Executive Summary:

Word Count: 112

Kanpur Confectionaries Private Limited (KCPL) was started by Mohan Kumar in 1945, in Jaipur, Rajasthan.
KCPL started as a dealer of sugar candies before turning up into a production unit. In 1954, it shifted to
Kanpur to reduce the costs. KCPL, in 1970, entered into making glucose biscuits under the same brand MKG
for diversification and investment of surplus. However, it incurred a loss due to stiff competition and
mismanagement of resources. In 1987, they got an offer from APL, the national leader, for contract
manufacturing. Taking consideration of all of its options, KCPL found the APL offer as the most promising
one to withstand competition, earn profit and management of resources.

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 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 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 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.

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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.

Long term goals

To be a national leading biscuit brand in the next 7 years.

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 APL’s 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.
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  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:
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  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)

Cost of KCPL raw material – Cost of raw material of APL

= [(750/15)*500 + (150/15)*520 + (200/100)*1200] – [(700/50)*490 + (140/15)*490 + (190/100)*1150]

= 15100 – 13711.67

= Rs. 1388.33

They can also learn from the APL that the key to successful business is its employees as it is quite evident
from the exhibit given in the case that wages per day paid by APL is Rs. 30 more than those of KCPL which
could be one of the reason of higher productivity of APL.

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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    

Exhibit 2: Mohan Kumar Family.

Member Education Department

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Alok Kumar Commerce graduate Finance and Liaison
Vivek Kumar Mechanical Engineer HRM and Manufacturing
Sanjay Kumar Arts Marketing, Logistics and
Administration

Other three sons of Mohan Kumar started their own trading concerns in metal parts and containers.

Exhibit 3: KCPL and its competitors.

Players Ranking Existence Production Capacity Plant

(in tonnes/ (in tonnes/ Location
per month) per month)
KCPL 2 Regional 110 120 in 1973- Kanpur, Uttar
74; Pradesh
240 in 1980-
81
Prince Biscuits 1 Regional 130 150 Agra, Uttar
Pradesh
International 3 National 100 800 Mumbai,
Biscuits Ltd. Maharashtra

A-One 1 National 900 in 1973- Chennai,

Confectioneries 74; Tamil Nadu
Limited 1200 in
1986-87
Exhibit 4: KCPL performance.

Year Turn Over (in Rs.) Profit (in Rs.)

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

See exhibit 6 for the details of 1986-87 data.

Exhibit 5: Offers by Pearson and APL.

Arrangement with Pearson:

 Promised an off take of 100 to 125 tonnes per month.
 Conversion rate of Rs. 3 per kilogram after reimbursing fully the cost of materials.
 Allowed KCPL to run its existing line of business.
 Initial order from was for 50 tonnes per month between May 1986 and March 1987.

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  No technical guidance.
 Appointed officers for quality inspection before dispatch.
Offer of APL:
 Initial order of 70 tonnes of glucose biscuits per month.
 Offered to supply the pre-printed packaging material with APL name.
 Would inspect the production process and recommend the changes in processes and
equipments if needed.
 All changes had to be carried out by KCPL on its own expenditure.
 Would post two quality officers and enable KCPL to adhere with quality procedures.
 Would supply the APL secret ingredient.
 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.
 Initial contract was to be 3 years.
 Would be required to send daily production and raw material consumption report to APL.

Exhibit 6: Expenses of KCPL.

Item Cost Quantity Monthly Yearly

required per Expenditures Expenditures
month
Maida Rs. 500 per bag (750/50)*120= 1800*500= Rs. Rs. 1,08,00,000
of 50 kg. 1800 bags 9,00,000
Vanaspathi Rs. 520 per tin (150/15)*120= 1200*520= Rs. Rs. 74,88,000
of 15 kg. 1200 tins 6,24,000
Sugar Rs. 1200 per (200/100)*120= 240*1200= Rs. Rs. 34,56,000
bag of 100 kg. 240 bags 2,88,000
Preservatives Rs. 1000 per NA Rs. 1,20,000 Rs. 14,40,000
and packaging tonne
Casual Labour Rs. 300 per NA Rs. 36,000 Rs. 4,32,000
tonne
Permanent Rs. 2.75 lakhs NA Rs. 2.75 lakhs Rs. 33,00,000
Salary Bill per month
Interest Rs. 10,000 per NA Rs. 10,000 Rs. 1,20,000
month
Other fixed Rs. 60,000 NA Rs.60,000 Rs. 7,20,000

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commitments
Total Rs. 2,77,56,000

Sales in 1986-87= 120*18,100*12= Rs. 2,60,64,000

Loss= Rs. 16,92,000