Creating Product Portfolio Strategy via Activity Based Costing Application in Food Production
Tamur, Onur (2013)
Tamur, Onur
2013
Master's Degree Programme in Business and Technology
Tuotantotalouden ja rakentamisen tiedekunta - Faculty of Business and Built Environment
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Hyväksymispäivämäärä
2013-06-05
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:tty-201306141225
https://urn.fi/URN:NBN:fi:tty-201306141225
Tiivistelmä
With the rise of globalization and saturated local markets, many companies started chasing international opportunities that would help them expand to new countries and increase their brand recognition around the globe. This has also increased the level of competition in global perspective. The rising competition and the price cuts of the global market leaders narrow the price range and shrink the profitability of late comers in the industries. The only way that these firms survive in the fierce competitive markets is to control their costs which will eventually lead to an increase in profit margins. In the light of these trends, companies tried to search for ways to control their cost and get accurate product cost information that can be used in pricing decisions. Activity-based costing has been founded to fulfill this need in the market and it started to gain significance in the market immediately because of its efficiency and practicality. Moreover, activity-based model can also be used in decision making and strategy creation which would be used to guarantee long term success of the firm and help them gain the ability to react to the emerging trends in the markets.
One of the biggest challenges for companies that want to implement activity-based costing in their organization is to understand their industry dynamics and production environment so that they can adapt the existing methods to their specific case by identifying their business activities and analyze the cost they generate on products. Thus, the organization-wide trainings and top management buy-in are very important for the success of the project that is being implemented.
This research focuses on creating an activity-based costing model for UGS Foods by considering the industry specific dynamics of food production and unique methods that are present in olive processing environment. The activities that are being done during olive production will be listed to understand their impact on product costs. This will enable UGS Foods to totally understand the consequences of their decisions and optimize their business activities by considering the cost they create. After the accurate cost information for products are deduced from the system, they are mapped on profit potential – volume matrix to analyze their position and value for the company and to take specific decisions on long-term market strategy.
This study in general provides methods to implement activity-based costing in complex production environment like olives where the production flow and activities are complicated to differentiate from each other. Moreover, it presents a framework to analyze profit potential and volume of each product and create product portfolio strategy according their position on the matrix. This study helps UGS Foods to understand the role of each product for the company and support them to improve the product position in the market by giving recommendations depending on their position on the graph.
The drop strategy portfolio covers small and medium sized pitted green olives, small whole green olives and large sliced black olives. The main focus of this product group is to analyze how the strength of the product in hand can be utilized in different channels wıthout harming the long term customer relations. As a result, the large black olives will not be pitted because it diminishes their value drastically and will be sold as a whole product. The pitted and whole green olives will be used in mixtures with black olives to neutralize the profitability of the mixture and create more value. The repositioning strategy portfolio includes small and large whole black olives, medium and large whole green olives and large pitted green olives. The main focus of this group is to reposition the products in the market so that the customer can perceive the products differently which will have impact on the sales volumes of the products. As a result, the repositioning strategy will be implemented by using premium packaging and herbal mixtures to change the perception of these products in customers’ eyes.
The promotion strategy product portfolio has small, medium and large pitted black olives and medium whole black olives. These are the flagship products of UGS Foods in international markets because they both have high profit margin and sales volume. These products are important for UGS Foods so they need to pay good attention to this product group and try to increase their sales volume by following correct promotion strategies so that the profitability can be expanded in company level. As a result, the above mentioned products are the flagship products for UGS Foods to survive and gain competitive advantage in foreign markets. Thus, these products will be handled with care in strategic perception and the company will maximize its effort to maintain if possible increase the volumes to sustain long term growth. The cost reduction portfolio group is the final segment and it consists of small and medium sliced black olives. These products have good amount of sales volume but they lack in profitability. The cost reduction strategy will enable UGS Foods to increase the profit margin of the following products so that they can create good amount of profit thanks to their high amount of sales volume. Even though, there are limited opportunities to reduce costs in the facilities, the company will do efforts to lower its manufacturing costs by focusing on the water wastage and changing the layout of the production zone. There is also possibility to make a foreign investment where the production costs would be lower compared to Turkey for some specific product groups.
One of the biggest challenges for companies that want to implement activity-based costing in their organization is to understand their industry dynamics and production environment so that they can adapt the existing methods to their specific case by identifying their business activities and analyze the cost they generate on products. Thus, the organization-wide trainings and top management buy-in are very important for the success of the project that is being implemented.
This research focuses on creating an activity-based costing model for UGS Foods by considering the industry specific dynamics of food production and unique methods that are present in olive processing environment. The activities that are being done during olive production will be listed to understand their impact on product costs. This will enable UGS Foods to totally understand the consequences of their decisions and optimize their business activities by considering the cost they create. After the accurate cost information for products are deduced from the system, they are mapped on profit potential – volume matrix to analyze their position and value for the company and to take specific decisions on long-term market strategy.
This study in general provides methods to implement activity-based costing in complex production environment like olives where the production flow and activities are complicated to differentiate from each other. Moreover, it presents a framework to analyze profit potential and volume of each product and create product portfolio strategy according their position on the matrix. This study helps UGS Foods to understand the role of each product for the company and support them to improve the product position in the market by giving recommendations depending on their position on the graph.
The drop strategy portfolio covers small and medium sized pitted green olives, small whole green olives and large sliced black olives. The main focus of this product group is to analyze how the strength of the product in hand can be utilized in different channels wıthout harming the long term customer relations. As a result, the large black olives will not be pitted because it diminishes their value drastically and will be sold as a whole product. The pitted and whole green olives will be used in mixtures with black olives to neutralize the profitability of the mixture and create more value. The repositioning strategy portfolio includes small and large whole black olives, medium and large whole green olives and large pitted green olives. The main focus of this group is to reposition the products in the market so that the customer can perceive the products differently which will have impact on the sales volumes of the products. As a result, the repositioning strategy will be implemented by using premium packaging and herbal mixtures to change the perception of these products in customers’ eyes.
The promotion strategy product portfolio has small, medium and large pitted black olives and medium whole black olives. These are the flagship products of UGS Foods in international markets because they both have high profit margin and sales volume. These products are important for UGS Foods so they need to pay good attention to this product group and try to increase their sales volume by following correct promotion strategies so that the profitability can be expanded in company level. As a result, the above mentioned products are the flagship products for UGS Foods to survive and gain competitive advantage in foreign markets. Thus, these products will be handled with care in strategic perception and the company will maximize its effort to maintain if possible increase the volumes to sustain long term growth. The cost reduction portfolio group is the final segment and it consists of small and medium sliced black olives. These products have good amount of sales volume but they lack in profitability. The cost reduction strategy will enable UGS Foods to increase the profit margin of the following products so that they can create good amount of profit thanks to their high amount of sales volume. Even though, there are limited opportunities to reduce costs in the facilities, the company will do efforts to lower its manufacturing costs by focusing on the water wastage and changing the layout of the production zone. There is also possibility to make a foreign investment where the production costs would be lower compared to Turkey for some specific product groups.