MGMT650B Consulting Skills for Managers Alan Law: Angelika Mehta: Ivy Wong: Joanne Wong: Rayman Wong: PROPOSAL FOR Dummy Pack

Pyramid Situation Maxclean has an established market share of 60% of the cleanroom market in China. Their revenue last year was US$240M worldwide Complication The US operations direct sales strategy is bringing in zero profit as oppose to the forecasted $2.4M net profit. The revenue was 55% below the forecasted $20M US.

Pyramid Question How can we increase US revenue from $9M to $20M and increase profit from zero to $2.4M net profit in the next 18 months? Answers The Maxclean sales force should shift their focus to spend their time building relationships with and selling through distributors.

BECAUSE….. Distributors want to sell Maxcleans product since it is beneficial for them to do so Corporate end users prefer to purchase through distributors Rationale Going through distributors provides better economics for Maxclean Distributors have complete product lines Going through distributors will save Maxclean warehousing & transportation costs, & therefore increase gross profit Going through distributors will allow Maxclean to sell high volumes since distributors order more product than direct customers Going through distributors allows Maxclean to extend its product reach, since distributors can sell to larger sales territory Distributors will receive a higher profit margin compare to other brands Distributors see benefits in getting better payment terms with Maxclean Better customer service and faster delivery Low investment costs since logistic system already established

US revenue and profits have under performed for TWO consecutive years Real Data Source: Maxclean, FY2007

US revenue and profits have under performed for TWO consecutive years Real Data Source: Maxclean, 2008

End users prefer distributors because… Complete Product lines Better customer service and faster delivery lead time Very low investment costs Distributor Source: Company reports of distributors Real Data

Corporate end-users prefer purchasing all of their products from one location Quote from Mrs Kim Yung (Sourcing Manager, Samsung Co Ltd) source: Quote from an interview with a corporate end user Real Data We have diverse product requirements across multiple geographic locations and we expect our supplier to service our need from a single touch point

End users are shifting procurement services to distributors since they carry a broader range of products Fake Data Products demanded by end user A FacemasksSticky mats WipesSwabsApparelGloves MaxcleanXXX Distributor A Distributor B Maxclean carries only a portion of the cleanroom products most often demanded by customers

Source: Interview with Distributor A Real Data End users who are located further away from Maxcleans California warehouse, can get faster delivery service from a distributor Maxcleans warehouse DCs of Distributor A Maxclean only has one warehouse in CA, making it difficult to deliver products to other states e.g. the eastern coast On the other hand, distributors have DCs widely spread across the country, providing a much more efficient distribution network in terms of speed, coverage

Very low Investment Costs Investment into new logistic systems Time costs on Relationship building Time costs on product search Product costs End user costs of engaging with new supplier End user costs of engaging with existing distributor for Maxclean Remove investment Costs Product costs Real Data Total Costs

Maxcleans value proposition to their distributors Maxclean Better payment terms than Industry norm Offers higher profit margin compared to competitors Real Data

The top two attributes that distributors consider when looking for a supplier are price and quality source: Surveys on corporate user & distributor Real Data Percentage of Respondents

Maxclean is on average 30% cheaper than its competitors True Data USD

Maxclean has on average, better quality products than its competitors Fake Data Maxclean

Maxclean offers better margin to distributors than competitors True Data Source: Market Survey and Maxclean internal data Higher the sales volume, better the profit margin compare to other brands Higher the sales volume, better the profit margin compare to other brands

Distributors can will get better payment terms with Maxclean because they are new in the market Payment term 30 days as average 0σσ Maxclean Payment term 50 days as average Real Data Source: Market Survey and Maxclean internal report

Distributors are not satisfied with their current suppliers Quote from Mr. Doug Cwiertina (CEO of Polytek, a distributor of Cleanroom products in land development sector) source: Quote from interview with a distributor Real Data We feel like we should be able to get a better price for the cleanroom products that we purchase Distributors satisfactory level with their suppliers

Maxclean benefits from dealing with distributors Source: Surveys and interviews with distributors Real Data Going through distributors will allow Maxclean to sell high volumes Going through distributors allows Maxclean to extend its product reach Going through distributors will save Maxclean warehousing & transportation costs Maxclean

More cost effective to use distributors to lower direct costs therefore increase gross profit source: Maxclean financial statement (projected) Total Revenue (000)4,1348,99220,000 Direct Costs Material Costs 2,5805,39411,400 Warehouse Rent Freight and logistic Charges 5791,1460 Gross Profit (CM) 7862,1638,600 Gross Profit in % 19%24.1%39% Real Data 43%

Distributors allow for higher sales volumes Fake Data source: survey and interview from a distributor, Maxclean internal data

More effective to use distributors because Maxcleans US office has a smaller reach compared to distributors who have a larger geographic reach source: Frost & Sullivan - CLEANROOM MARKET USA 2007 Percentage of Distributors that are located in each state Real Data % of US cleanroom distributors located in each State

77% of cleanroom products are sold through distributors and Maxclean can generate new sources of revenue through these distributors Source: Frost & Sullivan - CLEANROOM MARKET USA 2007 Real Data

Appendix

There is room for entry into distribution segment since 3/5 of distributors and 1/3 of corporate users are looking for NEW suppliers source: Surveys on corporate user & distributor Real Data Distributors Corporate end-users YES 67% YES 31% No 69% No 33%

The majority of Maxcleans current USD $9M sales is from 5 customers which indicates that there is room for sales force to expand their network US major clients: volume distribution in 2008 Company NameShare (%) Applied Micro Circuits9.14 Intel19.35 Intersil7.04 Trident Microsystems6.77 Freescale Semiconductor9.89 Total from 5 main customers52.20 Others47.80 Need to change this to a more friendly graph Real Data

Implementation: Re-organize the sales force to focus on distribution instead of direct sales There is a lack of distribution experience in current sales force Therefore, need to hire a new sales director with solid experience in distributors channel to lead the existing team 70% of sales force time will be spent to build relationships with distributors 30% of time to maintain the revenue from current direct sales

Implementation: Focus on distributors by allocating 70% of time Real Data source: Maxclean, 2009 (based on 250 working days/year/salesperson)

US market share for cleanroom products industry in different states source: Frost & Sullivan - CLEANROOM MARKET USA 2007 Texas

Interview schedule NAMEPOSITION RELATION TO MAXCLEANDATETIMEInterviewer 1Mr. Christopher SimosSourcing Manager1Potential Client (distributor)Sept 288am (US) Angelika, Ivy 2Mr. Nicolas FreinzeManager2Potential Client (distributor)Oct 710am (US) Angelika, Ivy 3Mr. Shawn YoonGeneral Manager3Maxclean Korea BranchSept 292pm (HK) Angelika, Joanne 4Mr. Nick RosensGeneral Manager4Maxclean USA BranchOct 109am (US) Angelika, Joanne 5Ms. Kim YunSourcing Manager5 Samsung Co. Ltd Oct 84pm (HK) Alan, Rayman 6Mr. Douglas CwiertinaCEO6Existing Client (Distributor)Oct 99am (US) Alan, Rayman 7Steve Kowarsky End user in US 7Potential user of MaxcleanOct 89:am (US) Rayman, Joanne

Action plan IssueHypothesisAnalysis Data SourcesWhoDeadlineData receivedStatus Would attending tradeshow in related industries increase sales in later months? Attending tradeshows in targeted industries can increase brand awareness and thus lead to more sales. Review what tradeshow that Maxclean had participated in the past and the chance of getting new business. Maxclean's marketing data Joanne25-Septradeshow attended sample distributed successful deals received Complete Would distributing samples in every major medical supplies retail store increase sales? Distributing samples can increase Maxclean's brand awareness and encourage product trial and thus, lead to more sales Review Maxclean's history of distributing samples to medical supplies retail store. Refine the budget cost for sampling. Maxclean's sales information in US Joanne2-Octno. of sample distributed from China office and US office Complete Would advertising on internet more effective to reach our designated distributors and end users ? With more effective advertising on internet to reach our designated distributors and end users would increase sales by 15%. Review historical performance with degree of advertising Sales data from Maxclean Group Joanne & Ivy 15-OctType of internet media used in China, US Complete Would adverting on TV, newspaper and specialty magazines more effective to reach our designated distributors and end users ? With more effective advertising on TV, newspaper and specialty magazines to reach our designated distributors and end users would increase sales by 5%. Review historical performance with degree of advertising Sales data from Maxclean Group Joanne & Ivy 15-OctComplete Would sales increase if country of origin is in US ? Sales will increase by 10% if Maxclean made their products in U.S InterviewMaxclean US Sales Manager Joanne & Angelika 10-OctComplete Sales are lower that expected Forecasted sales & profit are much higher than actuals Review 2008 dataMaxclean US recordsIvy & Alan9-OctComplete Targeting end-users is not resulting in sufficient sales One distributor can bring in much higher volumes than one end user Review industry data: look at total sales volume and breakdown of distributor volume vs. one end-user volume Industry reportAngelika13-OctComplete

Action plan - continued IssueHypothesisAnalysisData SourcesWhoDeadlineData receivedStatus Would sales increase if Maxclean offer price is more than 30% cheaper than the competitors ? Sales will increase by 5% if Maxclean offer price is more than 30% cheaper than the competitors. InterviewMaxclean US Sales Manager Joanne & Angelika 10-OctYesCompleted Would sales increase if we do co-branding with distributors ? Sales will increase by 10% if we do co-branding with the distributors Is it important from the distributors' perspective to include their brand name on our product ? Would distributor brand add value to our own brand ? Create questionnaire and conduct telephone interview with the distributors and end users Rayman14-OctYes Completed Would stock rotation program encourage distributors to carry additional inventory ? Sales will increase by 15% if we develop Stock Rotation program Would our distributors be interested in this program, what are their concerns in regards to inventory carrying, have they done this before with other suppliers ? What can Maxclean do to lower their risks of carrying some inventory ? Create questionnaire and conduct telephone interview with the distributors Rayman & Alan 13-OctYesCompleted Would higher discount rate encourage distributors to carry additional inventory ? Sales will increase by 5% if we give volume discount What are the other suppliers do when they want to boost sales when close to quarter end? How much inventory and risk would distributors willing to take considering the extra discount they will get during quarter end period ? Create questionnaire and conduct telephone interview with the distributors Rayman & Alan 13-OctYesCompleted

Action plan - continue IssueHypothesisAnalysisData SourcesWhoDeadlineData receivedStatus Would extending the payment term to distributors increase sales? Extending the payment term to distributors from X 2 to X2, sales revenue will increase Look at historical data of Maxclean, i.e. Is this something they have done in the past with positive results? Interview with distributor in US to ask "would this be incentive for you?" Interview with US salesforce: "has this been a question you were approached with?" Maxclean historical data Distributor of cleanroom products in US: contact info from Maxclean Sales force from Maxclean office in US Joanne & Angelika 17-OctIn progress Would increasing individual sales commission increase sales ? Sales revenue increase by 5 % if commission increase to 5% Study past years of financial reports to determine the correlation between commission and sales revenue Use current commission scheme as benchmark to study the overhead cost Maxclean historical data Alan17-OctIn progress