Picasso Paints Pty Ltd

Picasso Paints is a family owned and operated paint manufacturer specialising in water and solvent- based paints. The business originally began operating in 1976. The founder, Bill Board, made the decision to move operations from Perth to Wodonga in 1985. At the time this was considered to be a high risk move as Wodonga was a struggling town with high unemployment and crime rate. Bill believed that Wodonga would experience substantial growth in the years to come as it services such a large area, further strengthened by being situated on the main freeway between Sydney and Melbourne. This move paid off as Picasso Paints has established an experienced and loyal workforce and is currently a major employer in Wodonga.

Business Strategy

Picasso Paints aims to be a leading architectural and decorative paint manufacture in Australia and New Zealand, achieving this by:

• Being the leading manufacturer of solvent-based paint;
• Manufacturing the highest quality paint by using only the finest raw materials;
• Being the main supplier to building and construction industry for solvent based paint;
• Being the preferred supplier to the National Trust of NSW and Victoria by suppling quality heritage paint colours; and
• Maintaining a work environment that is respectful and responsible towards employees.

Operations, Performance and Accolades

Picasso Paints supplies through trade outlets and specialty paint distributers. It also has 3 shop fronts in Wodonga, Melbourne and Sydney. The majority of building and construction customers are moving towards a supply contract tendering process and as a result, Picasso Paints is experiencing a decline in revenue compounded by an increasingly competitive market environment.

Picasso Paint's solvent-based paint range competes in a niche market with limited product lines and as such has a higher profit margin than other competitors lines. Picasso Paints was one of the first companies to co-operate with The National Trust of NSW by replicating colours to the original Victorian and Federation style buildings and has since become the official supplier of heritage paint to the National Trust of Australia.

Picasso Paints in 2009 gained accreditation to International Standard for Quality Systems ISO 9002. Additionally, some of the companys paints have to be assessed against the highest standards of quality in the industry by Australian Paint Approval Scheme (APAS). This was achieved because of Picasso Paints' commitment to implementing a TQM system integrating four areas being; shared ideals, clear strategies, distinguishing skills and competitive processes. Picasso Paints continues to invest in modern and technologically advanced production facilities with a continued focus on improving production efficiencies. This has become an important part of the companys long-term strategic plan which is being rewarded by being able to respond quickly to sales demands and rapidly increase production output.

Picasso Paints offers contract manufacturing services to other solvent-based and water-based paint producers. By doing this, Picasso Paints can achieve economies of scale and reduce production costs. Picasso Paints has made a long-term commitment to prioritise customer demands. The company provides out of business hours customer service to stockists and painters. The service provided not only assists customers and retailers with product knowledge but offers technical and product usage guidance. The rewards for offering such a service has resulted in Picasso Paints being able to adapt quickly to changing customer demands and create a culture of new product development.

In 2015, Picasso Paints participated in State Business Awards. The awards are based on employee satisfaction, employees are surveyed across a range of criteria including work-life balance, organisation engagement and recognition for services. Picasso Paints placed 13^th overall out of 350 organisations which ranged from small to large. Picasso was also recognised in 2015 at the Paint Industry Awards where it won Manufacturer of the year. Judges made comment on Picasso Paint's passion, integrity and commitment to the paint industry.

Demand Trends

Generally, the demand for paint is derived from the general economic conditions, consumer and business confidence plus housing growth. However last year saw an exceptional spike in demand during lockdown as people used the isolation period to renovate their houses and complete unfinished jobs around the house. Picasso Paints was able to keep up with the excess demand as they were deemed essential workers. A year later and the demand has steadied to a consistent growth of 2.5%

Management

Bills daughter, Paige Turner, took over control of the company in 2015 after her father died suddenly. Paige is very familiar with the operations having started on the production line and worked her way up to production manager, becoming the managing director after Bill died.

Since Bill Boards death in 2015, Picasso Paints has been struggling to keep the market share they once held. Whilst employees on the factory floor are happy, its a very different story for management. Over the last 5 years, there has been a lot of disagreement and disunity among senior members of management. There were several managers and board members who believed that Paige Turner should not hold the position of managing director even though she has worked her way up and taken several business courses along the way to one day take over running Picasso Paints.

The marketing department has been very vocal about their dislike of Paige being the managing director. Marketing is conducted through four sales representatives, each of whom is a relative of Bill Board. These sales staff have had little formal training in marketing with the most senior of the sales team holding only a diploma in marketing.

Further to Paiges problems is Bill Board's nephew, Shaun Lamb. He started in the role of operations manager just before Bill passed away. Shaun has not been as motivated to work as he was when he commenced with Picasso Paints, often coming in late and is very reluctant to adopt any ideas that staff or customers suggest.

Production

Paint manufacturing is a fairly simple process made in batches. The raw material is mixed in batches ranging from 500 to 15,000 litres. There is only low-technology needed for manufacturing architectural and decorative water-based paints, making it a very cost effective product to produce. The raw materials are sourced locally and are therefore not a barrier to entry nor is there strong supplier power. Picasso Paints has access to several suppliers for most of the raw material. China over the last 10 years has increased production of raw material resulting in the price of raw material remaining competitive.

A general breakdown of costs for 1 litre of paint is as follows:

• 40% for raw materials;
• 27% for production costs;
• 13% for distribution and warehousing;
• 10% for administration and overhead costs;
• 4% for research and development;
• 3% for returns and warranties; and
• 3% for advertising and promotion

The manufacturing plant at the start of 2021 dropped back from three eight hour shifts to 2 eight shifts and often require staff to stay back and do overtime. Cleaning and maintenance occurs over the weekend and this is conducted by contractors from a local business.

Picasso Paints conduct their own distribution by road transport. Picasso Paints owns a fleet of 5 trucks which are fully serviced and maintained by in-house mechanics. Annie Wonder, Paige's sister, is the head of Picasso Paints Logistics and has progressively strengthened the performance of the company's trucking fleet. Under Annie Wonder, Picasso Paints fleet has been so successful that they are now doing additional contract work, distributing products for other companies, and generating further income for the company.

Management Discussions

The management of the business has developed a goal for the coming years which it has encouraged staff to adopt. Our company will be recognised for delivering superior quality products. We will bring colour into the lives of our customers.

Picasso Paints Management have set some aspirational goals they hope to achieve by the year 2025:

• We will be the leading supplier of solver-based paint products to Metre 10 and Gunnings.
• Sales in Victoria, NSW and Queensland will be 60% of the total market share.
• We will have the largest product range supported by leading innovative processes ensuring profitability and satisfaction of customers needs.
• Our reputation will be built on delivering a quality service to our customers where they will be delighted in the products they use.
• We will be recognised as an employer of choice by motivating and challenging employees.
• We will be identified by our corporate citizenship and sponsorship of eligible charities. Our ethical and environmental standards will set the standards for other organisations

Since 2020 Picasso Paints has been working through the following issues:

The factory and processing machines are aging. This makes it difficult for Picasso Paints to compete with the output of competitors with newer technology.

Picasso Paints has been affected by quality issues. In December 2019 there was a major product recall because of paint lids becoming loose and spilling through vehicles.

The original converted factory is consistently causing problems. Only one of the last five inspections passed the minimum standards and that was after three attempts. Closure by regulatory authorities has been threatened on three occasions.

The majority of management are members of the owner/founder's family. Family feuding and personal disputes have plagued any attempt at conducting strategic management discussions. These personal family issues have divided company management and distracted them from focussing on growing the business.

Picasso Paints has been unable to secure any long-term contracts with Metre 10 and Gunnings.

Question Payoff Matrix

Picasso Paints closest rival, Tulux recently introduced a paint that is suitable to paint on polymer products. Picasso Paints are noticing they are losing customers to Tulux. Picasso Paints has the technology to manufacture the paint, however, are unsure about what pricing strategy to adopt because of Tulux possible reaction.

The following data for a month has been gathered:

Loss of profit if Picasso does not introduce the new product	$2,000
Additional monthly fixed cost to manufacture the new product	$16,000
Variable manufacturing costs per litre	$3.00
Tulux current selling price per litre	$14.00
Lowest possible selling price for Picasso	$12.00
Volume for the month (litres)	5,000

Picasso market share is estimated to be:

Picasso Paints Strategy	Tulux Reaction	Picasso Market Share
Sell for $14 per litre	Sell for $14 per litre	25%
Sell for $14 per litre	Sell for $12 per litre	1%
Sell for $12 per litre	Sell for $14 per litre	90%
Sell for $12 per litre	Sell for $12 per litre	5%

Required:

Construct a matrix based on the information provided. From it, choose the best strategy when applying the following decision criteria:

1. Minimax regret
2. Expected monetary value assuming there is an 80% probability that Tulux will reduce its price to $12 when it finds out that Picasso is introducing the new product.
3. Discuss the ethical concerns that the decision-maker should be aware of when deciding what course of action to take.