Cereal Company Project - JRM

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Information about Cereal Company Project - JRM

Published on July 30, 2009

Author: jaimodi891

Source: slideshare.net

Description

Cereal Company Project - JRM

Prepared By: ---Jay Modi ---Michael Wuest ---Lakshmi Dampanaboina ---Sri Mydhili ---Integrated Case---

Decision Making Decision: Marginal Benefit > Marginal Cost Strategy : Low Risk and Maximizing Profits Profit = Total Revenues-Costs -Tax

Decision: Marginal Benefit > Marginal Cost

Strategy : Low Risk and Maximizing Profits

Profit = Total Revenues-Costs -Tax

 

 

How to calculate ROE ( Measure of Profitability in Economics ) Dividend Growth Model Capital Asset Pricing Model : A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.

Dividend Growth Model

Capital Asset Pricing Model : A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.

A cash flow stream with a limited number ( n ) of periodic payments ( C ), receivable at times 1 through n , is an annuity . Future payments are discounted by the periodic rate of interest ( i ). The present value of this annuity is determined with this formula Discount

A cash flow stream with a limited number ( n ) of periodic payments ( C ), receivable at times 1 through n , is an annuity . Future payments are discounted by the periodic rate of interest ( i ). The present value of this annuity is determined with this formula

Cost of Capital Opportunity costs are the costs of capital (COC) COC = (S/S+B) Rs +(B/S+B) Rb (1-T) Where, T- Corporate Tax, S-Stock, B-Loan Rs – return on stock Rb –return on loan A corporate tax rate in Europe is approx. 30%

Opportunity costs are the costs of capital (COC)

COC = (S/S+B) Rs +(B/S+B) Rb (1-T)

Where, T- Corporate Tax, S-Stock, B-Loan

Rs – return on stock

Rb –return on loan

A corporate tax rate in Europe is approx. 30%

COC for the Case S+B = 20 Million Euro Rs = 9.5 (kellogs)+1.5 (Finance) Stock( S) =6M Loan( B)=14M Rb = 0.75 Corporate Tax = 30 percent COC = 6.975 percent COC =1.395 M to pay off shareholders

S+B = 20 Million Euro

Rs = 9.5 (kellogs)+1.5 (Finance)

Stock( S) =6M Loan( B)=14M

Rb = 0.75 Corporate Tax = 30 percent

COC = 6.975 percent

COC =1.395 M to pay off shareholders

Industry Attractiveness Threat of Substitutes Competitive Rivalry within an Industry Bargaining Power of Customers Bargaining Power of Suppliers Threat of New Entrants Threat of New Entrants Strong Low cost to enter Bargaining Power of Suppliers Strong 1 supplier of: Raw material Packaging material Bargaining Power of Customers Strong 3 buyers Grocery Stores – 48% Hypermarkets – 23% Independent grocers – 28% High High Threat of Substitute Products Strong -low switching costs -differentiation is low -fruits/yogurts other breakfast food High High Competitive Rivalry within an Industry Strong Struggle for market leadership Many competitors

Bargaining Power of Suppliers

Strong

1 supplier of:

Raw material

Packaging material

Competition Company X Company Y Company Z

Company X

Company Y

Company Z

Company X Cost Leadership Produce small and large boxes Four products Grocery chains Advertised early and stopped Target Market: Everyone

Cost Leadership

Produce small and large boxes

Four products

Grocery chains

Advertised early and stopped

Target Market: Everyone

Company Y Differentiation Independent Grocers High prices and High advertising $ Grocery Stores Advertised early and stopped Target Market: Advertising sensitive consumers

Differentiation

Independent Grocers

High prices and High advertising $

Grocery Stores

Advertised early and stopped

Target Market: Advertising sensitive consumers

Company Z Cost Leadership & Differentiation Grocery Stores Large and small boxes Four products Dropped prices 4 th quarter

Cost Leadership & Differentiation

Grocery Stores

Large and small boxes

Four products

Dropped prices 4 th quarter

THEORIES TO CRAFT A MARKETING AND POSITIONING STRATEGY

Market segments and target market strategy Create brand value by offering high quality products Competitive pricing of products Health conscious consumers Research target markets Market leadership in niche market

Create brand value by offering high quality products

Competitive pricing of products

Health conscious consumers

Research target markets

Market leadership in niche market

Product position for maximum competitive advantage Mass market appeal to health conscious consumers Focus on independent grocers and grocery chain 76% of market High quality perception of product Market dominance – leader approach

Mass market appeal to health conscious consumers

Focus on independent grocers and grocery chain

76% of market

High quality perception of product

Market dominance – leader approach

Advertising & promotion strategies Lots of money available for advertising Niche market Be competitive in market with pricing Focus on brand value

Lots of money available for advertising

Niche market

Be competitive in market with pricing

Focus on brand value

STRENGTHS Capital Committed Team Strong business plan Advance forecasting WEAKNESS New to Market Limited supplier Lack of market reputation Heavy debt OPPORTUNITIES Targeting ‘niche’ market THREATS Existing competition Changing market Response time SWOT Analysis

STRENGTHS

Capital

Committed Team

Strong business plan

Advance forecasting

WEAKNESS

New to Market

Limited supplier

Lack of market reputation

Heavy debt

OPPORTUNITIES

Targeting ‘niche’ market

THREATS

Existing competition

Changing market

Response time

Product mix What constraint stops us from increasing our capacity ?

What constraint stops us from increasing our capacity ?

Material flow in one-to-one sequence Material flow should be one-to-many Following the solution can increase the capacity from 25k to 30k per day Focus on utilizing the available resources to maximum extent New problem THEORY OF CONSTRAINTS

Product mix Which products offer the highest contribution margin per unit of the constraint ?

Which products offer the highest contribution margin per unit of the constraint ?

Decision rule 25,000 TOTAL 7,000 Raisin 10,000 Nuts 8,000 Strawberry Units Label

Contribution margin per unit of product 2.69 1.49 4.18 Mixed Fruit 2.68 1.46 4.14 Original 2.74 1.72 4.46 Blueberry 2.69 1.5 4.19 Raisins 2.73 1.66 4.39 Nuts 2.78 1.87 4.65 Strawberry C.M (€) Variable cost (€) Selling price (€) Product/Activity

Strawberry Major competitor is Company X 4.65 4.65 4.65 n/a 0.35 wheat 0.35 Oat 0.30 Straw n/a Missouri S & T cereal n/a 6.10 6.10 6.10 n/a 0.30 wheat 0.50 Oat 0.20 Straw Company Z n/a n/a n/a n/a Company Y 4.89 3.69 3.89 n/a 0.15 wheat 0.20 Oat 0.15 Straw n/a Company x Small Box Large Box Small Box Large Box Prices (€) Product Mix Companies

Nuts Major competitor is Company Z 2.20 2.20 2.20 4.39 4.39 4.39 0.20 wheat 0.125 Oat 0.175 nut 0.40 wheat 0.25 Oat 0.35 nut Missouri S & T cereal n/a 5.82 5.82 5.82 n/a 0.25 wheat 0.40 Oat 0.35 nut Company Z 7.50 3.81 4.08 n/a 0.175 wheat 0.175 Oat 0.15 nut n/a Company Y n/a 5.39 5.49 5.59 n/a 0.30 wheat 0.45 Oat 0.25 nut Company x Small Box Large Box Small Box Large Box Prices (€) Product Mix Companies

Raisin Major competitor is Company X & Z 2.10 2.10 2.10 4.19 4.19 4.19 0.20 wheat 0.175 Oat 0.125 raisin 0.40 wheat 0.35 Oat 0.25 raisin Missouri S & T cereal 4.00 4.00 4.00 n/a 0.15 wheat 0.20 Oat 0.15 raisin n/a Company Z 7.50 3.81 4.08 n/a 0.175 wheat 0.175 Oat 0.15 raisin n/a Company Y n/a 5.89 6.19 5.39 n/a 0.30 wheat 0.45 Oat 0.25 raisin Company x Small Box Large Box Small Box Large Box Prices (€) Product Mix Companies

STRATEGIES BUSINESS STRATEGY CORPORATE STRATEGY Product Differentiation Quality Assurance Competitive Price Gaining Market Share Creating Monopoly Market Cost Leadership

Bill Of Materials Strawberry cereal O Wheat (35%) Oats (35%) Strawberry (30%)

Bill Of Materials Raisins Cereal O Wheat (40%) Oats (35%) Raisin(25%)

Bill Of Materials Nuts Cereal O Wheat (40%) Oats (25%) Nuts (35%)

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