Profitability Study for the Business Forms Division of Allied Office Products February 9, 2007 Proposal Team: Brant Allegretti, Kirk Blackwelder, Rick Calero, Mary Coffee, Jonathan Doddridge, Mike Taylor, Carlos Villarreal

February 9, 2007Allied Business Forms Division 2 Overview Background Goals and Objectives Options Situation Analysis Activities Based Cost (ABC) Analysis Potential Threats / Risk Mitigation Recommendations Summary

February 9, 2007Allied Business Forms Division 3 Background Annual sales of $900 million Forms Manufacturing Business forms Specialty paper Business Forms Inventory Management Services - Total Forms Control (TFC) WarehousingInventory control Inventory financingDistribution Forms usage reporting (Pick pack & desktop delivery)

February 9, 2007Allied Business Forms Division 4 Background TFC Inventory Storage 10 distribution centers Pricing Clients charged flat monthly fee on product cost plus 32.2%, regardless of level of service Covers warehousing, distribution, cost of capital for inventory & freight expense (based on 1990 aggregated financial data) Profit Margin Sales force charges average of 20% of product & services; individual accounts can vary from standard formula

February 9, 2007Allied Business Forms Division 5 Background Value Chain Concept - TFC Industry Chain The TFC Chain TreesPulp Paper Forms Mfg. Forms Sales TFC Customer Purchasing Manager Customer Receiving Forms User Storage & Inventory Financing Requisitioning Stock Selection & Pick Pack Order Entry & Billing Desk Top Delivery Freight

February 9, 2007Allied Business Forms Division 6 Goals & Objectives Review Current State Identify Areas for Improvement Increase ROI on TFC from 6% to 20%

February 9, 2007Allied Business Forms Division 7 Storage & Inventory Financing Inventory Obsolescence Excess Inventory Cost of Capital Customer does not pay for inventory until requisition submission Dont you think we should do something to get that old inventory moving? --Tim, Kansas City, MO Distribution Facility

February 9, 2007Allied Business Forms Division 8 Requisitioning Ive gotten to the point where I know the customers so well, that all the order information is easy. The only thing that really matters is how many lines I have to enter. Hazel Nutley, Data Entry Operator 310,000 requisitions per year Each requisition – average 2.5 lines Reduce data entry - incorporate purchase history in requisition process; determine frequent reorders Institute minimum requisition requirements; under $X, extra fee charged

February 9, 2007Allied Business Forms Division 9 Stock Selection / Pick Pack 90% of all orders are pick pack Reduce pick pack orders: Work with Allied to reconfigure cartons to meet top 40 accounts buying patterns Almost is everything pick pack nowadays. No one seems to order a carton of 500 items anymore. --Rick Fosmire, Warehouse Supervisor

February 9, 2007Allied Business Forms Division 10 Order Entry & Billing Ensure requisition process /order entry / billing is a one-step process Goal: Reduce redundant data entry

February 9, 2007Allied Business Forms Division 11 Desktop Delivery Currently, no extra charge to clients for this time intensive activity Implement desktop delivery fees

February 9, 2007Allied Business Forms Division 12 Freight Cost coverage set fee is not equitable across customer base Implement pass-through freight cost leveraging new computer system

February 9, 2007Allied Business Forms Division 13 Activity Based Cost Analysis Activity and Cost Drivers ActivityCost DriverActivity Based Cost StorageNumber of Cartons1.550 Requisition HandlingNumber of Requisitions1.801 Basic Warehouse Stock DeliveryNumber of Requisition Lines0.761 Pick PackNumber of Pick & Requisition Lines0.734 Data EntryNumber of Requisition Lines.612 Desktop DeliveryNumber of Desktop Deliveries.250 Total5.708

February 9, 2007Allied Business Forms Division 14 Activity Based Cost Analysis

February 9, 2007Allied Business Forms Division 15 Activity Based Cost Analysis Individual Customer Profitability

February 9, 2007Allied Business Forms Division 16 Activity Based Cost Analysis Impact to Bottom Line

February 9, 2007Allied Business Forms Division 17 Recommendations Activity Based Management (ABM) Management Philosophy Focus on cost reduction Make informed decisions Create & maintain a competitive advantage Reduce non-value added activities

February 9, 2007Allied Business Forms Division 18 Recommendations Supply Chain Management (SCM) Optimize Warehouse Space Reconfigure aisles Consider consolidation of DCs for TFC LOB Optimize Customer Inventory Levels Incorporate Just In Time Inventory (JIT) System with Allied (for 179 customers that represent 72% of sales)

February 9, 2007Allied Business Forms Division 19 Recommendations Activity Based Costing (ABC) Storage & Inventory Financing Charge 1.5%/mo. for on-hand inventory > 9 months

February 9, 2007Allied Business Forms Division 20 Recommendations Establish Preferred Vendor Price Strategy (PVPS) with Allied 1. Preferred price list at __% of retail 2. Eliminate sales force outsourcing option Engage Fiveandone for Competitive Market Analysis (CMA) Implement Services Based Pricing Structure If CMA reflects optimal market timing, implement Supply Chain Management Plan

February 9, 2007Allied Business Forms Division 21 Potential Threats Stakeholder Acceptance Will the sales team perceive plan will decrease commissions? Customer Acceptance Will customers view this positively or negatively? Competition Market Timing Response to our new strategy

February 9, 2007Allied Business Forms Division 22 Risk Mitigation Get Our Sales Team On Board! 1. Prepare account analysis for each account manager 2. Train account managers thoroughly on client benefits Make Sure Our Customers Understand Our Value Proposition 1. insert verbage Understand Our Competitors Position 1. Competitive advantages/disadvantages 2. Understand competitors past, present (and most importantly) future pricing strategies 3. Provide basis to develop strategies to achieve competitive advantage in the future 4. Predicted competitor response to new pricing strategy

February 9, 2007Allied Business Forms Division 23 Summary Preferred Vendor Price Strategy + Competitive Market Analysis + Distribution Optimization Plan = Allied Business Forms Division Success! Allied Philosophy We know what you need… the right product at the right place at the right time.