SpiceKraze Inc Case Study
India is known for being a processing powerhouse, specifically for spices (Njaramba. , 2013), This makes it a premier location for SpiceKraze Inc. SpiceKraze Inc. is looking to become an industry leader in the contract processing industry through the implementation of a low-cost strategy. SpiceKraze Inc. Financial Impact Summary The required investment for this project is $50 million. This investment will cover all the startup costs including: the purchase of the processing plant, the purchase of required production equipment, and the hiring of administrative, managerial, and operational personnel (Kumar and Gyamfi, 2013). The overall projected net present value (NPV) for this project after ten years is $124 million. With this projected NPV, the return on investment (ROI) at the end of year ten will be 149%. SpiceKraze Inc.
to offer a quote based on processes, labor, and resources/funds needed to process the product, and finally, step three, which requires it to produce and ship the export the product to the parent company along with the responsibility of on-time delivery i. e. (Peter and Shylaja, 2012 Business in the current market The primary product SpiceKraze Inc will produce is turmeric, coriander and Chili pepper but will also process other products such as macadamia, canned fruits and vegetables and other food additives etc. In line with the three steps of the contract processing model, the first action that will occur is the parent companies will contact SpiceKraze Inc. with a proposal. The first is low cost and the second is turnaround time.
Like other large spice processing companies, SpiceKraze Inc. will focus on the consumer market segment (John and Ahmed, 2012). Although they will not be directly selling to the spices, SpiceKraze Inc. will be supplying their products to a parent company who will then sell the product to the consumer. ’s value proposition, turnaround time. The quicker SpiceKraze Inc can complete an order; the quicker they can move on to the next order and the quicker the parent company can sell their product (Abala, 2014). This benefits both SpiceKraze Inc. and the parent company. Turnaround time is a key aspect of SpiceKraze Inc. Low costs of raw materials provide SpiceKraze Inc. a competitive advantage. A second strength of SpiceKraze Inc. is the availability of cheap and educated work force India has a high number of unemployed graduates with both technical and managerial skills (Njaramba, 2013).
This increases the availability of specialists for machinery maintenance and specialists for sampling in the laboratories. Prices fluctuation is another weakness. India’s Agriculture is rain-fed, so when there is drought, raw materials become so expensive due to shortages (Dihel and Strychacz, N. This will force the company to import the raw materials from the neighboring countries adding to extra costs to the transportation cost. This may affect the companies turnover at some margin. Also, India electricity rates are very high compared to other Asian countries. While opportunities exist for SpiceKraze Inc. , there are also threats that could negatively impact their performance. Threats One major threat to the success of SpiceKraze Inc. comes with the recent terrorist attacks in the country.
The country has been in a row of attacks and suicide bombing by militias since 2017(Neelia and Goburdhun, 2013), this has hindered our access to raw materials from the fields and this is affecting the farmers’ morale negatively due to poor collection of harvest. has put together a five-year plan which, if implemented properly, will lead to Success for the company and keep up with the projected 3% increase in revenue per year during this time. In year one, SpiceKraze Inc. will start up the processing plant, hire and train employees, and reach out to potential customers. SpiceKraze Inc. must make sure all employees are well trained, not only how to operate the machinery but also on safety. will look to optimize the processing process to maintain low costs.
During year four SpiceKraze Inc. will look at processing additional products like canned vegetables. This will increase the number of products they can produce for their customers but may require some capital expenditure on the equipment. Adding more products will also potentially increase overall production. is projected to gain 3% revenue growth for years one through five and 5% for years five through ten. These projections also take into account a 2% increase in cost of goods sold for years one through ten. Table five outlines the NPV and ROI of the project over ten years based on a $50 million investment with a ten percent discount rate. Table 3: Cash Flow for Yr 1 – 5 Y1 Y2 Y 3 Y4 Y5 T. R (+3% 1-5, +5%) $225,000 $ 231,750 $ 238,703 $ 245,864 $ 53,239 COGS (+2%) $ (180,000) $ (183,600) $(187,272) $ (191,017) $(194,838) Gross Margin $ 45,000 $ 48,150 $ 51,431 $ 54,846 $ 58,402 Op.
F P. V N. P. V Cumulative Simple ROI 1 $45,000 $30,000 $13,636 $13,636 -$36,363 -$34,184 -168% 2 $44,550 $30,000 $12,02 $25,661 -$24,338 -$24,246 -148% 3 $44,015 $30,000 $10,529 $36,190 -$13,809 -$15,544 -131% 4 $43,388 $30,000 $9,144 $45,335 -$4,664 -$7,987 -116% 5 $42,665 $30,000 $7,863 $53,198 $3,198 -$1,488 -103% 6 $46,904 $30,000 $9,541 $62,740 $12,740 $6,397 -87% 7 $51,439 $30,000 $11,001 $73,742 $23,742 $15,489 -69% 8 $56,289 $30,000 $12,264 $86,006 $36,006 $25,625 -49% 9 $61,472 $30,000 $13,347 $99,353 $49,353 $36,655 -27% 10 $67,009 $30,000 $14,268 $113,622 $63,622 $48,448 -3% All numbers in thousands, except ROI This analysis confirms NPV and ROI are highly sensitive to change in cost of goods sold. If costs of goods sold were to increase by four percent per year rather than the predicted two percent per year, ROI would never be positive for this project. If need be, it could offer discounts on its services. The more products they make, the more the parent company saves from economies of scale (Kumar and Gyamfi, 2013). The second risk is associated with the employees. Some employees have an infinite employment status, meaning an employer cannot fire them (Levin and Widell, 2014).
This could be a problem if these employees are not meeting expectations. is projected to increase revenue by three percent years one through five and five percent years five through ten. They will hold themselves accountable for this growth trend and will monitor the numbers on a quarterly basis (Wainaina, 2014). They will review the numbers in great detail yearly to analyse changes, if any, need to made to meet the target for the next year. Another important metric will be operating costs. Since SpiceKraze Inc. Reference Tanaka and Ujihara. U. S. Patent No. Washington, DC: U. Food and Nutrition Sciences, 6(08), 703. Wainaina. Reverse logistics practices and profitability of large-scale manufacturing firms in Nairobi, Kenya (Doctoral dissertation, Doctoral dissertation, University of Nairobi). Dihel and Strychacz, N.
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