Kanpur Confectioneries Case Analysis

Written Analysis and Communication

Individual Assignment No 3

Case Analysis Report On

‘KANPUR CONFECTIONERIES

PRIVATE LIMITED (A)’

Submitted by:-

Name : Jayant Kushwaha

Roll No : 141119

Section : ‘A’

Institute of Management, Nirma University

Date of Submission: September 11, 2014

For Office Use:

Grade

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EXECUTIVE SUMMARY:

Kanpur Confectionaries Private Limited is a biscuit manufacturing company. Initially it had good business but with increase in competition and under production brought losses to them. Firms proposed offers capable of fetching profits but bigger problem is sustainability of the

company. Options available are; accepting the offer, increase efficiency of workers, introduce new product, optimum utilization of capacity and focusing on canteens. But some objectives

have to be kept in mind like there should be no losses, no effect on brand identity, no compromise with family principles and future growth. So the best solution seems to be focusing on canteens.

Word Count: 100

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SITUATIONAL ANALYSIS:

Kanpur Confectioneries Private Limited (KCPL), founded by Mohan Kumar Gupta is a biscuit

manufacturing company started in 1945 in Jaipur. Mohan Kumar was keen learner as earlier he

used to work in a candy unit and then started his own business with the dealership of candies

under the brand name ‘MKG’ at the age of 28 years only. After gaining some experience and

insight about the market, he set up his own production unit in Jaipur in 1946 (exhibit 1 shows the

timeline of the company). He was an excellent tactician also, as when competition grew and he

could not compete on costs he shifted his candy-making unit to Kanpur where he can

manufacture candies at a little low cost and target new market. He invested in advertisement

smartly, in vernacular newspaper and hoardings to connect with common people. Also with good

dealership network in Bihar and MP he was able to make KCPL the market leader in his region.

Mohan Kumar was a visionary too as he could see growth in biscuits demand (15% p.a.) and

attractive margins this product has. Also sugar is the common raw material for both candies and

biscuits (biscuit manufacturing process flowchart given in exhibit 2). So he decided to invest his

surplus from candy business to enter into biscuits’ business. Business grew fast but limited raw

materials didn’t allowed it to flourish. But still they managed to be the number 2 players in

biscuit market in northern region with extended range of Cream, Salt and Marie biscuits. Prince

Biscuits was the market leader with 130 tonnes sales followed by KCPL with 110 tonnes sales

followed by International Biscuits with 100 tonnes sales. In year 1980-81 there turnover was Rs.

2 crores (growth of 15% compared to last year) and in year 1983-84 it was Rs. 3 crores. The

installed production capacity was 240 tonnes per month and their average monthly production

was 120 tonnes.

In 1973-74 glucose biscuit was the growing segment of the biscuit industry and many

unorganized sector entered the market. A-One Confectionaries Private Limited (APL) and

International biscuits dominated the market and these new entrants made the market more

competitive. KCPL got stuck in middle as it could not increase the prices whereas raw materials

and labour cost rose and it did not have that big scale to reduce costs considerably. Between

1983-84 and 86-87 KCPL’s sales declined and it incurred heavy losses. By now APL had

become a leading player with monthly sales of 200 tonnes. KCPL was reduced to fourth position

with sales of 120 tonnes.

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In due course top management of KCPL was also changed. In 1982, Mohan Kumar, who has six

sons handed over the KCPL’s leadership to his eldest son, Alok Kumar. Their background,

joining year and responsibilities are given in exhibit 7.

KPCL then joined hands with Pearson and jointly launched ‘Good Health’ biscuits but the

response was not good and KCPL had to encore loss of Rs.141000 (exhibit 6). On September 8,

1987 APL came up with an offer of expanding its supplying capacity by contract manufacturing

units (CMU). KCPL can provide those units but this contract had its own pros and cons (exhibit

3). So, now Alok & his Brothers have to decide what to do with this opportunity before someone

else grabs this.

PROBLEM STATEMENT:

To regain its position as one of the biscuit market leader and extent its market share to premier

customers.

OBJECTIVES:

Objectives in accordance with their priority are:-

1. To eliminate losses and bring profits

2. To maintain the brand they have made over the years

3. To abide by the principles laid down by the family

4. To grow business and become no. 1 company of India.

OPTIONS:

i) Accept APL’s offer and become CMU

ii) Increase efficiency of laborers and decrease absenteeism

iii) Introduce new variant of biscuits for premier customers

iv) Optimum utilization of the increased capacity

v) Focus on canteens of institutions (Mass consumers)

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EVALUATION OF OPTIONS:

i) Accept APL’s offer and become CMU

a. Advantages: No expenses on advertisement, attracting customers or brand

building. Regular income, expertise in production and low risk

b. Disadvantages: No power in decision making and uncertainty of future relations

with APL. If ACL asked to change production process or equipments then capital

expenditure will have to be made by KCPL.

This option can bring profits for company but it may dilute the KCPL’s brand itself

or worse eliminate the brand from market.

ii) Increase efficiency of laborers and decrease absenteeism

a. Advantages: If workers will work efficiently it will definitely increase the

productivity eventually decreasing the cost per ton of production.

b. Disadvantages: Workers may ask for higher wages. Also we may have to become

a bit strict which may break the family principle of no labour exploitation.

As it is said a company is known by its workforce and an efficient loyal workforce can do

wonders for an organization even with limited resource. This option satisfies all the objectives

except for the principles. It’s not necessary that we have to be very strict or exploit them but this

sudden strictness may create a feeling of extra burden and exploitation in the minds of workers.

iii) Introduce new variant of biscuits for premier customers

a. Advantages: New variant will give a diversity to the company and options to the

customers. Also it can be a way to cater a new market which was untouched till

now.

b. Disadvantages: There is no guarantee of product being a hit in market. Also it will

require a lot of capital as new assembly lines and machines will be required.

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This option is like a gamble. If the new product gets a positive response then it can fulfill all the

objectives and can make KCPL the king of market in no time. And if it’s a fail then the

company’s survival will be at stake.

iv) Optimum utilization of the increased capacity

a. Advantages: The Company will be able to utilize the capacity to its full potential

which will bring down the cost encored per ton of production.

b. Disadvantage: More raw material will be required which company cannot afford

at present as they are already making losses. For capital they can take loan but

increased production means more labor.

This option can recover losses and is totally controlled by the company. But this may not be

sufficient if they want to become no. 1.

v) Focus on canteens of institutions (Mass consumers)

a. Advantages: Profits will be low here but the risk involved is also low. Also

there’s not much promotional or advertisement cost involved. As the sales will

increase the cost per ton of production will go down.

b. Disadvantages: Canteens usually are not bothered about quality. They just want

more quality at low price. So we have to really work upon our cost reduction to

increase our profit share.

This option satisfies all the objectives except for making company no. 1.

RECOMMENDATION:

Option 4th and 5th both satisfy the same sets of objectives (Exhibit 4). But still I think option 5th

i.e. focus on canteens of institution will be the best option. It will provide regular income and we

will produce according to the order which will help us avoiding over production and inventory

storage cost. Also total demand from institutional canteens is around 2400 tons per month and

KCPL has only acquired only 1.25% (360 tons in a year i.e. 30 tons per month) of the total

demand. So there’s a huge scope of increasing the market share here.

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ACTION PLAN:

KCPL will have to make good relations with the institutes. Talk to premier institutes and take

them into confidence that we will provide good quality at lower price. Keep profit margin less

initially and as the customers increase and production increases, cost per unit of product will go

down automatically increasing the profit margin.

CONTINGENCY PLAN:

If this plan doesn’t works or is taking too long then we can consider 4 th option i.e. optimum

utilization of increased capacity.

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Report Exhibit 1: Company’s Timeline

1945KCPL Founded by Mr. Mohan Kumar Gupta in Jaipur dealing mainly in Sugar Candies under brand "MKG".

1946 First Production Unit in Jaipur

195030 production units in the unorganized sector in Rajasthan to sell variety of candies.

1954 New candy making units shufted to Kanpur.

1970Enter into biscuit market with glucose biscuits under the same brand MKG.

1973-74 Reached No. 2 posotion in the northern biscuit maket.

1980-81 Capacity doubled from 120tonn/month to 240tonn/month.

1982 Mohan Kumar handed over the leadership of KCPL to Alok Kumar.

1985 Candy production line discontinued.

1986 Agreement with Pearson

1987 Offer from APL

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Report Exhibit 2: Biscuit Manufacturing Process

Vanaspati Cylinder

Sugar Syrup Cylinder

Mixing Unit

Moulding Unit

Oven

Packing Department

Maida

(Manually)

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Report Exhibit 3: APL’s Offer

ADVANTAGES DISADVANTAGES

Assured return on investment (ROI)

Access to APL’s manufacturing

expertise

No marketing, brand building and

distribution expense

Help them to utilize the surplus

capacity

Loss of independence in decision

making.

Uncertainty of future relations with

APL.

Dilution of ‘MKG’, company’s own

brand and family prestige.

Report Exhibit 4: Objectives Options Evaluation Matrix

Options →

Objectives ↓

(Decreasing

Importance)

Accept APL’s

offer and become CMU

Increase

efficiency of laborers & decrease

absenteeism

Introduce

new variant of biscuits for premier

customers

Optimum

utilization of the increased

capacity

Focus on

canteens of institutions

(Mass

consumers)

To eliminate losses and bring

profits √ √ √ √

To maintain the brand they have

made over the years

√ √ √ √

To abide by the principles laid

down by the family

√ √ √

To grow

business and become no. 1

company of India

√

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Report Exhibit 5: KCPL and its competitors’ statistics

Company Plant

Location

Dominant

Region

Sales in tons

(year 1973-74)

Capacity in tons

(year 1973-74)

Kanpur Confectionaries

Private Limited (KCPL) Kanpur, UP

Northern

India 110 120

A-one confectionaries

private limited (APL)

Chennai,

Tamil Nadu

Southern

India 900

Prince Biscuits Agra, UP 130 150

International biscuits

limited

Mumbai,

Maharashtra

Western &

Eastern India 100 800

Report Exhibit 6: Profit Loss Calculation in the year 1986-87

SALE PER MONTH (tones) = 120

Price per ton = 18100

Total revenue = 18100*120 = 2,172,000

Expenditure for 1 ton

Price of maida = 7500

Price of sugar = 2400

Price of vanaspati = 5200

Preservative = 1000

Cost of casual labour = 300

Total variable cost = (7500+2400+5200+300+1000)*120= 1, 968,000

Fixed cost (labour + interest+ other commitments) = 345,000

Total cost = variable+ fixed cost = 2,313,000

Loss = revenue – total cost = 141000

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Report Exhibit 7: Family Introduction

Mr. Mohan Kumar Gupta, Founder of KCPL and Father of 6 sons.

Mr. Alok Kumar Gupta, Chairman & Managing Director (Handles Finance and Liaison

functions). He is the eldest son among the six and a commerce graduate, joined company

in 1960.

Mr. Vivek Gupta, joined company in 1965 handles HR Management and Manufacturing.

He is a Mechanical Engineer.

Mr. Sanjay Gupta, graduate in arts joined company in 1974. He handles marketing,

logistics and administrative.

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UNDERTAKING:

To Whom It May Concern:

I, Jayant Kushwaha, hereby declare that this assignment is my original work and is not copied

from anyone/anywhere. If found similar with sources, I take complete responsibility of action

taken thereof by WAC team.

Signature

NAME: Jayant Kushwaha

ROLL NO: 141119

SECTION: A

Kanpur Confectioneries Case Analysis

Leadership & Management

Transcript of Kanpur Confectioneries Case Analysis