09/04/2023 Praxis Business School 1

Key Performance Indicators and

Drivers of Planning and Budgeting - Food Business of ITC

Presented by:

Group - 1

Members:Bishnu PandaKailash Gupta

Kalyan Kumar DasSubhasish Das

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Agenda

Overview of Indian Packaged Food Industry

ITC in food division

Key Performance Indicators

Corporate Performance Management Model

Conclusion

Indian Packaged Food Industry

• India's packaged food industry is likely to double by 2015 to touch $30 billion from the current $15 billion, with a CAGR of 15%-20%, says ASSOCHAM study.

• Main categories of packaged food are bakery products, canned processed food, frozen processed food, meal replacement products and condiments.

• Drivers for growth: Economic growth and rise in disposable income Changing demographics Changing urban lifestyle Supermarkets and hypermarkets increasingly popular Domestic and multinational companies drive growth Strong desire among consumers to maintain a healthy lifestyle Growing awareness of functional ingredients such as herbs, minerals, vitamins, omega fatty acids and

probiotics• Metropolitan city residents are the largest consumers of processed food, where urban residents consu

med 78% of all packaged food in 2011, with rural residents consuming just over 22%.

• 82% of workforce prefer packaged food viz. processed dairy products, frozen ready-to-eat foods, diet snacks, processed meat and probiotic drinks rather eating outside.

• Competitive Landscape consists of players viz. HUL, Nestle, ITC, Pepsico, Dabur, Cadbury, Haldirams, Britannia, Godrej and Parle Agro.

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ITC in food division

• Entered the food business in 2001 with Kitchens of India as a brand under RTE segment.

• Launched in Confectionery, Staples and Snack Foods segments in 2002.

• Food business is over Rs 2,500 crore in size with an impressive growth of 25% in 2011 over 2010.

• Ranks third after HUL and Nestle.

• Market leader in flour, second in confectionery, salt and packaged snack, and third in biscuits.

• Renowned brand like KoI, AASHIRVAAD, Sunfeast , mint-o, CANDYMAN, Bingo.

• Net Turnover at `21167.58 crore INR grew by 16.6% in 2011 primarily driven by a 23.1% growth in the non-cigarette FMCG business.

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KPIs

Product Improvement: New products introduced per quarter % first time right Standardization of products

Optimize Cost: Inventory Turnover Ratio Interest cost reduction % Cost of quality Cost reduction % Transportation cost as %age of Total Cost

Improve training capabilities: Training hours imparted Training cost reduction Absenteeism

Technology: Improvement, enhancement or additions in

the existing applications Deployment of Supplier Portal

Supply Chain: Inventory stock-out value % of Damaged goods Transportation cost as a percentage of revenue Average order-to-shipment lead time

Sales and Marketing: Time-to-market for new food products Packaged foods export More retail penetration at rural markets Packaged food exports Sales forecast fidelity Region-wise and period-wise sales Sales by executives Days sales outstanding

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CPM Model

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Strategy Alignment

• Rural Penetration• Inventory Turnover Ratio to be

increased• Improvement of technologies and

systems for operational efficiency• New products to be introduced• Just in time manufacturing• Transportation cost to be decreased• Advertising• Continuous Innovation• Hygiene Quotient• Demand Forecasting

Business Strategy

IT Infrastructure

IT Strategy

Business Infrastructure

• New Hires• Potential Modern Retail• Upgradation of existing IT Infrastructure

and new purchase

Infrastructure

Strategy

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Strategy Maps

Training & development

programs

Hire of sales executive

Gain Market Share

Increase NPM

Increase PAT and Dividends

Quality assurance

Continuous innovation

Hygiene quotient

Just-In-Time manufacturing

Enabling People

Delivering strategic process

Providing satisfying customer experience

Meeting shareholder expectations

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Planning and Budgeting (1/2)

Pressures impacting the planning and budgeting process:• To improve the accuracy of the budget• To improve agility to adapt as conditions change• Provide cost control• Reduce time to prepare and finalize budgets• Need for increased visibility throughout the process

• Target setting for the next fiscal year at 20% more compared to the last fiscal.• Business Planning: Stores in rural India to be reached

Internal system upgradation Product development Booking advertisements slots in media Health and nutrition factors

• Financial Planning: Top line growth - 20%-25% with price inflation of 5%-10% and bottom line growth - 12%-15%

Steps:

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Planning and Budgeting (2/2)

Business Metrics driving Budget Process:

• Revenue Quotas• Planned head count company wide• Planned headcount by group/dept.• Marketing spend• Overhead rates• Cost budget per dept.• Fixed compensation plans• Variable compensation plans• Research and development investments

Process:

Bottom-up: This approach involves all the areas in the organization to prepare the budget. It is based on collection and analysis of actual performance data, calculation of next fiscal period budget from each dept. The process is iterated to the divisional level and eventually to the corporate level.

Top-down: An exercise that doesn’t involve all areas of the organization. Members of senior management involve in the budget creation based on set of goals and then communicated to the organization.

Blend of the above two approaches.

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Budgeting-Pros and ConsPros:

• Budgets provide a means of communicating management's plans through the organization.

• Budgets force managers to think about and plan for the future. In the absence of the necessity to prepare a budget, many mangers would spend all of their time dealing with daily emergencies.

• The budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively.

• Budgets coordinate the activities of the entire organization by integrating the plans of the various parts of the organization. Budgeting helps to ensure that everyone in the organization is pulling in the same direction.

• Budgets provide goals and objectives that can serve as benchmark for evaluating subsequent performance.

Cons:

• Budgets can be seen as pressure devices imposed by management, thus resulting in:

a) bad labour relationsb) inaccurate record-keeping.

• Departmental conflict arises due to:a) disputes over resource allocationb) departments blaming each other if targets are not attained.

• It is difficult to reconcile personal/individual and corporate goals.

• Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often coupled with "empire building" in order to enhance the prestige of a department.

• Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs.

• Managers may overestimate costs so that they will not be blamed in the future should they overspend.

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Evaluation

Measure:

Close and consolidateDashboards

Balanced ScorecardsReporting

MIS

Insight:

Goal and performance trackingForecasting

Business MonitoringBusiness Analytics

BenchmarkingProduct/Customer Profitability

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