MBA 52181 SUNY Use of Metrics in Value Based Business Paper Develop a set of metrics that you would use as the leader of 442 MCADAM (found in the Harvard P

MBA 52181 SUNY Use of Metrics in Value Based Business Paper Develop a set of metrics that you would use as the leader of 442 MCADAM (found in the Harvard Publishing course pack) in order to help drive the decision for manufacturing sourcing. Please include the following in your 3 to 4 page double-spaced paper:Metrics you would use when making a make or buy decision; ensure metrics tie to value-based managementAssociated risks and benefits of the choice you have madeTables in your analysis if possible; grading will not be affected one way or the otherRationale for using these metricsIf deciding to produce, where you would produce itBoth quantitative and qualitative arguments For the exclusive use of U. Pasha, 2020.
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442 MCADAM
Jessica Welsh wrote this case under the supervision of Elizabeth M.A. Grasby solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.
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Copyright © 2016, Richard Ivey School of Business Foundation
Version: 2019-10-29
It was March 2015, and 442 McAdam (McAdam), a women’s designer handbag company that offered a
bohemian and equestrian style of design, had moved its operations from Calgary, Alberta, to Toronto,
Ontario. Due to increasing demand for the handbags, owner and operator Sarah Shell had decided that she
would no longer make the handbags herself. Instead, 442 McAdam would outsource the production of its
handbags using either a local manufacturer in the Toronto area or an international manufacturer from
overseas. Shell hoped that moving her company to Toronto and outsourcing the manufacturing process
would allow her to focus her time on increasing sales while decreasing material costs. The move to
Toronto would expose Shell’s handbags to a larger market, thereby creating potential for the brand to grow
in popularity and overall visibility with the company’s target market.
442 MCADAM
Sarah Shell
Sarah Shell’s journey in the fashion industry started in 2002, when she began studying fashion design in
Florence, Italy. After completing her studies at the prestigious Parsons School of Design in New York
City, Shell worked with popular brands, such as Gucci and Club Monaco, and eventually accepted a
purchase analyst position at the Foranzi Group in Calgary, Alberta. During her time with the Foranzi
Group, Shell designed her first handbag as a present for her mother.
Inception
After successfully handcrafting her first leather handbag, Shell continued designing handbags in her spare
time as a hobby. Early on, she took approximately one week to create each handbag. While Shell was
shopping in a boutique in Calgary, a local shop owner admired the handbag Shell was carrying. After
learning that Shell had designed it herself, the boutique owner immediately wanted to carry Shell’s
handbags in the store. At this point, it became clear to Shell that she could no longer continue hand-making
the bags, so she purchased a 250-pound industrial sewing machine to reduce the time it took her to create
each piece to between two and five hours.
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Growth
By 2008, Shell was spending all her time making handbags. In the same year, she decided to leave her
position with the Foranzi Group to launch her handbag business — 442 McAdam — on a full-time basis.
At this time, Shell’s chief concern was the cost of the materials used to produce the handbags, something
she had never had to consider in her work with the Foranzi Group.
In 2014, Shell decided to move McAdam’s headquarters to Toronto, Ontario, where she knew there would
be a larger market for the handbags and a greater opportunity to showcase the brand. Although the
handbags were sold throughout North America, sales came primarily from Canada. The handbags were
available for purchase both online and in eight retail stores, and the online prices were the same as those at
any of the retail locations. It was also clear to Shell that with the anticipated growing demand for her
handbags, she could no longer produce them on her own; instead, she would need to have her designs
produced by an independent manufacturer, either locally or internationally.
OUTSOURCING
Both local and international manufacturers priced their work based on the number of seams needed for
each design. Shell’s initial designs were very intricate and unique, but replicating this number of seams
would not be affordable through a manufacturer. Therefore, to keep the price of the handbags affordable
for both McAdam and its customers, the number of seams would have to be reduced for each bag. Shell
worried that by reducing the number of seams, the bags might lose some of their unique appeal.
Manufacturers required a minimum order quantity for each design. If the same handbag were ordered in
three different colours, this would constitute three different designs. To manage inventory effectively with
these minimum order quantities, Shell would have to limit the number of designs and colours available ––
something that had not previously been a concern.
Canadian manufacturers were more expensive than international manufacturers, charging an average of
$1201 per handbag and requiring a minimum order of 10 handbags of each design and colour. International
manufacturers charged, on average, $80 per handbag but required a minimum order of 50 handbags of each
design and colour. Handbags would be shipped to the McAdam FOB (free on board) destination with
payment terms of net 60.
Regardless of the manufacturer selected, McAdam would be financing the initial purchase of inventory
with the business’s cash; however, this payment approach would be possible only if the majority of the
inventory could be sold within six months. Due to the industry’s seasonality, if the handbags were not sold
within six months, it was highly unlikely that they would be sold at all, and selling them at a later date
would require severely discounted prices below or near McAdam’s manufacturing cost.
Shell was confident that the quality of the handbags produced would be the same, regardless of whether
she selected a local or international manufacturer. By having the manufacturing portion of her business
handled by a third party, Shell hoped she would have more time available to create additional designs for
new handbags in the future.
1
All currency amounts are in Canadian dollars unless otherwise specified.
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9B16B010
THE CONSUMER
The target market for McAdam’s handbags included women between the ages of 20 and 45. The handbags
were priced at and marketed to the lower end of the luxury handbag market for these women, who were
typically at the early stage of their careers and looking for their first real luxury fashion handbag.
McAdam’s bohemian and equestrian handbag designs were of interest to women who wanted a unique
style (see Exhibit 1). These women did not want a handbag that looked similar to other popular luxury
handbag brands, such as Coach, Kate Spade, MARC by Marc Jacobs, Tory Burch, and Rebecca Minkoff.
These well-known brands were readily available in department stores, as well as in the brands’ own standalone stores, online, and in smaller boutiques, but rarely did their designs compare to McAdam’s unique
bohemian and equestrian appeal.
Shell wanted to continue satisfying her loyal customers with each one of her new handbag designs. While
shopping, consumers often conversed with boutique owners about their specific requirements in a handbag.
Unlike other designers, Shell made a point of speaking with these boutique owners to learn more about the
end consumers’ specific desires for their ideal handbag. Whenever possible, Shell designed her handbags
with these ideas in mind.
PROJECTIONS
Shell decided that McAdam would need to offer five handbag designs per style season, each available in
four colours. (A style season was the length of time a handbag could expect to be sold at its regular price.)
There were two style seasons in each fiscal year, and Shell was concerned about whether she would be able
to offer this many different styles and colours, now that the production of the handbags would need to be
outsourced and minimum order quantities were set by the manufacturers. Shell estimated that each of the
12 boutiques she had enlisted to sell her handbags would purchase eight handbags per style season during
fiscal 2016. Sales would increase by 50 per cent in fiscal 2017 with the addition of more retail outlets. In
addition to these sales, and based on past performance, Shell predicted that sales from McAdam’s online
retail store would average 24 handbags a year.
The average retail price for a handbag would be $440, regardless of the manufacturer selected. To ensure
that she would not lose any customers to competing brands, Shell decided that McAdam would absorb any
additional cost of manufacturing if a local manufacturer was selected instead of an international one.
McAdam sold her handbags to retailers for 45 per cent of the retail price.
CONCLUSION
Shell was excited to see where outsourcing the manufacturing process could take McAdam, but she wanted
to make the most financially feasible decision. In Toronto’s larger market, Shell hoped to exceed the
success she had achieved in Calgary. She would need to make her decision quickly in order to meet all
upcoming orders.
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EXHIBIT 1: 442 MCADAM SAMPLE HANDBAG STYLES
Chappy –– Glitz
This beautiful little purse is perfectly ornate to
enhance casual attire, or remove the strap and
wear it on your shoulder for the evening. Chain
handle, removable long strap, magnetic flap. Top
grain Italian leather. Gold-plated steel hardware.
10.5”× 7”
Pencil Skirt — Black
A great briefcase alternative. Features removable
leather sling, tote straps, zippered closure, inner
compartments. A classic 442 McAdam silhouette.
Genuine leather. Black top grain cowhide. Gold
hardware. 15”×15.5”
Hobo — Heart Collection
Durable and practical, comfortably sits cross-body
and rests at the hips. You’ll forget you’re wearing a
bag! Removable leather sling with tote straps,
zippered closure, inner compartments. Top grain
Italian leather. Gold hardware. 17”×11”
Source: Company files.
This document is authorized for use only by Usman Pasha in MBA-521 Summer 1 2020 Mandatory taught by PETER LOTTO, Champlain College from May 2020 to Jul 2020.

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