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Problem Statement: Pan Europe Foods is facing a number of issues to be addressed. The company’s sales remain flat while net profits decrease. This is due to marketing strategy, operational inefficiencies, and minimal organic growth. There are a total of 11 project proposals with a capital investment budget of MOM (euros). The projects cover several aspects of the business including new product addition, market expansion, acquisitions, production & distribution improvements, and environmental enhancements.
Since ‘winning’ the price war, the company has lost stock value and dipped below the average ultimate of peer companies. It has amasses debt and needs to regain positive momentum to avoid being a target of a hostile takeover. Data Analysis: These problems are evident in Pan Europeans financial statement over the past 3 years. They have maxed out current market demand and operational inefficiencies continue to grow cutting into shrinking margins.
The board should consider expansion of product offerings and organic growth through existing distributors to add new growth in sales. With production operations cost continually rising despite the large investment capital built in the past 3 ears, there is a need to expand into new markets, create new products, and grow sales organically while improving production and distribution efficiencies. The fiscal data provided shows the past 3 years of Gross sales, net income, earnings per share, total assets, shareholder’s equity and dividends.
Alternatives Analysis: Based off financial data, ownership and sentiment of investors, and capital project proposed, the decisions on which projects to move forward with should create a balance between sales & operations, create benefit to investors, and create new growth opportunities. The capital investments would be made with long-term growth of products in its current portfolio and master the production and distribution to a scalable model before taking off into too many new products and new product markets.
Key Decision Criteria: The decisions the shareholders have is whether to increase demand or increase supply capabilities. Current revenue is flat, yet solid. An innovative, yet fiscally conservative approach is needed to gain back profit and revamp sales in the current and new markets. Shareholders should consider projects which will lower production & distribution costs, innovate & maintain nominative edge, and what will be an overall benefit to Pan Europe, its employees, and its shareholders. Recommendations The first project would suggest is an immediate implementation of an inventory control system to improve efficiency.
This new system would be MOM investment which will improve inventory control, reduce back orders/ outages, reduce spoilage, create transparency between ordering/fulfillment, and report back sales & CRM much more accurately. Next, two synergistic projects would be implemented; Market Expansion Eastward $MOM along with Expansion of the Numerous plant $MOM. This plant will expand bottled eater, mineral water, and fruit juice output along with supporting the ice cream and yogurt in this new Eastward market. This plant is highly automated and would handle and actually benefit from the increased capacity to service these highly profitably markets.
This Eastward market also presents the lowest competitive market with superb market growth to efficiently add sales growth while expanding sales & growth opportunities. This presents a low cost, high reward opportunity. Replacement and expansion of Truck fleet for $MOM is necessary to increase operational efficiency while lowering overall distribution expenses. This is a 2 year running change significantly affecting output capacity, inventory management, customer delivery and would support long term growth overall.
Next, to add new & innovative products, Pan Europe should consider the research & introduction of artificial sweeteners for 1 MM. Market research proves it is a viable product and will fit nicely in with current production and distribution strategies. It will be a complementary product line which will provide a new competitive advantage above our competition. It will provide a good return on investment and grow revenue. Finally, we must enact the eater treatment projects at four plants for $MM. They currently violate environmental codes and are a mandatory upgrade to comply with European Community regulators.
While there is a 4 year window to comply, cost estimations only grow over time, so this decision is in the best interest of both pan Europe, its investors, employees, and its surrounding environment. Action and Implementation Plan The stated step by step implementation plan is weighted in importance and urgency. Each board member heading one of these projects will work closely to ensure successful progress. Each step will be closely monitored and enthroned to ensure success and shareholder value.
The total for all projects proposed is $80 with an extra MM for the stated environmental upgrades. Each of these projects makes a strong case for leveraging our brand equity into new products & markets and increasing profits by decreasing our operational cost. Questions from Text: 1) There are a few things would recommend taking into serious consideration to avoid adding higher capital debt and leading to a possible hostile takeover. While overall gross sales remained relatively flat, net income, earnings per share and share holder equity have all declined each institutive year.
Their plan to invest with debt financing has gained some significant improvements, but a marketing strategy that gains market share without profits is a risky strategy. Now that they have won market share, I believe their best strategy is to utilize this brand recognition by focusing on operational and distribution goals to lower production costs and meet sales demand. There are certain area’s after reviewing the entire portfolio where the company must slow on capital investments, while also leveraging higher sales & profits from its ‘price war strategy. ) 1 . Strategic Acquisition – NAP=78. 6 Eastward Expansion – NAP=52. 15 3. Southward Expansion – NAP=47. 07 4. Snack Food – NAP=45. 07 Inventory Control Systems ” NAP=25. 19 6. Expand Truck & Fleet – NAP=20. 94 7. Artificial Sweetener – NAP=15. 31 8. New Plant – NAP=1. 14 9. Expand Plant – NAP=O. 32 10. Automation & Conveyor System ” NAP”-. 83 would evaluate NAP at minimum ROR because this would give you an idea of the minimum productive return on investment, therefore giving project results at a higher discounted rate.
I believe there is no correct statistic to look at, but understand them all to give you a better overall understanding. The effluent project view as a sunk cost, and therefore should actually be added on this list. Since this is a mandatory project, I would suggest investing into it at the lowest cost possible. 3) Looking at the list and analyzing non-numerically, I would probably drop the strategic acquisition and invest in better operational & distribution projects such as Expansion of truck fleet, automation & conveyor upgrades and one of the plant addition projects to meet demand, avoid product shortages and backorder.
I would also consider one of the R &D projects. To enact some of these projects, further research would need to determine a deter timeshare and payback periods. Some Of the projects such as Automation & conveyor upgrades or plant expansion sound like good projects but the payback, ROI and NAP are nothing to get excited about. 4) Based off each chairperson’s reasoning for each project, operational upgrades are necessary to keep up with demand, which is a good problem to have.
I would consider the Inventory Control system, Expansion of the truck fleet, and perhaps expansion of the plant 3 that could be considered ‘must- do’ non-numeric The strategic acquisition is by far the riskiest project followed by southward expansion and artificial sweetener development. The upside on the strategic acquisition in this case is simply too great, and if old Engel has his information correct, there should be a lot of businesses moving into the schnapps business. I would like to know where and how he got his ROI and how business jumps around 280% from year 9 to 10.
There are a few synergies between the projects such as the southern expansion and building a new plant. Neither seems like a good fit for pan- Europe at this time, but perhaps in a few years. If the company wanted to make a big push into the southern market which has a good chance for Success, they would also need to supplement these increased sales with increased production in that area, thus, building the new plant. The eastward expansion might be a less competitive market and would have a lower investment cost with the expansion of the Numerous plant.
The expansion of the truck fleet is not flashy, sexy, or giving a big return, but it is completely necessary to upgrade distribution, reduce product spoilage, and reduced backorder and product shortages. The artificial sweetener and the snack food development are two that may have some conflicts. Both give a decent return, but there is significant time hat must be invested to develop, that at this point, could be needs to be invested to maintain existing demand. The operational upgrades to meet existing demand and lower production costs, even as they may not yield the largest return, are crucial to run the business and maintain day to day.
The more I consider the strategic acquisition, the less like it, the upfront costs are half the annual capital budget, while it does show considerable upside, it is a large gamble and at this time, could be a ‘make or break’ decision for this company. 5) The company must create a plan to leverage and take advantage of its marketing price war’ strategy. Significant resources and shareholder equity have been invested into this strategy, and according to Mr… Moron, it has paid off and demand is outweighing supply. Therefore they must factor out certain expansionary business ventures or new product offerings that they cannot adequately supply.
The screen/factors they need to consider are risk assessment, adherence to company core/values, stockholder sentiment toward a project, and long-term vs… Short term gains. The board would really need to question whether some of the new products and markets truly fit in the company’s core business, aloes, and market segmentation. The strategic acquisition, artificial sweetener, and snack line all create new markets of products, typesetter well on paper, but will they fit with the company’s business model, production, distribution, etc?