Written analysis and Communication I

Assignment 1: Kanpur Confectioneries Private Limited (A)

Submitted to
Prof. Gita Chaudhuri
By
Komal Verma
1410120016

8 November 2014

School of Management and Entrepreneurship

Gautam Budh Nagar, U.P., 201314

Memo

Date: September 20th, 1987

To:

Mr. A. Gupta, Chairman& Managing Director, KCPL

From: Komal Verma, Executive assistant, KCPL

Subject: Acceptance or Rejection of APL proposal
Please find the attached report with analysis of various options and recommendation on APL
proposal.

SUMMARY
SITUATION ANALYSIS:

KCPL is a family business

It is in glucose biscuits business

KCPL- Positioning

Market change analysis

Competitor analysis

Pearsons contract

APL offer

PROBLEM STATEMENT:
How to minimize the losses of KCPL and emerge as a national leading brand?

OPTIONS:
1.
2.
3.
4.

Accept APL Proposal

Reject APL Proposal
Strengthen the brand MKG
Wait for Pearson to increase the order

CRITERIA:
1. Revenue & Profit Margin
2. Family values and vision of founder
3. Time

RECOMMENDATION:
Based on the analysis of various options, I will recommend Accept APL Proposal.

SITUATION ANALYSIS:
Kanpur confectioneries private limited (KCPL) is a family business started in 1945 by Mohan
Kumar Gupta in Jaipur, Rajasthan. It started with production of sugar candies under the brand
name MKG and later extended to glucose biscuits venture in 1970.
At that time, the biscuit business market was growing at more than 15% per annum and entry in
the industry is easy because of low investment and low skilled labor requirement. The production
process was as well as the main raw material sugar is common in both the business lines.
In 1973-74 KCPL reached second position in the market with monthly sales of 110 tonnes.
MKG became a popular brand in northern region and its biscuits were known for their quality,
crispness and affordable prices. The consumers were middle class families and semi urban areas.
In 1980-81 KCPL doubled its capacity from 120 tonnes to 240 tonnes per month but its average
monthly production under the MKG biscuits is 120 tonnes which implies surplus of capacity. It
was incurring loss of Rs. 141,000 (Exhibit 1).
Organized and unorganized sectors were giving high competition. Though business market is
dominated by two national players but startup of 70 units in unorganized sector is a big concern.
They imitate the packaging style or sell biscuits with same sounding brand names. The cost of
labor and raw materials were also increasing but KCPL cannot increase its prices as it does not
have a premium image. Another problem is uneven production due to absenteeism of workers.
KCPL could not withstand competition due to which sales and profit margins declined in both
biscuits as well as candy business, so it decided to close the candy line in 1985. KCPL was not
proactive in nature and its marketing was weak. It was just following the market trend.
To offset its surplus production capacity and minimize losses KCPL entered into a contract with
Pearson Health Drinks Limited in 1985 which does not put any constraint to existing KCPL
business line. Pearson placed an initial order of 50 tonnes biscuits with a conversion rate of Rs.3
per kg after reimbursing fully the cost of materials. Now the utilized KCPL capacity became 170
tonnes and 70 tonnes still remain unutilized. But Pearson did not get encouraging market
response to Good Health biscuits and they were seen high priced.
In 1987, APL to reduce its cost of manufacturing was interested in promoting contract
manufacturing units (CMU) so it offered to place KCPL an initial order of 70 tonnes of Glucose
biscuits per month. The initial contract was of 3 years with conversion rate of Rs 1.50 per kg and
reimbursement of raw materials expenses.

PROBLEM STATEMENT
How to minimize the losses of KCPL and emerge as a national leading brand?

OPTIONS:
1.
2.
3.
4.

Accept APL Proposal

Reject APL Proposal
Strengthen the brand MKG
Wait for Pearson to increase the order

CRITERIA FOR EVALUATION:

1. Revenue & Profit Margin
2. Family values and vision of founder
3. Time

EVALUATION OF OPTIONS:

OPTION 1: Accept APL Proposal

CASE1: Pearson continues

Revenue & Profit Margin: If KCPL accepts APL proposal it will be utilizing its full capacity of
240 tonne per month and cut down on its losses. APL recommended changes in KCPL processes
and equipment that has to borne by KCPL, this may reduce the profit margin but surely will
increase the quality
Family values and vision of founder: KCPL may lose its independence and it will also affect
the emotional connect negatively. The vision of emerging as a leading national brand could not
be turned to reality
Time: APL may not wait for long and give order to some other company.

CASE 2: Pearson discontinues

Revenue & Profit Margin: KCPL will not be utilizing its full capacity, 50 tonne will remain
unutilized. There will be a loss of Rs.3000 (Exhibit 3)
Family values and vision of founder: KCPL will not be able to live the dream of Mr. Mohan
Kumar.
Time: APL may not wait for long and give order to some other company.

OPTION 2: Reject APL Proposal

Revenue & Profit Margin: KCPL will not be utilizing its full capacity, 70 tonne will remain
unutilized. There will be a loss of Rs. 6000 (Exhibit 2)
Family values and vision of founder: It has all the power to make decision and independence is
intact.
Time: No Time constraint

OPTION 3: Strengthen the brand MKG

Revenue & Profit Margin: The production capacity will not be used completely and will have a
loss of Rs. 141,000. To strength the brand KCPL might have to introduce new product or do
marketing which will incur more cost
Family values and vision of founder: KCPL will have a chance to become national brand and
strengthening the brand will strength the emotional connect
Time: KCPL must act proactively and use time efficiently

OPTION 4: Wait for Pearson to increase the order

Revenue & Profit Margin: The production capacity will not be used completely. Revenue and
profit margin will depend on the size of order placed.
Family values and vision of founder: Pearson didnt put any constraint on the MKG business
line, it still have the chance to achieve the vision
Time: It is uncertain when Pearson will increase the order size

RECOMMENDATION:
KCPL should accept the APL offer. The response to Pearsons biscuits is not very encouraging
so it is unlikely that it may increase the order size. APL is providing less conversion rate as
compared to Pearson but it also recommending the process & equipment changes that will
increase the performance of process and quality of product.
ACTION PLAN:
1. Accept the APL contract of initial order 70 tonnes.
2. Notify Pearson about the new contract with APL, in case it discontinues then the surplus
capacity can be used for producing more MKG products.
3. MKG can use the APL influence to enter the other regional markets.

EXHIBITS
Exhibit 1: KCPL operates only MKG
EXHIBIT 1 : Details of 'KCPL' Monthly Operations in 1986-87
Dimension
MKG
Sales per month (tonnes)
120
Selling Price per tonne (Rs)
18,100.00
Total Sales Revenue (Rs)
2,172,000.00
Price of Maida consumed (Rs)
900,000.00
Price of Vanaspathi consumed (Rs)
624,000.00
Price of Sugar consumed (Rs)
288,000.00
Preservatives and Packaging costs (Rs)
120,000.00
Casual Labor cost (Rs)
36,000.00
Permanent Salary (Rs)
275,000.00
Interest per month (Rs)
10,000.00
Other fixed commitments (Rs)
60,000.00
Total Cost Incurred
2,313,000.00
LOSS
-141,000.00

Exhibit 2: KCPL operates MKG and producing for Pearson

EXHIBIT 2 : Details of 'KCPL' Monthly Operations in 1986-87 with Pearson offer

Dimension
MKG and Pearson
Remarks
Sales per month (tonnes) by MKG
120
Selling Price per tonne (Rs)
18100
Total Sales Revenue (Rs) from sales of MKG
2172000
Order(tonnes) by Pearson
50 Pearson : initial order
Conversion Rate (Rs)per kg
3
conversion rate paid by Pearson (50 tonne)
150000
Price of Maida consumed (Rs)
375000
Price of Vanaspathi consumed (Rs)
260000
Price of Sugar consumed (Rs)
120000
Preservatives and Packaging costs (Rs)
50000
Total Raw material cost
805000
reimbursed by Pearson
Total sales revenue due to Pearson
955000
Casual Labor cost (Rs)
15000
Profit to KCPL due to Pearson
135000 conversion rate - casual labor
Total Profit/loss to Pearson

profit due to Pearson and loss due to

-6,000.00 MKG

Exhibit 3: KCPL operates MKG and acting as CMU for APL

EXHIBIT 3 : Details of 'KCPL' Monthly Operations in 1986-87 with APL Offer

Dimension
KCPL & APL
Sales per month (tonnes) by MKG
120
Selling Price per tonne (Rs)
18100
Total Sales Revenue (Rs) from sales of MKG
2172000
Initial order per month (tonnes)
70
Conversion Rate (Rs)per kg
1.5
Conversion Rate 70 Tonnes by APL
105000
Total Sales Revenue (Rs)
2277000
MKG: Price of Maida consumed (Rs)
882000
MKG: Price of Vanaspathi consumed (Rs)
600000
MKG: Price of Sugar consumed (Rs)
276000
MKG: Preservatives and Packaging costs (Rs)
120000
MKG: Casual Labor cost (Rs)
36000
MKG: Total Variable Cost
1914000
APL: Price of Maida consumed (Rs)
480200
APL: Price of Sugar consumed (Rs)
152950
APL: Price of Vanaspathi consumed (Rs)
326666.6667
APL: Total cost
959816.6667
APL: Casual Labor cost (Rs)
21000
Costs to APL per conversion charges
148098
APL:Income (Loss)
-43098
MKG: Income (Loss)
40,098
Total: Income (Loss)
-3,000