Long-Term Investment Decisions - Essay Example

Long Term Investment Decisions s affiliation Long Term Investment Decisions Managing Rising Prices Price trends in the food industry are one of the most difficult to predict. This is because they are mostly influenced by the prices of farm produce which in turn depend on weather patterns for their production thus having unpredictable supply patterns that depend on weather conditions that have a direct influence on the amount of food to be harvested. The difficult decision faced by many restaurant managers is how to keep their prices relatively unchanged so as to retain their customers by having fairly reasonable prices as compared to their competitors (Lewis & Brown, 2003). Energy prices also play a significant part in the prices of food hence the gradual rise in global energy prices will exert pressure on the final prices of the foods being served in the restaurant or cut down the profit margin that was previously being enjoyed. In the case of frozen low calorie microwavable foods, the solution to this price problem can be found in the supply chain which would drive the business’ savings hence avoiding passing on the increased costs to the customers. Cash strapped consumers have already indicated that they cannot continue purchasing products when the prices tend to go too high and they are even willing to switch their diet and preferences to save their money. All these factors make it increasingly difficult for the business to continue to source its produce and raw materials the way it has always been doing in the past. MKG foods will have to diversify from the traditional methods used in sourcing by embracing innovative technologies as well as much more targeted processes so as to improve consistency and efficiency in the midst of these challenges (Wisner, Tan & Leong, 2011). The company can use various smart sourcing techniques to provide it with the edge that they need to make it through the current and future challenges that the industry is bound to face. The company’s management will have to embrace diversification in the potentially volatile environment which will go a long way in protecting it against supply disruptions and geographical risks (Lewis & Brown, 2003). Shifting allegiance from the tried and tested traditional suppliers may be a risky undertaking initially but with thorough vetting, these perceived risks can be minimized or eliminated altogether. The newly acquired suppliers will most likely offer competitive pricing and many other benefits as well. They may also offer to collaborate with MKG foods on product innovations in an effort to consolidate themselves as the company’s principal supplier. In addition to better prices, the new suppliers may offer extra add-ons at minimal or completely no extra costs to the company (Wisner, Tan & Leong, 2011). The company can also find new modes of savings by through e-sourcing direct as well as indirect categories. Effective e-sourcing provides a very effective means of quickly determining the true market value of the goods and services. With proper implementation of strategies in the organization, the companies can e-source across its various categories which will lead to reasonable cost savings on its expenditures. Another effective strategy would be to make it a requirement for the existing suppliers to compete for the company’s business which will bring about added advantages like improved quality of produce as well as much better competitive prices. MKG foods could keep its suppliers honest by conducting regular and thorough category reviews (Wisner, Tan & Leong, 2011) To achieve effective cost cutting the company has to drive efficiencies through the leveraging of e-sourcing. The company’s staff members that have been tasked to source for MKG foods should be accorded appropriate advice by experts in order to gain insight on the directions the prices may be headed in future so as to make right decisions that will benefit the company. This would be invaluable knowledge if or when a global shortage for a certain commodity hits one of the company’s main suppliers. MKG foods may adapt its menu accordingly so as to reduce the ill effects of this event on the business (Lewis & Brown, 2003). This sourcing team will have a key role in driving the company’s bottom-line growth in turbulent and otherwise unpredictable times. The team will discover new efficiencies leading to reduction in costs. These efficiencies will also most likely free up workers to enable them to focus on factors that matter the most to the company’s clients such as the dining experience. Before the company sets out to implement changes in its sourcing operations, it has to ensure that these new processes rhyme with the available in-house expertise so as to avoid the feel of ‘sweeping changes’ amongst the staff members which would make it relatively difficult to integrate and absorb them (Lewis & Brown, 2003). These new processes will only be highly effective and lead to positive returns if they are systematically addressed. This threat of volatile transportation and supplier prices is not new in the food industry. MKG foods would risk overpaying if the company’s management does not think strategically and employ the right tools. This could be what makes the difference between increasing food prices for its loyal customers and risk a backlash or continue offering customers food at the expected prices. Effects of Government Policies on Production and Employment The government has various policies on labor specifically production and employment. These policies are mostly put in place to shield workers from exploitation and abuse from their employers. The most common and talked about government policy is the policy on minimum wage. This policy, though noble, can affect businesses negatively. This is because the policy does not effectively factor in the law of demand and the fluctuating prices especially in the restaurant business (Dickens, Machin & Manning, 1993). Several scholars are of the belief that the widespread belief that minimum wage is beneficial socially is actually a delusion. This is because it is short sighted and ignores the reality on the ground. It should be noted that an improved minimum wage will attract many more entrants into the job market but will not guarantee them a job. MKG is in the restaurant business where the aspect quality and cost has to be delicately balanced in order to make a profit and stay in business. The company’s cost cutting measures are eroded by the government policy to raise minimum wage. This is because the higher wages add to the overall costs incurred by the restaurant. Whether Government Regulation is needed I think government regulation in this industry would be a positive development for the industry players. This is because the industry is incapable of making significant changes if left on its own. The main reason is because such companies such as MKG foods are beholden to returns to investors as well as stockholders. The government will play a key role in leveling the playing field since the industry is not able to count on demand for its products because it is constantly growing owing to the billions of dollars that are spent annually on lobbying, advertising and marketing. The food industry spends upwards of about US$ 16 billion annually in marketing and promotions to boost sales. The government agencies could play a much more visible role in ensuring the food environment is healthier for consumers. This is solely due to ethical reasons (Dillon &Griffith, 2001). A good example of effective food industry regulation is the New Zealand food industry. New Zealand has four main acts that seek to regulate the overall safety of all food that is produced and sold in the country or even intended for the export market. These acts clearly outline the standards and regulations that the industry has to comply with. The main purpose of these acts is to protect human as well as animal health (Dillon &Griffith, 2001). Complexities of Expansion via Capital Projects Capital projects are labor and cost intensive for any kind of business and come with various risks. These risks involve financial as well as reputational risk whenever a company embarks on a large scale capital project (Riahi-Belkaoui, 2001). The potential of labor unrest, difficulties in forging partnerships with joint venture participants or contractors and the ever changing regulations that relate to safety, health as well as environmental matters all serve to significantly increase the risk profile of any significant capital project. Managing these risks will require the company to have a strong governance structure. This is very critical regardless of the stage and size or complexity of the given capital project. This is because it serves to drive accountability at the management as well as the operational level. This is because it brings about accurate integration and comparison of risks in the process of making large investment decisions. Some practices that are also significant in risk modeling of large capital projects. These include: the creation of a project risk register; the accurate evaluation of real versus estimated projections of the project as well as regular conducting of quality control assessments (Riahi-Belkaoui, 2001). Converging Interests of Stock Holders and managers The shareholder theory states that managers of a company have a duty to both the company’s shareholders as well as stockholders which are constituencies that contribute to the company’s capacity of wealth creation. Both of these two groups of people have an interest in seeing the company being profitable and successful both in the short term and the long term as well. The forces that will draw the interest of these two groups together will mainly have to do with the company’s profitability as well as performance in the stock market. One area that normally causes a lot of friction between these two groups of individuals is the issue about dividend payments. This is normal since many shareholders often view the annual dividend payout as too little. This is mainly due to the fact that most of them fail to understand how the system of determining the payout is arrived at. The company has to retain enough funds to fund its expansion and other expenditures to ensure its future profitability. The company can use a corporate wealth maximization model to converge the interest of its stockholders as well as the managers or firm. This will enable the restaurant to consider the shareholders’ interest at the same level as that of the restaurants. The goal of this model will be to earn as much as possible in the long run but still maintaining enough to continue increasing the corporate wealth so as to benefit all other interest groups. This model is very common in non-Anglo American markets like Japan. The restaurant should also encourage an employee stock purchase plan (ESPP) to enable the employee’s view the company from a shareholder’s perspective. Examples of companies that have successfully implemented this are Novo- Nordisk in Denmark as well as Guyenne et Gascoigne in France. Reference Dickens, R., Machin, S., & Manning, A. (1993). The effect of minimum wages on employment: Theory and evidence from Britain. Dillon, M., & Griffith, C. (2001). Auditing in the food industry: From safety and quality to environmental and other audits. Boca Raton: CRC. Lewis, C., & Brown, D. R. (2003). Controlling restaurant & food service operating costs. Ocala, Fla: Atlantic Pub. Group. Riahi-Belkaoui, A. (2001). Evaluating capital projects. Westport, Conn: Quorum Books. Wisner, J. D., Tan, K.-C., & Leong, G. K. (2011). Principles of supply chain management: A balanced approach. Mason, OH: South-Western. Read More