Case Stud Powell Logistics

Assignment 3 Powell Logistics fictitious character Study A. Defining the issue The speedy issue is to make a decision on the future of the family company. B. Analyzing the Case Data * The truck transportation industry is a vital share of the Canadian economy with $43 billion in sales yearbookly and employing 400,000 people * The for-hire empyrean accounts for 40% of the transportation industry in Canada * The for-hire sector has 2 service affirmings TL Truck commitment, only full load between 2 locations and LTL Less than load, pick up from various locations reorganise then deliver to end customer.Traditionally LTL charge more. * Trucking industry experiencing 3 major issues * Cost of fuel, increased operating be forced to use fuel surcharge * Canadian dollar value increase everywhere US dollar, affected cost payoff of Canadian manufactured goods, fall transfer of goods between Canada and US * Shortage of qualified truckers with aging workforce, change magnitude wag es * Strong competition in hauling Travellers Transportation Services, long standing same market as Powell, service offering included small customer orders using vans which Powell did not offer * Yellow Transportation, global competitor, publicly traded with large financial resources, high engineering science using online tools reducing be * Powell in ope ration since 1979, with steady growth, with a fleet of straight trucks, tractor trailers and brokerage service. * License to carry general freight throughout Canada and the US. Midsized company showing significant clearability, focusing on LTL services for higher margins even though more effort and expertise was indispensable to manage the loads * Advanced technology including dispatch and satellite tracking in place as well as extensive trucking get down * Family credit line with eldest son acting as offense chair of Operations with many years of experience and no glob vocation training, daughter with formal education h eading up the homophile Resources section of the business and the youngest son responsible for gross revenue and customer relationships. menses operations included year round business with little seasonal worker fluctuations * 80 drivers working 5 days per week * Loads were picked up from location A and delivered to one of 5 warehouses, placed on other truck with optimized route for location B (software driven route optimization) * Sales growth would trend the same for the next year as the previous. C. Generating Alternatives 1) debase New Warehouse and Combine Operations Pros Reduction in be including rent, labour, fuel, and administration payment costs.Cons A total $10 meg investment funds was required to cover $2 million for the land and $5 million loan financed at 5% annually. 2) Sell the business enterprise Pros There is interest, business is overall doing well and the timing is right in order to trip up as much value through selling. Cons Direct access to funds flow stops and the family subdivisions work future is jeopardized. 3) Pass the business on to his children Pros The 3 Powell children are and have been heavily involved in the family business each having their own expertise. Cons Who to select as the CEO from the 3 Powell children.D. Selecting end Criteria * John Powell wants to retire * The familys interest is of ut nigh importance * correct financial position of PLI * Decrease operating expenses through streamlining operational costs * Decrease liabilities and pay down on debts to improve leverage. * Maintaining their competitive advantage/specialty in the LTL transport service. * Provide continued employment for the Powell children. * Maintaining their faithful customers. E. Assessing Alternatives 1. Buy New Warehouse and Combine Operations STRENGHTHS WEAKNESSES Industry experience * Decrease operating costs * Long term debt * Some supernumerary long term debt from other Powell companies quench outstanding throwing off debt rati o OPPORTUNITIES THREATS * Streamline Operations * frugal downturn * Competition 2. Sell the Business STRENGHTHS WEAKNESSES * Interest from 3rd party * Pay off all Powell Debt * Family member work future questionable * Cash flow OPPORTUNITIES THREATS * Partnership disaster * Economic downturn 3. Pass the business on to his childrenSTRENGHTHS WEAKNESSES * John Powell retires * Powell children addressable and able to take on the family business * Customer base system * Restructure and plan to streamline and gain on debt ratios * Multi site inefficiencies still exist OPPORTUNITIES THREATS * Plan to achieve financial position to support freshly warehouse in the future * Restructure plan development * Economic downturn F. Selecting the Preferred Alternative Passing the business on to his children is the prefer alternative. Financial Analysis Although PLI is forecasted for continued growth with revenue expected to urinate 28 million dollars in 2010, PLI still faces the problem of shrinking engagement income due to significant increases in their operating expense. * Closer examination shows that PLIs expenditures in Administrative Wages and Benefits are rising dramatically, and theyre the primary(prenominal) contributor to the increase of Operating Expenses. Operating Expenses as a part of Total Revenue is out pacing the growth of Gross Revenue, and it wint be much longer before Operating Expenses negate Gross Revenue and put PLI in the red. The Balance Sheet shows the summation values for tie in companies has decreased by 19. 9% from 2006 to 2007, but the debt these related companies have incurred has increased dramatically by 93. 1%, This is obviously putt a tremendous strain on PLIs financial health. * A combined warehouse/main office go away reduce salary costs with savings projected at $60,000 per year. If PLI were to take a 10 million dollar loan amortized over 25 years to form an increase of $60,000 per year to their Operating Income, they wou ld be well short of their $400,000 annual principle payment. Additionally, PLI would most likely only be able to support a high risk interest rate a lend institution would not approve this loan given the slim profit margins of PLI in an extremely competitive market. * When reviewing the financial ratios, we find PLI highly leveraged, and they will be in a very precarious position if there was a margin call on their debts. * The increasing debt of PLI will most likely negate any possibility of a leveraged expansion. G. Developing an perform and Implementation Plan Who What WhenJohn Powell Frank Powell named as successor and President of PLI Nov 2007 Frank Powell Corporate restructure announcement to reduce staff, wages and/or operating expenses Jan 2008 Frank Powell Sell Powell related businesses that are increasing debt consequence on PLI. Sales proceeds pay down debt and any costs associated to restructure Dec 2008 Frank Powell / Ryan Powell Review and implement new rate and s ervice offerings to ensure these compete with competition Jan 2009 to July 2010 Frank Powell Revisit $10 million expansion project July 2010