The Wood Enterprise Institute Business Plan 2010 - 2011

The Wood Enterprise
Institute Business Plan
2010 - 2011
Executive summary
The Wood Enterprise Institute (WEI) is a student-run, faculty-supported organization at Virginia Tech, in
Blacksburg, Virginia. The purpose of the WEI is to teach students on how a business is run from the ground up;
a “concept-to-market” principle. Students are in charge of designing a product, marketing it, and producing it for
sale. With the university connection, the products are able to be Virginia Tech-related, with custom logos, mascots,
etc. on the products.
The industry that the WEI is placed in is a unique one. WEI competes partially in the forest products industry, but also in the keepsakes and collectibles industry. With a product being made by students intended for
sale, the goal is to create products from natural and sustainable forest resources that can be well-liked, demanded,
and sold with profitability in mind.
The purpose of this business plan is to inform our stakeholders on how our business is run, with careful attention paid to details such as our mission and vision, our marketing strategy, production methods, organizational
map, and finances. After reading this document, a person will understand our business model, the processes by
which we operate, and the quality systems in place to ensure success.
For the 2010/11 academic year, the WEI has developed a new product offering – customized coasters.
These coasters will be made in three different wood species, all with cork inlay, displaying numerous Virginia
Tech-related logos that are engraved via laser etching. The laser engraver is one of our most useful tools for setting
us apart from the competition; we are able to do fully customizable products with very little lead time, and with
proper setup, it is an efficient value addition to our product. The coasters are all finished with a finish coating to
bring out their natural grain and luster, and to protect the product for many years of future use. The coasters are
sold in sets of four, along with a matching holder, so they can be stored and displayed when not in use. With a highvalue product, we are able to retain past and new customers of the WEI, and continue to do business with them by
continually offering new, quality products.
The company plans to market and sell to students, their parents, faculty, university alumni, and community
members. Through various distribution models, including direct sales, online sales, and wholesalers, we will reach
far more customers than previous WEI projects. These markets all include people who are Virginia Tech enthusiasts, who will be able to appreciate the quality and look of the coasters, and proudly display them wherever they
choose. By reaching these people, we will be able to extend the recognition of the Department of Wood Science &
Forest Products’ educational experience, as well as promote the excellence of our various programs.
Through private donations and funding, we are able to operate with state-of-the-art machinery and equipment, which allow us to be productive, efficient, and thrifty in our product creation. Combining our funding with
our strong background knowledge of wood products, we are able to properly create a product with the help of
consulting faculty and staff. We encourage investors to look at and appreciate the concept of ”learning business
by doing business”, where undergraduate students are creating a brand new startup company every year, to make
a product they know can make and sell at a profit, while learning how a business is truly run. This learning occurs
through all aspects of the business, whether it is production, marketing, technology, design, or sales.
Our impact on the community is to raise awareness of our program, and encourage others to participate or
be involved in our processes. With a higher web presence, marketing presence, and smart planning, we are able to
reach into the Virginia Tech community, and offer a unique, unrivaled experience.
The Wood Enterprise Institute is a student-run, faculty-supported organization dedicated to experiential
learning through sustainable, innovative processes concerning product design, manufacturing, marketing and
customer service.
The Wood Enterprise Institute strives for recognition as the leader in entrepreneurial experience within the
Virginia Tech community for leadership development, group collaboration, and hands-on experience.
Core values, “The Four Ms”
Meet the demands of our customers by offering a customizable product that they are proud to own and display.
Minimize cost through careful planning and execution of production.
Maximize efficiency and minimize variation through strict observance of manufacturing protocol and utilizing our human capacity and equipment to their fullest potential.
Market the highest-quality products that precisely meets our customers’ expectations.
Strategic Plan
The Wood Enterprise Institute (WEI) was founded and developed by students and faculty in the spring semester of 2007. The idea was presented to students in 2006 and the beginning stages and planning for the business
venture began in spring 2007. The WEI is a first time educational business with a “concept-to-market” philosophy
directed toward the wood products industry. The company consists of students in different concentrations of the
wood science and forest products major. The WEI also has support of wood science and forest products faculty.
Our main facility is located at the Brooks Forest Products Center on the Virginia Tech campus. Different areas of
the center are used for manufacturing, administration, marketing and sales, and public relations interface.
The WEI fits into the keepsake and collectible industry by offering a product which is not currently offered
by any mainstream manufacturer. The purpose of our business is to produce products for Virginia Tech students,
made by Virginia Tech students; and the purpose of our plan is to showcase what the WEI is and what each department of our business does. Our advantage lies with our product’s quality, differentiated design, and alumni appeal:
association with Virginia Tech, use of Virginia Tech’s logos, customer selection of species and engravings, and
construction by current students. Our product features solid premium hardwoods with no veneers or composite
materials, which differentiates our quality from other products offered by other companies. Because most desktop furniture available in stores is a variation of a similar product, the WEI coasters stand apart as a unique piece
of furniture in design, concept, and process.
Product Value
The product value is defined as what the customer is willing to pay for a set of coasters. We have found that
our customers want an inexpensive and fashionable product of high quality; a durable product that can be used
for a long period of time and appeals to Virginia Tech’s “college crowd”. The majority of students are looking for
coasters that represent their school or student organization. They expect these coasters to be durable, aesthetically
pleasing, properly hold a drink, and store easy in a way that showcases the college spirit.
Since value is how much a customer is willing to pay for the product, our business will be most effective by
focusing on functions that adds product value in the customer’s eyes. Table 1 shows the value adding functions
in the operating process. Our goal is to optimize the amount of value adding effort and minimize the amount of
time for non-value adding tasks. Since we are a small business run by students, our internal chain of custody is
visual and simple. Our external chain of custody such as lumber raw materials procurement and product shipping
maintains relationships that are transparent and reliable..
Figure 1 is a representation of the value perception of our product based on student market research. The
majority of students are willing to pay $15-$20 for a set of coasters. This perception is close to the pricing target
when the product was designed. Coasters similar to ours in design and materials are expected to have a similar
market value.
Figure 1: The amount of money students would be willing to pay for our product. Nearly 75%
of the student market would be willing to purchase the product if it were priced in the range
of $15-20. As the price becomes greater than $20, the potential market declines significantly.
One primary added value process that creates a competitive advantage is the laser engraving function.
Laser engraving our product allows us to brand our products while at the same time providing customization. As
shown in Figure 4, value is added to our products by adding certain logos to them. Judging from the figure, the seal
and VT are the most popular logos.
Another value-adding task that was somewhat hidden from us was how we should sort the logos. Should
we have the same logo per set or should we have an arrangement. As you can see from Figure 2, an assortment of
logos would be the most perferred option. With an assortment of logos, students are able to rotate which coasters
they will use and display. Different logos will also provide different visual designators to help users remember
which glass is their own when they have company.
Figure 2: Market research results of a survey examining whether an assortment of logos is most popular or not.
Market Overview
WEI is a student run organization that promotes quality over quantity. WEI is a business filled with
students who promote innovation, productivity, quality, and style all of which will be represented in our tradition,
handmade products. Our products are made with VT students using VT resources to ensure an authentic Virginia
Tech product. WEI has a tremendous amount of repeating customers due to the change in products each year. The
marketing team intends on targeting these loyal customers as well as the families of college students. Coasters are
a common product with a fairly low cost. Our coasters have competitive advantages in that they are customizable,
they have the VT logos on them, they are handmade with built-in quality; all of these things adding value to our
product. We will market the coasters as higher-end quality coasters that are hand made by VT students.
Customer Base
Faculty and Staff
With a goal to maximize value to our customer, our focus is understanding the faculty and staff markets.
WEI has already achieved success in this market segment by selling bookshelves and clocks in past years. A new
objective is to present the new product to the previous clients. Possible product deals can also be offered for this
market, due to convenience and a high interest in supporting students. Products made by students have more
significant value to the professors, because they teach, work and interact with students in their everyday lives.
They may also want to have a souvenir from Virginia Tech on their desks that support the University’s education
Virginia Tech alumni account for the largest section of the potential customer base that we can reach.
We would reach Alumni through many distribution channels, including the Viginia Tech Bookstore. Also,
advertisement through emails could be an alternative since the WEI has a database of alumni contacts. They are
often interested in buying products from Virginia Tech with a symbolic history that represents their time at the
University. Old Virginia Tech emblems, college/department names and graduation years are some examples of the
customizations that could be offered.
WEI has not targeted the student market in previous years due to the high pricing of products. The objective
with students is to obtain this new market with an innovative product at a competitive price. Investment through
on-campus marketing will increase the awareness of the existence of WEI products. Students are interested in
buying high quality coasters that are fashionable, durable, easy to move, and storable. Students also want a nice
inexpensive souvenir to give to their parents or display them in their own home. The aforementioned use of
the bookstore will also reach students, but the WEI has a better chance to advertise the product by student’s
emails, clubs, organizations, Greek life, and direct marketing. The students are looking for something modern and
sophisticated that could represent their current club, college, or class at VT through customization at a low price.
During product testing, most of the students were impressed with the quality of different engravings related to
Virginia Tech.
This market will most likely be reached through student customers that will buy the product as a gift for
their parents, as seen in Figure 3. Advertisement in brochures and various web-based marketing materials will
also help to reach this market. Parents are often willing to buy products that are from Virginia Tech because they
are either alumni or they want to support their children. Price is not as big of an issue to this market when talking
about a high value-added product such as WEI’s products. This would be one of the WEI’s best markets in terms
of revenue. Clocks and coasters will be our promoted products for this potential customer base. Bundles with both
of our products at a promotional price level will be a good opportunity for WEI. The sycamore clocks have a high
potential of success with these customers; they are the type of customer to be looking for valuable, more expensive
gift or souvenir.
Figure 3: The results of market research concerning who coasters would be bought for.
Marketing Plan
Competitive Analysis
Coasters are a common furniture decoration and protector. The main competitor for the WEI coasters
are stores like Volume Two, who sell VT products. Since coasters are a common product, the VT laser engraving
gives them the competitive advantage over other wood coasters, but not over other VT products. Cheaply made
coasters are another competitor; some people do not value a handcrafted product, and only go with what is low
cost. Coasters are used to keep furniture from getting dirty and scratched up. Some students and alumni value
coasters less because they could get dirty and scratched up without proper care.
After looking at our competitive analysis, we see some advantages and disadvantages our coasters have over
others in the industry. As a business, we have a competitive edge over our competitors, as well. Since we are a nonprofit business run by a group of VT students, this allows advantages such as getting most of our lumber donated
to us. This also opens up with other people in our industry and provides an immense amount of networking. As a
student run organization, it also provides disadvantages like being limited to only a few semesters, or the inability
to create large scale manufacturing. All of these advantages and disadvantages or categorized into a situational
analysis also known as a SWOT analysis. SWOT analysis is categorized by strengths, weaknesses, opportunities,
and threats. Our SWOT analysis is in Table 1.
Table 1: SWOT analysis for the WEI coasters.
Market Segmentation
The marketing segment is fairly broad market but in general we want to go after all of the VT fans and
supporters. We have broken down the main segments in which we believe value our coasters more. The main
segment to which we will target will be college students and their families. Figure 4 shows that we can see that
over 30,000 students are available but we will mainly concentrate on the CNRE students first. Students in the
CNRE will be more likely to purchase our products because they know
of the Wood Department. We believe that the families of the college
students will provide support and funding for coasters. Wholesalers
are the customers we will pick up from the stores that sale VT product.
This allows us to expand our marketing and really get our product out
there. Loyal customers/ alumni are customers we are used to dealing
with and generally buy are products regardless. We will not spend as
much time marketing to them due to their large size but in turn spend
more time providing great customer service to them. This insures
future purchases of our products. Since the alumni population is so
large we do not have to spend as much time marketing to them.
Figure 4: Breakdown of possible numbers
of people to sell to. Information attained
As shown in Figure 3 the majority of students would buy these
from the Princeton Review.
College Students and Their Families
coasters for their families and friends. We plan on selling the products through the college students which will be
funded by their families. The WEI marketing team wants to devote 60% of the sales towards this market. We will
appeal to this market by providing customizable laser engraved coasters. College students can use these coasters
for parties and protecting their furniture.
We will sell the four generic logos in each set of coasters. Figure 5 shows that the majority of students
prefer a variety of logos inside of each set of coasters. The idea is to sell large batches of coasters to wholesalers in
order to produce coasters faster. We will dedicate 20% of our sales towards this market. The coasters will stick out
amongst the other products in the store in that they are handmade authentic VT products. The coasters will appeal
to a broader market that uses them for tailgating, showing off to friends, parties, and to protect furniture surfaces.
Loyal Customers/Alumni
Figure 5: The results of market research concerning what
logos potential customers would purchase.
Marketing Plan:
One of the most reliable markets for our
coasters are customers that have already bout
products from WEI. They are used to dealing
with WEI students and know the quality of our
products. The majority of our loyal customers
are alumni so we will focus on marketing to
the alumni. We will dedicate 20% of our sales
to this market starting within the Department
of Wood Science & Forest Products and the
College of Natural Resources and Environment.
Our coasters will provide alumni with a piece
of collectible desktop furniture that will protect
their desk surface while at the same time
reminding them of the prestigious university
they attended.
The WEI is using a different array of media for marketing this year. The main marketing strategies will be
through flyers, the Internet, our distributors, and word of mouth. The marketing team has conducted two sur¬veys
already on campus, which has gotten some word out for WEI’s products. The marketing team is planning on
initiating the marketing plan with advertising once the spring semester starts.
In the beginning of the spring semester, the marketing team will receive orders from the distributors and
any other businesses looking to purchase coasters. In getting the distributors our products early, our target market
will learn about WEI and its product offerings. We will also try to supply brochures to our distributors so that
customers can contact us and/or learn more about WEI. After we see the results of the advertising through the
distributors and business customers and learn how production capacity fulfills orders, we will then determine
what steps to use next for advertising. The following advertising tools are explained in how they will be deployed
and anticipated results our business will achieve towards creating a sustainable customer base:
Flyers describing the coasters product offerings will be distributed around the Virginia Tech campus by
the marketing team. The flyers will have a short description of the customizable product features along with our
contact information. We plan to distribute flyers early in the spring semester at different locations around campus
and at strategic places and during times likely to reach the largest student population.
Web Presence
Our website, blog, Facebook page, and twitter page will be a big part of the advertising campaign for WEI.
Students and other potential customers can take a look at our progress in the production of the coasters, learn
more about our program, ask questions, comment and give feedback, and place orders on our website. We can
also invite any of our friends to join or visit any of the sites and pages, and in turn they may invite their friends.
Through these networks, students can discover us without leaving the comfort of their homes.
Our distributors will also create a strong advertising base, since the local bookstores have high traffic
from customers looking for Virginia Tech merchandise. Students, alumni, and fans alike favor the bookstores
when furnishing or decorating their apartments/homes. The local gift shops will hopefully spread the word of our
products to both local and out of townVirginia Tech fans that may be looking for fun and unique VT novelty items.
Word of Mouth
Word of mouth can be one of our strongest marketing tools, since it can be the most engaging and reliable
form of adver¬tising. When people get information about products from friends they trust, they tend to be more
willing to accept the information. As long as WEI keeps a high quality mindset on our products and services, and
the customers are pleased with our products and service, our presence and success will only be strengthened.
With these different marketing gateways we plan to reach a major part of the Virginia Tech community, and
enlighten them of the WEI program. The WEI marketing team also plans to continually improve our techniques
along with standardizing those that yield proven results. Such standardization provides a natural way to document
our experiences to help the future WEI team members in deciding the best methods for advertising.
Marketing Strategy
WEI’s marketing strategy for our product is to provide a handmade high quality product to our consumers.
The WEI will have a highly competitive product in the Virginia Tech community. Our products this year are
handmade wooden drink coasters. These coasters are 4” x 4” x 0.5” squares with 3.25” diameter circles drilled into
the center of each coaster. The center is then fitted with laser-engraved cork. The laser engravings are logos of
the customer’s choice. The coasters will be sold in sets of four along with a holder, and offered in three different
wood species; cherry, maple, and beech. The marketing research showed that cherry was the most liked of the three
species. The coasters will be shipped in a simple package with a picture of the product and a WEI logo on it.
Our product will be sold for $25 per set, which includes the four coasters, the holder, and the packaging.
Price is determined by the costs of material, labor, and value. Value-added procedures include primary and
secondary manufacturing, finishing, laser engraving, and packaging. For customized orders, a setup fee will be
charged, depending on the amount of work that goes into the design. Customizations are customer-provided
artwork or logos that we can adjust and engrave onto the cork. Customers will pay for shipping, which will be
calculated through Google Checkout’s partnership with the US Postal Service (USPS). Local residents will be
offered a coupon, so they are not charged shipping for a local delivery or pickup.
The WEI will strive to have 80% of sales to be direct to the customers and 20% to be sold through local
wholesalers. With the greatest portion of sales being directly to customers, the WEI will build a strong relationship
with its customers. Since all of the WEI’s employees are members of the Virginia Tech community, we expect sales
to be bolstered by the support of local residents, including students, faculty, and members of the surrounding areas.
The ideal local wholesalers include Virginia Tech Bookstores and Best Wishes. Virginia Tech Volume II Bookstore
interests us the most as a local wholesaler due to the high traffic and loyalty of our prospective customers. The
WEI offers online ordering for customers to place and/or customize their orders, which will then be shipped out
to them. We will also pay for the shipping of any defective products and ship new sets of coasters back to the
customers in a timely manner.
Advertising will be a key factor in this year’s business, because we are offering many forms that were not
offered in past years. Advertising tools consist of Twitter, Facebook, a blog/website, and brochures. We believe the
online forms of advertising will strengthen our bonds with the customers because they will be able to contact us at
anytime. Customers will also be able to take inside looks to the manufacturing of the coasters through our sites.
Our brochures are professional and informative to help customers know exactly what our product and business is.
The brochures will be handed out around the local community and during department functions. WEI will also
rely on word-of-mouth as a big promotion tool. Word-of-mouth is one of the strongest promotion forms since
most people are more willing to believe the opinions of their friends and family. This makes quality an even more
important aspect of our production and sales.
Team Organization:
Figure 6: The Wood Enterprise Institute’s organizational chart, showing departments, positions, and functions.
The Wood Enterprise Institute is unique in the fact that it has a new core group of members each year and
iteration. Because of the nature of the program, the organizational structure changes depending on team member
skills and experience. Keeping this yearly leadership change in mind, the organizational structure is as follows:
The WEI is overseen by both a Faculty Advisor and a Staff Shop Manager, as seen in Figure 6. This is to ensure
safety in the shop, academic learning, problem solving processes, ethical business practices, and to be a liaison
between the students and any other professionals and Virginia Tech.
The Production Team deals with the creation and manufacture of the coasters. The shop is partially
man¬aged by a student. The processes are controlled, timed, and evaluated by the team, and the actual manufacture
and packaging of the products are completed by the team. Production will also deal with material planning and
sourcing, and make decisions with other functional teams on outsourcing work. Material acquisition is also
handled by this group.
The Marketing Team is responsible for collecting market data via surveys, questionnaires, etc. This data is
then compiled and used to monitor and change the product as needed, as well as be an active feedback for how the
WEI is doing from the consumer’s perspective. The marketing team is also responsible for marketing materials,
such as web content, brochures, fliers, event-hosting, etc., and will aid in customer service once orders begin.
The Business/Accounts department is responsible for keeping a tab on the financials of the WEI, as
well as keeping the business plan updated, should be need arise in cases of restructuring, goal-changing, and
reinterpreta¬tion of data.
The Special Technology department is responsible for operating and setting up the laser engraver dur¬ing
production, as well as working with customers on custom engraving orders. This department also builds and
updates the website and the many social media outlets the WEI utilizes, including a blog, Facebook, and Twitter.
When orders start, this department will be in charge of online ordering, and making sure item fulfillment is
oc¬curring in a timely manner.
Though the organization is structured as above, many students will be fulfilling duties in many of these
departments; if one group of students needs help on a project, students from other teams will step in and be of
assistance as they are able, to ensure efficiency and utilization of time and labor.
A unique aspect of the WEI is that it has a completely new group of students to lead and manage functions
each year. Part of the innovation in the WEI is how to preserve and share knowledge from year to year. This is
accomplished by personal interviews with former students, binders kept with files such as business plans, marketing
results and numbers, etc., and also the use of the Scholar System. This is an online-based tool, provided by Virginia
Tech, which connects students with each other and staff, allowing them to share files and collaborate. All of the
uploaded materials from each year stay in this resource, and can be remotely accessed.
Operational Plan:
To deliver maximum value while minimizing costs, the operations plan is focused on management of
materials, time, effort, and knowledge. We will manage our raw materials to maximize conversion efficiency while
minimizing material and energy waste. Time is our most scarce resource and therefore, management is especially
focused on effectively utilizing available people and machinery resources. Managing knowledge to reduce cost
means we must have an effective way to integrate and standardize our knowledge about wood, materials, technology,
engineering, packaging, and management. By maintaining a customer value focus we are able to integrate our
knowledge in innovative ways that are cost competitive from a business performance viewpoint. Built-in quality
is a key component within the production of the coasters. Built-in quality is the ability to apply our knowledge to
cost effectively control the variation and defects within each production step.
The production processes listed in Figure 6 will all be done in-house at the WEI’s Innovation and Design
Laboratory. Located in the Brooks Forest Products Center, the WEI laboratory is 2000 ft2, containing industrial
wood-working machinery organized into work cells to maximize production efficiency. Another advantage of the
WEI laboratory location is the availability of faculty and staff within the department of wood science are located in
the same building. Any questions dealing with machining wood, defect prevention, and general wood technology,
the professors welcome the questions. The Brooks Center is located about a mile from the campus, which provides
direct contact with one of our main customer base.
Labor Force
The primary labor used in production will be the
eight members of the WEI class. We are currently divided
up into four sub groups: marketing, production, finance,
and product design/development, however, all will take
part in production due to increase in product demand.
If additional labor is needed, we have the personnel, the
Forest Products Club members or other wood science
students, and the means to hire additional labor. Table
2 shows the suggested salary per hour for both WEI
students and any additional help.
Materials Procurement
Generous supporters of the WEI program have
donated all the materials needed for this semester’s
product. Maintaining these relationships with our donors
Table 2: Labor costs for coaster production.
is essential every year for the WEI program. The main
raw material is wood, which has been donated by area lumber suppliers, who have a direct relationship and history
with the Wood Science department. This year’s wood mainly came from Huntersville Hardwoods, a division of
Atlanta Hardwoods. Maintaining our relationship with our wood supplier is critical because wood is the primary
component of our products, and the most cost burdening of all the materials. The other materials, such as the
cork, finishing, and packaging, were purchased using monetary donations from supporters of the WEI program.
Ultimately, the relationship with our donors is the key to
the success of the WEI program.
Production Schedule
The schedule that we will be following for the
production of the coasters this semester is as listed in
Table 3.
Due to limited in-house finishing capability at
the Brooks Center, we outsource the finishing operations
to Custom Wood Products (CWP), located in Roanoke.
CWP specializes in cabinets and fine wood products
finishing. With the capabilities at CWP our coasters can
be finished in two hours, compared to a week’s worth of
time in the WEI laboratory, resulting in an decrease in
Table 3: Production schedule. Subject to change.
finishing cost when outsourcing. The cost of outsourcing is the cost of the finishing material, shipping and handling,
and the small amount of labor required to finish the coasters. The disadvantage with outsourcing finishing is that
we must produce a large batch of coaster products due to economic order quantities specified by CWP. Large
production batches mean that we must forecast what species we anticipate in sales. Therefore there will likely be
some small shortages or overages for certain species offerings. We plan to accommodate shortages through inhouse finishing to satisfy customer demand.
Lumber Supply
Finished Product
Rough Mill
WEI Mill I
WEI Mill 2
Hole Boring
In House
Batch = 8
Batch= 8
C/T= 1.2 min
C/T= 35 sec
F/T= 9.5 min
F/T= 4.67 min
.2 min
35 s
Batch= 8
C/T= 45 sec
F/T= 6 min
45 s
Batch= 8
Batch= 8
Batch= 8
C/T= 2.60 min
C/T= 1.50 min
C/T= 7 min
F/T= 20.82 min
F/T= 12 min
F/T= 56 min
.6 min
.5 min
7 min
V/A = 13.63 min
L/T = 109 min
Figure 7: Coaster product value stream analysis.
Figure 7 represents the coaster production value stream showing the current flow of production, with
included process times, and production lead times. Because excessive time leads to excessive cost, our main
management focus in this value stream is to minimize production lead-time. Thus having a plan for every part
including where we get materials, how we ensure we are not overproducing, how we schedule operations, etc.
with minimal interruptions which, when done effectively, would decrease the lead-time. Overall, the goal for
the production team is to maximize the use of the material, time, effort, and knowledge by effective and efficient
means in order to bring quality to the customer while decreasing cost.
Within the day-to-day operational processes, safety is a key factor in the production of the coasters. Since
we are working directly with machines that contain numerous moving parts, many of which containing blades
or knives for machining wood, many safety precautions have been put into effect. Safety glasses and hearing
protection must be worn at all times in both machining shops. Guards are on many of the machines to protect the
user from the dangerous part of the machine. Dust systems are used when machining to improve air quality in the
shops. When using the many of the machining tools, a supervisor is always present for training and certification
concerning safety.
Product Cost
Using the value stream in Figure 6 and cost of labor, materials, packaging, and overhead costs associated
with the coaster value stream, the product cost breakdown is shown in Figure 8. Of the total production cost of
$11.91 for a coaster set, 54 percent is labor. Such high labor content is why we are very focused on managing our
value stream to maximize labor productivity directed towards value-added processes.
Sales Target
From the market reseearch in Figure 1, a target sales price of $25 would command a sufficient market
from the student market segment. From this market, we conservatively estimate an average demand of at least 30
coaster sets per week. At a target sales price of $25 per coaster set, the resulting margin would be $13.09.
Figure 8: Breakdown of coaster production costs. The total production cost of a set of 4 coasters
and holder is $11.91.
Return on Investment
We are targeting an investment of $5,187 to design, test, and finalize the coaster product line. This
investment is primarily salaries and wages to design and test the product and the necessary materials, tools and
supplies to create working prototypes. We anticipate the WEI to offer the coaster product for at least 3 semesters.
At a target sales of 30 sets per week, the initial investment will be payed back in 13 weeks and the anticipated return
on investment through sales profits during these 3 semesters is targeted to be 6% (see Appendix A).
Appendix A: Return on Investment Plan
2010 - 2011