INTRODUCTION

EXECUTIVE SUMMARY

SITUATION
SP Co. is one of the leading companies in the FMCG industry in Vietnam.

COMPLICATION
However, in Y0, SPCo. lost its business opportunity as ⅝ of product types could not be supplied enough for the overall year demand.
Besides, there were a few months the number of products are not enough to fulfill demand (about 1.6 million rcs).

The current Primary Cost has not been optimized due to the large of primary volume of high-demand products to meet market
between regions, consuming lots of financial resources.

The Can HF is going to be potential (Y1) when the demand has increased in the last 3 months in the North.
Besides, SP Co. is planning to launch Can HF (New) product in the North.

QUESTION
1/ Which products were not met the overall year demand and accounted for large proportion of primary cost in year Y0?
RBAC 2021 - Round 2

2/ Which solution for transportation routes will help SP Co. optimize the Primary Cost?

3/ What is the best option for launching Can HF (New) product in the North?

Executive Summary Gross Revenue Evaluation NOBPT Evaluation Recommendation

 SPCo. lost its business opportunity in Y0,
as demand planning was not effective in the first 3 months.

Sales Demand and Production Volume in Y0 Sales Demand and Production Volume in Jan & Mar

thousand
14,000 thousand rcs

Production Volume 11,750

12,000
11,500

10,000 Sales Demand 11,250

11,000 1,686 rcs 1,127 rcs

8,000
10,750

10,500
6,000
10,250
4,000
10,000

9,750
2,000
9,500
Month
-
9,250
1 2 3 4 5 6 7 8 9 10 11 12
January March

Basically, SP Co. responds quite well to market fluctuations. In January and March, SP Co. lost the opportunity to
RBAC 2021 - Round 2

Especially when the demand in April dropped sharply, SP Co. sell 2,813 million rcs when the supplied volume was
quickly reduced the production supply to match demand. not enough to completely fulfill demand.
However, there was a problem in the first 3 months.
Which products ?

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 PET HF, Can CF, Water are products with great demand
but have not been completely fulfilled

by Product Types in Y0 by Product Types

Thousand
Thousand Accumulated contribution

200

150

100

50

0
RGB HF RGB HF PET CF
-50
RGB CF

-100 Can HF
RGB HF PMX
-150
PET CF Water Can CF PET HF

-200
RBAC 2021 - Round 2

Up to 5/8 product types (Water, PET HF, RGB CF, CAN CF, CAN PET HF, Can CF, Water and PET CF are high-demand products
HF) have not been fully fulfilled in Y0 for the whole market on the market ( contributing nearly 90% sales demand)

Other problem

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 Moreover, these products account for large proportion of company's
Primary Cost as being transported in large quantities between regions

The percentage of primary volume (rcs) of PET HF, Water, Can CF Primary Cost by Product Types in Y0

50,000

45,000

23% 40,000
Other
35,000
Product Types
77% 30,000
PET HF,
Water 25,000
Can CF
20,000
76,87%
15,000

10,000

5,000

PET HF WATER CAN CF Other

RBAC 2021 - Round 2

Only the above 3 products (PET HF, Can CF, Water) accounted The transportation of these 3 products costs the business
for 77% of the transportation volume between regions. 36,195 billion VND (76,87% of all products).

Which regions?

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 The transportation from other regions to South costs the most primary cost
(especially the transportation of PET HF, Can CF, and Water)

SP Co.’s supply chain network & transportation routes

of 3 products: PET HF, CAN CF, and Water
1. Among routes, shipping by sea accounts for the lowest
proportion in route South <-> Central (75%).

As South needs to be supplied large amount of products

2. (PET HF, Can CF, Water), SP Co had to transport from

the North and Central, which increases the Primary
Cost.
RBAC 2021 - Round 2

Evaluate each product

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 In long-term, SP Co. needs to review the production efficiency of
PET HF products in South instead of transporting from Central & North

Sales Volume & Production Volume Production Capacity & Production Volume Primary Cost of PET HF
of PET HF of PET HF

15,610 Unmet demand

15,500
15,171 Wasted
15,500 Primary Cost of PET HF from
15,000 Central to South
15,000

14,500
14,500 14.543 billion VND/year
14,000 14,000

13,500 13,500

13,000 12,767 13,000 12,767

12,500 12,500 Primary Cost of PET HF from

12,000
North to South
12,000

11,500 11,500 356 million VND/year

Sales Demand Production Volume Production Capacity Production Volume
RBAC 2021 - Round 2

If production volume is at current levels Meanwhile, production volume has not been To meet the demand in the South, SP Co.
without transporting from other maximized, which is lower than the shipped mainly from Central & North.
regions, SPCo cannot meet the 2.843 production capacity of 2.404 million rcs. This has cost up to 14.9 billion VND/year.
million rcs needs.

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 In short-term, SP Co. can optimize costs by utilizing of Sea transport for
PET HF from Central to South.

Primary Cost (per rcs) for each route Primary volume and Max Capacity from
Central to North by Sea
(VND/rcs)
(tons)
5400 37,000
Not been fully utilized
36,000
5200
Cheapest route 35,000

5000 34,000

33,000
4800
32,000

4600 31,000

30,000
4400 29,000

28,000
4200
To South Central South Central North North 27,000

From Central North North South Central South Primary volume Max Capacity
RBAC 2021 - Round 2

Average Primary Cost (per rcs) from Central to South is the Capacity of Sea transport for from Central to South has
lowest and more efficient than from North to South. not been fully utilized. Because in Y0, this method can
still transport 6000 tons more.

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 SP Co. should have some solutions to optimize the Primary Cost of Water
as benefit could be threatened by these costs

Primary Volume by product types in Y0 Sales Volume by product types by month in Y0

4,000

60,000 tons
3,500

50,000
3,000
Can CF
40,000 2,500 Water

2,000
30,000

1,500 Pet HF
20,000
1,000

10,000 RGB CF
500
Can HF
- -
PET HF Water PET CF CAN CF CAN HF 1 2 3 4 5 6 7 8 9 10 11 12

Uncertain events in FMCG Industry

RBAC 2021 - Round 2

Water has a low price but its Primary Volume ranked Water and Can CF demand are more sensitive compared
2nd (after PET HF) in all of product types which can make to other product types. In April, when the FMCG market is
COGS higher. volatile, Water and Can CF suffer the most drops

Assumption: Water is the lowest priced product in beverage industry

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 SP Co. needs to reduce production volume in North and
increase the production volume in South

Production Capacity & Production Volume & Sales Demand Sales Demand & Production Volume in the North by product types
in the South by product types

30,000 8,000
28,051

24,816 25,233 7,000

25,000 24,406

6,000
Utilize
20,000
5,000 Excess
16,235
15,458
4,000
15,000
Excess
3,000
10,000
2,000

5,000 1,000

-
- RGB CF CAN CF CAN HF PET CF PET HF Water
Water Can CF
RBAC 2021 - Round 2

Production Volume of CAN CF and Water is not enough Meanwhile, due to Production Volume in the North is
to completely met their demand while their capacity is exceeding sales demand here. So, SP Co. transported
available to fulfill their demand in South CAN CF & Water from North to South

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 SUMMARIZE KEY FINDINGS & SUGGESTION FOR Y0

Product Key findings & Problems Solutions Action

Maximize the production volume

3.2 million rcs had to be transported from
Increase production from 12.7 mil to 13.6 mil.
Central to North, costing 14.9 billion VND.
With 63,000 products had to be transported volume (90% production
capacity) of PET HF in 2 millions of remaining products
in expensive route (North to South)
South will be shipped from the Central
(Slide 7)
(not shipped from the North)

PET HF
The proportion of PET HF transportation by Optimize costs by
Adjust the proportion of
Rail and Road from Central (27.5%) is higher utilizing of Sea Transport
Transportation routes to be
than average proportion of Rail & Road in for PET HF products from
transported at 80%: 15%: 5%
whole (20-25%) Central to South
(equivalent to the average level)
(Slide 6, 8)

Water have a low price but its Primary Cost

is too high.
Increase production
Increase the average production
Water & CAN CF did not completely meet its
volume (Water and
Can CF) instead of
efficiency of Water and Can CF
RBAC 2021 - Round 2

25.2455 mil to meet 25.322 mil

CAN CF demand. Moreover , the production
capacity of this product in the South can
transporting from other
sales demand)
regions
meet its own demand if maximizing their
production volume

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 IMPACTS FOR OUR SUGGESTIONS (Y0)
Solutions
Maximize production
volume of PET HF in
South
Utilize Sea transport for
PET HF from Central to
South
Maximize production
volume (Water and
Can CF) in South
RBAC 2021 - Round 2
(*) Detailed calculation in appendix (Slide 20)
Executive Summary
Cost-savings (*)
4.066 billion VND
0.128 billion VND
2.69 billion VND
Primary Trans Evaluation
Advantages
Reduce Primary Costs
Take advantage of economy of
scale in the production line in
the South.
Increase the cost of reducing
Sea Transportation but reducing
SP Co's overall Primary Cost
Reduce Primary Cost from North
to South
Reduce production costs in
North.
Launching CAN HF (New)
Disadvantages
Increased operating costs of the
Southern factory.
The production line in Central
may not be utilized
Increase average lead time.
From there, it is possible to
reduce product availability in the
South
Water's production line may not
be utilized
Risk of unmet demand if the
production line in the South is
not efficient
Planning for Y1
Recommendation
 SP Co. should find a way to increase the supply volume of CAN HF in North
because its demand has great growth

Thousand
Sales Demand of Can HF in North What’s happened?
600
515
500 Growth Rate + 187.7%
From M8, Can HF has great growth as it grew continuously until M12
400 in North.
298 Besides, SP Co. has decided to launch Can HF (New) in this region. (*)
300 264
242

200 179

100 What’s next?

-
Aug Sep Oct Nov Dec The demand of CAN HF (New) is forecasted to reach 150,000 rcs in North.

Demand Forecasting for Can HF (New) in North (Y1)

rcs

Q1 (Y1) Q2 (Y1) Q3 (Y1) Q4 (Y1) How to respond?

1. What is SP Co's current solution for this Can HF product?

RBAC 2021 - Round 2

25,000 25,000 50,000 50,000 2. What is the best solution for supplying of Can HF (New)?

(*) From case study Answer

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 In South, CAN CF and CAN HF only run together in one production line (*)
and CAN HF is transported to North
PROCESS PROBLEM

Primary cost for South-North route is the most

expensive at the average cost of 5,400VND/rcs

(VND/rcs)
The most expensive route
5400

5200
Operating plants in Warehousing for Delivering finished
South (Run together incubating in South goods from South to
North 5000
in one production line
with Can CF)
4800

4600

- Product Cost/ Raw & - Rental fee for - Primary cost from
4400
Packaging Material hiring a third-party Warehouse in South
Cost Warehouse in the to Distribution 4200
- Manufacturing Cost South Centre in North To South Central South Central North North
From Central North North South Central South
RBAC 2021 - Round 2

56,000 VND/rcs 800 VND/rcs 4,214 VND/rcs COGS = 61,014 (VND/rcs)

Noted: After increasing production volume to 90% production capacity in South of CAN CF as suggested (slide 11), (*) Detailed calculation in appendix & Excel (Slide 20)
it’s not necessary to transport CAN CF from North to South

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 However, the transportation from South will cost more in the future.
So, SP Co. should upgrade the production line in North by 67%
PROCESS
FURTHER INFORMATION

1. Lead time to upgrade takes 1

month without affecting the
production schedule.

2. The initial investment is $1.0

Upgrading production line
to increase 67% production Operating new production line million (with 70% Capex and
capacity
30% Opex) and maintenance cost
per year is 2.5% of the Capex value.
- Operating Expenses
- Capital Expenditure
- Product Cost/ Raw & Packaging
- Loan Capital
Material Cost
(WACC=9% & Inflation Rate=4%) 4. Useful life cycle is 7 years
- Maintenance Cost

1,518 VND/rcs 56,392 VND/rcs COGS = 57,910 (VND/rcs)

RBAC 2021 - Round 2

(*) Detailed calculation in appendix (Slide 20)

But, this solution will bring many risks in 7 years of operating The third option

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 SP Co can consider hiring the Co-packaging service in North
PROCESS

Purchasing raw materials from Hiring Co-packaging services to Shipping finished goods from Co-
suppliers and delivering it to manufacture finished goods packaging plants to SPCo’s
Co-packaging plant (including package) Distribution Centre

- Co-packaging fee
- Product Cost/ Raw & - Primary Cost from the Co-
- Operating Expenses
Packaging Material Cost packer to SPCo’s Distribution
Centre

35,000 VND/rcs 22,000 VND/rcs 1,000 VND/rcs

RBAC 2021 - Round 2

COGS = 58,000 (VND/rcs)

The best solution

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 SP Co should upgrade the CAN HF production line in Y1

Solution The best solution Solution

Use Primary Transportation to Upgrade the CAN HF production

Hire a Co-packing service for
Action transfer CAN HF from the South line in the North to increase the
CAN HF (New) in the North
to North production capacity by 67%

COGS 61,014 VND/rcs 57,910 VND/rcs 58,000 VND/rcs

- Improve production productivity

- Not require large initial - Not require large initial
by 67% without affecting
investment. investment.
production schedule.
Pros - Take advantage of the - Low shipping cost
- Lead time is shortened
remaining resources in the - Able to supply for high demand
- Able to supply for demand in
business in the short term and seasonality
the long term.

- Require large investment capital

- May be at risk because of the
- The cost of inter-regional - Risk of not directly controlling,
change in inflation rate in
Cons transportation is too high. depends on the third party
investment
- Lead time is extended.
- If demand is not stable in the
long term, it will be a waste.
RBAC 2021 - Round 2

How to reduce Primary Cost ? How to launch Can HF (New) ? Planning for Y1

Executive Summary Primary Trans Evaluation Launching CAN HF (New) Recommendation

 PLANNING FOR SPCO IN Y1 (CONCLUSION)

QUESTION 1 & 2 QUESTION 3

Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Timeline Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Save more than 4 billion
VND in Y1 by increasing PET
Objective HF production capacity in
South.
Save more than 0.128 billion
VND in Y1 by taking
advantage of sea mode for
PET HF.
Reduce more than 2.69
Successfully supplying 150k rcs
billion VND in primary
of CAN HF (New) in the North
costs of Water between
with the reasonable cost.
regions in Y1.

Reduce Primary Cost from

Consider expanding the Increasingly use the Upgrade 67% production
North to South
Action capacity of the South transport by sea instead of capacity in the North for Can HF
Reduce production costs in
factory. road and rail. New product.
North

-Increasing the proportion

- Increased operating costs
of the Southern factory.
RBAC 2021 - Round 2
- Need large capital investment .
of shipping by sea lead to - Water's production line
- May be at risk because of the
the increase of average lead may not be utilized.

Constraints - The production line in the time - Risk of unmet demand if

Central region may not be
utilized.
- Therefore, availability of
the products in South may
decrease.
change in inflation rate in
investment.
the production line in the
- If demand is not stable in the
South is not efficient.
long term, it will be a waste.
 APPENDIX FOR SLIDE 12
Cost saving for maximizing production capacity of PET HF in the South

Weight of each case: 12,5 kg/Rcs

Cost for transportation of each raw case PET HF from
Average Primary cost for Central-South: 363,42 VND/kg
Central to South
12,5 * 363,4 = 4542,5 (VND/Rcs)

Production supply after optimizing capacity in South: 15,17 * 90% = 13,65 (million Rcs)
Reducing transportation of PET HF from Central to South Current Production supply: 13,65 (million Rcs)
Reducing transportation of PET HF: 13,65 - 12,77 = 0,88 (million rcs)

Volume of PET HF transported from North to South: 63.225 (Rcs)

Change route from North-South to Central-South Average cost of North-South: 450,7 VND/kg
Average cost of Central-South: 363,4 VND/kg

Cost Savings 4542,5 * 0,88 * 10^6 + (450,7 - 363,4) * 12,5 * 63255 = 4,066 (billion VND)

Cost saving for utilizing of Sea transport for PET HF from Central to South

Current Primary cost of Central- South route 14.881.487.584 (VND)

Primary cost of Central- South route when changing to 40.949 * (351.218,25 *80% + 390.588,53 *15% + 414.156,57 *5%) = 14.752.625.390,19 (VND)
80% Sea -15% Rail -5% Road

Cost savings 14.881.487.584 -14.752.625.390,19 = 128.862.194,20 (VND)

RBAC 2021 - Round 2

Cost saving for maximizing production volume (Water and Can CF) in South

Reducing transportation of Water from North to Weight of each case: 13,7 kg/rcs
South Average Primary cost for North-South: 363,42 VND/kg

Cost savings 13,7 * 363,42 * 540.839 = 2,69 (billion)

 APPENDIX FOR SLIDE 14 & 15
The initial Material & Manufacturing cost per Rcs is 56,000 VND/Rcs

COGS
Process Cost Detail
(VND/rcs)

Primary transport
= (Weight of each Rcs * Average Primary Cost for Central-South) +WH Fee
from Warehouse in Primary Cost + 61,014
= 8.6 kg/Rcs * 489.9 VND/kg +800 VND/rcs
South (hire) to DC in Warehouse VND/rcs
= 5014 (VND/rcs)
North (SLIDE 14)

Variable = Capital Investment * Exchange Rate * (30%) / 7

Manufacturing = 1,000,000 * 23,000 * (30%)/7= 985,714,285.7 (VND)

(With: WACC_real = (1+WACC_nominal) / (1 + Inflation rate) - 1

Upgrade the CAN HF
production line in
Manufacturing
the North to
increase the
production capacity
by 67% (SLIDE 15)
= (1+9%)/(1+4%) - 1 = 4.8%
Fixed
= Capital Investment * Exchange Rate * (70%/7 + WACC_real +
Maintenance Cost)
= 1,000,000 * 23,000 * (70%/7 + 4,8% + 70% * 2,5%) 57,909.67
= 3,806,500,000 (VND) VND/rcs
(With: current capacity of CAN HF is 3,745,440 rcs)
Volume = 3.745.440 * 67%
= 2,509,444.8 (rcs)

= Material and (Variable Manufacturing Cost + Fixed Cost) / Volume

COGS = (985,714,285.7 + 3,806,500,000) / 2,509,444.8
(VND/Rcs) = 1,909.67 (VND)

Assumption: The exchange rate is 1 USD = 23,000 VND