MCS PRESENTATION

Leena Chellani 11015

Nikunj Gajara 11046

Chandan Pahelwani 11047

Rinku Salat 11068

Presented by:

Strategic Planning Process

Meaning of Strategic PlanningIt is the process of deciding on the programs

that the organization will undertake on the appropriate amount of resources that

will be allocated to each program over the next several years.

The document that describes how the strategic decision is to be implemented is the strategic plan.

Reviewing & Updating from

last year

Deciding on assumptions &

guidelines

First Iteration of the new

Strategic PlanAnalysis

Second Iteration of the new Strategic

Plan

Final review and approval

Reviewing and Updating the Strategic Plan

During the year, whenever there is a need management takes decisions that change the strategic plan.

Actual experience is reflected in accounting reports for first few months of current year, and these are extrapolated further for current year as a whole.

If computer program is sufficiently flexible, it can extend the impact beyond the current year and if not, rough estimates are made manually.

Cont… The implication of new program decisions on

revenues, expenses, capital expenditure & cash flow are incorporated.

Planning staff usually makes this update and management may be involved if there are uncertainties or ambiguities.

Deciding on Assumptions and Guidelines

The updated strategic plan incorporates broad assumptions such as growth in Gross Domestic Product, cyclical movements, labor rates, prices of important raw materials, interest rates, selling prices.

Market conditions such as competitors and impact of government legislation.

These assumptions are reexamined and if necessary, are changed to incorporate the latest information.

Updated strategic plan contains financial information for new plants, existing plants and closing plants.

Cont… A rough approximation is adequate as a basis for

senior management decisions about objectives and key guidelines are to be observed in planning to attain these objectives.

Objectives are stated separately for each product line expressed as sales revenue, profit percentage and return on capital employed.

Guidelines are assumptions about wage and salary increases, new or discounted product lines and selling prices.

First Iteration of the Strategic Plan

Using the assumptions, objectives and guidelines, business units and other operating units prepare their “first cut” of the strategic plan which includes changes made compared to current plan, these are supported by reasons.

Business unit staffs do much of the analytical work, but managers make the final judgments.

The completed strategic plan consists of income statements and quantitative information about sales and production in detail.

Analysis

When headquarters receives the business unit plans, they aggregate them into an overall corporate strategic plan.

Headquarters examine the business unit plans for consistency also.

Sometimes individual plans does not add up to attainment of the corporate objectives, which is known as planning gap.

Cont...

There are three ways to close a planning gap: find opportunities for improvements in the

business unit plans make acquisitions review the corporate objectives.

Second Iteration of the Strategic Plan

Analysis of first submission may require a revision plans of only certain business units, but it may lead to changes that affect all business units.

Technically, revision is simpler to prepare than the original submission but organizationally, it is difficult because it requires difficult decisions.

Some companies do not require a formal revision, they negotiate changes informally and enter the results into plan at headquarters.

Final Review and Approval

A meeting of senior corporate officials usually discusses the revised plan at length.

The plan also may be presented at meeting of board of directors.

The chief executive officer gives final approval.

The approval should come prior to the beginning of the budget preparation process, because strategic plan is an important input to that process.

DAIRY

PAK

Case

Objectives of case

To construct Value Chain Analysis

To use value chain as a power tool

To implement strategic plans in accordance with the value chain

GIST OF CASEDairy Pak is Ohio based international company.

Dairy Pak began their operations in 1947 as one of the original license of the Pure-Pak Technology.

They focused on producing polyethylene coated paper carton for milk and orange juice.

Due to growing demand, it expanded its operations and built converting plants in different states.

During the early 1960's through 1988 Champion steadily produced 2,50,000 tons of polyethylene coated boards annually.

During this period, the paper board industry was threatened by the intrusion of plastic containers but Champion did not falter and continued with its existing operations without changes in strategy or equipment.

At this point, the company decided to have the harvest strategy.

Incidentally, the paper carton did not die, and since there were no major changes in Champion its infrastructure got old and technologically outdated.

In the early 1980's the sudden increase of the juice market created opportunities which Champion did not expect.

In 1988 however, Champion successfully managed to retain its share in the declining market while losing almost half of its share in the fastest-growing segment, the branded juices.

Champion strategy was to be the low cost producer in commodity dairy segment.

In 1988, the Vice President of the Dairy-Pak Division of Champion International has to make some tough choices. He is facing: Declining market share in the growing “Branded

Juice” segment of domestic paperboard carton segment

Their manufacturing system is old Limited output capability which had not grown in

10 years.Rapidly expanding international market which the

corporation had seen as fraught with some problems than competitors.

The Competitors International Paper

It was the industry leader & considered to be low cost producer.

It is also the most technologically advanced company.

Champion was currently a strong number 2, with more domestic volume.

Potlatch, Westvaco, and Weyerhaeuser all ranked in a third tier of competition facing difficulties related to quality and inefficient scale.

The Pure-Pak Customers

Domestic Dairies- The diary’s product was usually a commodity that achieve price premium for brand name.

Differentiated Juicers- This was the fastest growing segment in liquid packing in 1988.

Special Uses- This market had grown slowly, volume per customer was very low it was 4% of Champion’s volume.

Export Market- The fourth group of customers for the Pure-Pak carton was the export market.

Pulp

Paper Mill

Extruder

Conversion

Regional Diary

Minute Maid

Orange Juice

Processor Processor Processor

Super Markets & Distributors

Customer

Process Flow

Champion’s Market position

Domestic Consumption of Pure-Pak Cartons (000)

1980 (tons) 1987 (tons) % change

Dairy 506 374 -26%

Non Dairy 66 120 +82%

Total 572 494 -14%

Champion’s Domestic Pure-Pak Cartons

1980 (tons) % share 1987 (tons) % share

200 39% 150 40%

30 46% 30 25%

230 40% 180 36%

For the purpose of competition and to invest, Earle Bensing’s first proposal was to renovate paperboard machine.

Second proposal was to add a third extruder at the Waynesville, North Carolina plant.

Third was to add roll wrapping equipment at the Waynesville location.

Fourth potential area for investment was adding rotogravure printing.

Q & A

A process flow value chainRegional Dairy Branded OJ

MILK OJ MM/CH TROPICANA

Consumer Pays 1.16 1.50 1.89 2.26

Store pays 1.04 1.20 1.42 1.79

Store Margin 0.12 0.30 0.47 0.47

Dairy pays 0.75 0.80 0.64

Shrinkage 0.06 0.06 0.11

Pasteurising/advertising

0.06 0.06 0.36

0.87 0.92 1.11

Carton cost 0.08 0.08 0.06

Cost to dairy 0.95 1.00 1.17

Dairy/juice margin 0.09 0.20 0.25

Computing the margin in value chain milk orange

Manufacture’s margin 0.08 0.06

For 14400 tons 1152 864

Processing cost

Cost of transport 10 10

Printing 231 231

Cost of buying roller 663 663

Total processing cost 904 904

Margin processing 248 -40

Extrusion cost

Price of roll 663 663

Transport cost 35 35

Cover roll 94 94

Cost of buying rolls 530 530

Total cost of roll 659 659

Margin extrusion plant 4 4

Mill SP to customer 530

Cost

Pulp 319

Machining 105

Freight to customer 47 471

Mill margin 59

Extruder cost

Transfer cost :

Mill cost

Pulp 319

Machining 105

Freight to extruder 3

Mill margin 59 486

Other costs 94

Freight to converter 35

615

Extruder margin -22

Q-2 & Q-3

Margins Assets ROA

$ $ %

Super Market 1728 1800 96

Dairy/ Juices 1296 5400 24

Converter 318 830 38.3

Extruder (22) 190 (11.6)

Paper Mill 59 2800 2.1

Total 3379 11020 30.7

Milk

Margins Assets ROA

$ $ %

Super Market 4320 1800 240

Dairy/ Juices 2880 2890 99.7

Converter 318 830 38.3

Extruder (22) 190 (11.6)

Paper Mill 59 2800 2.1

Total 7555 8510 88.8

Orange Juice

Margins Assets ROA

$ $ %

Super Market 6768 1800 376

Dairy/ Juices 3600 2890 124.6

Converter 30 830 3.6

Extruder (22) 190 (11.6)

Paper Mill 59 2800 2.1

Total 10435 8510 122.6

Branded OJ

Base Commodity Dairies

Branded OJ Products

Buyer Concentration (No of buyer)

1000 3

Size of Buyer as a corporation

Relatively small Same size as paper board manufactures

Buyer Switching Cost Low, but commodity board

High, but differentiated board

Ability to backward integrate into paperboard

Nil Nil

Substitutes (Products) Plastic, other? Plastic, glass, other?

Cost of Carton/ Total Cost 0.08/0.95 =8.42% 0.06/1.17 = 5.13%

Buyers Margin 0.09/1.04 = 8.65% 0.25/1.42= 17.6%

Champion’s ROI 9.3% 1.75%

Buyer Power Analysis