Stars Question marks

Noodles Consumer Flour,

Further Processes Meat Product,
Cooking Oil
Bakery Retail Food &Beverage Operations,

Cash cows Dogs

Bakery Bakery raw ingredients

BBMC3064 Integrated Case Study

BCG Matrix

KEY ISSUES
1. The rising cost in raw material prices in fast moving consumer goods (FMCG)
industry (Working i)
 This can be seen from the Sales and Marketing Expenses Analysis, whereby the cost
of supplies increased by 13% from 2019. In 2020, it reduced by 6% and increased
again by 13% in 2022.

2. The wholesale distributors of Johnson have defaulted in payment

 $40 million total provision made for bad debts over last 10 years.
 In average, the receivables turnover from 2019-2022 is 1.6 times. The low turnover
level indicates an excessive amount of bad debt. (Working ii)
 In terms of collection period, the customers are taking 231 days in average to pay
Johnson. (Working ii)

3. Johnson had been having negative cash flow since before 2022
 The mismanagement of inventory and receivables as well as poor asset management
had been resulting in negative cash flow in 2022 and the preceding years.
 From the annual cash flow shown in the Appendix C, there is an increase by 70%
from year 2019 to 2020. Followed another increment by 10% in 2021 and eventually
decrease by 8% in 2022. However, the amounts have been in negative value
throughout the four consecutive years. (Working iii)

4. Excessive spending in advertisements and promotions did not improve revenue

of Johnson
 Johnson had invested heavily in advertisement and promotion in 2022. The
advertisement and promotion expenses increased significantly by 317% from the
preceding year.
  However, things did not turned out well for Johnson as its revenue declined by 7% in
2022 which amounted to $50,000,000. (Working iv)

5. Johnson has poor asset management

 Azmi discovered several obsolete spare parts left untouched in the store room after he
inspected the company’s assets. He also found that most of the vehicles in the fixed
asset motor register were more than 5 years old and had zero net book values.

 Johnson might have been incurring unnecessary costs by keeping the spare parts such
as the rental charge for the store room. If Johnson had disposed of the spare parts, the
store room would not be needed and would be a huge cost saving for them. The funds
could be used for other purposes instead.

WORKINGS

B. Sales and Marketing

i. Service operations expenses

2019 2020 2021 2022

Supplies $15,000 $17,000 $16,000 $18,000

Movement from 2019 to 2020: Movement from 2021 to 2022

$17,000 - $15,000 x 100 = ↑ 13% $18,000 - $16,000 x 100 = ↑ 13%

$15,000 $16,000

Movement from 2020 to 2021:

$16,000 - $17,000 x 100 = ↓ 6%

$17,000
 ii. Balance Sheet

2019 2020 2021 2022

Receivables $ 45 m = 1.5 $ 55 m = 1.7 $ 54 m = 1.7 $ 50 m = 1.5

Turnover $ 31 m $ 32 m $32.5m $ 33 m

Collection $ 31 m $ 32 m $ 32.5 m $ 33 m
Period $45m/365 $55m/365 $54m/365 $50m/365
= 251 days = 212 days = 220 days = 241 days

Average Receivables Turnover Average Collection Period

251 + 212 + 220 + 241 = 231 days 1.5 + 1.7 + 1.7 + 1.5 = 1.6 times
4 4

 Receivables turnover
In 2020, they collected their outstanding current accounts and recovered the money 1.719
times during the year. This is because, the lowest ratios the more efficient to collect their
outstanding current accounts and recovered the money.
 Collection period
In 2020, they collected their outstanding current accounts and recovered the money 212 days
during the year. This is because the lowest days, the more efficient to collect their
outstanding current accounts and recovered the money.
iii. Cash Flow Summary

Summary trend 2019 2020 2021 2022

data for chart
Annually cash $ (1,819,200) $ (3,088,160) $ (3,406,670) $ (3,145,250)
flow

Movement from 2019 to 2020: Movement from 2021 to 2022:

3,088,160 – 1,819,200 x 100 =↑ 70% 3,145,250 – 3,406,670 x 100 = ↓ 8%
1,819,200 3,406,670

Movement from 2020 to 2021:

3,406,670 – 3,088,160 x 100 = ↑ 10%
3,088,160

iv. Finance and accounting expenses

2019 2020 2021 2022

Advertisement & $ 1,300,000 $ 1,100,000 $ 1,200,000 $ 5,000,000

promotion
expenses

Movement from 2019 to 2020: Movement from 2020 to 2021:

1,100,000 – 1,300,000 x 100 = ↓ 15% 1,200,000 – 1,100,000 x 100 = ↑ 9%
1,300,000 1,100,000
Movement from 2021 to 2022:
5,000,000 – 1,200,000 x 100 = ↑ 317%
1,200,000
 v. Income Statement

2019 2020 2021 2022

Revenues $ 45,000,000 $ 55,000,000 $ 54,000,000 $ 50,000,000

Movement from 2019 to 2020: Movement from 2020 to 2021:

55,000,000 – 45,000,000 x 100 = ↑ 22% 54,000,000 – 55,000,000 x 100 = ↓ 2%
45,000,000 55,000,000
Movement from 2021 to 2022:
50,000,000 – 54,000,000 x 100 = ↓ 7%
54,000,000
Action plan
1. Reduce the cost in raw material prices
 develop the Five-Forces Model of Competition strategy
 E.g: Bargaining power of supplier > supplier also supply to our competitors > JPL is
encouraged to make a contract or agreement with supplier in short term relationship.
2. Implement Liberal Credit Policy
 Johnson should have a credit and collections policy in order to protect their
accounts receivable.
3. Imposes effective campaign
 Johnson should impose effective campaign to promote their product.
 E.g: Facebook and Twitter are the social media platforms commonly used for
marketing

Recommendation
1. Adopt retrenchment strategy
 Company cutting any cost that are unnecessary and does not affect
operational or variable cost.
 Increase the utilizing of existing worker or reduced the number of paid
worker.
2. Retirement program
 Offering benefit to the senior officer to retire voluntary
 The manpower cost and unnecessary compliance cost can be reduce
3. Withdraw from certain markets or the discontinuation of selling certain
products or services
 Stop selling its product at non-profitable place and concentrate at high
demand area such as at developing countries
 Company should increase the marketing and advertising of noodles
product line so that more profit is able to gain.
4. Current accounting system at retailing division has to be improved
 Can help giving better inventory and efficiency cash management in the
division.
Profit Margin for each Product: (Appendix E)
Profit margin are use to measure the immediate amount of sales available to generate income.
Segment Bakery measure the higher profit margin at 29% rather than other products. This
means that they are more efficient in manage their operation and generate more income with
fewer sales.

Boston’s Consulting Group Model

The BCG matrix, invented by the Boston Consulting Group, is a tool that allows to classify
and evaluate the products and services of a business. It is a decision making tool in order to
balance the activities of a company among those which make profits, those who ensure
growth, those which constitute the future of the firm or those who are its heritage. With this
tool one is able to define the development policy of the company. The matrix will position
the products/services in two ways:
- the rate of growth of the market ;
-the market share of a product/service offered facing the competitors/segments.