BKAL 3063 INTEGRATED CASE STUDY

FIRST SEMESTER SESSION 2019/2020 (A191)

GROUP A

GROUP ASSIGNMENT
CASE 1 BUSINESS RISK AND FINANCIAL SUSTAINABILITY:
THE CASE OF MUDIM ZAKARIA

PREPARED FOR:
PROF. MADYA DR. NOOR AFZA BINTI AMRAN

PREPARED BY:
GROUP 4
NO NAME MATRIC NUMBER

1 XIONG PENG 237090

2 NUR FATIHAH BINTI ZAINUDDIN 244142

3 KAYSTRY A/P RAJASEGARAN 245035

4 SITI FAIQAH HANIS BINTI MARZUKI 246760

5 NG YI MIN 247082

SUBMISSION DATE:
23TH SEPTEMBER 2019
1.0 EXECUTIVE SUMMARY

MUDIM is a Small and Medium Enterprise (SME) company which the company was facing

difficulties in achieving sustainability of the company itself. Mr. Shaarani, the founder of

MUDIM has criticized on some of the risks faced by the company in terms of achieving

sustainability in the local market as well as expanding the business strategy globally. The

company faced competitiveness with other brands products. Meanwhile, MUDIM also could not

afford to penetrate into new markets.

(recom plan of action briefly)

TABLE OF CONTENT
2.0 INTRODUCTION

MUDIM is a Bumiputera business that produces based on Islamic concepts. The

company produces three main products, which are soy sauce, chilli sauce and vinegar. MUDIM

located at No.26, Kampung Jelutong, Mukim Tobiar, 06700 Pendang, Kedah which is a rural

area. The company commenced its business starting 1987. It was started with RM 10,000 as

start-up capital and raised to RM 300,000 after 20 years. MUDIM had received support from

government agencies like Malaysian Agricultural Research and Development Institute(MARDI),

Majlis Amanah Rakyat (MARA) and many more.

MUDIM’S average production achieved almost 14 tonne per day. It started to penetrate

globally in Brunei, Singapore and Thailand. From all of his three main products, MUDIM

specialize in having its own recipe for soy sauce. The company market its products through

hypermarkets and lorry drivers as sales agent to introduce their products in the supermarkets. The

involvement of Mr. Shaarani in Expos also one of the ways he implemented to make his products

becomes locally viable by potential customers. Meanwhile, its bottle container becomes an

attraction for its customers to own the product.

Nevertheless, the staff of the company is appointed among Mr. Shaarani’s family

members and friends as to maintain a non-stressful working conditions. MUDIM does not face

any problem in finding for new suppliers. Hence, Mr. Shaarani would prefer to build a long

relationship with the existing suppliers. So that, the supplies would be reliable and efficient.
3.0 STATEMENT OF THE PROBLEM

Based on the case, there are four problems faced by MUDIM. The first problem faced by

MUDIM is inability to maximize its production. The company is facing problem on the

shortage of machines, as it is only has one machine that is available for its production of soy

sauce and chilli sauce. These two products used the same machine for the production. This made

the company had to shut down its operation for cleaning process in order to produce the another

product.

The second problem is sustainability of MUDIM to stay competitive in the business as

the company facing new entrants in the market and need to improve their marketing strategy.

Most hypermarkets were more inclined to place well-known brands in front shelves, MUDIM

products became an alternative choice for customer due to it low popularity. Mr. Hakim, the

general manager of MUDIM realized MUDIM products were still new in certain geographical

areas. Thus, there are not many customers in certain geographical areas know the brand of

MUDIM. In conclusion, all the conditions licking together towards the popularity of brand of

MUDIM was not famous because of the way of advertising is not effective and efficient. The

nature of advertising problem is short term problem.

The third problem faced by MUDIM is on safety and security especially in the

warehouse which all the finished goods inventories were being kept there. The problem arises on

how the security system works in the warehouse. As mention in this case, all cash was banked in

by Mr. Sharaani himself daily and MUDIM did not hire security guards, whether for day or

night-time duty. As all the product was stored in the warehouse, it is important to have a good

security system in the warehouse. Other than that, MUDIM also pick up barcode system to trace

their finished goods inventory. This system was adopted to strengthen the security system on the
products where it can trace the products especially when the products is missing. However, this

system limit is it cannot track items that inside of the box due to it limit to track

In addition, the problem that faced by MUDIM is shortage of skilled workers. Mr.

Sharaani preferred to appoint staff from among his family members or friends. The first priority

of MUDIM to recruit staff is the staff should be appointed from among family members and

friends. Hence, MUDIM did not recruit staff based on their academic qualification. The

qualification as second priority causes some of the staff might not have an equivalent

qualification to the job assigned. Therefore, MUDIM lack of staff that have high academic

qualification and knowledge.

4.0 CAUSES OF THE PROBLEM

Problem 1: Inability to maximize production level

MUDIM unable to maximize its production level due to insufficient machines that are

available in the company for production and its efficiency to produce. As MUDIM is a Small and

Medium Enterprise(SME) company, it is hard for the company to own machinery, as it requires

additional financial support to acquire a machine. The company only owns one machine for the

production of both products, which is soy sauce and chilli sauce. In order to change the

production form soy sauce to chilli sauce, the machine had to be cleaned and dried so that the

production of chilli sauce could be proceed. So, the production of soy sauce will be shut down

for few days. This situation lead the company to unable to maximize its production as more tiem

is being wasted in the shut down of the production and cleaning process.

Problem 2: Sustainability of MUDIM to stay competitive in the business

The sustainability of MUDIM highly rely on their marketing strategies, technological

advances, quality control and expertise. This is because the company had always faced a threat of

new entrants and stiff competition. Even though, Mr. Hakim does advertisements via state radio

every year yet there are some places that still not well known about MUDIM’s products. Besides,

MUDIM also need to maintain a good relationship with their supplier in order for them to gain a

competitive advantage inside the market. In addition, the current technology MUDIM have right

now cannot cater all the high demand they received.

Problem 3: Safety and security of the inventory

 Safety and security are one of the important factors in managing the business especially

when handling the inventory. This is because good security system and safety can minimize the

loss of the products and prevent theft happen in the business. Firstly, the problem arises on how

the warehouse doors were locked and closed-circuit cameras were installed around the factory.

There is no guaranteed that the doors were locked properly as anyone with the key to the doors

can easily unlocked the doors and stole the products there. If the doors only secured with the

normal padlocks, it is easy to breaks-in into the warehouse compared to other locking system

such as using thumb print as the key to enter the warehouse. Besides, MUDIM also does not

recruit any security guards to supervise the company in day or night. Other than that, MUDIM

implement a system where all the finished goods inventories were equipped with barcode on the

boxes. However, this system only can track the loss involved the box rather than each item inside

of the box. Let say if the items were lost or missing, MUDIM cannot trace the location of the

product. Thus, it can cause losses to the business.

Problem 4: Shortage of skilled workers

The shortage of skilled workers arises because of Mr. Sharaani preferred to hired staff

from among his family members and friends. This was clearly shown when Mr. Sharaani told his

son that all staff in MUDIM should be appointed from among family members and friends.

When recruiting a new staff, MUDIM had put on top of list priority that the new staff should be

appointed from among family members and friends while the academic qualification of the staff

as second priority. According to Kasika (2015), human capital theory argues that more educated

staff is more productive because education teaches them valuable skills. Besides, education

provides knowledge and skills to individual. The staff who have academic qualifications are
considered as high-quality staff and they have valuable skills. However, they did not focus much

on staff’s academic qualification. This lead MUDIM to have shortage of staff who have high

academic qualifications and skilled workers. Mr. Sharaani felt that the staff comprising family

members and friends could prevent a stressful working environment. Moreover, in 2016 the total

number of workers is 46 and most of them were from the nearby villagers.
5.0 DECISION CRITERIA AND ALTERNATIVE SOLUTIONS

Based on this case, MUDIM will come out with few alternative solutions for each of the

problem faced by the company. MUDIM need to choose the best alternative solution that can be

implemented by MUDIM to overcome the problems well. Thus, there are few decision criteria

which have been selected in evaluating the alternative solutions.

The first decision criteria are that the solutions taken need to be easy to implement by the

company. MUDIM have to choose the solution which is easy to implement and take reasonable

time for the implementation based on the problems. The solution does not involve complicated

task or steps to overcome the problems faced.

Furthermore, the second criteria in evaluating the solution is the cost to implement the

solution. As the MUDIM company is a Small and Medium Enterprises (SMEs), the cost to

implement the solution should be reasonable and affordable to MUDIM. However, it is better if

the cost to implement the solution is low but effective.

In addition, the third criteria are the level of acceptability to the management for the

alternative solution. The solution must be acceptable to the management of MUDIM and the

management team agree to implement the solution. The solution with high level of acceptability

to the management is more preferable by MUDIM.

Problem 1: Inability to maximize production level

Alternative solution 1: Acquisition of new machinery

The first alternative solution for the inability to maximize production level is by

acquiring new machines. As MUDIM is currently facing shortages of machines in its factory, it

could acquire new machines in order to maximize its production level for each sauce it produces,

in which MUDIM would have a separate machine for soy sauce and chili sauce. So, the company

could have more production line to increase each production level separately. Moreover, the

company has requested a grant from FAMA to increase the capability of its production level.

By acquiring new machines, MUDIM could increase the quantity of its products to be

delivered to the retailers’ shops and hypermarkets. The marketable tendency of the soy sauce and

chili sauce will become wider as the company could have more chances to distribute its products

through shops and supermarkets throughout Malaysia. Meanwhile, acquisition of new machines

will probably base on current technology and high efficient which would have a positive impact

on the worker’s productivity and efficiency. It could help prevent delay of production or shut

down of the machine as it is less likely to require repairs (“Advantages and disadvantages of

buying new machinery”, 2018).

However, MUDIM has to bear the cost of the machinery in case the grant applied

unsuccessful. As the company is a Small and Medium Enterprise(SME), these solutions might

look costly for the company. The acquisition of new machine would take some time to be

completed, as the cost will give a big impact to MUDIM’s day to day productions. MUDIM
might get financial distress if there were no loans or financial support to proceed with this

solution.

Alternative solution 2: Leasing of machines to maximize production.

The second alternative solution for MUDIM is by leasing the machines needed for

separate production of soy sauce and chili sauce in order to maximize their production level.

Leasing is a medium-term funding facility by contract between a lessor and a lessee, in which the

latter is entitled to use lessor’s assets in return for a regular payment for a period of time

(Hossain, 2013).

Since MUDIM is a Small and Medium Enterprise(SME), it is an effective way for the

company to maximize its production level without owning the asset. Based on Hossain (2013),

leasing is said to be a useful tool in facilitating greater access to finance for SMEs. This is

because SMEs probably does not have additional assets for collateral or adequate capitalization.

Mos of the SMEs are family based and lack of appropriate financing for their maintaining of

operations.

By leasing machinery, MUDIM could save costs that may incur as up-front payment, so

the cash will not be used up the company and might not have to apply for a loan from the bank.

The company could lease high standard of machinery, which could be too expensive to buy it

and the cost of the machine could be spread out. MUDIM could used to forecast its cash flow

periodically as it could be used to pay fixed interest rate and lease payments.

In contrast, by leasing machinery the company could have to pay out a higher price for

the leasing period compared to if they acquire the asset. It is more complex to be managed as it
locks the company into an inflexible medium or long term agreement. So if the company faces

any financial distress, it might face difficulty to make payments regularly. Also, the company

could not claim ownership of the asset (Advantages and disadvantages of renting business

equipment, 2019).

Problem 2: Sustainability of MUDIM to stay competitive in the business

Alternative solution 1: Change the sales method, from retail sales to bundle sales

The first alternative solution for the sustainability of MUDIM to stay competitive in the

business is by changing retail sale method to bundle sale, as bundle sale is a good selling point.

MUDIM’s main aim is to survive in the hypermarket. Through the bundle sales method, the

company could promote its products as bundle sales would cost less to the buyer, and at the same

time they would sell it out at a low price. This will get the attention of the customers even

though, the same products of well-known brands were placed in that particular shops. So, the

customers would do comparison with MUDIM products, which are able to provide a more

convenient experience to themselves as they will choose more convenient option.

Alternative solution 2: Use social media applications for advertisement

With the development of Internet, the internet provides a new vision to the world.

Basically, everyone is unable to live without the internet. Internet also bring opportunities. In

order to get universality from advertisement, MUDIM is required to increase its ways of

advertising. Therefore, using social media application would be a good alternative solution to

penetrate the hypermarket. Nowadays a new economy called celebrity economy is quite popular,

apply internet to become internet celebrities to attract the attention of internet users, which can
translate into profit through online advertising. For instance, Neelofa use her fame as celebrity to

advertise her scarves product and succeed not only in Malaysia but outside Malaysia. Therefore,

MUDIM also not excluded to use social media as part of their marketing strategy such as

Facebook, Instagram and YouTube. Besides, MUDIM can use it as a method for them for doing a

cost saving because paid advertising products on social media is low cost compared to others

marketing strategies.

Problem 3: Safety and security of the inventory

Alternative solution 1: Specify an authorized person to lock and unlock the doors

One of the alternative solutions that can be used by MUDIM to strengthen the safety and

security of the inventory is specify an authorized person to lock and unlock the door so not

anyone can enter the warehouse. The storekeeper can be the authorized person and has a

responsibility to make sure the warehouse doors being locked properly before leaving the

factory. This can prevent theft, especially between the staff who have the key to enter into the

warehouse.

The positive side of this alternative solution is that it is easy to implement as the

authorized person already familiar with his job scope in the warehouse, also had gain trust from

Mr. Shaarani. It is also did not incurred much cost as it is included in the job scope of the

storekeeper. However, it also cannot guarantee that the theft can be prevented as the authorized

person also can steal the products from the warehouse.

Alternative solution 2: Upgrading the CCTV around the factory

 The second alternative is upgrading the closed-circuit television (CCTV) or also known

as video surveillance around the factory to the latest version. Even though MUDIM already

installed CCTV around the factory, it might be outdated and cannot supervise all the area around

the factory.

The process of upgrading CCTV to the latest one can cover all the area compared to the

old one as it is equipped with the latest technology which is it can be monitored through a

smartphone. However, upgrading the CCTV will be costly and might be a burden to MUDIM as

they can use the money for product development.

Alternative solution 3: Barcode system on individual items

The barcode system only available on the boxes and cannot track individual product. If

one bottle of soy sauce goes missing, MUDIM cannot track the product. Hence, MUDIM

planned to make another system which also can track the individual item. MUDIM can hired a

system developer to develop a new system which can help them track the individual items. It is a

good move for a long-term as it can increase the efficiency of inventory management in

MUDIM.

If this system be implemented, it can minimize the loss of the products and make it easier

to trace the products in the future. However, it will be hard to implement this system as the

planning will be time consuming. In addition, it will also costly for MUDIM as usually the

planning stage will be incurred cost for the system developer and other miscellaneous cost.

Problem 4: Shortage of skilled workers

Alternative solution 1: Education and training programs

The first alternative solution for the shortage of skilled workers is by having education

and training programs. According to 2020 Project Management, training is vital as it presents

opportunity to expand the knowledge base of all employees. Training is a planned process to

develop attitude, knowledge or skill behavior through learning experience to achieve effective

performance. Managers can determine the training needs of employees by four procedures which

are performance appraisal, analysis of job requirement, organizational analysis and survey of

human resources (Bakan, n.d.).

To overcome this problem, MUDIM should send those staff without necessary skills or

knowledge to the training program. Moreover, MUDIM can send their workers to attend any

education programs that are related to get higher qualification. The advantages of sending staff to

education and training programs are to increase the performance of staff, enhanced productivity

and efficiency of the company and increasing the number of skilled workers. However, education

and training programs will be costly.

Alternative solution 2: Open job applications to other skilled people

The second alternative solution for MUDIM is to open job application to other skilled

people although that person is not appointed from among family members and friends.
Alternative solution 3: Qualified applicant

Communicate clear expectations

Sets of metrics or KPI

6.0 RECOMMENDED SOLUTION, IMPLEMENTATION AND JUSTIFICATION

Problem 1: Inability to maximize production level

For the issue faced by MUDIM, inability to maximize the production level, the best

recommended solution is that by leasing the machinery for maximization of its production level.

This is because leasing would cost less compared to acquiring an asset for a Small and Medium

Enterprise(SME) like MUDIM. As an SME, MUDIM may try to lease machines for the separate

production of soy sauce and chili sauce. By leasing the machinery, MUDIM could save time that

could be wasted in cleaning process from one production level to another. Meanwhile, the

company’s production level could be optimized and it will help in the distribution of products to

more shops and hypermarkets around Malaysia.

This recommended solution is easy to implement by the company since the cost could be

spread through the leasing period, which will be affordable to be paid by the company. Although

the grant application to FAMA does not success, this plan could be an effective plan to be
implemented by MUDIM. At the same time, the company could get into a leasing agreement in

short-term period.

Based on Salam (2013), SMEs cannot acquire or absorb new technologies to expand their

business in order to compete with the global markets without the financing. Leasing is a widely

used service by SMEs to overcome the shortage of debt and equity financing. The lessee may or

may not be entitled to purchase the asset at the end of the lease term.

According to the recommended solution, the theory of “Information asymmetry” is

applicable to be applied in the leasing agreement. Based on Munene (2014), Information

asymmetry influences the capital structure of firms, in terms of when the managers could issue a

safe debt, then the adverse selection problem could be mitigated. So, it is said that, leasing is

classified as secured debt that would mitigate the adverse selection problem. This is due to the

cost of external funds that arose from asymmetric information could be reduced. Moreover,

leasing helps in reducing asset substitution problem due to external financing that is costly

because of asymmetric information. Through this, the company could increase its production

level as well as its financial performance could be improved.

In case of technology obsolescence, the company as a lessee could avoid this kind of risk

when it entered a leasing agreement.

Problem 2: Sustainability of MUDIM to stay competitive in the business

Problem 3: Safety and security

The recommended solution for safety and security problem is appointing one person as the

authorized person to handle the warehouse’s door locking system. The authorized person should

be the storekeeper as his job scope is to supervise the inventories stored in the warehouse. He

also has the responsibility to oversee the movement of the inventory. This shows that storekeeper

is responsible if the inventory was lost or damaged. Non-authorized person cannot enter the

warehouse without the permission from the storekeeper.

This solution to increase the security and safety of the warehouse by appointing only one

person to lock and unlock the door is easy to be implemented by the company as it will be easier

for the company to track for the person who is responsible for the safety of the warehouse. If

there a lot of people handling the key, the possibility of theft to happen is high as they can pass

the responsibility to someone else. It also does not incur any additional cost as it was already

included in the job scope of the storekeeper.

The theory that can be supported is through self-efficacy theory where it stressed that

human action and success depend on how deep the interactions between one’s personal thoughts

and a given task (Muhammed Yusuf, 2011). If the authorized person has a high self-efficacy, he

will do the task given by them properly and be responsible for the action taken by him.

Individuals with a low sense of self-efficacy will possess negative thought and think of task's

demands as threatening not as challenging and therefore set low objectives for themselves

(Muhammed Yusuf, 2011).

By this, the authorized person need to be someone with a high self-efficacy so he will try

to fulfill all the responsibility given to him.

Problem 4: Shortage of skilled workers
7.0 CONCLUSION
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