FM12
Financial Management
(For CNM Cases)
Assignment – II
Assignment Code: 2016FM12A2 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the different kinds of long-term financial sources? What are the advantages and disadvantages of each of them?
2. Write short notes on the following approaches to dividend policy affecting the value of a firm:
a) Walters model
b) Gordons model
c) Modigliani-Miller Model
3. What is the difference between gross working capital and Net working capital? What are the sources of financing working capital? When would you follow a conservative approach to maintaining working capital and vice versa?
4. What are the variables in a credit policy? How does the change in these variables impact the net profit? Explain with an example.
Section-B
Paul Marriot is the director of Stortford Yachts Ltd. The company has traded for 30 years and has in the past achieved very good levels of growth and return on capital, but this is now changing. In recent time it has failed to introduce new product lines, relying on traditional products and little has been invested in Research or Product Development.
You are a business planning consultant for a firm of Management Consultants. Stortford Yachts is one of your clients. In recent times the business has experienced increased turnover but a downturn in overall performance.
Paul Marriot has had a meeting with your Director and he has stated that he wants to introduce tighter management control within the company by introducing a system of responsibility accounting.
You receive the following memo from your Director, Pauline Changer, regarding this case.
Memorandum
To: Business Planning Assistant
Date: 21st May 2013
From: Pauline Changer, Director
Subject: Stortford Yachts Ltd. - accounts information
You are aware that I met with Paul Marriot yesterday and that he is concerned with the latest results shown in the final accounts that have recently been prepared at year end.
The file attached contains a summary of the company's abbreviated profit statements and balance sheets for the past three years; together with additional information and performance indicators for their business sector as a whole for the period under review.
I would like you to examine this information and meet with me on Friday morning to discuss the form and presentation of a detailed financial analysis of the company over the three-year period.
Signed: P. Changer
Financial information on Stortford Yachts Ltd.
Summary profit statements
$m $m $m
2010 2011 2012
Sales turnover 5.12 5.93 6.32
Operating costs 4.17 4.43 5.82
Operating profit before tax 0.95 1.5 0.5
Taxation(30%) 0.665 1.05 0.35
Profit after tax 0.285 0.45 0.15
Dividends 0.12 0.16 0.08
Retained profit 0.165 0.29 0.07
N.B. The firm's detailed breakdown of costs is as follows:
Years 2010 2011 2012
Labour costs 0.93 0.98 1.25
Distribution costs 0.44 0.49 0.61
Administration costs 0.19 0.22 0.27
2. Summary balance sheets
$m $m $m
2010 2011 2012
Fixed assets 2.40 2.77 2.88
Current assets
Stocks:
Raw materials 0.09 0.12 0.15
Finished goods 0.40 0.43 0.45
Debtors 1.14 1.32 1.84
Bank 0.03 0.04 0.05
1.66 1.91 2.49
Less Current liabilities 1.35 1.56 1.90
Net current assets 0.31 0.35 0.59
2.71 3.12 3.47
Capital and reserves 0.5 0.91 1.26
Bank loans 2.21 2.21 2.21
2.71 3.12 3.47
3. Yacht Builders Federation
Average ratios for federation members 2012
% Return on capital employed 26.0%
Asset turnover 1.79 times
Net profit margin 14.5%
Current ratio 1.5:1
Acid test ratio 1.03:1
Debtors collection period 83 days
Gearing ratio 32.0%
Labour cost % of sales 18.1%
Operating cost % of sales 85.5%
Distribution costs % of sales 9.5%
Admin costs % of sales 4.5%
Questions
In your role of planning assistant you are to prepare an analysis of the company's figures over the three-year period using the performance criteria listed in the inter-firm comparison table.
1. Calculate all the ratios given in the average ratios for federation members for 2010, 2011 and 2012.
2. Prepare a detailed report on the company's performance in terms of profitability and liquidity compared with the average of the sector over the period.
FM12
Financial Management
(For CNM Cases)
Assignment – I
Assignment Code: 2016FM12A1 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the concept of time value of money. How do we calculate the future value and present value of money in case of an annuity? How does the value of money change with change in rate of interest and time duration? Explain with examples.
2. Explain five different kinds of capital Budgeting Appraisal methods used.
3. In relation with the financial markets what are the different kinds of investment risks? How do you measure them?
4. What are the different costs considered in the cost of capital? What approaches are used to calculate the cost of equity?
Section-B
Case Study
A company is considering the following investment projects. All projects require an investment of Rs. 10,000 :
Projects Cash Flow
Year 1 Year 2 Year 3
A 10000 - -
B 7500 7500 -
C 2000 4000 12000
D 10000 3000 3000
Case Questions:
1. Rank the project according to the following :
(i) Payback period
(ii) Average rate of return
(iii) Internal rate of Return
(iv) Net Present Value; assuming discount rates of 10 % and 30%.
2. Assuming that the projects are independent which one would you accept?
3. In case of a conflict in ranking according to the NPV and IRR rule which project you select and why? Explain with example.
GM02
Economics & Social Environment
(For CNM Cases)
Assignment - I
Assignment Code: 2016GM02A1 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. “Business Environment may act as stimulant or as a constraint for business management”. Highlight the above statement with suitable example.
2. Why was FERA replaced by FEMA? How both acts are different from each other?
3. Define sick industrial unit? What are the various causes of industrial sickness?
4. Explain with suitable examples the method of SWOT Analysis to scan the environment.
Section-B
Case Study
Indian PSUs: Leading the nation since independence
Public sector enterprises are an integral part of the Indian economy and a major driver of economic growth over the past six decades. Economic reforms of 1991 transformed these companies in size and stature, lading to improvement in productivity and profitability owning to focus on business growth. They competed with major players, both in domestic and international markets and attracted huge investor interest.
In spite of the wave of privatization across India, the centre and state owned enterprises control vast swaths of the national Gross Domestic Product of India. Rising globalization and integration of the Indian economy with the global markets has opened up new opportunities and challenges for the public sector, says a KPMG report. The central public sector enterprises (CPSEs) contribute over 6 percent to the country’s GDP and account for profit of over Rs 125,000 crore.
Many Central PSUs, particularly the Maharatnas, are already global players matching the best global firms in their field of operations. One of the important reasons for the excellent performance of Central PSUs during recent years was the empowerment of the boards of such profit making Central PSUs by the Government leading to greater autonomy. Consequently, such PSUs have been able to effectively use this autonomy to enhance their performance and operate on commercial lines. A K Balyan, MD and CEO of Petronet LNG and a PSU veteran says, “PSU have been a success story in most of the sectors. The government needs to be complimented that across the vital sectors of the industry public sector has contributed immediately by setting up a base and foundation from where the private sector was able to take off and further grow the sector. Now we see private sector thriving on the base created by public sector”. He adds, “We must also acknowledge the fact the most private leading companies across sectors like telecom, petroleum, auto and power are driven by former PSU veterans because the leadership and training they acquired from public sector was unmatched”.
PSUs contributed significantly to the country’s economy. The public sector is an integral part of the Indian economy and a key growth driver. With the advent of globalization the public sector gained credence in the face of faced new challenges in developed economies, says a report of Dun & Bradstreet. This sector provided the required thrust to the economy and developed and nurtured human resources, the vital ingredient for the success of any enterprise. Over the last few years, public sector enterprises have gained tremendous credibility and recognition not just domestically but also in the international markets and the government is now gearing up to cash in on this.
According to the 52nd Public Enterprises Survey for the year 2011-12, brought out in February 2013 by the Department of Public Enterprises on the performance of CPSEs, there were 260 CPSEs in 2011-12, out of which 225 were in operation. The remaining 35 CPSEs were under construction.
The main highlights of the performance of CPSEs during 2011-12 are as follows: The total paid up capital in 260 CPSEs as on March 2012 stood at Rs 163,863 crore compared to Rs 157,438 crore as on March 2011 showing a growth of 4.08 percent. The total investment (equity plus long term loans) in all CPSEs stood at Rs 729,228 crore as on March 2012 compared to Rs. 603,975 crore as on March 2011, recording a growth of 20.74 per cent.
The capital employed (paid –up capital plus reserves and surplus and long term loans) in all CPSEs stood at Rs.13,43,176 crore as on March 2012 compared to Rs, 11,64,178 crore as on March 2011 showing a growth of 15.38 per cent. The total turnover/gross revenue from operations of all CPSEs during 2011-12 was Rs 18,41,927 crore compared to Rs. 14,98,018 crore in the previous year showing an increase of 22.96 per cent. The profit of profit making CPSEs stood at Rs 125,115 crore during 2011-12 compared to Rs 113,944 crore in 2010-11 showing a growth of 9.80 percent. Reserves and surplus of all CPSEs went up from Rs. 560203 crore in 2010-11 to Rs 613,949 crore in 2011-12, showing an increase by 9.59 percent. Net worth of all CPSEs went up from Rs 717641 crore in 2010-11 to Rs 777,812 crore in 2011-12 registering a growth of 8.38 percent.
The contribution of CPSEs to Central Exchequer by way of excise duty, customs duty, corporate tax, interest on Central Government loans, dividend and other duties and taxes increased from Rs.156,751 crore in 2010-12, showing an increase of 2.58 percent.
The foreign exchange earnings through exports of goods and services increased from Rs. 91774 crore in 2010-11 to Rs 124,492 crore in 2011-12 showing a growth of 35.65 per cent. The foreign exchange outgo on imports and royalty, know-how, consultancy, interest and other expenditure increased from Rs. 550,086 crore in 2010-11 to Rs 733,544 crore in 2011-12 showing an increase of 33.35 percent.
The total market capitalization of 44 listed CPSEs, based on the stock price in Bombay Stock Exchange, however decreased from Rs. 15,06,698 crore as on 31.03.2012. Market capitalization of CPSEs, based on the stock price in Bombay stock Exchange, however decreased from 15,06,698 crore as on 31.03.2011 to Rs 12,53, 245 crore as on 31.03.2112. The market capitalization of CPSEs during this period, therefore, decreased by 16.82 percent.
The market capitalization of CPSEs as percent of BSE market capitalization decreased from 22.03 per
cent as on 31.03.2011 to 20.17 percent as on 31.03.2012. This was in line with the over 10 percent fall
in BSE Sensex during the said period.
Last October, Prime Minister Manmohan Singh interacted with Chief Executives of various CPSEs and it was emphasized that domestic demand is the driver for investments. The CPSEs have been asked to use their surplus funds for benefits of their company as well as for the economy. According to estimates, PSUs have investible surpluses of over Rs 250,000 crore. Heads of 25 PSUs, including the cash-surplus ONGC, Coal India, BHEL, NTPC, SAIL and NMDC attended the meeting.
Questions:
1. Discuss the role and contribution of central public enterprises as an integral part of Indian economy and a major driver of economic growth. (10)
2. In spite of laying strong foundation of major industries, public sector enterprise has been facing various shortcomings? Highlight them. What reforms have been initiated by government in this regards? (10)
GM04
Managerial Economics
(For CNM Cases)
Assignment - II
Assignment Code: 2016GM04A2 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. What is meant by monopolistic competition? Is product differentiation an outcome of monopolistic competition or vice-versa? Discuss the behavior of the firm under monopolistic competition
2. What is Oligopoly? Explain how price & output decisions are taken under the conditions of collusive
Oligopoly.
3. Explain why the demand curve facing a perfectly competitive firm is assumed to be perfectly elastic.
4. Enumerate various models of managerial and behavioural theory. Explain in detail Marris
model of managerial economics.
Section-B
Case Study
Govt Moves to overhaul coal sector
The government on Wednesday moved a step closer to restructure the coal sector with a proposal that could potentially benefit the power companies that have been strained by the scarcity and poor quality of coal supplied to them.
A group of ministers (GoM) signed off on a plan to set up a coal regulator and to create a “pass-through” mechanism that would see higher costs from imported coal being passed on as increased tariffs.
The proposal is now expected to be presented to the Union cabinet for its approval on 7 June 2013. “We have been able to achieve traction and closure, pretty much, with regard to the coal regulator Bill, in terms of the formulation of different clauses and finality of its structure,” said minister of state for power Jyotiraditya Scindia. “Similarly, with regard to the pass-through mechanism for increasing supply of coal from external sources to the power sector, we have achieved closure on that mechanism structure as well.”
The proposed coal regulator will be primarily entrusted with the task of monitoring testing, quality, supply and grading of coal, but will not regulate pricing. It will, however, have an attached appellate body that will adjudicate on disputes between coal suppliers and buyers, including some pricing issues.
Finance minister P. Chidambaram said that pricing of coal would be kept out of the ambit of the coal regulator, and that it would be empowered to resolve disputes, including those arising out of fuel supply agreements with power and other downstream producers.
“There is an agreement that pricing must be left to the producer of coal, but the regulator will have powers to adjudicate on disputes relating to price, quality, supplies. All disputes will be adjudicated with the regulator and then there will be an appellate authority,” PTI had cited Chidambaram as saying.
Scindia said the proposed appellate body would have some control over pricing.
“We certainly have given a certain amount of authority to the coal regulator in certain very specified cases,” he said in response to a question if regulation of pricing was within its ambit. Besides pricing, the new body will be entrusted with the regulation of testing, quality, supply and grading of coal, Scindia said.
“It (the proposed regulator) takes into account the interest of all stakeholders within the industry, the suppliers of coal as well as the buyers of coal,” he said. “It balances and protects the interest of all stakeholders and, at the same time, gives a very judicious balance to the regulatory authority to be able to supervise the supply and demand of coal in the country.”
Both the proposals—one on the regulator and the appellate body and the other on the price pass-through mechanism—are likely to be taken up by the cabinet on 7 June, a top coal ministry official said.
Analysts and senior coal industry executives are, however, not convinced about the effectiveness of a coal regulator, especially if pricing is kept out of its remit. For one, stateowned Coal India Ltd (CIL) is a near-monopoly producer of the fuel. “It will be a nightmare, even if it is given full pricing powers. What will you regulate? It is not just a case of CIL being a monopoly player. The cost of production of varying grades of coal from different mines is different, so imagine how many permutations and combinations there will be to regulate,” said a senior CIL official who did not want to be identified.
Chintan J. Mehta, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd, said that without the authority to regulate pricing, the new body will be ineffective. “Although CIL has a monopoly over pricing, a regulator, if it had the power, could have raised an objection, thereby compelling the company into changing prices. That cannot happen now,” he said.
“Having said that, various non-pricing processes will be streamlined and become transparent, as the regulator will be an independent non-political entity,” Mehta added.
On 22 April, the cabinet had rejected a proposal to pool coal prices, which is the averaging out of cheaper domestic coal with costlier imports as a means of helping those who have to depend on supplies from overseas. Instead, it had asked a ministerial panel to set up a mechanism to pass on the incremental costs due to costlier imported coal to power producers.
CIL, the world’s largest miner of coal, supplies 85% of the domestic coal demand. It has been unable to meet growing demand, especially from the power sector, and hence has been resorting to imports to meet supply obligations.
While a pass-through price structure will increase electricity tariffs for consumers, it could potentially help restore investor interest in the power sector.
Source: Article form Live Mint published: Tue, Nov 27,2012
Questions:
1. What steps have been taken by government to overhaul coal sector? (5)
2. How effective coal regulator would be to avoid monopoly situation in coal industry in case pricing is kept out of its remit? (5)
3. How is price decided in coal industry where there is situation of near monopoly? (Explain with suitable diagram). (10)
HR01
Human Resource Management
(For CNM Cases)
Assignment – II
Assignment Code: 2016HR01A2 Last date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all questions. All the questions are compulsory & carry equal marks.
Section-A
1. What do you understand by Industrial Relations? Explain various approaches to IR and discuss some factors that influence the Industrial Relations climate in any organization.
2. Why should a manager be concerned about employee grievance? Define the process of collective bargaining. Discuss, “Collective bargaining assumes collective wisdom of both labour and management”
3. In today’s globalized economy retention of professionals has become key responsibility of HR function in all types of firms. Why? What strategies you suggest to reduce employee turnover?
4. Write short notes on:
a) Key statuary provisions regarding health, safety and welfare of labour
b) Quality of work-life.
Section-B
Case Study: SRI RAM PHARMACY
K.U. Naik is the Managing Director of Sri Ram Pharmacy, a medium-sized pharmaceutical firm. He holds a MS degree in pharmacy and has been managing the company since its inception in 1990. For more than two decades, the company has been doing reasonably well. Recently, Mr. Naik has noticed that the workers are not working to their full potential. They fill their days with unproductive activities and work only for the sake of wages. Since last one year, the situation has become quite alarming as the several key professionals have resigned and left and there is growing unauthorized absenteeism in some sections. As a result of falling production and productivity the organization has to begun to crumble under the weight of uneconomical effort. The situation demand prompt remedial measures to check the detrimental trend. Mr. Naik understands that the only way to progress and prosperity is to motivate workers through better human relations and various incentive schemes.
Mr. Naik asked the HR manager what the problem with the workers was. “We pay the highest in the industry. Our working conditions are excellent. Out fringe benefits are the best in the industry. Still the workers are not motivated. Find out what the workers really want. Unless productivity improves we are doomed.”
The HR Manager made a detailed investigation and concluded that the wages and working conditions also need improvement and besides there are other factors. “I have found out from the workers that work and efficiency go unnoticed and unrewarded in the company. The promotions and benefit plans are tied to the length of service. Even unproductive workers enjoy all the benefits in the organization, which according to the workers should go only to those who work hard. As a result more and more workers are joining the bandwagon of non-performers. This has become quite alarming as workers refuse to perform.
Questions:
1. Analyse the problem in depth and find a solution.
2. If you were the HR manager how would you change the organization climate for motivation and performance? (10+10)
MM01
Marketing Management
(For CNM Cases)
Assignment – I
Assignment Code: 2016MM01A1 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Write short notes on:
(a) Experience concepts in marketing
(b) Difference between a customer oriented company and profit oriented company. Which of them will sustain in long run? Comment.
(c) Green marketing
(d) Country Analysis in Marketing (4x5)
2. Discuss the rationale of segmentation in Indian market. What is behavioural segmentation? What are criterions used in it. Discuss its relevance in today’s market with examples.
3. Why should a company expand resources on positioning its product, when all that consumer wants is a solution to their need? Do customers really care about the image of the product or the company? Justify with examples.
4. a. Discuss the concept of customer value
b. Value Delivery is no Easy Task”, Justify using recent examples from Indian Market
(10+10)
Section-B
Case Study: Carnation Auto
Carnation Auto is a company that deals in servicing cars, selling spares, accessories and also pre-owned cars. The company has been started by Jagdish Khattar, the former MD of Maruti Udyog Ltd, in order to reduce the demand-supply gap in the car servicing market. Its close competitors include MyTVS of the TVS group. Reliance Auto Zone of the Mukesh Ambani group and First Choice by Mahindra & Mahindra. Khattar plans to expand Carnation into a national brand, unlike its competitors.
The venture was started by Khattar in the year 2006-07 when he observed a significant capacity addition by car companies. Companies like Volkswagen, Peugeot, Nissan and Ford had announced significant investments in the Indian market. However, there were no announcements regarding the setting up of parallel service stations. This fuelled the idea for an independent service centre that was not attached to any particular company.
Khattar asked the consultancy firm AT Kearney to conduct marketing research to explore the possibility of this venture. The report found that car manufacturers were investing more than Rs 30,000 crore in this market. The production capacity was stated to increase from 1.7 million cars in 2007 to 3.8 million cars in 2015, which will require an investment of Rs 15,000 crore by 2012 in sales and service infrastructure.
Khattar had learnt at Maruti that their channel partners were losing interest in maintaining the service infrastructure. The next generation of entrepreneurs was willing to invest in ‘clean’ jobs like real estate, IT or retail and not ‘dirty’ jobs like servicing and maintaining cars. The report also revealed that the number of cars will grow to 19 million in 2015, up from 11 million in 2008, which will put a tremendous strain on the existing service infrastructure.
The research also revealed that more than half of the car owners move out of the authorized dealer network as soon as their car becomes 2 years old. These customers go to smaller garages in order to save money. But with the advent of new regulations for emission standards imposed by the Indian government, these small garages will not be able to keep up with the right tools for servicing cars. Khattar sensed an opportunity in this market. He felt that with the right pricing strategy. It would be possible to get these customers who were going to the garages to get their cars serviced. Usually in the car market, the first 2-3 years are not very important from the perspective of servicing, as the vehicles are covered by warranty.
Also, during these years, the vehicle does not suffer much wear and tear. Only after 2 years does the vehicle suffer much damage. At this juncture, servicing becomes extremely important, and at this time, more revenues can be gathered per vehicle. Khattar wanted to focus on the market for more than two year old vehicles. He chose 28 cars that cost upto Rs 9 lakh whose repair and maintenance would be undertaken at Carnation. These cars were chosen on the basis of volume of sales.
His choice of service business got more credibility as surveys indicated that customers were increasingly dissatisfied with the service standards of the authorized dealers. The world over there were several independent, third – party operators who had got ten into the service business in order to overcome this dissatisfaction. In many countries such as Germany, France and the UK, these third party operators have garnered a significant percentage of market shares. Insurance companies also supported khattar’s venture as the claims processed by the dealers was far more than the premia paid by the car owners. Therefore insurance companies also want greater transparency in the repair and servicing business.
Carnation Auto had to identify suppliers for spare parts to start its business. It identified small component suppliers to procure parts as it is less risky for these businesses even if the OEMs (car manufacturers) stop buying form them. It also sources components from overseas suppliers. Usually suppliers are free to sell some components from overseas suppliers. Usually suppliers are free to sell some components and parts to the aftermarket. Mostly this is allowed for those components and parts that go under the hood of the car such as piston rings. But for those parts that lend a distinct design edge to a particular brand of a car, and has a distinct design edge to a particular brand of a car, and has been developed in collaboration with the manufacturer, such as headlights, taillights and bumpers, this is not allowed. Carnation can however buy components from suppliers legally. In Europe, manufacturers who prevent third-party service providers from buying components from suppliers are subject to anti-trust proceedings. The only concern is that some components from suppliers and these will be bought from independent dealers, not from the OEMs. But parts of some cars such as the Honda City of Accord may not be available with independent dealers.
As Khattar expands his business, the sales of authorized dealers would be severely affected. Already, margins are as low as 2-3 percent in India as compared to a range of 8-10 per cent globally. Worldwide, the profit margins in spares and servicing can be as high as 50-60 percent. However, as of now, the threat to the dealers is not very high as Carnation is yet to expand. Dealers also believe that customers will continue to go to authorized dealers as there is greater trust and assurance of genuine parts at these centres. In India, the same degree does not exist with independent dealers yet. Carnation needs to build a strong and trustworthy brand in order to allay customer fears. Khattar offers warranty on all parts bought from Carnation in order to attain greater customer trust.
The concept of Carnation could be extremely useful to smaller car companies that do not have a nationwide service network. Such companies can tie up with Carnation to offer car services to customers.
An outlet of Carnation requires a capital of about Rs 4 crore. Though Khattar has several opportunities to follow a franchising model (as several entrepreneurs are interested in becoming franchises), he is not interested in this model. The preferred model is a joint venture with a local businessman in each state, with Carnation having a majority stake in each JV. This JV will cover the particular state. Several such joint ventures have already materialized. Carnation retains majority control in all of them. The aim is to ultimately target all major markets in metros, which already have a well-developed, service infrastructure and small towns that do not have well developed infrastructure, and small towns, customers buy cars from nearby cities, and take it back to the city for servicing, which is inconvenient. Although the car market had prospered tremendously in small towns and rural areas, the service network leaves much to be desired. Except Maruti Suzuki, no other car manufacturer has such an extensive service network.
There are several challenges that Carnation faces. It is already clear from the research findings that customers take their more than two – year old cars to local garages for repairs. This reflects their price sensitivity, which must be overcome by Carnation, whose services would be priced higher. Khattar knew from his previous experience that most authorized service centres look for the first opportunity to replace parts in order to generate higher bills. But Carnation’s proposition is to first repair, and then, if necessary, replace. Carnation will also be open longer hours, and offers pick and drop facility for the cars that need to be repaired. It even plans to have service vans which can park in a neighborhood and service all the cars there.
The advertising agency far Carnation is Ogilvy. The agency recommended the use of inserts in weekend editions of newspapers instead of buying print space. Because of its belief in quality, Khattar expects that Carnation’s services will generate lot of positive publicity. Khattar’s name backed by his experience in the leading automaker is also an important assurance for prospects. Therefore, the inserts carry his pictures. The logo of the company says, ‘A Jagdish Khattar Initiative’ Though this is reassuring, it is also risky as customers might think that this is a one-man show, whose future after the promoter is uncertain. The use of the tagline was recommended by the agency which found out through a dipstick study that Khattar’s credibility was extremely high amongst customers, who rated him higher than several other automotive stalwarts. Therefore, his name was inserted in the campaign. The other objections could also be written off once Carnation is established as a trustworthy brand over a period of time. Therefore, the use of Khattar’s name would be immediately useful initially.
Carnation Auto is also selling used cars. The differentiator for Carnation is that it buys and sells all brands of cars. It has also tied up with Dilip Chhabria to become his exclusive dealer. The company has also tied with DC to offer customization in a few car models such as Wagon R, Honda City, Swift, etc., wherein customers can select add-ons, designs and design the appearance of their car as per their preference.
5. Case Questions:
a. AT Kearney’s report of there being a huge opportunity in the car service market prompted Jagdish Khattar to start Carnation Auto. Was AT Kearney not being too simplistic? Should Jagdish Khattar have not commissioned research on at least two other areas – How will customers perceive an independent service outlet? How will an independent outlet procure spare parts?
b. Was Oglivy right in suggesting that Jagdish Khattar’s name be used in the promotion material of Carnation Auto?
c. Analyze Carnation Auto Success / failure by searching reliable website and magazine. (7+3+10)
OM01
Operations Management
(For CNM Cases)
Assignment - II
Assignment Code: 2016OM01A2 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the concept of aggregate planning. How do we disaggregate the aggregate plan?
2. a. What are the basic attributes of Quality?
b. How can Control Charts help in controlling the delivery time of home delivery of Pizzas?
3. a. How can we enhance productivity in Indian Manufacturing and retail sectors?
b. Explain the concepts of work sampling and time study.
4. a. Explain the Cycle View of Supply Chain Management. What are the major
decisions to be taken for an effective SCM?
b. Bob Fero is an operations analyst for Sell-Rite Discount stores of Washington, D.C. He is currently studying the ordering and stocking policies at Sell-Rite’s central warehouse for one of its best-moving items, a child’s toy. An examination of historical supply and demand data for this item indicated and almost constant lead time (LT) of 10 days, and abundant production capacity allowed very consistent production and delivery times. Bob also discovered that the demand per day(d) was nearly normally distributed with a mean (d) of 1,250 toys per day with a standard deviation (sd) of 375 toys per day.
i) Compute the order point for the toy if the service level is specified at 90% during lead time.
ii) How much safety stock is provided in your answer in Part A?
Section-B
Case study
A company receives parts from suppliers to be used in its manufacturing departments. The quality control department must perform two operations when shipments and received: Operation A—draw a random sample, package, and deliver to testing, and Operation B—test the materials and issue a disposition report. The time estimates for processing six shipments through quality control are:
Shipment Operation A (hours) Operation B (hours)
1 1.3 0.9
2 1.3 1.1
3 0.8 1.5
4 1.6 1.4
5 1.5 1.0
6 1.2 1.9
5. Case Questions:
a. Use Johnson’s rule to set the sequence of processing the shipments through quality control. (Operations need change over to new jobs at the same time.)
b. How much total time is required to process the six shipments through quality control? What is the idle time on each operation A & B?
Financial Management
(For CNM Cases)
Assignment – II
Assignment Code: 2016FM12A2 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the different kinds of long-term financial sources? What are the advantages and disadvantages of each of them?
2. Write short notes on the following approaches to dividend policy affecting the value of a firm:
a) Walters model
b) Gordons model
c) Modigliani-Miller Model
3. What is the difference between gross working capital and Net working capital? What are the sources of financing working capital? When would you follow a conservative approach to maintaining working capital and vice versa?
4. What are the variables in a credit policy? How does the change in these variables impact the net profit? Explain with an example.
Section-B
Paul Marriot is the director of Stortford Yachts Ltd. The company has traded for 30 years and has in the past achieved very good levels of growth and return on capital, but this is now changing. In recent time it has failed to introduce new product lines, relying on traditional products and little has been invested in Research or Product Development.
You are a business planning consultant for a firm of Management Consultants. Stortford Yachts is one of your clients. In recent times the business has experienced increased turnover but a downturn in overall performance.
Paul Marriot has had a meeting with your Director and he has stated that he wants to introduce tighter management control within the company by introducing a system of responsibility accounting.
You receive the following memo from your Director, Pauline Changer, regarding this case.
Memorandum
To: Business Planning Assistant
Date: 21st May 2013
From: Pauline Changer, Director
Subject: Stortford Yachts Ltd. - accounts information
You are aware that I met with Paul Marriot yesterday and that he is concerned with the latest results shown in the final accounts that have recently been prepared at year end.
The file attached contains a summary of the company's abbreviated profit statements and balance sheets for the past three years; together with additional information and performance indicators for their business sector as a whole for the period under review.
I would like you to examine this information and meet with me on Friday morning to discuss the form and presentation of a detailed financial analysis of the company over the three-year period.
Signed: P. Changer
Financial information on Stortford Yachts Ltd.
Summary profit statements
$m $m $m
2010 2011 2012
Sales turnover 5.12 5.93 6.32
Operating costs 4.17 4.43 5.82
Operating profit before tax 0.95 1.5 0.5
Taxation(30%) 0.665 1.05 0.35
Profit after tax 0.285 0.45 0.15
Dividends 0.12 0.16 0.08
Retained profit 0.165 0.29 0.07
N.B. The firm's detailed breakdown of costs is as follows:
Years 2010 2011 2012
Labour costs 0.93 0.98 1.25
Distribution costs 0.44 0.49 0.61
Administration costs 0.19 0.22 0.27
2. Summary balance sheets
$m $m $m
2010 2011 2012
Fixed assets 2.40 2.77 2.88
Current assets
Stocks:
Raw materials 0.09 0.12 0.15
Finished goods 0.40 0.43 0.45
Debtors 1.14 1.32 1.84
Bank 0.03 0.04 0.05
1.66 1.91 2.49
Less Current liabilities 1.35 1.56 1.90
Net current assets 0.31 0.35 0.59
2.71 3.12 3.47
Capital and reserves 0.5 0.91 1.26
Bank loans 2.21 2.21 2.21
2.71 3.12 3.47
3. Yacht Builders Federation
Average ratios for federation members 2012
% Return on capital employed 26.0%
Asset turnover 1.79 times
Net profit margin 14.5%
Current ratio 1.5:1
Acid test ratio 1.03:1
Debtors collection period 83 days
Gearing ratio 32.0%
Labour cost % of sales 18.1%
Operating cost % of sales 85.5%
Distribution costs % of sales 9.5%
Admin costs % of sales 4.5%
Questions
In your role of planning assistant you are to prepare an analysis of the company's figures over the three-year period using the performance criteria listed in the inter-firm comparison table.
1. Calculate all the ratios given in the average ratios for federation members for 2010, 2011 and 2012.
2. Prepare a detailed report on the company's performance in terms of profitability and liquidity compared with the average of the sector over the period.
FM12
Financial Management
(For CNM Cases)
Assignment – I
Assignment Code: 2016FM12A1 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the concept of time value of money. How do we calculate the future value and present value of money in case of an annuity? How does the value of money change with change in rate of interest and time duration? Explain with examples.
2. Explain five different kinds of capital Budgeting Appraisal methods used.
3. In relation with the financial markets what are the different kinds of investment risks? How do you measure them?
4. What are the different costs considered in the cost of capital? What approaches are used to calculate the cost of equity?
Section-B
Case Study
A company is considering the following investment projects. All projects require an investment of Rs. 10,000 :
Projects Cash Flow
Year 1 Year 2 Year 3
A 10000 - -
B 7500 7500 -
C 2000 4000 12000
D 10000 3000 3000
Case Questions:
1. Rank the project according to the following :
(i) Payback period
(ii) Average rate of return
(iii) Internal rate of Return
(iv) Net Present Value; assuming discount rates of 10 % and 30%.
2. Assuming that the projects are independent which one would you accept?
3. In case of a conflict in ranking according to the NPV and IRR rule which project you select and why? Explain with example.
GM02
Economics & Social Environment
(For CNM Cases)
Assignment - I
Assignment Code: 2016GM02A1 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. “Business Environment may act as stimulant or as a constraint for business management”. Highlight the above statement with suitable example.
2. Why was FERA replaced by FEMA? How both acts are different from each other?
3. Define sick industrial unit? What are the various causes of industrial sickness?
4. Explain with suitable examples the method of SWOT Analysis to scan the environment.
Section-B
Case Study
Indian PSUs: Leading the nation since independence
Public sector enterprises are an integral part of the Indian economy and a major driver of economic growth over the past six decades. Economic reforms of 1991 transformed these companies in size and stature, lading to improvement in productivity and profitability owning to focus on business growth. They competed with major players, both in domestic and international markets and attracted huge investor interest.
In spite of the wave of privatization across India, the centre and state owned enterprises control vast swaths of the national Gross Domestic Product of India. Rising globalization and integration of the Indian economy with the global markets has opened up new opportunities and challenges for the public sector, says a KPMG report. The central public sector enterprises (CPSEs) contribute over 6 percent to the country’s GDP and account for profit of over Rs 125,000 crore.
Many Central PSUs, particularly the Maharatnas, are already global players matching the best global firms in their field of operations. One of the important reasons for the excellent performance of Central PSUs during recent years was the empowerment of the boards of such profit making Central PSUs by the Government leading to greater autonomy. Consequently, such PSUs have been able to effectively use this autonomy to enhance their performance and operate on commercial lines. A K Balyan, MD and CEO of Petronet LNG and a PSU veteran says, “PSU have been a success story in most of the sectors. The government needs to be complimented that across the vital sectors of the industry public sector has contributed immediately by setting up a base and foundation from where the private sector was able to take off and further grow the sector. Now we see private sector thriving on the base created by public sector”. He adds, “We must also acknowledge the fact the most private leading companies across sectors like telecom, petroleum, auto and power are driven by former PSU veterans because the leadership and training they acquired from public sector was unmatched”.
PSUs contributed significantly to the country’s economy. The public sector is an integral part of the Indian economy and a key growth driver. With the advent of globalization the public sector gained credence in the face of faced new challenges in developed economies, says a report of Dun & Bradstreet. This sector provided the required thrust to the economy and developed and nurtured human resources, the vital ingredient for the success of any enterprise. Over the last few years, public sector enterprises have gained tremendous credibility and recognition not just domestically but also in the international markets and the government is now gearing up to cash in on this.
According to the 52nd Public Enterprises Survey for the year 2011-12, brought out in February 2013 by the Department of Public Enterprises on the performance of CPSEs, there were 260 CPSEs in 2011-12, out of which 225 were in operation. The remaining 35 CPSEs were under construction.
The main highlights of the performance of CPSEs during 2011-12 are as follows: The total paid up capital in 260 CPSEs as on March 2012 stood at Rs 163,863 crore compared to Rs 157,438 crore as on March 2011 showing a growth of 4.08 percent. The total investment (equity plus long term loans) in all CPSEs stood at Rs 729,228 crore as on March 2012 compared to Rs. 603,975 crore as on March 2011, recording a growth of 20.74 per cent.
The capital employed (paid –up capital plus reserves and surplus and long term loans) in all CPSEs stood at Rs.13,43,176 crore as on March 2012 compared to Rs, 11,64,178 crore as on March 2011 showing a growth of 15.38 per cent. The total turnover/gross revenue from operations of all CPSEs during 2011-12 was Rs 18,41,927 crore compared to Rs. 14,98,018 crore in the previous year showing an increase of 22.96 per cent. The profit of profit making CPSEs stood at Rs 125,115 crore during 2011-12 compared to Rs 113,944 crore in 2010-11 showing a growth of 9.80 percent. Reserves and surplus of all CPSEs went up from Rs. 560203 crore in 2010-11 to Rs 613,949 crore in 2011-12, showing an increase by 9.59 percent. Net worth of all CPSEs went up from Rs 717641 crore in 2010-11 to Rs 777,812 crore in 2011-12 registering a growth of 8.38 percent.
The contribution of CPSEs to Central Exchequer by way of excise duty, customs duty, corporate tax, interest on Central Government loans, dividend and other duties and taxes increased from Rs.156,751 crore in 2010-12, showing an increase of 2.58 percent.
The foreign exchange earnings through exports of goods and services increased from Rs. 91774 crore in 2010-11 to Rs 124,492 crore in 2011-12 showing a growth of 35.65 per cent. The foreign exchange outgo on imports and royalty, know-how, consultancy, interest and other expenditure increased from Rs. 550,086 crore in 2010-11 to Rs 733,544 crore in 2011-12 showing an increase of 33.35 percent.
The total market capitalization of 44 listed CPSEs, based on the stock price in Bombay Stock Exchange, however decreased from Rs. 15,06,698 crore as on 31.03.2012. Market capitalization of CPSEs, based on the stock price in Bombay stock Exchange, however decreased from 15,06,698 crore as on 31.03.2011 to Rs 12,53, 245 crore as on 31.03.2112. The market capitalization of CPSEs during this period, therefore, decreased by 16.82 percent.
The market capitalization of CPSEs as percent of BSE market capitalization decreased from 22.03 per
cent as on 31.03.2011 to 20.17 percent as on 31.03.2012. This was in line with the over 10 percent fall
in BSE Sensex during the said period.
Last October, Prime Minister Manmohan Singh interacted with Chief Executives of various CPSEs and it was emphasized that domestic demand is the driver for investments. The CPSEs have been asked to use their surplus funds for benefits of their company as well as for the economy. According to estimates, PSUs have investible surpluses of over Rs 250,000 crore. Heads of 25 PSUs, including the cash-surplus ONGC, Coal India, BHEL, NTPC, SAIL and NMDC attended the meeting.
Questions:
1. Discuss the role and contribution of central public enterprises as an integral part of Indian economy and a major driver of economic growth. (10)
2. In spite of laying strong foundation of major industries, public sector enterprise has been facing various shortcomings? Highlight them. What reforms have been initiated by government in this regards? (10)
GM04
Managerial Economics
(For CNM Cases)
Assignment - II
Assignment Code: 2016GM04A2 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. What is meant by monopolistic competition? Is product differentiation an outcome of monopolistic competition or vice-versa? Discuss the behavior of the firm under monopolistic competition
2. What is Oligopoly? Explain how price & output decisions are taken under the conditions of collusive
Oligopoly.
3. Explain why the demand curve facing a perfectly competitive firm is assumed to be perfectly elastic.
4. Enumerate various models of managerial and behavioural theory. Explain in detail Marris
model of managerial economics.
Section-B
Case Study
Govt Moves to overhaul coal sector
The government on Wednesday moved a step closer to restructure the coal sector with a proposal that could potentially benefit the power companies that have been strained by the scarcity and poor quality of coal supplied to them.
A group of ministers (GoM) signed off on a plan to set up a coal regulator and to create a “pass-through” mechanism that would see higher costs from imported coal being passed on as increased tariffs.
The proposal is now expected to be presented to the Union cabinet for its approval on 7 June 2013. “We have been able to achieve traction and closure, pretty much, with regard to the coal regulator Bill, in terms of the formulation of different clauses and finality of its structure,” said minister of state for power Jyotiraditya Scindia. “Similarly, with regard to the pass-through mechanism for increasing supply of coal from external sources to the power sector, we have achieved closure on that mechanism structure as well.”
The proposed coal regulator will be primarily entrusted with the task of monitoring testing, quality, supply and grading of coal, but will not regulate pricing. It will, however, have an attached appellate body that will adjudicate on disputes between coal suppliers and buyers, including some pricing issues.
Finance minister P. Chidambaram said that pricing of coal would be kept out of the ambit of the coal regulator, and that it would be empowered to resolve disputes, including those arising out of fuel supply agreements with power and other downstream producers.
“There is an agreement that pricing must be left to the producer of coal, but the regulator will have powers to adjudicate on disputes relating to price, quality, supplies. All disputes will be adjudicated with the regulator and then there will be an appellate authority,” PTI had cited Chidambaram as saying.
Scindia said the proposed appellate body would have some control over pricing.
“We certainly have given a certain amount of authority to the coal regulator in certain very specified cases,” he said in response to a question if regulation of pricing was within its ambit. Besides pricing, the new body will be entrusted with the regulation of testing, quality, supply and grading of coal, Scindia said.
“It (the proposed regulator) takes into account the interest of all stakeholders within the industry, the suppliers of coal as well as the buyers of coal,” he said. “It balances and protects the interest of all stakeholders and, at the same time, gives a very judicious balance to the regulatory authority to be able to supervise the supply and demand of coal in the country.”
Both the proposals—one on the regulator and the appellate body and the other on the price pass-through mechanism—are likely to be taken up by the cabinet on 7 June, a top coal ministry official said.
Analysts and senior coal industry executives are, however, not convinced about the effectiveness of a coal regulator, especially if pricing is kept out of its remit. For one, stateowned Coal India Ltd (CIL) is a near-monopoly producer of the fuel. “It will be a nightmare, even if it is given full pricing powers. What will you regulate? It is not just a case of CIL being a monopoly player. The cost of production of varying grades of coal from different mines is different, so imagine how many permutations and combinations there will be to regulate,” said a senior CIL official who did not want to be identified.
Chintan J. Mehta, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd, said that without the authority to regulate pricing, the new body will be ineffective. “Although CIL has a monopoly over pricing, a regulator, if it had the power, could have raised an objection, thereby compelling the company into changing prices. That cannot happen now,” he said.
“Having said that, various non-pricing processes will be streamlined and become transparent, as the regulator will be an independent non-political entity,” Mehta added.
On 22 April, the cabinet had rejected a proposal to pool coal prices, which is the averaging out of cheaper domestic coal with costlier imports as a means of helping those who have to depend on supplies from overseas. Instead, it had asked a ministerial panel to set up a mechanism to pass on the incremental costs due to costlier imported coal to power producers.
CIL, the world’s largest miner of coal, supplies 85% of the domestic coal demand. It has been unable to meet growing demand, especially from the power sector, and hence has been resorting to imports to meet supply obligations.
While a pass-through price structure will increase electricity tariffs for consumers, it could potentially help restore investor interest in the power sector.
Source: Article form Live Mint published: Tue, Nov 27,2012
Questions:
1. What steps have been taken by government to overhaul coal sector? (5)
2. How effective coal regulator would be to avoid monopoly situation in coal industry in case pricing is kept out of its remit? (5)
3. How is price decided in coal industry where there is situation of near monopoly? (Explain with suitable diagram). (10)
HR01
Human Resource Management
(For CNM Cases)
Assignment – II
Assignment Code: 2016HR01A2 Last date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all questions. All the questions are compulsory & carry equal marks.
Section-A
1. What do you understand by Industrial Relations? Explain various approaches to IR and discuss some factors that influence the Industrial Relations climate in any organization.
2. Why should a manager be concerned about employee grievance? Define the process of collective bargaining. Discuss, “Collective bargaining assumes collective wisdom of both labour and management”
3. In today’s globalized economy retention of professionals has become key responsibility of HR function in all types of firms. Why? What strategies you suggest to reduce employee turnover?
4. Write short notes on:
a) Key statuary provisions regarding health, safety and welfare of labour
b) Quality of work-life.
Section-B
Case Study: SRI RAM PHARMACY
K.U. Naik is the Managing Director of Sri Ram Pharmacy, a medium-sized pharmaceutical firm. He holds a MS degree in pharmacy and has been managing the company since its inception in 1990. For more than two decades, the company has been doing reasonably well. Recently, Mr. Naik has noticed that the workers are not working to their full potential. They fill their days with unproductive activities and work only for the sake of wages. Since last one year, the situation has become quite alarming as the several key professionals have resigned and left and there is growing unauthorized absenteeism in some sections. As a result of falling production and productivity the organization has to begun to crumble under the weight of uneconomical effort. The situation demand prompt remedial measures to check the detrimental trend. Mr. Naik understands that the only way to progress and prosperity is to motivate workers through better human relations and various incentive schemes.
Mr. Naik asked the HR manager what the problem with the workers was. “We pay the highest in the industry. Our working conditions are excellent. Out fringe benefits are the best in the industry. Still the workers are not motivated. Find out what the workers really want. Unless productivity improves we are doomed.”
The HR Manager made a detailed investigation and concluded that the wages and working conditions also need improvement and besides there are other factors. “I have found out from the workers that work and efficiency go unnoticed and unrewarded in the company. The promotions and benefit plans are tied to the length of service. Even unproductive workers enjoy all the benefits in the organization, which according to the workers should go only to those who work hard. As a result more and more workers are joining the bandwagon of non-performers. This has become quite alarming as workers refuse to perform.
Questions:
1. Analyse the problem in depth and find a solution.
2. If you were the HR manager how would you change the organization climate for motivation and performance? (10+10)
MM01
Marketing Management
(For CNM Cases)
Assignment – I
Assignment Code: 2016MM01A1 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Write short notes on:
(a) Experience concepts in marketing
(b) Difference between a customer oriented company and profit oriented company. Which of them will sustain in long run? Comment.
(c) Green marketing
(d) Country Analysis in Marketing (4x5)
2. Discuss the rationale of segmentation in Indian market. What is behavioural segmentation? What are criterions used in it. Discuss its relevance in today’s market with examples.
3. Why should a company expand resources on positioning its product, when all that consumer wants is a solution to their need? Do customers really care about the image of the product or the company? Justify with examples.
4. a. Discuss the concept of customer value
b. Value Delivery is no Easy Task”, Justify using recent examples from Indian Market
(10+10)
Section-B
Case Study: Carnation Auto
Carnation Auto is a company that deals in servicing cars, selling spares, accessories and also pre-owned cars. The company has been started by Jagdish Khattar, the former MD of Maruti Udyog Ltd, in order to reduce the demand-supply gap in the car servicing market. Its close competitors include MyTVS of the TVS group. Reliance Auto Zone of the Mukesh Ambani group and First Choice by Mahindra & Mahindra. Khattar plans to expand Carnation into a national brand, unlike its competitors.
The venture was started by Khattar in the year 2006-07 when he observed a significant capacity addition by car companies. Companies like Volkswagen, Peugeot, Nissan and Ford had announced significant investments in the Indian market. However, there were no announcements regarding the setting up of parallel service stations. This fuelled the idea for an independent service centre that was not attached to any particular company.
Khattar asked the consultancy firm AT Kearney to conduct marketing research to explore the possibility of this venture. The report found that car manufacturers were investing more than Rs 30,000 crore in this market. The production capacity was stated to increase from 1.7 million cars in 2007 to 3.8 million cars in 2015, which will require an investment of Rs 15,000 crore by 2012 in sales and service infrastructure.
Khattar had learnt at Maruti that their channel partners were losing interest in maintaining the service infrastructure. The next generation of entrepreneurs was willing to invest in ‘clean’ jobs like real estate, IT or retail and not ‘dirty’ jobs like servicing and maintaining cars. The report also revealed that the number of cars will grow to 19 million in 2015, up from 11 million in 2008, which will put a tremendous strain on the existing service infrastructure.
The research also revealed that more than half of the car owners move out of the authorized dealer network as soon as their car becomes 2 years old. These customers go to smaller garages in order to save money. But with the advent of new regulations for emission standards imposed by the Indian government, these small garages will not be able to keep up with the right tools for servicing cars. Khattar sensed an opportunity in this market. He felt that with the right pricing strategy. It would be possible to get these customers who were going to the garages to get their cars serviced. Usually in the car market, the first 2-3 years are not very important from the perspective of servicing, as the vehicles are covered by warranty.
Also, during these years, the vehicle does not suffer much wear and tear. Only after 2 years does the vehicle suffer much damage. At this juncture, servicing becomes extremely important, and at this time, more revenues can be gathered per vehicle. Khattar wanted to focus on the market for more than two year old vehicles. He chose 28 cars that cost upto Rs 9 lakh whose repair and maintenance would be undertaken at Carnation. These cars were chosen on the basis of volume of sales.
His choice of service business got more credibility as surveys indicated that customers were increasingly dissatisfied with the service standards of the authorized dealers. The world over there were several independent, third – party operators who had got ten into the service business in order to overcome this dissatisfaction. In many countries such as Germany, France and the UK, these third party operators have garnered a significant percentage of market shares. Insurance companies also supported khattar’s venture as the claims processed by the dealers was far more than the premia paid by the car owners. Therefore insurance companies also want greater transparency in the repair and servicing business.
Carnation Auto had to identify suppliers for spare parts to start its business. It identified small component suppliers to procure parts as it is less risky for these businesses even if the OEMs (car manufacturers) stop buying form them. It also sources components from overseas suppliers. Usually suppliers are free to sell some components from overseas suppliers. Usually suppliers are free to sell some components and parts to the aftermarket. Mostly this is allowed for those components and parts that go under the hood of the car such as piston rings. But for those parts that lend a distinct design edge to a particular brand of a car, and has a distinct design edge to a particular brand of a car, and has been developed in collaboration with the manufacturer, such as headlights, taillights and bumpers, this is not allowed. Carnation can however buy components from suppliers legally. In Europe, manufacturers who prevent third-party service providers from buying components from suppliers are subject to anti-trust proceedings. The only concern is that some components from suppliers and these will be bought from independent dealers, not from the OEMs. But parts of some cars such as the Honda City of Accord may not be available with independent dealers.
As Khattar expands his business, the sales of authorized dealers would be severely affected. Already, margins are as low as 2-3 percent in India as compared to a range of 8-10 per cent globally. Worldwide, the profit margins in spares and servicing can be as high as 50-60 percent. However, as of now, the threat to the dealers is not very high as Carnation is yet to expand. Dealers also believe that customers will continue to go to authorized dealers as there is greater trust and assurance of genuine parts at these centres. In India, the same degree does not exist with independent dealers yet. Carnation needs to build a strong and trustworthy brand in order to allay customer fears. Khattar offers warranty on all parts bought from Carnation in order to attain greater customer trust.
The concept of Carnation could be extremely useful to smaller car companies that do not have a nationwide service network. Such companies can tie up with Carnation to offer car services to customers.
An outlet of Carnation requires a capital of about Rs 4 crore. Though Khattar has several opportunities to follow a franchising model (as several entrepreneurs are interested in becoming franchises), he is not interested in this model. The preferred model is a joint venture with a local businessman in each state, with Carnation having a majority stake in each JV. This JV will cover the particular state. Several such joint ventures have already materialized. Carnation retains majority control in all of them. The aim is to ultimately target all major markets in metros, which already have a well-developed, service infrastructure and small towns that do not have well developed infrastructure, and small towns, customers buy cars from nearby cities, and take it back to the city for servicing, which is inconvenient. Although the car market had prospered tremendously in small towns and rural areas, the service network leaves much to be desired. Except Maruti Suzuki, no other car manufacturer has such an extensive service network.
There are several challenges that Carnation faces. It is already clear from the research findings that customers take their more than two – year old cars to local garages for repairs. This reflects their price sensitivity, which must be overcome by Carnation, whose services would be priced higher. Khattar knew from his previous experience that most authorized service centres look for the first opportunity to replace parts in order to generate higher bills. But Carnation’s proposition is to first repair, and then, if necessary, replace. Carnation will also be open longer hours, and offers pick and drop facility for the cars that need to be repaired. It even plans to have service vans which can park in a neighborhood and service all the cars there.
The advertising agency far Carnation is Ogilvy. The agency recommended the use of inserts in weekend editions of newspapers instead of buying print space. Because of its belief in quality, Khattar expects that Carnation’s services will generate lot of positive publicity. Khattar’s name backed by his experience in the leading automaker is also an important assurance for prospects. Therefore, the inserts carry his pictures. The logo of the company says, ‘A Jagdish Khattar Initiative’ Though this is reassuring, it is also risky as customers might think that this is a one-man show, whose future after the promoter is uncertain. The use of the tagline was recommended by the agency which found out through a dipstick study that Khattar’s credibility was extremely high amongst customers, who rated him higher than several other automotive stalwarts. Therefore, his name was inserted in the campaign. The other objections could also be written off once Carnation is established as a trustworthy brand over a period of time. Therefore, the use of Khattar’s name would be immediately useful initially.
Carnation Auto is also selling used cars. The differentiator for Carnation is that it buys and sells all brands of cars. It has also tied up with Dilip Chhabria to become his exclusive dealer. The company has also tied with DC to offer customization in a few car models such as Wagon R, Honda City, Swift, etc., wherein customers can select add-ons, designs and design the appearance of their car as per their preference.
5. Case Questions:
a. AT Kearney’s report of there being a huge opportunity in the car service market prompted Jagdish Khattar to start Carnation Auto. Was AT Kearney not being too simplistic? Should Jagdish Khattar have not commissioned research on at least two other areas – How will customers perceive an independent service outlet? How will an independent outlet procure spare parts?
b. Was Oglivy right in suggesting that Jagdish Khattar’s name be used in the promotion material of Carnation Auto?
c. Analyze Carnation Auto Success / failure by searching reliable website and magazine. (7+3+10)
OM01
Operations Management
(For CNM Cases)
Assignment - II
Assignment Code: 2016OM01A2 Last Date of Submission: 30th April 2016
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. Explain the concept of aggregate planning. How do we disaggregate the aggregate plan?
2. a. What are the basic attributes of Quality?
b. How can Control Charts help in controlling the delivery time of home delivery of Pizzas?
3. a. How can we enhance productivity in Indian Manufacturing and retail sectors?
b. Explain the concepts of work sampling and time study.
4. a. Explain the Cycle View of Supply Chain Management. What are the major
decisions to be taken for an effective SCM?
b. Bob Fero is an operations analyst for Sell-Rite Discount stores of Washington, D.C. He is currently studying the ordering and stocking policies at Sell-Rite’s central warehouse for one of its best-moving items, a child’s toy. An examination of historical supply and demand data for this item indicated and almost constant lead time (LT) of 10 days, and abundant production capacity allowed very consistent production and delivery times. Bob also discovered that the demand per day(d) was nearly normally distributed with a mean (d) of 1,250 toys per day with a standard deviation (sd) of 375 toys per day.
i) Compute the order point for the toy if the service level is specified at 90% during lead time.
ii) How much safety stock is provided in your answer in Part A?
Section-B
Case study
A company receives parts from suppliers to be used in its manufacturing departments. The quality control department must perform two operations when shipments and received: Operation A—draw a random sample, package, and deliver to testing, and Operation B—test the materials and issue a disposition report. The time estimates for processing six shipments through quality control are:
Shipment Operation A (hours) Operation B (hours)
1 1.3 0.9
2 1.3 1.1
3 0.8 1.5
4 1.6 1.4
5 1.5 1.0
6 1.2 1.9
5. Case Questions:
a. Use Johnson’s rule to set the sequence of processing the shipments through quality control. (Operations need change over to new jobs at the same time.)
b. How much total time is required to process the six shipments through quality control? What is the idle time on each operation A & B?
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