Analysis

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Sun after storm
A Case Study on Even’ Star Organic Farm
Dream Chasers
From Sun Yat-sen University
ZHANG Wei
HUANG Peilong
PENG Weijian
LIU Mengning
Introduction
Brett
Manager of Even’ Star
Members of IMA
Outline
A. Case Overview
•
A1 Storm before Sun
•
B1 A STORM Framework
•
C1 Quantitative Method
•
C2 Qualitative Method
•
C1 A Differentiation Strategy
•
E1 Short-Term Decision
•
E2 Mid-Term Planning
•
E3 Long-Term Strategy
•
F1 Weather Conditions
•
F2 Petrol Price Increase
B. Current Situation Analysis
C. Apportion Analysis
D. Strategy Positioning
E. Utilization & Implementation
F. uNcertainty
Goal: To help Even’ Star Organic Farm maximize profits in the long run.
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
A1 Case overview
A STORM Framework
Analysis
Social Conditions
Technical Conditions
Organizational Conditions
Revenue Conditions
Market Conditions
Apportion Analysis
A SUN Solution
Strategy Analysis
Utilization &Implementation
uNcertainty
Case
Overview
Current
Situation
Strategy
Analysis
Apportion
Analysis
STORM
Utilization &
Implementation
uNcertainty
Framework
B1
Social Conditions
 Industry Retrospect:
Growing Consumption of
Organic Products
Introductory
Growth
Maturity
Total
Market
Sales
 Huge Gap between Supply
and Demand:
Organic Farming
Organic Product has a blooming future
Decline
Case
Overview
Current
Situation
Apportion
Analysis
STORM
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Framework
B2
Technical Conditions – Planting Procedure
Stored in
containers
Covered with black plastic
$ 133 per acre 2
Seedlings
4
1
Seeds
In the greenhouse
$ 1 per seed
$ 700 per acre
3
Irrigation
$ 50 per acre
Produce
Yield is seriously infected by weather conditions
Containers
Case
Overview
Current
Situation
Apportion
Analysis
STORM
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Framework
B2
Technical Conditions – Transportation
Transportation of Product
Truck $ 7000
Variable Cost:
$ 0.13+ $ 0.21= $ 0.34 per Mile
Depreciation of Truck
$7,000
for100,000 Miles
180 miles
6 hours
70 miles
2 hours
220 miles
8 hours
Distance
Restaurant is the most time and distance consuming
Time
Case
Overview
Current
Situation
Apportion
Analysis
STORM
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Framework
B3
Organizational Conditions
Planting
Work
Brett
3 days per week
Transportation Work
Brett
4 days per week
50 +
Every week
Packing
Work
Brett
Part-time Laborers
$ 10 per person
$ 44 per week
Brett works almost everyday without rest.
Case
Overview
Current
Situation
Apportion
Analysis
STORM
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Framework
B4
Market Conditions
Low
Restaurant
Restaurants
Upscale restaurants
Fixed product catalogue
every week
Farmer’s Market
High risk/high return
10% spoilage rate
Selling Price High
CSA
Farmer’s Market
Community-Supported
Agriculture
Advantages for farmers:
1.Get to spend time marketing the food early
in the year
2.Receive payment early in the season,
which helps with the farm's cash flow
3.Have an opportunity to get to know the
people who eat the food they grow
CSA is getting popular in the US
Case
Overview
Current
Situation
Apportion
Analysis
STORM
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Framework
B5
Revenue Conditions – Channels
margin per week($)
Restaurants have the highest margin
and revenue per week.
1000
900
800
Restaurants make up 56% of the
revenue
700
600
500
Revenue per week($)
400
300
200
Farmer’s
Market
100
0
Restaurant
CSA
23%
Farmer
market
Restaurants have the highest
margin per week
Restaurant
21%
CSA
56%
Case
Overview
Current
Situation
Apportion
Analysis
STORM
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Framework
B5
Revenue Conditions – Channels
Farmer markets
CSA
Time is most effectively used in
Restaurants
Restaurant
0.00% 50.00% 100.00%150.00%200.00%250.00%
The effectiveness of time
resources
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Reataurant
CSA
Farmer
market
Rate of Return (Revenue/ Variable cost)
CSA shares the highest rate of
return.
More time of CRM can be spent in the
restaurant channel and the CSA has the
highest potential of Profitability.
Case
Overview
Current
Situation
Apportion
Analysis
STORM
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Framework
B5
Revenue Conditions – Produce
Yield
Profit structure of each Breed
Farmer’s Market
CSA
Restaurants
Winter squash
Sweet potatoes
Cucumbers
Basil
Okra
Watermelon
Tomatoes (small)
Tomatoes (large)
0
500
1000 0%
20%
Tomatoes’ output has far exceeded the others and its
elasticity of demand is relatively little.
40%
60%
80%
100%
Case
Overview
Current
Situation
Apportion
Analysis
Social Conditions
Technical Conditions
Organizational Conditions
Revenue Conditions
Market Conditions
Strategy
Analysis
Utilization &
Implementation
STORM Conditions
Apportion Analysis
uNcertainty
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Classify Relevant Cost and Non-relevant Costs
The Restaurant
Channel
Relevant
Cost
Cost of seed
&seedling
Fertilizer cost
Plant, care &harvest
Packaging
Fuel
Maintenance &repair
Depreciation of
tangible assets
Communication cost
Non-relevant
Cost
We should focus on the relevant cost
The CSA
Channel
The Farmers’
Market Channel
Cost of seed
&seedling
Fertilizer cost
Plant, care &harvest
Packaging
Cost of seed
&seedling
Fertilizer cost
Plant, care &harvest
Fuel
Maintenance & repair
Depreciation of
tangible assets
Communication cost
Fuel
Maintenance & repair
Depreciation of tangible
assets
Preparation for the truck
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
Caselot for CSA
Foundation of Adjustment:
1. Different profit margin of different crops
2. Variability and Abundance
3. Long term CRM (Focus on CSA)
Items
Tomatoes (large)
Tomatoes (small)
Watermelon
Okra
Basil
Cucumbers
Sweet potatoes
Winter squash
Percentage of
Last Season
12.50%
8.25%
10.00%
5.00%
5.00%
16.67%
10.00%
18.75%
Percentage of
This Season
12.50%
14.12%
5.00%
9.00%
7.00%
5.00%
11.00%
21.68%
uNcertainty
Case
Overview
Current
Situation
Strategy
Analysis
Apportion
Analysis
Utilization &
Implementation
uNcertainty
C1. Quantitative Analysis – Linear Programming
Step One List all the constrained conditions & objective function
Tomatoes
(large)
The Restaurant
Channel
The Farmers’
Market Channel
The CAS Channel
▪
2.175X
▪
0.125Y
▪
31-(2.175X+0.125Y)
Tomatoes
(small)
▪
3.5X
▪
0.141Y
▪
45-(3.5X+0.141Y)
Watermelon
▪
0.4X
▪
0.05Y
▪
13.33-(0.4X+0.05Y)
Okra
▪
0.15X
▪
0.094Y
▪
5.6-(0.15X+0.094Y)
Basil
▪
0.2X
▪
0.07Y
▪
4.8-(0.2X+0.07Y)
Cucumber
▪
0.9X
▪
0.15Y
▪
22.33-(0.9X+0.15Y)
Sweet
potatoes
▪
0.33X
▪
0.11Y
▪
7.11-(0.33X+0.11Y)
Winter
squash
▪
0.225X
▪
0.22Y
▪
8.88-(0.225X+0.22Y)
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Quantitative Analysis – Linear Programming
Step One List all the constrained conditions & objective function
Constrained Condition
1. Constrained by products
0
0
0
0
0
0
0
0
≤ 31-(2.175X+0.125Y) ≤31
≤ 45-(3.5X+0.141Y) ≤ 45
≤ 13.33-(0.4X+0.05Y) ≤ 13.33
≤ 5.6-(0.15X+0.094Y) ≤ 5.6
≤ 4.8-(0.2X+0.07Y) ≤ 4.8
≤ 22.33-(0.9X+0.15Y) ≤ 22.33
≤ 7.11-(0.33X+0.11Y) ≤ 7.11
≤ 8.88-(0.225X+0.22Y) ≤ 8.88
2. Constrained by working hours
0≤5+1.183X+0.6208Y≤24
3. Constrained by truck capacity
0 ≤ 130.06-(7.883X+0.8617Y) ≤ 40
Objective Function
Z=3081.47-32.918X-0.62601Y
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
Quantitative Analysis – Linear Programming
Step Two Feasible Region within the restrained conditions
(8.98,31.63)
uNcertainty
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
Quantitative Analysis – Linear Programming
Step Three Optimal solution of linear programming
Because of integer programming
Optimal solution:
Quantity of Restaurants served: X=9
Quantity of CSA subscribers: Y=32
Maximized relevant profits per week:
Z=3081.47-32.918×9-0.62601×32 ≈$ 2764.18
uNcertainty
Case
Overview
Current
Situation
Strategy
Analysis
Apportion
Analysis
Utilization &
Implementation
uNcertainty
Quantitative Analysis – Planned Sales Structure
The Restaurant
Channel
9
The CSA
Channel
Average Weekly Restaurant
Delivery Composition
(Total for 9 Customers)
32
Average Make-up of a
Single CSA “Box”
(Total for 32 Subscribers)
Cases
The Farmers'
Market Channel
Approximate % of a
Standard Harvest Case
Average Weekly Sales
Cases
Tomatoes (large)
19.58
Tomatoes (large)
7.43
Tomatoes (small)
31.50
Tomatoes (large)
12.50%
Tomatoes (small)
8.98
Watermelon
3.60
Tomatoes (small)
14.12%
Watermelon
8.13
Okra
1.35
Okra
1.24
Basil
1.80
Basil
0.76
Cucumbers
8.10
Cucumbers
Sweet potatoes
3.00
Sweet potatoes
11%
Sweet potatoes
Winter squash
2.03
Winter squash
21.68%
Winter squash
Watermelon
5%
Okra
9%
Basil
7%
5.00%
Cucumbers
12.63
0.44
0
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Qualitative Analysis
Solvency
Significant debt
To buy and build the farm,
Brett spent a lot from saving
and assumed significant debt.
Time of Cash-in Flow
Restaurant Channel:
CSA Channel: Receive $400 from
each subscriber at the beginning of
the 15-week season.
Farmers’ Market Channel: Cash sale
To improve the cash flow performance
Increase the sales of CSA channel and Farmers’ market
while decrease the sales of restaurant channel.
Case
Overview
Apportion
Analysis
Current
Situation
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Qualitative Analysis
Opportunity Cost
Channel
Time consumed
(hours per week)
The restaurants
14.83
CSA
8.9
Farmer markets
27
In total
50.73
Brett hope the farm would become
profitable enough to support them
both comfortably in the near
future.
Personal
Satisfaction
Proper working hours and
schedule should be made.
e.g. working hours≤ 48h per
week
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Qualitative Analysis
Trend of Different Channels
The restaurant channel:
additional 10 potential restaurants
in the coming season
The CSA channel:
33 to 90 potential subscribers
growth rate of 220% of CSA channel in general
The farmers’ market channel:
high risk and high profit with large demand
Good
Very Good
Increase
Increase
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Strategy
VISION: to provide high-quality & hi-end organic product
S
O
Food with high quality
1.A huge gap in the market
2.A sharp increase in
potential customers
Differentiation
Strategy
Internal
A sharp decrease in yield
next year
W
uncertainties in weather
and other related factors
T
External
Case
Overview
Current
Situation
Utilization &
Implementation
Strategy
Analysis
Apportion
Analysis
uNcertainty
Short-term decision – Planned Sales Structure
The Restaurant
Channel
9
38
The CSA
Channel
Average Weekly Restaurant
Delivery Composition
(Total for 9 Customers)
32
Average Make-up of a
Single CSA “Box”
(Total for 38 Subscribers)
Cases
Approximate % of a
Standard Harvest Case
Tomatoes (large)
19.58
Tomatoes (small)
31.50
Tomatoes (large)
Watermelon
3.60
Tomatoes (small)
Okra
1.35
Basil
1.80
Cucumbers
8.10
Cucumbers
Sweet potatoes
3.00
Sweet potatoes
Winter squash
2.03
Winter squash
The Farmers'’
Market Channel
Average Weekly Sales
Cases
Tomatoes (large)
7.43
12.50%
Tomatoes (small)
8.98
14.12%
Watermelon
8.13
Okra
1.24
Basil
0.76
Watermelon
5%
Okra
9%
Basil
7%
5.00%
11%
Cucumbers
Sweet potatoes
Slight adjustment
due to strategic
concerns.
Winter squash
21.68%
12.63
0
0
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Short-term decision – Forecast Income Statement
Revenue
The
Resturant
Channel
2113.99
Cost of sales(including packaging)
(1233.26)
(385.59)
880.73
535.41
816.98
2233.12
Depreciation of tangible assets
(15.05)
(4.90)
(20.30)
(40.25)
Fuel
(45.15)
(14.70)
(60.90)
(120.75)
Maintance and repair
(27.95)
(9.10)
(37.70)
(74.75)
(3.69)
(0.70)
0.00
(4.39)
Total operating expenses
(91.84)
(29.40)
(118.90)
(240.14)
Operating profit for week
788.89
506.01
698.08
1992.98
Gross profit
The CSA
Channel
921.00
Farmers'
Market
Channel
1298.82
Total
4333.81
(481.84) (2100.69)
Less Operating expenses:
General and adminstrative
expense(communicaiton)
Case
Overview
Current
Situation
Apportion
Analysis
Utilization &
Implementation
Strategy
Analysis
uNcertainty
Brett’s Timetable
6:00 7:00 8:00 9:00 10:0011:0012:0013:0014:0015:0016:0017:0018:0019:0020:00
7:00 8:00 9:00 10:0011:0012:0013:0014:0015:0016:0017:0018:0019:0020:0021:00
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Leisure Day
Communica
tion (CSA)
Farm
Management
TEL
(Resta
urant)
Packing
Farm
Management
Transportation
(CSA)
Farm
Management
Farmers’ Market
Farmers’ Market
Save unnecessary time so as to take care of the farm and rest
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Mid-Term Planning
Sensitivity Analysis
Variable
Value
Price Added
per Unit
Limitation
Increment
Allowed
Decrement
Allowed
Truck’s
Capacity
40
5
40
62.77
12.97
Advice:
Purchase a New Truck in 2 years
Estimated Cost: $10,000
Capacity: 30 Cases per Trip
Value Added: $5×30 × 2= $300 per Week
Purchase a new truck to enhance capacity.
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Mid-Term Planning
Transportation Outsource
Outsource transportation to restaurants to save time and cost.
Analysis:
Transportation to Restaurants per Week:
• Gasoline Cost: $0.21 × 220 = $46.2
• Depreciation & Maintenance Costs: ($0.07+&0.13)×220= $ 44
• Time Consuming: 3.5 + 0.5 × 10 = 8 (hrs)
• Opportunity Cost: $10 × 8 = $80
(Based on 10 restaurants and gasoline price stays)
The numbers of restaurants are increasing .
Oil prices are soaring!
Advice: Outsource the Transportation to Restaurants
• Cost Added: $ 150 per week
• Profit Added: $46.2+$44+$80-$150 = $20.2 per week
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Ncertainty - Weather Conditions
u
Weather of Summer
(Jun to Aug) in South
Maryland:
Average rainfall/precipitation: 286.5 mm
Average rainy days: 22.3 days
1. Weather
Best Condition
Weather: sunny
Result: sell out
all the product.
Average Condition
Weather: normal
Result: overall
spoilage rate is
about 10%.
Worst Condition
Weather: rainy
Result: half
products unsold ;
50% of unsold
spoiled.
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Ncertainty - Weather Conditions
u
Best
Average
condition
Revenue & Profit per
week
Rainy days
X<20
Revenue: $4478.12
Profit: $2137.29
Rainy days
20<X<30
Revenue: $4333.81
Profit: $1992.98
Action
Make preparation for different weather conditions.
Worst
Rainy days
X>20
Revenue:$3756.55
Profit: $1415.73
Shift the scale from
farmers’ market to
restaurants and
CSA channel.
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Ncertainty
u
2. Gasoline Price
2011 Nov
$?
If
Then
Still increasing
2010 Nov
$ 2.82 per gallon
10% increased
The pump price is raised
The cost of delivery increases
What to do
Enlarge the sale scale of CSA.
Decrease the delivery of long
distance restaurants.
2009 Nov
$ 2.65 per gallon
Outsource the delivery
service.
Case
Overview
Current
Situation
Apportion
Analysis
Strategy
Analysis
Utilization &
Implementation
uNcertainty
Ncertainty
u
Increasing Price of fertilizer
Mitigation:
Grow those crops that use
less fertilizer.
Raise the price slightly.
Pay attention to the
other uncertainties
Rapid Inflation
Mitigation:
Increase the price
Summary
A STORM framework Analysis
A. Case Overview
B. Current Situation Analysis
C. Apportion Analysis
Social Conditions
Technical Conditions
Organizational Conditions
Revenue Conditions
Market Conditions
D. Strategy Positioning
E. Utilization & Implementation
A SUN Solution
F. uNcertainty
Management Accounting Approaches such as Linear Programming and Sensitivity
Analysis are applied to help Even’ Star Organic Farm go from storm to sun.
Thank You for Your Time!
Dream Chasers
From Sun Yat-sen University
ZHANG Wei
HUANG Peilong
PENG Weijian
LIU Mengning
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