Case Study - Cargills Supply Chain: Submission Date: 3/18/2013
Case Study - Cargills Supply Chain: Submission Date: 3/18/2013
Case Study - Cargills Supply Chain: Submission Date: 3/18/2013
Supply Chain
Ganeshan Anuruddha
Janaka Bandara
Wimukthi Nelaka
Suneth Dharmaparakrama
Thushan Dharmawardana
Kasun Priyantha
Mohomed Roomy
Gayashan Weerawansha
Frank Perera
Kanthasamy Kirubakaran
101402T
101406J
101407M
101413D
101414G
101437E
101439L
101449R
101457N
101464H
Image 1
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Figure 1
It is a fact that over the past years, Cargills Supermarket Chain has shown a steady growth and in
2011/2012 the revenue and profits grew by over 24.6% and 29.3%.
Cargills retail has expended their outlets into every district in the country and currently Cargills
supermarket chain holds 194 Outlets island wide. The team has expected to reach its target 100
new outlets with the opening of 240th Cargills FoodCity in 2013/2014. With the intention of
achieving the above mentioned target effectively, an investment of Rs. 1.2 Bn has been budgeted
for this expansion drive in the forthcoming quarter. The growth of the Cargills retail outlets are
shown in the Figure 2.
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Year
Outlets
2012-2011
194
2011-2010
163
2010-2009
142
2009-2008
136
2008-2007
116
2007-2006
110
Figure 2
Figure 3
Cargills retail has substantially increased its revenue over the past two years. Revenue growth in
year 2011/2012 is 24.56% relative to year 2010/2011 which is a significant amount. The earnings
before tax and interests display a higher growth of 55.26%. Figure 4 shows the steady growth of
revenue and the earnings before tax and interests over the past few years.
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Figure 4
Cargills Retail is the backbone of Cargills (Ceylon) PLC groups success. Therefore the retail
sector holds a larger portion of the groups profits. When considering the revenues and the
profits of the group, they have also increased simultaneously with the profit increase of the retail
sector. Comprehensive ratio analysis is used to measure performance related to liquidity,
profitability etc. Financial statement analysis helps to evaluate past and predict future financial
health of the company.
The Cargills groups Price Earnings Ratio is measured over the past few years in the figure 5.
Market Ratios
2006
20.70
2007
36.73
2008
91.48
2009
19.58
2010
50.00
Figure 5
Price earnings ratio compares the price of a share to the earnings per share. It relates to the price
of a share to the proportion of the companys profits. When considering the figures, Cargills has
maintained a high Price Earnings Ratio throughout the past few years. This fact has been
immensely helpful in order to attract new investors towards the company. Thereby Cargills has
always been able to invest on CSR and expansion projects such as the 100 outlet project.
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# of Cargills food
cities
5
2
3
4
64
3
28
3
3
11
8
2
1
6
0
3
3
1
0
2
1
3
5
1
1
163
# of Cargills express
Total
0
0
0
0
16
2
8
2
1
2
2
2
0
4
0
1
1
0
0
0
0
0
1
1
0
43
5
2
3
4
80
5
36
5
4
13
10
4
1
10
0
4
4
1
0
2
1
3
6
2
1
206
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Population
Life styles
Income levels
They collect these data by doing surveys and finally they come with decisions by analyzing
survey data.
Cargills maintain warehouses and collecting centers also in different locations
across the country. They collect their own mostly through direct channels, and this has taken a
huge advantage for Cargills over competitors, Cargills could offer best prices for the farmers
which competitors cannot achieve and
Cargils
offer
their
products
for
Image 2
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Image 3
By this unique model Cargills has been able to be one of the forerunners in the industry. In a
conventional supply chain there are many players who try to gain the maximum profit resulting
in higher operational costs. Around 30% of the market value is received by the middleman while
the process after harvesting is costing around 40 % of the market price therefore resulting in only
30 % final value accruing to the producer.
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Figure 6
Other than this there are many problems involved with this normal model of supply chain.
Normally the consumer is consuming a product which has deteriorated endlessly moving from
one middle man to another. Since the farmers are not encouraged by the lower price generated in
this system the products that are been produced uses lower quality planting materials and
sometimes premature harvesting resulting in inferior products entering into markets.
Understanding the reality Cargills invested a lot to change this conventional model. Farmers
were given free seeds and also technical advices were given in order to improve their skills and
knowledge in producing a good quality product. They were assured of a price that is higher than
the competitive market price prevailing.
As the below figure shows farmers can receive a higher price as few intermediaries are involved
in the supply chain which also enables Cargills to lower the retail price and improve their
competitiveness considering other super market chains.
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Figure 7
Therefore a strong base is there for Cargills which resulting in a constant supply of vegetables.
Since their collection centers are located all around the country somehow the demand will be
fulfilled using alternative sources in case of a sudden disaster or supply fluctuation.
As per an example the demand of the perishable products pre-determined for tomorrow will be
collected today morning from those centers. Then the products will reach vegetable processing
center at Wattala on that day itself which will make sure consumers are getting the fresh products
distributed to their closest Cargills outlet.
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Concisely features in the supply chain can be highlighted which are making it one of the
exceptional supply chains in spite of the fierce competition of the other super market chains.
Information Flow Suppliers getting state of art knowledge on producing the best
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Suppliers
Suppliers
Miller Transport
Meat Factory
Suppliers
Suppliers
Suppliers
Miller Transport
Suppliers
Suppliers
Suppliers
Suppliers
Kist Factory
FMGC DC
Miller Transport
Miller Transport
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References
Cargills Annual Report 2012/2011/2010/2009/2008/2007/2006
http://finacialsrilanka.blogspot.com/2012/10/analysis-of-annual-reports-of-cargills.html
http://www.cargillsceylon.com
Production Resources in Lagging Regions, World Bank Report: Case Study Sri Lanka, June
2007.
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