Presented by:

Leena Chellani Nikunj Gajara Chandan Pahelwani Rinku Salat 11015 11046 11047 11068

Strategic Planning Process

Meaning of Strategic Planning

It is the process of deciding on the programs

that the organization will undertake on the appropriate amount of resources that will be allocated to each program over the next several years. The document that describes how the strategic decision is to be implemented is the strategic plan.

Reviewing & Updating from last year

Deciding on assumptions & guidelines

Analysis

First Iteration of the new Strategic Plan

Second Iteration of the new Strategic Plan

Final review and approval

Reviewing and Updating the Strategic Plan

During the year, whenever there is a need management takes decisions that change the strategic plan. Actual experience is reflected in accounting reports for first few months of current year, and these are extrapolated further for current year as a whole.

If computer program is sufficiently flexible, it can extend the impact beyond the current year and if not, rough estimates are made manually.

Cont

The implication of new program decisions on revenues, expenses, capital expenditure & cash flow are incorporated.

Planning staff usually makes this update and management may be involved if there are uncertainties or ambiguities.

Deciding on Assumptions and Guidelines

The updated strategic plan incorporates broad assumptions such as growth in Gross Domestic Product, cyclical movements, labor rates, prices of important raw materials, interest rates, selling prices. Market conditions such as competitors and impact of government legislation. These assumptions are reexamined and if necessary, are changed to incorporate the latest information. Updated strategic plan contains financial information for new plants, existing plants and closing plants.

Cont

A rough approximation is adequate as a basis for senior management decisions about objectives and key guidelines are to be observed in planning to attain these objectives.

Objectives are stated separately for each product line expressed as sales revenue, profit percentage and return on capital employed.
Guidelines are assumptions about wage and salary increases, new or discounted product lines and selling prices.

First Iteration of the Strategic Plan

Using the assumptions, objectives and guidelines, business units and other operating units prepare their first cut of the strategic plan which includes changes made compared to current plan, these are supported by reasons. Business unit staffs do much of the analytical work, but managers make the final judgments.

The completed strategic plan consists of income statements and quantitative information about sales and production in detail.

Analysis

When headquarters receives the business unit plans, they aggregate them into an overall corporate strategic plan. Headquarters examine the business unit plans for consistency also. Sometimes individual plans does not add up to attainment of the corporate objectives, which is known as planning gap.

Cont...

There are three ways to close a planning gap:

find opportunities for improvements in the

business unit plans make acquisitions review the corporate objectives.

Second Iteration of the Strategic Plan

Analysis of first submission may require a revision plans of only certain business units, but it may lead to changes that affect all business units. Technically, revision is simpler to prepare than the original submission but organizationally, it is difficult because it requires difficult decisions.

Some companies do not require a formal revision, they negotiate changes informally and enter the results into plan at headquarters.

Final Review and Approval

A meeting of senior corporate officials usually discusses the revised plan at length. The plan also may be presented at meeting of board of directors. The chief executive officer gives final approval.

The approval should come prior to the beginning of the budget preparation process, because strategic plan is an important input to that process.

Objectives of case

To construct Value Chain Analysis

To use value chain as a power tool To implement strategic plans in accordance with the value chain

Dairy

Pak is Ohio based international company.

Dairy Pak began their operations in 1947 as one of the original license of the Pure-Pak Technology.

They focused on producing polyethylene coated paper carton for milk and orange juice.

Due to growing demand, it expanded its operations and built converting plants in different states.

During the early 1960's through 1988 Champion steadily produced 2,50,000 tons of polyethylene coated boards annually.

During this period, the paper board industry was threatened by the intrusion of plastic containers but Champion did not falter and continued with its existing operations without changes in strategy or equipment. At this point, the company decided to have the harvest strategy. Incidentally, the paper carton did not die, and since there were no major changes in Champion its infrastructure got old and technologically outdated.

In the early 1980's the sudden increase of the juice market created opportunities which Champion did not expect.
In 1988 however, Champion successfully managed to retain its share in the declining market while losing almost half of its share in the fastest-growing segment, the branded juices. Champion strategy was to be the low cost producer in commodity dairy segment.

In 1988, the Vice President of the Dairy-Pak Division of Champion International has to make some tough choices. He is facing:
Declining market share in the growing Branded

Juice segment of domestic paperboard carton segment Their manufacturing system is old Limited output capability which had not grown in 10 years. Rapidly expanding international market which the corporation had seen as fraught with some problems than competitors.

The Competitors

International Paper
It was the industry leader & considered to be low cost

producer. It is also the most technologically advanced company.

Champion was currently a strong number 2, with more domestic volume. Potlatch, Westvaco, and Weyerhaeuser all ranked in a third tier of competition facing difficulties related to quality and inefficient scale.

The Pure-Pak Customers

Domestic Dairies- The diarys product was usually a commodity that achieve price premium for brand name. Differentiated Juicers- This was the fastest growing segment in liquid packing in 1988. Special Uses- This market had grown slowly, volume per customer was very low it was 4% of Champions volume. Export Market- The fourth group of customers for the Pure-Pak carton was the export market.

Process Flow

Pulp

Paper Mill Extruder

Conversion

Regional Diary Processor

Orange Juice Processor

Minute Maid Processor

Super Markets & Distributors

Customer

Champions Market position

Domestic Consumption of Pure-Pak Cartons (000) 1980 (tons) Dairy Non Dairy Total 506 66 572 1987 (tons) 374 120 494 % change -26% +82% -14%

Champions Domestic Pure-Pak Cartons 1980 (tons) 200 30 % share 39% 46% 1987 (tons) 150 30 % share 40% 25%

230

40%

180

36%

For the purpose of competition and to invest, Earle Bensings first proposal was to renovate paperboard machine. Second proposal was to add a third extruder at the Waynesville, North Carolina plant. Third was to add roll wrapping equipment at the Waynesville location. Fourth potential area for investment was adding rotogravure printing.

Q&A

A process flow value chain

Regional Dairy MILK Consumer Pays Store pays Store Margin Dairy pays Shrinkage Pasteurising/advertisin g 1.16 1.04 0.12 0.75 0.06 0.06 0.87 Carton cost Cost to dairy Dairy/juice margin 0.08 0.95 0.09 OJ 1.50 1.20 0.30 0.80 0.06 0.06 0.92 0.08 1.00 0.20 Branded OJ MM/CH 1.89 1.42 0.47 0.64 0.11 0.36 1.11 0.06 1.17 0.25 TROPICANA 2.26 1.79 0.47

Computing the margin in value chain

milk Manufactures margin For 14400 tons Processing cost Cost of transport Printing Cost of buying roller Total processing cost Margin processing Extrusion cost Price of roll Transport cost Cover roll Cost of buying rolls Total cost of roll Margin extrusion plant 663 35 94 530 659 4 663 35 94 530 659 4 10 231 663 904 248 10 231 663 904 -40 0.08 1152 orange 0.06 864

Mill Pulp Machining Freight to customer Mill margin Extruder cost Transfer cost :

SP to customer

530 319 105 47 471 59

Cost

Mill cost
Pulp Machining Freight to extruder 319 105 3

Mill margin
Other costs Freight to converter

59

486
94 35 615

Extruder margin

-22

Q-2 & Q-3

Milk
Margins $ Super Market Dairy/ Juices Converter Extruder Paper Mill Total 1728 1296 318 (22) 59 3379 Assets $ 1800 5400 830 190 2800 11020 ROA % 96 24 38.3 (11.6) 2.1 30.7

Orange Juice
Margins Assets ROA

$ Super Market Dairy/ Juices 4320 2880

$ 1800 2890

% 240 99.7

Converter
Extruder Paper Mill Total

318
(22) 59 7555

830
190 2800 8510

38.3
(11.6) 2.1 88.8

Branded OJ
Margins $ Super Market 6768 Assets $ 1800 ROA % 376

Dairy/ Juices Converter Extruder Paper Mill Total

3600 30 (22) 59 10435

2890 830 190 2800 8510

124.6 3.6 (11.6) 2.1 122.6

Buyer Power Analysis

Base Buyer Concentration (No of buyer) Size of Buyer as a corporation Buyer Switching Cost Commodity Dairies 1000 Relatively small Low, but commodity board Branded OJ Products 3 Same size as paper board manufactures High, but differentiated board Nil Plastic, glass, other? 0.06/1.17 = 5.13%

Ability to backward integrate Nil into paperboard Substitutes (Products) Cost of Carton/ Total Cost Plastic, other? 0.08/0.95 =8.42%

Buyers Margin
Champions ROI

0.09/1.04 = 8.65% 0.25/1.42= 17.6%

9.3% 1.75%