Situation Analysis:
In 1945, Mohan kumar Gupta from Jaipur, Rajasthan started KCPL under the brand name of MKG. By 1973-74 they become the 2nd largest manufacturer of glucose biscuit in north region and they had substantially grown their family business. The glucose biscuit industry was very competitive because it was easy to enter into this business; it only required low investment and skill labor and fewer raw materials (Maida, sugar syrup and vanaspati).The competitors in this sector exists in two mode organized and unorganized.
In 190-81 KCPL double its capacity from 12o tons to 240 tons per month. However the competition was increased by setting new seventy units in organized sector. Increased competition hinders the growth and sales of …show more content…
Option:
1) Accept the proposal of APL.
2) Reject the project and work on their own on manufacturing cost and process of production along with the Pearson contract.
Criteria:
1) Net profit
2) Process Improvements and Technical Expertise
3) Net sales
4) Family values and long term vision
Evaluation:
A) The APL has offered to KCPL to be its CMU and has placed an initial order of seventy tones of Glucose Biscuits per month. The APL has agreed to pay a conversion charge of Rs 1.5 per Kg to KCPL. It also made mandatory for KPCL to buy the raw materials from its authorized suppliers. The data below shows the margins for the KCPL per Kg:
MKG Production Line:
Total Cost of MKG per tonne = 19275
Selling Price per tonne = 18100
Loss per kg = 1.175
APL and Pearson:
The casual labour cost per tonne for KCPL is Rs300.
So the net profit in case of APL would be = 1.5-0.3=Rs 1.2 per Kg
For Pearson net profit would be= 3 – 0.3= Rs 2.7 per Kg
Advantages:
• KCPL can buy raw materials from the suppliers of APL now which is at reduced price.
• KCPL can fully utilize its production capacity of 240 tonnes per month. MKG – 120 tonnes, Pearson-50 tonnes, …show more content…
If Pearson increases its contract size it would be more profitable for KCPL since the conversion rate of Rs 3/Kg is much higher than that offered by APL but the likeliness of Pearson increasing the contract size in the future is very less because market response to Good Health Biscuits is not encouraging. And moreover the production line of MKG is not in profitable state. It would be huge risk for KCPL if it goes with this option.
Recommendation
It is recommended that KCPL should go ahead with signing a Contract manufacturing agreement with APL. An increase in the demand for Pearson’s health biscuits is improbable which means that Pearson will either continue with the same order or withdraw, so there is no chance for KCPL to make profits .It is better for KCPL to not lose out on the opportunity provided by APL because in spite of the lower conversion rate, they will provide technical expertise and process improvements which will help MKG in sustaining in a cost competitive market.
Action Plan
• Accept the APL deal as soon as possible, since there are other contenders for the
In 1945, Mohan kumar Gupta from Jaipur, Rajasthan started KCPL under the brand name of MKG. By 1973-74 they become the 2nd largest manufacturer of glucose biscuit in north region and they had substantially grown their family business. The glucose biscuit industry was very competitive because it was easy to enter into this business; it only required low investment and skill labor and fewer raw materials (Maida, sugar syrup and vanaspati).The competitors in this sector exists in two mode organized and unorganized.
In 190-81 KCPL double its capacity from 12o tons to 240 tons per month. However the competition was increased by setting new seventy units in organized sector. Increased competition hinders the growth and sales of …show more content…
Option:
1) Accept the proposal of APL.
2) Reject the project and work on their own on manufacturing cost and process of production along with the Pearson contract.
Criteria:
1) Net profit
2) Process Improvements and Technical Expertise
3) Net sales
4) Family values and long term vision
Evaluation:
A) The APL has offered to KCPL to be its CMU and has placed an initial order of seventy tones of Glucose Biscuits per month. The APL has agreed to pay a conversion charge of Rs 1.5 per Kg to KCPL. It also made mandatory for KPCL to buy the raw materials from its authorized suppliers. The data below shows the margins for the KCPL per Kg:
MKG Production Line:
Total Cost of MKG per tonne = 19275
Selling Price per tonne = 18100
Loss per kg = 1.175
APL and Pearson:
The casual labour cost per tonne for KCPL is Rs300.
So the net profit in case of APL would be = 1.5-0.3=Rs 1.2 per Kg
For Pearson net profit would be= 3 – 0.3= Rs 2.7 per Kg
Advantages:
• KCPL can buy raw materials from the suppliers of APL now which is at reduced price.
• KCPL can fully utilize its production capacity of 240 tonnes per month. MKG – 120 tonnes, Pearson-50 tonnes, …show more content…
If Pearson increases its contract size it would be more profitable for KCPL since the conversion rate of Rs 3/Kg is much higher than that offered by APL but the likeliness of Pearson increasing the contract size in the future is very less because market response to Good Health Biscuits is not encouraging. And moreover the production line of MKG is not in profitable state. It would be huge risk for KCPL if it goes with this option.
Recommendation
It is recommended that KCPL should go ahead with signing a Contract manufacturing agreement with APL. An increase in the demand for Pearson’s health biscuits is improbable which means that Pearson will either continue with the same order or withdraw, so there is no chance for KCPL to make profits .It is better for KCPL to not lose out on the opportunity provided by APL because in spite of the lower conversion rate, they will provide technical expertise and process improvements which will help MKG in sustaining in a cost competitive market.
Action Plan
• Accept the APL deal as soon as possible, since there are other contenders for the