Chocolate Manufacturer

C : Sounds like an interesting case, I would like to ask a few questions to get a better understanding of the case.

I : Sure, go ahead.

C : Where is the client located and where does it lie in the value chain?

I : The client has its manufacturing plant in Western India. It distributes pan India.

C : What are the products that the client sells and is there any particular product which has seen the most decline in profits?

I : The client deals in all confectionary items, however you can focus on chocolates for this case.

C : Alright, I also want to know where the client stands in relation to its competitors and whether the competitors have also been facing similar issues.

I : The client is one among the top 5 players and yes, the issue has been noticed industry wide.

C : Lastly, since when has the profit been declining and what is the magnitude of the decline?

I : The client has seen a gradual decline of 20% over a period of one year

C : Okay. I believe I have sufficient knowledge of the background of the case now and we can move forward with the analysis. Profits can be seen as a function of revenues and costs. Do we have any information on which side is affected?

I : Both sides have been affected. You can start with the revenues side first.

C : Sure, I can breakdown revenues into number of units sold & average price of the chocolates. The # of units sold can be analysed from a demand or supply side.

I : Issue lies on the supply side.

C : Supply can be broken into 3 parts- Procurement, Production and Distribution

I : It is a procurement issue

C : The major raw materials used in chocolates are cocoa beans, cocoa butter, milk and sweeteners. Is the issue with a particular material and if yes, from where does the client procure the material? Has there been any changes in that?

I : The client procures Cocoa Beans from Indonesia. What do you think could have occurred that reduced the supply for the entire industry?

C : We can look at Direct factors and Indirect factors. Direct factors will include looking at the production of the Beans and for indirect factors we can look at political, economic, and social factors.

I : Yes, so the issue is that the yield of Cocoa Beans has gone down in Indonesia due to which the government has put taxes on exports. Why don’t you move to the costs now? What factors do you think are relevant?

C : We can analyse the costs using the Value Chain of the client. This starts with Raw Material, Transportation, Processing, Packaging, Storage, Distribution, Marketing and After Sales Services. Which particular header would you like me to work further on?

I : Client is facing increasing packaging costs.

C : Okay, firstly I would analyse if the packaging is done in-house or outsourced. If it is done in-house then I would look at 2 factors- Material used and the supplier for the same. Under supplier, we can further analyse the cost, location and bargaining power. Material used can be of different types such as plastic, aluminium foil, butter paper etc which can have varying costs or changes in availability.

I : You have identified the correct factors. The client uses butter paper to package its products. The manufacturer from whom the client used to procure the material moved elsewhere hence resulting in increasing costs. Do you have any recommendations for the client?

C : Sure, In the short term, it can look at changing the supplier of butter paper or changing the packaging material altogether. In the long term the client can look at diversifying raw material procurement by onboarding various suppliers to reduce its dependency on Indonesia. The client can also review the entire value chain for potential savings in transportation, processing, and marketing.

I : Excellent, we can close the case now.