PART 3 - PRODUCTION & DELIVERY

This section addresses the following topics; direct material requirements, the production process, the ordering process and the facility required.

A. - Direct Materials Required
Direct Materials can be defined as items needed to transform an unfinished product into a finished product. Since the product is available in four forms (diskette, compact disk, Internet, and hard copy form), the company is obligated to purchase separate direct materials for each form. The four product forms as well as their direct material requirements and associated costs are presented below.

Diskette Form:
J&B estimates the business training information can be stored on ten (10) 3.5" diskettes. We anticipate 60% our customers will purchase the diskette version during the first year of operation. This selling rate is based on the fact that most home computers owned today support the use of software programs in diskette form. The selling rate is expected to decrease as newer computers, having multimedia features, are purchased. With this in mind, in year two J&B estimates that 40% of customers will purchase our product in diskette form and in year three only 20% of customers will request the product in diskette form.

Simram Development Corporation, a Bay City, Ohio firm, is in the business of diskette duplication and labeling. This organization will be contracted to supply J&B with copies of our product in diskette form only. Moreover, when B.H. Computronics develops the "Master Software Program" (in diskette form), J&B will send it to Simram Development Corporation processing. Communication with Simram reveals that each finished product in diskette form (10 diskettes) can be supplied, duplicated, and labeled for $8.67 or $0.867 per diskette (taxes included). This quote is based upon an order of 1,000 finished products (IE 10,000 diskettes). As orders increase, the cost per diskette and thus the cost per finished product reduces as follows;

Although a reduction in per unit cost can be achieved by ordering finished product above 2,500 sets, J&B plans to order finished products in denominations of 1,000 sets. This alleviates high inventory levels and financing charges. Simram Development Corporation can process one thousand (1000) units within one week of the ordering date. Please refer to Appendix # 5 for verification of the above product costs.

Compact Disk Form:
The second form in which the product can be sold in is Compact Disk (CD) form. As mentioned above, storage of the business information requires 10 diskettes. Due to the storage capacity of CD's however, the entire training course can be placed on one (1) single CD. We anticipate 35% of customers will request the product in CD form during the first year of operation. As newer computers, having compact disk capabilities, are purchased, this selling rate is expected to dramatically increase. As a result, in year two J&B forecasts 50% of customers will purchase the product in CD form and in year three 65% of customers are expected to request the product in this form.

Ramcim Enterprises, a Toronto firm, is in the business of Compact Disk (CD) duplication and labeling. This organization will be contracted to supply J&B with copies of our product in CD form only. Moreover, when B.H. Computronics develops the "Master Software Program" (in CD form), J&B will send it to Ramcim Enterprises for mass duplication and labeling. The cost per CD duplication and labeling, at various volume levels, are presented below.

*    Includes one (1) blank CD, duplication, labeling, cd holders, taxes and estimated shipping cost per CD
** Taxes included in prices.

J&B plans to order in volumes of 1,000 units, thus providing a cost per unit of $2.50. As noted above, the $2.50 per unit cost includes one (1) blank CD, duplication, labeling, cd holder, taxes and estimated shipping cost per unit. Below depicts a break down of these costs based on an ordering level of 1,000 finished units in CD form.

The costs outlined above apply to orders processed in within 15 days. Ramcim can process orders in ten, seven, five and three days, however, the costs increase rather dramatically. Please refer to Appendix # 6 for Ramcim's pricing schedule.

Internet Form:
The third form in which the product can be sold in is Internet form. J&B anticipate 5% of customers will request the product in Internet form during the first year of operation. In year two, we estimate 10% of customers will purchase the product in Internet form and in year three 15% of customers are anticipated to purchase the product in Internet form. The increase in selling rates is based on the fact that more people are recognizing the benefits of the Internet and thus are buying assess accounts.

Unlike other product forms (diskette, cd, and hard copy), the Internet form does not require the purchase of any direct materials. Rather, the Company's Information Technologist will transform the business training information into an Internet format. Then J&B pays a monthly fee to an Internet Service Provider (ISP) to have the training information stored on a computer server. After these steps have been completed, any customer purchasing the product in Internet form could use their home computer to access our training course.

As you can see, the Internet form does not require the purchase of any direct materials. The only cash outlays is a monthly fee to the Internet Service Provider (ISP). The monthly fee is forecasted at $150 in year one, $160 in year two and $175 in year three.

Hard Copy Form:
The fourth form in which the product can be sold in is hard copy form (booklet). The company anticipates few hard copy sales due our product-line pricing strategy (see Pricing Strategy under the Marketing Plan). As a result, our forecasted financial statements do not consider the effects of selling the product in hard copy form. If an order is requested, however, the company will call on Williams and Crue to photocopy and bind the product. Below provides the costs necessary to produce a volume of product ranging from one (1) to ten (10) units.

As you can see, the most expensive cost is photocopying which is $67.50 per unit. The training package in hard copy form is anticipated to be approximately 1500 single sided pages. These 1500 single sided pages can be converted to 750 double sided pages, thus reduces the product's size, costs and shipping charges. Williams and Crue provided the company with an after tax quote of $0.09 cents per double sided page. Therefore, the total cost to photocopy 750 double sided pages is estimated to be $67.50. The cost of the other items (covers, glue and binding) are minimal, but are required for transforming the product into a complete booklet form. As a result, the total cost to produce the product in a hard copy (paper form) is approximately $71.13.

B.  - The Production Process
The Production Process refers to the manner in which J&B transforms direct materials into a finished, salable product. Much of this information has been discussed above, however this section addresses the Company's production process for each product form in a more direct fashion.

The Production Process of Product in Diskette & CD Form:
After the course content has been completely written, J&B will call upon B.H. Computronics to transform the written training course into two "Master Software Packages" - one in diskette form and one in CD form. The Master Software Package in diskette form will be sent to Simram Development Corporation for duplication and labeling. The "finished" diskettes will then be "picked up" at Simram's Bay City location.

The Master Software Package in CD form will be sent to Ramcim Enterprises for duplication and labeling. Ramcim will then ship the "finished"CDs to J&B's Ohio location.

The Production Process of the Product in Internet Form:
Upon completing the training content, J&B's Information Technologist will develop a web site and transform the written training course into an Internet format. That's how easy it is; no suppliers are required in this production process.

The Production Process of the Product in Hard Copy Form:
After the training product is completely developed, Williams & Crue will be contacted to print and bind it into a booklet form. This supplier will only be used upon receiving an order for the product in hard copy form.

As you can see, the production process is extremely simple for each product form. The most important elements in the process are ordering times and inventory levels. As mentioned earlier, J&B production strategy involves ordering product levels that balances the per unit cost with the total financing charges assigned to inventory levels.

C.  -  The Ordering Process (product fulfillment):
The Ordering Process refers to the manner in which the company receives and fills customer orders. Below lists the steps involved in the ordering process for the product in diskette form, cd form and hard copy form. A separate ordering process is required for the product in Internet Form.

The Ordering process for the Product in Diskette, CD, and Hard Copy Form:

• In-house Operator (sales staff) receives a call from potential customer
• Record customer information in computer database
• Receive credit card # or provide address to those ordering by check/money order
• Print label containing customer name and address
• Place label on outside packaging
• Insert product & mandatory product origin stamp into envelop
• Mail product to customer

As you can see the ordering process is extremely simply. The customer receives the product within four to six weeks. They remove the product from the envelop, turn on their computer, follow two simply instructions and immediately they're using the product. Now lets look at the ordering process for the product in Internet Form.

The Ordering Process for the Product in Internet Form:

• In-house Operator (sales staff) receives a call from potential customer
• Record customer information in computer database
• Receive credit card # or provide address to those ordering by check/money order
• The customer is given our web site address and a user ID numbers
• The customer hangs up the phone, "logs" onto the Internet, types in our web site address, and types in their ID number. Now, the customer is reading the business training information from our web-site.

As you can see, offering the product over the Internet requires fewer steps and alleviates the cost of purchasing direct materials (diskette, CD, shipping, labeling, etc). Also, the customer does not have to wait for the product to be shipped to their homes. Literally within minutes of ordering the product in Internet form, the customer has assess to the training information.

In-house Service Bureau versus Out-of -house Service Bureau
It is important to step back for a moment and look more closely at the ordering process. Recall under the Management & Staffing section of this business plan, J&B plans to hire three (3) employees for its selling staff. The objective of the selling staff or sales operators is to sell products to potential customers who call the company's toll free number. Therefore, J&B is proposing to use an in-house service bureau. (A business using its own employees to make sales or take customer orders is said to have an in-house service bureau).

The alternative to an in-house service bureau is an out-of-house service bureau. Out-of-house service bureaus, such as TELE Communications, have their employees answer calls and make sales to customers on behalf of the an outside company. After a sale is made, these organizations can carry out the product fulfillment function by storing, preparing and shipping company products to the buying customer.

J&B has decided to use its own sales staff opposed to an out-of-house service bureau to sell and carry out the product fulfillment function for the following reasons:

1.   An in-house service bureau allows us to monitor caller questions and concerns;

2.   An in-house service bureau enables us to monitor our selling tactics and strategies;

3.   An in-house service bureau reduces the channels of communication;

4.   An in-house service bureau allows us to react instantly to changes in strategy;

5.   An in-house service bureau provides a higher gross margin; and

6.   An in-house service bureau provides a higher profit margin;

The last two points suggest that an in-house service bureau is less costly than a out-of-house service bureau; - and this is truly the case. Below compares the difference in variable and fixed costs using a in-house service bureau and using TELE Communications (an out-of-house service bureau). Note: the costs represent each element required in the ordering process (I.E. from the customer's initial call to the shipment of the product).

As you can see, J&B would spend $71,155 more by hiring an out-off-house service bureau such as TELE Communications to receive customer orders and to carry out the product fulfillment function. It is for this reason, as well as the above listed, that we elected to use an in-house service bureau.

D. - The Facility Required

The Company is currently evaluating several locations throughout the Bay City, Ohio area. Our major location considerations include the following:

• must be a rental unit within the Greater Bay City Area;
• must accommodate space for initial product and future initiatives;
• must be close to main supplier;
• maximum cost per square footage of $12.00
• rent must cover mandatory governmental tax and all special taxes;
• must have existing services (water, electricity sewer, etc)
• must carry specific tenant insurances;
• must have available parking; and
• must require minimum renovations and improvements;

Since the product is not considered to be "customer sensitive" (no "walk-in" customers required), the Company chooses to defer its actual location decision until all options have been considered and until such time as sufficient capital has been secured. To be objective, however, the company has assumed a 1,000 square foot rental facility at a cost of $10.00 per square foot; thus resulting in a yearly rental expense of $10,000. A 10% increase in rent expense has been forecasted for year two and three.