Farm Harvest-Case
Farm Harvest-Case
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W18698
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Semila Fernandes, Pooja Gupta, and Vidyasagar A. wrote this case solely to provide material for class discussion. The authors do
not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.
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University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com.
The morning of April 24, 2017, was bright and sunny, but the mood of Rajesh Kumar, managing director
of Farm Harvest Pvt. Ltd. (Farm Harvest), was far from sunny as he entered his office that day. Rajesh
needed to hold an emergency meeting with his core team concerning distribution problems within Farm
Harvest, which produced and marketed fresh corn and ready-to-eat (RTE) corn products. Sathish
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Kalaimani, head of sales for the company, was the first person to walk into the boardroom.
“Good morning, chief,” he said to Rajesh. “What happened? I thought we were meeting at 12:00 p.m.”
“I wanted to meet the core team right now. Let’s wait for others to join us and then I will explain,” Rajesh
said. It was then that the other two members of the core team—Selva Kumar, the marketing manager, and
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not contacted them for two weeks. On further enquiry, I learned that this stock-out situation happens
on a regular basis, at least three to four times a month. I then checked up on the kiosk and it was
the same story all over again. What is happening?
Rajesh passed folders around the table to all three team members. “Look at our sales figures. I compiled
the sales, category-wise, for the last six years.” He pointed out the three tables in the report marked Fresh
Corn Sales, Ready-to-Eat Sales, and Kiosk Sales (see Exhibit 1-3). “The tables tell us, in black and white,
the truth—that our sales are falling.” Rajesh continued, “Going by my experience yesterday, a large part of
our sales dip seems to be coming from non-availability of our product in the market. I want to get to the
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bottom of this,” he said. “I want you all to find out where the gap is in our distribution model and what the
alternatives available to us are. Let’s meet again in the evening.”
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SWEET CORN PRODUCTION IN INDIA1
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Sweet corn, a variation of the maize crop, was a specialty crop in which the sweetness of the corn was
enhanced due to a particular gene. Maize was an important cereal of India and was grown on over 4 per
cent of the country’s total cultivable area. The country produced 1.7 million tons in 1950–51, rising to 19.6
million tons in 2014–15. There had been large variations in the production of maize in India since the
country’s independence in 1947. Over the last 10 years, sweet corn had been the fastest-growing maize
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crop in India, showing an output growth of 56 per cent in that period.2
Rajesh had recognized the potential in cultivating and marketing fresh corn in India while talking to the farmers
in his town. Those conversations had prompted Rajesh to consider getting into the corn business. He was from
a strong farming background, had earned a degree in management, and had big entrepreneurial dreams.
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Rajesh decided to find the best places in the world for growing sweet corn. He focused on Iowa, in the
United States, because it had been designated as the king of corn for the last two decades. In an average
year, the state of Iowa produced more corn than most countries did.3 Rajesh set out for Iowa to find the best
sweet corn farmers in the world and learn their trade. As soon as he returned from Iowa, he bought five
acres of land and embarked on his new venture, setting up a sweet corn cultivation and distribution business.
Farm Harvest was established in 2010. It started producing and processing top-quality sweet corn through a close-
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knit community of farmers. The company tapped the existing distribution network for fast moving consumer goods
and, in a phased manner, launched the product in 10 cities in South India over a period of five years.
Over the years, the company had been selling fresh sweet corn to consumers across the southern part of
India. By 2016, the company was cultivating sweet corn on over 120 acres through co-operative farming.
It had also forayed into export markets after 2014.
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The company’s cutting-edge manufacturing facility ensured fresh produce was processed in a clean and
hygienic environment. By using the latest Japanese retort technology with temperature control, the
packaged sweet corn stayed fresh for a period of six months without any added preservatives.
Right from the beginning, Rajesh had realized that in order to be successful, Farm Harvest had to cater to
various kinds of customers. There were customers who liked to purchase from a retail outlet and would take
the sweet corn home for further processing. Some customers liked to eat at the place of purchase. Apart
from these, many small retailers from neighbouring areas liked to buy multiple packs and resell the packs
in their local neighbourhood. Farm Harvest classified this line of business as RTE sales. The other line of
business was supplying sweet corn at shopping malls and movie halls through staffed kiosks. Farm Harvest
had a clearly defined table that showed the breakdown of the price and commission at various points in the
distribution channel (see Exhibit 4).
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The biggest challenge faced by the company in its initial years was establishing a distribution network for
its products. The company categorized trade sales under three different heads: fresh corn sales, RTE
1
Puja Mondal, “Maize Cultivation in India: Conditions, Production and Distribution,” Your Article Library, accessed May 24,
2017, www.yourarticlelibrary.com/cultivation/maize-cultivation-in-india-conditions-production-and-distribution/20918/.
2
Ajay Modi, “Amazing,” Business Today, May 25, 2014, accessed May 24, 2017,
www.businesstoday.in/magazine/features/cargill-india-ceo-siraz-chaudhury-maize/story/205721.html.
3
“Corn FAQs: Iowa’s Corn Production,” Iowa Corn, accessed May 25, 2014, https://www.iowacorn.org/resources/faqs.
This document is authorized for educator review use only by JAYAKRISHNAN S, SDM Institute for Management and Development (SDMIMD) until May 2020. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860
Page 3 9B18A060
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packaged products, and vending kiosk supplies. It grouped the distribution of bulk sales to small vendors,
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RTE packaged stock keeping units, and vending kiosks requirements into trade, and appointed distributors
who would cater to these.
The company operated with two to three distributors in each of the cities where it had a presence. The
distributors were responsible for supplying the requirements of the small vendors (fresh corn) to the
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neighbouring traders, and the network of retailers in the city of operation.
THE DILEMMA
Later the same day, at 4:00 p.m., Rajesh and his core team assembled again in the boardroom. Rajesh started
the meeting:
Gentlemen, I hope you all have come up with some answers. Total sales have dipped again this
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year. This is on top of a drop of 12 per cent from the previous year. We seem to have dropped
across all the categories in all cities, for the second year in a row. So, last year was not an aberration
as some of you have mentioned. There seems to be a problem here.
“We had stressed the importance of RTE products with the distributors, which is why that segment has a
drop of just 4 per cent compared to 13 per cent the previous period,” Selva responded.
“But consider the drop of 9 per cent in the fresh corn category and the whopping 13 per cent drop in the
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vending kiosk category,” retorted Rajesh.
“I think the distributor is trading off the effort on one category against the other. If we stress one category, the
distributor focuses on that, since there are incentives, and ignores the others,” Raghavendra remarked.
“Have you looked into the retail distribution figures for 2016?” Rajesh asked the sales manager, Sathish.
“There seems to be a huge skew toward the large retailers, and that could be a cause for concern. We did
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realize in the beginning that RTE sales had to follow extensive distribution while vending machines would
be selective in nature. However, looking at the sales in various outlet types, this is not borne out!”
“The distributors are not keen on visiting smaller outlets because the returns from RTE sales do not work out
for them, in terms of costs. They are very reluctant to deploy additional personnel. Consequently, several
outlets face a stock-out situation at times,” replied Sathish [see Exhibits 5-8].
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“In fact,” Sathish added, “most distributors say that the markup of 9 per cent is inadequate to cover the
costs of the distribution of RTE products. Instead they are quite happy with the bulk sales of the fresh corn
even though the margins are at 5 per cent. The customers in the fresh corn category actually come to the
distributors’ premises to pick up stock and thus the distributor incurs no costs whatsoever.”
“Looking back, the primary reason we gave RTE and kiosk business [see Exhibit 9] to the fresh corn
wholesalers was because of the low expected sales in RTE and kiosks. This was mainly to give us a foothold
in the retail market,” Rajesh pointed out.
“Agreed,” chorused Selva and Raghavendra.
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“Some of the distributors have reduced the number of sales representatives for our products in order to cut
costs, and that has led to a drop in our kiosk sales, which now don’t get replenished on time—this despite
the fact that kiosk sales give a markup of almost 35 per cent on the distributor landed price,” said Selva. To
emphasize his point, he distributed to everyone copies of monthly outstanding, monthly stock, and monthly
credit reports (see Exhibits 10, 11, and 12).
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“Have you considered other alternatives for distribution?” asked Rajesh.
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Raghavendra replied, “We did work on several combinations, and there seems to be another alternative.
One such alternative is to consider separating the RTE and vending business from the distributors and
leaving the distributors to only focus on the fresh corn business.”
“Are you saying that we should appoint a new set of distributors for the RTE and vending business? Is that
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viable?” enquired Rajesh.
“Actually, we were looking at whether we should manage this new channel directly, at least in some of the
key towns,” said Selva.
“What do you think will be the reaction of the current set of distributors, if we do that?” asked Rajesh.
“I have a feeling that they will not have a major problem—not in the major cities. They have been
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complaining about low margins on the RTE line for quite some time now. After all, they were originally
wholesalers of commodities, and we were the ones who asked them to take up the distribution of the RTE
line of products,” replied Sathish.
Rajesh asked, “Have you looked at all the logistics issues?”
Raghavendra replied, “Yes, we have prepared a list of the costs that we will incur once we make this change
for the three major cities—Chennai, Coimbatore, and Salem.4 After all, in the other cities, we haven’t
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established ourselves.”
Sathish interjected:
Today, we offer a credit period of 15 days to the distributors and insist that they carry a month’s stock
at all times. We also expect them to extend a 30-day credit period to the retailers. The distributors
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claim that they are using their overdraft option with the bank, which then charges them an interest of
12 per cent per year. If we were to manage the channel ourselves, we save on the distributor-related
costs, which would offset some of the additional costs. Also, we should expect an increase in sales by
at least 35 per cent in each of these cities, with proper coverage and no stock-outs.
Raghavendra added:
We will have to employ our own sales representatives in these cities. Today, we are subsidizing 50
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per cent of two sales representatives’ salaries. This would mean additional expenses at each of the
cities. The salary would be roughly ₹14,0005 per person per month including local travel. The fuel
costs incurred would be ₹9,000 per month, the rent around ₹3,000 per month, and miscellaneous
expenses would be ₹2,000 per month. Apart from all these, there will be the kiosk costs. I have
taken these cost estimates from the average costs incurred by our distributors.
“This sounds like a good plan. For now, let us go ahead with this line of thinking. Instead of renting
warehouse space in the city, we will continue with carrying and forwarding agents, and have a contract with
a transporter for delivery,” posed Rajesh.
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He continued, “Gentlemen, I want you all to look at the feasibility of this alternative. Let us meet at the end
of the week to discuss the viability of this option.”
4
Major cosmopolitan cities in South India.
5
₹ = INR = Indian rupee; ₹1 = US$0.02 on April 30, 2017.
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EXHIBIT 1: FARM HARVEST ANNUAL SALES, FRESH CORN (IN ₹ THOUSANDS)
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City 2011 2012 2013 2014 2015 2016
Chennai 102.48 94.12 86.44 91.95 71.45 58.85
Coimbatore 97.18 92.89 82.80 88.47 65.68 52.11
Salem 96.23 89.97 78.15 85.23 63.66 51.31
Tiruchy 10.50 11.36 12.07 13.63 13.64 13.98
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Madurai 10.28 12.97 13.80 13.98 13.48 12.08
Kochi 7.33 8.00 9.48 11.21 12.12 14.35
Trivandrum 0.00 2.67 3.56 9.65 11.77 14.27
Pallakad 0.00 0.00 1.70 7.10 8.01 9.81
Trichur 0.00 0.00 0.00 6.80 7.43 9.44
Bengaluru 0.00 0.00 0.00 7.98 8.76 15.81
Total 324.00 312.00 288.00 336.00 276.00 252.00
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Source: Company documents.
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EXHIBIT 4: FARM HARVEST STOCK KEEPING UNITS AND PRICE LIST
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Ready-to-Eat (RTE) Single Cob op RTE Sweet Corn Kernel, 125 g
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RTE Sweet Corn Kernel, 325 g RTE Bulk-Pack Cobs (5 per pack)
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EXHIBIT 4 (CONTINUED)
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Kiosk Pack Fresh Corn
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EXHIBIT 5: FARM HARVEST DISTRIBUTORS (NUMBER)
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City 2011 2012 2013 2014 2015 2016
Chennai 4 4 5 5 3 3
Coimbatore 3 3 3 4 4 2
Salem 3 2 3 4 3 2
Tiruchy 1 2 3 2 3 3
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Madurai 1 1 3 3 2 2
Kochi 2 1 2 2 2 2
Trivandrum 0 0 0 1 1 1
Pallakad 0 0 1 2 2 2
Trichur 0 0 0 1 2 2
Bengaluru 0 0 0 2 3 3
Total 14 13 20 26 25 22
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EXHIBIT 6: THROUGHPUT PER DISTRIBUTOR (IN ₹ THOUSANDS PER MONTH)
Chennai 115 6 15 31 63
Coimbatore 117 5 17 36 59
Salem 85 4 12 25 44
Tiruchy 75 4 12 21 38
Madurai 68 2 10 21 35
Kochi 56 3 9 16 28
Trivandrum 47 3 7 14 23
Pallakad 29 1 6 7 15
Trichur 39 2 8 8 21
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Bengaluru 70 6 9 19 36
Total 701 36 105 198 362
Note: Retail outlets defined by the company as Super A (chain department stores that have centralized purchases), A (large
department stores with individual purchases), B (grocery outlets with a sales turnover between ₹150,000 and ₹300,000), and
C (small grocery outlets with a sales turnover less than ₹150,000).
Source: Company documents.
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EXHIBIT 8: FARM HARVEST SALES BY OUTLET CATEGORY, 2016 (%)
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City # Outlets Super A A B C
Chennai 115 2.97 2.25 2.17 0.64
Coimbatore 117 2.92 1.57 1.78 0.85
Salem 85 2.38 1.96 2.24 0.42
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Tiruchy 75 0.69 0.59 0.46 0.17
Madurai 68 0.46 0.50 0.56 0.13
Kochi 56 0.65 0.67 0.53 0.12
Trivandrum 47 0.51 0.64 0.60 0.20
Pallakad 29 0.32 0.38 0.46 0.19
Trichur 39 0.35 0.35 0.41 0.18
Bengaluru 70 0.93 0.41 0.69 0.13
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Total 701 12.20 9.30 9.90 3.00
Note: Retail outlets defined by the company as Super A (chain department stores that have centralized purchases), A (large
department stores with individual purchases), B (grocery outlets with a sales turnover between ₹150,000 and ₹300,000), and
C (small grocery outlets with a sales turnover less than ₹150,000).
Source: Company documents.
Madurai 3 0.05
Kochi 3 0.05
Trivandrum 3 0.05
Pallakad 2 0.04
Trichur 2 0.04
Bengaluru 4 0.06
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EXHIBIT 11: AVERAGE MONTHLY STOCKS WITH ALL DISTRIBUTORS (IN ₹ THOUSANDS)
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City RTE Vending Sales Fresh Corn Total
Chennai 1.41 0.65 6.01 8.07
Coimbatore 1.06 0.63 4.86 6.55
Salem 1.02 0.35 4.49 5.86
Tiruchy 0.54 0.29 1.56 2.39
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Madurai 0.47 0.24 1.28 1.99
Kochi 0.60 0.30 1.49 2.39
Trivandrum 0.68 0.30 1.51 2.49
Pallakad 0.34 0.20 0.95 1.49
Trichur 0.33 0.20 0.91 1.44
Bengaluru 0.78 0.66 2.01 3.45
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Note: RTE = ready-to-eat.
Source: Company documents.
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infringement of copyright. [email protected] or 617.783.7860