dairy pak presentation
TRANSCRIPT
VIGROUP
Paper Mill
Extrusion Plant
Processor
Regional Diary Mfg
Orange Juice Mfg
Supermarkets Distribution
Customer
Milk Orange Juice Minutemaid TropicanaPrice 1.16 1.50 1.89 2.26Cost of Goods Sold 1.04 1.20 1.42 1.79Distributor Margin 0.12 0.30 0.47 0.47Margin % 10.34 20.00 24.87 20.80Cost of Goods Sold 1.04 1.20 1.42 1.79Manufacturing Costs 0.75 0.80 0.64 ?
0.08 0.08 0.06 ?0.06 0.06 0.00 ?
Distributing Costs 0.06 0.06 0.11?Selling Cost - - 0.36 ?Manufacturers Margin 0.09 0.20 0.25 ?Margin % 8.65 16.67 17.61?
Milk Orange JuiceManufacturer's Margin 8 6For 14400 tons (1) 1152 864
Cost of Transport 10 10Splicing & Printing 231 231Cost of Buying Roller 663 663Total Processing Cost (2) 904 904Margin Processing (2-1) 248 -40Margin Processing % 22 -5
Price of Rolls (3) 663 663Transport Costs 35 35Cover Rolls 94 94Cost of buying Rolls naked 530 530Total Cost of Rolls (4) 659 659Margin Extrusion Plant (4-3) 4 4Margin Extrusion Plant % 1 1
Processing Costs
Extrusion Costs
Milk Orange Juice
Price of Rolls Naked (5) 530 530Transport Costs 3 3Costs paper Machine 105 105Cost "Pulp" 319 319Total Cost of Rolls Naked (6) 427 427Margin Stationery (6-5) 103 103Margin Stationery % 19 19
Total Dairy Pack 355 67Total Dairy Pack in % 31 8
Printing Costs
Total Margin
Dairy AreasOrange Juice
BrandsMilk Orange Juice
Supermarket Distributor 14400*0.12 = 1728 14400*0.3 = 4320 14400*0.47 = 6768
Manufacturer/ dairy 14400*0.09 = 1296 14400*0.2 = 2880 14400*0.25 = 3600Transformation 248 248 (40)Extrusion 4 4 4Paper 103 103 103 Total Champion 355 355 67
% of total margin realized on the value
chain by : Champion 10.5% 4.7% 0.6%Distributor 51% 57% 65%Manufacturer/ dairy 38% 38% 34.5%
(Margins per ton of carton)
ROA per tonne of Cardboards Regional Dairies Branded Orange JUICE Milk Orange juice Cost SP Marging/ .5 gallon Margin Assets ROA Margin Assets ROA Margin Assets ROA
Store1.041.20
1.161.50
0.12.30.47 1728.00 1800.00 96.00 4320.00 1800.00 240.00 6768.00 1800.00 376.00
Dairy Manufacturer0.951
1.041.20
.09'.20 1296.00 5400.00 24.00 2880.00 2890.00 99.65 3600.00 2890.00 124.57
Converter 248.00 830.00 29.88 248.00 830.00 29.88 -40.00 830.00 -4.82Extrusion 4.00 190.00 2.11 4.00 190.00 2.11 4.00 190.00 2.11Mill 103.00 2800.00 3.68 103.00 2800.00 3.68 103.00 2800.00 3.68
Total 355.00 3820.00 35.66 355.00 3820.00 35.66 67.00 3820.00 1.75
Per ton cost
Pulp Mill 1600
Paper machine 1200
Extruder 190
Converting plants 830
Juice processor 2890
Small Dairy 5,400
Super market space 1,800
Overall Size of the Market - 375,000 tonsOur Market Share - 40%New Volume in 1988 - Nil. Stable MarketOpportunities Uncertain supply of plastics. This is a by-product for the oil
companies. Environmental indignation over plastics. Nutritionally, paper is better than plastics. Potential to realize price premium for cartons by working with
dairies to create differentiated milk, just like the branded Orange Juice.
Necessary investment:Technological (paperboard) 43,000 000New equipment (extrusion) 17,000 000Rotogravure printing 15,00000Total 61,500000
Market sizeTropicana (15,000) + MM (10,000) + H (7,000) = 32,000 tonsAnnual growth: 10 %
Overall Size of the Market 1,112,000 tonsAnnual Growth 16%New Volume in 1988 180,000 tons
How about spending $1.75 million to participate in this one million tons market that is growing rapidly??
1) Branded OJ SegmentCapital Benefits Costa) Rebuild #19Phase I Rebuild "wet end” Improve Board Strength $16 Million Improve PrintabilityPhase II Rebuild "dry end” Improve Board Smoothness $27 Million Better Print Qualityb) Third Extruder Multilayered Polymer Coating $17 Millionc) Rotogravure High Quality Printing $1.5 Million Printingd) Any additional investments for Tropicana Nil
Total. $61.5 Million
2) Export Segment
Roll Wrapping Equipment $1.75 Million
3) Regional Dairy Segment None
How much leverage do we have over the dairy? Over the Branded OJ producers?
Who is relatively more powerful—Dairy or Branded OJ producers?
Dairy Branded OJ Producers
Number of Buyers 1,000 3(buyer concentration)Size of the Buyer Relatively Small Same size as the
paperboard manufacturers
Average Order Size 375 Tons Tropicana 15,000 tons(buyer volume) [ 375,000 tons ] M/M 10,000 tons
1,000 C-H 7,000 tonsBuyer Switching Costs Low. Buy High. Buy
commodity board differentiated boardCost of Carton/Total Cost 8.5% (8¢/95¢) 5% (6¢/117¢)Buyers’ Margin 8.6% (9¢ /104¢) 17.6% (25 ¢/142¢)
Value Extracted by SegmentsChampion’s share of margins as % ofTotal Margins 10.5% 0.6%Champion’s ROA 9.3% 1.8%
“Traditional”Cost Systems
“Value Chain”Analysis
Focus Internal External
Perspective Value-Added Entire link from suppliers to end use customers
Cost DriveConcept
Simplistic• Single Driver (“Volume”)• Applies at the overall firm level
Comprehensive• Multiple• Applies at the individual value activity level(“different cost drivers for different value activities”)
CostContainmentPhilosophy
Simplistic• “Across-the-Board” costreductions
Refined• “Spend to Save”• Exploit linkages with Suppliers• Exploit linkages with customers• Exploit linkages across valueActivities
Investment Choice◦ V.A.N of projects◦ Remark : Acceptable result (= 13%) for
61,500,000 of investments in the differentiated market
BCG analysis◦ “Harvest” the “Cow’s milk” (Dairy)◦ Develop a part of market and invest in the
differentiated market (OJ & Export)Value Chain
◦ Restart to invest for the interest cause for Champion in the differentiated market Report of suppliers/buyers force in their disfavor