Learning Outcomes Assessed
All
Assignment Weighting
This assignment counts for 70% of the total marks awarded on this module.
Scenario
You are a Management Consultant who has been asked to advise Cumnor Ice Cream Ltd on the development of a strategic plan for the company.
Please read the case study below.
Cumnor Ice Cream Ltd
Cumnor Ice Cream is a small family business that was founded in 1995 by Mark Howard. Located in Margate, Cumnor Ice Cream had originally focused on supplying the local seaside shops with large 10 litre packs of non-premium ice cream to be sold to seaside crowds in cones and sundaes. The business grew and in 2001 Cumnor Ice Cream bought a retail site in the centre of Brighton and set up an ice cream parlour/café. Mark also rented another ice cream parlour located on the sea front. The two ice cream parlours still exist and are known as ‘Cool Ice’.
Over the last ten years, when Margate’s popularity as a seaside resort declined, Mark refocused the business to its current strategy of supplying local institutions (schools, hospitals, nursing and retirement homes) with the large 10 litre packs of ice cream. In addition, under the ‘Cumnor’ brand, two litre tubs of standard ice cream in vanilla, strawberry and chocolate flavours are now sold to local independent retailers.
Today, Mark Howard, now 59, continues to run the business as Managing Director and has a reputation locally as a respected and honest businessman. The company’s ice cream plant was modernised in 2005 updating machinery and processes to keep up with new environmental and health and safety standards. In general the company retains about 20% of profits after tax and the rest is paid out in dividends to the two owners; Mark and his wife.
Reviewing the business last month Mark knew he needed seriously to think about the future. Cumnor Ice Cream had barely made it through the last few years. Even though the weather was quite good last year some poor summers previously had had an adverse effect on orders particularly from the independent retailers and whilst the institutional sales had remained fairly steady it was not an expanding market. Indeed, the institutional sales could be a diminishing segment – there were worrying rumours that many of his institutional customers such as hospitals and schools were seriously thinking of completely replacing sweet desserts currently offered at schools with healthier options. Mark was concerned about the future of these contracts. Cumnor Ice Creams had built up its links with the institutions over the years and put a lot of effort into customer service and making things as easy as possible for the institutions to order and be sure of their supplies but now Mark was worried that the business was vulnerable to changes in market conditions. He was thankful that there were still the independent retailers, but they could be very slow payers. Also this segment of the market was very seasonal – few sales were made between October and March. This has created cashflow and operational problems. Mark is worried that without the institutional contracts the seasonal peaks and troughs of the business would intensify, particularly as the turnover from the Cool Ice was also seasonal in nature.
These were not the only factors pressing for change; conflicts within the family management of Cumnor Ice Cream also required careful consideration and resolution. Mark’s son, Richard, was now in charge of marketing and sales. Having recently completed his MBA he was keen to make changes. His plan was to expand the business into new areas, particularly the branded sector. Richard envisioned a Cumnor premium brand ice cream that was sold throughout the UK, supported by a significant national advertising campaign. Most recently Richard enthusiastically suggested to Mark the idea of expanding Cool Ice into a national retail chain of ice cream parlours. Owning their own chain of retail outlets would certainly ease distribution problems by opening up access to outlets. Mark also wondered whether there were other distribution channels he should be exploring for the company’s products but was reluctant to approach supermarkets because he felt they would squeeze him on prices.
Like Richard, Julie, Mark’s daughter who was aged 22, also worked for the family business. She and her brother had always tended to argue as children and even now she did not agree with him! Having done a three-year operations management degree course in London, Julie had taken on the role of Operations Manager of the manufacturing plant. She had spent time in her first year reorganising the plant and had increased production by 12% and reduced costs; a lot of this was achieved by making redundancies and making the people left work harder; this had led to resentment amongst staff. “They eventually gave in to my changes to their workloads” said Julie; “ultimately they want to keep their jobs and know they have to work hard to do this”. The plant was staffed with six full-time, permanent employees including the three family members, the rest of the staff worked on temporary contracts. At the height of the season there could be over 30 short-term contract staff many of whom worked part-time. There was one supervisor to oversee these employees. Staff turnover was high and because of this staff training was a difficult issue. Staff commitment did not seem very high. Over the past two years there had been a series of small accidents at the plant as well as some customer complaints about product quality, and Julie was concerned that these problems could get worse and damage the reputation of Cumnor Ice Cream. She had tried to introduce a number of developments such as the use of more teamwork and even kaizen groups which she had studied at university. However, she had not gained new ideas or the improvements she had hoped for.
Julie had recently emailed the staff to tell them that wages were to be kept at the same level for the second year running. She also emailed suppliers asking them for a reduction in their prices and better payments terms; if necessary she felt the company should find new suppliers if it helped reduce costs. Mark was cautious about this approach believing that wherever possible the company should stay loyal to its suppliers.
Julie wanted to even out the peaks and troughs of the business so that the plant could operate at peak capacity throughout the year with more permanent staff. She blamed her brother, Richard, for the strong seasonal fluctuations in sales turnover, arguing effective marketing strategies should be able to even out these fluctuations. Julie also thought his vision of a national Cumnor ice cream brand was a big mistake. In exasperation Julie said to Mark ‘Richard just doesn’t understand the business these days– the only way to compete with the big national ice cream companies nowadays is on price. We need to lower prices through keeping costs down. That’s getting tougher and tougher with increasing input prices but somehow we need to get leaner and find ways of reducing costs. We should keep chasing the institutional markets – we know it well and perhaps we are getting nervous about what are only rumours’.
Julie was also of the strong opinion that the ‘Cool Ice’ parlours, currently operating at a loss, should be shut down. The two ice cream parlours were open year round selling Cumnor Ice Cream cones and sundaes. Each parlour had a permanent shop manager who was assisted by part-time temporary staff during the busy summer season. Both ice cream parlours showed a profit from March to October but operating losses during the winter months consumed profits made during the summer season. Richard disagreed with Julie, feeling that there was untapped potential in the Cool Ice. Richard complained to his father ‘Julie is just too operationally minded and doesn’t understand the marketing aspect of the business. She resists any change that threatens to disrupt her slick production process; all she cares about is volume. We need to run with new ideas and not get trapped into doing nothing by being too cautious. She has resisted every attempt I have made to introduce new flavours and seems obsessed with vanilla, chocolate and strawberry. She’s just not interested in spending money on new product development. “
Mark wondered what should he do? He had always said he would retire at 60 and take life a bit easier, but it didn’t seem possible with all these family arguments. Mark seemed to be needed more not less in the family firm just when he was looking forward to retirement. He felt he couldn’t delegate his responsibilities until the business was proceeding on a clear path but in the current situation it seemed impossible for him to leave the decision-making to Julie and Richard. Mark never seemed to have time to think about the future direction of the firm or succession planning – he was too busy with paperwork and he knew that decisions were often kept waiting until he had time to deal with them. The problem was that Mark could not imagine either Richard or Julie taking over the business at the moment.
To make matters worse business was becoming more and more complicated every year and this led to growing amounts of bureaucracy and administration. Mark prided himself on being a well organised person but he was struggling to keep on top of things nowadays. Looking over the latest health and safety regulations, for example, Mark thought it really did seem that bureaucracy was running out of control. Two years ago, he had hired Jasmine Patel as his assistant, a graduate with a first class business and management degree, to deal with the increasing regulations. She was very capable of dealing with most of the administration on her own – but Mark was finding it difficult to let her get on with tasks. Julie warned that Jasmine would find another job if he didn’t give her more responsibility. But Mark thought, ‘Julie is always exaggerating problems – Jasmine is paid well enough and she’s bright enough to realise she has it quite easy here. All she has to do is what I tell her – she doesn’t have to think much and she should be grateful not to have any of the stress that management brings”
The financial management of Cumnor Ice Cream was under the control of a qualified accountant and the company had a good relationship with the local banks, consequently, Cumnor Ice Cream had been able to sustain itself over a difficult few years. But if its difficulties continued Cumnor Ice Cream would be pushed into overdraft and its future would be jeopardised. Thankfully, thought Mark, Cumnor Ice Cream owned its centrally located Margate sites as to rent any property in this prime location would be extremely expensive.
Yes, thought Mark, the business was at a turning point, difficult decisions about the future had to be made. In which direction should they go? What they really needed was some management expertise.
Assignment Task
Write a report with a maximum of 2,000 words which incorporates the following sections:
Introduction This should be a brief introduction which sets the scene and purpose of the report.
Part 1: External Analysis
• Analysis of the Macro Environment In this section, select and analyse two significant developments in the macro external business environment that influences the demand for ice cream.
• Industry Analysis In this section, assess how the competitive forces in the UK ice cream industry impact on Cumnor Ice Cream Ltd.
Part 2: Internal Analysis
• Marketing Issues
• Human Resource Issues (including organisation culture and structure)
• Operations Issues
• Financial Issues
In each of the sections in Part 2 analyse the current issues and identify potential solutions.
Part 3: Conclusions and Proposals
• Proposed Strategy Set out proposals for the strategic direction of the business.
• Proposed Implementation Set out proposals as to how changes in the company should be prioritised and introduced.
In each of the sections in Part 3 you must build on the evidence that you have developed in Parts 1 and 2.
Appendices
Appendix A
Cumnor Ice Cream Breakdown of Sales and Profits
Sales £ Net Profit £
Institutional Sales
• Hospitals, nursing and retirement homes
• Schools
2,000,000
500,000
40,000
10,000
Independent shops 400,000 4,000
Own Retail Shops (The Cool Ice) 250,000 (2,000)
Appendix B
Breakdown of Cumnor Ice Cream Product Mix
Product Group %
Standard ice cream 2 litre tubs
• Vanilla
• Strawberry
• Chocolate
20
10
10
10 Litre block ice cream
Appendix C
Extracts from accounts
2014 2013 2012
ROCE 1.1 2.3 3.4
Current ratio 1.54 1.4 1.5
Gearing 28% 24% 22%
Debtor days 80 days 75 days 70 days
Creditor days 22 days 22 days 23 days
Stock turnover 6.1 6.3 6.2
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