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    Kanpur Confectioneries Case Study

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    Mayank Grover
    KCPL was established in 1945 as a candy manufacturer but later diversified into glucose biscuits. In 1987, the market leader APL offered to outsource 70 MT of biscuit production per month to KCPL. This presents both opportunities and threats that KCPL must consider. Two alternatives are a partnership with APL or Pearson. A partnership with APL would utilize surplus capacity, provide expertise, and assure returns but risks loss of independence. A partnership with Pearson maintains independence but offers less learning and a mediocre product. A thorough financial analysis is needed to evaluate the options.

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    Kanpur Confectioneries Case Study

    Uploaded by

    Mayank Grover
    3K views4 pages
    KCPL was established in 1945 as a candy manufacturer but later diversified into glucose biscuits. In 1987, the market leader APL offered to outsource 70 MT of biscuit production per month to KCPL. This presents both opportunities and threats that KCPL must consider. Two alternatives are a partnership with APL or Pearson. A partnership with APL would utilize surplus capacity, provide expertise, and assure returns but risks loss of independence. A partnership with Pearson maintains independence but offers less learning and a mediocre product. A thorough financial analysis is needed to evaluate the options.

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    Kanpur Confectioneries Case Study

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    KCPL was established in 1945 as a candy manufacturer but later diversified into glucose biscuits. In 1987, the market leader APL offered to outsource 70 MT of biscuit production per month to KCPL. This presents both opportunities and threats that KCPL must consider. Two alternatives are a partnership with APL or Pearson. A partnership with APL would utilize surplus capacity, provide expertise, and assure returns but risks loss of independence. A partnership with Pearson maintains independence but offers less learning and a mediocre product. A thorough financial analysis is needed to evaluate the options.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    3K views4 pages

    Kanpur Confectioneries Case Study

    Uploaded by

    Mayank Grover
    KCPL was established in 1945 as a candy manufacturer but later diversified into glucose biscuits. In 1987, the market leader APL offered to outsource 70 MT of biscuit production per month to KCPL. This presents both opportunities and threats that KCPL must consider. Two alternatives are a partnership with APL or Pearson. A partnership with APL would utilize surplus capacity, provide expertise, and assure returns but risks loss of independence. A partnership with Pearson maintains independence but offers less learning and a mediocre product. A thorough financial analysis is needed to evaluate the options.

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    Kanpur Confectioners Private Limited (KCPL) manufactures biscuits and is considering a business deal from APL to outsource biscuit production. They are evaluating how this deal and continuing their current partnership with Pearson may impact their business.

    The core problem is evaluating the attractive business deal from APL to outsource 70 MT of biscuit production per month while also maintaining their existing partnership with Pearson.

    The two options being considered are: 1) Partner with APL or 2) Continue their partnership with Pearson.

    Kanpur Confectioners Private Limited (KCPL) – Case Solution

    Situation Analysis:
    Kanpur Confectioners Private Limited (KCPL) was established in 1945 by Mohan Kumar Gupta. It started off
    as a candy manufacturer in Jaipur with over 30 units being set up in 4 years. However, as competition increased,
    KCPL could not compete on cost and thus had to move to Uttar Pradesh to reduce costs. Here, he diversified his
    business into glucose biscuits and started selling them under the ‘MKG’ brand. Biscuit making involved the
    preparation of dough by mixing flour, sugar syrup and vegetable oil, molding the dough into shape and baking
    the pieces to get the final product.
    Mohan has 6 sons. Alok Kumar joined the business in 1960, Vivek in 1965 and Sanjay in 1974. In 1982, Mohan
    handed over the business to his eldest son, Alok as well as all the others. The responsibilities were as follows,
    Alok handled finance and liaison, Vivek was in charge of HR and Sanjay handled marketing, logistics and
    administration. In 1985, Pearson health drinks wanted to diversify its portfolio by selling Health Biscuits and
    thus outsourced their manufacturing to KCPL allowing them to continue with their own business. The market
    response to Pearson’s biscuits was mediocre as they were perceived to be overpriced.
    In 1987, the market leader APL, decided to outsource its production to other companies in a bid to expand its
    supply. They offered to place an order of 70 MT per month to start off and promised to increase it if everything
    went smoothly. Currently, the family is contemplating the offer and the effect it would have on their business
    and future prospects.

    Year Production(month) Turn-over Profits


    1973-74 110 MT
    1980-81 240 MT (Production 20 Million (15 % rise) 2 Million (12% rise)
    Capacity)
    1983-84 30 Million 2.5 Million
    1986-87 170 MT

    SWOT Analysis:
    Strength Weakness
    • Trust and coordination among the members • Absenteeism at 50% led to uneven production,
    • Ethics and vision over profit Partiality towards work force
    • Clean technology and method of manufacturing • Highly dependent on consultants. Less skilled
    labors in the firm
    • Not interfering in other areas of business leads
    to losses in long run
    • Do not evade tax
    • Not preferred by large institutions
    • Not fixed on the sector-Organized or
    Unorganized
    Opportunity Threat
    • Optimum use of surplus capacity • New entrant. E.g.-APL
    • Expense reduction in terms of marketing, • Less control and freedom
    distribution etc. • Cost of production can increase
    • Contract with Pearson may be over
    Problem Definition:
    Business deal proposed by APL is attractive and quantity
    Core Problem: ordered is also more than that of Pearson.
    Procuring raw materials from a new supplier.
    Production Standpoint: Inefficient Daily production.
    Human Resources (HR)
    Standpoint: Very high Absenteeism (50%) of casual workers.
    Maintaining Customer relations when both of them are
    Marketing Standpoint: competitors to each other.
    Conversion rates offered - ₹3 /kilo by Pearson compared to
    ₹1.5 by APL.
    The product Manufactured for Pearson is not selling as
    Sales Standpoint: expected.
    Technical Expertise offered - APL producing more biscuits by
    Operational Standpoint: using less raw materials.
    Strategy Standpoint: Impact of APL deal on our own ‘MKG’ brand.
    As in Exhibit 1 the cost of producing one tone of biscuits is
    more than compared to APL due to their better operating
    Financial Standpoint: efficiency

    Development of Alternatives:
     Option 1-Partnership with APL:

    Advantages Disadvantages
    Assured return of Investment Loss of independence in decision making
    Access to APL manufacturing expertise Dilution of own brand
    Would Increase the Intake if all is good Loss of family prestige
    Target upper Class Lower conversion rate @1.5rs /kg
    Good Business strategy
    No marketing, branding, distribution cost
    Surplus capacity would be utilized

     Option 2-Partnership with Pearson:

    Advantages Disadvantages
    Independence in decision making No Technical Guidance
    Can run existing line of business Not so popular Product, Intake could
    decrease
    Conversion rate of 3rs per kg after fully Poor marketing
    reimbursement of cost of materials
    Values and principles remain intact No learning
    Operations cost:
      Option 1 APL Option 2 Pearson
    Total Production (MT) 240 240 240 240
    Quantity Given (MT) 70 100 50 100
    Own Sales (MT) 170 140 190 140

    Quantity of Flour/MT
    700 700 750 750
    in Kgs

    Quantity of Vegetable
    Oil/MT 140 140 150 150
    in Kgs

    Quantity of Sugar/MT
    190 190 200 200
    in Kgs

    Raw Material Cost(INR)        


    Flour 1166200 960400 1425000 1050000
    Vegetable Oil 793333 653333 988000 728000
    Sugar 371450 305900 456000 336000
      2330983 1919633 2869000 2114000
             
    Factory Cost (INR)-        
    Labor 1020 840 1140 840
    Packaging Cost 170000 140000 190000 140000
    Labor Cost 68000 56000 57000 42000
    Wages 51000 42000 57000 42000
    Cost of Production 289000 238000 304000 224000
             
    Cost of Goods Sold(INR) 2619983 2157633 3173000 2338000
             
    Administration Cost (INR)        
    Permanent Salary 275000 275000 275000 275000
    Other Commodities 60000 60000 60000 60000
    Total 335000 335000 335000 335000
             
    Total Cost(INR) 2954983 2492633 3508000 2673000
    Sales 3230000 2660000 3439000 2534000
    Profit 275017 167367 -69000 -139000
    Interest 10000 10000 10000 10000
    PBT 265017 157367 -79000 -149000
    Tax 39752.5 23605 0 0
    Profit after Tax 225264 133762 -79000 -149000
    Revenue by Collab 105000 150000 150000 300000
    Total Profit(INR) 330264 283762 71000 151000

    *MT-1 metric ton & all the calculations have been taken in Rs.
    *The data for the above calculations has been taken from the case provided.
    Evaluation of Alternatives & Recommendations:

    As it can be observed from above analysis Option 1 i.e. (collaboration with APL) is giving us more margin as
    compared to Option 2. More there are few more reasons which prompt us to go with option 1.
    1.As demand for Pearson is diminishing among the customers there is risk going with them as they can reduce their
    orders. Moreover, even if their demand increased to 100 MT in upcoming years profit is still less .
    2. KCPL will get exposed to APL market and will be able to adopt new technology, quality control procedures and
    less risk involved.
    So, we recommend KCPL to accept the APL offer.

    Submitted By –Section G-Group-2


    Mayank Grover
    Aditya Kumar
    Bhanu Teja Reddy
    Joel Joseph
    Pratiksha Sharma

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