Business Analysis for Cyclermate

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Introduction

Cyclermate was founded in 1988 by Lewis Llewellyn and Dai Armstrong who were rendered redundant in a steel works. The act that they had worked together in this company made them share a common interest- setting up a bicycle manufacturing business. They were to combine their expertise from their former place of work, Lewis being a mill engineer and a Dai marketer. The analysis will is going to trace the history of Cyclermate, the problems facing the company and the conclusion.

Historical background of cylermate

The bicycle manufacturing business was started as a result of growing interest in cycling. They started working from Lewis garage where they made their bicycles and were assisted by a local cycle shop to launch their business. Within two years, there was increased demand and apparently they were not able to meet the demand. In order to solve his problem, they rented new premise where they would probably have a big space for production. They also hired three employees to assist them in their company.

Fifteen years later there was increased demand for their product though there was little marketing being done. There were very few adverts and the small cycle shops aided in displaying the products. The sales were maintained by the quality of the product and at the same time word of mouth.

In 2010, the sales dropped which prompted the company to reduce the price of their product but still the demand was low. There were complains raised about the quality of the product s that were being manufactured in addition to being faulty. There was a case of a bicycle whose front brake was wrongly assembled and therefore causing an accident.

The health and safety issues raised alarm when a customer fell over a loose capable. At this particular time there is increased rising cost and the bank raise concern about the overdraft. Hence there appear to be a number of issues that need immediate attention in order for the company to come back to its initial reputation.

In terms of production, the company seem to use old methods and even equipment that is outdated and therefore this slows their production and eventually affects the rate of sales being made.

Pest and Swot Analysis

According to The Times 100 (2009) PEST analysis stands for Political, Economical, social and Technological analysis. It is used as a business strategy for environmental scanning in order for the business to be able to adjust itself in the market. The importance of the factors in the model will vary based on the industry in which the firm is operating and what product it is producing. (PEST, 2009).

Streangth, Weakness, Opportunity and Threats Analysis (SWOT Analysis)

Strengths are the characteristics of the business that give it a competitive advantage over other players in the industry.
Weaknesses: are factors that place the firm in a disadvantageous position relative to competition.
Opportunities refers to the external business environment that presents the company with chances increase sales and profit margins
Threats are external business environmental characteristics that could negatively impact business.

A corporate plan plays an important role in the achievement of objectives. Armstrong (2006) suggests that SWOT can be combined with pest to analyse the business and environmental factors.

Looking at Cyclermate, it is important that they analyse the business environment under which the yare operating in. the PEST and SWOT models can be used to analyse their business environment.

Application of PEST Analysis Cyclermate

Economic factors

Cyclermate has borrowed heavily from the bank given that they have an overdraft. They have to consider the interests rates since if the interest rates are high, it means they have to pay back huge amounts of money as interests to the back and should therefore consider another option of generating income for the running of their business (The Times 100, 2009).

Social factors

The company needs to evaluate the needs of the society. On the onset of their organization there was interest in cycling which prompted them to start a manufacturing industry for bicycles, a business which proved viable by then, and as noted earlier, they made good sales. At this particular moment, they need to find out the needs of the population.

They should find out whether the same interest is there and whether the people still love the taste of their products since the customers taste and preference will always tend to change with time (The Times 100, 2009).

Technological factors

The company is still using ancient means and ways of production. For instance the equipment used by Dai to make the frame demands a lot of physical energy which limits efficiency.

This means it takes him a lot of time to produce a given number of frames compared to if they used advanced technology to produce the same. Dai seem to be aware of the advantages of introducing a robotic flash butt welding machine which could enhance efficiency but the ideas is not readily acceptable due to fear of the amount that is required to invest on the same (The Times 100, 2009).

The painting of the frames also is being done in the tradition ancient way therefore limiting the numbers of the items that are painted. The use of elderly compressor and extraction equipment poses a health hazard to the employees. The alternative of getting a highly efficient electrostatic powder spraying technique seem to not to be an option since it also calls for capital (Answers.com, 2011; The Times 100, 2009).

Application of SWOT Analysis at Cyclermate

Strengths

Cyclermate needs to look at their internal strengths and consider how they can improve on their product in order to give hem a competitive advantage since this is what will help them survive in the industry (12manage, 2011).

Weaknesses

The company at the moment seems to be producing low quality bicycles which are at the same time faulty. These have possibly led to consumers not to trust their product and will therefore avoid buying the product (12manage, 2011).

Opportunities

Currently, there are no adverts on the existence of the product. This means that some of the consumer may not be aware of the existence of the product (12manage, 2011).

Threats

There are other cycle manufacturer making sales online and are doing well. Mr Llewellyn calls them “big boy” in a way feeling threatened (12manage, 2011).

When using the SWOT analysis it is important to bear in mind the strategic plans of the companies. The Use of SWOT analysis may make some people think that they have done a good job of planning yet they have ignores the objectives of the firm and to some extend affect the performance of the company. (Hill and Westbrook, 1997).

Short term options that could be considered by the company to alleviate the difficulties it faces with liquidity and capital structure.

The company can borrow on the value of the freehold land as it seems to be the most reliable non current asset. It can also try to get money from its debtor as the amount from the debtors is a good amount.

The salaries of Dai and Lewis can be reduced from 48,000 to a reasonable amount, since the company does not have enough money at the moment and possibly increase it when the company gets back on its feet financially.

Production methods

The special steel tube stock is cut to size using an old automated tube cutting saw and an ancient bending machine. With this equipment, Dai can produce a maximum of eight frames a day, which could be on the lower side of production.

A robotic flash welding machine can produce more of these frames as Dai has always suggested but it seems there is fear that the cost might require a lot of capital. Although this may cost a good amount of money, there will be increased production with time which could have a positive impact on the sales of the product.

The painting is done using cellulose spray technology which is a traditional way of doing it. A modern two pack automotive paint can be introduced as Dai thinks. This does three activities: paint mixing, rapid spraying and then baking in a low heat oven. According to Dai it gives good results therefore improving the qualities of the product. This is a very necessary equipment for the company given that one of the problems that are affecting the sales of the company at the moment is the quality of their product.

There is an elderly compressor and extraction equipment that that posses a danger of highly toxic paint materials which can be a health hazard. This can be replaced with a highly efficient electronic powder spraying technique.

The assembly is a complex process which, seem to be done manually which takes one person from two to three hours. There are two employees who are charged with the responsibility of assembly. In order to meet the deadline, they have to work overtime. This could affect the orders of the company in the event that the two employees fail to make it to assemble the required order. The company could think of an alternative way of assembling the components possibly an automated way in where by it will be quicker and therefore efficient.

Human relations issues

As noted earlier, the salaries for Dai and Lewis could be reviewed given that the company is in a financial crisis. They each receive 48,000 which appear to be on the higher side given the current financial status of the company. An employee like idris Pugh, the wheelwright could be laid off because of his health.

Although his work is perfect, we see that at time the company is forced to ask another cycle shop to build the wheels. The wheels that are produced by this cycle shop are of better quality compared to the ones made by Idris. Therefore the company can declare him redundant and outsource the wheels.

Dai Armstrong is very optimistic about the future of the company. He has a whole lot of new ideas about the future of the company. It calls for a new way of doing things such as developing product range, new materials and outsourcing some of the manufacturing parts. He is very much aware that all these call for finance and the challenge is how to raise the finance required. He is thinking of introducing his cousin who has the expertise which he could bring in the company.

On the other hand Mr. Llewelln seems to have given up and feels that despite the fact that he has put a lot of effort it not paying off. He recognizes that there is still an upsurge in interest riding but the sales are still low to a point that many cycle shops are closing. He therefore thinks and feels they can also close down.

He argues that the company still has a valuable goodwill name and the value of the value of the factory building has gone up. If the company is sold, then it will fetch good money that will enable them to pay all their debts and even allow the three shareholders to recover their investments. Mr Llewellyn seems to be stressed with his work and finds it tiresome. He will be happy to retire.

From what he expresses, it seems he has no motivation to work and therefore has no reason to put any more effort. It is therefore reasonable that he expresses this to his colleagues and gets someone else who is motivated to get down working and helping the company back on its feet financially.

Mr Morgan seems to be a highly skilled person in the still industry. For him the current product still has a lot of potential for to firm and what is required is to modernize the production of the product. He points out that there is the question of quality in terms of paint which needs to be addressed. Although he shares this with the consultant, he fears that the directors may not agree with his ideas and probably he keeps of.

Mr. Jones is not satisfied with what he is what is paid for his skills. In other words is not motivated. He points out there is a possibility of outsourcing the machines of better quality from the Chinese at half the price and possibly this could reduce the production cost.

Mrs Morgan still feels that she has a lot to learn in the position she has been given – stock control. In addition she seems not to be comfortable working with the husband in the same place. She points out that the husband is undervalued and therefore not utilized to the maximum. This expresses a point of dissatisfaction and it can serve as a source of lack of motivation.

Janice Jones seems to enjoy the work although she works under pressure at times in order to meet the deadline. Sometimes the work is done in hurry and therefore making mistakes. This can lead to faulty products, which is one of the problems of the firm currently and has possibly affected the sale of the product.

According to her, the employment of another person, Fred has been a relief to her although he is still learning and therefore makes mistakes which she considers careless mistakes. For Ms Schock she welcomes the employment of Mrs Morgan. She feels that Morgan is over worked and therefore works under pressure. So for her, Mrs Morgan can concentrate on collecting debts from cycle shop owners as a full time job.

Looking at what all the employees shared with the consultant, they each have rich and varied ideas but some are afraid of sharing with the directors as they feel that their ideas might not put into consideration.

They therefore opt to keep off. Dai and Llewellyn who are the founders of the firm, and consequently the directors seem to be looking at the future of the firm from two different angles.

Dai feels that there is hope for the future of the firm despite its current situation while Llewellyn feels it is time to close down just like other cycle shops have done. There is need to replace Mr. Llewellyn as the director of the firm and he just remains as a shareholder in the firm.

The Current Ratio

The current ratio is a function used to test the organisation’s financial strength. It is derived from dividing the total current assets of the company by its total current liabilities. In the case of Cyclermate, the current ratio is

Total current assets/total current liabilities = 489318/264864=1.847431134

This ratio indicates that Cyclermate is financially sound and is able to meet to meet its obligations.

Conclusion

All the employees of Cyclermate seem to be aware of the situation and problems that the company is going through. The company is not doing well financially. This has been as a result of low sales of their product which, they all seem to agree that it is of low quality and even faulty.

This is evident from the incident where by a customer had an accident because of faulty brakes. It is also evident that they have not employed new technology fully and this seems to affect the flow of the product and therefore lack of efficiency. Their product is not being advertised seriously and therefore the consumers may not be aware of their product.

Recommendations

There is still hope for the future of Cyclermate in the sense that there is still interest in cycling and many people are abandoning their cars for cycles. The firm should do an analysis using the PEST and SWOT analysis models in order to remain competitive in the cycle industry. There is need to analyze the existing strategies, develop new ones, establish critical success factors, prepare for the operation of these strategies and monitor the results. (Armstrong, 1996).

The firm needs to embrace technology and improve the quality of their product. They need to cut down their production cost if they have realized profits that will sustain the running of the firm without necessarily taking bank overdrafts.

The company should consider having health and safety rules in order to protect both the customers and the employees, to avoid a repeat of what happened to a potential customer.

There are complains about the directors being rigid and therefore may not welcome any new ideas. The directors should consider bringing about changes in the firm especially as it regards the production. They should consider getting modern equipment and machines for production in order to be efficient.

This is involves taking a risk in investing in technology but in the long run it will pay off as this will lead to improved quality of the products and at the same time the availability of the products when they are required. The bank should consider the potentials of the company since it is a matter having good strategies by the company and reorganizing its corporate plan, and in the long run they will be on their feet financially.

References

12manage, (2011). SWOT Analysis. Web.

Answers. (2011). PEST analysis. Web.

Armstrong, M. (2006). A handbook of Human Resource Management Practice 10^th edition . Kogan Page, London.

Armstrong,.M. (1996). Management Processes and Functions. Web.

Hill, T. and Westbrook, R., (1997). SWOT Analysis: It’s Time for a Product Recall. Long Range Planning 30 (1): 46–52. Web.

Oxford University Press, (2007). PESTEL analysis of the macro – environment. Web.

The Times 100 (2009). PEST Analysis. Web.

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