Ashley Oakley was hired by the Battleground Nurseries (BN), a commercial nursery and landscape supply company in Oak Ridge, NC, as an Analyst in their newly-formed Project Office (PO). She reported to work and was assigned a small cubicle with an old laptop computer. Not what she had hoped for in her first job, but she was grateful to land her first job in a rapidly growing economy and resolved to give it her best effort. The PO reported to the Finance group, and she liked the VP-Finance who had hired her. BN had grown steadily into a dominant regional supplier of plants, trees, shrubs and related supplies to area retailers, including big-box chains, home improvement chains and retail nurseries. BNs profits had not kept pace with growth, however, prompting President Jean Greene to look for cost management and profit expansion opportunities. BNs history of doing projects was mixed at best. Most projects finished over budget, and were late to deliver benefits (if they delivered at all). Behind the decision to hire Ashley was the intent to use her and the Project Office to manage projects to ensure they delivered the expected results. The Challenge In late 2018, Jean conducted a brainstorming session with the Operations, Sales and Finance VPs. Jean made it clear that BN needed a strategy to increase margins through increased sales or decreased operating expenses. The group developed a list of potential ideas and then narrowed it to a short list of four projects: A. Accounting and HR Software - Migrate from BNs old business software to a modern software suite, hosted by a third party. This would allow BN to cut internal IT staff and reduce data center costs. The VP-Finance believed this would reduce SG&A costs directly, plus enable further staffing reductions in the operating departments. B. Business Intelligence Software Install state-of-the-art BI software. The Finance chief argued that this option would enable better analysis of profitable products, sales channels and retail customers. Armed with this knowledge, BN could eliminate unprofitable products and customers, allowing them to focus their resources on growing profitable sales to their best customers. C. Retail Display Upgrade Replace old plastic retail displays with new, stainless steel racking systems designed for easy load/unload direct to the retail sales floor. The Operations and Sales VPs argued that this option would increase retail sales, strengthen retail customer relationships and improve operating efficiencies. D. Transportation Fleet Upgrade Replace the oldest of BNs aging fleet of delivery trucks and tarctors. The Operations VP suggested that this project will reduce fuel and maintenance costs and increase supply chain performance. ISM/SCM678 Battleground Nurseries Case pg. 2 As the meeting closed, Jean asked the VP-Finance to analyze these four options for their financial contribution potential and recommend the best course of action. She promised to deliver her recommendations in a week. The Analysis The VP-Finance called Ashley and asked for a meeting between the two of them. She explained the need to analyze the four options and the deadline she had committed to. She asked Ashley about her background with regard to project selection techniques. Ashley replied that she had been trained in various project selection methods, including Net Present Value (NPV), Payback Period (PBP), Internal rate of return (IRR), and Real Options Analysis. The VP-Finance asked her to start with the NPV, IRR, and PBP analysis (which she was more familiar with) and instructed Ashley to interview internal experts in Operations and Sales, plus the IT Manager. Ashley was asked to schedule a meeting with the VP to review her analysis mid-week. Ashley was concerned about the short time-frame to deliver her analysis, but she was eager to do well on her first assignment, so she agreed. That night, she pulled her university project management textbook and reviewed the principles of NPV, PBP, and IRR analyses as a refresher. She realized that the hard part of the assignment would be getting the data for each project. The next day, Ashley scheduled interviews with the BN experts most knowledgeable of each of the projects. She also secured the VP- Finances direction to use a hurdle rate of 7.8% and a 2.3% inflation rate assumptions. Project Details During the interviews, Ashley asked many questions and took careful notes, which she organized afterwards to extract the important information. Here is a summary of her notes: A Accounting & HR Software The IT Manager had researched the two software options, and had obtained informal estimates from her preferred suppliers of each. For this software, she considered the merits of server-based software that BN could operate on their premises, versus hosted and cloud-delivered models. Her preference was a popular cloud-based software suite which a competitor had implemented, with good results (she had heard). The vendor offered BN a discounted one-time license cost, combined with implementation and consulting services, for a one-time cost of $480,000. After the initial implementation, the supplier would charge $22,000 per year for maintenance and support. The maintenance and support quote was fixed for 4 years post implementation; starting year 5, she estimated the maintenance cost would grow approximately 10.5% per year. The IT Manager recommended a ten-year useful life for all software investments. In addition to the benefits of the newer software, the IT Manager told Ashley that BN could eliminate two data entry clerks, and related expenses which cost the firm $130,000 per year (all-in or fully burdened; including all compensation and benefit costs). B - Business Intelligence Software For the BI software, the IT Manager selected the companion product to the Accounting & HR Software she recommended. All the integration to the accounting databases, as well as a full set of standard reports, was provided out of the box. She had negotiated a one-time license cost for this product at $150,000. The funds would have to be committed in the same year as for Project A but the implementation would start one year after the Accounting & HR software had been deployed. The IT Manager predicted that improved decision-making enabled by the software would increase profits by $30,000 the year following implementation, increasing $4,500 per year thereafter. Support and maintenance costs would amount to $12,500 per year, starting the year following implementation. The IT Manager negotiated to fix (cap) the maintenance and support costs over the ten-year expected life of the software. C - Retail Display Upgrade The VP-Operations who championed this project had already discussed the design and fabrication of reinforced stainless steel racks with a local machine shop. The racks were custom-designed for easy load / transport / unloading of various sized plants and their containers. Open rack tops would allow sunlight to display the plants at the retail facility and keep them healthy. Mounted on over-sized industrial wheels, the racks would tolerate regular water exposure without rusting.The machine shop hoped to fill excess production capacity and promised quick delivery. They estimated that at the current cost of stainless steel, they could supply 3000 racks for a volume price of $250 per rack. The VP Operations had collaborated with the VP Sales on this project. Together they estimated that the new racks would be quickly embraced by the major retail accounts, and could boost sales margins by $105,000 per year, starting upon delivery. Further, the Salesman reminder Ashley that this benefit could be expected to grow with inflation. The rack supplier offered to provide maintenance and repair service for an additional $15,000 per year (fixed) starting one year after the racks have been delivered. The VP-Operations believed that the high-quality racks, combined with effective maintenance services, should extend their useful lives to a full 12 years. All the racks will be delivered at the same time which will occur 1 year after the project is approved. D Transportation Fleet Upgrade Retail customers expected BN to keep their stores fully-stocked during critical selling seasons. To do that, BNs supply chain depended on its fleet of delivery trucks and tractors. During the recession, the company had delayed normal truck replacement to conserve cash flow. But recently the economy has is doing pretty well, and the VP-Operations recognized the fleets age was driving higher maintenance costs that ate into margins and sometimes impacted deliveries. The increasing fleet average age was driving growing maintenance costs, increased fuel costs, and a deteriorating retail image. BN was also under pressure by one large customer to improve its environmental record, and the company was concerned they could lose this key customer if they continued to ignore the pressure. Further, the EPA had mandated new pollution control standards for the 2020 model year, which dramatically reduced tailpipe emissions. BNs older trucks and tractors did not use any of this clean technology. The fleet consisted of a mix of over the road tractors pulling large-capacity, 40-foot trailers that were optimal for large deliveries to retail distribution centers, and smaller, all purpose-built trucks designed to deliver live product from nursery to retail outlets. The VP-Operations proposed replacement of a significant part of the fleet, including some large-scale tractor-trailers and some mid-size delivery vehicles. After reviewing the offerings of several major suppliers, he had chosen a Swedish supplier with proven emissions technology whose trucks and road tractors were all Made in the USA. The supplier had quoted a package consisting of seven new over-the-road tractors @ $90,000 each, and seven mid-size delivery trucks which sold for $75,000 each, plus a $20,000 custom body-building fee per truck. The truck bodies would be sized to handle the new retail display racks described in Proposal C) above. As a sweetener, the supplier agreed to handle all routine maintenance for these new trucks and tractors for a flat fee of $50,000 per year. The VP-Ops estimated that the new fleet purchases could reduce fuel consumption, increase mileage per gallon and reduce maintenance costs by $455,000 per year over the estimated 6-year useful life of the equipment. The company is not anticipating much salvage value for the trucks and tractors beyond this period. Assignment - Preparation for the Meeting Ashley decided to evaluate each of the four projects using discounted cash flow analysis and payback period analysis. In your role acting as Ashley, write a business report (plus appendices), professional in appearance, that contains these analyses and answers the following questions. Include appendices containing Excel or similar spreadsheets, showing the calculations used in your analysis.

1. Perform a Discounted Cash Flow (NPV) analysis for each of the four projects.

2. Determine Payback Period for each project.

3. Determine the internal rate of return for each project

4. Using the NPV, rank the projects from best to worst

5. Using the IRR, rank the projects from best to worst.

6. Using payback period analysis, rank the projects from best to worst.

7. What dependencies exist between projects? How would that impact your recommendations to BN?

8. Assume that a $1,000,000.00 capital funding is available. Based on the discounted cash flow analysis, which projects should Ashley recommend for BN to approve?

9. Assume a $2,000,000.00 capital funding is available. Based on discounted cash flow analysis, which projects should Ashley recommend for TBN to approve?

10. What additional factors, beyond the quantitative analysis should Ashley take into consideration in making her recommendations?