Cereal Company Project - JRM
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Transcript of Cereal Company Project - JRM
Prepared By:
---Jay Modi
---Michael Wuest
---Lakshmi Dampanaboina
---Sri Mydhili
---Integrated Case---
Decision Making
Decision: Marginal Benefit > Marginal Cost
Strategy : Low Risk and Maximizing Profits
Profit = Total Revenues-Costs -Tax
How to calculate ROE( Measure of Profitability in Economics )
• Dividend Growth Model
• Capital Asset Pricing Model :A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.
A cash flow stream with a limited number (n) of periodic payments (C), receivable at times 1 through n, is an annuity. Future payments are discounted by the periodic rate of interest (i). The present value of this annuity is determined with this formula
Discount
Cost of Capital
• Opportunity costs are the costs of capital (COC)
• COC = (S/S+B) Rs +(B/S+B) Rb (1-T)
Where, T- Corporate Tax, S-Stock, B-Loan
Rs – return on stock
Rb –return on loan
A corporate tax rate in Europe is approx. 30%
COC for the Case
• S+B = 20 Million Euro• Rs = 9.5 (kellogs)+1.5 (Finance)• Stock( S) =6M Loan( B)=14M• Rb = 0.75 Corporate Tax = 30 percent• COC = 6.975 percent• COC =1.395 M to pay off shareholders
Industry Attractiveness
Threat of Substitutes
Competitive Rivalry within an
Industry
Bargaining Power of Customers
Bargaining Power of Suppliers
Threat of New Entrants
Threat of New Entrants
StrongLow cost to
enter
Bargaining Power of Suppliers
Strong1 supplier of:•Raw material•Packaging material
Bargaining Power of
Customers
Strong3 buyers
Grocery Stores – 48%
Hypermarkets – 23%
Independent grocers – 28%
High
High
High
High
Threat of Substitute Products
Strong-low switching
costs-differentiation is
low-fruits/yogurts other breakfast
food
High
High
High
High
Competitive Rivalry within an Industry
StrongStruggle for market
leadershipMany competitors
Competition
• Company X
• Company Y
• Company Z
Company X
• Cost Leadership
• Produce small and large boxes
• Four products
• Grocery chains– Advertised early and stopped
• Target Market: Everyone
Company Y
• Differentiation
• Independent Grocers– High prices and High advertising $
• Grocery Stores – Advertised early and stopped
• Target Market: Advertising sensitive consumers
Company Z
• Cost Leadership & Differentiation
• Grocery Stores
• Large and small boxes
• Four products
• Dropped prices 4th quarter
THEORIES TO CRAFT A MARKETING AND POSITIONING
STRATEGY
Market segments and target market strategy
• Create brand value by offering high quality products
• Competitive pricing of products
• Health conscious consumers
• Research target markets
• Market leadership in niche market
Product position for maximum competitive advantage
• Mass market appeal to health conscious consumers
• Focus on independent grocers and grocery chain– 76% of market
• High quality perception of product
• Market dominance – leader approach
Advertising & promotion strategies
• Lots of money available for advertising– Niche market
• Be competitive in market with pricing
• Focus on brand value
STRENGTHS
•Capital
•Committed Team
•Strong business plan
• Advance forecasting
WEAKNESS
• New to Market
•Limited supplier
• Lack of market reputation
• Heavy debt
OPPORTUNITIES
• Targeting ‘niche’ market
THREATS
• Existing competition
• Changing market
• Response time
SWOTAnalysis
Product mix
What constraint stops us from increasing our capacity ?
Material flow in one-to-one sequence
Material flow should be one-to-many
Following the solution can increase the capacity from 25k to 30k per day
Focus on utilizing the available resources to maximum extent
New problem
THEORY OF CONSTRAINTS
Product mix
Which products offer the highest contribution margin per unit of the constraint ?
Decision rule
Label Units
Strawberry 8,000
Nuts 10,000
Raisin 7,000
TOTAL 25,000
Contribution margin per unit of product
Product/Activity Selling price (€) Variable cost (€) C.M (€)
Strawberry 4.65 1.87 2.78
Nuts 4.39 1.66 2.73
Raisins 4.19 1.5 2.69
Blueberry 4.46 1.72 2.74
Original 4.14 1.46 2.68
Mixed Fruit 4.18 1.49 2.69
StrawberryCompanies Product Mix Prices (€)
Large Box Small Box Large Box Small Box
Company x n/a 0.15 wheat0.20 Oat
0.15 Straw
n/a 4.893.693.89
Company Y n/a n/a n/a n/a
Company Z 0.30 wheat0.50 Oat
0.20 Straw
n/a 6.106.106.10
n/a
Missouri S & T cereal n/a 0.35 wheat0.35 Oat
0.30 Straw
n/a 4.654.654.65
Major competitor is Company X
NutsCompanies Product Mix Prices (€)
Large Box Small Box Large Box Small Box
Company x 0.30 wheat0.45 Oat0.25 nut
n/a 5.395.495.59
n/a
Company Y n/a 0.175 wheat0.175 Oat0.15 nut
n/a 7.503.814.08
Company Z 0.25 wheat0.40 Oat0.35 nut
n/a 5.825.825.82
n/a
Missouri S & T cereal 0.40 wheat0.25 Oat0.35 nut
0.20 wheat0.125 Oat0.175 nut
4.394.394.39
2.202.202.20
Major competitor is Company Z
Raisin
Companies Product Mix Prices (€)
Large Box Small Box Large Box Small Box
Company x 0.30 wheat0.45 Oat
0.25 raisin
n/a 5.896.195.39
n/a
Company Y n/a 0.175 wheat0.175 Oat0.15 raisin
n/a 7.503.814.08
Company Z n/a 0.15 wheat0.20 Oat
0.15 raisin
n/a 4.004.004.00
Missouri S & T cereal 0.40 wheat0.35 Oat
0.25 raisin
0.20 wheat0.175 Oat
0.125 raisin
4.194.194.19
2.102.102.10
Major competitor is Company X & Z
STRATEGIES
BUSINESS STRATEGY
CORPORATE STRATEGY
Product Differentiation
Quality Assurance
Competitive Price
Gaining Market Share
Creating Monopoly Market
Cost Leadership
Bill Of Materials
Strawberry cereal
OWheat (35%) Oats (35%) Strawberry (30%)
Bill Of Materials
Raisins Cereal
OWheat (40%) Oats (35%) Raisin(25%)
Bill Of Materials
Nuts Cereal
OWheat (40%) Oats (25%) Nuts (35%)