case methodology - buah bagus

8/13/2019 CASE METHODOLOGY - Buah Bagus

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MASTER OF BUSINESS ADMINISTRATION

MGT 6798

CASE METHODOLOGY:

An Individual Assignment

Submitted to:

Mr. Ayub bin Hj. Khalid

Submitted by:

Fakhrul Anour bin Abdullah G1136857


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CONTENTS

1-

ABSTRACTS Page 02

2- INTRODUCTION Page 033- PROBLEM STATEMENT Page 054- SWOT ANALYSIS Page 065- CONCLUSION Page 076- RECOMMENDATION Page 08


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ABSTRACT

The cordial business is a competitive industry due to its easy entrant nature. Therefore, BBSBhas many competitors, including both big and small competitors. Among BBSBs competitors

were giant companies such as the Fraser&Neave (F&N) and Magnolia Company. These rival

cordial companies could be easily found in the same outlets, with the most common type of

outlet being the grocery store or the supermarket which served the need of home-consumption

users. These cordials also went into the institutional-market segment such as the restaurants and

other eating places. All these other brands, priced their products below the two previously

mentioned giants, whose premium over price brands ranged from 4% to 13%.


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INTRODUCTION

Buah Bagus Sdn. Bhd./BBSB, a producer of non-alcoholic cordials was founded by Rosli binKhaled and a friend with raised capital of RM20,000. The cordial product was an artificially

flavored, non-carbonated drink packaged in plastic or glass bottles:

o The pre-mixed ready-to-drink sizes were insizes of 720mL, 2L, and 4.55L

o A concentrate product (to which consumer hadto add water and sugar to taste) was being

developed and would come in a 1L packageo 720mL package was a glass bottleo 1L packages were in plastic jugso Each package carried a full color paper label

which give the flavor, ingredients or contents,

instructions for mixing and other product

information

o All the companys product have the BB namewhich had been adopted as its brand

Because the cordial business was an easy entry business, there were many competitors

vying for space in the retail outlets. At least two of BBSBs competitors were giant

companies that had many other drinks and/or food preparations in their product line:

Fraser & Neave/F&N, has been many decades the franchised bottler for

Coca-Cola. It also sold many bottled flavors under its label; both carbonated

and non-carbonated drinks. The latter category included the largest market

share in the fruit cordial business.

Magnolia is the second largest company in the

beverages field which had dairy products, tetra pack

fruit drinks and cordials in glass and plastic bottles.


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The first two years were the toughest for BBSBwhile his partner manually prepared the

drinks with rudimentary equipment, Rosli would take the delivery van every day for six days a

week and personally make deliveries, often staying consecutive nights away from home. Sales

for the first two years of the company stayed just above RM100,000. At this level, BBSB was

able to earn profit of RM4,900 and RM4,200 for the first two years.

Sales began to grow rapidly once Rosli was able to sell to government agencies in 1983.

The first was FELDA, a government agency developing land primarily for agricultural projects.

FELDA had large plantations and other agricultural projects with rural

communities that housed the agricultural workers and their families. To

service the needs of these families, FELDA had established so called

minimarkets which were retail outlets selling staple goods for the

workers and their family.

As a Bumiputra, Rosli had the advantage of dealing with government agencies. He began

calling on FELDA in 1983 and was able to get trial order. As soon as FELDA found the first

order satisfactory, more orders began to come in 1983 to 1984. By late 1985, BBSB was serving

50% of FELDAs 175 minimarketsserving the rest would bring BBSB an additional

RM75,000 a year in sales.

Several other government agencies beside FELDA

were like MARA and RISDA; created primarily to help

the economic progress of Bumiputra (sons of the soil),

the indigenous majority of Malaysias population

before Chinese and Indian. In West Malaysia, the

Bumiputra were almost entirely Malay people of the

Islamic faith.

With new order came from PERNAS Trading Company in 1985,

Rosli discovered it would be willing to consider BBSB as a

private label supplier, in other words, supplying its product under

PERNAS label with additional sales expected of RM75,000 in the

first year, RM150,000 in the second.


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PROBLEM STATEMENT

When sales began to grow in 1983, costs grew even faster. Salaries and wages in 1983 were 3.3

times over the previous year. The reason for this was that both partners for the first time drew

regular salaries, an additional van salesman was hired and a secretary was employed in the office.

BBSB had reached the limit of its capacity in mid-1985 with the unfulfilled potential both

at FELDA and PERNAS. These government agencies were not interested in a few cases per

week. They wanted a large volume shipment on a regular basis from suppliers. The increased

sales volume had also called for expansion of its delivery capabilities.

But related issues of expansion are:

Purchase of materials done locallyimport raw material sources would save BBSB for20%-25% of manufacturing cost (cost of sales)

Supervision of expanded sales force lack of supervision on sales force lead todishonesty and cheating

By looking at other competitors and the demand from clients, and scarce supply from

local, Rosli felt that expansion was a necessary act if he wanted to sustain the business for long-

run. But he felt the expansion would require good operation management; better sales training,

and supervision, and perhaps a review of the compensation plan.

There are also alternatives that Rosli could look forward in order to

expand:

Move factory outlet to Kelantan (where owned 3 hectares of land righton the main highway of Kuala Krai) as half of its market was in

northern state of Perak, Kelantan, Terengganu and Pahang

Cost estimated: RM3000 a month

Buy a land in KlangCost estimated: RM20,000 a month


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SWOT ANALYSIS

STRENGTHS

1) Bumiputra businesssupported by the

government agencies

2) Producing good productwith high demand

3) Strong distributionnetwork

4) Increasing sales5) Low pricing strategy6) Company started with itsown assets7) New entrant to the

industry

WEAKNESSES

1) Rudimentary equipment2) Lack of staff

supervision/training

3) Only have local suppliers(even for importedmaterial)

4) Lack of marketing strategy5) High orders only came

from government agencies

6) Limited budget to increaseproductivity

7) incompetence to thecompetitive market

W-O

The selling target of

BBSB is considerablylimited without much

expertise in marketing

and advertisingstrategy. But it has a

secure network to be

more established for a

long run business. AllBBSB needed to

improve is its image.

S-O

Its a Bumiputracompany, hence it has

the opportunity to

apply for much

government assistanceand could get apply for

many related projects.

Owning a land inKelantan can be

expanded into assets

for the company toincrease its financial

value.

OPPORTUNITES

1) MalaysiaGovernment

supports

toward

businesses by

Bumiputra

2) Owner owned aland in

Kelantan

THREATS

1) Industry of easy entrythat easily raises high

competition

2) Competition frominternational companies

that produce same

product

3) Short of supplies4) Retails discrimination

W-T

As mentioned, competition is

the close target to attack on thevalue of BBSB against other

similar products. Packaging and

promotion are the main area thatBBSB needs to improve in order

to expand its business while

profit last. In order to achieve

higher market, BBSB have tosecure more potential for its

revenue so to get investors.

S-T

BBSB when compared to F&N

and Magnolia considered acontrast image of market status.

When BBSB is fully supported

by government entities, F&N

and Magnolia are theinternational commercial brand.

It is not saying theyre not in

competitive advantage, but to beprecise of BBSB outgoing

performance, it has only minor

status at the commercial market

to attract more trends.


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CONCLUSION

The question facing the company was whether to expand the business operations or not? By theyear 1985, the several options were considered, on the back of higher sales order and the need

for further expansion at BBSB. It is an obvious choice for the company to expand its operations,

realizing that sales orders are coming its way and it will earn very high profits from these orders.

Therefore the answer to first question is YES. BBSB should expand its business operations.

The next question is about the location of the business and in regard to this matter, BBSB

has the option either to maintain its current operation and expand its operation in Klang or

expand his manufacturing operations in Kelantan, on his own land.

In order to move to Kelantan, BBSB needs a total one-time investment of RM92, 000

with monthly cash payments of RM3000. When compared to buying a land in Klang that

estimated cost BBSB a monthly loan of RM20, 000, the moving to Kelantan is considerably a

better choice when it comes to saving cost. Moving to Kelantan would also save rental expenses

at Klang of RM2, 100 per year. This rental figure was the portion allocated to administration

after the bulk of the rent was charged to cost of sales. Roslis partner was also from Kelantan and

had no objections to moving to the state.

Rosli calculated that the additional expense of shipping finished product from Kelantan to

the markets was probably insignificant because half of BBSB sales were delivered to the

northern states of Perak, Kelantan, Terengganu and Pahang. The other half was delivered to

outlets in Klang, Kuala Lumpur and southern states like

Negeri Sembilan and Johor. In other words, BBSB would

save on the freight costs on the northern half of the sales

while there will be additional freight expense for the other

half which was sold in the federal territory and points

south.


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RECOMMENDATION

Moving the business to Kelantan at Kuala Krai is the better option for Rosli, considering BBSBexpansion plan and Roslis intention to reduce cost of sales and create more potential savings for

the company. Moving to Kelantan will involve a total investment of only RM92,000, as

compared to the month payment of RM20,000 should Rosli decide to have the new plant in

Klang. Hence, this is a much cheaper option.

In addition, there is also the location advantage if Rosli moves the business to Kelantan,

as the three hectares in Kuala Krai is already his own. This would means that the company will

not have to spend or withdraw large sum of money to buy any new land in order to run its newand bigger operations. The land is strategically located on the main highway in the state. Thus

transporting products would be easy for the company to consider the readily available

infrastructure. This could also be an added advantage for the company in terms of its operations,

as all BBSB products could be transported easily hence enable the company to meet market

demand promptly.

Another advantage of moving to Kelantan is the cost-saving factor. Rosli realized that

there will be no significant additional expense of shipping the finished products from Kelantan to

other markets because half of BBSB sales go to the north side of Malaysia, while the other half

goes to the Klang Valley and the southern side of the country.

There is only one concern facing Rosli, as the main owner of BBSB, he should be aware

that BBSB is already an established business, especially after the company started to open the

government accounts in 1983. Therefore, moving to Kelantan means that he must develop a

properly executed two-pronged strategy in ensuring BBSB strong foothold in the industry, by

developing a new and wider market and at the same time, maintain the old market.

Considering the benefits and advantages of moving to Kelantan much outweight the

option of buying an asset, in terms of a land and constructing a building in the Klang area, the

option to move to Kelantan is the better location of the two locations.

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