Distribution and Logistics as Vital Elements of the Business - Essay Example

1. Executive Summary The enterprise proposed in this report is that of a lunch service primarily intended for elementary schools, and possibly for high schools and similar institutions. The cafeteria and canteen business is showing lackluster performance in the Australian market, primarily because the product available through the existing services are expensive, generic and thereby unappealing for many end-users, nutritionally deficient, and in small portions considered insufficient by the customers. The proposed enterprise, on the other hand, will be receiving orders by an online page that links to the company’s e-commerce service. Parents are the primary customers since they shall be giving the orders, remitting the payments, and providing the specifications that the company is required to meet, although target for the services offered are the children to be served in their schools. The target population is expected to grow at a rate of 1.7% per annum, and consists of 18.2% of the total population stratified on the basis of age. The social benefit provided by the firm is the chance it affords parents and schools to prevent the rise of childhood obesity by making healthier choices for their children’s food. Technological advances enable the firm to acquire orders and specification is a speedy and systematic way, which in turn helps the company to plan ahead and minimize wastage while maximizing customer satisfaction. Distribution and logistics are vital to the business because of the need to avoid spoilage and ensure the customer gets his/her order on time and in top condition. The firm’s financial forecasts show it to be highly tenable, and the needed capital may be raised by equity financing and bank loans. 2. The product or service concept The business concept proposes to provide healthy cafeteria and canteen foods for schoolchildren within their school. The idea of providing for a healthy cafeteria food service for the larger schools, and canteen services for smaller schools, came from an insight developed from ‘Serious Eats,’ from a periodically updated website on the Internet which monitors school lunches in Australia (Serious Eats, 2013). According to the article, lunch cafeterias are few in Australia, and there are places where none exist. There are canteens where children can buy what they want from the menu choices each day. Where these facilities exist, however, the price is expensive (AUD 6 for small containers of the hot foods). 2.1 Product concept: The goods that are ultimately offered to the end consumer are healthy lunches and snacks, newly prepared and according to their preferences. 2.2 Service concept: The service extends to the parents who have contact with the lunch provider through online channels; the parents specify the choice of food for their children, the instructions are communicated to the canteen service in school, where the food is prepared to specification. 3. The unique selling proposition The product differs from present school canteen offerings in that they are freshly prepared and nutritionally balanced, ethically and socially sensitive to the students’ faith or belief systems, and that parents retain control of what their children eat in school. This allows parents to monitor their children’s nutrition and prevent the likelihood of overweight and obesity problems on the one hand, and undernourishment on the other. Furthermore, children with specialized dietary needs due to medical or health conditions could be better served by specific instructions directly from the parents to the food preparation staff, which this company could assure. The company could also establish a business-to-business linkage by affording its services to canteen services which have already set up exclusive operations in schools which this company would otherwise have serviced. The company could charge a price for this service against the canteen concessionaire, affording them a marketing link which would enhance their orders and therefore their sales. 4. The target market There are essentially two target markets for this business: the children for whom the business prepares its lunch products, and the parents whom the business markets to and whose need to be assured of fresh, healthy, and socially acceptable nutrition for their children. The children are either in the elementary of the secondary level although the business feels that this service will be more appropriate for the younger children and shall concentrate a major portion of their resources in that area. The challenge for the firm in so far as the children are concerned is to make foods that are tasty and nutritious, with a wholesome variety to afford choices to the end consumer. In catering to the parents as customers, the company expects to be dealing with individuals anywhere from their early twenties to their mid-forties. Most likely the parents are working individuals employed outside their home and who are unable, due to time and opportunity constraints, to prepare take-to-school lunches for their children. A number of these parents may belong to religious denominations (e.g. Jews or Muslims) or advocate lifestyles (i.e., vegetarianism) which follow specific restrictions on foods that the customer may consume, and the manner by which such food may be prepared. 5. The size of the target market now and in the next three-five years As of 22 May 2013, the population of Australia was 23,029,674, according to the Australian Bureau of Statistics. The same source cites the age structure; it shows that 18.2% of the Australian population as being comprised of 0-14 year-old children, who are the targets of the school health food service. Australia’s population growth rate is calculated by bureau statistics as 1.7%.as of September 2012. This means the following five years, the number of children which comprised the market of the proposed business is as follows: Population of nationwide age demographic, children 0-14 years old Year Total population Ages 0-14 years Description 2013 23,031,860 4,191,799 ABS Population Clock, 24 May 2013 2014 23,423,402 4,263,059 1.7% growth rate, 18.2% age proportion 2015 23,821,599 4,335,531 2016 24,226,567 4,409,235 2017 24,638,418 4,484,192 2018 25,057,271 4,560,423 Source data from Australian Bureau of Statistics The specific market is certainly going to be much smaller than the four million identified in the table above; as an entrepreneurial venture, the number of students in nearby schools may be within a few thousand at best. The foregoing data provides an idea about how the size of the target demographic continues to grow. Furthermore, within the five year period the enterprise may grow to expand into other areas and other schools. 6. Trends affecting the market 6.1 Political – Australia’s political regime is a liberal democracy that is built around the British constitutional monarchy; however, it its organizational structure is patterned after that of the American federal government. As a federal system, Australia’s constitution divides power between the federal (national) government, and the States. Due to the sharing of resources, particularly tax revenues, the political and financial relationship between States and Federal Government can sometimes be strained, and are often complex. Two major groups dominate Australia’s party syste, namely the Australian Labor Party on the one side, and on the other side the coalition parties comprised of the Liberal Party of Australia and the Nationals. These groups have alternatively held power in the Australian Federal Government since 1922. 6.2 Economic – Australia exports 65% of its agricultural production; agriculture constitutes about 3% to GDP, accounts for 65% of water use and occupies 60% of the land area of Australia. As many as 10 million Australians are employed in industry, the largest of which is in retail wherein 1.5 million are employed, followed by property and business, and manufacturing. Australia continues to show strong growth on the back of its abundant and diverse natural resources. There were a series of foreign investments which infused new prospects for sustainable growth such as the US$ 40 billion Gordon Liquid Natural Gas project (Index Mundi, 2013). Tourism plays an important part of the economy as international visitors account for consumption of $21 billion in goods and services in Australia. 6.3 Social – Australia has a multicultural society comprised of Aborigines and descendants of British and Irish nationals. Citizens see their society as multicultural, multiracial and multifaith. There have been an influx of migrants from Europe, particularly the Netherlands, Yugoslavia, Lebanon and Turkey, as part of government initiative to actively attract immigrants to boost the population and work force. It has opened its borders more freely to Southeast Asian immigrants. Child obesity has become a concern in Australia, mindful of the trends currently prevailing in the United States as well as other developed countries. The available data in the Australian Bureau of Statistics is shown in the following graph. Evident from the graph is the downtrend in normal and underweight children, and the rise in overweight and obese children. Admittedly, there is still a lower proportion of overweight and obese children compared to the normal and underweight, but the growing trend is apparent. CHILDRENS BODY MASS INDEX - 1995, 2007-08(a) (a) Based on measured height and weight of children aged 5–17 years. (b) Differences between the numbers in 1995 and 2007-08 are not statistically significant. Source: National Health Survey: Summary of Results, 2007-2008 (ABS cat. no. 4364.0) 6.4 Technology The most significant technological development has been the development of digital information and communication systems. Internet usage has reached nearly 6 million households from barely 1 million households at the end of the 20th century. It is estimated that almost 80% of the population are able to gain access to the Internet on a regular basis (Australian Bureau of Statistics, 2012). 7. The competition The major competitor is the My Kids Lunch Box, the leading online canteen service provider in Australia. The strength of this company is that it obtains the online orders from the parents, making their services easily accessible to them, and communicating this to the canteen service of the school their child attends. The major weakness is that the company is not the entity that prepares the lunches or snacks themselves. The competitor is principally an ordering system that facilitates the gathering of information about specific orders from parents to their children’s school canteen services. 8. Business Model Money is made in this business by obtaining per-order payments from clients by establishing an e-commerce registration system. This company will be able to reduce its costs by not needing to maintain an upfront store and the overhead expenses that it entails. Only a comparatively few personnel will be needed to operate the kitchen and process the deliveries, rather than having to hire front service personnel in the case of a regular restaurant. Kitchen personnel should include chefs fully familiar with the culinary requirements of specific faith groups and lifestyles. In another level of operations, the firm could maintain linkages among a number of in-school canteen services and afford them the service of extending their marketing capabilities, for which reason they could expect to improve their services and enhance their sales. These linkages may be charged a reasonable linkage fee for each of the canteens in each of the schools the firm shall be providing information to. The early orders that can be conveyed to the canteens can assist them not only in providing better service, but in streamlining their materials purchases, in making sure that they produce for sure sales, and overruns or excess production could be reduced. 9. Distribution and marketing The target market may be reached firstly by informing parents that the schools they have enrolled their children in offer this service to them. This could be undertaken using flyers and posters mounted around the school and near the cafeteria or canteen area. The flyers, brochures and posters could direct the parents to the website address which they can contact and inquire information from. Additional marketing and distribution may be conducted in the following years by setting up a social network or online community where parents and children could better coordinate and exchange stories with the firm and among themselves. The parents should be impressed with the fact that they could expect better customization of their children’s nutritional needs, for cultural or health reasons. 10. Execution The key people in the planning team include: 10.1 Operations officer – In charge of food preparation and coordinates with an in-house nutritionist, one who is particularly familiar with the special needs of children as required by their culture and health conditions. 10.2 External coordinator – The principal external links coordinator is the person in charge of getting in touch with schools and setting up arrangements with canteen services already established in other schools. 10.3 Procurement officer – This person takes charge of purchasing the ingredients and necessary supplies for the food preparation. 10.4 Financial manager – This individual ensures that the needed funds, credit lines among suppliers, and credit facilities in the banks are available to meet the working capital needs of the company. 10.5 Logistics officer – This individual monitors deliveries, ensures on-time arrival or orders and makes sure that the right orders are delivered to the right destinations. 10.6 Information technology officer – This individual takes charge of the management of the information system that obtains orders from the online facility and transmits them efficiently to operations. 11. Financials The forecasted income statements are provided in the table below: Income statement Year 1 Year 2 Year 3 Year 4 Year 5 Revenues 2,400,000 2,688,000 3,010,560 3,371,827 3,776,446 Cost of supplies 1,440,000 1,612,800 1,806,336 2,023,096 2,265,868 Gross profit 960,000 1,075,200 1,204,224 1,348,731 1,510,579 Operating expenses 720,000 645,120 722,534 809,239 906,347 Net profit 240,000 430,080 481,690 539,492 604,231 Due to the lack of canteen services in some areas, it is expected that eventually, the firm shall be able to grow its business through reasonable pricing, excellent service, and tasty food that is nutritious and at the same time is compliant with the cultural and health specifications of the customer. The revenues are estimated at AUD 20,000 per month. Part of this comes from the pay per order system of the online e-commerce, and part from the special customized service for clients who subscribe to a more long-term account with the firm. Part of the revenues also comes from marketing order arrangements with canteens already operating in schools, and also from existing food establishments which link up with students in schools. Income statement Year 1 Year 2 Year 3 Year 4 Year 5 Sales 240,000 268,800 301,056 337,183 377,645 Cost of supplies 144,000 161,280 180,634 202,310 226,587 Gross profit 96,000 107,520 120,422 134,873 151,058 Operating expenses 72,000 64,512 72,253 80,924 90,635 Net profit 24,000 43,008 48,169 53,949 60,423 12. Capital The company expects to start off with an initial capital of approximately AUD 267,000. These are itemized as follows: Asset Amount (AUD) Kitchen equipment and utensils 100,000 Computers & office equipment 50,000 Initial supplies * 24,000 Salaries & wages* 48,000 Utilities* 15,000 Others 30,000 Total 267,000 * Two months The items are roughly estimated to be the needed financing for the first two months of the business, after which time the firm should be making sufficient cash flow to support the working capital of the firm. The company expects to raise this capital according to the ratio 65% equity and 35% borrowings. 13. Scalability (referring to the upside for the business and how it could grow) The business has a potentially tremendous upside, because whatever the economic situation, parents will still provide for their children’s sustenance particularly in those situations where they are not usually present in. There is a growing number of one-parent households because of evolving family lifestyles, and that parent is likely working outside the home. Even many for two-parent households, it is likely that both parents are employed and would find it highly advantageous to avail of this company’s services. The current practice is for parents to prepare lunches early in the morning, or send their children off with money; it is likely, therefore, that more parents will elect to have a reliable lunch service bring nutritiously prepared meals to their children. The business may likely extend in the future to other segments of the market. For instance, a similar service may be extended for office workers who are unable to leave their place of work during mealtimes. The firm may also service individuals who are confined to their homes or hospices who require specially prepared food. These prospects are well into the future, but show that the firm has possibilities for growth. 14. Sustainability and competitive advantage The firm’s competitive advantage is its understanding and expertise in the preparation of nutritious, culturally compliant or medically prescribed meals that are delicious and cater to the taste of the children for whom they are prepared. The business rests its competitive strategy on the ability to meet the specific nutritional needs of its consumers, by establishing direct contact with the parents and a long-term relationship that enables the company to keep track of the specific preferences and needs of individual children. 15. Key risks There are key risks that attend any food service business, the most important of which is the integrity of its food offerings as far as sanitation, freshness, and compliance with OSHA standards is concerned. The worst possible occurrence in this type of service is a food poisoning event which the firm must absolutely guard against. Therefore, the business must ascertain that its suppliers are all safety and health standards compliant, and should be careful to observe the utmost in food preparation procedures. The company must ensure the best food preservation facilities, observe cleanliness and sanitation in operations, to observe prompt delivery scheduling, and to pretest all food offerings before issuing guarantees on its products. 16. Exit strategy - who might buy your business and why The business has the potential of strong growth and expansion into other services. It may therefore serve as a target acquisition by larger food retailing and preparation businesses, or highly capitalized and largely successful food companies which would want to vertically or horizontally expand into the market catered to by this company. There is also a possibility that companies with successful brands in so far as manufacturing is concerned would adopt a strategy of entering into retailing so enhance its brand portfolio in the perception of consumers. References Australian Bureau of Statistics 2013 ‘Population clock’ Available at http://www.abs.gov.au/ausstats/abs@.nsf/94713ad445ff1425ca25682000192af2/1647509ef7e25faaca2568a900154b63?opendocument Index Mundi 2013 ‘Australia Economy Profile 2013’ Index Mundi. Available at http://www.indexmundi.com/australia/economy_profile.html Serious Eats 2013 ‘School Lunch in Australia.’ Serious Eats. Available at http://www.seriouseats.com/2010/09/school-lunch-in-australia.html Read More