teksons
MODERN BAKERIES (INDIA) LIMITED, AHMEDABAD (B) Towards the end of 1967 Mr. Lal, the general manager of Modern Bakeries (India) Limited, Ahmedabad was concerned with the problem of designing a distribution system for the company’s products. In as much as the plant was scheduled to begin production in the coming April, arrangements for distribution had to be finalized rather quickly. Lal had under consideration at least four alternative distribution plans and he was working on the economics, efficacy, and effectiveness of each one of them so as to arrive at the best possible decision, keeping in view the objectives of the company and its long term goals. He was also open to suggestions on any other distribution scheme, which might not have so far attracted his attention. Lal was aware of the fact that any channel arrangement decided upon would involve the company in relatively long term commitments and he was, therefore, extremely anxious to arrive at a decision after a very careful examination of all the pros and cons. The Company In early 1967, under the Colombo Plan, the Government of India had received, as gifts, nine units of automatic machinery for the manufacture of bread and other related items from certain friendly countries. Consequent upon the receipt of this gift, Modern Bakeries (India) Limited, a Government of India undertaking, was set up to run bakeries in large Indian cities, i.e. Ahmedabad, Bombay, Cochin, Chandigarh, Calcutta, Delhi, Hyderabad, Kanpur, and Madras. The Ahmedabad unit was the third in the series, the two earlier ones being at Bombay and Madras, which had already gone into production. The major objectives which the company set before itself were: 1. To make bread eating more popular, thereby changing the food habits of the people from rice to wheat1. 2. To raise the nutrition standard of the people by providing them a unique balanced food product fortified with vitamins, minerals, and other nutrients. Even though, the two above objectives were considered important, the management of the company had decided to run the units on a commercial basis. Though there was a central organization for laying down common broad policies for all the units in the country, yet the general manager at each unit had been given enough flexibility to design a sales and distribution strategy best suited to the local conditions, for the effective achievement of company objectives and for running the units at an efficient level, providing adequate return on investment. The case was prepared by Professors M.N. Vora and Subhash C. Mehta. Copyright © by the Indian Institute of Management, Ahmedabad. Reproduced with permission. The plant and machinery gifted to Modern Bakeries for all units provided for a most modern manufacturing process which was completely automatic and hence highly hygienic. No other bakery in the country had so far developed facilities for a completely automatic process, except a large bakery at Bombay which was 80 to 85% automatic. To tat extent Modern units had an edge over existing manufacturers in the market. As a government undertaking, Modern was assured of a continuous supply of basic raw material (maida) in adequate quantities as against other bakeries in ;the private sector which faced persistent raw material shortage. Most of these bakeries had a fixed quota of maida allotted to them by the civil supplies authorities of the government based on consumption in a particular base year and any increase in this quota was usually not possible. Additional procurement from the open market was not only difficult but also required the payment of much higher prices. The Ahmedabad Unit The Ahmedabad unit of Modern had a three shift capacity of 36,000 loaves of 400 grams each per day. The plant was to run six days a week. Physical facilities including land and building had been constructed at a cost of Rs.15 lakhs and the machinery gifted by the Australian Government, worth about Rs.13 lakhs, was being installed. The unit had available with it Rs.7 to Rs.8 lakhs as working capital and if necessary additional working capital could be obtained from the government. If sales volume and market potential justified, the plant capacity could be doubled by an additional investment of Rs.6 to 7 lakhs in plant and machinery. Initially the unit was to manufacture plain bread alone, with plans to add other types of bread, biscuits, buns, cakes, and pastries to its product line later on. To begin with, only three sizes of breads 800 grams, 400 grams, and 200 grams were to be made with the possibility of adding other sizes later. The Modern bread to be priced at Rs.1.30 (800 grams),. Re.0.68 (400 grams), and Re. 0.36 (200 grams) was to be wrapped in wax paper which, besides the promotional value, had an important protection function for the product. The wax wrapper was expected to cost the company about eight paise per piece. According to a preliminary estimate of the general manager, the unit would have to sell at least 26,000 loaves of bread of 400 grams per day (or an equivalent quantity in other sizes) to break even. The Ahmedabad Market With an area of 35.90 sq. miles, Ahmedabad and its suburbs had a total population of 11.5 lakhs according to the 1961 census. At a 2.5 per cent annual increase, the present population was estimated at 13.22 lakhs, without taking into account any migration from and to the city. It was difficult to make any realistic estimates of the migration figure, but various trends indicated that an almost two lakh increase in population could be attributed to this factor. 1 Around this time, the country was facing substantial food shortage which was being met by imports. It was easier to procure wheat from foreign markets than rice because of the supply situation, and the government was keen on making the people substitute wheat for rice. The city was divided into 29 municipal wards each with varying population and area (Exhibit 1). The major religions in the city with their respective population figures were as follows2: Hindus 76.94% Muslims 15.51% Jains 5.60% Christians 1.38% Sikhs 0.27% Others 0.30% Total 100.00% 2 Source: Special Report on Ahmedabad City, Census of India, Vol.5, Part X-A (i), (1961). The income distribution of the city population was as follows3: Income Group (Monthly income) Percentage of Households Below Rs.100 32.8 Rs.101-250 49.4 Rs.251-500 13.9 Rs.501-1000 3.1 Over Rs.1000 0.8 Total 100.0 3 Source: Operations Research Group, Ahmedabad, Sample Survey 1965.