Reliant is a rapidly growing mid-sized FMCG company Reliant produces 'Perfumont", a special product which couples as Deodorant and Perfume Last year the product sold 10 million (or 1 Crore) units each at an MRP of Rs 5004 The margin paid to retailers was 30% on MRP with another 30% of MRP being cost of production. The company spent about Rs. 100 million (or 10 Crores) on R&D and Rs. 100 million (or 10 Crores) on Marketing activities. Employee costs has two compo nents - fixed and variable - forced being Rs 500 million (or 50 Crores) and variable being sales commission at Rs 0.10 per Rupee of retail sales The sales were rapidly growing at 20% YoY with healthy PBT (profit before tax) margins of 18% until last year. In the last year due to downtum in the economy, not only the growth in company's sales was lackadaisical 10%, worryingly margins also shrank to 16%! Pumingo LLP who are famous PE investors and also the main promoters of the company immediately fred the then FM and issued stem warning to other managers - Sales Manager (SM), Research & Development Manager (RDM), Human Resources Manager (HRM) and Marketing Manager (MM) to get their act together or face the axe. Inter- estingly Fumingo LLP, the renowned PE investors, did not gave any credence to economic downtum and are unlikely to do so in upcoming year which by all economic polls look grimmer. Since Fumingo LLP has given FM stiff targets, FM has asked for greater autonomy (read final say) on the budgets, so it will take some doing to convince him. You are the SM. To compensate for low sales growth last year, Fumingo LLP has given you a stern target of taking the growth in sales to 40%. They have also designed a performance pay criterion for you. For every 1% Increase over last year sales would give you 0.375 points. For example, If Rellant clocks 20% growth then your total points would be equal to + 20*0.375) = 7.50 [+ for growth being above the threshold of 0%). Your vast experience and recent research reports tell you that every 1% increase in retailer margin increases the sales by 5% Fumingo LLP is clearly an impatient promoter but in their opinion it has given you a fair target You are meeting with the other managers - FM, RDM, HRM and MM to finalize the budgets for the upcoming year. The decisions at the end of the meeting would be simulated to generate companys performance Please note that points you score would be your final score of the simulation
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Reliant is a rapidly growing mid-sized FMCG company Reliant produces 'Perfumont", a special product which couples as Deodorant and Perfume Last year the product sold 10 million (or 1 Crore) units each at an MRP of Rs 5004 The margin paid to retailers was 30% on MRP with another 30% of MRP being cost of production. The company spent about Rs. 100 million (or 10 Crores) on R&D and Rs. 100 million (or 10 Crores) on Marketing activities. Employee costs has two compo nents - fixed and variable - forced being Rs 500 million (or 50 Crores) and variable being sales commission at Rs 0.10 per Rupee of retail sales The sales were rapidly growing at 20% YoY with healthy PBT (profit before tax) margins of 18% until last year. In the last year due to downtum in the economy, not only the growth in company's sales was lackadaisical 10%, worryingly margins also shrank to 16%! Pumingo LLP who are famous PE investors and also the main promoters of the company immediately fred the then FM and issued stem warning to other managers - Sales Manager (SM), Research & Development Manager (RDM), Human Resources Manager (HRM) and Marketing Manager (MM) to get their act together or face the axe. Inter- estingly Fumingo LLP, the renowned PE investors, did not gave any credence to economic downtum and are unlikely to do so in upcoming year which by all economic polls look grimmer. Since Fumingo LLP has given FM stiff targets, FM has asked for greater autonomy (read final say) on the budgets, so it will take some doing to convince him. You are the SM. To compensate for low sales growth last year, Fumingo LLP has given you a stern target of taking the growth in sales to 40%. They have also designed a performance pay criterion for you. For every 1% Increase over last year sales would give you 0.375 points. For example, If Rellant clocks 20% growth then your total points would be equal to + 20*0.375) = 7.50 [+ for growth being above the threshold of 0%). Your vast experience and recent research reports tell you that every 1% increase in retailer margin increases the sales by 5% Fumingo LLP is clearly an impatient promoter but in their opinion it has given you a fair target You are meeting with the other managers - FM, RDM, HRM and MM to finalize the budgets for the upcoming year. The decisions at the end of the meeting would be simulated to generate companys performance Please note that points you score would be your final score of the simulation
Answer:
Reliant is a rapidly growing mid-sized FMCG company. Reliant produces 'Perfumont", a special product which couples as
Deodorant and Perfume. Last year the product sold 10 million (or 1 Crore) units each at an MRP of Rs. 500/-. The margin
paid to retailers was 30% on MRP with another 30% of MRP being cost of production. The company spent about Rs. 100
million (or 10 Crores) on R&D and Rs. 100 million (or 10 Crores) on Marketing activities. Employee costs has two compo-
nents-fixed and variable - fixed being Rs. 500 million (or 50 Crores) and variable being sales commission at Rs. 0.10 per
Rupee of retail sales.
The sales were rapidly growing at 20% YoY with healthy PBT (profit before tax) margins of 18% until last year. In the last
year due to downturn in the economy, not only the growth in company's sales was lackadalsical 10%, worryingly margins
also shrank to 16% ! Fumingo LLP who are famous PE investors and also the main promoters of the company immediately
fired the then FM and issued stern warning to other managers - Sales Manager (SM), Research & Development Manager
(RDM), Human Resources Manager (HRM) and Marketing Manager (MM) to get their act together or face the axe. Inter-
estingly Fumingo LLP, the renowned PE investors, did not gave any credence to economic downturn and are unlikely to
do so in upcoming year which by all economic polls look grimmer.
Since Fumingo LLP has given FM stiff targets, FM has asked for greater autonomy (read final say) on the budgets, so it
will take some doing to convince him.
You are the new FM. You have been asked to deliver the minimum, which as per Fumingo LLP is restoring the growth in
sales to 20% while maintaining the PBT margins at levels of 16%. They have also designed a performance pay criterion
for you. For every 1% point increase over 15% growth would give you 0.10 points and for every 1% point Increase over
16% PBT margwould give you 6.00 points. For example, if Reliant clocks 20% growth with 15% PBT margin then your
total points would be equal to +5 (0.10)-1 (6.00)=-5.50 [+ for growth being above the threshold of 15% and - for
margin being below the threshold of 16%).