Financial And Other Problems Faced By Cyclermate Bicycle Manufacturers.
Cyclermate is bicycle manufacturing company established in late 1988 in United Kingdom. The firm was set up by Lewis Llewellyn and Dai Armstrong, the two close friends in a local cycle touring club. As the prospects for continued local employment were poor, they decided to use their savings to set up a bicycle manufacturing business – an obvious choice, given their shared interest, and combined expertise.
The product that the company selected was a “traditional” upright cycle, following a design typical of the 1940’s and 1950’s. They believed that there would be a strong “niche” market for such a product, given the upsurge in interest in cycling, and increasing consumer interest in “retro” styles.
The company defines their market as traditional bicycle. The total market size was approximately £1.28b in 2009 and is expected to grow by 28% in 2010. Cyclermate’s total revenue was £1.6 m – a very small amount in 2009. However, the product they selected was a “traditional” upright cycle, following a design typical of the 1940’s and 1950’s which created a strong niche market for this such product and would be given the upsurge in interest in cycling and the increasing consumer interest in “retro” styles.
Cyclermate compete directly with other bicycle manufacturing company in the UK like Carrera, Charter Lea.. and alternatives to their product include electric bicycle. The high quality hand- made bikes brought them good reputation and maintained high sales though they did not advertise much.
The greatest risks associated with company today are facing is their bad credits toward the bank. In 2010, the business is in trouble, the demand keeps going down despite the price reduction.
The biggest recognized opportunities for the company include the product they selected was a “traditional” upright cycle, following a design typical of the 1940’s and 1950’s which created a strong niche market for this such product and there would be a strong growth in their business because of the decrease in the number of people using cars in UK.
The management team is led by Chief Executive Officer Dai Armstrong who co-founded the company with Lewis Llewellyn in 1988. Dai had progressed from “office boy” to a senior marketing post and Lewis had worked his way up from apprentice to be chief mill engineer in their town’s steel in south Wales. Both had been employed by the firm for more than 20 years.
The secretary is Gwyneth Morgan who has a strong grasp of all aspects of the business, and deals effectively with invoicing, credit control, disbursement and the bookkeeping system.
The Accountants is Betty Barry.
The senior member is Maldwyn Jones who also a former steel worker. He often consulted on management and production matters.
Cyclermate is bicycle manufacturing company established in late 1988 in United Kingdom. The firm was set up by Lewis Llewellyn and Dai Armstrong, the two close friends in a local cycle touring club. They produce traditional upright cycle, which imitate the 1940’s and 1950’s. In 1990s, the company expanded to meet the demand and they bought a 15,000 square feet warehouse with 2,000 square feet of office accommodation. The high quality hand- made bikes brought them good reputation and maintained high sales though they did not advertise much. However in 2010 the company has trouble as the sales decrease and the demand fell in spite of lower price. Some customers even complained about quality of the product because they got accidents due to front brake.
I am a consultant working for Davis, Davies, Jones and Faniente. My company has been called in by Cyclermate’s bankers to take an independent view of the company and see if the company can be made viable in the short term. We have designed this report to identify major issues on the financial and other problems faced by the company Cyclermate. The main purpose of the report is to analyse how the company could be brought out of these crises and helps it in regaining the lost market share.
The report includes detailed analyse of the problems and solutions faced by the company. Also the SWOT and PEST analyses to bring out which area needs to be worked on. It includes some conclusions and recommendations that can be followed to march to success.
- CYCLERMATE’S SITUATION ANALYSIS AND SOLUTIONS
2.1. PEST ANALYSIS
- Political factor
Strict safety standard and consumer protection laws are Cyclermate’s priority. By 2010, their products continuously cause accidents. Customers keep complaining about the quality and faults in the products. One even got risk and intends to sue the company due to an accident purportedly caused by incorrectly assembled front brake. These mistakes made Cyclermate become a target of health and safety agencies. They have to improve the quality or else they can be stuck in authorized issues. On the other hand, they also need to achieve higher standard in manufacturing to meet requirements of the market, especially foreign markets.
- Economic factor
In a condition of high petrol prices recent years, many entrepreneurs find difficulties in producing and running their own business. Electricity is not an exception. Moreover, with the high cost in during manufacturing such as materials, facilities, the cost of products in the market does not avoid increasing. That is also the essential reason explaining the consumption in the world is in downward trend
High costs also influence on delivery of this company, it prevents to expand the brand name and products to customers who live far away. Furthermore, it also interfere the import or export process because of tax, and ship costs.
Finally, after wasting much money to purchase materials, or investing facilities and technology, spending on marketing or delivery and paying salaries for their workers, the last profits of Cyclermate Ltd cannot be good and high. If the sales of this company are not able to improve, the worst case will happen is to go bankrupt, seriously.
Cyclermate Ltd receives high competition from market because many rivals open more and more factory to produce bicycles in England, such as Carrera, Charter Lea.... The competitiveness is higher and higher when there are new styles, color and reasonable price from competitors. The customers have lots of choices to select and purchase a bicycle which is stylish and suitable price.
This is a preview of the whole essay
Another factor in economics that affects to the development of Cyclermate Ltd is labor. The unemployment rate is increasing, therefore, this is a good chance for this company to choose worker more easily, and employ them easily with affordable price.
- Social factor
High-speed innovation as well as the increasing demands of consumers requires Cyclermate to change and improve every day.
Firstly, living standard of clients can affect to their choices. The higher income distribution they get, the higher demands they require. For example rich people want to ride an expansive and showy "retro" bicycle, but another client with medium wages just want to ride a nice quality bicycle. This point makes Cycler mate to diversify their price which is suitable for everyone in this communication. Besides price, design and color could be elements would make people to buy Cyclermate bicycle. The variation in design as well as color will attract children and teenager and give clients more options. Moreover, helpful accessories and functions are also important things that will affect to the survival of Cyclermate. A useful bicycle which is light and keep money in or save space in house will be the best choice for everyone. In addition, a friendly-environment Cyclermate bicycle will be more popular and keep up with the friendly-environment trend in the world.
- Technological factor
In parallel of development of economics, high technology involves specifically the Internet. The Internet is used worldwide and it becomes a necessary tool for many customers to order online. It is extremely convenient and quick to book or order in the Internet instead of calling or going directly to offices.
Cyclermate Ltd is using the oldest way to advertise their products by posting advertisement in traditional newspapers. It has limited their goods to the customers. Instead, this company can set up its own website. They can post products, events, activities of company in to that page in order to customers following easily. Facebook is the possible choice of any entrepreneurs, because the customers can catch the new trend in this page. Moreover, the Internet is the cheapest method for advertising.
More and more clients require high quality of products. Therefore motivation or investment money on modern manufacturing system is extremely important. It reflects not only the assurance about quality but also confirm the level position of company. With high level and the most modern machinery, the company will surely create trust to customers.
2.2. FINANCIAL ANALYSIS
- THE DIFFICULTIES
- Liquidity and debt ratios:
• Current ratio = Current assets/Current liabilities =1.85
• Quick ratio = (Current assets – Inventories) / Current liabilities = 0.76
• Debt ratio = Total debt / Total assets = 0.378
(Total revenue of Cyclermate from 2006 to2010)
By analyzing the financial ratios, it is easy to recognize that the quick ratio is less than one, which means the chance that the company can pay off its debt by using most liquid assets is quite low. Besides, it shows that the majority of inventories are stored and not effectively managed, that is why current ratio is at such high level, which also means low sales and low revenue gained. Moreover, the company relies on the bank loan as the main monetary support.
First of all, there is one obvious answer to the financial difficulty is that Cyclemate Ltd can lease or mortgage their freehold land costing £160,000 to gain more money and solve the situation right away. Therefore, it can prove their strength to survive in the future so the company gain more trust from the bank for future investment.
Secondly, the company is in severe lack of cash (only £657 left) so of course any borrowing loan from the bank could easily turned down. The solution to this issue is that they should strictly resolve and for the trade debtors to repay the loans as soon as possible. The amount of £200,571 would help the financial situation better in the coming time. Once their assets are raised through and their liquidity are proved to be valuable enough to afford the loan, it will be beneficial for them to borrow money from the banks.
Additionally, cost in selling and distribution could be possible declined to save more money for the company such as cutting cost for postage and courier charges by substituting by cheaper service, as well as the travelling and hospitality. Those indirect costs contribute such high cost to the manufacturing of the cycles, restricting them would help boost the sales with cheaper price.
Last but not least, the aging workforce is also another worry. If we can lay off some workers and hire cheaper labor for cleaning and other odd activities, it could save money for paying wages. In the meantime, experienced workers still remain the same with appropriate amount of salary; no necessary change should be applied.
2.3. SWOT ANALYSIS
Many striking features of Cyclermate Company are shown clearly through its expertise workforce. It has skillful engineers gathered together to meet the volume on time. Besides, the high quality of the hand-made product is another crucial reason making its business expand. In addition, the word-of-mouth reputation is another major factors help this business succeeds. Furthermore, it takes advantages of the relatively low prices of commercial and industrial property.
It is obvious that shambolic production process has heavily damaged the sales and profits gained. Unsuitable roles and duties division can be blamed for this problem. Some have to manage so many duties and tasks while others own so much spare time. Furthermore, the aging workforce endangers the productivity level.
Another obstacle worsens the condition is the weak training system. Fred, who is 18 years old, is a new worker in the field so it takes so much time to train him which also harms the production recently.
Also, old machinery such as traditional spaying technique, painting and low-quality stock control technology needs updating as soon as possible if the business hopes to improve the production and sales in the coming time.
Moreover, decline in sales show that marketing strategy of this company has problems. Apparently, it should be considered to be changed to online selling or online promotion immediately because globalization is widespread and making use of cyberspace is not a bad idea at all, in fact, many companies mostly succeed thanks to effective marketing campaign and successful advertising methods. Traditional adverts on national papers are no longer popular in our modern times.
Besides, the managerial system also has matters. The managerial system inside the company such as company cultures, employee behavior, etc requires strict control, however, Lewis Llewellyn focus more on production issues and Dai on external relations. Obviously, the company is in serious shortage of labor and executive managers.
Lastly, financial matters such as loss of profitability and rising overdraft are causing bad reputation and rapid fall in the share price.
The product they selected was a “traditional” upright cycle, following a design typical of the 1940’s and 1950’s which created a strong niche market for this such product and would be given the upsurge in interest in cycling and the increasing consumer interest in “retro” styles.
Another opportunity is that there would be a strong growth in their business because of the decrease in the number of people using cars. The opportunity created from the meeting between Amstrong and Owen helps him to have some expertise in new technologies that might be an interesting way to develop product. The upcoming changes in human resource, followed by Mr Jones who interjected that the quality problems could probably all be solved if the directors would allow the employment of more staffs in the factory and the plans for future directions, including development of the product range, and the introduction of new ways of working, new materials and possible outsourcing of manufacture parts of the product manufacture point out the new development of their business.
It can be seen that the biggest trouble Cyclermate is facing is their bad credits toward the bank. In 2010, the business is in trouble, the demand keeps going down despite the price reduction. This significant decrease in sales together with the increase in costs may last for the coming year. Therefore, Cyclermate’s overdraft is now becoming the major concern of the bank manager. So far, it is not easy for them to borrow money and this cause a lot of problem especially when they really need money to save their business. Besides, they also need to deal with their sales. Their customers demand high quality products and to meet this, they have to upgrade their producing system which will cost a lot. But, as the fact that they almost depend on their world-of-mouth reputation so it may be completely strange and challenging for them at first.
2.4. SOLUTIONS FOR CYLERMATE’S SITUATION
- MANUFACTURING PROCEDURE AND IMPROVEMENTS
220.127.116.11 Improper workforce in manufacturing
Unreasonable workforce division is one of the most serious problems of Cyclermate Ltd. Besides, lack of experienced employees and the aging workforce are worrying the production process and raising a big question for a more effective training system.
First of all, the inappropriate division of duties obviously had made such a burden on many workers. In particular, Dai Armstrong has to deal with many tasks such as making all the frames, factory manager and business director at the same time. He himself also finds it hard to keep up the level of production (approximately 8 frames/day) because it requires the harsh physical demands.
Moreover, assembly is a complex process, which takes 2 or 3 hours for one person. Janice Jones and Ffred Gregory often have to work overtime to catch up with the progress. As a result, their health and time issue could be heavily damaged.
Also, packaging is not responsibility of certain worker, anyone who has spare time can do that. If nobody has to complete their own part, without any time to do this, the packaging won’t be accomplished on time.
- A good answer for this problem is that the company should require clear division to who is able to undertake and separate arrangement of duties. Specifically, assigning other qualified person on frame-making position so that Mr. Dai could concentrate and dedicate himself to external relations business only. Assuming that the financial situation of the company gets better, the company should consider hiring more experienced labor for assemble line and frame-making because Mr Dai can no longer put up with the physical requirement of the task. With those simple tasks like packaging, it is acceptable for free hand employees to help out, but only when they finished all their tasks.
Besides, the fact that workforce is getting older is also causing big troubles for the company because the manufacturing requires adaptation to changes and new demands every single day. Meanwhile, some workers are close to retired age. For example, Idris Pugh undertakes wheel manufacture; however, he is now in his seventies. Therefore, low efficiency always appears in the factory even Idris is a perfectionist, whose wheels are always absolutely true, and never causing any complaints
- In this case, the company can consider employ cheaper labor that are suggested by Maldwyn Jones: Chinese or Taiwanese labor to make the machine for them- much better quality but half the price and move Idris Pugh to higher position as a supervisor for the whole wheel-making process.
Last but not least, the training system creates such obstacles for the assembly process. Typically, Fred, who is 18 years old, is a new and un-experienced person, the training for him is necessary, however, not easy at all. It takes so much time to instruct Fred in traditional way which is apparently the cause of slow production recently.
- In order to solve it, Fred needs to be on-the-job trained and separately from working hours. Perhaps letting Idris Pugh to be a trainer for Fred is the best measure to take because with such experience, he can taught Fred who is 18 years old and save time for others people focus on completing their own tasks. By doing this, assembly area could be worked with maximum speed and capacity without interruption. Production activity can maintain its working pace.
B. IN MACHINERY
- PAINTING SYSTEM
In order to get a better and more durable finish, the traditional spray technology has been changed to a modern “two-pack” automotive paint as Dai’s expectation. Besides its advantages, it also owns the negative effects such as a number of frames have had to be scrapped due to its quality problems and some concerns about the danger of highly toxic paint materials in this technology.
=> The problem can be solved by considerable capital investment to upgrade it into highly electrostatic powder technique, however, the financial situation of the company are in trouble. Then again, this method could only be applied when the company gets better financially to afford new machinery for high-quality products. However, the long-term benefits it will bring about are undeniable.
- STOCK CONTROL SYSTE
Disturbingly, materials are always in the shortage which results in the disruption of the production process recently. Although the demand is higher and higher, company cannot meet their requirement because of lacking necessary components.
=> The responsibility of who are in charge of noticing stock control system, Janice and Ffred, is to estimate the upcoming amount of materials needed. Any other members of certain processes had better keep informing about the level of components so that Janice and Ffred could report to the office for the supply as soon as possible. Thanks to this collaboration, it is believed that the situation of lacking inventories would be restricted in the coming time.
C. IN WHEEL MANUFACTURING
Despite the firm has commissioned a cycle shop to build the wheel for it quickly with reasonable quality, in some occasions, company could not decrease direct cost which is higher than the materials and components used by Idris, especially during the difficult times.
=> It is suggestible that the firm must stop importing wheel from outside. As a result, direct material cost will be reduced significantly, so that the product’s selling price will be also declined and firm’s sales would be improved dramatically.
D. IN WORKING CONDITIONS (WAREHOUSE LAYOUT)
Below is the original Warehouse Layout:
As we can see, the way Cyclermate arranges it has made their productivity low due to some unreasonable issues. For example, they locate the place of main inventory far from the spot making wheels so the workers have to travel a lot. Besides, it is out of the observation of office staff who have responsibility for managing the inventory. On the other hand, there is a lot of free space near the goods bay, meanwhile, the reception area is full of working spot so it make customers who go there feel unpleasant.
- Therefore, we suggest another way to rearrange this factory more convenient.
First of all, we decide to put the Inventory and High Value Cage near the office so people at there can supervise easily and have enough information about what the stock control level. The three primary manufacturing parts, Wheels and Sundry; Saws and Presses; Welding, will be placed near the Inventory, next to the Spray booth and curing oven. The rest will remain the same.
The flows of the new process are described as: Firstly the workers enter the factory and could easily take the inventories needed then move to their working areas. Finished products from these steps will be moved to Assembly to be assembled before going to Testing and Packaging room. From this room, they will be stored and wait until being sold.
2.4.2 HUMAN RESOURCE MANAGEMENT AND IMPROVEMENTS
- HR PLANNING:
Any service business desiring to maintain long-term benefits should apply a clear procedure into their system so that the staffs could follow that exact sequence of instructions and lessened any potential harms. Also, the well-organized flow chart enables employees to deal with the contingency logically within the regulated code of conduct.
The unreasonable role division of all employees in charge of manufacturing as well as managing at Cyclermate Ltd has caused many troubles. Some workers have to be responsible for so many physical demanded tasks, others are more pleasant with their positions. Some lacks seriously experience and expertise needed and some are getting older who will no longer adapt to the new changes.
Therefore, the company requires the reallocation of jobs in this company. At the current time, a clearer system of human resource planning will provide the connection between objectives and organization structure and clarification of personnel policies.
- CORPORATE CULTURE
Corporate culture is the chain of core values, visions, systems and beliefs, habits that a company develops and lives by. Corporate culture must be agreed upon all members in one organization so that the employees could be fully acknowledged about the seriousness of the company operation. Also, once the members are aware of the new direction of the company, there is a high chance that they will be more united and adjust their attitudes more properly for the greater consensus with a purpose of overcoming the difficulties.
Core business value: trust in others and a firm belief in overcoming difficulities (set up new mission: overcome difficulty, mimimize waste and consequence)
New direction: traditional -> leading edge
Patterns of work: strict regulations about working attitudes, manners, unity, collaboration.
- RECRUITMENT, SELECTION AND INDUCTION
Requirements: High expertise and specific experience in those fields: frame-making, wheel manufacture, mudguards, chain guards/ technical foundation
- INTERNAL TRAINING & DEVELOPMENT
Awareness enhancement is now the primary concern of this company. Nobody is conscious of the current situation as well as other potential harms that may heavily damage the survival of the company. Once the awareness of all the workers is raised and regained after such stagnation and bad outcomes, there is a high chance that they will be more willing and cooperative joining the upcoming training program.
Codes of conduct
Along with a clear diagram showing employee’s duties, a code of conduct also plays a very essential role in affecting the business. Basically, a code of conduct will mention about a set of rules stating the certain responsibility for a certain staff. More importantly, it outlines the proper practices and minimum terms about attitudes, behaviors, collaboration, contribution, proper chain of commands, etc that a worker must implement rightly.
Resources: The input and initial investment will mainly cover the faculty and staff (both new staffs and on-the-position staffs), finance for researching and designing flow diagram, for the instructors, equipments and technology during coaching, contributed effort and time.
Activities: This training program involves directly in the new changes with a purpose of improving the staff’s skills, expertise and methods to complete an error-free task, exposing them to unfamiliar ideas and of course, giving them the chance to practice task under time/speed limit.
Retrain / On-going train:
If the system succeeds, it is superior to continue this training program frequently to contribute to the non-stop workforce growth and development.
If the system fails, the manager or head of each manufacturing departments should realize and consider some certain changes for better improvement until the system works and brings about evident outcomes.
Evaluation (Supervision): After implementing the training system, there should be appropriate assessment to see whether or not this training program suits and progresses to help improve the situation. As a consequence, specific criteria should be set up to investigate the effectiveness. For example, speed and time range needed to complete one task should be limited by a stop-watch to check if that amount of time is effectively managed or not. Compliance is another important criterion. Compliance mentions the task completion as well as the goal attainment. This criterion will control the employee’s ability of following the instructions. Besides, the decisive factor that examines the result of this training program is the product’s quality, the sales and the upcoming profit gained.
- WAGES AND REWARD ADMINISTRATION
The company had better set up a policy about rewards, incentive scheme or discipline or fine to motivate employees or punish them if necessary during training process. For instance, bonuses should be given to people who complete their assigned tasks perfectly way beyond requirements and achieve most positive comments. Conversely, disciplinary actions for those who make mistakes should be clearly stated, how severe they are will depend on the consequences the errors create. By doing this, the employees could realize the seriousness of the training program and will not dare to let any minor mistakes happen.
- MAKETING PLANNING
Marketing is a very useful tool and can be very vital for Cyclermate. It will be published more TV advertisement for letting people to know about their product, this will happen when funds are available. The company will be using each and every marketing source available to them; this will help their customers to get to know about its products. Cyclermate will use newspapers, internet and radio to promote their product across the world. Company is planning to launch their website which will have all the detail about them and their product. Cyclermate will also be trading on line, and it will have all the detail about their product and prices.
To improve the quality is should adopt proper methods of quality management which will possibly help in reducing the costs and increase the quality of the products. The products with low quality should not be brought in the market as once the reputation of the company goes down due to poor quality issues its very difficult for it to get over it. Cyclermate should appoint right person at the right position. As of now management is also involving in the production of the goods as a result of which they are losing focus on the managerial activities.
Financial difficulties at the moment can be just resolved with immediate cash which can be only done through mortgaging assets and selling the lying stock in the warehouse. To be up to the standards of the competitors the cyclermate needs to produce cheap products at higher quality and for that it needs to revise its budget and take necessary cost cutting measures and quality management measures. Costs should be allocated appropriately, i.e. there should be proper budgeting. The company should introduce batch manufacturing of products, i.e. relating a group of components at a workstation before moving the group to the next step in production.
Overall I think that Cyclermate will have a better future if they operate their business in slightly different ways. Cyclermate products were famous for its quality and price, if the company still provide what the consumer wants than it would be no harm to the company. But there few changes needs to be changed and once the new rules and regulation apply into the business than it would be a great opportunity for Cyclermate to operate their services.
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