plus a
new implement strategy
Nowadays, we can see the huge disasters around the world that some of them are natural
disasters such as earthquake, tsunami and so on and others are artificial ones for instance,
financial crisis, energy crisis, revolution and so on.
When we are faced the problem or the case the following should be our reaction:
1) If the case or the problem is related to our life directly, we should assume that it is a case of
another person and we are a consultant to solve her/his problem.
2) If the case is related to other people, we should consider that it is our problem directly and
proceed to solve this case.
When we receive a case or problem, we should mush pit into the pool and only utilize from
references and other people experiences focused on case. It means that we do not need read all of
pages of book to analysis the case. At the first, we should consider that we are the leader of the
world and we are able to solve each problem. Therefore, we do not need to be a skilled person on
a special field such as finance, Economic, Physics, Mathematics or engineering and so on. I think
that It is actual concept of MBA course.
In the case of Euroland Foods, we face to the constriction of capital spending (initial investment)
equal Euro 120 million for 11 projects. How can we cope with this investment?
Which projects should be chosen?
My analysis is based on two categories as follows:
1) Quantitative Analysis (Internal Analysis)
I used from Capital Budgeting Techniques below cited:
-Sensitivity Analysis
I consider IRR as independent variable, NPV at minimum ROR and Equivalent Annuity as
functions (just like Polynomials function in Math) for each 10 projects because project 6
(Effluent water treatment at four plants) definitely should be done.
According to this analysis I found the location of abruptions and ranked projects by higher IRR.
- Profitability Index
It can be calculated by using of WACC (10.6%) and free cash flows.
Option (1):
-Expanded Plant (Nuremberg, Germany)
-Eastward Expansion
- Strategic Acquisition
-Effluent water treatment
Total initial investment = Euro 111 million
Total Rank = 108 Score
Option (2):
- Development and introduction of new artificially sweetened yogurt
- Networked, computer-based inventory- control system
- Strategic Acquisition
- Effluent water treatment
Total initial investment = Euro 115.5 million
Total Rank = 118 Score
Therefore, option 2 has been approved
2) Qualitative Analysis (External Analysis)
It is included a PEST analysis in which the approach is a qualitative analysis as follows:
In this case, I eliminate project (11) even though financial indexes show us a better profit. The
reason is to allocate huge initial investment to this project.
In fact, we can distribute total investment to the projects which have intangible benefits. On the
other hand, by distribution of investment, we will run many projects instead of one project (11).
In the result, the least profit is to decrease unemployment rate, customer satisfaction,
environment sustainability, the development of technology and so on.
As a matter of fact, by using a Balance Scorecard framework, we can measure the performance
of projects better than using from financial indexes alone.
Here are my choices:
Project1. Replacement and expansion of the truck fleet
-A 15 percent increase in cubic meters of goods hauled on each trip
-The new tractors would also be more fuel and maintenance efficient
-The increase in the number of trucks would permit more flexible scheduling and more efficient
routing and would cut delivery times (possibly inventories)
-To support geographical expansion over the long term
Project5. Plant automation and conveyer systems
-Systems reduce the chance of injury by employees (more than EUR 15000 per year cost saving)
-To be improved throughout speed
Project9. Development and introduction of new artificially sweetened yogurt
-Significant cost saving to food and leverage
-Growing demand for low-calorie products
-Protecting of present market share
-To prevent of brand suffering
I think it will be the nomination and definition of Value for food. In fact, if the analysis of energy
on food packages is changed to the value, the people will definitely consider it as an approach to
buy goods.
I mean that food companies should bear in mind quantitative factor just like to qualitative factor.
What is quantitative factor? It is weight of pack.
Therefore, to obtain the value of a good, we have:
P: price
E: energy
W: weight
Now, we should define the value as a function of above variables.
Value = f (P, E, W)
Now, the question is: How can we find the rational relationship among value and variables?
The answer is: It depends on the type of food industry. Here, I have brought you some examples
as follows:
In the case of Snacks and Biscuit, we have P/ E and E/W in which E/W is very important
because customers usually care about the compaction and distribution of energy on the weight. It
means that they will be able to store energy with increase of weight.
Therefore, one of the best formulations can be as follows:
Value = (W . E) / P
In contrast, the approach for Chocolate industry is difference, maybe the similar to below
formula:
Value = E / (W . P)