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O.M. Scott & Sons Company

In: Business and Management

Submitted By vernonvolt
Words 2302
Pages 10
I. Exec summary

O.M. Scott & Sons company is a company that processes clean, weed-free grass seed since 1868. Over the years, its product line has evolved into a wide variation of farm seeds and total lawn care systems. Between 1955 to 1961, the company implemented different programs to market and distribute its product with the aim to increase the company’s past success and growth. Due to these efforts, sales increased from about $10 million to $43 million. However, even with certain policies in place, results of 1961 operations showed that the company’s net income decreased despite the increase in sales. In late 1961, the company’s officials, with the numbers showing the results of operations, geared for the production year ahead.

II. Problem

Institutional What changes should the company implement to effectively manage its distribution channel, in order to increase market share and profitability

Operational What changes should the company implement to improve its collection on receivables, manage inventories turnover, and marketing in order to increase profit

III. Corporate Objective
A. To be the market leader in grass, and farm seed industry
B. To be able to implement effective marketing and sales programs through profitable product lines and effective distribution system
C. To be able to effectively manage expenses in the distribution level

IV. Areas of consideration
Macro-Economic indicators
Political
The year 1950s was generally characterized as post World War II and The Cold War against Russia. Due to this it was a time where America’s norm was characterized by conformity and conservatism. It was during the period where America transitioned from the term of Harry Truman to Dwight Eisenhower. Eisenhower’s period, being a war veteran, was characterized by the war in Korea and a heavy gap versus Russia, which was dubbed the “Cold War”. Despite the challenges faced by his administration, Eisenhower’s time was also characterized by fiscal responsibility. He focused on stimulating economic growth and raising productivity without benefiting a certain interest. He was very conscious about inflation and had many time lowered government budgets on military and defense. His focus turned to infrastructure and services. However it was also during his period (1954) where recession also affected the economy and unemployment rate increased by 6%

Economic
Between 1945 and 1960, the gross national product more than doubled, growing from $200 billion to more than $500 billion. Much of this increase came from government spending like bridges, roads and schools. It was also a period where the manufacturing industry flourished due to increasing demand of various products. The high employment rate and high salary gave birth to more middle class citizens. These middle-class people had more money to spend than ever, because the variety and availability of consumer goods expanded along with the economy, they also had more things to buy. One of the strongest factors that characterized the period was the dramatic increase in production of houses in the so-called “suburbs” or sub-urban, where Americans built homes that where more spacious, mostly had lawns.

Demographic The end of 1950s produced more than 50 million babies, and was dubbed the era of baby boomers. The postwar baby boom also spurred suburban expansion, as families tried to escape crowded cities and urban areas. The Federal Housing Administration (FHA) and the Veterans Administration offered guaranteed home loans; by the 1960s, one out of four Americans lived outside the city. Most of those who fled the cities were “whites”, and the ones that moved into the cities were minorities from southern states. Women also specifically benefited from the growth of the period. The increasing demand for consumer goods and other services, women found jobs in offices and shops. Another notable phenomenon are the number of Americans earning between $3,000 and $10,000 per year, defined as the country's middle class, which doubled since the late 1920s. No heavy threat seen during this era except for the migration of families to “sunnier” states, leaving colder states with lesser population and diving economies.

Socio-cultural
Life in 1951 was still very strict. Women were still obligated to the status of housewife and men were the main breadwinners in the family. By the end of the Fifties, TVs were present in 90% of homes and watching television was the favorite leisure activity of nearly half the population. This paved way for different products to be advertised in mass media. Although the times were changing, many of the major changes didn’t take place until the 1960’s.

V. Market Profile and outlook
Competition
Although competition was not yet stiff during the 1950s, the period enticed entrants as Americans continued to build houses. As lawns were becoming a common aim in house designs, players of the same industry saw the profitability. The barriers to entry for the Landscaping Services industry was extremely low. There is no formal training or licenses required for basic lawn mowing services, and comparatively little investment is needed to start the business. The industry is not capital intensive and does not rely heavily on expensive equipment. Most tools and equipment used by industry operators have low costs and represent one-time expenditures. Moreover, new entrants, and smaller operators, do not need to rent office space to operate their business because lawn maintenance and other landscaping work is done onsite. This alone was a threat for the company. One direct competitor was Jonathan Green Inc., a provider of lawn care products and services.

Technology The booming economy paved way for different products to flourish. Research has become a main acticity in most companies. This was an opportunity for industies including agriculture and in the long end, lawn care.

Market Profile
Product
During its initial operations, O.M. Scott & Sons was only selling clean, weed-free grass seeds, but later on diversed to other farming seeds, fertilizers, pest controls and complete lawn care systems.

Price No information available

Place The company started selling products in Central Ohio; then throughout the area by mail. Later on the company ventured to distribution via retailers and wholesale distributors

Promotion During its early operations, O.M. Scott & Sons made use of a magazine which they called Lawn Care. The company later pushed their products to potential buyers by making use of distributors and retailers. The company gave incentives in the form of credits to its distributors.

VI. Financial Profile
Profiatility

1957 1958 1959 1960 1961
Growth per year 0.25 0.31 0.26 0.12
Gross profit margin 17% 19% 21% 21% 20%
Return on sales 2% 4% 5% 5% 4%
Current Ratio 2.13 2.34 2.14 2.93 3.87
Debt to Capital ratio 0.38 0.27 0.52 0.55 0.58

The positive growth every year shows that the company is still performing well and is surpassing its previous performance; which according to their objective for launching different programs, is the true aim of their recent policies. Average growth shows that the company is growing at 23% from 1957 to 1961; which is close to their target of 25%. Although, their relatively low profit margin and return on sales may be limiting the increase in profit. Decrease in growth by 1961 is very alarming and should be considered in the next operating year. This may mean that although distribution is becoming effective, sales at that level is not being strengthened. Different reasons for the decrease in order may be caused by different factors such as personal financial problems in the dealerlevel, or decrease in marketing effort by the mother company.

When it comes to its ability to pay debts, O.M. Scott & Sons seems to be prepared although its high value may suggest that the company is not maximizing its current assets and or finances.

Turnovers

1957 1958 1959 1960 1961
Days supply inventory 54 64 104 46 59
Inventory turnover 6.6 6.6 4.7 5.6 7.2
Days sales outstanding 51 72 68 148 179
Receivables turnover 7.07 6.39 5.84 3.57 2.32
Days purchases outstanding 31 39 54 37 62
Payables turnover 11.58 10.86 8.84 7.89 7.97

It is very important to acknowledge the usefulness of such ratios as it may give a picture on how O.M. Scott & Sons Company converts its products into sales in form of receivables or cash. Against its ability to convert into sales is how fast the company pays for its debts.

Days Supply Inventory
As suggested by the numbers of the company, the days that their products stay in inventory is relatively low, maybe since it is not a basic commodity. Although, the product is not that difficult to produce and should be easily delivered once an order for the item has been placed.

Inventory Turnover It is noticeable that the company has improved its inventory turnover in 1961, this may mean that sales have driven its products to move quickly. Although days of supply in inventory was lower in 1960, turnovers were higher in 1961 which may be attributed to its trust receipt plans.

Days sales outstanding & Receivables turnover Increased sales is one thing, but converting or collecting payments for these sales is another. Despite continous effort to collect from retailers and distributors, the company still lagged in its collections thus a high DSO. A high DSO may affect the company’s cash reserves and may even increase the probability for bad debts.

Days purchases outstanding and Payables turnover It is alarming to see that the days purchases outstanding reached its highest during the current year, which is backed by the fact that the payables turnover is continously decreasing. Generally, this may not be a good indicator for various reasons such as the company is having difficulties paying for its purchases which involves cash. It may also show that the company is unable to avail of discounts provided by suppliers. Although maximizing the use of cash for a longer period may benefit the compay, ultimately, not being able to pay supppliers in a shorter period may suggest that payments are not made available which may also give the signal that receivables are not collected.

VII. Alternative Courses of Action
1. Continue Trust Recipt Plan and Seasonal Dating
Pros- The company has been successfully implementing this for the past few years and has successfully increased its sales and has controlled the selling of unauthorized discounts
Cons- Receivables continue to increase

2. Discontinue Trust Receipt plan and implement Seasonal Dating Pros- This may decrease accounts receivables by lowering the due date of delaers
Cons- Providing a loose policy on dealers entice them to order products and increase inventory on credit. Aside from this, the company is able to control any unwanted negative effects of unauthorized discounts on sales.

VII. Conclusion and Strategic Decision

The Trust Recipt Plan has helped the company increase its sales by giving incenives to dealers that they can hold on to products on credit. It has also prevented any delars from selling the products on a very low price, which can affect the company’s image on quality. However it is also noticeable that majority of the company’s receivables is coming from the Trust Receipt plan and it is growing every year. It may be advisable that additional incentives be offered if Trust Recipt plan is to be continued. Instead, the company might want to focus on helping their retailers, it may be in the best interest of the company to lessen sales force and shift to mass media. This way, the company reaches more potential clients faster. Since the distribution system has already been set-up, it might be effective to slowly shift from a push strategy to a pull strategy wherein instead of continously focusing on making the product available, the company changes its marketing effort to enticing consumers to try the product. After all, it is a period where television is continously influencing how consumers purchase and even live.

IX. Grand design and execution

Eliminating the Trust Receipt plan may destroy everything that the company has progressed on over the past few years. Even if most of the company’s receivables are due to such plans, the company can still do something about it by reinforcing its efforts through proper incentives to its dealers and by promoting its product. The following are the proposed actions to encourage dealers to push for payments and also to attract both new and old cutomers to purchase the company’s products

1. Increase discounts to 2% for payments made ahead of date
The company’s existing .6% may not be enough to entice dealers to avail of discounts, as it may not be that significant to them but increasing discounts (as like in common industry practice in discounts) may serve to be a huge savings for delaers.

2. Offer consignment on certain product lines
Some retailers may be hesitant to increase inventories especially on certain products (ie slow moving items, high-end products), combining seasonal dating with consignment on determined items may convince both old and new retailers to carry products without the extra cost

3. Advertise the products using the tri media (television, radio, and print ads)
The era saw its people turn to television as its main medium for entertainment as almost all households had it during 1950s. Advertising the availability of the products in the nearest retailer may help boost sales in the distribution level.

References

http://www.ibisworld.com/industry/default.aspx?indid=1497

http://people.ucalgary.ca/~alehar/tc201112.pdf http://learningenglish.voanews.com/content/america-nineteen-fifties-family-life/1263187.html http://www.history.com/topics/1950s http://homepages.gac.edu/~jcullip/workexamples/mea.html http://www.apstudynotes.org/us-history/topics/baby-boom/

http://www.gearheadgeek.com/ghgj/index.php/49-54-history/1951-history?start=1

http://elcoushistory.tripod.com/economics1950.html…...

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