Madison Avenue New York, New York April 24, 2010 John F. Lundgren President & Chief Executive Officer Stanley Black & Decker 1000 Stanley Drive New Britain, CT 06053 Dear Mr. Lundgren, In response to your request, an evaluation of your firm, Stanley Black & Decker, was conducted to determine the strategic issues and problems within and surrounding your firm.
This consisted of a review of the external environment, a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis incorporating identification of factors which drive the business, a determination of the company’s financial condition and performance, and consideration of ethics and social responsibility. Please find attached for your consideration a copy of my Business Report containing discussion of the preceding, as well as numerous conclusions and recommendations with justification. The principal recommendations for your firm are as follows: Short term recommendation 1.
Shut down the power tool business 2. Expansion in security segment, especially health care product line 3. Decrease dividend-payout-ratio Long term recommendation 1. Create a marketing team with CRM members which will interact and develop relationship with Home Depot and Lowes, so that better and more shelve space can be acquired in the stores. 2. The merged company can ask for higher discounts for procuring raw materials 3. Improve after sales customer support service In the event you have any questions in this regard, please do not hesitate to contact me. Very truly yours, Rana Nayak
Senior Business Analyst Statement of Recommendations Short-term 1. Create a marketing team with CRM members which will interact and develop relationship with Home Depot and Lowes, so that better and more shelve space can be acquired in the stores. 2. To attract female customers, manufacture the consumer tools with appealing colors like green or pink. Also make these products lighter and ergonomic. 3. Form a division in the company to handle lawsuits filed against the company. The expenses have to be reduced as litigation expenses are substantial. 4. Employ Asian managers to carry out operations in Asia. . The merged company can ask for higher discounts for procuring raw materials 6. Design better packaging for attracting customers at retail stores like Home Depot and Lowes. 7. Advertise on TV Shows. 8. Improve customer service for after sales. 9. Do not shut down any plant in China. 10. Create a market research team to research about the tool industry in Asian Markets. 11. The company should design products for international market 12. Use the Black & Decker distribution system in the U. S markets to expand Stanley’s product line in the retail segment. 13. Start Point-of Sale data collection
4. Set up a showcase office in New Delhi, India. Long-term Recommendations 1. For the segments of Convergent Security Solutions, Health care Solutions and Mechanical Access Solutions the company should maximize their investment and also try to seek market dominance since the market is growing. 2. Shut down the power tool business. 3. Cost containment and the Security segment continue to be bright spots. 4. Moody’s has downgraded of StanleyBlack&Decker ratings to Baa1. Pay off some debt by reducing dividend payout ratio. 5. Decrease the underfunded debt obligation of $412. million for Stanley Works 6. The cost of production can be decreased by adopting economies of scale. 7. Procurement units can be moved closer to manufacturing plants 8. Invest in R&D 9. Joint venture with “Future Group” in India to attain shelf places in the biggest retail chain stores. 10. The markets in India and China will be only targeted in the Industrial & Automotive and Security business segments.
11. Open new service centers where products can be repaired and refurbished products should be sold at the same centers instead of Home Depot or Lowes. 2. The material facilities not being used by the company can be sold or leased to other companies. 13. Invest in Training 14. Implement SAP throughout the company. Remote/External Environment a) Economic Factors CDIY & INDUSTRIAL The hand tool industry is dependent upon the residential and commercial construction and home repair and renovation industries. The economic recession in the early 2000’s declined the demand in commercial and industrial sectors. However, growth in housing sectors has helped in sustaining the industry.
In 2005, the hand tool industry sold $1. 4 billion but in 2006 it dropped down by $100million. Despite a sluggish economy in the early years of the first decade of the 2000s, the climate for hand tools remained positive. Extremely low interest rates caused a surge in new housing starts from 1. 2 million in 2000 to an estimated 1. 6 million in 2003. While residential construction boosted sales among professionals, consumer uncertainty about the economy, as well as the war against terrorism in Iraq and Afghanistan, caused a trend toward “nesting. Home improvement and DIY projects rose as people postponed travel and other major undertakings, thus driving the consumer hand tool market. The power tool or pneumatic tools and fasteners include nail guns, staplers, nails and staples that are used for construction, remodeling, furniture making, pallet manufacturing and other applications involving the attachment of wooden materials. Industry growth depends upon increased expenditures in the home improvement, home repair and maintenance, and residential and commercial construction sectors.
By 2005, increased purchases by women, who were tackling more DIY projects, also drove sales and demand for lightweight, easy-to-use designs. On the other hand, the global recession of 2008-09 had a huge impact on the housing industry. New housing starts reached an unprecedented low of just 494,000 as of May, 2009, which was down nearly 13% from just the previous month. This in turn severely impacted the financials of the major industry players, such as Black & Decker, who saw sales of their power hand tools drop by more than $800 million or 23% compared to the previous year.
The industry shipped products valued at $1. 3 billion in 2006, which represented a drop from the $1. 4 billion shipped in 2005. However, according to The Freedonia Group, industry growth in the mid to late years of the first decade of the 2000s was projected to be driven by powerful, high-end tools and the continuing proliferation of cordless products. Professional buyers were anticipated to continue to generate more revenues than consumers, but in the DIY market overall growth was expected to outpace professional sales. SECURITY
The company provides extensive suite of mechanical and electronic security product system and a variety of security services such as security integration system , software related installation, maintenance, monitoring services, automatic doors, door closers, exit devices, healthcare storage and supply chain solutions, patient protection products, hardware and locking mechanisms. A substantial portion of company’s products are sold to home centers and mass merchants in U. S and Europe. Security products are sold on a direct sales basis and in certain instances through party distributors.
Despite the trend towards customer consolidation, the company has been able to make diversified customer base and has decreased customer concentration risk over the past several years. The sales from continuing operations in markets outside the home centers and mass merchant distribution channels have grown at a greater rate through combination of acquisitions and other efforts to broaden the customer base primarily in Security and Industrial segments. Porter’s Five Forces The threat of substitute products or services:
Construction ;amp; DIY – Low The hand tools industry is saturated with numerous small and large companies producing hand tools which include measuring and leveling tools, planes, hammers, demolition tools, knives and blades, screwdrivers, saws, chisels and consumer tackers. The tools are considered as commodities. Consumers are looking for products at better pricing. Local companies are producing these non-powered tools which are less priced as consumers are not concerned for quality. This is true for US, European and Asian markets.
Pneumatic tools and fasteners include nail guns, staplers, nails and staples that are used for construction, remodeling, furniture making, pallet manufacturing and other applications involving the attachment of wooden materials. Industrial – Low There are no substitute products for industrial segment as tool will always be required in this segment. Only innovations can be done which can be counted as a competition. Security – Low Threat of substitutes in this industry is low as there are fewer chances of customers going for something that is second best as far as security services are concerned.
The threat of the entry of new competitors Construction ;amp; DIY The growth in the commercial construction has made up the decline in residential construction last year but now that it is also slowing down the outlook for professional power tools is looking gloomy in the U. S. The threat of new competitors is low as the industry has already multiple established companies providing a wide range of hand tools and power tools to consumers. Industrial The Stanley works industrial segment faces an intense competition because there are many manufacturers of industrial products.
Each company wants to achieve competitive advantage over other in terms of quality, technology, price, distribution and brand/image reputation. They would face competition not only in terms of similar products but also products that can be used as a substitute for its products. The primary competitors include SK Tools, Multi-power Tools, Bosch etc. Security The security industry is a commodity industry. Growth in this industry is related to the growth of the housing and construction industries.
The North American and European markets are already mature, while the emerging markets of Asia and Latin America have strong growth potential. Companies compete aggressively on price, quality, after-sales service, manufacturing efficiency, and supply chain management. Companies tend to spend their advertising dollars on trade shows, trade publications, magazines and newspaper advertisements, and in-store displays. Threat of Entry – LOW The barriers to entry within this industry are moderate to low due to brand preferences and customer loyalty towards the larger and more established rival companies.
Other obstacles to new entrants include strong brand loyalty to establish firms and economic factors, such as requirement for large sources of capital, specialized facilities, and the technology and manufacturing plants. In addition, the accessibility of distribution channels can be difficult for an unknown firm with little or no brand recognition. Since there are several competitive forces in this industry, it is a difficult industry to penetrate in and be competitive. The entry barriers are high in this industry.
There are already a lot of competitors in this industry and they can it difficult for a new entrant by using price cuts, increased advertising, product improvement, and promotions. Supply side economies of scale: – Since companies produce large volumes then can capitalize economies of scale this can deter companies from entering the market because either they have to enter in large scale or assume a cost disadvantage. Unequal access to distribution channels: – New comers will not have the same kind of access to distribution channels which is their main source of customers. The intensity of competitive rivalry
In hand tools, with 50,300 employees and sales of approximately $12. 7 billion in 2008, Danaher Corp. of Washington, D. C. was the industry leader. Danaher expanded by merging with Chicago Pneumatic Tool Company, Acme-Cleveland Corporation, Pacific Scientific Co. , and Joslyn Corp. According to the International Directory of Company Histories, in 1994 Danaher Corporation was recognized as the world’s largest producer of drill chucks, the country’s largest producer and marketer of Swiss screw machine components, and the leading automotive tools supplier to the National Automotive Parts Association (NAPA) and Sears.
In the power tools segment, the major industry players are Milwaukee, Makita, Stanley and Black ;amp; Decker. The bargaining power of customers (buyers) Construction ;amp; DIY – High The bargaining power of buyers is high because as availability of professional segment tools, the products under Do It Yourself segment have become commodities. Hence consumers prefer better quality along with better pricing. Buyers switching cost have become low also as the tools from different companies are available in outlets like Sear, Kmart, Wal-Mart.
Hence the bargaining power of buyers is high as all the power tools have more or less same design and serve same purpose. Industrial – High The power of buyers is relatively high because for Industrial segment they have two types of customers. i. e. Direct Sales Customers and Retailers/Distributors. The consumers to whom the products are sold directly purchase the products based on their requirements, and price. In case of retailers/distributors they purchase the products in large quantities, which gives buyers substantial leverage over price.
There are many manufacturers available in this industry that also provide the same products at very competitive prices. And the customers who buy these products have no switching costs, hence their bargaining is high. For e. g. during economic instability customers are reluctant to spends their money on very expensive or branded products instead they will choose to buy the products which gives them the work at a lower price. Security – High Although the company has an established brand in the field of security tools it’s customers have a wide variety of options to choose from.
With increased completion from private label brands the customers have high bargaining power. The bargaining power of suppliers Construction ;amp; DIY – Low The bargaining power of suppliers is LOW because, multiple vendors are available for raw material procurement. Industrial – Low The suppliers to the Stanley Works are producers/ distributors of ferrous and non-ferrous metals including, but not limited to steel, aluminum, zinc, brass, copper and nickel, as well as resin. the Company uses other commodity based materials for components and packaging including, but not limited to, plastics, wood, and other corrugated products.
The raw materials required are procured globally and available from multiple sources at competitive prices. The Stanley Works can obtain these products at a very cheaper rate as there are many sources available. Hence in this case the bargaining power of suppliers is less. Bargaining power of suppliers – low The raw materials required are produced globally and are available from multiple sources at competitive prices. The company does not anticipate difficulties in obtaining any raw materials or energy used in production process. Hence the bargaining power of suppliers is very low.
Social Factors CDIY ;amp; Industrial Professional power tool users include construction workers, electricians, plumbers, repair and maintenance workers, auto mechanics, and manufacturing workers. They are very conscious of quality and features and tend to buy only those tools that are durable, functional, dependable, and capable of precision. They purchase tools through jobbers, contractor supply firms, industrial supply house, building supply centers, and some home improvement centers. The industry is growing as the world population grows rapidly.
In U. S. A. , real GDP grew at an average annual rate of 4. 1 percent from 1995 to 2000 compared with 2. 7 percent from 1987 to 1995. Private wage and salary disbursements increased as GDP grew. Key product trends, such as ergonomic designs, added features, and improved battery performance, influences current product development. Fastening and assembly is one of the few areas in manufacturing where things are continually moving fast. No longer can the design and cost of fasteners be viewed outside of the manufacturing process.
The design of the fastener and its impact on production costs and product development process must be taken into consideration, rather than treated as piecemeal. Security Security is a multibillion-dollar industry, consisting of a diverse group of corporations that supply personnel and products designed to protect public and private property and individuals from a variety of problems such as theft, arson, and personal attacks. Services include security guards, private investigators, and consultants. Products range from armored cars to X-ray scanning devices to bank vaults.
In addition, an area of significant growth and importance for the security industry in the early years of the first decade of the twenty-first century was securing intangibles, in particular intellectual property, computer-stored information or data, and computer networks. Throughout the world, it was an especially important industry in view of real and assumed threats to national security, petroleum pipelines, nuclear power plants, and the global economy, among others. Political Factors Power tools are subject to various safety and environmental laws and regulations.
There are several accidents that can involved power tool. Power tools can pose electrical hazards, fire and explosion hazards, projectile hazards, cuts, abrasions, and amputation hazards, ergonomic hazards and noise hazard. Power tools are regulated by the Occupational Safety and Health Agency, Underwriters Laboratories Inc. , and CSA International. For both retail and professional power tools, they can both be dangerous if they are not used properly but for more so for professional because they are used on a daily basis.
A major risk faced by professionals that use power tools is the Hand Arm Vibration Syndrome which is a collection of disorders caused by overexposure to vibration of portable power tools. Regulations have been put in place by OSHA that makes employers responsible for the safe condition of tools and equipment used by employees. A risk that is faced by both retail consumers and professionals is loss of hearing; power tools can generate noise levels that can exceed 85 dBA when that occurs users should wear hearing protection.
In recent news, the Government Accountability Office has been asked to investigate OSHA’s reporting on work-related injuries and illnesses. This would affect the power tools because stricter regulations can be put in place that would affect the design and production of power tools. Industrial Fastening System Increased sales of Japanese automobiles affected the operation of both OE and aftermarket parts manufacturers. Because most Japanese aftermarket parts were furnished by Japanese OE suppliers, the volumes of replacement parts for domestic parts suppliers dropped as Japanese vehicles increased their market share in the United States.
Foreign vehicles manufactured in the U. S. had significantly fewer domestic suppliers than Big Three’s cars. At the request of U. S. suppliers, the FTC began an investigation of alleged antitrust violations by Japanese auto producers in the U. S. As a result, the U. S government forced Japanese automakers to increase their purchasing volume from domestic suppliers. Congress instituted the Fastener Quality Act in 1990 due to the scandal of unqualified fasteners. The strict standards spurred the fastener industry to upgrade its competitive ability more over than foreign competitors.
In June 1999, the U. S. fastener industry got its wish when President Clinton signed a series of amendments on the FQA, in an effort to make legislation less burdensome. Supporters of the amending legislation claimed that it shifted the policing focus from government mandated regulations to more “preventive measures. ” The new legislation also recognized decade long industry improvements in quality control and eliminated test performances at government-approved facilities. Plumbing
Workers safety measures were gaining fast popularity. Even government and individual chapters were getting involved into it. In response to the same, Black ;amp; Decker Hardware and Home Improvement group’s Kwikset facility in Denison, Texas became an OSHA (Occupational Safety and Health Administration) Voluntary Protection Program star facility in 2006. There were specific rules for designing and manufacturing plumbing products laid down by the government as well as other chapters.
Price Pfister products in plumbing industry are designed and manufactured in compliance with the standards and codes of Federal specification, American National Standard, Uniform Plumbing Code, Federal Energy Policy Act, California Energy Commission and the Canadian Standard Association. Technological Factors Construction ;amp; DIY Ergonomics, which is the engineering of tools for maximum comfort and minimal hazard to the human body, was an increasingly popular consideration for this industry.
In 1999, Stanley Works redesigned the handles of many of its tools to better fit the human hand and to reduce the likelihood of injury from vibration and other stresses. For instance, the company incorporated a carbon-steel shank into its AntiVibe framing hammer to absorb the shock that traditional hammers transmitted to the human arm. Stanley Works also offered an ergonomic screwdriver with a diamond-textured handle made of soft elastomer and a layer of hard polypropylene, so that consumers could grasp the tool firmly without needing to squeeze hard enough to hurt their hands.
Security For several years, demand lagged behind the technology’s maturity. Prohibitive implementation costs, lingering technical problems, fears of privacy invasion, and concerns over system accuracy stalled mass implementation. By the middle of the first decade of the twenty-first century, security systems were well entrenched in some sectors, particularly government and health care, but penetration was meager for other industries that were long on promise, such as financial services and the travel industry.
In 2006, governmental applications remained the predominant market for security tools, while certain types of security systems enjoyed overwhelming dominance. But the heightened security consciousness in the mid-years of the first decade of the 2000s was making a noticeable impression on the industry’s prospects. Decreasing costs and increasing technical sophistication of products meant that security tools were gradually penetrating many kinds of transactions.
Security tools technology in the early and middle years of the twenty-first century’s first decade thus enjoyed a period of modest but promising growth, moving out of the realm of science fiction and into everyday life. Environmental Factors Future laws and regulations are expected to be increasingly stringent and will likely increase the industry participant’s expenditures related to environmental matters. Many companies have been named as potentially responsible party (“PRP”) in a number of administrative proceedings for the remediation of various waste sites. Current laws potentially impose joint and several liabilities upon each PRP.
Business operations of companies are subject to foreign, federal, state, and local environmental laws and regulations. These laws and regulations define the acceptable methods for the discharge of pollutants and the disposal of products and components that contain certain substances. These laws and regulations also require that products be designed in a manner to permit easy recycling or proper disposal of environmentally-sensitive components such as nickel cadmium batteries. Batteries used in professional power tools should be designed to meet environmental requirements. IV. SWOT Analysis for Stanley Works
Strengths The Company’s operations are classified into three business segments: Security, Industrial, and Construction ;amp; Do-It-Yourself. All segments have significant international operations in developed countries, but do not have large investments that would be subject to expropriation risk in developing countries. Fluctuations in foreign currency exchange rates affect the U. S. dollar translation of international operations in each segment. Core Competencies Stanley works core competency lies in the security segment of the business especially in the Mechanical Access System.
Stanley has been making hardware like hinges, hooks safe locks and keys science 1843. It’s major brands being Best, Kwikset, Baldwin, or Weiser and many more. Distinctive Competencies The company has a distinctive competency of hedging it’s Business Segments based on the demand in the market. The company can take profits from on of it’s segments to cover of the losses for it’s other based on the current market condition Company has a distinctive competency in it’s Health care sector. Stanley entered the Health Care sector in 2007 and has grown enormously in this sector with major revenues coming from the health care department.
Competitive Strategy The competitive strategy of Stanley Works is acquisitions of companies for obtaining employees, processes, technologies and solutions. Multiple and diversified revenue streams of Stanley Works: Stanley has a balanced revenue generation from its three business segments. For the year 2008, CDIY (construction and do-it-yourself), security, and industrial accounted for 37. 4%, 33. 8%, and 28. 8% of the company’s total revenues, respectively. This diversification of business portfolio is protecting the company’s earning by providing opportunity to follow the demand variability of different product lines.
The company has the flexibility to focus on growing industry and tune its production levels accordingly. Strong brand equity The company has established strong brand equity in construction and industrial segments. The key brands of the company include Stanley, Bostitch, FatMax, MaxGrip, DynaGrip, PowerLock, Proto, Husky, Vidmar, ZAG, MAC, Jensen, Contact East, Bostitch, Atro, Cobotics, LaBounty, and Innerspace. The strong brand equity in the construction and industrial segment makes the company the world leader in the design, development and delivery of tools.
In addition, the company has numerous trademarks that are used in its businesses worldwide. For instance, the company’s tagline ‘Make Something Great’ acts as a center piece of the brand strategy for all three segments. The company’s list of trademarks include BEST, HSM, National, Sonitrol, GdP , Xmark, LaBounty, MAC, Mac Tools, Proto, Vidmar, Facom, Virax, USAG, the Bostitch, Powerlock, Tape Rule Case Design (Powerlock), and FatMax. These well-known trademarks enjoy the reputation for quality and value and are among the world’s most trusted brand names.
Strong brand equity not only ensures employee and customer retention, but also enables the company to launch more products under its own labels. Power tools, lawn and garden products, portable power products, home products, and accessories are marketed around the world under the BLACK ;amp; DECKER name as well as other trademarks, and trade names, including, without limitation, ORANGE AND BLACK COLOR SCHEME; POWERFUL SOLUTIONS; FIRESTORM; GELMAX COMFORT GRIP; MOUSE; BULLSEYE; PIVOT DRIVER; STORMSTATION; WORKMATE; BLACK ;amp; DECKER XT; Stanley fulfillment system (SFS)
SFS was created to improve Stanley’s long tradition of its business excellence. It helps in improving the company’s business operations such as procurement, quality in manufacturing, maximizing customer fill rates, integrating acquisitions and other key business processes. It operates as a continuous improvement program focused on the needs of the company’s customers. Moreover, SFS acts as a blueprint for company’s success and roadmap for continued growth. In addition, SFS is focused on continuously improving the key areas where Stanley interacts with its customers.
The company measures and implements control improvements to its areas of business to ensure customers have a positive experience. The SFS system helps in improving service, increase quality and reduce cost which gives a competitive edge to the company over its rivals. Diversified business operations globally: Material facilities owned by the Stanley Works and its subsidiaries follow: CDIY Miramar, Florida; Fishers, Indiana; Kannapolis, North Carolina; Epping, Australia; Mechelen, Belgium; Oakville, Canada; Leeds, England; Karmiel and Migdal, Israel; Biassono and Figino Serenza, Italy and Pietermaritzburg, South Africa.
Industrial Phoenix, Arizona; Two Harbors, Minnesota; Columbus, Georgetown, and Sabina, Ohio; Allentown, Pennsylvania; Dallas, Texas; Pecky, Czech Republic; Epernay, Ezy Sur Eure, Feuquieres en Vimeu, Morangis and Villeneuve Le Roi, France; and Fano, Gemonio and Monvalle, Italy. Security Farmington, Connecticut; Sterling and Rock Falls, Illinois; Indianapolis, Indiana; Nicholasville, Kentucky; Richmond, Virginia; Cobourg, Canada; Nueva Leon, Mexico; and Xiaolan, Peoples Republic of China. Industrial a. Professional ;amp; Automotive mechanics tools ;amp; storage system 1. Broad Array of End Markets . Unique Range Of Government Solutions 3. Light-weighted compared to other available products. b. Hydraulic tools ;amp; accessories Reduce Initial Costs 1. Air Compressors required to power pneumatic tools are expensive and comparatively the dual hydraulic tool circuit are very cheap. 2. Reduce Operating Costs 1. Less system maintenance: A hydraulic system has few moving parts and is self- lubricated; therefore requires far less maintenance than an air system. 2. Less tool maintenance: Hydraulic tools are full of oil at all times, and are thus preserved and lubricated. 3. More efficient.
Most hydraulic systems operate at two or three times the efficiency of air systems because the oil is not compressible. 4. No pilferage: While there is a ready market for gasoline or air powered tools, the general public does not have a hydraulic source of power. Hydraulic tools are seldom pilfered. Advantages for the Operator 1. Safer. Hydraulic oil is a poor conductor of electricity. A hydraulic tool with nonconductive hoses is much safer dielectrically than an air tool which may have moisture condensed in the hose. 2. Lower noise levels. Noise of air tools comes from both the compressor and the tool exhaust.
Hydraulic tools have neither of these sources, and operate at noticeably lower noise levels. 3. Higher power-weight ratio. Air tools operating at 90-100 psi must be larger and heavier to achieve force levels of hydraulic tools which operate at much higher pressure rating c. Plumbing, heating and air conditioning tools 1. Enhanced Shock absorption 2. Reduced Slip 3. The famous VIRAX threader, a product that revolutionized the European plumbing market. The name VIRAX means to, “Turn around an axis. 4. Rather than the standard hydraulic drive, the VIRAX plumbing tool uses an electro-mechanical drive.
With fewer moving parts than a hydraulic drive, the tool requires less maintenance and is easier to calibrate. 5. Virax plumbing tools can also be used in colder temperatures than a hydraulic machine, because Hydraulic fluid gets thicker and slows down when it gets cold. 6. Instead of soldering it uses cold joint method, which can also be used if there is any residual fluid left in pipe. This is very useful in case of emergencies. 7. Virax plumbing unit also boasts a four-second cycle time, which is considered as the industry’s fastest. d. Assemble tools and systems 1.
Fastening Quality Assurance Program allow the direct measurement of both the dynamic applied torque and the angle of rotation of threaded fasteners during the assembly process. The assembly systems offered by Stanley can not only tighten fasteners within your specifications, but can also perform critical inspection functions as part of the assembly process. 2. Stanley has Intelligent Assist Devices (IADs) in many of its assembly systems that allow seamless collaboration of a human operator with computer-controlled machinery, delivering superior speed and precision in material handling.
These systems are poised to revolutionize the ergonomic handling industry, bringing unprecedented levels of productivity, quality and ergonomic safety to manual processes. 3. Adaptive Tightening Control (ATC) is a patented algorithm developed exclusively by Stanley Assembly Technologies and is a standard feature of all Assembly Systems. ATC automatically manages speed and power to the motor of DC electric nut-runners based on dynamic feedback during the course of each and every rundown. Mechanical Access Solutions 1.
Stanley Access Technologies produces state-of-the-art automatic doors for a wide variety of commercial, institutional, industrial and transportation applications, offering sliding, swinging, revolving and folding doors as well as a variety of sensors and controls. 2. In addition to manufacturing and installing these products, Stanley offers comprehensive service and maintenance programs that can be customized to meet the ever-changing business needs. 3. The company has large number of brands under this segment which have emerged as market leaders.
Brands like Best Access Systems, C. J Rush Industries have emerged as market leaders in their particular segments 4. Mechanical access solutions posted volume growth with services, certain national and governmental accounts, and remodeling and retro-fit activity that were more than offset by overall weakness in retail, banking and other sectors. Convergent Security Solutions 1. Stanley Black & Decker the third-largest electronic security company, second-largest commercial security services company, and one of the largest system integrators in the United States. . With more than 300,000 customers in North America alone, Stanley Works is considered to be one of the most trusted names in security. 3. Stanley Convergent Security Solutions is a true coast-to-coast full service electronic security provider boasting over 75 local offices serving over 120 major metropolitan markets in North America. As a comprehensive security provider Stanley works design, install, monitor and service security systems that are the “best fit” for commercial, industrial, government, residential and national account customers.
Another differentiator for Stanley CSS is its approach to service. In 2009 the company launched a “Best Fit” approach to highlight its commitment to listen to customers’ needs and create packages that truly are the “best fit” for them. Healthcare Solutions 1. Stanley Healthcare Solutions is a leading provider of safety, security, and supply chain management solutions for healthcare. Every day, thousands of hospitals and senior care facilities worldwide rely on Stanley products to deliver better care and improve efficiency. 2.
In the senior care market, Stanley Healthcare offers a full range of resident safety and security applications, including wander management, fall management and emergency call. 3. Stanley’s suite of products provides individual protection to patients in multiple departments, from newborns in obstetrics or adults in the emergency department 4. Stanley’s smart storage solutions include supply/procedure carts, cabinets and casework, small carts, open storage, heavy-duty storage, and inventory management systems. Weaknesses Approximately 35% of 2009 sales were in the CDIY segment and 24% in the Industrial segment.
The Company experienced a 20% sales unit volume decline in its existing businesses, (i. e. excluding acquisitions) during 2009, primarily in these two segments, as the recession spread worldwide. The Company’s businesses have been adversely affected by the decline in the U. S. and international economies, particularly with respect to residential and commercial markets. The Company recorded $7 million in asset impairment losses in 2009 primarily as a result of restructuring initiatives. On Friday, October 20th, 2009, Stanley Works paid 22% premium for the shares of Black & Decker Corp.
This is a highly over priced payment and the shareholders of Stanley had to bear the extra cost incurred in this deal. Mechanical Access Solutions 1. Sales to U. S. home centers and mass merchants have declined from a high point of approximately 40% in 2002 to 14% in 2009. 2. On a combined basis, price and volume were down mid-single digits especially in the mechanical access system. 3. Due to the current economic condition Stanley Works was forced to sell off two of it’s small business segments in the security division. Convergent Security Solutions 1.
Security products are sold primarily on a direct sales basis and in certain instances, through third party distributors. Stanley has a relatively weak distribution channel hence they have trouble penetrating the market 2. Stanley entered the convergent security solution market in 2007. It lacks experience and any core competency in this segment 3. Stanley is over dependent on the U. S market on it’s sales for convergent security. They have very few brands in the European market as they are more focused on the American market. Healthcare Solutions 1.
Cost of sales includes the cost of products and services provided reflecting costs of manufacturing and preparing the product for sale. These costs include expenses to acquire and manufacture products to the point that they are allocable to be sold to customers and costs to perform services pertaining to service revenues (e. g. installation of security systems, and security monitoring costs). Cost of sales is very high in the healthcare solution divison. 2. During 2009 the company experienced significant distributor inventory corrections reflecting de-stocking of supply chain associated with difficult credit markets. . The performance of the company suffers from business disruption associated with information technology, system implementation, or catastrophic losses effecting distribution centers and other facilities. Industrial The industrial tool segment posted a profit of $19 million, down 53 percent from the year-ago period. The company blamed weak demand for industrial tools and storage and continued inventory liquidation. The Industrial segment generally sells to distributors where the Company does not have point of sale data to see end user demand trends.
A substantial portion of the overall 30% volume declines within the Industrial segment is attributable to de-stocking or customer inventory adjustments. Stanley doesn’t provide support for some products from acquired brand but sells on the name of Stanley itself. a. Professional & Automotive mechanics tools & storage system 1. The Professional grade mechanics tool set provided by Stanley have tools that are not of the professional quality and its ratchets does not have a standard size because of which they don’t fit properly. 2. The motors in various mechanics tools like brad Nailer burns out very soon. 3.
Professionals tools jam and misfire too frequently. Jamming and misfiring takes time to resume work and so professionals don’t prefer it. Also misfire takes time to remove misfired element and also leaves dent or hole on product. Also sometimes two nails are fired at the same time. Also it is not powerful enough to penetrate nails fully into the routine materials like wood & plastic. 4. Trigger is not as smooth as other comparable products because of which professionals switch to competitors products. b. Hydraulic tools & accessories 1. Cycle time increases in colder temperatures of a hydraulic machine.
This is because hydraulic fluid gets thicker and slows down when it gets cold. 2. The Hydraulic Tools of Stanley consists of single power pack, i. e. 8gpm whereas the current requirement is of more 8gpm. Hence they use two Power packs at the same time. c. Plumbing, heating and air conditioning tools 1. Plumbing tools provide attachments so that same tool can be used for multiple width pipes, but attachments only are available for smaller pipes, cannot work on wider pipes. Generally plumbers have to deal with all size of pipes and so they prefer products which offer them all in one solution. 2.
Stanley heaters are expensive than local products and are not powerful enough. They do not blow enough amount of air nor do they blow sufficient heat as compare to competitors’ products. d. Assemble tools and systems 1. Electric powered tools do not have enough power as compared to competitors products. It doesn’t solve the purpose and manual screw drivers have to be used to finish the work. 2. Battery is too weak or gets discharged very fast for many of its electric powered assemble tools. If the dividend payout ratio is more than 20%-25%, there is not enough cash flow to the company for supporting internal growth of different divisions.
The company has a high dividend pay out ratio and also it has made the following acquisitions in the financial years from 2007-2009. This reflects the company does not have sufficient cash flow to invest on internal growth of the company. The dividend payout ratio has consistently remained below 50% over the past five years. c) Opportunities 1. Expansion of market in the power tool segment in Asia. Latin America strong on an organic basis as well as the total basis, it represents only 3% as Stanley’s volume, but good volume growth as well as volume growth price achievement in Latin America.
Europe, in total up 15%, organically 3%, and that represents about 30% of the total revenues; Asia up 40%, 32% of which is organic of a low base, but the company is gaining tremendous traction in the Asian markets in general and Mainland China in particular; and Australia relatively flat on an organic basis down 1%, total up 12% and Australia represents 2% of Stanley’s volume. The two primary emerging market economies of the world, i. e. China and India have shown consistent and high rate of growth of GDP despite heavy economic and financial crises in the USA and Europe.
The real estate and housing market still shows a healthy growth, thus driving the demand for hand tools, power tools and pneumatic tools for professionals. The company can make a strategically entry to these two markets thus creating opportunities of penetrating these two huge markets. 3. In China and India households have lower usage rates and less interest in new technologies. Thus, purchases are based more on price and less on high performance features or ergonomic trends. Thus volume production of power tools which will drive down the cost will increase the profit margin. . The company can focus on developing energy efficient power tools for the existing market in USA and Europe to increase the market share. 5. Industrial production worldwide is up and management expects that will ultimately have a positive impact on Industrial segment. 6. Management is focusing on complexity reduction (including appropriate sku rationalization) and new product introductions in the Facom, Proto and Mac industrial and automotive repair businesses, and believes there are opportunities to gain share in this environment. 7.
It can design its automotive tool sets in standard industry sizes. 8. They have the opportunity to design a hydraulic tool for a colder region, which does not slow down when the temperature drops. 9. They should design the system having high power so that only single Powerpack can be used instead of two. 10. The acquisitions made in complement the existing Security segment product offerings, increase its scale and strengthen the value proposition offered to customers as industry dynamics favor multi-solution providers that offer “one-stop shopping”.
The Company continues to focus on integrating the acquired businesses as it expands the suite of security product and service offerings. d) Threats 1. Because of the poor quality of the products people would buy products from its competitors like SK tools which generate professional quality tools. 2. The competitors have started providing the Powerpacks with higher power. Not providing the same can take away the market share of this product from them. 3. Customer concentration The company’s considerable portion of its products are sold to home centers and mass merchants distribution channels in the US and Europe.
During the recent times, it is observed that there has been a consolidation of large retailers in North America and abroad as well and the increasing size and importance of individual customers through consolidation creates a certain degree of exposure to potential volume loss for the company. 4. High competition Stanley faces a fierce competition to market and sells its products. The company’s products compete on the basis of its reputation for product quality, its well-known brands, price, innovation and customer service capabilities.
The company competes with both larger and smaller companies that offer the same or similar products and services or that produce different products appropriate for the same uses. These companies are often located in countries such as China, Taiwan and India where labor and other production costs are substantially lower than in the US, Canada and Western Europe. Also, certain large customers offer private label brands that compete with some of the company’s product offerings as a lower-cost alternative. 5. Currency exchange risk
The company’s performance is subject to currency risk fluctuations prevailing in different countries where it operates. Stanley operates its businesses in foreign currencies but publishes its financial statements, and measures its performance in US dollars. Its foreign currencies mainly include European, Canadian, British, and Asian currencies, including the Chinese Renminbi. Because of the company’s international presence, it is subject to risks associated with changes in foreign currency values that could affect earnings and capital. 6.
Tight Credit Markets The tight credit markets in recent times has limited the company’s chances of borrowing as a result the company cannot go on acquiring new companies to improve it’s distribution channel and increase market share. 7. Income Tax Expense The company is subject to income taxation in the U. S as well as numerous foreign jurisdictions. The company is routinely audited by tax athouroties in many tax jurisdictions. The ultimate outcome of the audit could be different as listed in company’s income tax provisions and accurals. 8.
The Company may incur significant additional indebtedness, or issue additional equity securities, in connection with future acquisitions which may restrict the manner in which it conducts business. The potential issuance of such securities may limit the Company’s ability to implement elements of its growth strategy and may have a dilutive effect on earnings. 9. The company’s inability to successfully avoid, manage and defend litigate and accrue for claims and litigation could negatively impact it’s results of operations or cash flows. 10. The Company imports large quantities of finished goods, components and raw materials.
Substantially all of its import operations are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements, bilateral actions or, in some cases unilateral action. In addition, the countries in which the Company’s products and materials are manufactured or imported may from time to time impose additional quotas, duties, tariffs or other restrictions on its imports (including restrictions on manufacturing operations) or adversely modify existing restrictions. Imports are also subject to unpredictable foreign currency variation which may increase the Company’s cost of goods sold.
Adverse changes in these import costs and restrictions, or the Company’s suppliers’ failure to comply with customs regulations or similar laws, could harm the Company’s business. 11. Although the Company has extensive experience with acquisitions, there can be no assurance that recently acquired companies will be successfully integrated or that anticipated synergies will be realized. If the Company successfully integrates the acquired companies and effectively implements its repositioning strategy, there can be no assurance that its resulting business segments will enjoy continued market acceptance or profitability.
SWOT Analysis for Black & Decker Strength 1. Diversified business operations Black and Decker’s operation is diversified both in terms of production and sales. The company’s 43 geographically diversified manufacturing facilities are located around the world, of which 29 located outside of the US in 10 foreign countries. In the US, the company has its property in Lake Forest, Mira Loma, and Rialto, California; Charlotte, North Carolina; Tampa, Florida; Chesterfield, Michigan; and Towson, Maryland.
Outside the US, the company operates through its facilities in Spennymoor, England; Tongeren and Aarschot, Belgium; Reynosa and Mexicali, Mexico; Brockville, Canada; Usti nad Labem, Czech Republic; and Xiamen and Suzhou, China. Also, the company has diversified sales operations. It generates sales from nearly 100 markets throughout US, Europe, Canada and other regions. The US, its largest geographical market, accounted for 55. 2% of the total revenues in the FY2008, followed by Europe (24. 9%) and Canada (6. 3%). The remaining 13. 6% of the total revenue comes from other regions. 2.
Wide product portfolio Black & Decker has a diversified product portfolio that competes in the consumer and professional power tools markets. The company’s power tools and accessories division manufactures and sells consumer (home use) and industrial corded and cordless electric power tools and equipment, lawn and garden tools, consumer portable power products, home products, accessories and attachments for power tools, and product service. The hardware and home improvement division manufactures and sells security hardware products comprising residential and light commercial door locksets, electronic eyless entry systems, exit devices, keying systems, tubular and mortise door locksets, general hardware, decorative hardware, lamps, and brass ornaments. Its fastening and assembly systems division manufactures and sells a line of metal and plastic fasteners and engineered-fastening systems for commercial applications. A wide product portfolio of power tools and accessories, hardware and home improvement, and fastening and assembly systems enables the company to cater to the varied needs of its customers. 3. Branding The company has done an excellent job in creating a Brand for itself in the market and maintaining customer loyalty.
The company has maintained a strong trade mark and good brand loyalty for itself in the market Weakness 1. Concentrated customers Black & Decker’s sales are largely dependent on a limited number of customers. In FY2008, two large customers, The Home Depot and Lowe’s Companies, accounted for more than 10% of the company’s consolidated sales for FY2008, FY2007, and FY2006. The loss of either of these large customers, a material negative change in its relationship with these large customers or changes in consumer preferences or loyalties could have an adverse effect on the company’s business.
Large customers will use their size and scale to bargain more, which would reduce its profitability. Inventory management, credit and other business risks associated with such large customers is going to significantly impact profits of the company. 2. Weaker financial performance Black & Decker recorded a very weak financial performance in its key financial metrics (revenue and profitability) during FY2007–08. The company’s revenues come down at a rate of 7. 3%, from $6,563 million in FY2007 to $ 6,086. 1 million in FY2008. The decline in the revenue in FY2008 was primarily attributable to a 9% decline in the unit volume.
The unit volume decline was mainly driven by lower sales in the US, due to general economic conditions, including lower housing starts; and in Western Europe, due to weakening economic conditions. The company’s profitability also witnessed a significant decline during the same period. The company recorded a net profit of $293. 6 million in FY2008 compared with a net profit of $518. 1 in the last year. The company’s recorded the net loss due to the reduction in gross margin, increase in selling, general, and administrative expenses and higher pre-tax restructuring charge.
Continuous weak financial performance would hamper the sustainability of the business in the long run and also affect its bargaining power as compared to its peers in the industry. 3. Failure of DeWalt B&D acquired DeWalt in 1999 to enter the professional segment of the market but then it converted the brand for home segment tools. So indirectly Black & Decker was competing with itself in the home tool sector with a brand which was well known in the professional tools segament of the market. This showed the companies inability to compete in the professional sector even after the acqusition if a sesonaled brand in the same sector . Squeezed Out Cost Cutting Black and Decker has squeezed out it’s cost cutting drive to rock bottom which means that Black and Decker cannot do any more cost cutting. As a result it has to sustain with it’s current working capital and look to reduce it’s revenue. Stanley and BLACK & DECKER sell its products in Wal-Mart. The consumer perception of Wal-Mart is products which are of low price, low quality and therefore can’t be considered as professional tools. 5. The CEO of BLACK & DECKER mentioned that 12 products will be launched however came up with only 5 products. 6.
BLACK & DECKER has R&D problems, so the company had to purchase technologies which incurred a lot of cost. 7. Stanley should follow BLACK & DECKER’s methods of ‘product copying’ and ‘reverse engineering’. 8. Home Depot has extensive implementation of self service. Even checking out is self service. Customers do not like it as little customer service is provided. Because of this the sales was lowered. 9. Home Depot forced BLACK & DECKER out of the shelves and put private label brands 10. BLACK & DECKER buys companies and buys frequently 11. BLACK & DECKER is good at distribution to retails.
So the channel didn’t appeal professionals who wanted Stanley products at Pro shops 12. BLACK & DECKER acquired professional companies and converted professional tools produced by these companies to retail products. This is a BAD move. 13. Home Depot had 140 customer service centers and the stores provided out of the box warranty. 14. So the stores refurbished and sold the products and at the same time other lines are being sold 15. Hence BLACK & DECKER was competing against itself as it was selling products at Home Depot and Lowes 16. BLACK & DECKER are sold at discount prices in Home Depot and Lowes 17.
BLACK & DECKER management is highly paid so no one in it wanted to quit 18. BLACK & DECKER has no good distribution system abroad 19. BLACK & DECKER has six sigma ONLY for professional tools segment and nowhere else 20. BLACK & DECKER failed in obtaining six sigma in Asian market 21. The managers of BLACK & DECKER do not go to Asia. 22. Training in BLACK & DECKER is an issue 23. Limited knowledge of culture and religion of markets abroad 24. BLACK & DECKER doesn’t have a good credit score, which means there are problems related with credit from banks 25.
Bonds of BLACK & DECKER are junks 26. BLACK & DECKER has excess capacity. But the products are sold at discounted prices and 27. Plants are operating below capacity 28. Stanley acquired technologies from BLACK & DECKER but BLACK & DECKER was never great with technology. Opportunity Cost saving initiatives In the view of the severe economic downturn and adverse conditions in the travel and leisure industry,the company has undertaken a restructuring program covering all areas of its business. As per the program, the company reduced about 700 employees, with about 250 management workers, on April, 2008.
Further, in January 2009, the company cut another 1,200 positions. The company cut its work force by 12% from Q4’2007 to Q4’2008. A severance benefits accrual of $48. 3 million was recognized associated with the elimination these positions. Also, its Power tools and accessories division closed its manufacturing facility in Decatur, Arkansas, and transferred production to another facility. The initiative has been taken with a view to improve productivity, reduce fixed costs, simplify or improve processes, and eliminate excess capacity. These initiatives would enable the company to reduce its costs, which in turn enhances its profit margins.
Acquisition to better serve its existing customers, Black & Decker has made a key acquisition recently. In September 2008, the company acquired Spiralock, manufacturer of threaded industrial fasteners, for a cash purchase price of $24. 1 million. Spiralock specializes in fasteners and tools. It provides hex flange nuts, taps, wire inserts, gages, self-clinching nuts, thread milling cutters, threaded inserts and threading inserts. It is an ISO 9001:2000 certified company, with an annual sales of approximately $15 million in FY2007.
Spiralock’s business operations were included in the company’s fastening and assembly systems division. This acquisition would also help the company to better serve its existing customers as well as increase its client base and the number of product categories it sells in these regions. Expanding consumer electronics market The consumer electronics market has been witnessing a significant growth in the recent past. According to the industry reports, the global consumer electronics market generated total revenues of $199,600 million in 2007, representing a compound annual growth rate (CAGR) of 8. % for the period spanning 2003–07. The performance of the market is forecast to improve further and is expected to reach a value of $260,700 million by the end of 2013. Threat Down gradation of credit ratings The company’s credit ratings are reviewed periodically by major debt rating agencies including Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings. For instance, in January 2009, Standard & Poor’s placed its ratings on the company on CreditWatch with negative implications. In the following month, Moody’s placed Black & Decker’s Baa2 senior nsecured, and Prime-2 commercial paper ratings under review for possible downgrade. The review for possible downgrade resulted from growing risks presented by a protracted decline in consumer and industrial demand for its power tools, hardware and fastening systems. In the same month, Fitch Ratings revised its outlook for the company from “Stable” to “Negative”. The credit rating agencies consider many factors when assigning their ratings. The impact of the global economic environment and distress in the financial markets are expected to adversely impact the company’s financial performance in 2009.
Due to down gradation of credit ratings, the company may no longer be able to obtain short-term financing and may have to draw upon its backstop revolving credit facility or obtain other financing. Poor rating also reflects the weak financial and operational performance of the company, which could negatively impact on the investors’ confidence. Pension and postretirement benefit liabilities The company sponsors pension and postretirement benefit plans. The company’s funded pension plans cover substantially all of its employees in the US, Canada and the UK.
The cash funding of these plans was approximately $36 million, $34 million, and $31 million for FY2008, FY2007, and FY2006, respective. The company expects that its cash funding of pension and post retirement benefit plans will approximate $50 million to $55 million in FY2009. That increase in cash funding is principally attributable to the company’s qualified pension plans in the US. The funding of pension obligations and the pension benefit costs are dependent on the market values of equity securities, fixed income securities, and other investments.
A decrease in the market value these securities could result in an increase to those obligations and costs and could adversely affect the company’s results of operations and the cash flow. Uncertain Tax Positions Of Black & Decker The Corporation adopted a new accounting standard for uncertain tax positions effective January 1, 2007. Upon adoption, the Corporation recorded the cumulative effect of the change in accounting principle of $7. 3 million as a reduction to retained earnings. As of December 31, 2009 and 2008, the Corporation has recognized $291. million and $255. 8 million, respectively, of liabilities for unrecognized tax benefits of which $31. 5 million and $24. 3 million, respectively, related to interest. As of December 31, 2009 and 2008, the Corporation classified $48. 0 million and $47. 5 million, respectively, of its liabilities for unrecognized tax benefits within other current liabilities. Non-current tax reserves are recorded in other long-term liabilities in the Consolidated Balance Sheet. V. Financial Analysis Ownership Summary There are 439 institutional shareholders with a value of $4,030. 0 million, 730 mutual fund shareholders with a value of $1,660. 57 million and there are 54 insider shareholders (direct beneficial ownership) with a holding value of $179. 77 million. Acquisition choices In the year 2007, Stanley Works completed the acquisition of HSM Electronic Protection Services, Inc. (“HSM”) on January 16, 2007 for $546. 1 million which was financed with debt and equity units as more fully described in Note H, Long-Term Debt and Financing Arrangements. HSM is a market leader in the North American commercial security monitoring industry, with annual revenues of approximately $200 million.
HSM has a stable customer base, an extensive North American field network and the second largest market share in the U. S. commercial monitoring market. The acquisition has served as a growth platform in the monitoring sector of the security industry. The Company also made eight small acquisitions relating to its hydraulic, access technologies, healthcare storage, mechanical access solutions and security integration businesses during 2007 for a combined purchase price of $100. 1 million. Goodwill associated with the 2007 acquisitions that is deductible for tax purposes amounted to $104. million. The total purchase price of $646. 2 million for the 2007 acquisitions reflects transaction costs and is net of cash acquired. Amounts allocated to the assets acquired and liabilities assumed are based on their estimated fair values at the acquisition dates. Adjustments to reflect the fair value of the assets acquired and liabilities assumed are complete for all 2007 acquisitions. The net asset increase was $707. 90 million and the total liability increased was $61. 7 million. In the year 2008, the company completed the acquisition of Sonitrol Corporation (“Sonitrol”) for $282. million in cash. Sonitrol is a market leader in North American commercial security monitoring services, access control and fire detection systems. The acquisition has complemented the product offering of the pre-existing security integration businesses including HSM acquired in early 2007. Also in July 2008, the Company completed the acquisition of Xmark Corporation (“Xmark”) for $47. 0 million in cash. Xmark, headquartered in Canada, markets and sells radio frequency identification-based systems used to identify, locate and protect people and assets.
The acquisition has expanded the Company’s personal security business. In October 2008, the Company completed the acquisition of Generale de Protection (“GdP”) for $168. 8 million in cash. GdP, headquartered in Vitrolles, France, is a leading provider of audio and video security monitoring services, primarily for small and mid-sized businesses located in France and Belgium. The Company also made eleven small acquisitions relating to its mechanical access systems, convergent security solutions, healthcare storage systems and fastening businesses during 2008.
These eleven acquisitions were completed for a combined purchase price of $74. 3 million. The total purchase price of $572. 4 million reflects transaction costs and is net of cash acquired; amounts allocated to the assets acquired and liabilities assumed are based on their estimated fair values at the acquisition dates. Goodwill associated with the 2008 acquisitions that was deductible for income tax purposes amounts to $40. 7 million. The purchase price allocation of these acquisitions has been completed. Cost Structure The net asset increase was $721 million and the total liability increased was $148. million. In 2008, cash flow from operations totaled $517 million, down $27 million compared to 2007. The Free Cash flow has decreased from $422 million (2007) to $457 million (2008). Cash outflows for restructuring activities totaled $33 million in 2008, a decrease of $25 million over 2007, primarily pertaining to cost reduction actions initiated in the fourth quarter and the continuing payments under the Facom Europe initiatives. Sales As we can see in the last five years i. e. from years 2005 to 2009 the sales have been increasing at a declining rate.
But in 2009 the sales went down by about 15. 57% i. e. from $4,426 in 2008 to $3,737 in 2009. Among the other reasons, one of the major reasons for such a decline in the sales can be attributed to the economic recession. Gross Margin Over the past five years we can see that the gross margins of the company have been increasing at a steady rate. The gross margins have increased from 36% in 2005 to 40. 4% in 2009. This proves the fact that the company is able to reduce its Cost of Goods Sold by achieving Economies of Scale. SG&A Expenses
There was a slight increase in the SG&A expenses for year 2009 which was 27. 5% as compared to that in 2008 which was 25%. The main reason attributed to this increase was the acquisition costs faced by the company. Apart from the acquisition costs the SG&A expense was lower in 2009 by $142 million as compared to 2008. This decrease was attributed headcount reductions and other actions such as temporarily suspending U. S. retirement benefits, travel and other discretionary spending. Also the distribution center costs have decreased from $122 million to $102 million in 2009.
Operating Margins The operating margins have been virtually stable for the last five years. In year 2009 the operating margin was 12. 8% of the revenues. Financial Analysis by Segment In 2009 the sales comprised of 35% of CDIY segment, 24% of the Industrial Segment and 41% of the Security Segment. Excluding the acquisitions during 2009, the company experienced a 20% sales unit volume decline in its businesses, primarily in CDIY and Industrial. The Security segment experienced an 8% decline in 2009. This decrease can be attributed to the economic recession.
The other reasons because of which the company experienced a decline in its businesses is because of the decline in the U. S. and International economies, particularly with respect to residential and commercial markets. RATIO ANALYSIS CDIY In 2009 the net sales from continuing operations in the CDIY segment decreased by 22% as compared to 2008. Overall the segment unit volumes declined by 21% that comprises of 22% in both Americas and Europe and 16% in Asia. The customer pricing contributed 2% to sales, which was offset by 3% of unfavorable foreign currency translation in all regions.
The sales volume declines were more prominent in fastening systems by Bostitch, which was higher in commercial construction and industrial channel content, than in consumer tools and storage. The majority of this segment is driven by consumer and residential construction channels, which have largely stabilized. The key customer point of sale data remains steady. Industrial Comparing for the last five years the net sales in the Industrial segment declined from $1369. 5 million in 2005 to $882 million in 2009. As compared to 2008 the sales declined by 31%.
Also its unit volume fell by 31%, about evenly in the Americas and Europe, which was partially offset by the growth in the company’s Asian region, which is relatively less significant. Industrial channels were losing severely as compared to the automotive repair channels. Because of ongoing severe economic weakness in the U. S. and Europe, the unit volumes declined. In addition to broad-based, reduced end market demand, the segment was adversely impacted by pervasive inventory corrections throughout the supply chain, which abated in the fourth quarter.
There are signs of stabilization in the channels this business segment serves. Security As we can see in the last five years i. e. from years 2005 to 2009 the net sales in the security segment increased from $818 million in 2005 to $1560 million in 2009. The sales in the security segment increased at a declining rate. In 2009 the security sales increased by 4% which reflected a 12% contribution from acquisitions primarily from Sonitrol which was acquired in July 2008 and GdP which was acquired in October 2008. The 8% decline in the Security Segment is also attributed to reasons like contraction of the U.
S. commercial construction and other capital spending delays associated with weak economic conditions. Current Ratio Comparing last five years the current ratio for the company is decreasing. The current ratio is 1. 18 in 2009 as compared to 2. 09 in 2005. This means that the current liabilities are increasing faster than the current assets. In 2009 the inventory was decreased which means that the company was able to collect its receivables and reduce its inventory. In 2009 the company increased its cash and cash equivalents and was able to reduce its Account Receivables.
Return On Assets Comparing last five years we can say that the ROA for the company has been declining. It was 7. 6% in 2005 and in 2009 it was 4. 7%. Decrease in ROA of the company indicates improper/ insufficient utilization of its assets and working capital efficiently. Return on Equity For the past five years the Return on Equity has been fairly constant. But in 2009 it went down to 11. 8%. This decline in the ROE can be attributed to the decline in the revenues, which was 15. 5%. Instead of maximizing the shareholder’s value the company is reducing it.
Debt to Equity Ratio Stanley Works has good working capital and the free cash flow to the firm is increasing. The Debt to Equity ratio in 2007 was 81. 3% and it was decreased to 54. 63% in 2008 as the company paid off $299 million towards the long term debt. Aggregate annual maturities of long-term debt for each of the years from 2010 to 2014 are $208. 0 million, $7. 0 million, $505. 4 million, $256. 0 million and $3. 6 million, respectively. Interest paid during 2009, 2008, and 2007 amounted to $53. 7 million, $78. 9 million and $85. 0 million, respectively.
This indicates that the company has the capability of paying back debt in adverse economic conditions. Fixed Asset Turnover Ratio Since 2006 the company’s fixed asset turnover ratio has been breaking down. In 2009, the fixed asset turnover ratio of the company was 6. 49. This drop in the fixed asset turnover ratio indicates that the company is not utilizing its assets properly. Inventory Turnover Ratio The Inventory Turnover has marginally increased over the past five years. In 2009 the ratio was 5. 06 as compared to 2005 when it was 4. 81. Days Sales Outstanding (DSO)
In 2005 the DSO period was 67. 72 whereas in 2009 it reduced to 51. 9. The company was able to reduce its DSO over the past five years. A low DSO number indicates that the company is taking fewer days to collect its accounts receivable. P/E ratio The Price to Earnings ratio for the company in 2009 is 21. 7 Dividend payout ratio The Dividend Payout Ratio was 33. 06% in 2006, 30. 68% in 2007, 43. 92% in 2008 and it was 45. 68% in 2009. If the dividend payout ratio is more than 20%-25%, there is not enough cash flow to the company for supporting internal growth of different divisions.
The company has a high dividend pay out ratio and also it has made the following acquisitions in the financial years from 2007-2009. This reflects the company does not have sufficient cash flow to invest on internal growth of the company. Comparison with rivals Operating income Operating margin of Makita U. S. A. , Inc. in 2009 was 17% and same of Danaher Corporation was 13. 8%, while stanley works had a operating margin of 8%, which shows that stanley works was not generating good profits from its operations. Decline in Net Income Due to recession in past year, net income of tools industry had a notable decline.
Net income of Makita U. S. A. , Inc. had decline of 17. 8% year to year net income, and same of Danaher Corporation was 15. 6%, while Stanley works had a decline in net income of 26. 9% from 2008 to 2009, which is relatively very high. Black & Decker Sales Comparing the sales of last five years for the company we can say that the company’s sales have trampled. In 2009, the revenues were $4,775. 1 million as compared to 2008 when the revenues were $6,086. 2 million. This indicates a decrease in the revenue in 2009 by 21. 54%. The major reason that can be attributed to this decline in sales is the economic recession.
But the other reasons are the effects of a stronger U. S. dollar, as compared to most other currencies, particularly the euro, British pound, Canadian dollar, Brazilian real, and Mexican peso, caused the Corporation’s consolidated sales for 2009 to decrease by 3% from the 2008 level. Gross Margins Comparing the last five years the gross margins have been declined from 35. 5% in 2005 to 33. 2% in 2009. This decrease in the gross margin indicates that the company is not able to reduce its Cost of Goods Sold. SG&A Expenses There was an increase in SG&A expense in 2009 as compared to 25% in 2008.
This increase in the SG&A expenses is attributed to the acquisition cost faced by the company. The SG&A of the company over the past 5 years have had an increasing trend suggesting that the company is not able to maintain its SG&A. In 2005 the SG&A was 23. 3 % of revenues whereas in 2009 the SG&A was 26. 5 % of revenues. Operating Margins There has been a decline in the operating margins in the last five years. In 2005 the operating margin was 12. 18% of revenues as compared to 2009 where it is only 6. 7%. Cash Dividend per Share
The cash dividend per share has dropped significantly by 53. 57% from 1. 68 in 2008 to 0. 78 in 2009. This is a huge loss for the shareholders. | 10. 53%| 35. 71%| Net earning per common share dropped by about 55% from 4. 83 to 2. 18 from 2008 to 2009. Acquisition and capital spending program and the resulting impact on current operating performance Restructuring, asset impairment and related pre-tax charges totaled $45 million in 2009, of which $41 million was classified in Restructuring charges and asset impairments and $4 million in Cost of sales and SG&A. 009 Actions: In response to further sales volume declines associated with the economic recession, the Company initiated various cost reduction programs in 2009. Severance charges of $42. 4 million were recorded relating to the reduction of approximately 1,500 employees. In addition, $4. 0 million in charges were recognized for asset impairments related to closing several small distribution centers, consolidating production facilities, and exiting certain businesses. Facility closure costs totaled $1. 8 million. Also, $0. million in other charges stemmed mainly from the termination of service contracts. Of the $48. 6 million recognized for these actions, $24. 1 million has been utilized to date, with $24. 8 million of reserves remaining as of January 2, 2010. Of the charges recognized in 2009, $9. 7 million pertains to the Security segment; $21. 4 million to the Industrial segment; $15. 5 million to the CDIY segment; and $2. 0 million to non-operating entities. Pre-2009 Actions: During 2008, the Company initiated cost reduction actions in order to maintain its cost competitiveness.
A large portion of these actions were initiated in the fourth quarter as the Company responded to deteriorating macro-economic conditions and slowing global demand, primarily in its CDIY and Industrial segments. Severance charges of $70. 0 million were recorded relating to the reduction of approximately 2,700 employees. In addition, $13. 6 million in charges were recognized related to asset impairments for production assets and real estate, and $0. 7 million for facility closure costs. Also, $1. 2 million in other charges stemmed from the termination of service contracts.
Of the $85. 5 million in full year 2008 restructuring and asset impairment charges, $13. 8 million, $29. 7 million, $35. 6 million, and $6. 4 million pertained to the Security, Industrial, and CDIY segments, and non-operating entities, respectively. During 2007, the Company also initiated $11. 8 million of cost reduction actions in various businesses entailing severance for 525 employees and the exit of a leased facility. As of January 3, 2009, the reserve balance related to these prior actions totaled $55. 3 million of which $32. 1 million was utilized in 2009.
In addition, $7. 6 million of severance-related costs accrued prior to 2009 were reversed in 2009 due in part to a reduction in the number of employee terminations pertaining to recent changes in regional European labor statutes. The remaining reserve balance of $15. 0 million predominantly relates to actions in Europe and is expected to be utilized in 2010. Acquisition Related: During 2009, $2. 7 million of reserves were established for acquisitions consummated in the latter half of 2008 primarily related to the consolidation of security monitoring call centers.
Of this amount, $1. 0 million was for the severance of approximately 90 employees and $1. 7 million related to the closure of a branch facility, primarily from remaining lease obligations. In 2009, $2. 7 million of severance reserves previously established in purchase accounting that are no longer needed were reversed to goodwill. The Company utilized $5. 7 million of the restructuring reserves during 2009 established for previous acquisitions. As of January 2, 2010, $6. 6 million in acquisition-related accruals remain.
Those accruals are expected to be utilized predominantly in 2010. VI. Technology Applications In addition, the Company is planning system conversions to SAP to provide a common platform across most of its businesses. The implementations from legacy systems to SAP will occur in carefully managed stages over a period of several years in the Americas, and ultimately thereafter in Europe and Asia. Management believes the planned system conversions are cost-beneficial and will further enhance productivity in its operations. VII. Risks
If the current weakness continues in the retail, residential and commercial markets in the Americas, Europe or Asia, or general economic conditions worsen, it could have a material adverse effect on the Company’s business. Market Risk The Company is exposed to market risk from changes in foreign currency exchange rates which could negatively impact profitability. The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices, and commodity prices. he Company’s predominant exposures are in European, Canadian, British, Australian, and Asian urrencies, including the Chinese Renminbi (“RMB”) and the Taiwan Dollar. Certain cross-currency trade flows arising from sales and procurement activities as well as affiliate cross-border activity are consolidated and netted prior to obtaining risk protection through the use of various derivative financial instruments which may include: purchased basket options; purchased options; and currency forwards. The Company is thus able to capitalize on its global positioning by taking advantage of naturally offsetting exposures and portfolio efficiencies to reduce the cost of purchasing derivative protection.
At times, the Company also enters into forward exchange contracts and purchased options to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables, predominately for affiliate transactions. Gains and losses from these hedging instruments offset the gains or losses on the underlying net exposures, assets and liabilities being hedged. Management determines the nature and extent of currency hedging activities, and in certain cases, may elect to allow certain currency exposures to remain un-hedged.
The Company has also entered into cross-currency swaps, to provide a partial hedge of the net investments in certain subsidiaries and better match the cash flows of operations to debt service requirements. Management estimates the foreign currency impact from these financial instruments at the end of 2009 would have been approximately an $8 million pre-tax loss based on a hypothetical 10% adverse movement in all derivative currency positions; this effect would occur from an appreciation of the foreign currencies relative to the U.
S. dollar. The Company follows risk management policies in executing derivative financial instrument transactions, and does not use such instruments for speculative purposes. The Company does not hedge the translation of its non-U. S. dollar earnings in foreign subsidiaries. The Company’s exposure to interest rate risk results from its outstanding debt obligations, short-term investments, and derivative financial instruments employed in the management of its debt portfolio.
The debt portfolio including both trade and affiliate debt, is managed to achieve capital structure targets and reduce the overall cost of borrowing by using a combination of fixed and floating rate debt as well as interest rate swaps, and cross-currency swaps. Acquisition Risk The Company’s growth and repositioning strategies include acquisitions. The Company’s recent acquisitions may not further its strategies and the Company may not be able to identify suitable future acquisition candidates. The Company’s acquisitions may result in certain risks for its business and operations.
The Company may incur significant additional indebtedness, or issue additional equity securities, in connection with future acquisitions which may restrict the manner in which it conducts business. The potential issuance of such securities may limit the Company’s ability to implement elements of its growth strategy and may have a dilution effect on earnings. Credit Risk The Company’s results of operations could be negatively impacted by inflationary or deflationary economic conditions that affect the cost of raw materials, freight, energy, labor and sourced finished goods.
Tight capital and credit markets could adversely affect the Company by limiting the Company’s or its customers’ ability to borrow or otherwise obtain cash. The Company’s business is subject to risks associated with sourcing and manufacturing overseas. Large customer concentrations and related customer inventory adjustments may negatively impact sales, results of operations and cash flows. The Company is exposed to credit risk on its accounts receivable. Customer consolidation could have a material adverse effect on the Company’s business.
If the Company were required to write down all or part of its goodwill, indefinite-lived trade names, or other definite-lived intangible assets, its net income and net worth could be materially adversely affected. Income tax payments may ultimately differ from amounts currently recorded by the Company. Future tax law changes may materially increase the Company’s prospective income tax expense. The Company’s failure to continue to successfully avoid, manage, defend, litigate and accrue for claims and litigation could negatively impact its results of operations or cash flows.
Product Reverse Engineering Risk The Company’s brands are important assets of its businesses and violation of its trademark rights by imitators, or the failure of its licensees or vendors to comply with the Company’s product quality, manufacturing requirements, marketing standards, and other requirements could negatively impact revenues and brand reputation. In China the reverse engineering of any product and putting it in shelves takes less than a week. Successful sales and marketing efforts depend on the Company’s ability to recruit and retain qualified employees.
The performance of the Company may suffer from business disruptions associated with information technology, system implementations, or catastrophic losses affecting distribution centers and other facilities. If the investments in employee benefit plans do not perform as expected, the Company may have to contribute additional amounts to these plans, which would otherwise be available to cover operating and other expenses. Certain U. S. employee and director benefit plan expense is affected by the market value of the Company’s common stock. VIII. McKinsey Analysis
The McKinsey Analysis is calculated based on the following factors of Industry Attractiveness and Business Strengths. The factors taken for Industry Attractiveness are Market Size, Technology, Market Growth Rate, Cyclicality and Intensity of Rivalry. The factors taken for Business Strengths are Core competence, Product Quality, Profitability, Image, Working Capital, Customer Service and Ability to match Price/Service. From the Matrix we can see that the rank of Convergent Security Solutions and Health care Solutions is high in both the perspectives i. e. Industry Attractiveness and Business Strengths.
Hence we can say that the position and future of the company in these sectors is very good. For Mechanical Access Solutions the Industry Attractiveness is Medium and the Business Strength is at a higher level. Hence the future of the company in this sector will also be good. Now for Professional & Automotive Mechanics tools & Storage, Hydraulic Tools and Assemble Tools and Systems the Industry Attractiveness as well as the Business Strength are medium. From this it is implied that the company should continue operations by investments in selective product lines.
The Industry Attractiveness for hand tools, plumbing, heating and air conditioning tools and power tools is medium but the Business Strength is low. Therefore the company should make harvest/divest decisions for these segments. IX. Ethics and Social Responsibility 1. One of the primary strategy of the merger is that the companies portrayed the deal as a combination of complementary tool producers. It is expected to save $350 million within three years through cuts in corporate overhead and consolidation in business units, including manufacturing, distribution and purchasing operations.
It is estimated Mr. Archibald’s who is the CEO of Black and Decker will be getting a pay package worth more than $89 million after three years. The package includes what the two companies call a “cost synergy bonus” of $45 million that Mr. Archibald would receive if the combined company meets expense-reduction targets. The target of saving $350 million is unrealistic and this indicates that Mr. Archibald is not going to receive the cost synergy bonus. 2. The company is not maintaining its fiduciary responsibility by not acting in the best interest of its shareholders.
Currently the share price of SWK is overvalued due to its major acquisitions in the recent past. This in turn has given an incorrect picture to the shareholders. 3. The company is not in compliance with the environmental, health and safety laws because the Company is involved in various legal proceedings relating to environmental issues. 4. The company is not in compliance with its equal employment opportunity and diversity, fair employment practices, privacy of employee personnel and personal information because the company is involved in various legal proceedings. 5.
The company is involved in a product liability case, because of the sub-standard product produced by them. 6. Recognizing our responsibility to give back to our communities, Stanley supports many charitable initiatives: In recent years, Stanley has donated cash and products to Habitat for Humanity and helped the Industrial Education Alliance with tools and promotional support. In addition, Stanley donated more than $114,000 to United Way chapters, contributed $200,000 to the American Red Cross Disaster Relief Fund to support rescue and recovery efforts, as well as for the victims of the September 11th attacks, and atched almost $350,000 of employee gifts to qualifying nonprofit organizations. 7. “To be recognized by our stakeholders as a sustainable company that publicly demonstrates the responsible management of environmental, social, and economic resources. ” is the latest Vision Statement of the Stanley Sustainability Council released in 2008. In contradict, the Company is a party to a number of proceedings before federal and state regulatory agencies relating to environmental remediation.
Additionally, the Company, along with many other companies, has been named as a potentially responsible party (“PRP”) in a number of administrative proceedings for the remediation of various waste sites, including sixteen active Superfund sites. Current laws potentially impose joint and several liabilities upon each PRP. The company is not keeping its ethics by contradicting the vision statement of being sustainable with management of environmental while being liable at some of its dumping sites at the same. X. Recommendations with Justification Short-term 1.
Create a marketing team with CRM members, which will interact and develop relationship with Home Depot and Lowes, so that better and more shelve space can be acquired in the stores. Home Depot and Lowes are one of the major customers of Stanley Works. SWK should develop a relationship with them to acquire more shelf space so that they can compete with the local brands of these stores and increase their sales 2. To attract female customers, manufacture the consumer tools with appealing colors like green or pink. Also make these products lighter and ergonomic.
These days women have started using tools. Currently Stanley Black & Decker has products which are heavy at the same time in colors which are very dull. But women get more attracted to factors like colors, weight etc. So Stanley Black & Decker should try to make tools to attract female customers by designing lighter, ergonomic tools in attractive colors like green, red etc. 3. Form a division in the company to handle lawsuits filed against the company. The expenses have to be reduced as litigation expenses are substantial. The company has many lawsuits and litigation’s filed against itself.
The company bears a lot of cost for these lawsuits and litigations. So the company should form a division which will handle these lawsuits and avoid the lawsuits. 4. Employ Asian managers to carry out operations in Asia. The Asian managers will have better understanding of the local market, which will help the company in establishing in Asia. 5. The merged company can ask for higher discounts for procuring raw materials Since the company is now big after the merger of Stanley & Black & Decker it will require high amounts of raw materials. So it can negotiate with the suppliers to give higher discounts on raw materials. . Design better packaging for attracting customers at retail stores like Home Depot and Lowes. Stanley Black & Decker should design better packaging strategy and change the colors from black and yellow or red and black to colors that are softer to the eyes like green and blue 7. Advertise on TV Shows Stanley has to adopt Black & Decker’s strategy of advertizing it’s tools on television. Black & Decker gained huge success through advertising. Stanley should try to go the Black & Decker way by creating it’s own brand in the market and gain customer loyalty through it. 8.
Improve customer service for after sales. It doesn’t provide support for some products from acquired brands that are sold under the name of Stanley Works. Otherwise this will tarnish the brand image. 9. Do not shut down any plant in China. Do not shut down any plant in China as the government won’t be happy with the company and China has a huge market. 10. Create a market research team to research about the tool industry in Asian Markets. The tools used in Asian market would be very different from the U. S. market. So they should have a proper market research team to research about the tool market in Asia. 11.
The company should design products for international market The requirements for tools would be different in International markets. For e. g. men in asia are short and light as compared to U. S. So they should design the tools according to their needs. 12. Use the Black & Decker distribution system in the U. S markets to expand Stanley’s product line in the retail segment. Black & Decker has a very good distribution channel all over U. S. in the retail market. So the company should use Black&Decker’s Distribution system to expand its product line of Hand Tools & Power Tools. 13. Start Point-of Sale data collection
Point-of-Sale data is used in determining the market segment. The demand of which product is high can be determined by it. So it should start collecting point-of-sale data. 14. Set up a showcase office in New Delhi, India. The company should set up a show-case office in New Delhi where they will hire a very competent marketing team which will demonstrate the products to the real estate contractors. The primary responsibility will be selling the tools and services to the real estate contractors . The supply to the Indian market will be made from the material site in Xiaolan, Peoples Republic of China. Long-term Recommendations . For the segments of Convergent Security Solutions, Health care Solutions and Mechanical Access Solutions the company should maximize their investment and also try to seek market dominance since the market is growing. From the McKinsey Analysis we can see that the rank of Convergent Security Solutions and Health care Solutions is high in both the perspectives i. e. Industry Attractiveness and Business Strengths. Hence we can say that the position and future of the company in these sectors is very good. So the company should maximize their investment and also try to seek market dominance since the market is growing. . Shut down the power tool business. The Stanley Works will likely post weak profits for 2010, due to steep drops in unit sales. Performance in the Industrial segment was particularly bad in the first half, with profits down more than 50% versus a year ago. It is seen that the Construction and Do-It- Yourself (CDIY) unit bottomed out in the second quarter, as internal growth and inventories stabilized, but the strength of the forecasted demand recovery is unclear and likely to stay that way, given the uncertain prospects of a housing rebound. 3. Cost containment and the Security segment continue to be bright spots.
A company-record, gross-margin performance in the second quarter attests to management’s efforts to compensate partially for slumping sales and should help outweigh more-burdensome operating expenses in 2009. The Security business has experienced milder internal profit declines and, taking into account acquisitions, has had an almost 22% increase in profits. 4. Moody’s has downgraded of StanleyBlack&Decker ratings to Baa1. Pay off some debt by reducing dividend pay out ratio. Investments and acquisitions have fueled Stanley’s five-year run of considerable sales increases, 2008 up nearly 65% from 2003 and up 11. % annually per share, but debt-to-capital has risen to 48% and Moody’s has cut the company’s debt rating. Management has already taken steps to reduce debt and expresses the desire to do more, but this will leave little cash left for earnings-accretive acquisitions 5. Decrease the underfunded debt obligation of $412. 1 million for Stanley Works In 2009, the increase of the projected benefit obligation for actuarial losses in the non-U. S. plans primarily pertains to increased salary rates used to measure the pension liabilities. The decrease of the projected benefit obligation for actuarial losses in the U.
S. plans primarily relates to decreased discount rates used to measure the pension liability. The accumulated benefit obligation for all defined benefit pension plans was $412. 1 million at January 2, 2010 and $366. 3 million at January 3, 2009. 6. The cost of production can be decreased by adopting economies of scale. The company has been inccuring hig cost of production which is reducing it’s cash flow through operations. The company can decrease it’s cost by doing volume production and selling the products globally especially in the BRIC countries. 7.
Procurement units can be moved closer to manufacturing plants There will be significant reduction in procurement and production delay if the manufacturing units are placed closer to the plants where the raw materials are located 8. Invest in R&D The company should start investing more more money in research and development and build a core range of it’s specific products rather than just keep on acquiring new companies 9. Joint venture with “Future Group” in India to attain shelf places in the biggest retail chain stores. Stanley has already begin it’s operation in India by targeting certain distribution channel.
It can enter a joint venture with a local company to learn from their experience about the local market. Plus the joint venture will enable it to occupy more shelve space 10. The markets in India and China will be only targeted in the Industrial & Automotive and Security business segments. India and China are the emerging markets. SWK should take advantage of these markets and try to expand it’s operations by doing market research and getting to know their target consumer better and explore the unlimited opportunities in these markets. 11.
Open new service centers where products can be repaired and refurbished products should be sold at the same centers instead of Home Depot or Lowes. The company currently sells it’s refurbished products in Home Depot and Lowes. This way the company competes with itself by selling new products and refurbished products in the same place. The company must stop competing against itself and open new service centers where it repair products and sell refurbished ones. 12. The material facilities not being used by the company can be sold or leased to other companies.
The company is loosing a lot of it cash flows on these sites sitting idle. They should stop this by leasing or selling these sites 13. Invest in Training The company should invest in training of it’s employees so that they have better product knowledge and increase their work efficiency 14. Implement SAP through out the company. Implement SAP through out the company to optimize usage of resources by integrating sales, distribution finance, material management, and procurement and supply chain management. XI. Action Plan Activity| Start Date| Duration| End Date|
Create a marketing team with CRM members | 0| 3| 3| The merged company can ask for higher discounts for procuring raw materials| 0| 5| 5| Do not shut down any plant in China. | 0| 1| 1| To attract female customers, | 1| 6| 7| Advertise on TV Shows| 1| 5| 6| Use the Black & Decker distribution system in the U. S markets | 1| 4| 5| Start Point-of Sale data collection| 1| 3| 4| Shut down the power tool business| 1| 24| 25| Form a division in the company to handle lawsuits | 2| 4| 6| Design better packaging for attracting customers | 2| 6| 8| Improve customer service for after sales. | 2| 8| 10|
Create a market research team to research about the tool industry in Asian Markets. | 2| 9| 11| Employ Asian managers to carry out operations in Asia. | 3| 6| 9| Set up a showcase office in New Delhi, India. | 3| 7| 10| Design products for international market| 4| 9| 13| Pay off some debt by reducing dividend pay out ratio. | 4| 20| 24| Cost containment and the Security segment continue to be bright spots. | 6| 18| 24| The cost of production can be decreased by adopting economies of scale| 6| 30| 36| Procurement units can be moved closer to manufacturing plants| 6| 30| 36| Gantt Chart