KCPL Case Study

REPORT SUMMARY:
• Situation Analysis
KCPL has been stuck with competitive threats and has incurred heavy monthly losses due to ample number of causes. It is currently working with Pearson to minimise the losses and has received a similar offer of a 3-year contract from APL.

• Problem Statement
Should KCPL accept APL’s proposal of becoming a contract manufacturer in order to utilise its surplus capacity and recur the losses?

• Options o KCPL should accept APL’s offer. o KCPL should reject the offer.

• Criteria o Capacity (surplus) utilisation o Heavy losses already incurred o Initial vision of KCPL’s founder of becoming a national market leader, family values and ethics in business o Scope of technological enhancement o Loss of independence,

This offer was made by APL in the meeting of Confectioneries Manufacturers Association of India (CMAI) stating that the company was interested in augmenting its supplying capacity by promoting Contract Manufacturing Units (CMU). With the aspirations of becoming a market leader in all the regions, CMU was a gateway for APL to reduce its costs. In a contract of 3 years, APL has offered initial order of 70 tonnes per month. It would supply the pre-printed packing material with APL name. It would provide technical guidance, would inspect the production processes of KCPL and recommend changes in processes and equipment, which would be done by KCPL at its own cost. It would also provide the ‘APL secret ingredient’ but KCPL will have to buy the raw materials from one of the authorised suppliers of APL. Conversion charge would be Rs. 1.5 per kg and KCPL would lose its independence of

Costs of manufacturing would remain the same. Agreement with Pearson remains unaffected. KCPL enjoys its independence and family values remain intact and can work towards the vision of becoming the national leader.
RECOMMENDATION
KCPL should accept APL’s offer as the call of the time is to reduce losses, costs and come back to a no loss state. At the end of first contract after three years, they can assess their position and will have a chance to regain their independence and market position then. In addition to accepting the offer, they need to make some internal changes as well.
ACTION PLAN
• Accept APL’s initial offer and sign the contract for 3 years.
• Discuss the same with Pearson to check for minimal impact to the ongoing agreement
• Improve internal operations: strict rules against absenteeism, new employee motivation and performance appraisal schemes
• Effective budgeting for own manufacturing and selling department
• Improve the marketing team and marketing plans for company for future sustenance

EXHIBIT 1: Calculation of monthly losses incurred by KCPL( MKG) in 1986-87
Dimensions Amount
Total Sales( Sales per month* price per tonne) 2,172,000
Cost of Raw materials
Maida per tonne 7,500
Vanaspathi per tonne