Professional Documents
Culture Documents
Submitted to
Dr. Gita Chaudhuri
By
Amritanshu Shekhar
Roll No.14101200006
6 November 2014
Memo
Summary
Situation Analysis/Critical Issues
Biscuit industry
Competitor analysis
Market change
Pearsons Agreement
Offer of APL.
Problem statement
What should KCPL choose, profit or dream or can they manage both?
Options
1. Accept APL offer
2. Do not accept APL offer
3. Improve its own market share
Criteria
1. Profit
2. Heritage/Vision/family values
3. Business nitty-gritty
Recommendation
Based on the evaluation of different option, I would recommend Do not accept APL offer.
Situation Analysis
Kanpur confectionaries private ltd (KCPL), a family business of glucose biscuits. The founder of
KCPL has a strong bonding with the company. It is a proprietary business which has been
running since 1945 by the founder and now by his sons. It is currently running its biscuit product
under the brand name of MKG. The company owner had the vision of emerging as a leading
national brand.
The biscuit industry unlike some industry was easy to setup, it require low skilled labor and
competition is very high. The competition of KCPL were from both organized and unorganized
sector. 70 new units started in the unorganized sector between 1975 and1980. They either sold
unbranded biscuits or sold them with brand names similar to the leading brands. In organized
sector eight new units were setup in UP.
KCPL is a popular brand in the north region, most of its consumer were middle class families in
urban and semi urban areas. After it reached the number two position in 1973-1974, the higher
management decided to increase the capacity to 240 tons from 120 tons in 1980-1981. The
market was getting more and more competitive, 15 % increase in excise duty and 7% increase in
sales tax has increased the labor and material cost required increase in price but competition
didnt allow it. The company slowly begin to lose profit and was currently running at half of its
capacity.
To offset its unutilized resource, KCPL made an agreement with Pearson Health drinks limited
for producing the health biscuit Good Health for it. Pearson promised an off take of 100-125
per month and a convert rate of Rs.3 per kilogram after reimbursing fully the cost of material,
but orders from Pearson initially was for 50 tons per month between 1986 and 1987. Pearson
didnt provide any technical guidance, it relied on the expertise of KCPL. The market response
to Good health biscuits was not very encouraging. Now that Pearson was using only 50 tons.
KPCL had a surplus of 70 tons (Total capacity- KCPL Own production- production for Pearson).
A-One confectionaries private limited had offered KCPL to counterbalance its 70 tons unused
capacity by producing biscuits for them. The company was interested in augmenting its supply
capacity by promoting contract manufacturing units (CMU). APL offered 3 year contract but
required change in process and equipment. KPCL would be required to buy the other ingredients
from authorized supplier of APL. It offered to reimburse the raw material expenses as per its
norms of consumption and pay a conversion rate of Rs. 1.5 per kilogram to cover the expenses
on labor, overheads and depreciation. The advantage of the proposal was in terms of avoiding
marketing, brand building and distribution expenses, and minimizing the business risks. The
disadvantage of the offer is that KCPL night lose independence. They might not be able to
concentrate on strengthening the MKG brand built over years.
Problem statement
What should KCPL choose, profit or dream or can they manage both?
Options
4. Accept APL offer
5. Do not accept APL offer
6. Improve its own market share
Criteria
4. Profit
5. Heritage/Vision/family values
6. Business nitty-gritty
Evaluation
Profit
Accept APL offer
Heritage
Business nitty-gritty
No marketing, brand
building
distribution expense
also
stays
customer
KCPL[Exhibit 2]
and
as concentrate on
of strengthening the
MKG brand built
over years.
Do not accept APL KCPL will continue KCPL can continue KNPC will have to
offer
building
necessary business
nitty-gritty like
marketing, brand
building
Improve
its
own Company might not KCPL can work on KNPC will have to
market share
its handle
It
can necessary
marketing,
building
Recommendation
all
the
business
like
brand
Based on the evaluation of different option, I would recommend Do not accept APL offer.
KCPL will never be able to expand as it will lose its independence. KCPL was among the top 2
companies in 1973-1974. It can again be among the top, if it could expand its capacity with
Pearson. It will not have to sacrifice its freedom if it does that.
Action Plan
KCPL should initiate conversation with Pearson and try to get the promised orders. It has its own
brand name and a very successful one, it can build on that and can be among the top.
KCPL can also develop its own R& D division to develop its own product and it should also
reduce it operating cost.
Exhibits
Exhibit 1 : KCPL with APL profit/loss account
components
KCPL and
APL
Change charge
1.5
APL Units(tones)
70
APL Revenue
APL Total cost
APL Profit
105000
148105.2632
43105.26316
MKG Units(tones)
120
MPG Revenue
2172000
2131902
MPG Profit
NET PROFIT
40098
3007.263158
KCPL ,
Pearson and
APL
Change Rate
APL Units(tones)
90
Pearson Revenue
270000
168857.1
Pearson Profit
101142.9
APL Units(tones)
APL Revenue
APL Total cost
APL Profit
70
105000
148105.2632
43105.26316
MKG Units(tones)
MPG Revenue
MPG Total cost
120
2172000
2131902.11
MPG Profit
40097.89
NET PROFIT
98135.64