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Situational Analysis:
Kanpur Confectionaries Private Limited (KCPL) was started in 1945 by Mohan Kumar, in Jaipur, Rajasthan,
to sell sugar candies under the brand name MKG. He started as a dealer of candies produced by others and
with the experience gained; he set up a production unit. Due to the rise of competition, KCPL could not
compete on costs with other manufacturers and decided to shift the production to another state. In 1954, he
set up a candy making unit in Kanpur, Uttar Pradesh and became the first entrepreneur in that state. He
promoted MKG as a leading brand and advertised it in vernacular newspapers and on hoardings located at
crossroads. By 1970, KCPL had emerged as a leader in candy business in the states of Uttar Pradesh, Bihar
and Madhya Pradesh with the help of dealers network he built. In the same year, KCPL entered into making
glucose biscuits under the same brand name MKG to invest their surplus cash and diversification. MKG
biscuits were known for its quality, crispness and affordable price. The business was profitable but the
production was constrained by the scarcity of raw materials. In 1982, he handed over his business to his
eldest son, Alok Kumar and divided the responsibilities between the other two. (Refer exhibit2). Mohan
Kumar always wanted his brand as the leading national and ethical brand.
In 1973-74, KCPL reached the number two position in the market with a monthly sale of 110 tonnes (Refer
exhibit3) and doubled its capacity to 240 tonnes per month in 1980-81. KCPL made good profits in the
following years (Refer exhibit4). In 1986-87 their average monthly production of MKG biscuits was 120
tonnes. The prime problem in operations was the absenteeism of workers which led to uneven production (2
to 6 tonnes/day). Their consumers were mainly middle class families in urban and rural areas, families in
metropolitan used to prefer APL. In 1986-87 KCPL had sold 360 tonnes to small and medium sized canteens
out of the total demand of 2400 tonnes/month. However, competition increased with the start of 70 units in
the unorganized sector and 8 units in the organized sector between 1975 and 1980. KCPL could not
withstand with this new competition as most of the newly set up unorganized units were engaged in unethical
practices like evading taxes which helped them to sell their products at prices lower than KCPL. It did not
cater to a large national scale to reduce costs considerably nor did it have the premium image to get a higher
1
price. Hence, they incurred a loss due to capacity under utilisation and decline in sales. They closed down
their candy business in 1985 due to declined profit margins.
In 1985, KCPL started working for Pearson Health Drinks Limited (Pearson) as an opportunity to utilise
their capacity surplus and to learn quality management techniques. Pearson outsourced their new product,
Good Health Biscuits, to KCPL but the market response was not encouraging (Refer exhibit5).
In 1987, APL offered them to be their contract manufacturers to augment their (APL) supply (Refer
exhibit5). The dilemma is to accept or reject the proposal so as to cope up with the problem of resource
management.
Problem Statement:
The problem is the management of resources.
Objectives:
Short term goals
Management of human resources.
Maximum use of their capacity.
Cope up with the competition.
Earning profit.
Options:
Accept the offer of APL.
Sanction rewards and punishment to workers according to their output.
Re-position the brand.
Adopt the new manufacturing processes.
Evaluation of options:
Refer exhibit 1.
Option 1:
Pros:
Assured return on investment as APLs conversion charge is Rs. 1.50 per kg to cover the expenses
on labour, overheads, and depreciation. Thus minimizing the business risks.
An opportunity to get the insight of the manufacturing process of the leading biscuit brand of India.
KCPL can get the secret ingredients of APL.
Distribution, branding and marketing will be taken care by APL. So, KCPL can save its money.
Cons:
A fixed contract of 3 years.
They would be bound to follow the instructions of the APL as per the contract. As a result of it,
KCPL cannot take decisions according to its will.
Dilution of their own brand MKG.
Option 2:
Pros:
Workers would be motivated to do more work to get the extra benefits beside salary or wages as well
as to avoid the punishment.
A healthy competitive environment would be created in the organisation. This environment would
make workers to give their maximum, say 100%.
It may help to minimise the number of absentees as most of the people want to get more beyond their
salary, it can be recognition, gifts, promotion, etc.
Cons:
If the means of punishment used in excess, this can lead to slowdown in work process because of the
dissatisfaction among the workers.
If the employees who are performing well are not recognized properly, can de-motivate them to do
their best.
Option 3:
Pros:
Targeting the market according to segments will help KCPL to set their price accordingly. They can
charge less from the customer who is earning less and at the same time they can charge more from
those earning good by improving quality and changing packaging.
A new marketing strategy would enforce the other competitors to change their strategy as well. In
this process they might commit mistake like choosing a wrong segment, and their market share can
be of KCPL.
Cons:
A wrong re-positioning may further worsen the situation.
This will require a lot of money for market research, advertisement, etc.
Option 4:
Pros:
By automating all the processes, capacity utilization can be maximised.
Less labour will be required.
Production cost and time both can be reduced.
Cons:
High capital would be required to purchase the machines.
Skilled labour will be required to operate the machines.
Recommended option:
KCPL should go for offer given by APL (Option1).
Although their brand MKG will get diluted and they will not be able to make their decisions independently
but accepting APLs offer will let them know the manufacturing processes of the national leader. Not only
this, APL is also disclosing their secret ingredients to them.
KCPL can also negotiate with the authorized suppliers of APL to later supply raw materials to it, once the
contract is over. As the total cost difference between APL and KCPL raw material for one tonne is:
(Refer exhibit 6)
4
Action Plan:
Negotiate with APL on time of the contract and conversion charges.
Accept the contract.
Learn the way APL manages their processes and human resources.
Once the contract gets over, implement the processes in full swing.
After the adoption of new processes, come up with new strategy and try to throw out smaller
competitors out of the market and then grab the APL market share to become the national leader.
Contingency Plan:
Identify reason of absenteeism and employee dissatisfaction and try to motivate them by giving rewards,
recognition on better performance. KCPL should also pay higher wages to its employees like the way APL is
doing.
Exhibits:
Exhibit 1: Evaluation of options.
Option 1
Option 2
Option 3
Option 4
Objective 1
Objective 2
Objective 3
Objective 4
Objective 5
Education
Department
Alok Kumar
Commerce graduate
Vivek Kumar
Mechanical Engineer
Sanjay Kumar
Arts
Other three sons of Mohan Kumar started their own trading concerns in metal parts and containers.
Exhibit 3: KCPL and its competitors.
Players
KCPL
Ranking
Existence
Regional
Production
Capacity
Plant
(in tonnes/
(in tonnes/
Location
per month)
per month)
110
120 in 1973-
Kanpur, Uttar
74;
Pradesh
240 in 198081
Prince Biscuits
Regional
130
150
Agra, Uttar
Pradesh
International
National
100
800
Biscuits Ltd.
A-One
Mumbai,
Maharashtra
National
900 in 1973-
Chennai,
Confectioneries
74;
Tamil Nadu
Limited
1200 in
1986-87
6
1979-80
1.74 crores
17.86 lakhs
1980-81
2.00 crores
20 lakhs
1983-84
3.00 crores
25 lakhs
1986-87
2.60 crores
-16.92 lakhs
Conversion rate of Rs. 3 per kilogram after reimbursing fully the cost of materials.
Initial order from was for 50 tonnes per month between May 1986 and March 1987.
No technical guidance.
Offer of APL:
Would inspect the production process and recommend the changes in processes and
equipments if needed.
Would post two quality officers and enable KCPL to adhere with quality procedures.
Would be required to buy the ingredients from one of the authorized supplier of APL.
Conversion rate of Rs. 1.5 per kilogram to cover the expenses on labour, over heads, and
depreciation.
Would be required to send daily production and raw material consumption report to APL.
Cost
Quantity
Monthly
Yearly
required per
Expenditures
Expenditures
Rs. 1,08,00,000
month
Maida
(750/50)*120=
1800*500= Rs.
of 50 kg.
1800 bags
9,00,000
(150/15)*120=
1200*520= Rs.
of 15 kg.
1200 tins
6,24,000
(200/100)*120=
240*1200= Rs.
240 bags
2,88,000
Preservatives
NA
Rs. 1,20,000
Rs. 14,40,000
and packaging
tonne
Casual Labour
NA
Rs. 36,000
Rs. 4,32,000
NA
Rs. 33,00,000
NA
Rs. 10,000
Rs. 1,20,000
NA
Rs.60,000
Rs. 7,20,000
Vanaspathi
Sugar
Rs. 74,88,000
Rs. 34,56,000
tonne
Permanent
Salary Bill
per month
Interest
Other fixed
Rs. 60,000
commitments
Total
Rs. 2,77,56,000