STRATEGIC MANAGEMENT

VARUN SHETTY
MMS A
ROLL NO:53

1. Describe about the company KCPL including: Technology and Operation in 1987,
Induction of Family Members, Brand MKG, Competition and KCPL's Performance?
Kanpur Confectionaries Private Limited (KCPL), founded by Mohan Kumar Gupta, is a biscuit
manufacturing company that started in 1945 in Jaipur. Mohan Kumar was a keen learner as
earlier he used to work in a candy unit and then started his own business with the dealership of
candies under the brand name 'MKG' at the age of 28 years.
After gaining some experience and insight into the market, he set up his production unit in
Jaipur in 1946. As competition in the sector increased, net profit margins fell. KCPL could not
compete on costs as its costs were higher than those of its competitors. Mohan shifted his
candy-making unit to Kanpur where he can manufacture candies at a little low cost and target
new market. He invested in advertisement smartly, in vernacular newspapers and hoardings.
Also with a good dealership network in Bihar and MP, he was able to make KCPL the market
leader in his region.
Mohan Kumar was a visionary too as he could see growth in biscuits demand 15% p.a. and
attractive margins this product has. Also, sugar was the common raw material for both candies
and biscuits. So he decided to invest his surplus from the candy business to enter into biscuit's
business. The business grew fast but limited raw materials didn't allow it to flourish. But still,
they managed to be the number 2 players in the biscuit market in the northern region with an
extended range of cream, salt, and Marie biscuits. Prince Biscuits was the market leader with
130 MT sales followed by KCPL with 110 MT sales followed by International Biscuits with
100 MT sales. In the year 1980-81, their turnover was INR 20 million (growth of 15%
compared to last year) and in the year 1983-84, it was INR 30 million. The installed production
capacity was 240 tonnes per month and their average monthly production was 120 MT.
Biscuit making involved the preparation of dough by mixing flour, sugar, sugar syrup,
vegetable oil, and certain preservative chemicals in a given proportion; molding the dough into
various shapes and sizes; and baking the pieces to get ready-to-eat biscuits. It was the
proportion of ingredients used in making its biscuit dough that enabled a company to develop
a secret formula. Qualities of the material were checked in the laboratory for impurities.
Biscuits were manually packed in a packet of 100gms. The production was dependent on both
casual and permanent workers, while the salary for permanent workers was INR 2.75 lakh per
year, and wages for casual labor was INR 50 per day. Due to high absenteeism, the production
varied from 2 MT per day to 6 MT per day.
In due course, the top management of KCPL was also changed. In 1982, Mohan Kumar, who
had six sons, handed over the leadership of KCPL to his eldest son, Alok Kumar, who has a
degree in commerce. Alok looked after the finance and liaison functions, Vivek, his second
son, joined the company in 1965 after graduating with a degree in mechanical engineering, was
in charge of human resource management and manufacturing and Sanjay the youngest was
responsible for marketing, logistics, and administration. Mohan's other three sons had their
own trading business. The decision making was done in a meeting held on fifth oof every month
for business operations and performance. The management principles followed by the family
were:
Respect the laws of the land.
Do not exploit labor.
Run the business on ethical lines.
Treat the consumer as the king.
Do not evade taxes.
"MKG" was a popular brand in the northern region and the main consumers were middle-class
families in urban and semi-urban areas. In 1986-87. Talking about the competition, initially,
only 2 players, APL and International Biscuits Limited dominated the industry. There were
several units in the unorganized sector by 1980. Seeing a growing competition, KCPL was in
dilemma between 2 types of players- those who competed on price and those who competed
on scale and image. By1986-87 the sales declined and KCPL incurred loss and eventually,
family members decided to shut down the candy line in 1985.

2. What do you understand by the arrangement with Pearson?

KCPL joined hands with Pearson and jointly launched "Good health" biscuits. These biscuits
were seen as a high-priced product without any value-added benefits and customers preferred
A-one biscuits for which the price was lesser as well. This indicated that this collaboration was
not a success.
Profit from Person: Raw Material and Labor Cost:
Cost of Maida = 750*50*(500/50) = Rs. 375,000
Cost of Vansanpathi = 150*120*(520/15) = Rs. 260,000
Cost of sugar = 200*120*(1200/100) = Rs. 120,000
Cost of preservatives and Packaging = Rs. 50,000
Casual labor charge = Rs. 15,000
Conversion rate paid by Pearson = 3 * 1000 * 50 = Rs. 150,000
Profit to KCPL due to Pearson = 150,000 – 15,000 = Rs. 135,000
Total profit to KPCL = 135,000 – 141,000 = Rs. -6000
Loss = Rs. 6000

3. Explain the offer of APL and the proposal?

On September 8, 1987, APL came up with an offer of expanding its supplying capacity by
contracting manufacturing units (CMU). The offer had various main points:
APL Offered to supply the pre-printed packaging material carrying APL's name.
Inspection of KCPL's production processes and recommendation changes in processes and
equipment.
APL would post two quality control officers at KCPL's plant to facilitate KCPL's adherence to
quality procedures.
The initial contract was to be for 3 years.
APL will supply its secret ingredient but KCPL would be required to buy the other ingredients
such as sugar, flour, and vegetable oil from one of the APL's authorized suppliers.
The proposal had both advantages and disadvantages with needed to be analyzed.
Profit from APL deal:
Percentage per month production for KCPL = 120/190*100 = 63.16
Percentage per month production for APL = 700/190*100 = 36.84
Fixed cost per month for KCPL = Rs. 217,902
Variable Cost for KCPL: Cost of Maida = 750*120*(490/50) = Rs. 882,000
Cost of Vansanpathi = 150*120*(500/15) = Rs. 600,000
Cost of sugar = 200*120*(1150/100) = Rs. 276,000
Cost of preservatives and Packaging = Rs. 120,000
Casual labor charge = Rs. 36,000
Total Variable Cost = 1,914,000
Fixed cost per month for APL = Rs. 127,098
Variable Cost for APL:
Cost of Maida = 700*70*(490/50) = Rs. 480,200
Cost of Vansanpathi = 140*70*(500/15) = Rs. 326,666
Cost of sugar = 190*70*(1150/100) = Rs. 152,950
Reimbursement cost of the material from APL= Rs. 959,816
Casual labor charge = Rs. 21,000
Conversion charge per kilo = Rs. 1.5
Revenue from 70 tones
= 1.5*1000*70 = Rs. 105,000
Cost to APL for conversion charges = 127,098 + 21,000 = Rs. 148,048
Profit from APL per month = 105,000 + 148,000 = -43,098
Profit from KCPL per month = 2,122,000 – 1,914,000 – 217,902 = Rs. 40,098
Total profit per month = 40,098 – 43,098 = Rs. -3000

4. Suggest the various options available to KCPL and provide both merits and
demerits of each option?
Option 1
KCPL can accept the offer from APL and become its Contract manufacturing unit.

Advantages:
Contract Capacity of manufacturing can be increased if KCPL meets expectations of quality
and production.
KCPL can improve and evolve the production procedure with technical help that is been
provided by APL.
KCPL can avoid marketing, brand building, and distribution expenses and minimizing business
risks.
It would also help KCPL to utilize the surplus capacity.

Disadvantages:
KCPL will lose its independence and cannot take their own decisions.
KCPL might not be able to concentrate on strengthening the MKG brand build over the years,
as the family name was dependent on the success of the biscuit line.
The family image will be destroyed.

Option 2:
KCPL can reject the offer and continue with production of MKG and Good health biscuits for
Pearson

Advantages:
Pearson can increase the production from 50 to 100 MT which will eventually increase the
profit margin.

Disadvantages:
Since Pearson biscuit is not doing well in the market so the probability to increase production
is less.
MKG is also running in loss

Option 3:
Increase production by decreasing the absenteeism and optimum use of installed capacity.

Advantages:
If workers work efficiently it will increase the productivity leading to the company will run in
profits by decreasing the cost per tonne in production

Disadvantages:

Labors may ask for higher wages and the company has to become strict which may break the
family principle of no exploitation of labor.

5. You are Alok Kumar Gupta - What decision will you take and why?
As it said a company is known by its workforce who can do wonders for an organization even
with limited resources. Optimum utilization of the increased capacity can lead to a full
potential which will bring down the cost per unit. This option can recover losses and is
controlled by the company.
Also, KCPL should focus on mass consumers, here the profits and risks are low. KCPL needs
to make good relations with the institutes and take them into confidence that they will
provide good quality at a lower price while keeping profit margin less initially as the
production increases. Gradually the cost per unit will be down increasing the profit margin.
There's a huge scope of increasing the market share here.