MGMT $3320$ Case Study $1$ Safe Delivery Solutions

In recent years, with the growth of e$-$commerce platforms like Amazon, the problem of package

theft has become far more prevalent. As more consumers shift to online shopping, with millions

of deliveries being made to homes daily, thieves are increasingly targeting unattended packages

left on doorsteps. A study commissioned by Federal Express Canada Corporation $($FedEx$)$ that

surveyed $1,500$ Canadians in September of $2019$ found that one in four of those surveyed had

had a package stolen and that $70$ percent of respondents who shop online worry about deliveries

being stolen when they weren$$t home to receive them.

In $2016,$ Victoria Smith, a skilled metalworker, founded Safe Delivery Solutions $($SDS$),$ a

company based in Toronto, Ontario. SDS manufactures durable, welded steel boxes designed to

safeguard deliveries from theft. The company has seen steady growth, selling $4,800$ units in

$2023,$ and Victoria is determined to expand further to increase profitability and support the local

economy. Competition in the market has intensified, and profit margins are becoming tighter.

Victoria is becoming concerned about how the increase in competition will impact future the

company$$s future sales.

Many competitors have started offering smart delivery boxes equipped with cameras and Wi$-$Fi

connectivity, allowing users to monitor their deliveries remotely. These $$smart$$ models often

retail at nearly double the price of SDS$$s current $$250/$box price point. The current model that

SDS offers features a one$-$way delivery door and a traditional lock, accessible only by the owner.

Victoria has three potential growth strategies for SDS in $2024.$ First, by investing in a forklift and

additional steel shelving, SDS could double the storage capacity of its rented warehouse, which

costs $$2,800$ per month. This would help mitigate the frequent delays caused by their local metal

fabricator, who occasionally struggles to meet demand. The total cost of this equipment would be

around $$37,000,$ offering SDS an alternative to relying solely on its current supplier.

Secondly, Victoria has discussed improvements to the boxes with a local sign manufacturer and

the metal fabricator. These upgrades, which would include better weatherproofing and clearer

signage, would reduce customer complaints about rainwater entering the boxes and delivery

drivers leaving packages unprotected. While the improvements would increase production costs

by about $15$ percent, Victoria believes they would improve overall customer satisfaction and

reduce complaints.

Lastly, Victoria is considering the launch of a second product, the $$Stealth Delivery Pro$$ model.

This model would focus on improved security without high$-$tech cameras. The Stealth Delivery

model focuses on camouflaging the delivery box to make it less noticeable to potential thieves.

The box would have a sleek, customizable exterior that could be designed to blend into the

home$$s surroundings, such as mimicking a large planter, garden bench, or even a decorative

storage chest. This would make the box inconspicuous and less of a target for thieves.

Additionally, it would be constructed with reinforced steel and feature a time$-$lock system, which

would allow packages to be securely delivered but prevent anyone from opening the box until a

specified time window when the homeowner is available. This would add an extra layer of

security without relying on technology like cameras or alarms. Victoria estimates that the

camouflage design and time$-$lock feature would add about $$15$ to the production cost, but

customers would likely be willing to pay an extra $$60$ for a model that not only secures their

packages but also blends seamlessly into their home environment.

These potential strategies require capital, and SDS$$s current cash flow may not be enough to

cover the costs. As the sole owner of SDS$,$ Victoria is exploring her financing options, including

borrowing additional funds from friends and family, applying for a larger bank loan, or possibly

selling shares through the Canadian Securities Exchange $($CSE$).$Victoria has already had

preliminary discussions with her bank about increasing her loan but learned that the bank would

require a personal guarantee and financial covenants, such as maintaining a Current Ratio of at

least $1$:$1$ and ensuring positive cash flow. Additionally, the bank would need the landlord to

waive the right to seize goods in the event of unpaid rent.

Victoria has also briefly reviewed the listing requirements for the CSE $(2024$ Guide to Listing

$($tsx$.$com$))$ but has not yet explored them in detail. Faced with several important decisions,

Victoria has hired your consulting group to perform a comprehensive analysis and provide her

with recommendations and guidance