Case Study Assignment Case 19: Cadbury Ltd: A routine investment decision?

Name: Teh Thean Lim Matrix No.: 810846 Date: 29/10/2011

1. What are the main concerns of the managers involved, when choosing between the conventional conch and the new technology conch process? Answer: The managers involved in choosing between the conventional conch and new technology conch process were David Manuel (Manufacturing Director), Mark Mitchell (Marketing Director), Chris English (Engineering Development Director), and their goal is source a suitable conching machine to meet the forecast growth in demand for near future. Each of the managers has different concern, including new machine fabrication lead time, expenditure, potential cost savings, product quality, waste reduction, risk of new technology, and etc,. Manufacturing Director Concern Manufacturing director concerned about three areas, namely, the delivery lead time of the new machine, staff rotation flexibility, and potential subtle changes in product taste. The new technology conch takes 12 15 months to install while conventional machine only requires 6 months. This will cause delay in production to meet marketing demand, and therefore affect the market share of Cadbury. Further the staffs need to be trained to use the new technology conch, therefore it will limit the flexibility to move staff around. Lastly, manufacturing director also worried about the potential subtle changes in chocolate taste due to unknown performance of the new technology conch machine. With this he proposed to try out the new technology machine at the new joint-venture operation in Eastern Europe in order to reduce the risk factors above. Marketing Director Concern The concern of marketing director is about the production cost reduction, speed of new product launching, production lead time, and the product quality consistency. As other competitors have been attacking Cadbury market, the price competitiveness is important for the existing products to defend their position as leading brand in the market. Marketing director was concerned if new technology conch will be too expensive and increase the production cost. Further, in view of consumer demand for more varieties and new tastes, marketing needs to launch new products faster which will contribute significant sales growth. He worried the new machine may have uncertainty and delay the new products launching speed. In addition, the production capacity upgrading needs to be done as soon as possible in view of uptrend market demand. Thus the marketing director agreed with manufacturing director to go for conventional machine with shorter installation lead time. Marketing director also concerned about the quality of the Cadbury Dairy Milk flavor and texture by new machine will not be same. Though small scale testing results was

satisfactory, he worried the actual new technology conch performance will be different. This will affect consumer perception on Cadbury and switch their taste to other competitor. Engineering Director Concern Engineering director major concern has been the cost savings in operation, capability of the new machine to meet complex new products development, and flexibility of the machine to meet production demand. He commented that the new technology conch machine can reduce production cost through less rejects, better control of fat content and viscosity, shorter change-over time, and space reduction. This is one of the major concern in order to be competitive in the market. Further, the capability of the new machine to meet complex new products development is also another major concern. This will enhance the position of Cadbury by faster introduction of new products with wider range of chocolate. Although conventional machine performance is well understood and reliable while new machine has some risk, the new machine has greater potential to perform better. 2. How did Cadbury compete for sales of its various chocolate products, and how is that expected to change in the 1990s? Answer: Cadbury has been selling well the volume brands like Cadbury Dairy Milk and Roses to its loyal customers mostly in UK in the past. The key factors in leading the market before 1990s were good quality, competitive price, and wide range of products. Cadbury holds top position in consumers mind and enjoyed higher premium price compare to its rivals. Table 19.1 UK market share of chocolate confectionery (1988) shows that Cadbury was highest in market share by value though lower in total volume. However the consumer expectation in 1990s has shifted from usual preference to seeking more varieties and new tastes. Therefore Cadbury marketing urged the management to be able to launch new products at faster speed, while maintaining good quality and lower cost. This indeed was one of the weaknesses for Cadbury manufacturing which required immediate attention to boost the production capacity and lead time. Further, Cadbury marketing sees niche customers need for new tastes and bigger variety will improve the profit margin and growth in turnover. This requires higher quality products from Bournville chocolate department in order to meet the complex new products being dreamed up by the Cadbury Development department. Also, Cadbury marketing expected to export more products into European market in 1990s despite the strong competition by others. This will boost the position of Cadbury becoming leading European manufacturer in chocolate business.

3. The Manufacturing Director refers to flexibility when considering the purchase of the new asset. What is meant by flexibility, and what will be the main differences in flexibility between the two types of conch machine ? Answer: The flexibility mentioned by manufacturing director referred to staff rotation flexibility, chocolate type production flexibility, and spare parts keeping flexibility for the conventional conch machine. The main difference in flexibility between two types of conch machine is listed below: Key Area Conventional Conch Machine New Technology Conch Machine 1. Labour More Flexible. Less Flexible. y Existing staff can operate new y Training is required to operate machine because it has similar new machine. operation like the existing units. y Existing staff cannot be rotated easily among the new and y Staff rotation can be carried out existing machine. easily among the new and existing machine. 2. Routine More Flexible. Less Flexible. y Production planning can be carried y New machine has different out on either existing conch or operation parameter and method new conch due to similar operation therefore cannot parallel with and performance. existing machine. 3. Machinery Less Flexible. y No control on fat content. y Viscosity control is difficult. It requires In-line Viscositising process. More Flexible. y Fat content can be reduced. y Viscosity control can be more precise, allowing more precise coating. Less Flexible. y New machine has different spare parts with existing machine. More Flexible y It takes hour to completely clear of material during recipe change. y Less material is wasted.

4. Spare Parts Flexible. y New machine has common spare parts with existing machine 5. Changeover Less Flexible y It takes 8 hour to completely clear of material during recipe change. It produced lower quality specification product unnecessarily. y More material is wasted. Less Flexible y Limited variety of product can be produced due to difficulty in viscosity control and bigger tolerances.

6. New Product

More Flexible y Wider range of chocolate can be produced due to machine can produce to a higher viscosity and to tighter tolerances.

7. Production Volume

8. Space Utilization

Less Flexible. y Fixed production volume, less flexibility to produce small volume. Less Flexible. y Conventional conch machine needs space on three levels. Total area required: 600 square meter. y Less space for future expansion.

More Flexible. y Machine able to produce any size from one-tenth to double size of conventional conch. More Flexible. y Machine needs only 150 square meter or 25% of conventional conch machine. y More space for future expansion.

4. What do you think the management should decide to do ? Answer: There are advantages for both conventional and new technology conch machine from financial, engineering, manufacturing, and product development perspective. The management should go for new technology conch machine base on three reasons, namely, new machine can meet the future market demand better than conventional conch machine, it improves the competitiveness of Cadbury, and new technology machine provides sustainable technology. The market in 1990s is looking for more varieties and new taste. The marketing of Cadbury needs to launch more new products at a faster pace to capture the attention of consumers and retailers. With this, the product development has to be fast and production must be able to response with quick change in varieties and volume. Conventional machine has much longer changeover time than new technology machine. This reduces the flexibility of the manufacturing in producing the wide variety of product within short period of time. Moreover, new technology machine has cutting edge technology that can control the fat content and viscosity better than conventional machine. This feature gave product development team an opportunity to come up with various type of chocolate for the market quickly. Further, new technology conch has greater flexibility on production volume from one-tenth to double the size of conventional conch. With this the risk of large volume stock problem can be minimize in case of poor response from market on new products. This gave the manufacturing line an opportunity to produce other products when the conch machine has finished earlier products faster due to smaller volume. All the advantages with new technology conch gave Cadbury an advantage over other chocolate producer to capture future market. Secondly, new technology conch is able to improve Cadbury competitiveness by greater savings and less rework. Although the price of the new technology conch was higher than conventional conch, it gave a lot of cost savings to the manufacturing line. The material savings by new technology conch due to better performance on viscosity control was estimated at 100,000 per year. Further the reduction in scrap and rework by new machine is also help reducing the cost by an estimate of 140,000 per year. While longer installation process for new technology conch may hinder the production to generate more output within short period of time, it will benefit Cadbury with greater advantages in the long run. The new technology conch double the output volume compare to conventional conch. It also can produce better products with complex texture and higher quality that gave Cadbury a better margin in the niche market. Moreover the automation in new technology conch helped reducing labor cost and thus allowed Cadbury to compete in the market with attractive price. Further, the new technology conch does not require in-line viscositising and hence reduce the investment and machine maintenance cost.

Thirdly, new technology conch provided sustainable technology to Cadbury to progress into new era of 1990s. The new technology machine is much different than conventional machine and therefore may incur higher spare parts cost. However, the conventional machine which has been around for many decades may encounter the problem of discontinuity of spare parts. The new technology conch has the advantage of using less expensive material such as cocoa butter to produce chocolate without significant changes to flavor or texture. Further its fast changeover which can reduce the level of rejects consumes less energy and material. Therefore the new technology is a sustainable technology that consumed fewer natural resources and had a better energy saving performance. Moreover, its scalability to work at one-tenth volume of the conventional machine also prevented unnecessary waste of raw material and natural resources. Also, the new technology conch occupied less space compare to usual conventional machine. This provided Cadbury with additional space for future expansion to sustain the growth of company.