Case-Study

SALSA-CREAM” (SAC) is a spin-off venture (fictitious) from “El Sin Rival”, an existing ice-cream company from El Salvador. The head quarter and main production facility of SALSA-CREAM is in San Salvador, from which they operate in medium scale throughout Central America. They currently license the right to produce 150 metric tons of El Sin Rival’s premium ice-cream (maruenge-type fluffy sorbet) per annum in their production plant which currently are underutilized due to the many societal and market challenges in that region. The sorbet comes in different flavours mostly unique to El Salvador. SALSA-CREAM has recently expanded their business successfully to the U.S on behalf of El Sin Rival and in general taken the role to be their licensed international partner.

 

https://www.latimes.com/food/story/2019-09-14/el-salvador-sorbet-el-sin-rival

 

While this business model has been financially successful, they lack necessary skill sets to embrace further international opportunities. At large, they lack understanding of logistics, the nature of international business and operative management skills. After hiring a new CEO, a former executive of an Australian FMCG retailer, Mrs Sue, she used her network to undertake an IPO (SALSA-CREAM is now listed on the Sydney Stock-Exchange). Sue has >15 years of IB experience in the FMCG marketplace.

 

The first week after the IPO she re-organized SALSA-CREAM and replaced the entire Salvadorian Top Management Team (TMT) with specialists through a geocentric HR approach and announced vivid expansion plans. This is where you enter the picture: you have been hired as the International Operations Manager (OM). The OM position reports to the CEO and to the CMO due to SALSA-CREAM’s matrix-organization. The new TMT is:

 

Title              Name       Nationality               Global Responsibility           

CEO             Sue          Australian                 Chief Executive Officer

CMO            Girg          Hungarian                 Chief Marketing & Sales Officer

CTO             Ji              Chinese                    Chief Technology & IT Officer

CFO             Jesus       Mexican                   Chief Financial Officer

OM               “You”      [your culture here]    International Operations Manager

The IPO provided SALSA-CREAM with AUD $63 million of which $30 million is allocated towards the first expansion phase. Sue have decided to enter six countries in the MENA region in four years. The target countries are Morocco, Algeria, Tunisia, Egypt, Jordan, and Saudi-Arabia. Your will relocate to Cairo as an expatriate for three years to: start up SALSA-CREAM’s regional HQ; to create needed operations capabilities; and to successfully operate in the first-priority start-up market Egypt. You need to plan and design the operations in Egypt so that it enables a later expansion into the other countries. Your potential funds (as described above) in local currency is Egyptian Pounds (EGP) £315 million.

 

Your S.M.A.R.T objective is to erect a solid supply-chain with quality operations- and logistic systems covering the Egyptian needs in form of securing production capacity (at Home or in the Host Market), and sales and distribution capability (i.e. you need to address both the input side, and the output side of the value-chain). Once the Egyptian operations are productive it must be scalable to successfully enable sales and distribution in the other five target markets. You therefore need to ensure to meet the business metrics: to supply 225 metric tons of sorbet per market and reaching sales revenue of £265-310mn EGP the second fiscal year (FY2).

 

 

The above capacity is equivalent to 1,800,000 servings of sorbet (approximately). The strategy is to sell directly to the ultra-premium segment (high-quality upper-end restaurants located in luxury hotels) who in turn sell these deserts to their guests. This is expected to generate an annual EBIT (operating profit) of $10-15mn AUD for SALSA-CREAM (representing a net profit target of $7-9mn AUD). Remember to convert monetary components or outcomes measured in EGP to AUD (and vice-versa) at the provided exchange rate. Expect that similar projections, performance, quotas, and outcomes etc. applies in the other target markets as well. The approximate wholesale price is projected to be $12-16 AUD per serving (SKU) at a recommended retail price (RRP) of $24-30 (approximately) per serving.

 

Conducted market research displays a strong market potential for the SALSA-CREAM brand in the MENA region indicating a sales spread for the three products of 10%, 30% and 60% (for the Tamarind, Jocote and Arrayan sorbets respectively) at RRP range >£300-£340 EGP, at the consumer level (B2C).

 

The mainstream ice-cream industry is globally operated by large multi-national companies (MNC’s) that enjoy almost an oligopoly status. While the end-user always is a consumer (B2C) your business transactions always occurs in a B2B format (business with the retailers). Success in this industry is therefore dependent on strong customer service and relationships, strong supplier relationships and logistic excellence. To compete in the shadow of such MNC’s with SALSA-CREAM’s luxury-niche products, there is a discussion among the TMT of how to best enter the Egyptian market. They have discussed the following entry modes:

 

Alt. A: Expand the Salvadorian operations by 300% and export FGI directly to Egypt, or

 

Alt. B: Set up a Wholly owned Subsidiary (WoS) including a purpose-built sorbet production plant in Cairo with five times the current maximum capacity of the Salvadorian plant, or

 

Alt. C: Set up a Joint-Venture (JV) with a much larger but low-cost, low-end focusing ice-cream company located in Marrakesh, or

 

Alt. D: To acquire and convert a Medina based yoghurt producer with similar production capacity as the Salvadorian operation.

 

While discussing these options as potential avenues that each could be a good option (or not), the only decision they made is not to focus on C or D. The rest is up to you. Since you are the new OM and responsible for the results you must now assess the options and make all the decisions for this international business expansion. Your job is therefore to make specific, detailed, and justified decisions based -among other things- on the predicted ‘Income Statement’ and ‘Strategic Profit Model’. In addition to all the things you now must do, you also need to complete a Risk Assessment (RA), a Procurement Tactic Assessment Plan (TAP), and draw a comprehensive model of the finalized value-chain (covering all components thereof). Remember, the £315 million EGP investment is your responsibility!

 

Assume you will have a local staff of 33 FTE at your disposal (monthly salary £9,800 per FTE) to get your MENA expansion operative (all costs for these FTE’s apart from what’s listed in the spreadsheets is not part of your budget). Also assume that your team (the staff) have the different needed skills sets and language capability (English and Arabic) so that they jointly are capable to perform the different organizational functions and tasks you decide upon.

 

Additional operating information is provided in the provided excel-spreadsheet. Remember, your decisions should not rest upon costs or profit outcomes alone.

 

 

 

 

RISK ASSESSMENT

 

 

 

How to use the RA:

Once you have assessed and described the Top-5 potential risks, drag-and-drop the above stars labelled 1 to 5 to the applicable grid-position. That is, locate the stars regarding the probability of an event to occur and the level of severity for SALSA-CREAM should it occur, then describe and recommend how to mitigate each of the detected risks.

 

Short term (ST) = <6 months      Medium term (MT) = 12-24 months   Long term (LT) = >24 months

R. # Time

frame

Risk description: Suggested Mitigation:
 

 

1

     
 

 

2

     
 

 

3

     
 

 

4

     
 

 

5

     

 

 

Procurement Tactical Assessment Plan

 

 

 

 

How to use Kraljic’s Procurement Model:

Once you have decided how to enter the Egyptian marketplace, decide which one (according to Kraljic’s model) of the three core input categories you would consider to have the above properties (e.g. if packaging would be considered to have high/low importance in combination of high/low complexity). List all necessary products, consumables, and components in the quadrant they belong in, and assess its impact on your logistics plan.

 

 

Design Your Value-Chain

 

There is three ‘groups’ of activities you need to address/design for SALSA-CREAM:

 

  1. SCM & OPS: this is the ‘input’ part (capacity) of your assessment.
    Example: How much do we need to produce; where should we produce it; how do we ship what is needed?
  2. DISTRIBUTIONS & S/M: this is the ‘output’ part (capability) of your assessment. Example: how many customers do we need; where are they located; how do we get the products to these locations; how do we get it to each customer; how do we store our products; where do we store it etc.?
  3. SERVICE & PROFIT: this is the ‘results’ part (continuation) of your assessment. Example: given our decisions in (a) and (b) above, what is the costs for each alternative, and how much do we make in profit?

 

 

A: [expand on brief explanation above]

 

B: [expand on brief explanation above]

 

C: [expand on brief explanation above]

 

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