Iim Bangalore modus operandi

Nut Cracker Case

Submitted by : Team SIOM Mohit Dave Jaspreet Singh Anushikha Bhan

4/9/12

Introduction To The Case

INDCOSERVE: Industrial Cooperative of Tea Factories in Nilgiris, established in 1965 15 Tea producing factories ,Combined installed capacity : 27.3 MillionKgs. Additional to 15 factories two, Kotagiri and Kilkotagiri, discontinued their operations. 17.3% of total production of tea in Nilgiris district Nearly 20,000 small growers supply green leaf to these factories. Salisbury is the best performing factory among all the 15 factories. Majority of the tea produced by factories is sold through their own Auction Centre TEASERVE.

4/9/12

Problem Identification

Price Realization: INDCOSERVE factories are facing serious problem of price realization. Cost of Production: The cost of production has gone up drastically to 300% of 1989-1990 levels. Sustainability Issues: Due to low price realization and high cost of production, the sustainability of the INDCOSERVE factories raises the concerns to Management. Line of Action : The management wants to assess the performance of these factories in order to make certain choices with respect to location of the factories and their future plans.

4/9/12

Solution Methodology
Identification of Objectives or purposes which are supposed to be served by these factories. Performance of any of these plants can be evaluated against the degree of fulfillment of each business units objectives and also what results are anticipated in course of action. Two objectives identified w.r.t case. Objective 1 : Better Price realization.

= Yi X
X= Average standard price. Yi=Average actual price realized by ith factory.

4/9/12

Solution Methodology
Objective 2 : Achieving the business goals.

Maximize Net profit Expansion of business unit Optimal utilization of resources Employee welfare Capture maximum market share in terms of tea production. Creating a strong brand value of product. Best cost control ,Procurement practices, Capacity utilization

and Least wastes.

4/9/12

JAM Performance Measurement Card

Objective 1
Price Factories Realizatio n Employee Contribution Resource Utilization

Objective 2
Sales and Procurement Marketing strategies Aspect

Production Aspect and cost control

High

A
High

E
High

F
High

D
Low

B
Low

J-1
Low

J-2
Low

C
High

I
Low

K
High

1 2 . n 4/9/12

Objective 2 : Measurement Factors

Calculations for a certain time duration , for e.g. 12 months ,or29 months . Employee Contribution q A (Ideally High)

E ( Labor Productivity , Ideally High )

4/9/12

Objective 2 : Measurement Factors

Resource Utilization
q

F : Capacity Utilization ( Ideally High )

D : Unutilized Capacity (Ideally Low )

D = (Installed capacity * 4) Average Green leaf procured

4/9/12

Objective 2 : Measurement Factors

Production aspect and cost control
q

B ( Ideally : Low)

J (Ideally Low both J1 and J2)

4/9/12

Objective 2 : Measurement Factors

Procurement strategies
q

C ( Ideally : High)

I (Ideally Low)

4/9/12

Objective 2 : Measurement Factors

Sales and Marketing Aspect

K ( Ideally : High)

K =Average tea sale price fetched per Kg

4/9/12

Ranking Index Mi
Objective 1
Price Factories Realizatio n Employee Contribution Resource Utilization

Objective 2
Sales and Procurement Marketing strategies Aspect

Production Aspect and cost control

High

A
High

E
High

F
High

D
Low

B
Low

J-1
Low

J-2
Low

C
High

I
Low

K
High

mi= + A +E +F + C + K ( D + B + J1+J2+ I )

4/9/12

Weightages to Mi
mi= + A +E +F + C + K ( D + B +
J1+J2+ I )

Final

Ranking

4/9/12

Results
Final JAM performance measurement card

4/9/12

Results
Rank
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Factory
Salisbury Kundah Ithalar Bitherkad Pandalur Bikkatty Frontier Mahalinga Kattabettu Kinnakorai Mercunad Kaikatty Manjoor Ebbanad Karumbalam

mi
2146.86091 1569.423284 1344.342006 1324.859048 1308.332776 1254.232231 1216.902343 1187.19519 1106.101462 990.0893333 973.6736923 805.4373333 676.4987106 665.1484373 353.0876667

4/9/12

Analysis

Objecti ve 1

Objective 2

Sales and Procureme Price Employee Resource Production and Mark realizati contributi nt Utilization cost control eting on on strategies Aspe ct

mi

Ran Factori k es
01 13

J1

J2

K
44.3 36.4 33.6 38.1

2146. 9 677 665 353

Salisbury Manjoor

1916 88.39 0.113 843 31.17 0.67

281.3 183 128 78 361 958

14

Salisbury has emerged as best performer which is also mentioned in the case.
Ebbanad 1482 29.72 0.23

Karumbala 15better Cost control ( B, J-1 and 38.4 ) 0.22 employee contribution(A). 929 80.7 733 J-2 and m

To sustain its top position Salisbury has to perform better in Price realization (), Manjoor, Ebbanad and Karumbalam are lowest performers. Due to bad procurement practices and less employee contribution with wasteful resource utilization Karumbalam is the worst performer among 15 factories. The rankings can be improved on better performance on other aspects such as price realization , production aspects and cost control.

4/9/12

Major Stakeholder In The Value Chain

4/9/12

Suggestions And Recommendations

For factories : Investing a part of income for R&D and help small growers with technical and better agricultural practices. Identify potential supplier and develop efficient system so that wastages should be as minimal as possible. Strive for complete vertical integration Develop a strong brand value and reach the end consumer. Endorsement by third party ,Sustainable Tea sourcing, certified production standards.

4/9/12

Cost Benefit Analysis.

Investment in R&D.

Improvement In agricultural productivity eliminate wastage.

Let increase in Tea green leaf per acre per annum (including reduced wastage)= x Kg Increase in Tea output per annum = x/4 Kg Let average price per annum per Kg = z Let average price realized per kg for procured green leaf =y Let discount per kg to market due to economies of scale =d

Cost benefit for stakeholders Factories = z*x/4 Small growers = y*x/4

4/9/12

1. 2.

Cost Benefit Analysis

Downstream Consolidation

Identifying potential suppliers Developing the holistic Database. If possible , providing better collection system for Tea leafs since primary processing is to be done within 5-7 hours of leaf pickup. Better purchase and payment processes.

Let amount of Tea green leaf per acre per annum saved from wastage = w Kg per annum Increase in Tea output per annum = w/4 Kg Let average sale price per annum per Kg = z Let average price realized to small growers per kg for procured green leaf =y Let discount per kg to market due to economies of scale = d Cost benefit for stakeholders
1. 2. 3.

Factories = z*w/4 Small growers = y*w/4 Market=d*w

4/9/12

Cost Benefit Analysis.

Third Party Endorsement and Certification. Increase in perceived brand value and henceforth gets reflected in increase in sales . Cost benefit for stakeholders
1.

Small Growers = Better price realization Factories = Net revenue increase Market = If purchasers are big players than it will reflect in their sales.

2.

3.

4/9/12

References

Unilever Tea : revitalizing Liptons Supply chain. IMD-06327, 13-09-2011 Sustainability Issues in the Tea Sector A Comparative Analysis of Six Leading Producing Countries. Tea in Tamil Nadu-A Commodity Study in Nilgiris and Coimbatore Districts Neilson Value chain Analysis -Institutions and Governance in the Plantation Districts of South India_1405173939.

4/9/12

Thank You !!
Thank You !!

4/9/12