Recommendations for

Colorscope

Group # CD (Group – 2)
WMP6004 AKSHAY BANSAL
WMP6005 AMIT AGARWAL
WMP6007 ANKIT SURI
WMP6008 ANKUSH VED
WMP6009 ANUBHAV KUMAR JAIN
WMP6012 BIKRAMJIT DEBNATH
WMP6015 CHANDER SHEKHAR SIBAL
WMP6052 SUROJEET SADHU
 Situation
External environment led by new technology
changed the competitive position of
Colorscope

 Small firm seeking ways to compete in an

increasingly intense competitive environment in
pre-press printing.
 The external environment had changed with the
advent of new technology, and new players
entering the market had increased the supply
side of the industry.

COLORSCOPE needs CHANGE in its operation, marketing and cost

strategy
 Situation

Financial Information (Work Study)

Description Job Preparation Scanning Assembly Output Quality Control Idle Space Total
Wages $ 8,000 $ 32,000 $ 64,000 $ 10,000 $ 11,000 $ 125,000
Depreciation $ 500 $ 25,000 $ 10,000 $ 14,000 $ 500 $ 50,000
Rent $ 2,000 $ 2,000 $ 8,000 $ 4,000 $ 1,000 $ 13,000 $ 30,000
Others $ 1,311 $ 5,246 $ 10,492 $ 1,639 $ 1,311   $ 20,000
Total Overhead $ 11,811 $ 64,246 $ 92,492 $ 29,639 $ 13,811 $ 13,000 $ 225,000
Labour hours 160 640 1,280 200 160   2,440
Overhead Rate or Absorption
Rate or Driver Rate (Rate /
Labour Hour) $ 74 $ 100 $ 72 $ 148 $ 86   $ 92
Floor Space 1,000 1,000 4,000 2,000 500 6,500 15,000

Note: A simplified activity-based costing system was used to measure customer profitability.

Cost of Activity Drivers: Output > Scanning > Assembly > QC > Job Preparation
 Complications

Cost containment and quality control

strategy are key to Colorscope’s survival

 Because Colorscope was not the market leader, its

only option is to adopt a strategy emphasizing:
1. cost containment, and
2. quality control strategy
 Questions

Cost strategy questions for Colorscope

 Based on the information provided in the case, the firm has

to decide on questions such as:
 Customer pricing, and
 Process improvement decisions
 Was there need for incremental or radical change in its
operations?
 Considering the size of the operations and cost of rework, it
needed to control costs while maintaining quality and to
manage customer profitability. The problem required
internal quality management and closer interaction with
customers.
Pricing Strategy should be in sync with its Operational Costing
 Analysis

Customer Profitability Analysis

Job Revenue Material Expenses Gross Margin Job Scanning Assembly Output Quality Total Time Net Profit
Preparation Control

61202 $ 23,000 $ 3,300 $ 19,700 7 32 58 8 5 110 $ 10,163

61203 $ 22,000 $ 3,400 $ 18,600 6 34 64 8 6 118 $ 8,416
61204 $ 20,000 $ 3,200 $ 16,800 6 30 58 8 8 110 $ 7,278
61601 $ 20,000 $ 3,300 $ 16,700 7 26 60 8 9 110 $ 7,275
61003 $ 23,000 $ 4,500 $ 18,500 7 40 75 16 8 146 $ 5,487
61101 $ 12,000 $ 1,800 $ 10,200 4 16 30 4 4 58 $ 5,193
61102 $ 11,000 $ 1,500 $ 9,500 4 16 28 4 4 56 $ 4,637
61201 $ 11,000 $ 1,500 $ 9,500 4 16 32 4 6 62 $ 4,176
61902 $ 12,000 $ 2,200 $ 9,800 5 19 42 4 5 75 $ 3,464
61501 $ 11,000 $ 2,200 $ 8,800 4 21 39 4 4 72 $ 2,640
61405 $ 9,800 $ 2,000 $ 7,800 4 20 36 4 4 68 $ 1,958
61702 $ 10,000 $ 2,500 $ 7,500 4 20 41 4 5 74 $ 1,210
61401 $ 7,800 $ 1,800 $ 6,000 5 14 32 4 4 59 $ 975
61404 $ 9,000 $ 2,100 $ 6,900 4 22 36 4 5 71 $ 771
61801 $ 4,000 $ 1,600 $ 2,400 1 5 11 2 1 20 $ 647
61502 $ 11,000 $ 3,600 $ 7,400 4 20 40 8 7 79 $ 417
61701 $ 8,000 $ 2,100 $ 5,900 4 20 39 4 3 70 $ (73)
61602 $ 2,000 $ 600 $ 1,400 2 5 10 1 1 19 $ (207)
$
62001 $ - $ 200 (200) 1 1 2 1 1 6 $ (753)
61002 $ 9,600 $ 3,500 $ 6,100 3 24 38 8 8 81 $ (1,153)
61402 $ 8,000 $ 3,100 $ 4,900 4 19 32 8 7 70 $ (1,405)
61603 $ 1,400 $ 1,000 $ 400 2 5 11 2 1 21 $ (1,427)
61901 $ 2,000 $ 1,700 $ 300 2 5 12 1 1 21 $ (1,451)
61403 $ 8,000 $ 3,900 $ 4,100 4 20 34 4 3 65 $ (1,512)
61301 $ 50,000 $ 13,000 $ 37,000 15 130 250 32 30 457 $ (2,554)
61001 $ 9,600 $ 5,400 $ 4,200 4 32 42 8 7 93 $ (4,132)
$ 315,200 $ 75,000 $ 240,200 117 612 1,152 163 147 2,191 $ 50,040

26 JOBS; 16 Profitable; 10 Unprofitable

 Analysis

Whale Curve
(Job Profitability Sequence)

COLORSCOPE is making money with one group of customers and losing

money with another large group of customers.
 Analysis

Unprofitable customers and

operations need to be tackled
 Colorscope found that many customers were
unprofitable, and a few customers were
responsible for most of the firm's profits (80-20
Rule)
 On further analysis, it was determined that
rework, initiated through internal defects or by
customers, formed a major cost item
 Analysis

Impact of TWO types of rework has

been analyzed

1. Rework due to change in specifications by customer

2. Quality Control initiated rework of house errors
Inspite of HIGH Driver Rate of ‘Output’,
‘Scanning’ and ‘Assembly’ are prime reasons
for high rework cost
 Analysis

Net Profits (4 Scenarios analyzed)

Customer # Job Revenue Material Gross Margin Net Profit Net Profit Net Profit Net Profit
Expenses (with error (with (with error (without any
rework) demanded rework + rework)
rework)2 demanded
rework)
Customer 10 61001 $ 9,600 $ 5,400 $ 4,200 $ (1,038) $ (4,132) $ (4,132) $ (1,038)
Customer 10 61002 $ 9,600 $ 3,500 $ 6,100 $ 936 $ (1,153) $ (1,153) $ 936
Customer 10 61003 $ 23,000 $ 4,500 $ 18,500 $ 5,487 $ 5,487 $ 5,487 $ 5,487
Customer 11 61101 $ 12,000 $ 1,800 $ 10,200 $ 5,193 $ 5,193 $ 5,193 $ 5,193
Customer 11 61102 $ 11,000 $ 1,500 $ 9,500 $ 4,637 $ 4,637 $ 4,637 $ 4,637
Customer 12 61201 $ 11,000 $ 1,500 $ 9,500 $ 4,176 $ 4,176 $ 4,176 $ 4,176
Customer 12 61202 $ 23,000 $ 3,300 $ 19,700 $ 10,163 $ 10,163 $ 10,163 $ 10,163
Customer 12 61203 $ 22,000 $ 3,400 $ 18,600 $ 8,416 $ 8,416 $ 8,416 $ 8,416
Customer 12 61204 $ 20,000 $ 3,200 $ 16,800 $ 7,278 $ 7,278 $ 7,278 $ 7,278
Customer 13 61301 $ 50,000 $ 13,000 $ 37,000 $ (713) $ (1,655) $ (2,554) $ 186
Customer 14 61401 $ 7,800 $ 1,800 $ 6,000 $ 975 $ 975 $ 975 $ 975
Customer 14 61402 $ 8,000 $ 3,100 $ 4,900 $ (1,405) $ 1,124 $ (1,405) $ 1,124
Customer 14 61403 $ 8,000 $ 3,900 $ 4,100 $ (1,512) $ 887 $ (1,512) $ 887
Customer 14 61404 $ 9,000 $ 2,100 $ 6,900 $ 771 $ 771 $ 771 $ 771
Customer 14 61405 $ 9,800 $ 2,000 $ 7,800 $ 1,958 $ 1,958 $ 1,958 $ 1,958
Customer 15 61501 $ 11,000 $ 2,200 $ 8,800 $ 2,640 $ 2,640 $ 2,640 $ 2,640
Customer 15 61502 $ 11,000 $ 3,600 $ 7,400 $ 1,618 $ 417 $ 417 $ 1,618
Customer 16 61601 $ 20,000 $ 3,300 $ 16,700 $ 7,275 $ 7,275 $ 7,275 $ 7,275
Customer 16 61602 $ 2,000 $ 600 $ 1,400 $ (207) $ (207) $ (207) $ (207)
Customer 16 61603 $ 1,400 $ 1,000 $ 400 $ (1,427) $ (687) $ (1,427) $ (687)
Customer 17 61701 $ 8,000 $ 2,100 $ 5,900 $ (73) $ (73) $ (73) $ (73)
Customer 17 61702 $ 10,000 $ 2,500 $ 7,500 $ 1,210 $ 1,210 $ 1,210 $ 1,210
Customer 18 61801 $ 4,000 $ 1,600 $ 2,400 $ 1,112 $ 647 $ 647 $ 1,112
Customer 19 61901 $ 2,000 $ 1,700 $ 300 $ (988) $ (1,451) $ (1,451) $ (988)
Customer 19 61902 $ 12,000 $ 2,200 $ 9,800 $ 3,464 $ 3,464 $ 3,464 $ 3,464
Customer 10 62001 $ - $ 200 $ (200) $ (753) $ (753) $ (753) $ (753)
  Idle Time $(21,840) $ (21,840) $ (21,840) $ (21,840)
  Capacity $ 315,200 $ 75,000 $ 240,200 37,354 37,354 34,765 28,200
 Analysis

FLUX in Customer Profitability

Ranking (4 Scenarios analyzed)
NO REWORK REWORK REWORK REWORK
(Self-Error) (On Demand) (All Types)
 Take-away: Pricing & Saving
NO REWORK 1. Colorscope has to come up with a new pricing policy,
offering discounts proportionate to the number of color
images ordered.

1. Client 14 could have been the 4th most profitable customer if

REDUCE we had reduced self-committed errors. Colorscope should
Self-Error initiate quality improvement techniques, an incremental
change, to limit in-house errors.

CHARGE 1. Client 10 could have been the 5th or better customer if we had
Client-Revisions charged for repeated revisions.

Implement new technology to get great price advantage.

REWORK 1. Colorscope can consider additional stock issues or bond issues to
(All Types) raise funds for making this investment.
2. Alternatively, the management can consider yielding a stake in
the company to one of the large printing companies like R.R.
Donnelley Sons Co
Take-away: Retaining & Targeting

Defensive 1. Colorscope has to learn not to put all eggs in one basket, meaning
Strategy that it should not allow one customer account for more than 30% of
its business.
2. It should try to retain the currently profitable clients by providing
competitive pricing and specialized attention to the client-
deliverable.

Aggressive 1. Colorscope managers should probably start an aggressive

Strategy marketing campaign to recruit new clients
Take-away: Reducing IDLEness
IDLE 1. Colorscope has to change its operation sequence to reduce idle
TIME time during assembly. Since the company is following a sequential
processing of jobs, a high idle time for assembly means that
scanning is taking lots of time
2. Actually, it may make no sense to install the technology currently
used by rivals if a new technique is in the making. Colorscope can
consider purchasing the technology of the next generation and
thus be the first in the new field

IDLE 1. Colorscope managers should probably start some allied

SPACE service s to leverage the space (if they would require it in
future) or sell the unutilized portion to reduce their
overheads
THANK YOU

Group # CD (Group – 2)
WMP6004 AKSHAY BANSAL
WMP6005 AMIT AGARWAL
WMP6007 ANKIT SURI
WMP6008 ANKUSH VED
WMP6009 ANUBHAV KUMAR JAIN
WMP6012 BIKRAMJIT DEBNATH
WMP6015 CHANDER SHEKHAR SIBAL
WMP6052 SUROJEET SADHU