Snacks Manufacturer

C: Before trying to find the cause of the decline in profitability, I would like to ask a few questions to understand the case at hand better.

I: Sure, go ahead!

C: What are the product offerings, and in which all parts of the value chain is the client present?

I: The client offers multiple chips and snacking options. They are present pan-India and present across all parts of the value chain.

C: So, as I see it, any snacks manufacturer will be a client competitor. Also, what is the drop in profits they have witnessed

I: They have seen a drop of around 6-8 %.

C: Thank you. I think I have all the information to begin finding the cause of the problem. To start with, a profit decline can be caused either by a decrease in revenue or an increase in costs. Do we have some data to help us figure out what seems to be the problem?

I: Yeah, from the past data, client’s cost values have seen a disproportionate rise

C: That leads to investigating further into the client’s cost structure. I want to analyze every head of the value chain to scope down the reason for the rise in cost.

I: That seems to be a good way ahead. Please continue.

C: The value chain will include cost heads, R&D, Raw materials, processing, Storage & transportation, distribution & Salesforce, and Customer Service. Any particular charge which can be attributed to the rise in costs?

I: To ensure delivery of the manufactured good across India, the firm has given a contract to 3rd party transportation company. The rise in cost can be attributed to logistics or transportation costs. Can you find the reason why the transportation costs have gone up?

C: Sure, since the client does not own the fleet, the client will not have control over the operations of the transportation company. Hence rather than

optimizing logistics in the client’s interest, the contractor will try to ensure lower costs for his operations. This can lead to delays and inefficient transportation for the client.

I: Well put; can you walk me through a recommendation to help the client mitigate the costs?

C: The client has two options, to begin with, either to stay with the contractor and secondly to establish his transportation fleet. Setting the fleet will give the client the required control but add high capital and operation costs.

I: The client doesn’t want to invest large amounts in establishing their fleet. Can you elaborate on how they can continue with the contractor and still cut costs?

C: Yes, sure; while staying with the contractor, the client can enter into an exclusive contract that mandates the 3rd party to maintain an entire fleet of trucks for the client’s operations. Secondly, to optimize the truckload, clients can collaborate with neighboring firms whose goods have the same rotation period as theirs. Finally, the truck's trip can be optimized by ensuring the car carries outbound logistics to a place; in return, the trip also has some raw materials for the firm.

I: Perfect, unique solutions. It was great talking to you! We will close the case now.