Kanpur Confectionaries Pvt. ltd

Topics: Revenue, Capacity utilization, Costs Pages: 10 (1825 words) Published: January 7, 2015
Written analysis and Communication I
Assignment 1: Kanpur Confectioneries Private Limited (A)

Submitted to
Prof. Gita Chaudhuri
By
Ankita Gupta
Roll No. 1410120007
8.11.2014

School of Management and Entrepreneurship
Gautam Budh Nagar, U.P., 201314

interoffice memorandum
to:
Mr.ALok GuPta, chairman and managing director, KCPL
from:
Ankita Gupta, Executiv assistant
subject:
Report on A-one confectioneries offer
date:

Scrutinized report for the proposal from A-One confectioneries Private Limited and the recommendation is attached here. This report would help management to take decision about the proposal.

Summary
Situation Analysis
KPCL is a family business, manufactures biscuits under brand ‘MKG’. It was among the regional leader but the market is changing, costs of labour and material are increasing, competition is increasing. MKG sales are declining it has started incurring a loss. It increased its capacity from 120 to 240 tonnes due to increased demand but there is surplus capacity due to rise in competition. KPCL went into agreement with Pearson for making 50 tonnes biscuits in order to utilize surplus capacity and now it is considering to become APL’s contract manufacturer. Problem Statement

Whether or not should KCPL take up APL’s offer of becoming contract manufacturer? Options
1. KCPL should take up APL’s offer of becoming a contract manufacturer. 2. KCPL should not take up APL’s offer of becoming a contract manufacturer. Criteria
1. Time
2. Capacity Utilization and cost reduction
3. A Family Venture
4. APL and Pearson agreements
Evaluation
Option 1: KCPL will utilize its capacity but will not be able build its own brand further. Option2: KCPL will have its independence in decision making and no brand dilution. Recommendation
KCPL should not take up APL’s offer.

Situation Analysis
Kanpur Confectionaries Private Limited (KCPL) is a family owned business, producing glucose, cream, salt and Marie biscuits under the ‘MKG’ brand. MKG is a popular brand among the middle class families in urban and semi-urban areas of North India and the biscuits are known for its quality and affordability. KCPL’s founder’s vision is to emerge as a leading national brand in future. Once among the leaders of the market in 70’s with fairly high revenue, KCCL stands stuck in the middle of competitive environment today. The glucose biscuit industry is very attractive due to growing demand in India and due to high margins as much as 25%. The process of production is very simple, requires low investment and less skilled labour, making it an easy to enter industry. Rise of unorganized sector has increased competition. Two national players, A-One Confectioneries Private Limited (APL) and International Biscuits Limited dominate the industry. APL’s average monthly sale was 200 tonnes. Being on the number two position with monthly sale of 110 tonnes in the regional market and responding to the growing demand of glucose biscuits, KCPL doubled its capacity from 120 tonne per month to 240 tonne per month in 1980-1981. But high absenteeism rate of employees, 50% and scarcity of ingredients like maida, sugar and vanaspathi led to uneven production. Current average monthly production is 120 tonnes. Costs of labour and materials are rising. 70 units in unorganized sector were able to keep their costs low as they did not pay taxes and followed unethical practices, giving a tough competition. In addition, 8 new units were setup in the organized sector in U.P. KCPL followed ethical management practices laid by its family, it paid all the taxes. It did not reduce its costs taking care of rising costs of labour nor does it had a premium image to get a higher price. As a result of such competition KPCL incurred a loss of Rs 141000 and its capacity was rendered surplus. (Exhibit 1) In an attempt to utilize surplus capacity and reduce...
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