Business Process Renginerring Tps Expert Essay

As they began their drive from Washington to Boston on a cold January day in 1991. Chris Hackett and Vale Ragman felt that time was running out. It had been a year since they'd begun trying to build a chain of upscale daydreamers. They had become industry experts-the next day title were to give a presentation to a daydreaming. Convention. But hadn't yet bought a single store and were running out of money. They had to do something soon: start or buy a store, or abandon their dry meaning pursuit altogether, Background Chris and Vale were classmates in the MBA program at Harvard Business School.

Vale had spent four years as an investment banker in New York. And Chris had sold capital equipment in Cincinnati for his family's company. The two friends described how they came to be interested in the daydreaming industry. We were determined not to go back 10 our former careers, and the on-campus recycle lilting choices seemed unsatisfactory. We both wanted to run our own business?. But neither of us had any idea what to do after graduation. One fall evening. While batting around different business ideas, Vale brought up daydreaming. "Look Chris, here is an industry that is fragmented, undifferentiated. s low entry barriers. And is something that people use AU the time. Why can't we do what others did to supermarkets, pizza parlors, and office supply stores? " The thought of transforming a sleepy industry with unappealing stores and poor service was Valley Ragman. MBA '90, and Christopher J. Hackett, MBA '90, prepared tabs case under the supervision of Professor Manor Bide as the basis for class discussion. Copyright 1992 by the President and Fellows of Harvard College. Harvard Business School Case 9392-077. 143 144 Part I Evaluating Opportunity am Developing the Business Concept excellent.

As a TLS step, we arranged to 00 a Title study In service management Ill student research project) in the spring teen with the goal of developing a plan to build a chain of daydreaming stores. We also founded a partnership-the TAG Group. A loose acronym for Daydreaming AcqUisition Group. The TAG Field study We worked closely with two large. Professionally managed chains in the Boston area. In addition to interviews and plant observations, one of the cleaners also shared the computer data on customers, which we analyzed for retention rates, buying habits, that sort of thing.

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We traveled the Eastern seaboard visiting daydreaming plants, industry shows, associations, suppliers, brokers. Etc. Finally. We conducted several focus groups with business school students and their partners. The Industry Daydreaming stores, we found. Are either "plant" stores or "dry" stores. Plant stores have their own daydreaming and shirt laundry facilities (see Exhibits 1 and 2 and Appendix) or sometimes only daydreaming facilities. Dry stores may be part of a chain serviced by a central plant or independently owned and operated, contracting to have their cleaning done.

There are about 18,000 plant stores and 10,000 to 20. 000 dry stores in the United States. About 95 percent of all outlets are single stores owned by a proprietor. Some owners of plant stores have opened dry stores in order to fill plant capacity, and then there are a few large chains. The largest chain belongs to the Johnson Group, a publicly traded British company, which operates 360 stores under 10 different trade names. The Johnson group bought Drollery USA, a franchising company with 184 slower, 82 of which are company owned.

The next largest is Concord Custom Cleaners, which was purchased by II large drugstore chain and owns 180 stores from Illinois to Florida. Real spending remained constant wrought the asses. The International Fabricate Institute. The industry association, estimated the total U. S. daydreaming revenue in 1990 to be approximately $4 billion. And the number of establishments increased sharply in the asses; in some parts of the country, long-established cleaners found themselves surrounded by three or four new stores.

Price competition is intense and the use of coupons is widespread because many owners, who don't have reliable cost data, believe their costs are fixed. Prices vary by region, depending on the local labor rates; daydreaming averages about $3. 0 for a typical one-pound piece and regular laundry $1 for the typical half-pound piece. Per capita spending is about $16 per year, but it is not evenly distributed. The quality of cleaning and service has deteriorated. Many cleaners feel they cannot afford to upgrade their plants, hire better employees, or settle customer claims generously.

In many cities, dry cleaners routinely make the Better Business Bureau's "Top 10" list of customer complaints. Customers often switch cleaners; a 35 percent to 40 percent turnover of high-volume customers is typical for a Store. Case 1-5 I Ill DADO Group 145 Suppliers and Inputs Space requirements range FM 1,300 to 2,000 square feet for plant stores down to as little as 500 square feet for a dry store. Many stores are located next to grocery stores and can expect to pay $18 to $30 per square foot for that kind of location, compared with the grocery store itself, which may negotiate space for $10 per square fool.

Daydreaming stores are also found in strip malls-almost every mall developer tries to include one. Most large cities have three or four distributors who sell daydreaming and laundry equipment Another set of distributors provides cleaners with supplies such as hangers, poly-bags, and supplies. Since plants generate hazardous waste, they also have to contract with disposal companies such as Safety Kleenex. The solvent used in the daydreaming process is classified as a possible carcinogen by the EPA, and there is pressure to reclassify it as a probable carcinogen.

Rules about emissions of solvent vapors are expected to be tightened, which will force many daydreamers to upgrade their equipment. Some equipment distributors (and others) have started selling "turnkey" operations. They lease space in a shopping mall, put in the required equipment, counters, conveyors, etc. , operate it for six months or a year, and then sell he complete store.. Stores are usually priced at a multiple of sales rather than profits, because few cleaners keep good financial records. Typical, multiples range from 0. 75 to 1. 5 times sales, with the best locations commanding up to 1. 5 times sales. Newly arrived immigrants often buy turnkey stores, and, we are told, exaggerated claims and various "hard sell" techniques are common. (See Exhibit 3 for typical plant economics. ) Customer Segments Our customer interviews, focus groups, and analysis of computer records led us to believe that daydreaming customers can be segmented into three categories: ? Heavy users need daydreaming for their everyday wear. Although a minority, heavy users represent the bulk of daydreamers' revenues.

They launder shirts often and drollery more expensive clothes, Heavy users value convenience and location-time is essential, since most of them are career-focused, affluent professionals. While a few heavy users care a great deal about how their clothes are cleaned, most only notice obvious problems such as missing buttons or shrinkage. And despite complaining about daydreaming costs, very few of them know Just how much they pay, They are not really price sensitive. L.. Get users drollery their clothes regularly, but they do not need the store services for their daily attire.

Although they do care about convenience and quality, they are much more likely than heavy users 10 use promotional offers and switch cleaners. Occasional users use daydreamers less than once a month, and some only seasonally. Price Is usually toner primary constellation, Ana loyalty Key Success Factors Is animal. We noticed that the most profitable cleaners were often surrounded by competitors who offered cheaper prices or better quality. Cleaners seemed to prosper in spite of tough competition? when they: 146 Evaluating Opportune itty and Developing tile Business Concept l.

Offered the most consistent (if not always the best) quality in their area-lee buttons were attached, there were no stains, LLC. Quality inspection was often done by the manager after all work was finished. 2. Were run by owners who thought of themselves as businesspeople. Not Just tolerances. They understood their costs, analyzed and monitored operations closely, and attached importance to hiring, keeping. And developing good employees. The successful chains hired professional managers to run their stores. 3. Provided the best customer service of all cleaners in he area: long hours, quick turnaround, prompt settlement of claims. Knowledgeable and pleasant counter clerks, etc. 4. Operated stores with outstanding location and appearance. They were located on busy streets. Usually in freestanding buildings with good parking and easy access. The buildings looked nice, and the customer areas were brightly lit and pleasant Strategy for TAG We concluded that the main driver of a drymanner's profitability, Just as in most service businesses, is its customer-retention rate. Therefore, we decided our strategy would beta; 1 . Build large plant "superstores" capable of supporting about $750,000 in sales. F interviews suggested that the "average" store revenues of $250,000 per year could be doubled without a proportionate increase in fixed labor. Equipment. Or real estate costs. Beyond $500,000. Net margins would not increase significantly. Although total profits would. 2. Locate the stores in affluent, dense areas where there are many heavy users. All our stores would be in freestanding buildings on busy streets with good visibility and ample parking. 3. Offer services that appeal to high-usage collectors. These services would include long hours, being open on Sundays, same- day service, credit cards, and alterations.

We would back these services with an unconditional money-back guarantee. 4. Price at a 10% to 15% premium to the area average. Dynasty Cleaners Chris and Vale ranked major metropolitan areas on such factors as average age, average Income, Ana amnesty Based on tense rankings, teeny cease to Dull chain in Washington, DC. First, however. They investigated an opportunity to buy Dynasty Cleaners (see Exhibits 4 and 5 for financial statements), a large chain in Indianapolis: In the course of our study, we had met an HOBS alumnus, Michael Boulder, who was now a venture capitalist at Rainier ; Co. N New York. Michael too ad investigated daydreamers in a second-year field study, and his team had come close 10 purchasing Dynasty Cleaners. The deal had fallen apart after several months of discussions because one of the two brothers who owned Dynasty was reluctant to sell. The TAG Group 147 We met Michael and a partner from Rainier. The meeting NT very well, and at the end Michael told us: "Work on your study, and look for deals at the same time. If you are serious about transcending, we'll finance your deal either through Rainier or PRI valley. " We maintained contact Whitehall. Ho seemed genuinely interested in financing a daydreaming deal. When we finished our study, he called Lull owners of Dynasty and found tall the chain was struggling and both brother:; now wanted to sell Michael arranged for all of ASS to meet, and shortly after graduation, we drove to Indianapolis. We spent the next three days with Michael performing due diligence. Dynasty had 4 plant stores and 26 dry stores: Most of the stores were in strip malls and were in poor condition. Most of the plants were old, the equipment was poorly maintained, and safety rules appeared to be disregarded. Easing a possibility of future liability. Dynasty was one of ten oldest cleaners in the United States, and well now in Indianapolis. Apparently, it connected on price; its windows were painted with various price specials, and it district?died many coupons. We called people in the a,rear at random, pretending to do a WI?phone survey. When we asked them what they thought of Dynasty, we heard comments like: "Of course I know Dynasty. " "Their quality is bad. I'd never use them. " "l take my enlivenment clothes to them because they have good deals, but I take my good clothes some.. Where else " . I used to be their customer, but they always Jose my stuff. " We looked at Dynasty's lea?sees ND found that many of the company's stores had short leases and their rents c;'old be increased. And payroll records showed that employee turnover exceeded 300% annually, which meant that an average employee remained with the company less than four months. The situation was even worse among counter clerks, who' were paid minimum wage. The everglades-per-store figure of$11 5,000 seemed discouragingly Low. During our 17-hour radiotelegraphy's, Vale had remarked "Here we are, barely graduated and we can buy a $3. Million company. What could be better than to ?win something and to lump it rolled? " Now, although the thought of inning a large business was still tempting, we decided that Dynasty was too risky and it would be wiser to look for better deals in Washington, DC. Mr.. Hackett Ana Mr.. Ragman Go to Washington We loaded our belongings on a truck and set out for Washington. Through a college friend of Val's, we found a house under construction where we could stay one month for free. On the Delaware Despite, a special report came on the radio: Iraq headhunts invaded Kuwait "Not a good omen," we thought.

Chris took a Job at a local d?Wesleyan to better understand the business. He did not mention his education beyond high school; his pay was $6 per hour. A month later, Vale Joined another cleaner, also at $6 per hour. Chris left his cleaner after to weeks and went to the industry association's 3-week General Daydreaming course. Meanwhile, using the Yellow Pages and a Dun and Broadsheet list (under SIC codes 7215 and 7216), Vale put together a list of all daydreamers in the area. 148 pan I Evaluating Opportunity and Developing the Beltsville Concept We saw as many cleaners as WAC could.

We also talked to suppliers, business brokers. And daydreamers to dateline which businesses might be for sale. Based on criteria plopped during our field study, we looked at all major daydreaming plants in the Northern Virginia and Montgomery County areas. We eliminated Washington, DC proper, because we wanted to be where people drove rather than walked to their cleaners. We believed that drivers would be more willing to go a few extra blocks than those who walked. Finally. We wanted to find an acquisition that was in good shape (no large losses, broken equipment, etc. And able to support an increased volume of business. At the same time, we looked into starting a daydreaming store from the ground up. This involved looking for things like a suitable site, proper equipment, and financing. Superb Cleaners In August, we presented our field-study findings to a group of the largest daydreamers in the United States. This meeting was sponsored by a chemical supplier. After the presentation, ten president AT ten company Introduced us to a Eternal won was consist. Erring selling his Northern Virginia cleaner, Superb Cleaners. Superb was located in a freestanding building on a busy street.

Its owner had a number of daydreamers and other business interests; he did not take an active part in day-to-day management. The man who had managed Superb died of a sudden heart attack, and he business had declined. Superb, nevertheless, did quality work and had a neat appearance. The on-site plant was spacious and had enough capacity to sustain volume far greater than excess of its current $386,000. On the other hand, at least $40. 000 would be needed for a computer system and washing machines-supper's plant did daydreaming but not laundry. Some investment would also be necessary to bring the customer area up to our standards.

The location was not ideal. The building was on the "going home" side of a divided street, so that people driving to work could not make the left turn to enter the parking lot. Industry experts say that it is better to be located on the "going to work" side of the street. The business also appeared to be overstaffed given its volume. Finally, the owner seemed uneasy about allowing detailed due diligence to be performed on site. The owner was asking $450,000 for Superb with some participation in the future upside, and he didn't seem very flexible on price.

The owner gave us a P&L of Superb, but it was muddied by charges for his other businesses. From our general observation of the operations-we were', allowed detailed due diligence on site-we constructed an approximate income statement for Superb. Based on these numbers. We decided to look at other deals first. (See Glibbest 6 and 7 for financial statements. ) Situation in January 1991 A few months after looking at Superb, Chris and Vale took stock of where they stood: We have spent six months in the area and have found very few cleaners that meet our criteria.

Most stores are located in strip malls and do not have room for capacity 149 expansion. This was especially true of cleaners in desirable neighlords. Equip apart from the crucial issue of price, there are fewer than 10 cleaners we would even consider buying. Starting our own store is also a challenge. We have very little personal capital or houses to borrow against. We would have to get a large portion of our capital from Michael Boulder and Rainier, and 'we may not be able to give them the 25% to 50% return they seek. Washington rents are high, and the economics of a store don't appear to be great. See Exhibits 8 and 9 for projected financial. ) A going business with customers, goodwill, and an existing work force can be improved incrementally and is less risky than a start-up. More important, an ex. Sting cleaner can be purchased with little equity. Sellers will usually take back a note for one-half o two-thirds of purchase price, typically for seven years with 10% interest. Our personal Atlantes are deteriorating rapidly. I en supers deal NAS a lot AT problems, but it is the best cleaner we have found for sale so far. We have invested over a year of our lives in this project; we don't want to give up now.

Appendix: Plant Proper,actions and Process Daydreaming traces its roots back to nineteenth century France, when garments were disassembled and cleaned in turpentine. Now fabrics are cleaned with a detergent dissolved in a solvent (typically pyrotechnical or peer). Fabrics typically daydreamed include wool, silk, and linen. Daydreaming machines are like very large home washing machines using solvents instead of water. The solvent is recycled into the machine after it is filtered through paper cartridges (or diatomaceous earth). The cartridges constitute hazardous waste and must be handled and disposed using established procedures.

In addition, the solvent is distilled periodically to remove the dirt and chemicals that have dissolved in it. There have been no significant technological innovations in this basic process in the last 20 years. Regular laundry is done the same way it is at home but with a bigger washing machine. This process is usually reserved for cottons and some synthetic materials. Most of a typical cleaner's laundry consists of dress shirts worn with suits. A clerk receives gannets from customers at the store counter and makes an initial inspection, looking for stains or obvious damage.

The customer is then given a receipt and the counter clerk makes a preliminary sort between gannets that are to be daydreamed and those to be laundered. At this point, large orders may be divided into smaller lots (most cleaners limit any order size to six pieces of laundry or three pieces of daydreaming). The armaments are moved to the mark-in station, where they are further inspected and tagged. Each piece re?fives a color-coded tag that contains a series of numbers that identifies who the customer is, what lot the garment will be cleaned with, and when it is due to be completed.

The cement inspection at this point involves looking for buttons Sat are broken or may break, finding rips and tears, removing items left in pockets, etc. The garments are then divided into lots to be cleaned. A lot is the number of pieces that may be processed by the plant in a given amount of time. The clothes are further divided into groups that can be 50 Eve/lulling Pop/'tuning alai Developing tile Business Coiled cleaned together. For daydreaming. This classification is usually done by color (light or dark) and weight.

For laundry, classification is done by color and whether or not the shirts are to receive starch, The clothes are moved to the processing part of the store where they are inspected for spots, Any spots are then manually removed by applying cleaning agents to the clothes, The garments are then weighed and loaded into the daydreaming or washing machine. A typical daydreaming machine can handle 50 lbs, of garments per load. The daydreamed garments go through a cleaning, extracting, Ana rarely cycle (ten wangle cycle takes auto 45 minutes). Tater ten garments are dry, they are removed from the machine and put on hangers.

The garments are inspected for spots and, if spots are found, returned to the spotter for further attention. Otherwise, the garments are pressed. Laundered items follow a similar course except that they are removed from the washing machine wet; drying m;:curs during the subsequent pressing. All clothes are then inspected and put on hangers. After the garments are pressed and hung, they are moved to the irredeemably area, where they are put with the other garments on the same order, bagged, and filed on a conveyor to wait for customer pickup.

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