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Option 1: Add four Hoppers to the QZT Mailsorter 750 In order to…
Option 1: Add four Hoppers to the QZT Mailsorter 750
In order to comply with the new marketing initiative, one option was to add four hoppers to the Mailsorter to bring it up to the maximum that the current system could support. Like the current arrangement, each new hopper would take the same time to lead as the existing ones – 1.20 seconds. The Mailsorter was powered by a computer system, which was covered by a service agreement the QZT promised to honour as long as it manufactured the Mailsorter. However, Scott had heard rumours that QZT planned to discontinue the Mailsorter at the end of 2012.
Four additional hoppers and a new computer system would cost $65,000, plus an additional annual maintenance fee of $15,750. This option would make no changes to the current folding capacity. Any time required after the normal two-week window would be considered overtime, for which Nipissing would be required to pay time-and-a-half. Because of the nature of the system changes, there would be no measurable downtime with this option.
Option 2: Purchase the QZT VIP Inserter
A second option was to replace the Mailsorter with a VIP Inserter, a 12-hopper inserter from QZT, that could be expanded to 16 hoppers. Because of physical space limitations, the bank could accommodate only one mailing machine. A new 12-hopper VIP Inserter, including a computer upgrade, would cost $435,000, plus an additional annual maintenance fee of $25,000. The VIP Inserter would be able to fold all new mail-outs, requiring no additional manual labour. The QZT sales representative assured Scott that the VIP Inserter would nearly double the current speed of the Mailsorter and would suit Nipissing’s needs until the bank had over one million clients.
It was estimated that the trade-in value of the Mailsorter would be between $10,000 and $15,000. However, installing an entirely new system would result in 30 days of downtime (including testing), during which all packages would have to be processed manually. Scott assumed he would hire additional temporary workers in order to avoid paying out overtime during the the two-week production period in that month. Scott estimated that manual processing would take three times as long as the current times for each step in the process and determined that each individual worker would complete all of the required steps in the mailing process.
Option 3: Outsource Mailing Operations Entirely
Scott was also considering outsourcing the mailing operations entirely. A local company, Anderson Inc., specialized in direct mail marketing and held contracts with any large corporations operating in Eastern Ontario and Western Quebec. Anderson had been in business since 1990, providing its clients with leading-edge technology and problem-solving direction in their direct mail marketing and fulfillment projects. Anderson advised that the firm would use technology similar to that of the Mailsorter and assured Scott that it held client confidentiality in the highest regard. Although this option required no upfront investment, Anderson required Nipissing to sign a one year contract at a discounted rate of $16 per box, plus postage costs. Because client confidentiality we one of Scott’s main concerns, Nipissing would have to spend $500 per month for & courier to deliver the printed marketing materials (separate from the bank statements) to Anderson instead of to Nipissing’s headquarters.
Scott knew that other companies had experienced satisfactory results with Anderson, but he was unaware of any other banks that had entirely outsourced their direct-mail marketing campaigns.
Scott was concerned that Anderson might not inspect final packages the way Nipissing currently did. Thus, clients could receive wrinkled or torn envelopes. However, it was unclear whether they would blame Nipissing or the post office. Scott also wondered what: Nipissing clients would think about receiving two separate pieces of mail every month from the bank. He knew that part of what made the existing advertisements so successful was the fact that clients were ‘forced’ to look at them when they were packaged as part of the monthly account summaries. Scott was concerned that a separate distribution would not have the same effect.
Calculate net present value of all options.
