From the information provided, MR. Vora, has to INCREASE HIS SALES from 83 crates a month to 167 crates a month at least. This can be achieved by what is called “Spider effect”. Spread out, and like a spider, gain stability from your far spread legs. It has been given that he has sales representatives in 8 regions of the country. That means 167 cases at least in 8 regions. If we break up the number even smaller, we get 21 cases in each region. This works out to about 756 cans in each region. This is a very reasonable number as the population of urban India was around 72.25 million.
Market-Product-Business Analysis
How does Mr. Vora achieve the target set by his consultant to achieve the breakeven point and then further on to profit?
The break even point can be achieved in three ways.
- He increases the sales.
- He increases the price of the crates.
- Decreases the cost of production by reducing the variable costs.
- Increasing Sales:
Currently Mr.Vora's setup is such that his subagents are the people doing the actual direct selling. This does not ensure that Mr. Vora's interests are met properly as the subagents have nothing to loose. They get a commission of 20% on the product. As they do not have any commercial interests in the product since they stock non competitive goods, Mr. Vora should instill marketing people directly, who will be responsible for the actual sale. As we have seen that the numbers required are NOT such large numbers given the facts, this is one option of making money. The increase in sale from 83 crates to 250 crates can be done in a matter of 5 months. Taking to account, the increase in sale, it has been increased by a mere 40% every month. Which are just 34 extra crates in every month. This works out to about 4 extra crates in every region every month. This is NOT a very large increase in terms of numbers.
- The next step to make sure that the revenue starts coming in; Mr.Vora needs to increase the price. This will not hit the sales for two reasons.
- There are dedicated sales people to take care of the sale aspect so they can push for the sale even if the price goes up marginally.
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The selling price increase will happen over a 15 month period. This is done to ensure that the price increase is not felt too badly. As the current price of the product is Rs.85 per crate, which works out to around Rs.2.36p per can of Blossom Quick cooking Oats, the new price works out to around Rs. 2.50p per can, which is an increase of just 5.4% over a span of 15months. From the given facts it has been established that Blossom quick cooking oat’s competitor Champion Oats is selling his product approximately around Rs.2.60p.
This step ensures profits start coming in faster than just improving one step. The increase in production is not necessary at this point of time. The product is not getting sold properly, and there are huge inventories and these can be used to adjust the future demand increase. Even though there have been no preliminary market analyses which have been conducted, from statistics provided to us, we believe that this is a viable step.
Hence we do not have to reduce the costs. We are able to achieve a break even in sales and in numbers hence it not being necessary to reduce the cost. However in the long run it will help Mr.Vora to reduce costs.
These are some of the short term plans that can be implemented for Mr. Vora’s company.
Long Term Plans:
Once the immediate need of the hour is met, i.e. the ceasing of the incurring of losses, Mr. Vora should focus on making money and making his business establishment a more viable process.
We identified several key areas where he can invest money and thereby increase his market share through careful selection of market segments and product mix.
- Changing Processes: currently Mr. Vora’s distribution is handled from Lucknow (Central India) alone. In this unit, the crates are packed and shipped to their regions directly. This implies that there are increased costs due to increased freight. One way of reducing this can be to have decentralized packaging. Mr. Vora can set up two packaging units in north and south India. This will facilitate him to reduce costs at the Lucknow plant by shipping the contents in bulk to the packaging plants. These plants will act as distribution centers to the south and western region, and the north and eastern regions. Also, the cost of freight will reduce as there will be more content traveling per wagonload. It was found that it works out to about Rs.10.55p (present Rates) per kilometer, per wagon load. This would help reduce overall packaging costs. This will help in two ways :
- When selling to institutions, the items do not have to be repacked. This would help reduce costs of packaging. This would also bring in some more revenue in terms of sales as it will help tap a new market segment.
- Packaging centers closer to the markets serves in many ways
- It will help the turn around time of the company.
- It will also help in the time it takes to restock shelves and restock the inventories.
- Help and assist in repacking the goods. HOW?
It can be seen that the crate contains 36 tins. Each tin has a volume of 550 cubic mm. which gives a total volume of 19800 cubic MM. if this has to be redistributed over repackaged goods; it will work out to around 72 Rectangular boxes holding the same 550Gms of Blossom Quick cooking oats. This will enable Mr. Vora to repackage the goods into cardboard cartons and thereby increase the optimum utilization of the resources available to him.
- Redesigning the packaging covers: As a methodology Mr. Vora should not claim he has a “Me too” product. He has to push for an independent brand and some sort of brand coverage. This can be achieved by redesigning the layout of the can, changing the colors and the graphics.
Conclusion: Hence with some of the above suggestions Mr. Vora can help his company and Blossom Quick Cooking oats to stop short term losses and on the long run make some serious profits.
Executive Summary:
Yes, Vora should continue but however, he must fix the problems that are preventing his company from growing profitably.
Major Problems:-
Proper understanding of the demand of product lacking. For instance Vora and Company is not clear regarding:-
- Total size of the market.
- Market share held by his company vis-à-vis competitors.
- Vora & company is over-spending on distribution and under-achieving in terms of reach.
- Product segmentation – It is not clear to Vora and Company, whether a bigger package will increase sale.
- Failed to realize its market share, even in the southern market, where both demand and realization are higher compared to other markets.
All these above problems are contributing to Vora’s loss.
Strategies:-
Short term
a) Improve product distribution efficiency
- Performance related commission
- Turnover commission for dealers, distributors and retailers
- Stopping distribution expenses in regions where sales success is difficult and long drawn
b) Product Mix
- Packing in different quantity in order to cater to different requirements
- Attractive, competitive wrapping with benefits visible boldly.
- Bulk packing for bulk users – to reduce expenses in packing.
c) Price
- Optimize between selling at retail end and distribution cost.
Long term
A professional approach to rigorous planning by Vora and Company.
- Demand analysis
- Reduce cost base in packing (If we are able to reduce packing cost by Rs.2.56, we can reduce the cost by 4%)
- Explore possibilities in cost reduction in importing cereal
- Reduce logistic cost (dispatch to different distribution points falling under the same route might be synchronized.
- Negotiate a longer credit term from suppliers of grain and packing materials which will result in better profit.
- Rationalization of distribution points to save costs.
Group LM11. Great Lakes Institute of Management, Chennai.