Laurentian Bakeries

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Rob Barbara prepared this case under the supervision of Professors David Shaw and Steve Foerster solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. This material is not covered under authorization from CanCopy or any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 1995, Ivey Management Services

Version: (A) 2002-04-22

In late May, 1995, Danielle Knowles, vice-president of operations for Laurentian Bakeries Inc., was preparing a capital project expenditure proposal to expand the company’s frozen pizza plant in Winnipeg, Manitoba. If the opportunity to expand into the U.S. frozen pizza market was taken, the company would need extra capacity. A detailed analysis, including a net present value calculation, was required by the company’s Capital Allocation Policy for all capital expenditures in order to ensure that projects were both profitable and consistent with corporate strategies.

COMPANY BACKGROUND

Established in 1984, Laurentian Bakeries Inc. (Laurentian) manufactured a variety of frozen baked food products at plants in Winnipeg (pizzas), Toronto (cakes) and Montreal (pies). While each plant operated as a profit center, they shared a common sales force located at the company’s head office in Montreal. Although the Toronto plant was responsible for over 40 per cent of corporate revenues in fiscal 1994, and the other two plants accounted for about 30 per cent each, all three divisions contributed equally to profits. The company enjoyed strong competitive positions in all three markets and it was the low cost producer in the pizza market. Income Statements and Balance Sheets for the 1993 to 1995 fiscal years are in Exhibits 1 and 2, respectively.

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LAURENTIAN BAKERIES

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The company’s success was, in part, the product of its management’s philosophies. The cornerstone of Laurentian’s operations included a commitment to continuous improvement; for example all employees were empowered to think about and make suggestions for ways of reducing waste. As Danielle Knowles saw it: “Continuous improvement is a way of life at Laurentian.” Also, the company was known for its above average consideration for the human resource and environmental impact of its business decisions. These philosophies drove all policy-making, including those policies governing capital allocation. Danielle Knowles

Danielle Knowles’ career, which spanned 13 years in the food industry, had included positions in other functional areas such as marketing and finance. She had received an undergraduate degree in mechanical engineering from Queen’s University in Kingston, Ontario, and a masters of business administration from the Ivey Business School.

THE PIZZA INDUSTRY

Major segments in the pizza market were frozen pizza, deli-fresh chilled pizza, restaurant pizza and take-out pizza. Of...
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