Kellogg's business executive summary - Research Paper Example

?Business Table of Contents Table of Contents 2 Executive Summary 3 Position 4 Sense 7 Uncover 9 Solve 13 Build 14 Achieve 15 References 17 Appendix 1 20 Appendix 2 21 Executive Summary In this deranged business environment organizations are facing a set of issues, which may defy their operational capability and marketing functionality and even in some extreme cases withhold or impede an organization’s overall business. These issues or the problems are reliant on the mode of operation of the organization. But there are some common challenges, which majority of the organizations are facing. The present business environment comprises of peoples, who are the receivers of an organizations offerings with goods and services and competitors. The rapidly shifting natures of people about their likings, disliking, beliefs, preferences and lifestyles are the common challenges an organization is facing. There are many other external challenges which an organization faces apart from its internal challenges and problems. In order to conduct the study on organizational problems Kellogg’s has been chosen as the organization. There is no specific reason for choosing this organization but given its presence in the market for over a hundred years and a huge brand value will certainly help the cause. The study is aimed to provide more insights which determines and gives rise to some of the organizational problem and also to evaluate the required solutions for assisting the organization in the formation of a new strategy or a course of action. The report will highlight the problems that Kellogg’s has faced recently. Apart from this the report will also try to put some of the ways by which the problems can be sorted out. After the recommended plan it will be illustrating some of the techniques by which the proposed solutions can be implemented and further evaluated. After studying the subject and conducting the required researches the key findings of the report are the problems which Kellogg’s is facing presently or has faced in the recent past. The problems are the common problems which an organization usually faces in their operations and some other specific issues. The significant issues which have been taken into are the rising cost of raw materials, reduces bargaining power, issues related to packaging and the traditional problem with competitors. Among the aforementioned issues this report will principally focus on the rising cost of raw materials. The report will also highlight the core reasons for which there is an increase in the price of raw materials. Now in order to get rid from the focused problem it has been recommended that Kellogg’s must have mutual contracts with their suppliers for pre booking the raw materials in the current market price by paying in advance. The company should also make sure that they purchase large amount of raw materials for availing discounts. The company must also focus on cutting down the cost of some superfluous factors which will help the company to strengthen its current financial position. Position Kellogg’s company along with its subsidiaries, is affianced in the production and marketing of ready to consume cereals and other convenience foods (Companydatabase n.d.). Kellogg’s was founded in the year 1906 by Will Keith Kellogg and John Harvey Kellogg in the name of ‘Battle Creek Toasted Corn Flake Company’ (Kellogg’s n.d.). And the organization got renamed as Kellogg Company during the year 1922. The company is presently headquartered at Battle Creek, Michigan, USA. It is presently headed by David McKay. The company started its operation with only 44 employees but today it has made its presence in more than 180 countries around the world and manufactures in 18 countries (Kelloggcompany n.d.). In order to sell their product in the market the company uses brokers or distribution channels. They principally targets grocery shops for the distribution of products which are intended for the end users or the consumers. Some of the essential products of the company include cookies, toasters, cereal bars, frozen waffles, fruit snacks and veggie foods (Bloomberg 2012). Apart from this noteworthy brands of the company includes Kellogg’s, apple jacks, frosted flakes, raisin bran, rice krispies, eggo, fiber plus and nutri-grain bars among many others. The company predominantly focuses on providing nutrition along with good tastes in order to meet the quality standards. The company is also considered as world’s leading producer of cereals and convenience product. Furthermore, in 2011 the company has witnessed a whooping sales figure of $13 billion. According to the financial year of 2010 the company generates 68% percent of its revenues from North America, 18% from Europe, 7% from South America, and the rest from Asia Pacific region. The major competitors of the company are General Mills, Kraft’s, Private level and Quaker a division of Pepsi co. which gives stiff competition to the leader. The Vision statements of the company:- ‘To enrich and delight the world through foods and brands that matter’. The Mission statements of the company:- ‘To drive sustainable growth through the power of our people and brands by better serving the needs of our consumers, customers and communities’. The purpose of the company:- ‘Nourishing families so they can flourish and thrive’. The mission and vision statement describes how the company is focused towards the well-being of the consumers. The company also focuses on providing foods which enriches people and becomes the reason for their delightfulness. The vision of the company is motivated by their consumers and it illustrates what they seek to reach in the future. And the mission statement defines the reason for the existence of the company and the responsibility they perform and notifies the way to deliver its vision. The mission and vision statement are considered as the base of the company. Therefore as a multinational company and together with its employees the company wishes to provide some of the most cherish able moments for their customers (Kelloggcompany n.d.). The values of the company facilitate to silhouette the culture of the company and also to direct their way of conducting the business. Therefore in order to justify it the company has launched an honorary award, W.K. Kellogg Values Award for the employees. The award will be given to the employee who will portray integrity, responsibility, humbleness, simplicity and passion for work and show result in their work. The key stakeholders of the company include customers, employees, consumers, shareholder, business partners, Governmental and nongovernmental organizations and Community members. In order to satisfy the key stakeholders the company actively performs its corporate responsibility. Corporate responsibility has always been a key part of the culture of the company (Kelloggcompany 2008). Sense Rising price of Raw materials Presently, Kellogg faces one of the most complex operating environments that it has experienced during the past. The biggest challenge of all that Kellogg is facing today is the rapidly increasing price of many of the essential raw materials which are needed for the production of its cereals and snacks such as wheat and corn. The company purchases big quantities of farming commodities such as cereal grains, cocoa and also some dairy products. Therefore Increases in the prices of these raw materials increases the total cost of production and hugely decreases the profit margins. Kellogg is also defenseless to the variation in oil prices as compared to its competitors because the company practices direct store or door to door delivery system. The increase in oil price and plastic price affects both the production cost as well as the packaging cost. To add to that The growing prices of energy aggravate soaring input prices which gives rise to the cost of transportation and shipping the products to distributors of Kellogg's. Apart from this reason the company is also facing problems with economic downfall and a fragile job market which are seriously acting as a resistant on the expenses of consumers. Since the company is indulged in this kind of business they are somewhat got a slowdown due to less spending from the consumers. Reduced Bargaining power Super markets are the largest selling outlets of Kellogg’s. But with the availability of other local players in the market the trend is hugely shifting towards them as they low prices. One of the largest customers of Kellogg’s is wall-mart stores. During the last year Wall-mart is the only company which has made up 21% of the total consolidated net sales. And there is no other company which has even made 10 % of the total consolidated net sales. Kellogg’s claims that its five largest customers during the year 2010 accounted almost 34% of the total consolidated net sales and 44% of net sales in U.S. itself. Since these large clients are very much important to increase sales volume, therefore Kellogg has very less bargaining power when it comes to determine wholesale prices of their product. In other words the maximum revenue of the company gets generated from these kinds of large departmental stores. Therefore it becomes very much hard for the company to bargain with them in respect of the pricing. The consequence which the company may face if they bargain over price is that if the stores rejects to stock their product the company will hugely suffer to generate the revenues as the retail market lacks the capability of providing huge volume of sales. Competitors The major competitors of Kellogg’s are General Mills and Kraft. The competition is so intense that even company like Kellogg’s are getting hugely affected in the context of its sales volume as well as net revenue. Packaging problem The Company needed to recall a mammoth 28 million boxes of cereal after packing coating of some brands was said to be smelling anomalous and abnormal and has been the cause of diarrhea to many consumers. The company argued that the coating had been first used in beginning of the year and from then the company had been approached by more than 20 consumers complaining about sour, musty, metallic and soap-like smells and tastes are coming out of the packages. Some people even reported of having a sense of nausea and vomiting. In this context the company informed Food Production Daily that they believe that an anonymous wax-like material had moved out from the inner packing and eventually reached the cereals. This has been regarded as one of the biggest issues that the company has faced during recent past. This has even led to loss of loyal customers and the company had to face different type of consequences as well. Now in the context of this project report it will try to solve the problem pertaining to the rising price of raw materials. This problem has been chosen as it has been considered as an important issue which needs to be sorted out by the company. This problem is also directly proportional to the generation of revenue and profit. Uncover Rising price of commodities has become a common subject of discussion across the food and beverage industry. With the increasing price companies are getting adversely affected ion their bottom line of operation. They have also discovered that if all the costs are passed to the consumers it will surely not help their cause. And it will affect the sales volume as well. Due to the increase in the commodity prices the profit margins of Kellogg’s is getting impacted negatively. The increase in the price of inputs such as corn, sugar, soybean oil and cocoa has adversely affected the company. The rising price of the raw material is not only confined to the US market, it has affected the company almost on every parts of the world where it operates. Consequently, in a recent press release the company stated that higher cost of raw materials and less demand the income of the company in first quarter felt by 2% in comparison to its earlier quarters. Other data demonstrates that the company’s income fell to $358 million in comparison with its earlier $366 million. Moreover the company has also cautioned that its profit margin would stay under immense pressure as rising the product price may discourage its loyal and potential buyers from purchasing the product. The root cause of the problem of increase in raw materials has been illustrated below:- Inflation –Inflation is one of the causes of increasing prices of raw materials. Inflation is an economic apprehension since it reduces the value of money and raises the cost of purchasing goods and services. Therefore with increasing price of raw material companies also increase the product prices and ultimately the end users or the consumers have to pay more. Even the exchange value of dollar is less likely to have any effect on the recent trends (Federalreserve n.d.). Export restrictions – This has resulted negatively in the international trading market. By distracting raw materials from exporting and pushing it to the domestic markets, results in increasing the prices for foreign consumers and importers. Therefore a company which depends on import of raw materials gets severely affected (OECD n.d.). In order to portray it a Fishbone diagram is shown below:- (Source: Author’s Creation) Since the root cause of the problem is external to the company, therefore it will be not possible for the company to take action from the root. The causes described are inflation and restriction on exports, which are solely on the hands of the government of the countries. In such case a company do not holds the authority to regulate the economical standings of a country. But there are available ways by which the company can lessen the intensity of the problem by taking precautions. Some of the precautions which can be undertaken are as follows: In order to ease the effect of the increased raw material prices the company can purchase it required commodities in advance and at a large quantity. With the purchase of commodities in advance the company will be least affected by the rising prices in the succeeding phases. In other words the company can go for a contract with the suppliers that they will pay the price of commodities in advance according to the present market price. And if large quantities are bought the company will be also eligible to avail discounts. The other way around to get out of this dilemma is to pass a nominal margin to the consumers. If a few percentage of increased cost is passed to the consumers it will subsidize the company to an average extent. While doing so the company must notify its customers about the increase in price due to increase in raw materials and can assure them that the company is trying its level best to put down the cost to its former price. Kellogg’s can cut down its cost on other matters in order to balance the increasing price and final product. A cut down in other cost can help the company to keep its price normal and can be least effected with the increased price. Some of the ways of cutting cost are:- Less expanses on insurance Reduction in phone lines (Bbb 2012). More use of electronic media. Lessening down the total budget of marketing. More use of part time employees. Apart from these two possible solutions the company can use different types of techniques by which other alternatives can come up. Some of the useful tools for idea generation are brainstorming, nominal group technique and potential flaws (Asq n.d.). In order to use these techniques data needs to be gathered. The company may use Questionnaires and surveys for recording the information’s. And the final step is in the form of data analysis where the company can undergo feasibility tests. Solve This stage is where the exact solution of the problem needs to be portrayed. Now in the context of the defined problem the following can be the solution among the alternatives which has been provided previously. The first solution states that some minimal percentage of the increased cost could be passed to the consumer. In this respect there are always possibilities where the company may incur losses of sales volume. There will be customer who will shift to the competitor’s product or any other substitute product if they offer any price which is less than Kellogg’s price. However, the company will get at least few returns and can be subsidized. But this will result in a huge risk taking from the part of the company, as the company may lose its loyal customer base and huge deficit in the overall sales volume. Therefore it is recommended that the company must not increase its current product pricing and keep it as it is. The second solution is about the cutting down of cost. This step is very much necessary for the company as it will save a large amount of money for the company. Cutting down of cost may not be directly associated with the problem of increasing raw material prices, but indirectly it may help Kellogg’s to overcome the problem and can act as a serious preventive technique. Therefore it is recommended that apart from the principal solution to the problem this action is very much necessary for the company. Now the third and final proposed solution is about the buying and reserving the raw materials at the current market price for future need by undergoing a mutual contract with the supplier. In this solution it has been also proposed that Kellogg’s can buy large bulks of raw materials in order to avail some discount facilities which are offered by the suppliers. This action will surely benefit the company to a large extent. It will also ensure less effect of increased raw material prices in the future. Therefore it is highly recommended that the company must practice this step in order to curb the rising problem. It is also recommended that the company should incorporate the second step i.e. the cutting down of cost with this action. If both the courses of action are carried out smoothly it will surely help the company to stand up against the price rise. Build A feasibility study is a comprehensive study and analysis of the financial circumstances of a particular project (Ralston and Jagels 528). In other words a feasibility study is a systematic approach in order to determine or test whether the use of current course of action is appropriate or not (DIANE Publishing Company v). While on the other hand cost benefit analysis is an economic technique which is used for prioritizing the investment plans. The primary objective of CBF is to compare the cost and benefits (Asad 92). An ethical screen can be defined as the sequence of processes which stops taint of a disagreement (Downey 154). The total cost to be incurred for the pre-booking of raw material is less compared to the benefit for that course of action. While doing so the company will be highly benefitted by financial means as well as it will be able to hold its base of loyal customers and even the sales figures will also remain stable. Therefore analysis justifies that the company can opt for the course of action. Achieve In order to implement a proper solution it often leads to significant changes within the organization and its stakeholders. Therefore an effective management of change is required for solving the problems and to tackle the possible barriers to change. Among the most significant of these barriers is about the resistance to change by the employees who will be mostly affected by the change. So to alleviate resistance, it is very much crucial to involve the likely affected groups in the process of implementation. If he affected employees have been involvement and influenced in the process of decisions making about changes, there will be more possibility to accept the consequences of the decisions. Thus, the clarification will be more successful and can be effortlessly implemented. Figure 1 (Source: Robbins 268) Now for implementing the required changes and adopting the new policies the company can undertake the following course of actions:- The first and foremost task will be to address the changes which are going to take place in the organization. The employees will be notified about the cost cutting and the reasons for doing it. If the management successfully aware the employs then half of the battle is won. To add to that the management can involve the employee to provide suggestion regarding the ongoing dilemma. This action will ensure that cutting down of cost can be implemented. The company needs to undergo a mutual contract sighing with the suppliers for booking the raw materials for future use at current rate. While doing so the company needs to assure the suppliers that in no way they will be fading away from their commitments and same is also needed from the other side as well. The company needs to invest large amount of money to reserve the raw materials for future use. Therefore the company must ensure availability of the required funds. The concluding step in the achieve stage is the process of evaluation. Evaluation of the process is a significant evaluation for the decision-making process. Its purpose is also to study about the segments of the process in practice are effective and which are ineffective. It is also responsible for illustrating how to improve the course of action so that the problems can be sorted more efficiently in the future. Hence, periodic feasibility tests are needed to be carried out to test the validity of the present course of action. The feasibility test can be carried out on a half yearly basis. References Asad, Musa. Management of Water Resources: Bulk Water Pricing in Brazil. Washington: World Bank Publications, 1999. Print. “Company Profile for Kellogg Co.” Bloomberg. n. p. 2012. Web. 18 May 2012. . DIANE Publishing Company. How to Conduct a Feasibility Study for Information Technologies. Philadelphia: DIANE Publishing, 2004. Print. Downey, Michael P. Introduction to Law Firm Practice. Chicago: American Bar Association, 2010. Print. “Export restrictions on raw materials”. OECD. n. p. n. d. Web. 18 May 2012. . “Kellogg Company.” Companydatabase. n. p. n. d. Web. 18 May 2012. . Kelloggcompany. Corporate Responsibility Report. Kelloggcompany, 2008. PDF file. . “Nominal Group Technique.” Asq. n. p. n. d. Web. 18 May 2012. < http://asq.org/learn-about-quality/idea-creation-tools/overview/nominal-group.html>. “Our Best Days Are Yours”. Kelloggs. n. p. n. d. Web. 18 May 2012. . “Our Company.” Kelloggcompany. n. p. n. d. Web. 18 May 2012. . Ralston, Catherin. E and Martin, G. Jagels. Hospitality Management Accounting. New Jersey: John Wiley and Sons, 2006. Print. Robbins. Essentials of Organizational Behavior. Delhi: Pearson Education India, 2010. Print. “Small Business Money Saving Tips.” Bbb. n. p. 2012. Web. 18 May 2012. . “Vision and Mission.” Kelloggcompany. n. p. n. d. Web. 18 May 2012. . “What are the causes of recent increases in the prices of some commodities, such as gasoline?.” Federalreserve. n. p. n. d. Web. 18 May 2012. . Appendix 1 Timeline of the project is shown by using Gantt chart. Objectives WK1 Wk2 Wk3 Wk4 Wk5 Wk6 Wk7 Wk8 Identification of the various problems                 Selecting 3 major problems of Kellogg's                 Identifying the most crucial problem                 Finding the core reasons of the problem                 Finding Alternative ways to solve the problem                 Feasibility Study of the alternatives                 Choosing the best alternative plan                 Implementation of the plan                 Periodic review to test the validity of the implemented plan                 (Source: Author’s Creation) Appendix 2 The cost benefit analysis is shown below:- Tangible costs       Particulars Amount($) Raw materials(for 3 months) 3000 Additional space for stocks 1000 Insurance 200 Overhead charges 500 Other Maintenance charges 200     Total 4900     Intangible Cost       Particulars Amount($) loss of hours 500 miscellaneous charges for gaining raw materials 500     Total 1000             Total Cost 5900 Benefit   Particulars Amount($) Sales 4000 Customer Retention 2000 Savings on raw materials 500 Improved service 500     Total 7000 Read More