DDBA 8006 Week 8 Applied Business Proposal Example

From Offset Volume Into Short-Run Labels: An Applied Business Proposal Asking a Sixty-Person Commercial Printer's Owner to Approve a Digital Label Press, Retire One Offset Press and Sell Labels to Existing Clients Within Eighteen Months

Student Name

Walden University

DDBA 8006: Contemporary Challenges in Business

Instructor Name

Month Day, Year

From Offset Volume Into Short-Run Labels: An Applied Business Proposal Asking a Sixty-Person Commercial Printer's Owner to Approve a Digital Label Press, Retire One Offset Press and Sell Labels to Existing Clients Within Eighteen Months

Executive Summary

Recommendation: approve the purchase of a digital label press and finishing line for $820,000, retire the older of the two offset presses and sell it for about $150,000, and begin selling short-run product labels and flexible packaging to existing clients within 18 months. The net investment is about $670,000. At the projected volume, label work would contribute about $880,000 a year by year three, against an offset business whose contribution has fallen about 6 percent a year for five years. The main risk is that existing clients buy fewer labels from Kessler than the client survey suggests; a staged rollout and a decision point at month twelve limit that risk.

The Organization and Its Problem

Kessler Printing, a composite commercial printer of 60 people in Grand Rapids, Michigan, prints brochures, catalogs, direct mail and annual reports for about 310 active clients, most of them regional manufacturers, food producers, health systems and colleges. Offset volume has fallen as clients move marketing to digital channels and shorten their print runs. Revenue fell from $11.4 million five years ago to $9.1 million last year. Both offset presses run below 60 percent of capacity. The owner has asked for a single recommendation on how to use the plant and staff for the next five years.

The Growth Choice, Classified

Ansoff (1965) classified growth moves by whether they involve new products, new markets or both. Selling a new product to existing customers is product development; selling new products to new customers is diversification, the riskiest of the four moves because the firm learns two unfamiliar things at once. Labels and flexible packaging are new products for Kessler. The question is whether the customers would be existing ones. The client list says yes, mostly. Of 310 active clients, sales representatives identified 118 that buy product labels or short-run packaging today, from other suppliers: food producers needing labels for seasonal products, manufacturers needing compliance labels, colleges selling branded goods. In a survey of 64 of those clients, 41 said they would consider buying labels from Kessler if quality and turnaround matched their current supplier. The move is therefore product development, aimed at clients Kessler already serves and bills.

Market Conditions

The short-run label segment has grown as brands produce more product variations in smaller quantities. Using the five forces lens applied earlier in the term (Porter, 1980), buyer power in this segment is moderate, since clients are many and small; supplier power is low; rivalry is real but fragmented among regional label printers; and digital equipment has lowered entry barriers, which is both why Kessler can enter and why others can too. The segment is attractive enough, not exceptionally so.

What Kessler Brings

The resource audit method from Week 3 (Barney, 1991) points to one advantage that is hard to copy: Kessler's existing billing relationships, approved-vendor status and stored brand files for 118 label buyers. A new label printer would have to win each client's trust, go through vendor approval and rebuild their brand color standards. Kessler already has those. Its prepress staff also already manage brand color for these clients. Equipment and skilled operators, by contrast, are available to any competitor.

The Financial Case

Over five years at the firm's 11 percent hurdle rate, and assuming year three's contribution holds, the project's net present value is positive at about $960,000. The case depends most on year two and three label revenue; if label sales reach only half the projection while the added fixed costs stay, net present value falls to about −$270,000, so the project does not survive a halving of demand. The Week 6 brief showed how to set such a condition, and it is set here as a decision point.

Table 1

Label Line Projection (thousands of dollars)

Retiring the older offset press loses no contribution because the remaining press can absorb current offset volume at about 90 percent of capacity.

The Plan

Months 1 to 4: order the press, sell the older offset press, train two operators from the current offset crew. Months 5 to 8: run label work for the 41 clients who expressed interest, at introductory prices. Months 9 to 12: extend sales to the remaining 77 known label buyers. Month 12: decision point. If label revenue is below $450,000 annualized, pause the second operator hire and reconsider pricing; if below $250,000, stop selling labels actively and keep the press for packaging prototypes. Months 13 to 18: if on track, begin selling to new clients outside the current list, which would be diversification and deserves its own review.

Measuring Success

Following the scorecard approach from Week 7 (Kaplan & Norton, 1996), the proposal sets four measures before launch: label contribution margin, share of the 118 known label buyers placing at least one order, on-time delivery for label jobs and number of operators certified on the press. Each has a target and a failure line agreed now.

Risks

Clients may order labels once and return to their established suppliers if Kessler's turnaround is slower. Digital label technology is changing, and the press may be outdated within seven years. Operators trained on offset presses may not adapt quickly. The staged plan and the month-twelve decision point limit the money at risk to about $250,000 of net cost if the line is stopped early, since the press could be resold.

The Request

Approve the $820,000 purchase and the sale of the older offset press at the next owner's meeting, with the month-twelve decision point written into the approval. If the owner prefers a smaller first step, the same plan works with a used label press at about $450,000, which lowers the money at risk but limits the packaging work Kessler could take on in year two.

References

Ansoff, H. I. (1965). Corporate strategy: An analytic approach to business policy for growth and expansion. McGraw-Hill.

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120. https://doi.org/10.1177/014920639101700108

Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Harvard Business School Press.

Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. Free Press.