I am the advisor to Ray Wilkins, Material Manager at Road Machinery Manufacturing (RMM), and will work with him to advise on the issue he is facing with Bob Robson and their current courier company Roomis. Rommis’ partner company Natex did not pick up the package from the US, almost resulting in production shutdown. Bob Robson, the Owner and VP of finance had stopped wotking with QPS, their previous courier partner and switching to Roomis has caused problems within the company. After careful analysis, I recommend that Ray should gather all relevant facts and data, pitch to Bob Robson on Friday and convince him to switch back to QPS as their preferred courier service partner. I looked at the critical success factors of the company and found that to reach their goal of attaining 25% market share in the next five years, RMM needs capital and must rely on an efficient courier service provider to deliver goods on time to its customers. It must maintain a healthy relationship with all its stakeholder that can help the company stay profitable and efficient in the next five years. Roomis, current courier partner of RMM, has clearly not taken the responsibility to explain the reason why Natex, Roomis’ secondary partner in the US had failed to pick up the delivery that nearly resulted in production shutdown. RMM cannot afford to be in such situations and must maintain a good relationship with their suppliers and customers and keep their employees motivated. By not switching to QPS, RMM is paying an additional cost as freight charges that adds to their expenses. I ran SWOT analysis and found that RMM is facing many threats such as losing vital supplier, competitors gaining more share, the unreliability of Rommis and employees dissatisfaction that can make it difficult for RMM to attain its goal of achieving 25% market share and expand in the new markets. Though QPS is not cooperating on the $10,000 deposit and is expensive than Rommis, Bob must understand that delays in couriers, employee’s demotivation and the additional cost of freight charges are all costlier than $10,000 deposit and an annual fee of $150,000 if they plan to grow in the next five years. Therefore, after careful analysis, I strongly recommend that RMM should switch back to QPS.
This analysis is for Ray Wilkins who is the Material Manager at Road Machinery Manufacturing (RMM) company based in Sarnia, Ontario, Canada. The company custom manufactures construction equipment, adding the functional body and operational control systems to customer provided chasis and front end. Due to cyclical demand, their sales fluctuate between $20-$40 million and employees between 60-200. The company has a market share of 10% across North America and are planning to increase their market share to 25% in the next five years by expanding their operation to Chile, South America and Mexico. The company wants to provide parts and services for their own products and the products of their competitors. A reliable courier shipment service was critical to the success of the company, but Ray Wilkins is facing a challenge to go against his Owner and VP of Finance, Bob Robson who has favoured Roomis as his preferred courier service. Roomis has partnered with Natex, who is their secondary player in the US. He believes their previous courier service was difficult to work with and was hampering their finances. However, Ray Wilkins and the suppliers preferred QPS who was more reliable and had better services. I will be working as an advisor to Ray Wilkins and in this case, I will do an analysis of the problem Ray Wilkins is facing and provide a recommendation with an action plan to solve the problem.
Critical Success Factor:
As Road Machinery Manufacturing carries a low-turn inventory to free up capital and use the capital in their expansion plan, the company relies on a reliable courier service for timely shipments, so the company can maintain their stock levels.
Major: Road Machinery Manufacturing is facing challenges working with QPS courier services as it is impacting their financial structure. Due to fluctuations in the market, RMM’s sales are affected, and that is causing issues with maintaining cash deposit for the payments for shipments to QPS.
Minor: RMM is facing leadership issues, and Ray is facing challenges to convince Bob to switch back to OPS. Since Bob is a man of principles and has refused to work with QPS due to lack of support and cooperation from them, Ray must provide enough material to support his stance of using QPS as their courier partner. Frustrated,
Problem Statement: Will Ray be able to convince Bob to switch back to QPS? If not, then the company’s plan to expand its business and gain 25% market share in the next five years is in serious trouble due to irregularities of their current courier partner Roomis.
RMM is already paying $150,000 shipment charges to QPS that can increase to $400,000 in the next five years. Due to volatile market situation and changes in their sales, RMM is facing challenges to forecast their sales and make a payment of $150,000 and maintain a deposit of $10,000 for the shipments. This is increasing the expenses for RMM and QPS are not co-operating with the company. Frustrated with QPS, Bob Robson chose to work with Roomis/Natex instead of QPS, the company is facing delays in shipments due to the installation of new software and hardware. This is causing inconvenience for the employees and there is a growing dissatisfaction amongst the staff. Recently, Natex failed to pick up a shipment from West Philadelphia that was critically needed by an aftermarket client in Barrie, Ontario. Natex failed to provide any valid reason for the failure and that almost caused production shutdown. Fortunately, Ray Wilkins contacted QPS to pick up the package and it was delivered to RMM in time. Ray had already used the last inventory available in stock and shipped it to the customer and the package was extremely important for production of next stock level. Suppliers of RMM were also reluctant to shift from QPS and many had started to repay the freight and bill it to RMM. This was causing additional cost to RMM. Therefore, the shipment charges, along with deposit and the additional cost of freight is affecting the financial structure of the company. There is a leadership issue with Ray Wilkins as he is having trouble to come up with a way to convince Bob. With the support of all the employees who are facing issue with switching to Rommis, Ray should be able to collect enough data to analyze and convince Bob to switch back to QPS.
· Market share of 10% in North America
· Presence in South American country – Chile
· Good relationships with the suppliers
· Rely on the timely delivery of products from the courier services
· Top management (Bob Robson) and mid-lower management are divided on what courier service to work with
· Ability to provide parts and services for their own products as well as for their competitors.
· Increase market share to 25% In next five years.
· Two other significant competitors present in the market that can take RMM’s market share.
· Roomis, their current courier service is not reliable, causing delays and hampering the relationships between RMM and it’s suppliers
· Employees are dissatisfied and can leave the company
· Machinery manufacturing is a capital-intensive business and RMM’s business gets affected by economic fluctuations.
Based on the SWOT analysis, if the company wants to expand its business, in the next five years, then it must maintain the level of trust with the supplier and customers. This can only be done if the company provides delivery of products at the right time. Hence from the SWOT analysis we can see that using the best courier service in the market is critical to the success and the growth of the company.
The first solution is that Ray should collect all the relevant data about how switching to Rommis have affected the operations of RMM and convince Bob to switch back to QPS. By switching back to QPS, the advantage would be that there would be very limited delays in the shipment that will not affect their production. The customers would receive timely delivery of their shipment and the employees of RMM would be satisfied as they would not have to learn the new software and hardware of Rommis. If the employees are satisfied, it increases the productivity of the company. As suppliers are reluctant to switch to Rommis, by switching back to QPS would reduce the expenses for RMM as they would no longer have to pay the freight charges. Since QPS has very strict rules and does not usually compromise on their services and payment terms, RMM will have to pay the necessary $10,000 deposit and make sure the cash balance does not drop. It will affect the financials of RMM. Assuming the $10,000 deposit for each shipment is used towards payment for $150,000 annual shipping charges, once the delivery is made. $10,000 will be recorded as prepaid expenses on the Balance Sheet. Once the shipment is made, $10,000 will be recorded as an expense in the income statement. The cash is decreased under Assets in the Balance Sheet. Though it might affect the financials of RMM and cash will be less to expand the business, the company can develop strategies carefully expand its business in stages.
The second solution is that RMM should look for a new courier service company besides QPS and Roomis. Clearly Roomis is not a very efficient courier service and the courier company almost forced RMM to shutdown its production. If RMM must grow to attain 25% market share in the industry in the next five years, maintaining good relationships with the customer and suppliers and providing them with goods and services on time is necessary for the company. Therefore, working with Rommis is not advisable for the company. Also, due to the volatile nature of the market and their growth plan for the next five years, RMM must maintain a healthy cash balance. Therefore, working with QPS would keep the company financially squeezed. Hence another solution would be to look for another courier service company in the market that are as efficient as QPS, and less expensive and more flexible like Rommis. The advantages of this solution are that RMM would be able to would be able to maintain a healthy cash balance and would have to pay less or even not pay the $10,000 deposit. This would free the cash that RMM can use for its growth. Another advantage would be that it may resolve the conflict between Bob and the rest of his staff including Ray. Since Bob is a man of principle and would be difficult for him to switch back to QPS, his leadership and image in front of his staff would remain intact. Also, Ray and his staff would not have to bear with the inefficiency of the courier services such as Rommis. However, it might take time to find the right courier service company that are as flexible and inexpensive as Rommis and as efficient as QPS.
Based on the two solutions, I would recommend that Ray should gather all the relevant facts and data and pursue Bob to switch back to QPS as their courier partner. The second solution to find another courier service partner could be extremely risky and time consuming for RMM. There could be a chance that the company may not be able to find a courier service partner that has the qualities of both QPS and Rommis. Therefore, my recommendation would be that Ray should convince Bob to switch back to QPS. If ray can convince Bob, it is a win-win situation for every stakeholder of the company. The customers and suppliers are satisfied as they will receive their goods on time, Ray and his staff would be satisfied as there would not be a threat of any production shutdown in the future, the employees would not have to adapt to the new software and hardware. The company would be able to save the additional cost they have to pay as freight charges. If the company plans to grow 25% in the next five years and expand in new markets, then maintaining good relationship with customers and keeping your employees satisfied to maximize productivity is necessary for the company.
Step 1: Ray should collect all the relevant facts and data before Friday about inefficiencies of Rommis and how it is affecting RMM’s operations
Step 2: Ray should present all the facts to Bob and convince him to switch back to QPS at the meeting on Friday
Step 3: Bob to make the decision and inform QPS about their plans to switch back and make QPS as their courier partner on the following Monday.
Step 4: By the end of the next Friday, RMM should finish paperwork and switch to QPS
Step 5: Ray should inform all the suppliers and the employees as soon as the switch is made
Based on the analysis, it is evident that based on the nature of business of RMM and their plans to increase market share to 25% in the next five years, working with the best and the most efficient courier service provider is necessary. Therefore, the best solution is to switch back to QPS. By switching back to QPS, RMM will be able to maintain a healthy relation with all its stakeholders and the company will not have to face any uncertainties regarding the timely delivery of the products. The company would not run out of inventory and can always maintain the low inventory level. This way they can free up the capital necessary to expand their business.