Microsoft Dynamics GP for construction companies. 9 April 2007 m/dynamics/gp/product/construction.mspx>.
Nicolas, Nathalie, Joyce W. Yu, Ann Clarke, Rhonda Kagan, Nina Verrault, Lawrence Joseph, and Yvan St. Pierre. "Accidental Ingestions in Children with Peanut Allergy." The Journal of Allergy and Clinical Immunology 118 (2006): 471. “Nut Allergy ‐ the Basics." Asthma & Allergy Information & Research. 04 May 2003. 20 Mar. 2007. Partner Phone System. Carroll Communications Inc. 05 Apr. 2007 . “Peanut Allergy, the shocking facts.” MecicineNet, MedicineNet Inc., 2002. “Peanut Allergy: the Facts in a "Nutshell !"" Allergy Escape. 27 Jan. 2007 . “Peanut Allergy” Mayo Clinic, 2006. Mayoclinic.com 11 Apr. 2007. http://www.mayoclinic.com/health/peanut‐allergy/DS00710
Peanut Allergy Survey. WebSurveyor.< http://desktop.vovici.com/Default.aspx> PeanutAllergyResource.com 11 Apr. 2007. http://www.medicinenet.com/script/main/art.asp?articleke y=15618 Pearce, Lynn, ed. "In Vitro and in Vivo Diagnostic Substances." Encyclopedia of American Industries. 4th ed. 2 vols. Thomas Gale, 2005. Perry, Tamara, Mary Kay Conover‐Walker, Anna Pome´ S, Martin Chapman, and Robert Wood. "Distribution of Peanut Allergen in the Environment." J Allergy Clin Immunol 113 (2004). Pollack, Andrew. "Wrangling May Delay Peanut Allergy Drug." The New York Times 13 Mar. 2003, Late ed., sec. C: 1. Pomes, A, R Vinton, and M.d. Chapman. "Peanut Allergen (Ara H 1) Detection in Food Containing Chocolate." Journal of Food Protection 67 (2004): 793‐798. Pomes, Anna, Ricki M. Helm, Gary A. Bannon, Wesley A. Burks, Amy Tsay, and Martin Chapman. "Monitoring Peanut Allergens in Food Products by Measuring Ara H 1." Journal of Allergy and Clinical Immunology 111 (2003): 640‐645. Remer, Candace, and Michael Kaplan. "The US Peanut and Tree Nut Allergy Registry: Characteristics of Reactions in Schools and Daycare." Official Journal of the American Academy of Pediatrics (2002). Sampson, Hugh. "Peanut Allergy." The New England Journal of Medicine 346 (2002). SAP All‐in‐One vs. MS Dynamics. 22 November 2005. 7 April 2007. SAP Business One vs Microsoft Dynamics GP ‐ Highlights for Consultant. 3 April 2007 . Schrieber, Barbara. Personal interview. 17 Jan. 2007. “Self Diagnostic." Mintel Reports (2004). 1 Apr. 2007. “Shrink Wrap Systems." Advertisement. 13 Apr. 2007 Error! Hyperlink reference not valid. Sicherer, Scott, Anne Muñoz‐Furlong, A Burks, and Hugh Sampson. "Prevalence of Peanut and Tree Nut Allergy in the US Determined by a Random Digit Dial Telephone Survey." J Allergy Clin Immunol 103 (1999). Sicherer, Scott, Anne Muñoz‐Furlong, and Hugh Sampson. "Prevalence of Peanut and Tree Nut Allergy in the United States Determined by Means of a Random Digit Dial Telephone Survey: a 5‐Year Follow‐Up Study." J Allergy Clin Immunol 112 (2003).
Solutions Directory. 12 April 2007. Stevenson, Willam. Operations Management. 8. USA: McGraw Hill, 2005. Pg 700 System requirements for Microsoft Dynamics GP 9.0. 12 April 2007 . The Value Chain. 2006. 11 April 2007 . “Turnkey Assembly." Advertisement. 15 Mar. 2007 . United States. Department of Health and Human Services. Food and Drug Administration. Medical Device User Fees. . United States. Food and Drug Administration. Buildings and Environment. 1 Jan. 1997. 07 Feb. 2007 . United States. United States Food and Drug Administration. CBER Guidances / Guidelines / Points to Consider. 2007. 10 Apr. 2007 . United States. United States Patent and Trademark Office. FY 2007 Fee Schedule. 08 Dec. 2004. 30 Mar. 2007 . Vista Print. 25 Mar. 2007
A device that detects peanut traces in foods, helping those with peanut allergies avoid potentially deadly allergic reactions.
SM 323 Spring 2007 Section X4 Team 2 PTA: Professor Donald Santini April 17, 2007
This business plan is the original work of the undersigned. All facts and figures are authentic. All contributions from others have been appropriately acknowledged.
Frederick Hoang
Leora Kadisha
Alejandro Moreno‐Paz
Roman Nurik
Salonie Patel
Ryan Shore
Danielle Varney
Table of Contents Executive Summary .............................................................................................................................. 1 Product Need ......................................................................................................................................................... 1 Product Description ............................................................................................................................................ 1 Marketing ................................................................................................................................................................ 1 Operations ............................................................................................................................................................... 2 Information Systems .......................................................................................................................................... 2 Finance...................................................................................................................................................................... 2 Introduction ............................................................................................................................................ 3 Food Allergies ........................................................................................................................................................ 3 Peanut Allergies .................................................................................................................................................... 3 BSure Diagnostic Devices, Inc. .......................................................................................................... 4 Organizational Goal ............................................................................................................................................. 4 The BSure Peanut Detective ............................................................................................................................ 4 Revenue Sources .................................................................................................................................................. 6 Critical Success Factors ..................................................................................................................................... 6 Industry, Trends and Competitive Analysis ................................................................................ 8 Industry .................................................................................................................................................................... 8 Competitive Environment ................................................................................................................................ 9 Positioning the Peanut Detective ............................................................................................................... 11 Competitor Response ...................................................................................................................................... 12 Marketing Plan ..................................................................................................................................... 14 Communication Objectives ........................................................................................................................... 14 Segment Analysis .............................................................................................................................................. 14 Promotional Plan ............................................................................................................................................... 16 Push Strategies ................................................................................................................................................... 17 Pull Strategies ..................................................................................................................................................... 18 Advertisement Design ..................................................................................................................................... 20 Distribution ......................................................................................................................................................... 21 Pricing Strategy .................................................................................................................................................. 23 Sales Projection .................................................................................................................................................. 25 Operations & Manufacturing Plan ................................................................................................. 27 Product Design ................................................................................................................................................... 27 Patent Information ........................................................................................................................................... 29 Plant Characteristics ........................................................................................................................................ 30 Management Level Employees .................................................................................................................... 32 Supply Chain ........................................................................................................................................................ 32 Direct Sales .......................................................................................................................................................... 41
Situational Analysis .......................................................................................................................................... 42 Continued Development ................................................................................................................................ 43 Information Systems Plan ................................................................................................................ 44 Plan Overview ..................................................................................................................................................... 44 Achieving Critical Success Factors ............................................................................................................. 45 Value‐Adding Activities .................................................................................................................................. 46 Core Application Software ............................................................................................................................ 47 Web Strategy ....................................................................................................................................................... 49 Supporting the Business Model .................................................................................................................. 52 Hardware and Telecommunications ........................................................................................................ 53 Data Security ....................................................................................................................................................... 54 Personnel .............................................................................................................................................................. 55 Implementation Schedule ............................................................................................................................. 55 Costs ........................................................................................................................................................................ 56 Summary ............................................................................................................................................................... 57 Financial Analysis & Plan ................................................................................................................. 58 Internal Rate of Return & Net Present Value ........................................................................................ 58 Investment ........................................................................................................................................................... 58 Cash Flows ........................................................................................................................................................... 60 Ratios Analysis ................................................................................................................................................... 62 Risks ........................................................................................................................................................................ 63 Scenarios ............................................................................................................................................................... 65 Why Invest? ........................................................................................................................................... 68 Beyond Year Seven ........................................................................................................................................... 68 Conclusion ............................................................................................................................................................ 68
Table of Exhibits General Exhibit 1: Product Image ..................................................................................................................... 4 General Exhibit 2: Competitive Products .................................................................................................... 10 General Exhibit 3: Product Positioning A .................................................................................................... 11 General Exhibit 4: Product Positioning B .................................................................................................... 12 MK Exhibit 1: Segment Psychographics (Children & Teen Segment Separated) ....................... 15 MK Exhibit 2: Promotional Plan (Year 1) .................................................................................................... 17 MK Exhibit 3: Product Packaging ................................................................................................................... 21 MK Exhibit 4: Holder Purchase Intents ........................................................................................................ 23 MK Exhibit 5: Cartridge Purchase Intents .................................................................................................. 23 MK Exhibit 6: Holder Price Points .................................................................................................................. 24 MK Exhibit 7: Cartridge Price Points ............................................................................................................ 24 MK Exhibit 8: Product Lifecycle ...................................................................................................................... 24
MK Exhibit 9: BASES Sales Forecast .............................................................................................................. 25 OM Exhibit 1: Consumer Attribute Importance Preferences ............................................................. 27 OM Exhibit 2: Distributor Locations ............................................................................................................. 30 OM Exhibit 3: Factory Layout ........................................................................................................................... 31 OM Exhibit 4: Supply Chain Diagram ............................................................................................................ 33 OM Exhibit 5: Supplier Map .............................................................................................................................. 33 OM Exhibit 6: Holder Lead Times ................................................................................................................... 35 OM Exhibit 7: Cartridge Lead Times ............................................................................................................. 36 OM Exhibit 8: Holder Process Time ............................................................................................................... 36 OM Exhibit 9: Cartridge Process Time ......................................................................................................... 38 IS Exhibit 1: Information Systems Plan Summary .................................................................................. 44 IS Exhibit 2: Information Systems Value Chain ........................................................................................ 46 IS Exhibit 3: Implementation Schedule ........................................................................................................ 56 IS Exhibit 4: Pre‐launch IS Costs (w/o $60K in Salaries) ..................................................................... 56 FE Exhibit 1: IRR & NPV ...................................................................................................................................... 58 FE Exhibit 2: Contribution & Ownership..................................................................................................... 59 FE Exhibit 3: Contribution Details ................................................................................................................. 59 FE Exhibit 4: Cash Flows (years 0‐7) (data table values in thousands) ........................................ 60 FE Exhibit 5: Summarized Income Statement........................................................................................... 61 FE Exhibit 6: Breakeven for Cartridges ....................................................................................................... 61 FE Exhibit 7: Company & Industry Ratios .................................................................................................. 62 FE Exhibit 8: Sensitivity Analysis ................................................................................................................... 64 FE Exhibit 9: IRR & NPV for Optimistic, Base, and Pessimistic Cases ............................................. 65 FE Exhibit 10: IRR & NPV for Investors (Opt./Base/Pess.) ................................................................. 66 FE Exhibit 11: Cash Flows for Optimistic, Base and Pessimistic ....................................................... 67
Table of Appendices General Appendices ........................................................................................................................... 69 General Appendix 1: External Product Design ..................................................................................... 69 General Appendix 2: Internal Product Design ...................................................................................... 70 Marketing Appendices ...................................................................................................................... 73 MK Appendix 1: Segmentation Tree ......................................................................................................... 73 MK Appendix 2: Press Release .................................................................................................................... 73 MK Appendix 3: Instruction Manual Contents ..................................................................................... 74 MK Appendix 4: Survey & Result Summary .......................................................................................... 76 MK Appendix 5: Online Post‐Purchase Survey .................................................................................... 79 MK Appendix 6: Focus Group Summary ................................................................................................. 80 MK Appendix 7: Marketing Budget Expenses ....................................................................................... 81 MK Appendix 8: Base Case Sales Forecast ............................................................................................. 82
MK Appendix 9: Online Rebate ................................................................................................................... 83 MK Appendix 10: Introductory Advertisement ................................................................................... 83 MK Appendix 11: Web Commercial Storyboards & Snapshots ..................................................... 84 MK Appendix 12: Magazine Advertisements ........................................................................................ 85 Operations Management Appendices .......................................................................................... 86 OM Appendix 1: House of Quality .............................................................................................................. 86 OM Appendix 2: Organizational Chart (Year 1) ................................................................................... 86 OM Appendix 3: Supplier Information ..................................................................................................... 87 OM Appendix 4: Component Price Breaks ............................................................................................. 87 OM Appendix 5: Economic Order Quantities ........................................................................................ 88 Information Systems Appendices .................................................................................................. 89 IS Appendix 1: Preliminary Operations/Manufacturing ERD ....................................................... 89 IS Appendix 2: Preliminary Data Flow Diagram .................................................................................. 89 IS Appendix 3: Microsoft Dynamics GP Resources ............................................................................. 90 IS Appendix 4: peanutallergy.com Screenshots ................................................................................... 91 IS Appendix 5: Website Details ................................................................................................................... 92 IS Appendix 6: Information System Cost Schedule (w/o IS Manager Salary) ........................ 93 Finance Appendices ............................................................................................................................ 94 FE Appendix 1: Cash Flows & Returns ..................................................................................................... 94 FE Appendix 2: Income Statement ............................................................................................................ 95 FE Appendix 3: Balance Sheet ..................................................................................................................... 96
Executive Summary 1
Executive Summary Product Need Currently, the three million people who are diagnosed with peanut allergies have no means of detecting peanuts in their food. They must rely on incomplete nutrition labels and other inaccurate means to decide if there are peanut traces in foods. The Peanut Detective will fulfill this need for a diagnostic device by accurately and quickly informing the consumer of peanut contents within a food item.
Product Description The Peanut Detective, which will be slightly larger than a USB flash drive, is comprised of two components, a holder and a cartridge. The holder will contain the electronics of the device, including the LED lighting, which will illuminate green if the food is safe to eat and red if the food contains peanut traces. The cartridge, which will be one time use only, will contain the chemicals necessary for the device to work. The chemicals will be contaminated after each usage, which warrants the one time use.
Marketing The Peanut Detective is targeted towards children and teens, ages 2‐17, and adults 18 and older. These two markets are made up of 2.5 million people, whose reactions to peanut ingestion lead to hives, vomiting, and anaphylaxis. Marketing towards the first segment will target parents and guardians, for they will be the buyers. These advertisements will appeal towards a mother’s maternal instincts. Advertisements targeting the adult segment will be more light hearted, portraying slightly comical situations. The Peanut Detective will be distributed through major drug stores including CVS, Walgreens, and Rite Aid. Consumers will also be able to purchase the Peanut Detective online (www.bsuredd.com), where a subscription plan can be set up and customized to the consumers’ needs. The holder will sell for $41.99, assuming a 39% retailer markup. The cartridge will sell in boxes of 16, for $58.40, and boxes of eight for $29.20, assuming a 35% retailer markup. $8 rebates will be included with the larger cartridge boxes, and can be redeemed at the BSure website.
Executive Summary 2
Operations All thirteen components needed for production will be purchased from suppliers. However, none of the production process will be outsourced. The variable costs per cartridge unit are $1.68 in year 1, where price breaks will not be available. Eventually, cartridge price will drop to $1.62 per unit due to price breaks. The holder will cost $1.92 to produce in year 1, dropping to $1.87 once demand enables price breaks on plastics and packaging. Labor costs are minimized through the usage of part time labor. Machines, needed for cartridge production, will cost $100K; one machine will be necessary in year 1 and eight machines in year 7. BSure will use a chase strategy to keep inventory levels low, necessitated by expiration dates on the cartridge and holder, which limit the amount of time each unit can spend in finished goods holding.
Information Systems Information systems will be used in order to achieve the following three critical success factors: exceptional product reliability, rapid customer base expansion, and secure intellectual capital management. IS will also integrate and monitor all aspects of inventory management in order to keep inventory levels low and track quality throughout the production process. A web site will be set up where consumers can learn about peanut allergies as well as purchase the Peanut Detective.
Finance BSure will provide investors with a rate of return of 55% and a net present value of $2.6 million. Within four years, investors will recover their initial investments and receive increasing cash flows through year 7. To achieve these cash flows, investments of $1.4 million are needed from investors over a three year period. By the end of year 7, 286K holders and over 30 million cartridges will have been sold. After year 7, with a terminal value of $15 million dollars, BSure will explore the option of expansion into diagnostic devices for other food allergies such as tree nuts and egg, which are two of the more prominent food allergies.
Introduction
Introduction 3
Introduction Food Allergies Food allergies are irregular responses to food that are triggered by a reaction in the immune system.1 They are characterized by symptoms ranging from hives to anaphylaxis, which is a severe respiratory reaction involving the closing of the throat. According to the Food Allergies Initiative, over 11 million people in the United States are affected by some form of food allergy, and that number is growing.2
Peanut Allergies Peanut allergies are characterized by reactions to peanuts or peanut bi‐products. They are the most common form of food allergies in the United States—of the 11 million food allergy sufferers, an estimated three million people are diagnosed with peanut allergies.3 The biggest concern with this allergy is the severity of its reactions: “As the most common cause of life‐threatening allergic reactions, peanut allergies account for 80 percent of fatal or near‐fatal allergic reactions each year.”4 At this time, peanut allergy sufferers have unreliable ways to prevent these potentially deadly allergic reactions. There are no preventative medications or devices currently available on the market. Reactionary medications currently available include Merck’s EpiPen, Pfizer’s Benadryl, and calamine lotion (see Competitive Environment for further information). Other alternative methods include examining food labels for packaged foods, asking restaurant waiting staff for assistance about ingredients in the meal, and avoidance altogether. "food allergy." MedicineNet. MedicineNet Inc., 2001. Answers.com 11 Apr. 2007. http://www.answers.com /topic/food‐allergy‐2 “food allergy information.” Food Allergy Initiative, Food Allergy Initiative (FAI)., 1970. 11 Apr. 2007. http://www.foodallergyinitiative.org/section_home.cfm?section_id=3 3“Peanut Allergy, the shocking facts.” MecicineNet, MedicineNet Inc., 2002. PeanutAllergyResource.com 11 Apr. 2007. http://www.medicinenet.com/script/main/art.asp?articlekey=15618 4 “Peanut Allergy” Mayo Clinic, 2006. Mayoclinic.com 11 Apr. 2007. http://www.mayoclinic.com/health/peanut‐allergy/DS00710 1 2
BSure Diagnostic Devices, Inc. 4
BSure Diagnostic Devices, Inc. Organizational Goal The organization’s overall goal is to capitalize on the unmet market need for a reliable, preventative measure against peanut‐related allergic reactions. To achieve this goal, BSure has developed the Peanut Detective, a consumer device that detects peanut traces in foods. The organization’s success also depends on the Peanut Detective’s ability to become the leading prevention method in the United States within five years.
The BSure Peanut Detective With the Peanut Detective, consumers will be able to test a large variety of foods before consumption to verify that there are no peanut traces present. The product will enable users to avoid allergic reactions and help prevent uncomfortable or painful usage of medication or unnecessary hospital visits. Key attributes of the product include: • • • • •
99.99% accuracy Easiness of use, can be taught to children five and older Ability to test a large variety of foods 45 second response time Discrete size General Exhibit 1: Product Image
BSure Diagnostic Devices, Inc. 5
Product Usage To test foods, the consumer inserts a disposable Peanut Detective cartridge into a reusable holder. Next, he or she takes off the cartridge cap, brushes the device over the food, snaps the cap back on, and pushes the “test” button. In 45 seconds, the Peanut Detective holder will indicate, with either a green or red light, whether the food contains traces of peanuts. A red light indicates that the food has traces of peanut bi‐products and should therefore not be consumed, while a green light indicates that the food is safe to eat. In a situation where there is not a proper sample size or the test is inconclusive, the test will show a red light, indicating the presence of peanut. This default feature is to prevent false negative results. However, with an accuracy of 99.99%, consumers will be able to trust the outcome in all but very rare cases. Consumer research has indicated that over 76% of people diagnosed with peanut allergies alter their frequency of eating outside their home to avoid potential reactions.5 The Peanut Detective will help alleviate this problem, allowing consumers to feel safe in many locations such as restaurants, camps, friend’s or relative’s houses, and their child’s school, among other desired locations. The Peanut Detective will be able to test a large variety of foods at these locations, including cookies, pasta, sauces, and meats. Generally, any food with a consistency similar to or thicker than oil can be tested with the product. Consumers using this product will be able to ease food‐related anxiety and experience a tremendous positive lifestyle change. Worrying about a peanut allergy influences many daily decisions; with the Peanut Detective, consumers will be able to trust the foods they eat knowing that they can use a device that can protect them against the consequences of an allergic reaction. There are currently no preventative products on the market, and the need for protection against these severe reactions is growing.
5
Peanut Allergy Survey. WebSurveyor.
BSure Diagnostic Devices, Inc. 6
Revenue Sources The Peanut Detective will generate revenues through two distinct channels. The product will mainly be sold in traditional drug stores such as CVS and Walgreens. Direct internet sales, which will include refill subscription plans, will provide a steady alternate revenue stream.
Critical Success Factors The Peanut Detective’s, and consequently the organization’s, success depends tremendously on a variety of critical success factors, each relying on different functional areas of the organization. Product reliability, consumer base expansion, and intellectual capital management were each carefully considered in the development of the Peanut Detective plan. Exceptional Product Reliability (Operations, IS) The Peanut Detective must maintain 99.99% accuracy for each usage of the product because of the potentially deadly consequences of false negative results for customers. Although both the holder and cartridge are designed for high accuracy, effective supply chain management and meticulous manufacturing control will be crucial to achieving high reliability. Rapid Customer Base Expansion (Marketing, IS) Because the market for peanut allergy products is relatively small, it is important for a company in this industry to achieve high segment awareness levels to generate sufficient revenues. BSure will strive to achieve 25% segment awareness by its peak year of demand. More specifically, the goal will be to increase awareness anywhere from 3‐5% each year. The organization will also strive to achieve a 95% customer satisfaction level by the second year of operations. Satisfied customers will contribute word‐of‐mouth awareness thus increasing sales.
BSure Diagnostic Devices, Inc. 7
Secure Intellectual Capital Management (Information Systems) In a such a high technology operation, intellectual property must be carefully managed. BSure will aim to stay ahead of the technology curve by obtaining at least one medical technology patent per year after year 1. To keep human and structural capital within the organization, BSure will focus on retaining its employees and keeping its data secure.
Industry, Trends and Competitive Analysis 8
Industry, Trends and Competitive Analysis Industry The Peanut Detective will be classified in the Chemicals and Allied Products industry under the sub category of In Vitro6 and In Vivo7 Diagnostic Substances. This category is SIC code 28358 and NAICS code 3254139. The device is classified as an in vitro device as it performs the chemical test inside a controlled environment and outside a living organism (e.g. after the airtight cap is applied and the chemical pouch is pierced). The product however will be categorized as a self diagnostic device. The self diagnostics device industry has grown over the past few years as the population in general has become more health conscious and comfortable using technology. It has also grown due to lower prices and easier to use product designs.10 Many large corporations are part of this industry. Among the largest is Switzerland’s Roche Group with a 17% market share of global diagnostic devices. Closely following is Abbott Laboratories with a 15% market share and Johnson & Johnson with an 11% market share.11 While all of these companies manufacture self diagnostic devices, none make a peanut detection device. BSure will therefore be creating a new niche sub industry within the self diagnostic device industry. Trends There are a variety of socioeconomic trends that will impact the success of the Peanut Detective. Immigration into the United States has been steadily increasing and has brought with it exposure to new cultures and subsequently new cuisines. Asian influence in the Reaction occurs outside of the body Reaction occurs inside the body 8 "In Vitro and in Vivo Diagnostic Substances." Standard Industrial Classification. U.S. Department of Labor. 1 Apr. 2007
Industry, Trends and Competitive Analysis 9
United States is growing, as 200 to 300 thousand people from Asian countries immigrate to the United States each year. As a result of this immigration influx, sales of Japanese, Thai, Vietnamese and other pan‐Asian cuisines rose 250% between 1996 and 200012. BSure has found through market research that people with peanut allergies avoid Thai and other Asian restaurants because of the high concentration of peanuts in such cuisines. Travel also has a big impact on the Peanut Detective. In 2000, 61 million Americans made trips overseas, representing over 20% of the United States population.12 Less regulation of food labels in foreign countries represent a vital time in which the Peanut Detective can be used to test foreign and unknown foods. In some European countries for example, an ingredient is required to appear on a label only if it constitutes more than 25%13 of the product. Ingredients like peanuts that are usually used in small quantities are many times omitted. In other foreign countries, regulation is even more lax.
Competitive Environment The product’s chief competitors will be those who make products that are reactionary, as there are no currently available preventative products against peanuts. A company named Tanox was recently developing a preventative drug named TNX‐901 that they hoped would increase sufferers’ resistance to peanuts14. Legal issues, however, prevented the drug from entering the market15. Future competitors for the Peanut Detective are those companies developing similar drugs that will fight allergic reaction to peanuts. BSure does not believe that such drugs will be released and widely adopted during the main years of operations. A comparison of current competitive products can be found in General Exhibit 2, followed by a brief description of each.
"Emerging Ethnic Foods." Mintel Reports. Mintel, 2002. 1 Apr. 2007. Nicolas, Nathalie, Joyce W. Yu, Ann Clarke, Rhonda Kagan, Nina Verrault, Lawrence Joseph, and Yvan St. Pierre. "Accidental Ingestions in Children with Peanut Allergy." The Journal of Allergy and Clinical Immunology 118 (2006): 471. 14 Merz, Beverly. "Studying Peanut Anaphylaxis." The New England Journal of Medicine 348 (2003): 975‐976. 15 Pollack, Andrew. "Wrangling May Delay Peanut Allergy Drug." The New York Times 13 Mar. 2003, Late ed., sec. C: 1. 12 13
Industry, Trends and Co ompetitive An nalysis 10
Gen neral Exhibit 2: Competitiive Products
EpiPen
Benadryl
TNX‐901
by Merck
by Pfizeer
by Tanox
Caalamine Lotio on
Speed
Fasst
Slow
Slow
Slow
Preventio on Type
Reactive
Reactivve
Preventatiive
Reeactive
Ease of Usse
Haard
Medium
Medium
Eaasy
Comfort LLevel
Painful
Distastteful
N/A
Uncomfortablee
Market Availabilitty
Avvailable
Availab ble
Not Availaable
Avvailable
Product P Photo
EpiPen byy Merck16 This dev vice deliverss the fastesst results an nd is the mo ost highly eeffective treeatment afteer an anaphylaaxis reactio on has occurrred. While this devicee is the indu ustry standaard, it has ssome major side effects aafter a painful injection n, such as aa quickening heart beaat, dizzinesss and sweatingg. Benadryll (Pfizer)17 This medication yieelds slow results and is only mild dly effective. Side effects are min nimal compareed to the EpiPen and in nclude fatigu ue, dry mouth and blurred vision. Calaminee Lotion18 This gen neric type of skin lotion n delivers sslow resultss and has m mild effectiv veness in geetting rid of hiv ves and itch hiness. Side effects inclu ude rashes aand irritatio on on the sk kin.
"Allergic R Reactions & Anaph hylaxis Allergy." E EpiPen. Merck & Co. 1 Apr. 2007 <
Industry, Trends and Competitive Analysis 11
TNX 901 (by Tanox)19 This drug is currently being researched and developed by Tanox, a biotherapeutics company. It will not be designed as a cure to peanuts allergies, but rather will defend against a reaction when small quantities are consumed or touched. TNX 901 will not be released within the lifetime of the Peanut Detective, however, it is still in the early stages of development and the company behind the drug is currently facing legal problems.20
Positioning the Peanut Detective Although the EpiPen is the most commonly used product21 to treat peanut‐related allergic reactions, it is painful to use—this discomfort in usage is a quality of many reactive treatments. Antihistamines such as Benadryl and skin lotions such as calamine lotion are also slow to react and can only help if the reaction is not too severe. The Peanut Detective will be positioned as the only reaction prevention method for consumers; it will also be positioned for quick response time (45 seconds). A positioning map illustrating these dimensions can be found in General Exhibit 3. General Exhibit 3: Product Positioning A
, Beverly. "Studying Peanut Anaphylaxis." The New England Journal of Medicine 348 (2003): 975‐976. Pollack, Andrew. "Wrangling May Delay Peanut Allergy Drug." The New York Times 13 Mar. 2003, Late ed., sec. C: 1. 21 "Allergic Reactions & Anaphylaxis Allergy." EpiPen. Merck & Co. 1 Apr. 2007
Industry, Trends and Competitive Analysis 12
In comparison to other methods of coping with food allergies, the Peanut Detective is reliable and gives fast results. Other coping methods such as asking restaurant wait staff are less reliable because of human error and negligence. The Peanut Detective will be 99.99% accurate and thus extremely reliable. A positioning map for these dimensions can be seen in General Exhibit 4. General Exhibit 4: Product Positioning B
Competitor Response The organization expects to be the only peanut detection device on the market until at least the third year of operations, as it will take the competition time to develop a product similar to the Peanut Detective. In the third year, the organization expects to have at least one competitor enter the market. BSure will maintain the majority of the market share due to the fact that by year 3 the product will have had built up consumer loyalty and trust through proven reliability of the product and through the usage of the company’s community‐driven website (see Web Strategy). Another foreseeable response from potential competitors is the buyout of the company in the future. The self diagnostics industry has witnessed a fair amount of consolidation over the past few years involving larger companies acquiring smaller ones in order to provide
Industry, Trends and Competitive Analysis 13
lesser known products with more marketing muscle.22 Larger corporations such as Johnson & Johnson and Abbott Laboratories may acquire BSure Diagnostic Devices once the Peanut Detective proves its profitability.
"Self Diagnostic." Mintel Reports (2004). 1 Apr. 2007.
22
Marketing Plan
Marketing Plan 14
Marketing Plan Communication Objectives BSure is focusing on four primary marketing objectives: • • • •
Gain the target segments’ trust in the Peanut Detective by the end of year 2 Achieve a national awareness of 25% by year 7 (spurring customer base expansion) Develop the website as an information hub, partly by partnering with four doctors by year 2 for web‐blogging Have online revenues account for 20% of total sales by the end of year 7
The success of the Peanut Detective will be dependent upon BSure’s ability to build trust with its consumer base by gaining the support of respected doctors. Through an effective marketing campaign, the Peanut Detective will gain the trust needed to build consumer loyalty among peanut allergy sufferers and their guardians.
Segment Analysis BSure identified three market partitions in the category of peanut allergy sufferers; those who experience mild irritations, such as an itchy throat or small rashes, those who experience hives, vomiting, and anaphylaxis if peanuts are ingested, and those who experience severe reactions from touching or smelling peanuts. BSure plans to target those who experience hives, vomiting and anaphylaxis if peanuts are ingested. This is the largest target market, with 2.5 million people. The Peanut Detective will not be targeting the other two categories because research analysis has indicated that people with mild irritations are not concerned enough with their allergy to purchase the Peanut Detective. In contrast, those who experience a severe reaction by merely touching or smelling traces of peanut would not use this device because it would not fulfill their needs (see MK Appendix 1).
Marketingg Plan 15
MK K Exhibit 1: SSegment Psycchographics (C Children & Teen Segment SSeparated)
Child dren (2‐12) This catego ory enjoys going to zoos, playying on sports tteams, and attends school fo or the majority of their day. Theey look for new w, fun productss that help them stand out am mong their frien nds. To avoid p peanuts, they ssit at a separate table during lunch and do n not share snaacks with their classmates. In n their backpacck is an EpiPen just in case of an allerrgic reaction.
Teens (13‐17) On weekend ds, this segment likes to go to the mall, thee movies, and h hang out with friends. Theey dress, act, aand listen to th he same music as their friends. It is importaant to fit in and hid de embarrassing traits. To prrevent a peanu ut reaction, theey avoid new foods, new restaurants an nd carry an EpiPen in their pu urses and backkpacks for emergenciees.
Adults (18+) Between co ollege, work, an nd seeing frien nds, this segmeent has little tim me to worry ab bout themselves. They do thinggs at a fast pacce, and requiree services to bee quick and efficient. Th hey are interessted in buying stylish clothingg and new elecctronic products. To avoid a p peanut reaction, they ask wait‐staff for meaal ingredients aand search thee internet forr nut free products.
Children and Teens Through h market reesearch, BSu ure discoveered key pssychographiics (see MK K Exhibit 1) that affect the purchase intent of eaach segmen nt. The mostt important of these disscoveries sh hows hough children and teeens—betweeen the agess of 2 and 17—would be the prim mary that alth users of f the Peanutt Detective, the primarry buyers would w be thee parents of o these chilldren and teens. Therefo ore, adverttising mustt target parents ratheer than ch hildren. Parrents, especiallly mothers, are alwayss seeking altternative fo orms of prottection and reassurancce for their chiild or teen w with an alleergy; the Peeanut Detecttive fulfils this need. Th his segment has an appro oximate sizze of 875K consumers,, with an esstimated grrowth rate of 5% per year, which reeflects the y yearly increaase of children who deevelop peanut allergies.23 This segm ment 23
Sicherer, SScott, Anne Muñozz‐Furlong, and Hu ugh Sampson. "Prrevalence of Pean nut and Tree Nut A Allergy in the Uniited States Determ mined by y Means of a Rand dom Digit Dial Telephone Survey: a 5‐Year Follow‐U Up Study." J Allergy Clin Immunol 112 (2003).
Marketing Plan 16
is also likely to use the Peanut Detective at a variety of locations from schools and camps to restaurants and malls. Adults With a population size of over 1.6 million people and a growth rate of 1%, this segment is categorized as being self‐purchasers, indicating they will purchase the Peanut Detective for themselves or someone in their demographic, such as a spouse. Consumer research has shown that 75% of those who eat out are influenced by their peanut allergy. Survey data also indicates that half of this target segment eats at restaurants about four times per week. The Peanut Detective is specially positioned and marketed to capitalize on these lifestyle needs by advertising its minimalistic design, quick response time, and portability (see MK Appendix 10).
Promotional Plan Marketing Budget BSure will begin rolling out the Peanut Detective nationally in January 2008. A summary of promotional activities can be found in MK Exhibit 2. In year 1, BSure is setting aside $400K for marketing and promotional purposes, which will be distributed amongst the push and pull strategies highlighted below. For years 2 through 7, the marketing budget will increase with sales, although at a lesser rate. The year 2 marketing budget will be $460K and continue to grow to $1.1 million in year 7.
Marketing Plan 17
MK Exhibit 2: Promotional Plan (Year 1) PULL Magazines Web MD Online Advertising Peanutallergy.com Allergykids.com Blogs Rebates PUSH Promotions Doctor's Kits Press Kits Eastern Allergy Conference MD&M East
Jan Feb Mar April May June July Aug Sept Oct Nov Dec
Push Strategies Doctor Kits The most effective way to reach allergists and related professionals is to send customized doctor kits. Included within these doctor kits will be the product itself and a BSure informational CD. The CD will include a thorough medical and scientific explanation of the product as well as testimonials from respected allergists from around the country. It will also educate doctors on the benefits of the Peanut Detective and how to use this product correctly. Doctor kits will ship out until the end of year 3, at which point the Peanut Detective will have built up enough trust and credibility among consumers. Press Kits In order to generate buzz and awareness, BSure will provide 150 low‐cost press kits to large and small magazines as well as talk shows. At an annual cost of $200, these press kits will build 0.65% awareness. Starting in year 1, BSure anticipates at least two annual write‐ ups from magazines with high circulations. An example press release that would be packaged in press kits can be found in MK Appendix 2.
Marketing Plan 18
Medical Conferences BSure will enter two medical conferences each year. These medical conferences are held once a year in different states across the country. In the first two years, BSure will set up booths at the Medical Design and Manufacturing (MDM) conference as well as the Eastern Allergy (EA) conference. These conferences showcase medical devices and other ways of coping with different types of allergies. The MDM conference will be replaced in year 3 by the larger and more respected Florida International Medical Expo (FIME) to reach new audiences. Even though these three conferences only generate a total awareness of 0.31%, they are a reputable way of getting the product noticed by doctors, allergists and medical specialist.
Pull Strategies Online Ads Not only does PeanutAllergy.com reach a population magazines cannot, but it is also the most cost‐effective and valuable outlet for advertising. Costing only 6% of the first year marketing budget (see MK Appendix 7), it contributes over 35% of the total awareness generated due to the fact that the website is accessed and read by many people in both Peanut Detective target segments. Another inexpensive website BSure will be advertising on is AllergyKids.com. This site has received national exposure on major media outlets. Allergykids.com helps parents cope with their children’s food allergies. Advertising on these two websites will be vital for the Peanut Detective in creating segment awareness and thus boosting sales. The BSure Website Given the scope of the product’s distribution, the primary goal of the company website is to become a trusted web resource for expert advice as well as the latest information about peanut allergies. Accordingly, the website will include news, information, and discussion sections that doctors are encouraged to participate in. Doctor web‐blogs about peanut allergies will only amplify BSure’s credibility as a trustworthy brand (see Web Strategy).
Marketing Plan 19
An equally important goal of the website will be to sell the Peanut Detective directly to the consumer. By selling directly to the customer, BSure will be able to obtain much higher profits than if sold through retailers, whose markups nearing 40% require a lower manufacturing selling price. The website will account for 5% of sales in year 1 and rise to 20% of sales by year 7. However, BSure will make certain that the website’s public image centers around distributing information and establishing community. To appear unbiased and impartial, this website will feature alternative means of dealing with allergies, such as Benadryl, EpiPen, and calamine lotion; further increasing the site’s credibility (see IS Appendix 5). Magazines Reaching a target market that is distributed on a national level can be expensive, especially for a startup business. A solution to this problem is to communicate via far‐reaching and expansive mediums such as magazines. The Peanut Detective will appear in highly circulated magazines such as WebMD and Health. WebMD is a medical magazine sent to 85% of medical waiting rooms across the United States24. This magazine reaches millions of readers each month, many of them concerned about their health and the health of others. It is very likely that users in the target segments viewing a Peanut Detective advertisement in this magazine will ask their doctor about the product during their visit. Health magazine’s target audience includes young professionals as well as parents. Each month the magazine publishes articles about allergies and methods to cope with them. As a result many parents of children with peanut allergies read this publication each month. Both WedMD and Health will hit the desired target segments generating awareness of 1.92% and 0.76% respectively. Health magazine will not be part of the promotional plan until year 3 as their ads are costly and the organization’s budget will be tight. WebMD, on 24 Haskin, John. "Patients in waiting rooms throughout the United States".The Magazine Group. 9 April 2005 http://www.themagazinegroup.com/clients‐case‐studies‐webmd.asp
Marketing Plan 20
the other hand, will be part of the promotional strategy from the start as their ads are less costly.
Advertisement Design Since mothers have the final buying power and influence over the children and teens segment, BSure will deploy a specialized campaign targeting maternal responsibilities and instincts. The tone and mood for this campaign will be dramatic and emotional to specifically attract the attention of mothers. Visually, this campaign will utilize images of children, toddlers, and families to stimulate the connection between family members (see MK Appendix 11). BSure expects mothers to respond passionately and become emotionally attached to the Peanut Detective’s message. The focus is not just on the product’s immediate benefits but also on whom the product is affecting and their lifestyle. In order to keep this campaign fresh, ads will periodically be presented in a clever and light‐hearted tone. Unlike the children and teens segment, the adult segment is difficult to reach due to media saturation. Therefore, comical ads will be used to engage the 18‐24 year old age range, which will have a stronger impact than a scientific or educational approach. Furthermore, because this segment is young and computer savvy, online video advertisements will be used at peanutallergy.com and allergykits.com (see MK Appendix 11). The objective will be to reach as much of the adult segment as possible by differentiating the Peanut Detective as a preventative device. Brochures and Packaging The Peanut Detective holder will come packaged with four cartridges and an instruction manual. Both the holder and cartridge packaging will clearly indicate how to use the product, the chemicals involved in the process, the name of the primary website (www.bsuredd.com) and a phone number (1‐800‐2BE‐SURE) for customer service available five days a week. The packaging will emphasize BSure’s token green and maroon colors, which will be prevalent on most of BSure’s products and advertisements (see MK Exhibit 3).
Marketingg Plan 21
MK Exhibit 3 3: Product Pa ackaging
The prod duct brochu ure will con nsist of a write w up abo out the com mpany, prod duct informaation and statiistical facts about pean nut allergiess. It will alsso clearly diisplay the B BSure websiite as well as ccontact inforrmation (see Attached B Brochure). Measurin ng Effectiveness To meassure the efffectiveness of BSure’s ad campaiign, the com mpany will offer an online rebate w with the purrchase of a 16 cartridgge box. Thiss is to enticce the custo omer to visiit the website and fill outt a post purrchase surv vey in orderr to go through the reb bate process. By encouragging consum mers to purchase a 16 ccartridge bo ox, BSure w will reduce th he cost of in n‐box surveys, and increasse revenuess.
Distribu ution Retail BSure w will use a nattional rollou ut strategy b because pottential consu umers are sspread relattively evenly th hroughout tthe country. The self diiagnostic deevice catego ory consists of productss that are prim marily sold through t dru ug stores. The T sale of such produ ucts througgh supermarrkets
Marketing Plan 22
has been declining at a steady rate, according to a recent Mintel industry report.25 Market research has shown that consumers trust products that are purchased from drug stores rather than supermarkets.26 Given the nature of the Peanut Detective and statistics from the industry report, BSure has decided to retail solely through drug stores. In year 1, BSure will target three of the major players in the drug store industry: CVS, Walgreens and Rite Aid; selling through these stores will achieve an all‐commodities‐ volume (ACV) of 3.15%. This strategy was chosen because the biggest three drug stores, with a market share of 47.3%, are the most effective outlets for reaching the peanut allergy population. Furthermore, CVS, Walgreens, and Rite Aid all have nationwide stores; this helps to enact the nationwide rollout. In the subsequent years, BSure will strengthen its position on the coastlines. In year 3, the Peanut Detective will be sold at Longs Drug Store, which has a prominent market share on the west coast. In year 4, BSure will complement this position with more east coast exposure by offering the product in Duane Reade, New York’s most popular drug store. The estimated store penetration rate will be 20% in year 1 and will swell to 85% by year 7. Sales Force BSure will employ sales representatives to maintain relationships with individual retail stores. To simplify sales force management, the organization will divide the country into three regions: east, central, and west. The east and west coasts are top priorities due to higher population densities; they will require two sales representatives to target “A” level drug stores, which are the 20% of stores that generate 80% of total sales for a corporation. The organization estimates that there are 912 “A” level drug stores nationwide. Specially trained sales representatives are preferred over third party sales representatives for a number of reasons. Trained sales representatives are paid a salary and bonuses, ensuring their loyalty to the company. Third party sales reps on the other hand, depend entirely on commission and usually work for multiple companies, often dedicating the “Self Diagnostic." Mintel Reports (2004). 1 Apr. 2007. Focus Group, MK Appendix 6: Focus Group Summary.
25 26
Marketing Plan 23
greatest effort to the employer offering the largest reward. Therefore, BSure will employ two sales representatives for year 1, and three additional representatives in succeeding years to meet increasing distribution requirements.
Pricing Strategy The Peanut Detective consists of two parts: the holder and the cartridge. The holder is priced at a revenue maximizing retail price of $41.99 (according to surveyed purchase intent, see MK Exhibit 4) and includes four one‐time use cartridges. Each cartridge will be priced at a revenue maximizing retail price of $3.65 (see MK Exhibit 5); therefore, 8 and 16 cartridge boxes will sell for $29.99 and $58.99, respectively.
MK Exhibit 5: Cartridge Purchase Intents 40%
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Expected Purchase Intent
Expected Purchase Intent
MK Exhibit 4: Holder Purchase Intents
R² = 0.993
35% 30%
R² = 0.852
25% 20% 15% 10% 5% 0%
$0
$20
$40 Holder Price
$60
$0.00
$80
$1.00
$2.00 $3.00 $4.00 Cartridge Price
$5.00
$6.00
As previously mentioned, the box of 16 cartridges will contain a coupon for an online rebate of $8. According to customer research, 41% of buyers are willing to purchase the packages of 16 cartridges.27 Of these buyers, an estimated 5% will fill out the online rebate. To avoid channel conflict, website prices will reflect the estimated markup retailers will use on the Peanut Detective, although retail and online sales events may differ in timing.
Peanut Allergy Survey. WebSurveyor.< http://desktop.vovici.com/Default.aspx>
27
Marketing Plan 24
Starting in year 4, the price will drop by 5% for the holder and by 1% for the cartridge every year to help battle entering competition in year 3 (see MK Exhibit 6 and MK Exhibit 7). By year 7, peak product demand will be reached due to competition and the potential entrance of competitive new drugs (see MK Exhibit 8). MK Exhibit 6: Holder Price Points Holder Retail Price per Unit Retail/Distribution Margin (39%) BSure Selling Price per Unit Variable Cost
Year 1 $41.99 $11.78 $30.21 $8.61
Year 2 $41.99 $11.78 $30.21 $8.66
Year 3 $41.99 $11.78 $30.21 $8.75
Year 4 $39.89 $11.19 $28.70 $8.80
Year 5 $37.90 $10.63 $27.26 $8.85
Year 6 $36.00 $10.10 $25.90 $8.88
Year 7 $34.20 $9.60 $24.61 $8.91
Year 6 $3.54 $0.92 $2.62 $1.65
Year 7 $3.51 $0.91 $2.60 $1.65
MK Exhibit 7: Cartridge Price Points
Cartridges Retail Price per Unit Retail/Distribution Margin (35%) BSure Selling Price per Unit Variable Cost
Year 1 $3.65 $0.95 $2.70 $1.63
Year 2 $3.65 $0.95 $2.70 $1.63
Year 3 $3.65 $0.95 $2.70 $1.64
Year 4 $3.61 $0.94 $2.68 $1.65
Year 5 $3.58 $0.93 $2.65 $1.65
MK Exhibit 8: Product Lifecycle $35 M $30 M
Revenue
$25 M
Growth Phase
$20 M
Decline Phase
Maturity Phase
Total Sales
$15 M
Intro Phase
$10 M $5 M $0 M 0
2
4
6
8 Year
10
12
14
16
Due to the nature of the industry and the product, consumers have to trust the product before using it. BSure will have by then established significant customer loyalty through its reputable reliability as well as its community‐driven website. BSure will also have a competitive edge over new similar products because of its industry experience and obtainment of design patents. Furthermore, the declining pricing strategy will maintain
Marketing Plan 25
growth by limiting competition‐related effects resulting in no higher than 20% of sales in years five through seven.
Sales Projection Base Case The base case was calculated assuming that it takes four impressions to make a person aware of a product. Furthermore, a 33.7% purchase intent was calculated by analyzing 277 surveys28 and based on the 80/30 rule of thumb. In addition, a repurchase rate of 37.5% was projected for the holder and 76% for the cartridge. As shown in the BASES model (see MK Exhibit 9), BSure will generate a demanded quantity of 2,661 for the holders and 281,931 cartridge units in year 1. These projections are calculated using the previously determined 7.28% awareness rate and 3.15% ACV figures. MK Exhibit 9: BASES Sales Forecast
Year 1
Target Market
Year 2
Year 3
Year 4
Year 5
Year 6
2,500,000 2,560,000
2,622,350
2,687,161
2,754,549
2,824,638 2,897,554
Purchase intent
34%
34%
34%
34%
34%
34%
34%
Adjusted Target Market
843,250
863,488
884,519
906,379
929,110
952,750
977,345
Awareness
7.28%
8.17%
11.50%
14.68%
17.63%
21.37%
27.66%
ACV
3.15%
7.09%
18.46%
22.49%
23.99%
32.98%
33.98%
Holder units
2,661
6,880
23,240
34,966
43,235
73,871
101,052
Cartridge Units
281,391
727,533
2,457,515
3,697,466
4,571,875
7,811,556 10,685,745
Peanut Allergy Survey. WebSurveyor.< http://desktop.vovici.com/Default.aspx>
28
Year 7
Marketing Plan 26
Optimistic Case In the most optimal case, BSure expects that it would take three impressions to make a person aware of the product. The repurchase rates in this case are estimated to increase from 37.5 % to 45% for the holder and from 76% to 85% for the cartridge. Store penetration used for ACV calculations is estimated to increase from the base figure of 20% in year 1 to 25% in the best case. Thereafter best case penetration continues to increase at a faster rate than base case. This results in a demand of 17.9 million cartridge units and 160K holders in year 7. Pessimistic Case In a pessimistic scenario, it would take five impressions to make a person aware of the product. The repurchase rate could decrease from 76% to as low as 65% for the cartridge and from 37.7% to 30% for the holder. Store penetration could be as low as 15% in year 1, resulting in a worst case demand of approximately 1,500 holder units and 146K cartridges in year 1. The pricing strategy would also differ in this scenario—beginning in year 3, the price would begin to drop by 5% for the holder and 1% for cartridges.
Operations & Manufacturing Plan
Operations & Manufacturing Plan 27
Operations & Manufacturing Plan Product Design Customers purchasing a peanut detection device put their complete trust in the product. The consequences of the products’ failure are severe, in some cases even fatal. Customers therefore demand a product that not only tests a large variety of foods, is easy to use, quick responding, portable, and visually appealing, but most importantly, customers require extreme accuracy (see OM Exhibit 1). Accuracy is crucial to any device when false responses could lead to severe side effects, ranging from hives to possible death in the more extreme cases. While severely allergic people may not trust peanut detection devices, it is still BSure’s number one priority to guarantee the product works flawlessly, every time, without exception. Therefore, all aspects of the Peanut Detective, from initial design (the details of which can be found in General Appendix 2), to the production process, to the final shipping methods are designed with accuracy in mind. OM Exhibit 1: Consumer Attribute Importance Preferences
Test Large Variety of Foods Consumers highly prioritize the ability of the Peanut Detective to test a large variety of foods. There are many different forms of peanuts found in everyday foods; from traces in candy bars, to peanut oil in Asian cuisine, to the homemade cookies at a friend’s house. As a result, the cartridges need to have a tip that is both capable of scraping a candy bar while also having the ability to capture even the lightest pasta sauces. Therefore, each cartridge tip (also referred to as “metal mesh”) is made of high grade sterilized steel wool. The steel
Operations & Manufacturing Plan 28
wool is strong enough to be rubbed against solids, coarse enough to take a bite out of a candy bar, and yet airy enough to suspend sauces and other liquids. This ensures that the tip can provide a large enough sample to provide the required device accuracy. Minimize Parts The BSure Peanut Detective is manufactured with as few pieces as possible, thus minimizing complexity that can lead to product failure. Additionally, reducing excess parts and complexity allows the Peanut Detective to be relatively inexpensive to construct, which carries over to a lower cost to the consumer. This is a product that has the ability to change the way people live by allowing them to feel confident while they eat. It was therefore of upmost concern that the Peanut Detective be easily obtainable by the general public, which is accomplished through a relatively low retail price compared with other self diagnostic products, made possible by low manufacturing costs. In effect, the Peanut Detective can be priced as a convenience item opposed to a shopping item.29 Small Inconspicuous Design Through surveys, consumers between the ages 18‐24 indicated they do not want to be liberated from their fear of an allergic reaction if it meant being embarrassed by public attention. Therefore, the product was designed to be as small and inconspicuous as possible (see General Appendix 1). The goal in the design was to make the holder no larger than a USB flash drive. While certain requirements mandated a slightly thicker design, the end product is not only small, but it is designed to fit on a keychain, thereby ensuring the consumer never leaves home without it. As for the actual appearance of the Peanut Detective, it is purposefully clean and minimalistic so as to minimize attention. Moreover, the red and green LED lighting would most likely be mistaken for a computer device; this will increase the designers’ attempts to have the Peanut Detective appear similar to an ordinary USB Flash Drive, opposed to an attention grabbing medical device.
29 Kerin, Roger A, Steven W. Hardley, William Rudelius. Marketing The Core. 2. New York, McGraw‐Hill. 2007 p.215.
Operations & Manufacturing Plan 29
Ease of Use Another advantage to the small minimalistic design is ease of use. There will be no buttons to decipher, no assembly required, and symbols to decipher. Simply insert a cartridge into the holder, which would be possible to insert in only one direction, press a clearly marked button on the holder, and wait for a red or green LED light to illuminate, indicating the presence of peanuts. It is simple, easy, and the true test—even a child can do it, as focus groups demonstrated. Quick Response Time Designers at BSure acknowledge that even if the consumer slipped the device into their food unnoticed, it might be obvious if he or she had to wait several minutes before eating, especially with other people at the table starting to eat. Therefore, the compact design is further utilized to guarantee results in less than forty‐five seconds. This is because with a small design, chemicals do not have to move as far, thereby eliciting quicker reactions. As a result, the consumer can be quickly informed of the presence of any allergens in the food being tested. Minimal distances for chemicals to travel means the Peanut Detective requires less chemicals per cartridge, thus each chemical will be even more diluted with the food being sampled. This helps ensure 99.99% accurate results.
Patent Information In order to protect the technology behind the Peanut Detective and maintain a competitive advantage through intellectual capital and technology advancement, BSure will patent the Peanut Detective and all subsequent products. BSure, which would apply as a small entity, would have to pay an initial filing fee of $665, with an additional fee of $450 due in the middle of year 3.30 The patent, which would last throughout the product life span, ensures potential competitors will face the struggle of developing a similar product using an alternative method, which would require significant time to develop and produce. This
30 United States. United States Patent and Trademark Office. FY 2007 Fee Schedule. 08 Dec. 2004. 30 Mar. 2007
Operations & Manufacturing Plan 30
would give the Peanut Detective ample time to generate awareness, and more importantly, trust among consumers.
Plant Characteristics All raw material suppliers, such as packaging, plastics, and chemicals, handle their own shipments to the BSure factory at a price included in the cost of the raw materials they supply. Therefore, BSure has chosen to minimize costs by choosing a plant location that is central to the CVS, Walgreens, and Rite Aid distribution centers, with minimal consideration for supplier locations. BSure will incur the cost of shipping to the distributors, which make up the majority of its product destinations. CVS, Walgreens, and Rite Aid distribution centers are located primarily on the East Coast, as is a concentration of major cities. Accordingly, location analysis has projected that to minimize costs, optimal location for the BSure headquarters and factory will be in Louisville, KY (see OM Exhibit 2). Louisville, being a large city, offers access to major highways, the Louisville International Airport and nearby railroad transportation centers. Having many different means of transportation helps avoid the risk of transportation backup caused by unforeseen circumstances affecting either road, rail, or air travel. OM Exhibit 2: Distributor Locations
BSure
Space Allotment The factory itself will be rented for $57,375 per year, with a five year lease to prevent rent from increasing with inflation, property tax, and other fluctuations in the real estate
Operations & Manufacturing Plan 31
market. While this lease amount is significant, the cash required to purchase a factory would be excessive for BSure to incur in its startup years. Of the total 135,000ft2 facility, BSure will be renting an 11,250ft2 space, which includes 2500ft2 of air conditioned office space. The remaining area, which is fan cooled, will be dedicated to the assembly areas, inventory holding areas, a research and development center, and break rooms for the factory workers. Adjacent to each of the three inventory holding areas—cartridge raw materials, holder raw materials, and finished goods holding—is a dock high door for easy loading and unloading of trucks. While holder demand will be small enough that only one person is necessary for production, more thought had to go into the cartridge production area where eight massive machines and over fifteen employees will be working by year 7. A vibratory feeder will be placed in front of each machine, feeding raw materials through. After the machine produces the cartridges, materials will be put onto conveyor belts lining the outside walls, which will bring finished goods through the inspection department and back to the final inventory holding area. This layout minimizes employee movement and keeps all movements in the same direction as shown in OM Exhibit 3. OM Exhibit 3: Factory Layout
Operations & Manufacturing Plan 32
Management Level Employees Overseeing all operations at BSure will be the President, who will have an MBA degree and extensive sales and marketing background. The president must have at least seven years of experience, particularly in starting and running a small to midsize company. The manager and director of operations will also require a college degree and a minimum of three years of experience in running a production line. Another manager will be added in year 6 to maintain close control over expanding production. All managers as well as the president must be strong proponents of supply chain management so that lower level employees will follow their example. All executives will undergo training in supply chain management, especially in terms of integrating suppliers smoothly into the supply chain, since BSure requires thirteen suppliers (see OM Appendix 3). Maintaining a competitive edge through new technologies requires a scientist to head a research and development department. The scientist must have a strong background in the food allergy field, so that BSure can eventually expand into different types of food allergies. With the growth of the company, the research and development department will also grow in order to continually stay ahead of the competition by maintaining secure intellectual capital, which is one of BSure’s critical success factors.
Supply Chain With thirteen suppliers and only two distributors, the Peanut Detective’s supply chain has a much larger supply component than demand component. Accordingly, most efforts have been focused on streamlining the supply side of the supply chain, from the suppliers of raw materials to production of the Peanut Detective. All efforts have been made to minimize the costs of raw materials, production, and distribution in order to maintain an affordable product.
Operations & Manufacturing Plan 33
OM Exhibit 4: Supply Chain Diagram
Choosing Suppliers The first link of the Peanut Detective’s supply chain is the suppliers (see OM Exhibit 4). BSure strategically chose suppliers based on key characteristics; suppliers were measured and compared based on quality guarantees, location of facilities, cost of materials, lead times, quantity discount programs, transportation methods to BSure’s factory, and lastly whether or not the suppliers had open communication channels. These communication channels include electronic data interchanges (EDI), which enable BSure’s ERP (see Core Application Software) to have access to the suppliers’ purchase orders, shipment details, and invoices.31 BSure has decided to keep all major suppliers within the
OM Exhibit 5: Supplier Map
United States (see OM Exhibit 5). The decision to stay national was based on quality assurance and lower lead times, both of which are crucial to the key raw material, chemicals. Quality assurance ultimately influences the product’s defect rate,
BSure
which must be kept low in order to reduce costs and build a reliable reputation. Accordingly, BSure will maintain a supplier policy of “3 Strikes, You’re Out.” This policy dictates that when a supplier is responsible for defects in a production batch on three separate occasions, it will be replaced by a secondary supplier. BSure’s information system will allow the tracing of defective product batches by maintaining detailed records linking finished goods to the raw material suppliers. Stevenson, Willam. Operations Management. 8. USA: McGraw Hill, 2005. Pg 700
31
Operations & Manufacturing Plan 34
Raw Materials: Make/Buy Analysis Analysis has indicated that it would be more cost effective to buy all raw materials. Buying raw materials also allows BSure to minimize inventory; complicating the production process by manufacturing certain parts would make inventory management less precise and allow more room for breakdowns. Because the chemicals involved have expiration dates, delays in any one components’ production would possibly mean having to abandon massive amounts of chemicals. While any manufacturing plant can have machine breakdowns, factories specifically equipped to make certain raw materials will be better equipped for machine failure and quality assurance. This will help ensure that all raw materials arrive at BSure facilities on time and in functioning condition. Raw Materials: Order Quantity Raw material prices will fluctuate in years 2‐7 due to inflation and quantity discounts (see OM Appendix 4). BSure has been able to utilize quantity discounts for plastics, packaging, springs, and o‐rings. Using discounted pricing will decrease variable costs on both the holder and the cartridge, thereby offsetting the additional holding cost associated with larger ordering quantities. All other ordering quantities are based on the Economic Order Quantity model (see OM Appendix 5), which assumes holding costs are 30% of the manufacturers selling price, and order costs are 10% of the manufacturer selling price. However, adjustments to ordering costs had to be made in order to get more accurate quantities that include extensive quality inspection costs. Accordingly, year 1 ordering costs for the holder are $104.98 and ordering costs for cartridge are $164.25. Because most suppliers are small scale manufacturers, providing small initial order sizes is feasible, especially since few of the raw materials require specialization with the exception of the plastics. However, because plastics have the highest lead time of 30 days, holding excess plastic inventory, mandated by minimum order sizes of 1,000 units, will help hedge against inventory shortages. Chemicals used in the cartridge have a shelf life of approximately six months. This constraint will require that contracts between BSure and chemical suppliers ensure low lead times, fixed or fixed percentage increases of price, and guaranteed quality, measured by defect rate. When the computer indicates inventory levels have reached the
Op perations & M Manufacturingg Plan 35
reorder point, raw materials w will be ordered from th he BSure facctory. Comp puters will ttrack the locattion of the m materials, ass well as reccord invoicees associated with each h order. Raw Matterials: Movvement and Inventory P Policy Deliveriees will be m made to the shipment d docks on th he east side of the BSure factory. Once shipmen nts arrive, employees w will unload the suppliees and inspeect the raw materials. A After passing inspection,, employeees will scan n the shipm ments into o the ERP database. Once entered, a worker w will confirm m that the raaw materiall quantities match the purchase order. Next, an n employee uses the fo orklift to move m raw materials m to their appropriate storage. Cartridgge and holdeer raw mateerials must be separateed due to FD DA regulations. Holderr raw materialls will be brrought to a a storage arrea located near the ho older assem mbly area, while w cartridgee raw mateerials must be stored in freezers and sanitized stockro ooms. Oncee raw materialls are appro opriately stored, they will w be scan nned at a sttorage checckpoint and d raw materialls inventory y will be updated. The ERP prograam will then n monitor in nventory veersus expected d productio on levels, an nd reorder inventory based on lead time per unit (seee OM Exhibit 6 6 and OM Exxhibit 7) and d the desired 98% serv vice level, wh hich is used d to calculatte the safety sttock needed d in each year. Becausee the cartrid dge compon nents have aa holding co ost of merely $ $0.26 and holder demaand is relativ vely low, 98 8% will adequately pro otect BSure from stock ou uts with min nimal costs o of holding in nventory. OM Exhibit 6 6: Holder Lea ad Times
30 0 Days
10 Days
8 8 Days
7 Days
Tim me 0
•P Plastic Shells
Board •Circuit B
•Battery
•Packagiing
•Prroduction Daay
Op perations & M Manufacturingg Plan 36
O OM Exhibit 7: : Cartridge Leead Times
30 Dayys
10 Days
8 Days
7 Daays
3 3 Days
Time 0
•Plastiic Shells
•Spring •Enzyme
dy •Antibod •Substraate
•Buffer •O‐rring •Pacckaging
•Pin •Steel Wool •Cotton Strip p
•Producttion Day
Outsourccing Producttion BSure will w not ou utsource beecause its product cannot c hav ve any defaaults, thereefore mandating close insspection at every process to ensure that all gglitches are caught. Witth so many diffferent raw materials ssuppliers, it would overrly complicaate the supp ply chain to have to coord dinate prod duction with h outsourceed components. BSuree also valuees the pateented knowled dge behind the Peanutt Detective. Even with h a patent, outsourcingg would exxpose many of BSure’s ttrade secretts.
Holder P Production P Process and C Capacity The hold der production processs commences when raw r materiaals are rem moved from raw materialls and scann ned into thee organizatiion’s ERP sy ystem (see Core Appliccation Softw ware), OM Exh hibit 8: Holdeer Process Tim me
prompting the computer to o place them m into the work w ocess inventory. The holder h is theen assembleed in in pro
Time e (Sec))
Process
the ho older produ uction area.. Once the holder h is piieced
10
Snap Circu uit Board Into Shell
togeth her, it trav vels to quality contrrol followed d by
10
Insert Tesst/Ejection Button
packaaging and finally f placeement into finished goods g
20
Insert Battery
storagge. The entiire process takes 150 seconds, with w a
10
Attach TTop Half of Shell
cycle time of 50 seconds (seee OM Exhib bit 8). Given n the
50
Te est Holder
50
Package an nd Send to Holdingg
150
Total Process Time
demand for hold ders and the low cyccle time, ho older assem mbly will be b perform med solely by part time workeers who require r minimal traaining in basic b assem mbly. One part p time worker will be b sufficien nt for
Operations & Manufacturing Plan 37
holder production through year 5 of operations, at which point another part time worker will be added to increase capacity. Quality Control: Holder During assembly, employees will be encouraged to stop production of both the holder and cartridge if they observe quality problems. They will then submit quick defect reports at the nearest floor computer. At the end of the holder assembly line, each holder will go through an inspection process. A quality technician will hold the unit under a portable fluorescent light and confirm that the optic sensor is working properly. This test is to ensure that the optic sensor can test for chemical reactions. Again, any problems will be reported and entered into a computer so that the cause of the defects can be understood and dealt with. Cartridge Production: FDA Requirements Because the Peanut Detective will require FDA approval as a medical diagnostic device, many precautions must be taken in order to meet the FDA’s stringent requirements of a Class II medical diagnostic device. A Class II device, which is a device used externally from the body, requires special labeling that is carried out by the packaging and plastic suppliers, performance standards, which are executed by BSure quality technicians, as well as post market surveillance, which is done through customer feedback. Furthermore, the FDA requires that chemicals in raw materials be kept in a freezer at all times until production32. The production must be kept sterile, which is accomplished by separating the holder production area from the cartridge production area to prevent contamination. Additionally, workers must wear medical gloves at all times. Machines involved in production must pass daily sanitary inspections. Cartridge Production Process The production of cartridges is completely automated, requiring a highly accurate custom built Flow Animation machine for assembly. Materials include metal mesh, pins, springs, United States. United States Food and Drug Administration. CBER Guidances / Guidelines / Points to Consider. 2007. 10 Apr. 2007
32
Op perations & M Manufacturingg Plan 38
and smaall amountss of chemiicals; therefore a labo or intensivee assembly y would no ot be appropriate given the high demand fo or technolo ogical proficiency and d accuracy. The materialls are scann ned by a bar b code scaanner and inventory amounts a arre electroniically transferrred into wo ork in proceess. Next, an n employee feeds raw materials in nto the macchine via vibratory feedeers. The machine m theen indexes, orients, an nd presentts the partss for assembly y. The mach hine producces a batch o of fifteen caartridges every minute,, and can ru un for the entirrety of an eiight hour w work day. Th he cartridges then pass through qu uality contro ol. At this stattion, a skilleed employeee will test one out off every sixtty cartridgees. After passsing through quality co ontrol, the cartridges are packeed and scaanned into finished goods g inventorry. While the machine iis completely automateed, one worrker will be required to o run each maachine, whicch can be handled h by part time workers w un ntil full timee employeess are needed. It is BSure policy to have h no more than 100 0K cartridges per mon nth produceed by part tim me employeees, mitigatiing reliancee on part time t peoplee who willl not alway ys be availablee. 100K carttridges is th he equivalen nt of one parrt time worker workingg approximately fourteen n days a mon nth. Cartridge e Production n Capacity BSure uttilizes a chase strategy for producttion, meanin ng capacity will closely y match dem mand, with cap pacity consttraints being workers aand machin nes. Thereforre, there is zero tolerance for mach hine
OM Exxhibit 9: Cartrridge Processs Time
breakdown. Accord dingly, a full time mecchanic will be
Tiime (SSec)
Process
present from year 1 on, which h would mo ore than offfset
1 10
Vibratory Feeds into Macchine
the costts associateed with baacklogs due to mach hine
1 15
Maachine Run Time
4 45
T Test Cartridges
1 10
Shrink k Wrap and Packaage
failure. Furthermo ore, full tiime speciaalized quality control technicians t will be prresent at all times. Wh hile the aggrregate plann ning shows high capaccity utilizatiion, which iss characterisstic of a chaase strategy y, the plann ning
schedulee anticipatees safety sto ock being consumed c e every period d, which is highly unliikely. Howeverr, BSure is prepared for f excessiv ve demand in order to o prevent backlogs, b ass the backlog policy explaains.
Operations & Manufacturing Plan 39
Quality Control: Cartridge At the end of each work day, a quality technician will prepare a viscous solution, consisting of water, starch, peanuts, and a phosphate buffer. This mixture will test the accuracy, sensitivity, and specificity of the cartridge. After boiling the solution, the mixture will be placed in a refrigerator overnight to thicken. The following day, an employee will test one cartridge in every batch of sixty, by inserting the trial cartridge into a holder and then sticking the Peanut Detective into the viscous solution. The results should conclude that there are peanut traces, turning the red light on. Should the cartridge fail this test, the entire batch will be discarded. When cartridge defects are found at quality control, the quality technician will generate a report at his or her workstation. Operations managers will then be able to generate monthly defect reports to make decisions on supplier reliability and manufacturing process tweaks. These quality check points are important to measure the amount of defects as well as recognize any problems along each of the assembly lines. Their proper implementation will allow managers to cut scrap costs and prevent lawsuits by producing an accurate product. Finished Goods At the end of each production line, holders and cartridges will be placed into bar coded boxes. An employee will scan each box, prompting the ERP system to enter the item into the BSure database as finished goods. Employees will then place the appropriate number of holder and cartridge boxes in a pallet according to each purchase order. From this point, the inventory will sit in storage until proper shipping arrives to deliver batches to distributors. Meeting Demand Peaks with Finished Goods BSure’s chase strategy was chosen to reduce excessive finished goods inventories, which is necessitated by the expiration on the chemical components of the cartridge as well as the holder battery; it is important to get the cartridges to the consumers as soon as possible. Holding holders and cartridges in inventory for extended periods of time will mean each unit will be less valuable to the consumer, for they will get the product for a smaller portion of its six month lifespan. In order to properly meet seasonal demand forecasts, BSure has
Operations & Manufacturing Plan 40
made the assumption that May and August will require higher than usual finished goods inventories in order to meet June and September demand peaks, brought about by children leaving for camp and school, respectively. Production is therefore increased significantly when necessary in the months preceding these demand peaks, ensuring there are always finished goods ready to be shipped out when the orders come in. It is also expected that during summer months while children are away at camp, demand will lessen slightly compared with normal levels, which will allow finished goods inventories to rejuvenate for the upcoming September demand peak. While most years do not require any inventory buildup to meet the demand peaks, years of strong growth, such as years three and seven, when marketing efforts and store distribution peak, will require a slight break from the chase strategy in order to meet demand. However, slight inventory buildup avoids needlessly increasing capacity through machine purchasing and hiring costs. Backlog Policy BSure will implement a zero‐backlog policy, ensuring consumers receive the product when they need it. From a goodwill standpoint, consumers will come to rely on the Peanut Detective, often for daily eating habits. Therefore, failure to provide the product on time will result in an unfavorable reputation, which is especially harmful to a new company trying to build trust among its consumers. From a financial standpoint, the backlog cost per holder unit is nearly $125, and about $6 per cartridge, which includes lost margin per unit plus additional lost margin of future sales. Distributors will also reduce their orders to BSure if orders cannot be fulfilled on time. CVS imposes fines and the right to reject any orders that are not complete. Because most of BSure’s lead is comprised of raw materials’ lead time opposed to the production and shipping process, keeping stringent inventory records will help prevent any backlogs, as will the very high 98% service level.
Operations & Manufacturing Plan 41
Distribution Distribution channels will handle the logistics involved in delivering the Peanut Detective to appropriate retailers.33 CVS, Walgreens, and Rite Aid handle their own distribution, as do the smaller drug stores which will be added later on in the product life cycle. These major stores specify which carriers to use for shipment to different warehouses. When shipments leave the BSure facility, employees will scan the pallets with bar code scanners, taking that inventory out of the database, thereby indicating goods have been sold. As an inventory policy, BSure loses ownership of the inventory upon delivery to distribution. BSure is not liable for any damages to property once distributors receive their orders.
Direct Sales In addition to distribution channels, BSure will be selling the Peanut Detective online through the BSure website. The advantages of using this channel are that distribution margins will be eliminated and the purchase orders will be directly connected to the inventory system, ensuring accurate inventory numbers. Consumers will go to www.bsuredd.com and select the amount of holders and cartridges they would like to purchase. After submitting the order to the website, the purchase order information will electronically transfer to the BSure database. After payment confirmation, employees will either begin production of the order, or remove the purchase from finished goods and arrange for appropriate shipment through FedEx, UPS, or the United States Postal Service, depending on customer preference, since customers will incur the cost of shipping. Measurement of Supply Chain Efficiency To ensure that the supply chain is maximizing revenues and helping to reduce costs, the company will cross reference target numbers to actual ones in these areas: •
Amount of time it took to receive raw materials from suppliers
"Distribution Channels." Encyclopedia of Small Business. The Gale Group, Inc, 2002. Answers.com 11 Apr. 2007. http://www.answers.com/topic/distribution‐channels
33
Operations & Manufacturing Plan 42
• • • •
The amount of scrap in each of the raw materials Inventory turnover Finished goods scrap Amount of time it took to ship finished goods to distribution
Situational Analysis Base Case Base case calculations were made assuming marketing is able to achieve all of its objectives and forecasting is accurate, leading to demand that closely matches expectations. Price breaks will be used to effectively reduce variable costs as demand increases based on the forecasted numbers. Variable cost per cartridge unit should drop from $1.92 in year 1 to $1.87 in year 7. Holder variable costs will be reduced from $1.68 in year 1 to $1.61 in year 7. In the base case model, initial capital investments, which include the factory, equipment, and other factory furnishings, will be more than sufficient to meet demand through year 7. As the factory layout plan shows (see OM Exhibit 3), there will be excess room, even in year 7, for cartridge production as well as excess office space. The holder production area also has excess room throughout the Peanut Detective life cycle. Optimistic Case The best case scenario projection is cartridge demand of 18 million and holder demand of 160K in year 7, which assumes 9% increase in repurchase rate for the holder and cartridge as well as increased ACV and awareness. This results in a 50% increase in demand over the base case scenario. In order to cope with the extra cartridge demand, four more cartridge manufacturing machines, at a total cost of $400K, will be required. However, the factory already has space built in for cartridge production expansion, thereby negating the need to expand the BSure facilities. Each new machine will require an operator, at a total annual cost of $80K. Also, as in the base case scenario, quantity discounts will reduce variable costs, although the discounts will be active earlier on in the Peanut Detective life cycle. Holder requirements will easily be met by adding an additional worker to the already abundant workspace provided for holder production, adding an additional $7K in labor, which is relatively low because part time workers handle holder production. However, because all added capital is a direct cost of production and costs such as machine
Operations & Manufacturing Plan 43
mechanics will now be dispersed over a larger quantity of production, contribution margin per unit will increase with the increased demand. Pessimistic Case Worst case estimates have year 1 production at 1,500 holders and 146K cartridges. While very little of the factory would be utilized at this production level, production can easily match low demand by varying the amount of part time workers, which will make up most of the work force in year 1. Capital requirements in factory equipment will not change because year 1 is already using the minimum of one cartridge production machine. Price breaks on the O‐ring and packaging will not be feasible until year 4, thereby keeping variable cost for holders at $1.92 and for cartridges at $1.68.
Continued Development As previously mentioned, an integral part of BSure is its value on patents, shown through extensive research and development costs. The goal is to have as many products patented as possible, in order to maintain the technological advances on which BSure is founded. Therefore, future products, which include detectors for other types of allergens, will be the main objective of the research and development department, as will be improving the existing Peanut Detective design based on customer feedback. While the product has an estimated life cycle of seven years, development of new products ensures the life of the organization will far exceed that of the Peanut Detective. Given the similarities between the Peanut Detective and further products, it will be easy to convert production in the main factory from one product to another. Furthermore, the machines used to produce the Peanut Detective will be able to construct other detection devices as well, with minimal changes required. Therefore, the factory is very well equipped for the diverse future of BSure products.
Information Systems Plan
Information Systems Plan 44
Information Systems Plan Plan Overview BSure will utilize information systems to integrate the main functional areas—marketing, operations management, and finance—as well as help them in making the best decisions possible. An effective IS implementation requires the right combination of application software, hardware, telecommunications infrastructure, and personnel. A brief summary of BSure’s information systems plan can be seen in IS Exhibit 1. IS Exhibit 1: Information Systems Plan Summary System Selection Component
Reasons for Selection
Feature Highlights
Application Software
Microsoft Dynamics GP 9.0
• Implemented and serviced by industry‐tailored vendor • Tight Office & Exchange integration • Familiar Outlook‐like UI minimizes training costs, human error
• In‐house ERP • Runs on MSSQL backend • Fully supports EDI • Custom dashboards • Developer API for web site linking
Server Hardware
Dell Servers and • Proven industry standards Workstations • Top of the line, at fairly low costs
• Quad‐proc. servers • Desktop and laptop workstations
Telecom.
BellSouth DSL & • Available near plant location Phone • Inexpensive (~$1,000/mo. will handle all internet needs and 800 number customer service calls)
• 6 mbps DSL • < $0.10/min. for
• Simple, proven off‐site backup
Backup Solution
LiveVault 5GB backup
Website Hosting
ASPwebhosting. • Vendor reputation com • Supports ASP.NET (MS standard)
Personnel
1 IS Manager + ERP partner support staff
solution
• Small businesses do not usually require large IT/IS staffs • ERP certified partner staff is experienced in mfg. solutions
800 number calls
• Upgradeable for higher data volumes • $225/mo. • Dedicated server • IS manager must be very well qualified
Information Systems Plan 45
Achieving Critical Success Factors BSure’s implementation of information systems will directly influence the achievability of the organization’s critical success factors. Specifically, the chosen system must accurately capture, store, process, and report certain data for use by functional area managers in their analyses. Valuable metrics such as defect rates, website hit counts and poll data are examples of data that must be easily accessible for the organization to realize its critical success factors. High Product Reliability To achieve the reliability success factor’s objective of 99.99% accuracy, both the supply chain and manufacturing process must be under complete control. For example, in order to enforce the supplier policy of “3 Strikes, You’re Out” (for defective‐material prone suppliers) BSure’s information system will trace defective product batches by maintaining detailed records linking finished goods to work in process inventory. As the operations‐ specific ERD depicts (see IS Appendix 1), each Production Batch “uses” multiple Material Batches; both entities are referenced by their unique ID numbers, which are tracked by barcode scanners. This simple tracking mechanism would be impossible without information systems in place because of massive volumes. Holder assembly and cartridge QA employees will have the ability to submit quick defect reports at their closest floor computers. Operations managers will then be able to generate monthly defect reports to measure the reliability success factor and make decisions on supplier dependability. Rapid Customer Base Expansion BSure’s web presence will be very important in gaining product awareness and thus expanding the customer base. To contribute in achieving the demanded 3‐5% annual growth in awareness, the website will aim to reach 100K monthly page hits by the peak year of demand. Website‐related market research consisting of weekly user poll and web analytics metrics will also help measure awareness growth (see Tracking Segment Awareness in Web Strategy for details).
Information Systems Plan 46
Intellectual Capital Superiority BSure will aim to hire two full time research scientists by year 4 to be on the forefront of new technology exploration to revise the product design and lower costs. The research and development team will be provided with industry‐leading software such as Wolfram Research’s Mathematica 5 and Adobe’s Creative Suite 3 to help develop their ideas.
Value‐Adding Activities The primary activities in the organization’s value chain, which are shown in IS Exhibit 2, are described in accordance to the Porter’s value chain model34. IS Exhibit 2: Information Systems Value Chain
Technology Human Resources Procurement Research & Development Inbound Logistics (15%)
Operations & Mfg. (40%)
Outbound Logistics (5%)
Marketing & Sales (30%)
Customer Service (10%)
Operations and manufacturing adds the most value (40%) to the organization because it determines the quality and thus the reliability of the product, which is one of the organization’s critical success factors. Inbound logistics (15% value added) also plays an important role in product reliability because suppliers must deliver chemical materials on time to keep cartridge shelf lives long. Marketing and Sales (30%) will largely determine the organization’s ability to expand its customer base and thus generate revenues. Marketing and sales activities are similarly crucial to the success of the business.
The Value Chain. 2006. 11 April 2007
34
Information Systems Plan 47
Supporting Activities Each of the supporting value chain activities influences different primary activities, as is depicted by the colored dots (
) in IS Exhibit 2. The most important of the
supporting activities in the organization’s value chain is technology, which affects all primary activities, as well as secondary activities.
Core Application Software Microsoft Dynamics GP As shown in the information systems overview, BSure will use Microsoft Dynamics GP 9.0 to manage core electronic business processes. Dynamics GP is an in‐house ERP solution that Microsoft purchased and redesigned in 2000. The software is customized, implemented and serviced through Microsoft Certified Partners; BSure will employ JourneyTEAM, LLC.35 as the Dynamics GP liaison because of the company’s excellent track record with organizations dealing with manufacturing of durable consumer goods36. Dynamics GP, like many other ERP solutions, is capable of handling all aspects and functional areas involved in BSure’s Peanut Detective operations. Contribution to High Product Reliability Dynamics GP allows users to create custom views and “dashboards” (screens with customized pieces of information chosen per user), giving managers the ability to have the information they use most often readily available37. This functionality will allow operations managers to track progress for achieving high product reliability. OM managers will have single‐screen access to current production rates in comparison to aggregate planning forecasts, as well as supplier‐specific defect summaries for effective three‐strike supplier policy enforcement. Dynamics GP’s standardized data export functionality will also allow OM managers to run statistical analysis on quality levels in MS Excel when needed. JourneyTEAM Homepage. 5 April 2007
Information Systems Plan 48
Software Selection Process The major choices for core application software types were: separate best‐of‐breed systems, a SaaS ERP system and an in‐house ERP system. Best‐of‐breed systems were eliminated because of the unnecessary overhead costs involved and the lack of a unified user interface across business processes. Overhead would include separate implementation, training, and maintenance costs for each package. A more advanced IT department would also be required for best‐of‐breed system implementations38. Integrated systems are also more streamlined, giving managers quicker access to cross‐functional data. Software‐as‐a‐Service (SaaS) ERP systems were also eliminated because of their reliance on internet up‐time. Internet service providers that could provide adequate bandwidth and reliability levels would cost thousands of dollars each month. It would not make sense for a manufacturing firm to run daily operations over the internet. Thus, it was determined that an in‐house ERP was the best solution for the BSure business. In‐house ERP Decision The two candidates considered were Microsoft Dynamics GP and SAP Business One. Other Dynamics and SAP products (Dynamics AX, CRM, SAP All‐in‐One) were not considered because of either lack of experience or too large of a scope.39 Although SAP is the world renowned leader in ERP solutions, Dynamics proved to be a more ideal solution for the organization because of its extremely familiar and consistent user interface and tighter MS Office integration. The primary reason that BSure will be using Dynamics GP over SAP Business One, which is a slimmed down version of All‐in‐One, is its user interface. Axel Angeli, an expert in ERP packages, states: Dynamics looks fresh and attractive and navigating around it is easy for everybody familiar with applications like Microsoft Outlook… Beyond the look and feel, the way
Best of Breed Vs. Integrated Systems. 2 April 2007
Information Systems Plan 49
individual program components are controlled is pretty homogeneous within Dynamics, while every transaction within [SAP] R/3 sports a high degree of individualism.40
Joe Gulino, another expert in the field, also states in the same article: Most employees who work for midmarket companies use Microsoft Outlook… How many of these employees have had formal training in Outlook? The answer is very few…One of the biggest reasons ERP implementations fail is the inability to get employees to adopt the system.40
A more familiar user interface will result in lower training costs and human error due to confusion. Minimizing human error is a key method of ensuring that the organization’s high reliability critical success factor is met. Dynamics GP also integrates more natively with all MS Office products, as well as MS Exchange for e‐mailing purposes.41
Web Strategy The organization’s core web strategy is to create a website, the “BSure Center for Peanut Allergies,” to be an online community for people who are in some way affected by peanut allergies. The website, which is currently located at http://peanut.nurik.net, will eventually be located at www.bsurecfpa.org, www.bsuredd.com, and at www.peanutdetective.com. The strategy focuses on the critical success factor of rapid customer base expansion as well as customer retention. There are few active web sites that provide information and community resources for the Peanut Detective’s target segments. Of those few, peanutallergy.com is the most highly visited, based on their own estimates (7‐35 thousand hits per month) as well as their Google’s search ranking.42 For screenshots of peanutallergy.com, please see IS Appendix 4. The BSure Center for Peanut Allergies website will also advertise the Peanut Detective wherever possible. However, it will not push the product on users; instead, users will have SAP All‐in‐One vs. MS Dynamics. 22 November 2005. 7 April 2007
Information Systems Plan 50
a variety of resources at their disposal that describe the benefits of various allergy coping methods, cleverly promoting the benefits of the Peanut Detective. Reaching the Target Segments It is currently relatively difficult to find concrete information about the Peanut Detective’s target segments; Consumers in the target segments are geographically spread out and are not clustered in any specific region due to the ubiquitous nature of peanut allergies. This makes it difficult to reach consumers for market research and product awareness purposes. The community website will create a new, very valuable communications channel between BSure and its consumers. This will greatly aid in providing marketing managers with a new source of market research data. This data will empower managers to make more accurate projections and thus make better decisions. Tracking Segment Awareness Because customer base expansion will be measured partially by segment awareness, it will be important to have access to accurate metrics for this data. The website will utilize the free Google Analytics web software to track page views and unique hits.43 Information systems personnel will have daily access to see how well the website is progressing in reaching the 100K page views/month goal. Web server logs will also provide user IP addresses, which can then be cross‐referenced with a free online geo‐location database for access to user geographical information.44 Weekly website user polls, controlled mostly by the marketing department, will also provide valuable market research useful for calculating the product’s customer satisfaction rates and product awareness. Conveying Product Information The website will also contain content describing the Peanut Detective family of products under the “BSure Products” section. Product usage videos and reference information such as the instruction manual and customer service phone number will be available at this Google Analytics Homepage. 23 March 2007
Information Systems Plan 51
location. “Add to cart” links will also be visible on the product pages for easy online ordering. Website Structure The basic website structure, which is detailed in IS Appendix 5, is positioned as an information resource. The homepage will aggregate industry news and doctor articles (see DocBlog below) to compel visitors to bookmark the page. The homepage content will also be available in newsletter and RSS45 forms to maximum circulation and availability. FeedBurner will be used to monitor RSS usage rates for market research purposes.46 The homepage will always contain advertisements for the BSure Peanut Detective so that users are aware of the organization supporting them. DocBlog (doctor’s blog) will be a weekly article posting (similar to a blog post) by doctors that will partner with the organization. DocBlog articles will promote doctors’ opinions about how to deal with peanut allergies; the marketing department’s distribution of doctor’s kits will provide incentives for doctors to promote the Peanut Detective. An example of DocBlog is shown in IS Appendix 5. The community aspect of the website will allow users to communicate with each other by discussing their stories in forums (message boards). Each user will have the ability to share their relationship to peanut allergies (“My Story”) by editing their user profile. This will provide a simple way for users to quickly become part of the community. Other website resources will include comparisons of various peanut allergy coping methods as well as links to internet articles on peanut allergies. This will promote the website’s position in Google’s PageRank search rankings because it will act as a “hub” site by hosting useful outbound links.47 RSS (Really Simple Syndication) allows users to embed live content on their personal homepages and in other news aggregation software. 46 FeedBurner Homepage. 4 April 2007
Information Systems Plan 52
Building Competitive Advantage BSure’s main competitive advantage will be the amassment of consumer trust in the Peanut Detective. Consumer trust is crucial to the success of customer base expansion and the overall success of the firm. Doctor sponsorship via the DocBlog will help tremendously in gaining this necessary trust. Consumer trust is also vital to the growth of word‐of‐mouth awareness. Because none of the Peanut Detective competitors have great online presences, providing a community‐intensive website and thus earning consumer trust will promote the BSure brand and provide a significant competitive advantage. Web Site Implementation BSure will enlist the services of a contracted web developer experienced in ASP.NET and other Microsoft technologies such as IIS to develop and maintain the website. The website will be hosted at ASPwebhosting.com on a dedicated server, guaranteed with 99.95% uptime, and allowing for 100 gigabits/mo. throughput.48 The web developer will also be in charge of developing the shopping cart module and subscription services. ASP.NET will be the core web technology used because of its ability to integrate with Dynamics GP’s developer API (application programming interface). Finally, the web developer will be asked to create a simple content management system (CMS) to provide easy web content control to other managers in the organization. One example of a CMS‐enabled process is marketing managers’ creation and monitoring of user polls. Because the web developer will be contracted for maintenance as well as development, managers will easily be able to request more dynamic content updates as well.
Supporting the Business Model The BSure Peanut Detective business model offers a robust variety of revenue streams and distribution channels, including drug store distribution, direct online sales, and even a Dedicated Server Hosting from ASPwebhosting.com. 11 April 2007
48
Information Systems Plan 53
product replenishment subscription service. The organization’s information systems were coordinated to handle and deliver data from and to all of these sources. Retail Drug Store Sales Because drug store retail sales will be the primary source of revenue for the Peanut Detective, the organization’s information system was coordinated to best handle large volumes of external data. Microsoft Dynamics GP has built‐in electronic data interchange (EDI) support that fully meets the requirements of BSure retailers such as CVS and Walgreens. Internet Sales Because only 5% of those surveyed said that they would initially purchase allergy‐related products over the internet49, BSure will not concentrate on single purchase online sales; instead, web marketing efforts will be focused on pushing direct subscription sales, orderable by internet or phone, which will be one of BSure’s top revenue streams. Survey data shows that 25‐50% of the target segments would be interested in purchasing such a plan. Users will receive paper statements or online statements made available under the “My Account” section of the website. Both types of online‐submitted orders will be communicated from the web server to the organization’s in‐house application servers via a secure line. The contracted web developer will work in coordination with the marketing and information systems managers to ensure that both types of internet sales run smoothly. Subscription plans benefit both the consumer and the organization—consumers have the comfort and security of quick and easy home delivery and the organization secures a profitable customer relationship.
Hardware and Telecommunications The organization’s IT infrastructure is designed around the chosen ERP solution, Microsoft Dynamics GP. Dynamics GP requires at least two servers—an application/transaction Peanut Allergy Survey. WebSurveyor.< http://desktop.vovici.com/Default.aspx>
49
Information Systems Plan 54
server, and a dedicated MS SQL server.50 These servers will sit behind two APC Smart‐UPS (uninterruptable power supply) systems to prevent damage due to power outages. The factory floor will also require five or more client workstations for USB‐connected barcode scanning and manual data entry. Managers will require laptops for both in‐office and from‐ home work. Dell was chosen to satisfy all server and workstation computing requirements because of their long standing reputation for cost effectiveness, on‐site support, and B2B expertise. All supporting hardware will be purchased over the internet from CDW, a well‐known business computing retailer. All machines will be networked together using a business‐ ready 16‐port Cisco VPN router, which also provides firewall security. Wireless routing can quickly and easily be implemented if necessary and if it is allowed by FDA regulations. BellSouth (now AT&T) business DSL and local/long distance phone service will be purchased to handle the organization’s telecommunications needs. The long distance phone service provides access to an 800 number at a very affordable cost ($0.10/min.). This line will be used for supplier and retailer relations, customer service and for taking direct consumer purchase orders. Carroll Communications’ Partner Phone System will be purchased for the phone system’s hardware components—the system is designed for small businesses with up to 20 phones.
Data Security There are inherent security benefits when using software from Microsoft. Automatically installed software patches provide up‐to‐date security for the operating systems and productivity software installed on servers and workstations. Microsoft has a colossal reputation of dedicating extensive development efforts towards security of their products. Also, the tighter integration that comes with having a single software vendor implies smaller chances of security leakages. The organization will also standardize the usage of 50 System requirements for Microsoft Dynamics GP 9.0. 12 April 2007
Information Systems Plan 55
Symantec AntiVirus Corporate Edition on all servers and workstations. For offsite data backups, LiveVault’s 5GB backup service will be used and incremental data will be backed up nightly, with full backups weekly.
Personnel A single information systems manager with significant MIS and IT (troubleshooting, networking) experience will be sufficient maintenance personnel throughout BSure’s years of operations. The reason is that the bulk of application support can be handled by the Dynamics GP liaison, JourneyTEAM, and hardware support will be enacted by Dell via three year on‐site warranties and upgrades. The IS manager, who will be promoted to chief information officer in later years, will communicate with the servicing departments of these organizations whenever trouble arises. The IS manager will also be in charge of ensuring that employees are familiar with the system and that they can positively exploit all of the available features of the ERP for maximum efficiency. As mentioned in the organization’s web strategy, a web developer will be contracted for initial web development as well as continued maintenance and upgrades. BSure’s IS manager will also support this web developer in meeting hardware and data access needs.
Implementation Schedule The implementation of the system will begin seven months before launching the product. First, the founding IS manager will order Dynamics GP and work with JourneyTEAM to customize the ERP solution. Hardware and other software will also be purchased at this time. System testing will then be performed by JourneyTEAM and the IS manager to ensure that all business needs are met and that business processes are operating smoothly. After the product launches, the IS manager will continue to work closely with JourneyTeam to enact IS system servicing. The IS manager will also be in charge of basic network administration. Over the first few years of operations, hardware will be upgraded and new servers and workstations will be purchased from Dell as necessary. IS Exhibit 3 illustrates BSure’s basic information systems implementation schedule.
Information Systems Plan 56
IS Exhibit 3: Implementation Schedule Order Dynamics GP and install with JourneyTEAM L‐7 mo.
Train employees and test system
Add new hardware, upgrade software, request new features as business grows 1‐2 year after launch
L‐2 mo.
Launch product and website L‐4 mo.
L‐6 mo. Order and install computer hardware
1 month after launch Analyze system performance and request changes as necessary
Hire web developer and communicate requirements
Costs Because information systems will be such an integral part of BSure’s Peanut Detective operation, the costs will be relatively high. Pre‐launch costs will be around $86K and total costs after a single year of operation, including the IS manager’s salary and benefits, come close to $205K. Web developer contracted work was estimated at $50/hr for 50 hours to develop the initial web site. The cost of maintenance was also estimated at $300‐$500 monthly (average of 6‐10 hours per month of minor updates). A summary of pre‐launch and year 1 IS costs are presented in IS Exhibit 4. IS Exhibit 4: Pre‐launch IS Costs (w/o $60K in Salaries) Component
Total Cost
Core Application Software
$42,755
Core Hardware
$19,600
Support Hardware
$5,147
Information Systems Plan 57
Component
Total Cost
Support Software
$5,048
Services & Resources
$13,634
Total
$86,184
After the first year, information systems costs fluctuate due to bi‐annual hardware upgrades and new purchases due to estimated workforce and operation expansion. An IS costing schedule for the first seven years of BSure’s operations can be seen in IS Appendix 6.
Summary Information systems play a crucial role in the success of BSure’s Peanut Detective product. If the product is to become the leading preventative measure against peanut‐related allergic reactions, the implemented information system must run smoothly. The system must be able to facilitate, support, and monitor the organization’s critical success factors of reliability, customer base expansion, and intellectual capital security. The founders of BSure Diagnostic Devices, Inc. are confident that these requirements will be satisfied and exceeded with the described information systems plan.
Financial Analysis & Plan
Financial Analysis & Plan 58
Financial Analysis & Plan Internal Rate of Return & Net Present Value Company BSure Diagnostic Devices will have a healthy internal rate of return of 61% and a net present value of $4.7 million based on a 25% discount rate (FE Exhibit 1). FE Exhibit 1: IRR & NPV
IRR
NPV
Total
61%
$4.73M
Investors
55%
$2.60M
Friends, Family & Management
76%
$2.13M
Investors Investors will receive an internal rate of return of 55% and have a net present value of $2.6 million. The investor will receive positive cash inflows by year 3 and every year thereafter. Friends, Family & Management Friends, family and management will receive an internal rate of return of 76% and have a net present value of $2.1 million (see FE Exhibit 1).
Investment Ownership Share for investors will be 60% while friends, family and management will receive a 40% stake (see FE Exhibit 2). BSure believes this is a reasonable ratio since friends, family and management invented and developed the Peanut Detective, but feel outside investors should get majority ownership since their investment is ¾ of the total cash needed and the investment has significant risks associated with it.
Financcial Analysis & & Plan 59
FE Exhibit 2: Co ontribution & Ownership
Ownersh hip
Tottal Contrib bution
% C Contribution
Total
100%
$1.96M
100%
Inve estors
60%
$1.47M
75%
Frie ends, Family & & Management
40%
$0.49M
25%
Contribu utions
Contribution of Fu unds
In orderr to launch and operatte properly,, BSure Diagnostic
Investors Friends, Faamily, and Man nagement
Devices will need a a total inveestment of $2.0 million. This
$0.5 M (25%)
investmeent will not be needeed immediately, but ov ver the course of o 2.5 yearss in order to t offset neegative cash h flows. Investorr contributio on will be 75% of the total investm ment or
$1.5 M (75%)
$1.5 milllion, whilee friends, faamily and managemeent will contribu ute 25% or $ $0.5 million n. BSure Diaggnostic Dev vices will ask for $0.5 m million in staartup investmeent in order to cover startup exp penses, rentt and produ uct develop pment. Investors will therrefore need d to contribute $0.4 miillion whilee friends, family and management m t will invest $0 0.1 million b before operrations begin n (see FE Exxhibit 3). FE Exhibit 3:: Contribution n Details
Inittial
Year 1
Ye ear 2
Total
$0.5M
$0.8M
$0 0.6M
Investors
$0.4 4M
$0.6M
$0 0.5M
Friends, Fam mily & Managem ment
$0.1M
$0.2M
$0 0.2M
The follo owing two y years will require conttributions frrom investo ors of $0.6 aand $0.5 miillion in years 1 and 2 resspectively aand friends, family and d managemeent of $0.2 aand $0.2 miillion in yearss 1 and 2 as a well. Th hese additio onal investm ments will be used in n order to keep operatio ons running at an efficieent pace by hiring new w employeess and contin nuing to incrrease
Financcial Analysis & & Plan 60
marketin ng, as sales will takee two years before th hey find trraction and d acceleratee the company y into positiive cash flow ws in year 3 3.
Cash Flo ows As menttioned earlier, cash flo ows will rem main negatiive in the fiirst 2½ yeaars of operaation. The com mpany’s inittial costs arre substantiially high du ue to the faact that thee organization is providin ng a medicall device which needs a higher leveel of quality y to both inccrease reliab bility and accu uracy for thee end user ((see FE Exhibit 4). FFE Exhibit 4: C Cash Flows (yyears 0‐7) (data table values in thousands) $20M
Cash Flows
$15M $10M $5M $0M ($5M) Term minal Value
0
1
2
3
4
5
6
7
‐
‐
‐
‐
‐
‐
‐
$15.2M
FFM M
($0.1M) ($0 0.2M) ($0.2 2M)
$0.0M
$0.5M
$0.7M
$1.3M
$2.1 1M
Inveestors
($0.4M) ($0 0.6M) ($0.5 5M)
$0.0M
$0.8M
$1.1M
$2.0M
$3.2 2M
Year
Assumin ng paymentt of dividen nds every month, m inveestors shou uld expect to t recover their investmeent in 4.77 7 years or 4 4 years and d 8 monthss. Thereafteer investorss should exxpect increasin ng cash infflows until the end off year 7. Future cash flows werre calculateed by obtainin ng the terminal value off BSure at th he end of yeear 7. Terminal value fo for the comp pany, at $15.2 million, waas calculated d by taking the presentt perpetuity y of future cash flows w with a discountt rate of 25 5% and a sh hrinkage raate of 10%.. This declin ning rate due d to increeased competittion, was caalculated baased on the product liffecycle of th he Peanut Detective (see MK Exhibit 8 8).
Financial Analysis & Plan 61
Profitability and Breakeven BSure will experience negative net income in years 0 through 2 (see FE Exhibit 5). Breakeven analysis shows that for years 1 and 2 the company would need to sell an excess of 1 million cartridges in order to turn a profit (see FE Exhibit 6). Only cartridge breakeven has been analyzed as holder sales are much less relevant. By year 3, the company will turn a profit of $0.8 million, due to sales more than doubling between years 2 and 3. This large increase in sales is mainly due to an aggressive marketing campaign in the first three years that builds up both brand awareness and reputation while also increasing customer retention. Thereafter net income continues to increase, surpassing the breakeven point by a large margin as a larger quantity of both holders and cartridges get sold. FE Exhibit 5: Summarized Income Statement Year
0
1
2
Total Sales
$0K
$856K
$2,233K
$7,606K $11,382K $13,999K $23,792K $32,376K
Total COGS
86K
645K
1,416K
4,416K
6,570K
8,098K
13,727K
18,737K
Gross Profit
0K
211K
817K
3,191K
4,812K
5,901K
10,065K
13,639K
371K
SGA
0K
941K
1,227K
1,814K
1,986K
2,236K
2,534K
2,749K
Depreciation
0K
18K
18K
32K
47K
61K
71K
118K
(371K)
(748K)
(428K)
1,344K
2,780K
3,605K
7,459K
10,772K
0K
0K
0K
537K
1,112K
1,442K
2,984K
4,309K
($371K)
($748K)
($428K)
$806K
$1,668K
$2,163K
$4,476K
$6,463K
Start up Costs
EBT Taxes Net Income
3
4
5
6
7
FE Exhibit 6: Breakeven for Cartridges Year
1
2
3
4
5
6
7
1,029
1,303
1,875
2,099
2,414
2,796
3,112
Forecast Units (Cartridge)
281
738
2,458
3,697
4,572
7,812
10,686
Breakeven Total Revenue
$2,913
$3,829
$5,976
$6,917
$7,979
$9,829
$11,329
$856
$2,233
7,606
$11,382 $13,999 $23,792 $32,376
Breakeven Units (Cartridge)
Forecast Total Revenue
Financial Analysis & Plan 62
Ratios Analysis The product team has conducted extensive analysis of both industry ratios in the diagnostic substances industry (SIC 2835) as well as ratios of two leading companies in the self diagnostic business: Roche Pharmaceuticals and Abbott Laboratories (see FE Exhibit 7). Roche is a Swiss‐based company and the leader in diagnostic products.51 Abbott Laboratories is a U.S. based company and second in terms of its market share of diagnostic devices.52 Unlike Roche, Abbott is not performing as well year‐to‐year. While both companies make products similar to the Peanut Detective, neither makes a product to detect the presence of peanut and thus they are indirect competitors, but may become competitors in the future. FE Exhibit 7: Company & Industry Ratios
BSure
Industry
Roche
Abbott
Cash % of Sales
7%
20%
7%
6%
Current Ratio
3.12
3.6
3.22
0.94
Quick Ratio
3.08
1.7
2.78
0.71
Gross Margin
39%
61%
73%
56%
Profit Margin
16%
(6.3%)
18%
7.6%
Cash to Sales Ratio BSure Diagnostic Devices will hold a cash to sales ratio of 7%. This is similar to the cash to sales ratio of both Roche Pharmaceuticals as well as Abbott Laboratories which are 8% and 6% respectively. The industry however holds on to 20% of cash, the reason being that they want high liquidity in case of litigations or recalls. While the organization expects to hold more cash in later years, the first few years will require investments in new machines and
Figures and Reports. Roche. Annual report, 2006. 10 Apr. 2007
Financial Analysis & Plan 63
equipment, employment of new workers and aggressive spending in marketing in order for the product to turn a profit. Current/Quick Ratio BSure Diagnostic Device’s current ratio is 3.12 and a quick ratio of 3.08. This compares favorably with Roche which has a current ratio of 3.22 and a quick of 2.78. Abbott’s current and quick ratios are both below zero, indicating that their liabilities are weighing heavily on the company. The industry as a whole has a current ratio of 3.7 and a quick of 1.7. This indicates that there is a large amount of inventory accounted for on the balance sheet. To deal with this problem, BSure is utilizing a chase strategy and thus its inventories are efficiently used and kept in small quantities. Gross/Profit Margin BSure’s gross profit margin is 39% while its net profit margin is 16%. Gross profit margins in both the industry, Roche and Abbott Laboratories are high at 61%, 74% and 56% respectively. BSure’s gross margin is significantly less because it is a startup company with high variable costs and less bargaining power then its indirect competitors. The 16% net margins, however, are in line with Roche and Abbott at 18% and 7% respectively and are well above the industry at ‐6.3%. The industries negative net margin is due to large fixed assets and the fact that many of these companies have a diversified line of diagnostic devices. The company’s net margin will remain positive by focusing efforts on the Peanut Detective in the first few years thus maximizing factory and administrative efficiency in that one product.
Risks BSure Diagnostic Devices has analyzed some of the greatest risks that will adversely affect the company. They include four cartridge variable costs, the distribution price for cartridges, repurchase rate and entering competition (see FE Exhibit 8).
Financial Analysis & Plan 64
FE Exhibit 8: Sensitivity Analysis Legend
Cartridge
Chemicals
Other
Variable
Original
New
% Change
$2.70
$2.40
11%
190
134
‐29%
Antibody
$0.80
$1.71
114%
Competition (years 5‐7)
20%
47%
135%
Shell/Window
$0.24
$1.10
358%
Substrate
$0.24
$1.15
380%
Enzyme
$0.21
$1.12
434%
Cartridge Selling Price Repurchase Rate (Cartridge)
Cartridge Variable Costs There are four variable costs that go into making the cartridge that if changed could have a hefty negative impact on the company’s financials. These four costs in order of biggest impact are the antibody, plastic shell, substrate and enzyme. The antibody, substrate and enzyme are the series of chemicals inside the cartridge that combine to create the chemical reaction needed to detect peanut traces. The plastic shell encloses all of the chemicals inside the holder. These four materials are the most expensive variable costs; as a result, a very slight change in the price of any of these chemicals or plastics can have a large impact on cartridge profit margins. Because the cartridge represents the majority of revenues, these price changes can indeed negatively affect all of the financial statements. The company currently plans to hedge prices with its suppliers in order to minimize this risk; however, unexpected problems with one of the suppliers could hinder the organization’s ability to maximize margins. Cartridge Pricing Another variable that can have a large effect on the health of the company is the cartridge selling price. Because each cartridge has a low margin, a small change in the manufacturing price can have an adverse effect on sales. If competition increases their cartridge margins more effectively than BSure, forcing the company to cut its distribution costs, this will have
Financial Analysis & Plan 65
a negative impact on the company’s financials. BSure will minimize this risk by gaining more purchasing power by years 3 and 4 when competition enters, by establishing relationships with suppliers as price setters rather than price takers. Repurchase Rate BSure projects repurchase rates of cartridges to be 190 per person per year. Sensitivity analysis concludes that the project NPV would be zero if the repurchase rate fell to 134. This 29% drop is significant—if the product’s marketing strategy is not able to convince peanut allergy sufferers to trust the Peanut Detective’s testing accuracy and promote repeat usage, this decrease in repurchases could dampen financials. The organization must therefore make certain that the Peanut Detective meets customer requirements so that repeat purchases increase, thereby increasing cartridge sales. Competition An unexpected rise in competition in years 5 through 7 could have significant effects on financial figures. A spike from 20% to 47% lost revenue from competing products will result in a zero NPV. To hedge this risk, BSure will invest in design patents, making it difficult for competition to make a product similar to the Peanut Detective.
Scenarios Throughout this report, estimates have been discussed as to how BSure will grow, turn a profit and then divide ever increasing returns to its shareholders. In addition, optimistic and pessimistic company financials will be analyzed. Optimistic Scenario
FE Exhibit 9: IRR & NPV for Optimistic, Base, and Pessimistic Cases
Under the optimistic scenario BSure Diagnostic Devices’ internal rate of return will be 105% and its net present value will be $13.7 million (see FE Exhibit 9).
IRR
NPV
This leaves the investor with an IRR of 96% and an NPV Optimistic
105%
$13.70M
of $8.1 million (see FE Exhibit 10). The reason for the Base
61%
$4.73M
jump in both IRR and NPV in the optimistic scenario
‐14%
($1.89M)
Pessimistic
Financial Analysis & Plan 66
is that the Peanut Detective will both increase store penetration and retail acceptance. In the first few
FE Exhibit 10: IRR & NPV for Investors (Opt./Base/Pess.)
years retailers will be more willing to stock the product on store shelves as they will have gained trust Optimistic in the product quicker than expected. End users will Base also trust the product more readily than expected and Pessimistic
IRR
NPV
96%
$8.06M
55%
$2.60M
‐18%
($1.47M)
repurchase rates will be higher than expected, from 37.5% to 45%. Furthermore, accounts receivable days will decrease from 40 days to 30 days as BSure Diagnostic Devices will have more purchasing power and retailers will want to keep BSure’s business, so in turn will payback short term debts quicker. The company’s accounts payable days will increase from 35 to 40 days because it will have stable relationships with suppliers and they will allow the organization to pay back short term debts at later dates. Investors’ cash flows will remain negative until year 3, similar to the base scenario, however by the end of year 3 cash outflows will be significantly increased, from $0.02 million to $0.7 million. Investments will be paid back to investors in exactly 3.0 years from the initial investment date. Pessimistic Scenario Under the pessimistic scenario, BSure Diagnostic Devices’ net present value will be ‐$1.9 million and an internal rate of return of ‐14% (see FE Exhibit 9). This will leave investors with an NPV of ‐$1.5 million and a loss of $1.4 million of their investment (see FE Exhibit 10). A positive point to note is that despite the negative IRR and NPV, cash flows will become positive in year 4 and thus investors will be able to recoup some of their losses. In this unlikely scenario, it is possible that Peanut Detective will not be easily trusted by store retailers and thus there will be both a decrease in store penetration as well as acceptance. This will be compounded by increased competition in year 3 and 4 that will take market share at a more aggressive and faster rate than predicted. Furthermore, customer retention will decline and this will affect the repurchase rate declining the holder rate from 37% to 30% and cartridge rate from 76% to 65%. While these numbers seem unfavorable to the investor the chances of such an event occurring is very slight.
Financial Analysis & Plan 67
FE Exhibit 11: Cash Flows for Optimistic, Base and Pessimistic Year
0
1
2
3
Optimistic
($548K)
($540K)
($115K)
Base
($548K)
($783K)
($629K)
$36K
Pessim.
($548K)
($907K)
($1,007K)
($703K)
4
5
$1,120K $3,090K $5,454K $1,337K $1,765K $104K
$213K
6
7+
$8,369K
$42,579K
$3,329K
$20,460K
$325K
$950K
Investors will lose money if these unfavorable circumstances take shape and there seems to be no positive outlook in the future barring significant events such as a major increase in demand or an interested party acquiring the BSure brand and facilities. If these conditions do take place, the company will cease operations and salvage equipment and raw materials in order to payback investors.
Why Invest? 68
Why Invest? When you invest in BSure Diagnostic Device’s Peanut Detective, you are investing in a product that can potentially save lives. The product will satisfy an unmet need by pioneering a new reaction prevention method for peanut allergy sufferers. The investment does come with a fair amount of risk. The main revenue stream comes from selling cartridges. The company’s margins are significantly lower on cartridges than they are on holder units. Variable price fluctuations or a decreased cartridge distribution price could put a significant strain on the operation. However, with these risks come substantial financial rewards. If the product does indeed follow estimated projections, investors will reap the majority of the benefits. The project’s current IRR is high (61%), so it inherently allows for volatile deviations from estimates.
Beyond Year Seven The long‐term effects of competition will begin to decrease demand starting in year 7. After reaching peak demand levels, the Peanut Detective will be in the decline stage. At this point, the product will have an estimated terminal value of $15.2 million (assuming a ‐10% growth rate and a 25% demanded rate of return). The Peanut Detective itself will be harvested while new spin‐off products such as the Tree Nut Detective and Egg Detective (other top prominent food allergies) are developed and prepared for launch.
Conclusion While there are definite risks in this investment, the upside exceedingly outweighs the downside. Investing in the Peanut Detective is a great opportunity to profit from an innovative product while improving the quality of life for millions of people.
Appendices
General Appendices 69
Appendices General Appendices General Appendix 1: External Product Design
¾”
3”
Test Button Eject Button not shown (on other side)
⅔” ½”
Holder and Cartridge Cap (Cartridge hidden)
1 ¾”
Cartridge
Holder and Cartridge
General Appendices 70
General Appendix 2: Internal Product Design
Peanut Proteins Peanuts and peanut by‐products contain universal proteins called Ara H 1. This protein, also known as an antigen or allergen, has a high resilience to heated environments and therefore can survive normal cooking or baking temperatures.53 Ara H 1 can be found in common foods ranging from cupcakes to soups. Even peanut residue on a dinner table can be effectively dangerous to anyone who is sensitive enough to it.
Extraction Ara H 1 is relatively easy to extract, even after having been processed. Peanut antigens are particularly prone to a saline solution called NaCl—sodium chloride. Once this antigen has been extracted, a widely used technique, called ELISA, which short for Enzyme‐Linked ImmunoSorbent Assay, can be used to visually identify these proteins.54
ELISA There are three main methods to ELISA; indirect, sandwich, and competitive. Due to procedural restraints of indirect and sandwich methods, the Peanut Detective employs a variation of the competitive technique. Essentially, this technique traps Ara H 1 and restricts it from proceeding further. Once Ara H 1 is trapped, further steps can be to taken to quantify the presence of this antigen.
Detecting Ara H 1 The competitive technique requires the use and preparation of three separate chemicals. The first of these substances is called an antibody. Antibodies are cells that can be specially cultured to locate and attach to Ara H 1. The next chemical required comes in a pair, enzymes and substrates. These chemicals are useless without one another; enzymes react to substrates by releasing energy. Depending on the type of enzyme and substrate used, this energy can be visible to the
Pomes, A, R Vinton, and M.d. Chapman. "Peanut Allergen (Ara H 1) Detection in Food Containing Chocolate." Journal of Food Protection 67 (2004): 793‐798. 54 Pomes, Anna, Ricki M. Helm, Gary A. Bannon, Wesley A. Burks, Amy Tsay, and Martin Chapman. "Monitoring Peanut Allergens in Food Products by Measuring Ara H 1." Journal of Allergy and Clinical Immunology 111 (2003): 640‐645. 53
General Ap ppendices 7 71
n naked eye as a a fluoresscent glow or color ch hange. The last chemiical requireed is a supeer saline e extraction b buffer, as exp plained abo ove.
P Preparatio on B Before any a actual proceesses can occcur, these chemicals h have to be p prepared. Th he phosphate saline b buffer has to o be mixed w with Ara H 1 specific antibodies. T These antibo odies have aan enzyme aattached t to it. Next, t two cotton sstrips are required. Th he first strip p, seen in th he diagram,, has more A Ara H 1‐ s specific anttibodies attaached to itt. The secon nd strip is laced with h substrate chemicals that are d designed to react to enzzyme‐linked d antibodiess.
P Product Pa arts Inteernal
External
Internal Prrocess Flow w
T first steep (1) of prrocess is to press the ““Test” butto The on. After prressing the “Test” buttton a pin p pierces the phosphate buffer/enzy yme‐linked bag, as seen in step (2 2) of the pro ocess diagram. As a
General Appendices 72
result, the solution within the bag flows through the tube and through the mesh. In step (3), the solution dissolves the sample stuck on the mesh. There are now two different scenarios. Sample with Peanuts If there are any antigens present, enzyme‐linked antibodies will attach to them. Step (4) is where the solution/sample mix gets absorbed in the exposed strip. Assuming again the sample has Ara H 1, the enzyme‐linked antibodies will not advance beyond this strip. The rest of the solution then moves onto step (5). Since the antigens, along with enzyme‐linked antibodies, were filtered in the first strip, there will not be any kind of glow. In step (6) the optic reader analyzes the last strip for signs of fluorescence. In this case there is no glow therefore indicating that the food does contain traces of peanuts. Sample without Peanuts Assume now, that in step (3), the sample had no antigens. The solution with the sample dissolved will continue to get absorbed by the first strip. However, since there is no Ara H 1 to become attached, the enzyme‐linked antibody will make it to the last strip. In step (6) the optic reader analyzes the last strip for signs of fluorescence. At this point, the enzyme‐linked antibody will react with the substrate and release a fluorescent glow indicating that the food does not contain traces of peanuts.
Visual Detection The detection of fluorescence is fairly simple. It is a technology widely used among pregnancy tests and other function‐similar applications.55 Optical sensors scan the last strip of the cartridge. Even the minutest glow is detectable.
"Clear Blue ‐‐ How Pregnancy Tests Work." Clearblue.
55
Marketing Ap ppendices 7 73
M Marketing Appendicces M MK Appendix x 1: Segmentaation Tree
U.S. Population (30 01M) Peanut Allergy Sufferers (3M) Mild n Irritation (0.3M)
Hives,, Vomiting, A Anaphylaxis if Ingested (2 i 2.5M) Children & Teens (87 75K)
Other Foo od (8M)
No Food Alle ergy (29 90M)
Severe Reeaction to Touch o or Smell (0.2 2M)
Adults (1,625K)
M MK Appendix x 2: Press Rele ease PRESS RELEA P ASE C Contact: (Pre ss only)
For Rele ease 9 a.m. ES ST Occtober 1, 200 07
Leora Kadisha L S Senior Vice Pr resident of M Marketing leora@bsured dd.com Sure Diagnosttic Devices, In nc. unveils Peeanut Detectiive BS New Devicce that detectss peanut tracees in foods. ((LOUISVILLE, Kentucky – O October 1, 200 07 ‐ BSure Diaggnostic Devicees, Inc.) Today y, BSure Diagn nostic Devicess, Inc. introduced d a preventatiive device meaant to detect p peanuts in foo od. The device, slightly larger than a tube of T o lipstick and d fit for a key y chain, is meeant for thosee with peanu ut a allergies. To teest foods, thee consumer brrushes the Peanut Detective over their food/liquid, f an nd pushes thee T Test button. In n 45 seconds, the device will w show, with h a green or red r light, wheether there is a presence of o p peanut in the c consumer’s fo ood. The holdeer expires everry six months through usagge. ““This is the peerfect productt for counselo ors to carry arround with th hem at camp, teachers to h have at schooll, k kids to have in n their pocketts, moms to haave in their baags. There’s n nothing like th his on the marrket and we‘ree h hoping it will b be a big hit,” says Leora Kad disha, Senior V Vice Presidentt of Marketingg. Key characteriistics include 99.99% accurracy, ability to test a large variety of foods, and a 45 seccond responsee K t time. The Pean nut Detective ccan be purchased at CVS, W Walgreens, Ritee Aid and www w.bsuredd.com m. For more info F ormation on t the Peanut Detective and r related products visit: www..bsuredd.com
Marketing Ap ppendices 7 74
M MK Appendix x 3: Instructio on Manual Co ontents
B BSure Pean nut Detecttive Instructions W What is the B BSure Peanut Detective? The BSure Pea T anut Detective is a device thaat detects tracces of peanut iin foods and ccan be used to test food prio or to c consumption. T The BSure Pea anut Detective consists of a T Test Holder an nd a Test Carttridge Instructions
1 Remove th 1) he Test Cartrid dge from the ffoil wrapper. 2 Assemble the Test 2) a) Find tthe arrow on tthe Test Holdeer b) Line u up both arrow ws c) Insertt the Test Carttridge into thee Test Holder u until it clicks iinto place
3 Remove th 3) he cap
4 Perform th 4) he test a) Stick ttip of Testing Cartridge into o desired food d to get a samp ple b) Place cap back onto o Cartridge n c) Press “TEST” button
5 Wait for th 5) he test to com mplete. Within 45 seconds a GR REEN or RED llight will appeear. 6 See your rresult 6)
The foo od tested doess not contain peanutss, with 99.99% % accuracy.
The food DOES CONT TAIN peanuts. It mption by anyone is not saafe for consum who maay experience an allergic reaction n.
7 Dispose off the cartridgee 7) a) You m may now presss the Eject Buttton to removee the Test Cartridge b) Your rresult will rem main on the Diisplay for 15 m minutes.
F Further Infor rmation D Disposing of yo our Test Cartriidge
O Once your resu ult has been d displayed, disp pose of the Tesst Cartridge w with your norm mal household d waste. To do this,
Marketing Appendices 75
press the Eject Button on the Test Holder. The Test Cartridge will automatically be released. When you eject the Test Cartridge you may notice a color due to the chemical reaction that took place on the test strip. This must be disregarded; only refer to the Green or Red indication light on the Test Holder. Using the Test Holder Again
If you have bought a pack containing a Test Holder and more than one Test Cartridge, you can use the Test Holder again. While testing the Test Holder may have been splashed with some of the previous food sample. Ensure that you wipe it clean. A further test is not possible during the initial 15 minutes after the previous test was conducted. The result from the previous test will remain lit for 15 minutes after the test was taken. When you are ready to use the Test Holder again, repeat the instructions from step 1. Refill Test Cartridges are available for use with the Test Holder. Frequently Asked Questions
1. How accurate is the BSure Peanut Detective? The BSure Peanut Detective is 99.99% accurate in laboratory tests. 2. How does BSure Peanut Detective work? Peanuts contain a universal protein called Ara H 1, which causes allergic reactions in sufferers. This protein, also known as an antigen, can be detected using a highly sophisticated method called ELISA (enzyme‐linked immunosorbent assay). When you swipe the cartridge over your sample and hit the “Test” button, in 45 seconds you will receive a red or green light indicating the presence of Ara H 1 or not. 3. What might affect the accuracy of the result? The food tested must have a high enough consistency to be sufficiently sampled by the cartridge’s metal mesh. If the mesh does not pick up enough of the food, the test will result in an error and the red light will flash. 4. Can I use the Test Holder with any other Test Cartridge? No. The Test Holder can only be used with the Test Cartridges made by BSure Diagnostic Devices Inc., specific to the relevant food allergy. 5. I have used the Test, but no result has started flashing for over 45 seconds. What does this mean? The test has not been performed correctly. The red light will start flashing, indicating an error, within 10 minutes of testing. 6. What if the Test Holder gets wet? Some splashing of food or liquid will not damage the Test Holder, but if it becomes very wet it may be damaged. If so, both lights will start to flash indicating an error. 7. My result is still flashing. I have another Test Cartridge in the pack; can I insert this and do another test? No. Wait until the light stops flashing before testing again. Please refer to ‘Using Test Holder again’. The BSure Peanut Detective is specially designed for easy use at home, restaurants, day school etc. However, if you have any questions about the Test, please call the BSure helpline at 1‐800‐2BE‐SURE 24 hours/ 7 days a week. Our specially trained staff will be glad to give you confidential and helpful advice.
Disclaimer The customer service phone number is 18002BESURE. Visit us on the web at www.bsuredd.com. Store at 36° 86°F (2°30°C). Do not freeze. Child safe. Do not use if foil containing test cartridge is damaged. Do not use Test Cartridge past its expiration date.
Marketing Ap ppendices 7 76
M MK Appendix x 4: Survey & Result Summ mary
P Peanut All ergy Surve ey We are studentts from Boston University and W d are currently developing a new n product id dea. The inform mation provided d b below will be us sed for our research purposess and will allow w us to determiine what consumers desire fro om our productt. will remain con A All information nfidential.
1) Who in yourr family has a p 1 peanut allergy y? (Check all th hat apply) Myself (32.6%) Spouse (1.4 4%) Child/Child dren (66.9%) Other (pleaase specify (4.5% %) If you selectted other, pleasee specify: 2) How many c 2 children do you u have with pe eanut allergiess? { 1 (64.8%) { 2 (4.8%) { 3+ (0.3%) { None (30.1 1%) 3) What type of allergies do t 3 the members o of your househ hold have? Myself M My sp pouse Child/Children Otherr/Relative 31.5% 1.4 4% 64.3% 5 5.6% Peanut Tree nut 19.2% 1.7 7& 36.2% 3 3.6% Dairy 3.1% 3 1.9 9% 13.1% 1 1.9% Wheat 3.6% 3 0% % 5% % 6% Soy 5.6% 5 0.8 8% 8.6 6% 1 1.1% Egg 5% 0.3 3% 16.7% 1 1.9% 4) What sympttoms have you or others you've known exp 4 perienced from m an allergic re eaction? Myself My spouse Child/Childrren Otheer/Relative 27% 1.1% 31.5% Shortness of breath 4.7% Hives 24.5% 2.2% 59.3% 6.4% Vomiting 16.7% 0.8% 31.5% 3.9% Anaphylaxxis (closing of throat) 27.9% 1.4& 28.1% 3.3% Other 14.8% 3.6% 26.7% 2.2% If you are not the individuall with the peanut allergy, pllease fill out th he rest of the survey with rrespect to yourr c child or depend dent. 5) What products do you currently use to c 5 cope with allerrgic reactions? (Please check k all that apply y) Antihistam mines (83.6%) No one (1.9%) Skin Ointm ments (23.7%) Other (please spe O ecify) (11.4%) EpiPen (91.9%) If you selectted other, pleasee specify: 6) Where you d 6 do currently pu urchase allerg gy related prod ducts? (Please check all that apply) Pharmacy (92.2%) Conveniencee Store (13.1%) Doctor's Offfice (13.9%) Internet (5.3 3%) None (1.9% %) Other (please specify) (5.3%) If you selectted other, pleasee specify: 7 7) How import tant is it for you u to detect traces of peanutss in foods? (1 = = Not importan nt, 5 = Very imp portant)
Marketing Appendices 77
{ 1 (0.8%)
{ 2 (0.6%) { 3 (2.8%) { 4 (5.4%) { 5 (90.4%)
8) What worries you most about your peanut allergy? (Please check all that apply) Consequences of an allergic reaction (98.1%) Embarrassment caused by an outbreak (11.7%) Boredom from eating the same foods (14.5%) My allergy does not worry me (1.9%) 9) How frequently do you eat outside of your home? { Frequently (8+ times a week) (8.1%) { Somewhat frequently (4‐7 times a week) (21.3%) { Not frequently (1‐3 times a week) (57.9%) { I never go out to eat (12.9%) 10) Does your allergy influence the frequency of eating outside of your home? { Yes (76.1%) { No (23.9%) 11) Where do you eat out most often? { Restaurants (47%) { Friend's house (4.3%) { Relative's house (14.3%) { School (24.6%) { Work (2%) { Other (please specify) (7.7%) If you selected other, please specify: Product Description In development is a device that can accurately detect traces of peanuts in foods as a precautionary measure for those who suffer from peanut allergies. The device, which would be slightly larger than a tube of lipstick (and able to fit onto a keychain), would quickly identify peanut traces in foods after sticking the tip of the device into the food. After less than a minute, a green or red light would indicate either no peanuts or peanuts in the food, respectively, thereby avoiding an allergic reaction while still enabling people to try new foods. This product would expire every six months through usage. 12) After reading the above description, how likely are you to buy this product? { Definitely would buy (43.1%) { Probably would buy (23.2%) { Maybe would buy (25.5%) { Probably would not buy (6.7%) { Definitely would not buy (1.4%) 13) Would the six month expiration on the holder deter you from buying this product? { Yes (55.3%) { No (35.4%) { Maybe (9.3%) 14) How much would you be willing to pay for this product? { $30‐39 (45%) { $40‐49 (20.6%) { $50‐59 (16%) { $60‐69 (4%) { $70+ (14.3%) 15) What is the maximum price you would pay for this product in dollars?
Mean = 69.28 Median = 50.00 Min = 10.00 Max = 999.99
16) Where would you use this product? (Please check all that apply) Restaurants (91.1%) Friend's house (68.8%) Relative's house (64.6%) School (62.4%) Work (28.7%) Other (please specify) (12.8%) If you selected other, please specify: 17) What attributes (listed on the right) would be the most important for this product to contain? (Rank by importance, 1st = Most important, 6th = Least important) 1) Portability (14.1%) 2) Accuracy (28.7%) Response Time (16.5%) 3)
Marketing Appendices 78
4) 5) 6)
Ease of Use (17.5%) Tests Large Variety of Foods (18.2%) Appearance (5%)
18) How often would you expect to use this product on a weekly basis? { 5+ days a week (28.1%) { Less than once a week (15.4%) { 3‐4 days a week (27%) { I would not use this product (2.5%) { 1‐2 days a week (27%) 19) Would you feel uncomfortable using a peanut detection device in public? { Yes, I would only use it in private (3.1%) { Yes, but I would still use it (23.2%) { No, not at all (73.7%) 20) Which of the following attributes would increase the likeliness of your child using this product? (choose N/A if not applicable) { Bright colors (9%) { Cartoon prints (9%) { My child would use it regardless (51.5%) { N/A (30.4%) Cartridge Description This product would require the use of disposable cartridges that would be inserted into the device because chemicals involved are not reusable and each cartridge must remain sterile. The cartridge tip is what is actually inserted into the food. Each cartridge could only be used one at a time, but they would be small enough that you can carry many at once. 21) How many cartridges would you want in a pack? (Based on usage) { 4 (10%) { 8 (19.4%) { 12 (28.8%) { 16+ (41.9%) 22) What is the maximum price you are willing to pay for a refill cartridge a.k.a per usage? Mean (all responses) = 3.30 Median = 4.00 Min = 1.00 Max = 5.00 23) How interested are you in an "Automatic Refill Plan" where a certain amount of refills and a holder are sent to you at intervals chosen by you through the company website? { I would use this plan for holder repurchasing (7.5%) { I would use this plan for cartridge repurchasing (10.4%) { I would use this plan for holder and cartridge repurchasing (31.7%) { I would prefer to buy this product through a store (50.4%) 24) Would you have more than one peanut detection device for multiple locations, such as one at home and one in a child's backpack? { Yes (33%) { No (24.6%) { Maybe (42.4%) The following questions are for statistical purposes only. Please fill them out for yourself, not for your child or dependent. 25) Age { 18‐24 (22.9%) { 25‐34 (23.7%) { 35‐44 (42.4%) { 45‐54 (9.9%) 26) Gender { Male (13.2%) { Female (86.8%) 27) Marital Status { Married (69.5%) { Divorced (2.8%) { Single (27.7%) 28) City and State Thank you for participating in our survey. We greatly appreciate your input.
{ 55+ (1.1%)
Marketing Ap ppendices 79
M MK Appendix x 5: Online Po ost‐Purchase Survey
P Post Purch hase Surveyy 1.
Wheree did you purchaase the productt? o CVS o Walgreens o Longs Drugsstore o Rite Aid o Internet o Other ____________________________________
2.
How d did you hear abo out the Peanut D Detective? o Through a frriend o Recommend ded through docctor/ allergist o Advertisemeent o Other ____________________________________
3.
How saatisfied were yo ou with the Pea anut Detective product: (1 being the worst, 5 b being the best) 4 5 1 2 3
4.
Who b bought the prod duct? ______________________________
5.
Who w was the productt purchased for?? ______________________________
6.
Would d you purchase tthe product agaain? o Yes o No
7.
Gender:
8.
Age: _______
Male
Female
Marketing Appendices 80
MK Appendix 6: Focus Group Summary
Focus Group 1 Date: February 11, 2007
Age of Participant: 18+, Independent
Time: 4:00 PM
Location: Dexter Part, 175 Freeman St.
• • • • • •
Benadryl is not effective enough, usually takes 20 minutes before relief. Usually eat our everyday – checking pasta oil would be very helpful. Always concerned about a potential allergic reaction when eating out. Trust is a factor – if 99.99% is truly the accuracy rate then yes they would try the product. Would rather buy holder at a drug store – cartridges may be purchased on line. Liked BSure logo – very appealing.
Focus Group 2 Date: February 21, 2007
Age of Participant: Guardians of Dependents
Time: 11:00 AM
Location: Boston University School of Management
• • • • • •
Always worried about an allergic reaction, especially when they are not present to watch their child. (School, friend’s house, camp) Child carries an EpiPen in their backpack in case of an emergency. School nurse is notified of this medication. Children have been taught which foods they should not eat. Trust is a major issue – However, if a product like this worked it would reduce anxiety. Needs to be kid friendly, easy to use is important – quick testing results, less than 2 minutes. Design needs – small enough to fit on a key chain. Lacking precautionary devices for food allergies.
Focus Group 3 Date: March 9, 2007
Age of Participant: 18+, Independent
Time: 2:00 PM
Location: University of California, San Diego
• • • • • • •
Main line of defense: EpiPen. Using it is a scary and painful experience. Trust factor – would it really work? Doubtful of product at first glance. Has to be small – it is embarrassing to be testing food in a restaurant. Always concerned about an allergic reaction when eating out. If this product came out, they would like to use it in restaurants. Logo response – They liked the logo BSure. Price – one individual was willing to pay up to $1000 for product. Another individual did not have serious allergies and was not willing to spend more than $10.
Marketing Appendices 81
MK Appendix 7: Marketing Budget Expenses
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Push Strategy
Kits
$208
$208
$208
$208
$208
$208
$208
$118,258 $118,258
$118,258
$0
$0
$0
$0
Press Kits Doctor Kits Conferences
$2,835
$2,835
$0
$0
$0
$0
$0
$0
$0
$7,000
$7,000
$7,000
$7,000
$7,000
$2,150
$2,150
$2,150
$2,150
$2,150
$2,150
$2,150
Pull Strategy
Magazine
$240,000 $306,000
$374,544
$445,707
$519,567
$596,204
$675,697
MDM East FIME Eastern Allergy
WebMD Health
$0
$0
$353,736
$360,811
$460,034
$469,234
$478,619
$24,000
$24,480
$24,970
$25,469
$25,978
$26,498
$27,028
$6,480
$6,610
$6,742
$6,877
$7,014
$7,154
$7,298
$0
$0
$0
$0
$0
$0
$0
$393,930 $460,540
$887,607
$848,221 $1,021,951 $1,108,448
$1,198,000
Web peanutallergy.com allergykids.com Other Word of Mouth Total Cost
Marketing Appendices 82
MK Appendix 8: Base Case Sales Forecast Year Competition % Online Demand % Child, Teen Segment Adult Segment Total Segment Size Purchase Intent 34% ACV Awareness Initial Buyers Holder Repurchase Rate 37.5% Repurchases/Year 1 Subtotal Holder Demand Demand Lost (Competition) Total Holder Demand Target Retail Price 39% Manufacture Price Online Demand Total Holder Retail Revenue Total Holder Revenue Cartridge Repurchase Rate 76% Repurchases/Year 190 Subtotal Cartridge Demand Demand Lost (Competition) Total Cartridge Demand Target Retail Price 35% Manufacture Price Online Demand Total Cartridge Retail Revenue Total Cartridge Revenue Total Retail Revenue Total Revenue Total Costs of Goods Sold Gross Margin
1 0% 5% 875,000 1,625,000 2,500,000 843,250 3.15% 7.28% 1,935
2 0% 8% 918,750 1,641,250 2,560,000 863,488 7.09% 8.17% 5,004
3 10% 10% 964,688 1,657,663 2,622,350 884,519 18.46% 11.50% 18,780
4 15% 13% 1,012,922 1,674,239 2,687,161 906,379 22.49% 14.68% 29,917
5 20% 15% 1,063,568 1,690,982 2,754,549 929,110 23.99% 17.63% 39,304
6 20% 18% 1,116,746 1,707,891 2,824,638 952,750 32.98% 21.37% 67,156
7 20% 20% 1,172,584 1,724,970 2,897,554 977,345 33.98% 27.66% 91,865
726 726 2,661 0 2,661 $41.99 $30.21 133 $106,149.62 $85,972.75
1,876 1,876 6,880 0 6,880 $41.99 $30.21 516 $267,225.77 $229,503.45
7,042 7,042 25,822 2,582 23,240 $41.99 $30.21 2,324 $878,259.33 $799,630.20
11,219 11,219 41,136 6,170 34,966 $39.89 $28.70 4,371 $1,220,450.07 $1,177,803.30
14,739 14,739 54,043 10,809 43,235 $37.90 $27.26 6,485 $1,392,658.54 $1,424,484.00
25,183 25,183 92,339 18,468 73,871 $36.00 $25.90 12,927 $2,194,049.90 $2,378,681.09
34,449 34,449 126,314 25,263 101,052 $34.20 $24.61 20,210 $2,764,861.56 $3,177,601.69
1,471 279,456 281,391 0 281,391 $3.65 $2.70 14,070 $975,724 $774,113 $1,081,874 $860,085 $482,761 $377,324
3,803 722,529 727,533 0 727,533 $3.65 $2.70 54,565 $2,456,332 $2,018,667 $2,723,558 $2,248,171 $1,222,252 $1,025,918
14,273 2,711,792 2,730,572 273,057 2,457,515 $3.65 $2.70 245,751 $8,072,935 $6,876,945 $8,951,195 $7,676,575 $4,106,907 $3,569,668
22,737 4,320,043 4,349,960 652,494 3,697,466 $3.61 $2.68 462,183 $11,690,694 $10,329,873 $12,911,144 $11,507,676 $6,125,518 $5,382,158
29,871 5,675,539 5,714,844 1,142,969 4,571,875 $3.58 $2.65 685,781 $13,901,976 $12,751,050 $15,294,634 $14,175,534 $7,571,438 $6,604,095
51,038 9,697,290 9,764,445 1,952,889 7,811,556 $3.54 $2.62 1,367,022 $22,823,906 $21,748,031 $25,017,956 $24,126,713 $13,043,251 $11,083,461
69,817 13,265,316 13,357,182 2,671,436 10,685,745 $3.51 $2.60 2,137,149 $29,972,878 $29,695,351 $32,737,740 $32,872,953 $18,172,849 $14,700,104
Marketing Appendices 83
MK Appendix 9: Online Rebate
MK Appendix 10: Introductory Advertisement
Marketing Ap ppendices 84
M MK Appendix x 11: Web Com mmercial Sto oryboards & SSnapshots
T TARGET: Pa arents of Pe eanutAllerrgic Childre en and Tee ens
* * Image cred dits: Getty Im mages T TARGET: Fe emale 18+
TARGE ET: Male 18 8+
Marketing Appendices 85
MK Appendix 12: Magazine Advertisements
* Image Credits: “Boys on a Tree” via LaSalle Council Boy Scouts of America
* Image Credits: “Cookies for Santa” via Microsoft Clipart
Op perations Management Ap ppendices 8 86
O Operations s Managem ment Appe endices O OM Appendix x 1: House of Quality
Relationship Legend 9
Strongg
P
Peanut De.
3
Medium
B
Benadryl
1
Weak
E
EpiPeen
Custtomer Perception 1 = worst 5 = best
1 2 3 3 4 5 Extremely High Accuracy
9
9
Quick Respon nse Time
8
9
1
1
3
Tests Large V Variety of Foods
7
9
3
3
9
Easy to Use
6
1
Safe for Child dren
5
3
Portable
4
9
Residue No Leftover R
3
Easily Dispossable Tips
2
Long Productt Lifetime
1
Importance W Weighing Numb ber
9
B
1
9
9
9
9
Target Value
98 5” 1.5
E
E E
9
B
P
B
E, P P
9
83
204
.5”
ABS
P
B, P
3 P
3 222
9
9
3
3
B
P
1
9
E, P
60 3”
3
1
1
39
108
55
.6”
Red, R Grreen
1
E, P
B
O OM Appendix x 2: Organizattional Chart ((Year 1) Pre esident $ $70K
Sales Rep. $45K
Science e Technolo ogy Consultant
Acco ountant
OM Manager
IS Managerr
$1 16/hr.
$55K
$60K
$35/hr..
Machinistt $15/hr.
Assem mbly Lin ne $12.50/hr.
Jaanitor $18K
Customer C Service
Quality Technician n
$ $16.50/hr.
$15/hr.
Operations Management Appendices 87
OM Appendix 3: Supplier Information
Cartridge
Holder
Component
Supplier
Location
Plastic Shell
DA Pro Rubber
Newburyport, MA
Circuit Board
Holtek Semiconductor
Davenport, FL
Optic Sensor
Holtek Semiconductor
Davenport, FL
Battery
Dantona Battery
Wantagh, NY
Packaging
Multi Packaging Solutions
Louisville, KY
Metal Mesh
Sunny Metal Inc
Fairborn, OH
Shell/Window
DA Pro Rubber
Newburyport, MA
Antibody
AbD Serotec
Raleigh, NC
Enzyme
R&D Systems
Minneapolis, MN
Substrate
AbD Serotec
Raleigh, NC
Buffer
Fisher Chemicals
Agawam, MA
Spring
Murphy and Spring
Palmyra, NJ
Pin
W.H. Bagshaw
Nashua, NH
O‐Ring
Apple Rubber Products
Lancaster, NY
Packaging
Multi Packaging Solutions
Louisville, KY
OM Appendix 4: Component Price Breaks Holder Component
Unit Cost (0‐100K)
Unit Cost (100‐250K)
Unit Cost (250K+)
Plastic Shell
$0.5670
$0.5470
$0.5270
Circuit Board
$0.8793
$0.8793
$0.8793
Battery
$0.4000
$0.4000
$0.4000
Packaging
$0.0700
$0.0650
$0.0600
Unit Cost (0‐100K)
Unit Cost (100‐250K)
Unit Cost (250K +)
Metal Mesh
$0.0019
$0.0019
$0.0019
Cotton Strip
$0.0025
$0.0025
$0.0025
Plastic Shell
$0.2406
$0.2106
$0.1906
Antibody
$0.8000
$0.8000
$0.8000
Enzyme
$0.2100
$0.2100
$0.2100
Substrate
$0.2400
$0.2400
$0.2400
Buffer
$0.0100
$0.0100
$0.0100
Spring
$0.0500
$0.0450
$0.0400
Pin
$0.0050
$0.0050
$0.0050
O‐Ring
$0.1200
$0.1200
$0.1150
Packaging
$0.0050
$0.0044
$0.0038
Cartridge Component
Operations Management Appendices 88
OM Appendix 5: Economic Order Quantities
Holder
EOQ1
EOQ2
EOQ3
EOQ4
EOQ5
EOQ6
EOQ7
Plastic Shell
249
401
736
903
1,004
1,313
1,536
Circuit Board
249
401
736
903
1,004
1,313
1,536
Battery
249
401
736
903
1,004
1,313
1,536
Packaging
249
401
736
903
1,004
1,313
1,536
Cartridge
EOQ1
EOQ2
EOQ3
EOQ4
EOQ5
EOQ6
EOQ7
Metal Mesh
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Cotton Strip
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Plastic Shell
18,830
100,000
250,000
250,000
250,000
250,000
250,000
Antibody
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Enzyme
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Substrate
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Buffer
18,830
30,277
55,646
68,255
75,898
99,210
116,035
Spring
18,830
30,277
100,000
250,000
250,000
250,000
250,000
Pin
18,830
30,277
55,646
68,255
75,898
99,210
116,035
O‐Ring
18,830
30,277
55,646
68,255
75,898
99,210
250,000
Packaging
9,415
15,138
27,823
100,000
100,000
100,000
100,000
Information Systems Appendices 89
Information Systems Appendices IS Appendix 1: Preliminary Operations/Manufacturing ERD
Data Dictionary Excerpt Production Batch – one batch of product • Type – holder, cartridge • Status – work in process, finished inventory, sold Equipment – one production machine • Type – type and function of machine • Location – where it is in the plant • Training Required – level of employee training required IS Appendix 2: Preliminary Data Flow Diagram
Information Systems Appendices 90
IS Appendix 3: Microsoft Dynamics GP Resources
Desired Report Samples
Dynamics GP Screenshot (note the MS Outlook similarity)
Information Systems Appendices 91
Dynamics GP Inventory Report (continued previous Appendix)
…
IS Appendix 4: peanutallergy.com Screenshots
Informatio on Systems Ap ppendices 92
IS Appendix 5 5: Website De etails Note: the web N bsite may currently be v visited at http p://peanut.nurik.net. Thee f final web add dresses of thee website will b be www.bsur redd.com, w www.bsurecfp fpa.org, and w www.peanutd detective.com m.
Home (News & & DocBlog) BSure Prroducts ¾ Pean nut Detective What is it? W How does it w H work? ¾ Refilll Cartridgess Online Store ¾ Indiv vidual Itemss ¾ Subscriptions My Account ¾ My Subscription ns ¾ Favorites ¾ My Story (Profile) Commun nity ¾ Forums ¾ Stories, etc. Resources ¾ Inforrmation What is pean W nut allergy? Other guides O s & links ¾ Copin ng Methodss Products P Techniques T
Information Systems Appendices 93
IS Appendix 6: Information System Cost Schedule (w/o IS Manager Salary)
Year 0
Core Software
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Microsoft Dynamics GP
$23,000
$5,658
$5,187
$6,601
$8,016
$9,430
$11,788
$14,145
JourneyTEAM Markup
$17,250
$4,244
$3,890
$4,951
$6,012
$7,073
$8,841
$10,609
$2,505
$1,209
$1,047
$1,209
$1,371
$1,371
$1,695
$1,695
SQL Server 2005 Standard Ed. Core Hardware
Dell PowerEdge 2900
$5,900
‐
‐
$15,000
‐
$25,000
‐
$7,500
Dell PowerEdge SC1430
$2,900
‐
‐
‐
‐
$1,000
‐
‐
Dell Optiplex 320 Desktop
$6,300
$1,800
$900
$1,800
$2,700
$2,700
$4,500
$4,500
Dell Latitude D620 Notebook
$4,500
$1,500
‐
$1,500
$1,500
$1,500
$4,500
$4,500
Support Hardware
Barcode Scanner
$800
$320
$160
$320
$320
$320
$320
$320
$2,000
‐
‐
‐
‐
‐
‐
‐
Linksys 10/100 16‐Port VPN Router
$435
$435
$435
$435
$435
$435
$435
$435
300’ Belkin CAT5e Network Cable
$250
$150
$100
$150
$150
$150
$150
$150
50’ Belkin CAT5e Network Cable
$200
$75
$50
$75
$75
$75
$75
$75
APC Smart‐UPS 750VA
$832
$416
$416
$416
$416
$416
$416
$416
Samsung ML‐2510 Printer
$130
‐
‐
‐
‐
‐
‐
‐
Xerox Phaser Color Multifunction
$500
$500
$500
$500
$500
$500
$500
$500
Carroll Partner Phone System
Support Software
Exchange Server 2007
$1,369
$134
$67
$134
$201
$201
$335
$335
Adobe CS3 Web Premium
$1,799
‐
‐
‐
‐
‐
‐
‐
Mathematica 5.2
$1,880
‐
‐
‐
‐
‐
‐
‐
Services & Resources Website & Online Store Dev.
$2,500
‐
‐
‐
‐
‐
‐
‐
BellSouth (AT&T) DSL Internet
$660
$1,320
$1,320
$1,320
$1,320
$1,320
$1,320
$1,320
BellSouth (AT&T) Local Phone
$300
$600
$600
$600
$600
$600
$600
$600
BellSouth (AT&T) Long Distance
$5,424
$10,848
$10,848
$10,848
$10,848
$10,848
$10,848
$10,848
ASPwebhosting.com
$1,750
$3,100
$3,100
$3,100
$3,100
$3,100
$3,100
$3,100
LiveVault data backup
$1,200
$2,400
$2,400
$2,400
$2,400
$2,400
$2,400
$2,400
Website Maintenance
$1,800
$6,000
$6,000
$6,000
$6,000
$6,000
$6,000
$6,000
$86,184
$40,709
$37,019
$57,359
$45,963
$74,439
$57,822
$69,448
Total
Finance Appendices 94
Finance Appendices FE Appendix 1: Cash Flows & Returns
Year 0
Year 1
Year 2
Initial Investment in Fixed Assets
($127,459)
Net Income
($371,005) ($747,562) ($428,228)
+ Depreciation
$0
‐ ∆ Net Wkng. Cap.
($50,000)
‐ ∆ Fixed Assets Net Cash Flow
$18,208
Year 5
Year 6
Year 7
$4,475,583
$6,463,256
$71,429
$118,208
$806,233 $1,667,707 $2,162,703
$18,208
$32,494
$46,780
($54,076) ($218,638)
($702,539)
($277,484)
($358,284) ($1,018,282) ($1,076,923)
($100,000)
($100,000)
($100,000)
($200,000)
($200,000)
$36,188 $1,337,002 $1,765,484
$3,328,730
$5,304,541
$0
$0
($421,005) ($783,430) ($628,658)
Terminal Value of Business Growth rate of ‐10%
NPV
IRR
Project
$4,730,587
61.33%
Investors
$2,601,720
54.76%
Friends, Family and Mgmt
$2,128,867
76.26%
$61,066
Year 4
$0
Returns
Year 3
$15,155,832
Finance Appendices 95
FE Appendix 2: Income Statement
Year 0
Total Units For Holder
Year 1
Year 3
Year 4
Year 5
Year 6
Year 7
2,661
6,880
23,239
34,965
43,234
73,871
101,051
30.21
30.21
30.21
28.70
27.26
25.90
24.61
41.99
41.99
41.99
39.89
37.90
36.00
34.20
8.61
8.66
8.75
8.80
8.85
8.88
8.91
$81,953
$213,916
$729,426
$1,052,372
$1,247,676
$2,043,858
$2,680,324
281,391
727,533
2,457,515
3,697,466
4,571,875
7,811,556
10,685,745
2.70
2.70
2.70
2.68
2.65
2.62
2.60
3.65
3.65
3.65
3.61
3.58
3.54
3.51
1.63
1.63
1.64
1.65
1.65
1.65
1.65
$774,113
$2,018,667
$6,876,945 $10,329,873 $12,751,050 $21,748,031 $29,695,351
$0
$856,066
$2,232,583
$7,606,370 $11,382,244 $13,998,725 $23,791,889 $32,375,676
Variable Cost (Holder)
0
22,924
59,600
203,311
307,676
382,715
656,079
900,622
Variable Cost (Cartri.)
0
459,020
1,187,952
4,039,053
6,083,286
7,529,966
12,879,988
17,639,118
86,005
162,782
168,056
173,501
179,122
184,926
190,917
197,103
86,005.00
644,726
1,415,608
4,415,865
6,570,084
8,097,607
13,726,984
18,736,843
211,340
816,975
3,190,505
4,812,160
5,901,119
10,064,905
13,638,833
Price Per Holder Internet
0
Year 2
Variable Cost (Holder) Total Holder Sales
8.88
Total Units For Cartri. Price Per Cartridge Internet
0
Variable Cost (Cartri.) Total Cartridge Sales
1.70
Total Sales
Fixed Mfg. Costs Total COGS Gross Profit
Start‐Up Costs
371,005
Fixed Admin. Costs
546,764
766,455
926,683
1,137,648
1,213,597
1,425,723
1,550,531
Marketing Costs
393,930
460,540
887,607
848,221
1,021,951
1,108,448
1,198,000
Depreciation
18,208
18,208
32,494
46,780
61,066
71,429
118,208
(371,005)
(747,562)
(428,228)
1,343,722
2,779,511
3,604,505
7,459,305
10,772,094
0.0
0.0
0.0
537,489
1,111,804
1,441,802
2,983,722
4,308,837
($371,005)
($747,562)
($428,228)
$806,233
$1,667,706
$2,162,703
$4,475,583
$6,463,256
Earnings Before Tax Taxes Net Income Other Ratios
COGS % of Sales
75%
63%
58%
64%
64%
63%
63%
Gross Margin
25%
37%
42%
47%
46%
46%
46%
Profit Margin
‐87.3%
‐19.2%
10.6%
16.1%
17.0%
20.6%
21.8%
Finance Appendices 96
FE Appendix 3: Balance Sheet
Year 0
Minimum Cash Balance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
50,000
59,925
156,281
532,446
723,091
892,573
1,522,362
2,078,675
Accounts Receivable
0
93,815
244,667
833,575
1,132,041
1,397,375
2,383,346
3,254,285
Raw Materials Inventory
0
10,162
52,346
65,230
51,634
115,754
36,088
147,100
Finished Goods Inventory
0
1,997
5,163
17,442
25,979
31,802
53,794
72,851
Current Assets
50,000
165,899
458,457
1,448,692
1,932,745
2,437,504
3,995,590
5,552,911
Gross Fixed Assets
127,459
127,459
127,459
227,459
327,459
427,459
627,459
827,459
0
18,208
36,417
68,911
115,691
176,756
248,185
366,393
127,459
109,251
91,042
158,548
211,768
250,703
379,274
461,066
$177,459
$275,150
0
61,363
135,268
422,949
629,502
775,960
1,315,746
1,796,126
0
61,363
135,268
422,949
629,502
775,960
1,315,746
1,796,126
Depreciation Net Fixed Assets Total Assets Accounts Payable Current Liabilities
$549,499 $1,607,240 $2,144,514 $2,688,207 $4,374,864 $6,013,976
Paid in Capital
$542,784 $1,321,874 $1,945,591 $1,945,591 $1,945,591 $1,945,591 $1,945,591 $1,945,591
Retained Earnings
(365,325) (1,108,087) (1,531,360)
Dividends (Cumulative) Total Equity Total Liabilities and Equity Net Working Capital Balance
317,395
1,734,765
4,987,411
9,845,960
0
0
0
39,242
747,975
1,768,109
3,873,885
7,573,701
177,459
213,787
414,231
1,184,292
1,515,012
1,912,247
3,059,117
4,217,850
$177,459
$275,150
50,000
104,536
(722,057)
$549,499 $1,607,240 $2,144,514 $2,688,207 $4,374,864 $6,013,976 323,189
1,025,744
1,303,244
1,661,544
2,679,843
3,756,784
List of Sources Used “Allergic Reactions & Anaphylaxis Allergy." EpiPen. Merck & Co. 1 Apr. 2007
FeedBurner Homepage. 4 April 2007
Lack, Gideon, Debrorah Fox, Kate Northstone, and Jean Golding. Factors Associated with the Development. Avon Longitudinal Study of Parents and Children Study Team. New England School of Medicine, 2003. Leung, Donald, Hugh Sampson, John Yunginger, Wesley Burks, and Lynda Schneider. Effect of Anti‐ IgE Therapy in Patients. TNX‐901 Peanut Allergy Study Group. New England School of Medicine, 2007. Long, Aiden. "The Nuts and Bolts of Peanut Allergy." New England Journal of Medicine 346 (2002). 03 Mar. 2007. “Map of Peanut Allergy Meetups." Meetups. 12 Feb. 2007
Nicolas, Nathalie, Joyce W. Yu, Ann Clarke, Rhonda Kagan, Nina Verrault, Lawrence Joseph, and Yvan St. Pierre. "Accidental Ingestions in Children with Peanut Allergy." The Journal of Allergy and Clinical Immunology 118 (2006): 471. “Nut Allergy ‐ the Basics." Asthma & Allergy Information & Research. 04 May 2003. 20 Mar. 2007
Peanut Allergy Survey. WebSurveyor.< http://desktop.vovici.com/Default.aspx> PeanutAllergyResource.com 11 Apr. 2007. http://www.medicinenet.com/script/main/art.asp?articleke y=15618 Pearce, Lynn, ed. "In Vitro and in Vivo Diagnostic Substances." Encyclopedia of American Industries. 4th ed. 2 vols. Thomas Gale, 2005. Perry, Tamara, Mary Kay Conover‐Walker, Anna Pome´ S, Martin Chapman, and Robert Wood. "Distribution of Peanut Allergen in the Environment." J Allergy Clin Immunol 113 (2004). Pollack, Andrew. "Wrangling May Delay Peanut Allergy Drug." The New York Times 13 Mar. 2003, Late ed., sec. C: 1. Pomes, A, R Vinton, and M.d. Chapman. "Peanut Allergen (Ara H 1) Detection in Food Containing Chocolate." Journal of Food Protection 67 (2004): 793‐798. Pomes, Anna, Ricki M. Helm, Gary A. Bannon, Wesley A. Burks, Amy Tsay, and Martin Chapman. "Monitoring Peanut Allergens in Food Products by Measuring Ara H 1." Journal of Allergy and Clinical Immunology 111 (2003): 640‐645. Remer, Candace, and Michael Kaplan. "The US Peanut and Tree Nut Allergy Registry: Characteristics of Reactions in Schools and Daycare." Official Journal of the American Academy of Pediatrics (2002). Sampson, Hugh. "Peanut Allergy." The New England Journal of Medicine 346 (2002). SAP All‐in‐One vs. MS Dynamics. 22 November 2005. 7 April 2007
Solutions Directory. 12 April 2007
Related Documents
Peanut Detective Business Plan
May 2020 2
Detective
June 2020 15
Peanut Consumption
November 2019 14
True Detective True Detective
June 2020 10
Business Plan
November 2019 33