GaganNath & Associate: Regaining Control on the Business

Abstract

GaganNath and Associate (GA) is a trading business with distribution rights for leading products of major companies. Mukesh Gupta, managing director of GA, has exhausted potential sources to finance working capital and is under pressure to increase the efficiency of the business in order to release capital necessary to finance future growth of the business. However, having limited influence on the upstream and downstream supply chain partners, he is unsure of how to meet the twin objectives of regaining control of the business and financing its growth. The case offers the opportunity for students to understand the challenges that small family-run businesses face and how to deal with those challenges within the given financial constraints.

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Resources
Table 1. Procurement Cycle: Order-to-Delivery and Invoice-to-Payment Subcycles for GA

Order-to-delivery

From: Retailer

To: Dealer (GA)

Invoice-to-payment/cash

From: Dealer (GA)

To: Retailer

Process element

Transaction type

Transaction time

Process element

Transaction type

Transaction time

Trigger payment for previously delivered invoice/order (as per the credit policy of dealer)

T-Dealer

Initiate order through order booking

D-R-Arc

Receive cheque against previously delivered outstanding order

D-R-Arc

Trigger invoice

D-Trigger

Retailer arrange fund in their FSP account

R-FSP Arc

Process Order

D-Loop

Process payment (FSP releases payment/Send confirmation to Retailer & FSP of Dealer sends confirmation to dealer

D-FSP-R-Arc

Trigger shipment

D-Trigger

Close previous outstanding order/payment

Process shipment

D-Loop

Deliver product/Receive Product

D-R-Arc

Deliver invoice/Trigger a match/Deliver post-dated cheque

D-R-Arc/T-R/R-D-Arc

Note: D stands for dealer; R stands for retailer; FSP stands for Financial Service Provider; S stands for supplier

Table 2. Order Fulfilment Cycle: Order-to-Stock and Invoice-to-Cash Subcycles for GA

Order/invoice-to-stock

From: Dealer (GA)

To: Supplier ( leading Ayurveda company)

Invoice-to-cash

From: Supplier (leading Ayurveda company)

To: Dealer (GA)

Process element

Transaction type

Transaction time

Process element

Transaction type

Transaction time

Request for billing/Receipt of invoice

D-S-Arc

Trigger invoice/Send invoice

S-Trigger/S-D-Arc

Process Order

S-Loop

Trigger shipment/Process shipment through local stockist

S-Trigger/S-Loop

Deliver product (Gradual replenishment model, VMI)

S-D-Arc

Receive product

D-Loop

Trigger a match

D-Trigger

Supplier trigger payment (Supplier places the advance cheque lying with them with FSP & send information to dealer

S-Trigger/S-D-Arc

Dealer arrange funds in FSP account

D-FSP-Arc

Process payment (FSP releases payment/Send confirmation to Dealer & FSP of Supplier sends confirmation to supplier

S-FSP-D-Arc

Close order

S-Trigger

Note: D stands for dealer; R stands for retailer; FSP stands for financial service provider; S stands for supplier

Table 3. GA Business Profile on Selected Performance Parameters

Leading Ayurveda company

Leading food products company

Leading confectionery company

Leading beverage company

Leading body care company

Number of retailers served

257

445

242

163

567

Average selling price (in INR)

97.10

88.03

61.87

15.18

88.60

Average margin per unit in INR (based on weekly data)

8.13

5.17

3.85

0.82

4.22

Average margin per unit (as % of sales)

8.37

5.87

6.22

5.43

5.00

Average purchase price per unit (in INR)

88.97

82.86

58.02

14.36

84.37

Sales profiling of customers (in terms of values of sales)

≥ INR 10 million

0

0

0

0

0

≥ INR 1.5 million, < INR 10 million

2

1

0

0

0

≥ INR 0.5 million, < INR 1.5 million

4

2

0

0

2

≥ INR 0.1 million, < INR 0.5 million

14

31

3

0

30

≥ INR 0.05 million, < INR 0.01 million

23

35

4

0

32

≥ INR 0.025 million, < INR 0.05 million

38

79

9

3

70

< INR 0.025 million

174

297

226

160

433

Total number of retailers served

257

445

242

163

567

Profile of customers (location wise)

Number of locations with ≥ 50 retailers

1

3

0

0

0

Number of locations with < 50 and ≥20 retailers

2

4

1

2

8

Number of locations with < 20 and ≥ 10 retailers

5

5

5

1

9

Number of locations with < 10 and ≥ 5 retailers

5

5

10

3

16

Number of locations with < 5 and ≥ 2 retailers

8

11

20

16

29

Number of locations with 1 retailer

23

23

23

20

30

Total number of retailers served

257

445

242

163

567

Table 4. Descriptive Statistics of Weekly Purchase, Sales, and Average Inventory at GA

Leading Ayurveda company products

Leading food products company products

Leading confectionery company products

Leading beverage company products

Leading body care company products

Weekly purchase (in INR million)

Average

1.01

0.44

0.08

0.05

0.26

S.D.

0.95

0.17

0.05

0.11

0.16

Minimum

0.00

0.00

0.00

0.01

0.00

Maximum

3.62

0.72

0.19

0.45

0.71

Weekly sales (in INR million)

Average

0.84

0.46

0.06

0.05

0.27

S.D.

0.48

0.16

0.05

0.09

0.12

Minimum

0.00

0.05

0.01

0.00

0.10

Maximum

1.80

0.87

0.26

0.44

0.66

Weekly average inventory (in INR million)

Average

4.21

0.71

0.13

0.17

0.66

S.D.

1.54

0.26

0.06

0.06

0.08

Minimum

0.47

0.10

0.04

0.00

0.50

Maximum

8.46

1.11

0.33

0.30

0.82

Table 5. Balance Sheet of GA (in INR million)

Year 1a

Year 2

Application of funds

Non-current Assets

Gross Fixed Asset

33.90

38.85

Less Accumulated Depreciation

2.00

2.50

Net Fixed Asset

31.90

36.36

Investments

7.52

1.92

Security Deposit

1.56

1.25

Total Non-current Assets

40.98

39.53

Current Assets

Inventory

5.14

14.37

Sundry Debtors

39.28

20.03

Cash and cash equivalent

1.53

0.68

Advances

19.23

0.00

Advance Tax

0.47

0.03

Other current assets

0.08

0.10

Total Current Assets

65.73

35.21

Total Application of Funds

106.71

74.74

Sources of Funds

Capital

34.45

37.50

Secured Loan (including cash credit facility)

33.50

20.26

Unsecured Loan

39.60

6.97

Current liabilities

0.00

0.00

Sundry Creditors

-2.60

-0.41

Payables

1.76

3.07

Other current liability

0.00

7.35

Total current liabilities

-0.84

10.01

Total Sources of Funds

106.71

74.74

a Most recent year

Table 6. Income Statement of GA (in INR million)

Year 1a

Year 2

Income

Gross sales

200.00

160.01

Less discounts

0.00

0.07

Net sales

200.00

159.93

Schemes/Rebates

9.95

7.32

Total Income

209.95

167.25

Expenses

Purchases

181.96

148.92

Decrease in stock

7.36

1.32

Freight expense

2.64

1.95

Other operating expense

6.07

3.31

EBDITA

11.92

11.75

Depreciation

2.00

2.50

EBIT

9.92

9.25

Financial expense

5.59

2.17

Other income/(losses)

0.73

-1.91

PBT

5.06

5.17

Tax

0.00

0.00

PAT transferred to BS

5.06

5.17

a Most recent year

The x-axis represents the week ranging from week 13 to week 53 with bi-weekly increments. The y-axis represents the values for the weekly purchase, sales, and inventory ranging from 1,000,000 to 9,000,000 in increments of 1,000,000. The details shown in the chart are tabulated below.

Week

Weekly Purchase (Amount)

Weekly Sales (Amount)

Average Inventory (Rs.)

13

947413.75

3062.86

472238.8257

14

3617721.13

808031.26

2379919.857

15

296987.41

871273.22

3556939.191

16

938537.71

863738.43

3376394.333

17

840343.59

1525365.77

3162974.063

18

1135573.85

1334217.45

2816298.018

19

522299.24

1007766.13

2551315.398

20

480709.46

1359866.49

1946622.353

21

1620763.32

1475171.94

1673178.269

22

1061546

758745.49

1971706.517

23

1433925.34

526111.07

2619855.261

24

817575.08

1803397.18

2658003.367

25

2912779.82

1037997.78

3196509.108

26

710954.09

1550882.88

3828331.339

27

1741866.63

1374579.29

3717571.212

28

617778.09

1070966.81

3756229.912

29

2696392.57

1677547.97

4137046.558

30

0

346616.52

4546403.069

31

603250.03

910578.99

4262231.924

32

874229.22

417531.18

4382700.36

33

0

768074.75

4267917.403

34

516194.45

185905.63

4082040.929

35

559936.81

247141.03

4419339.695

36

0

315481.73

4438440.187

37

645494.9

460418.04

4399825.076

38

890365.85

305961

4810040.77

39

271304.77

154995.25

5175695.641

40

380901.32

614685.99

5142882.873

41

0

206121.78

4950395.096

42

563448.54

434092.28

4933749.466

43

494159.56

276910.38

5131174.75

44

1054057.98

647954.09

5473187.674

45

0

795916.05

5325981.656

46

912699.4

1013585.79

4984646.746

47

574342.14

1004796.49

4832790.899

48

2686416.58

1228296.96

5464051.49

49

0

483072.55

6107089.234

50

1243919.02

1501519.1

5858006.155

51

2572954.67

1340498.92

6440082.695

52

582804.04

877800.6

7044022.551

53

3581835.31

749799.5

8463228.803

Figure 1. Weekly Purchase, Sales, and Average Inventory for Leading Ayurveda Company Products (in INR)
A line chart shows the weekly purchase, sales, and average inventory for leading Ayurveda company products.

The x-axis represents the week ranging from week 1 to week 53 with bi-weekly increments. The y-axis represents the values for the weekly purchase, sales, and average inventory ranging from 200,000 to 1,200,000 in increments of 200,000. The details shown in the chart are tabulated below.

Week

Weekly Purchase (Amount)

Weekly Sales (Amount)

Average Inventory (Rs.)

1

518102.67

606681.07

514352.6854

2

486281.9

510952.51

492036.7116

3

593168.37

544846.25

535964.8219

4

450708.93

425504.99

601962.4460

5

398405.1

476855.58

602521.2367

6

223524.71

426777.26

488907.8924

7

668244.7

498625.32

499525.3172

8

491607.36

351026.45

680104.1824

9

564681.41

471532.21

822200.5457

10

306554.4

617998.77

745822.1583

11

563209.5

416772.98

694228.9128

12

557781.92

386649.29

877004.1019

13

429480.54

574532.71

918754.4805

14

297803

324035.9

859930.9492

15

583021.23

486342.33

918769.5204

16

540783.81

401789.13

1061894.0405

17

288530.91

647689.75

982743.0327

18

629366.73

510076.38

898167.0622

19

512607.98

574792.83

959726.8067

20

466185.68

542358.96

924532.5172

21

572122.12

708681.69

856245.4534

22

651437.14

498748.94

901340.7261

23

296866.22

335269.41

984141.2993

24

717829.06

866775.5

926668.9478

25

438602.19

354149.3

931157.0556

26

456713.89

763998.81

855508.3171

27

426936.99

555895.43

679772.9272

28

597152.12

519522.21

687485.8050

29

436637.53

500301.23

726647.2388

30

325842.02

244443.11

768448.1383

31

605902.16

633836.35

830622.8765

32

296585.71

384227.3

801399.0171

33

669320.73

704406.69

772397.3751

34

553826.48

480773.52

828762.8303

35

594844.53

577343.38

907011.2981

36

2037.6

445290.01

725274.5812

37

513288.98

462068.26

556785.2685

38

207698.45

507662.66

462373.7164

39

255233.03

388837.71

273238.5210

40

256267.77

308091.64

202103.4422

41

450421.03

440690.24

204574.1894

42

471336.98

511061.01

219496.8834

43

253195.77

382562.05

162985.2584

44

36997.16

52730.25

104285.8210

45

591184.19

50074.91

370234.4267

46

292249.64

375390.88

575591.1825

47

351307.99

293082.74

547200.6607

48

610021.11

511889.05

650103.2594

49

561916.69

362833.64

825497.3692

50

570732.96

340949.68

1061207.9837

51

310534.44

485308.92

1113639.2836

52

311337.51

365238.25

1025103.8027

53

0

96197.45

963843.2337

Figure 2. Weekly Purchase, Sales, and Average Inventory for Leading Food Products Company Products (in INR)
A line chart shows the weekly purchase, sales, and average inventory for leading Ayurveda company products.

The x-axis represents the week ranging from week 1 to week 53 with bi-weekly increments. The y-axis represents the values for the weekly purchase, sales, and average inventory ranging from 50,000 to 350,000 in increments of 50,000. The details shown in the chart are tabulated below.

Week

Weekly Purchase (in Rs.)

Weekly Sales (in Rs.)

Average Inventory (in Rs.)

1

83289.83

126367.56

2

84911.28

57868.47

103275.6

3

90216.84

47764.13

137942.55

4

55072.6

131067.18

5

50232.6

27225.82

118331.79

6

29260.3

117345.45

7

45150.65

47520.17

113487.12

8

27724.85

109425.72

9

44352.61

41743.13

92541.9

10

44103.01

64199.13

11

106187.15

39040.67

67419.24

12

51396.59

69565.98

13

88512.12

29189.76

80734.83

14

74927.4

80734.83

15

137960.13

68241.54

90076.05

16

79425.92

95733

17

131963.86

88268.78

77398.68

18

94331.9

121270.29

86826.93

19

176502.89

174940.89

89118.72

20

46584.03

76644.42

21

87749.72

81452.28

53697.51

22

9317.96

31429.7

42586.68

23

41559.44

8188.73

47634.42

24

88025.55

75352.9

77340.66

25

87628.77

66723.03

95849.04

26

73304.77

59299.8

112848.9

27

21479.28

87234.19

84941.28

28

189543.99

198904.62

42963.81

29

175673

258212.04

43515

30

132420.05

115483.54

70436.28

31

881.06

57618.32

63415.86

32

139292.51

15742.95

105741.45

33

28773.47

49781.11

164312.64

34

74683.26

31720.58

171100.98

35

25084.09

178817.64

36

18369.09

160947.48

37

11323.61

148328.13

38

19436.84

137710.47

39

98588.68

39673.04

168112.95

40

166317.42

107494.33

228627.81

41

16838.47

40425.95

241392.21

42

43179.49

70797.78

217110.84

43

77331.07

173218.71

44

8552.84

16422.93

141191.67

45

44590.91

40751.57

135215.61

46

43500.34

60130.8

125526.27

47

93972.82

22013.9

152795.67

48

88157.57

69232.51

196020.57

49

14502.19

200981.28

50

1574.78

30553.28

184329.54

51

181314.96

36564.89

229904.25

52

44017.94

9103.91

303705.69

53

46185.37

6216.74

330336.87

Figure 3. Weekly Purchase, Sales, and Average Inventory for Leading Confectionery Company Products (in INR)
A line chart shows the weekly purchase, sales, and average inventory for leading confectionery company products.

The x-axis represents the week ranging from week 1 to week 53 with bi-weekly increments. The y-axis represents the values for the weekly purchase, sales, and average inventory ranging from 0 to 500,000 in increments of 50,000. The details shown in the chart are tabulated below.

Week

Weekly Purchase (in Rs.)

Weekly Sales (in Rs.)

Average Inventory (in Rs.)

1

243881.42

147079.93

114880.59

2

293238.66

165165.71

216774.20

3

97715.96

233262.95

189211.35

4

80958.3

195161.71

44504.89

5

449351.27

440336.62

3695.42

6

165019.57

215280.84

23679.13

7

335987.85

179640.43

111435.44

8

87744.69

220191.31

117925.89

9

218384.61

205163.88

45280.27

10

0

14863.7

46448.04

11

380126.77

153829.87

170325.76

12

0

212526.66

229180.61

13

131579.75

142115.16

173846.62

14

0

27457.32

179415.51

15

0

2734.02

168821.21

16

0

0

168089.08

17

0

0

168089.08

18

0

0

168089.08

19

0

0

168089.08

20

0

0

168089.08

21

0

0

168089.08

22

0

0

168089.08

23

0

0

168089.08

24

0

0

168089.08

25

0

0

168089.08

26

0

0

168089.08

27

0

0

168089.08

28

0

0

168089.08

29

0

0

168089.08

30

0

0

168089.08

31

0

0

168089.08

32

0

0

168089.08

33

0

0

168089.08

34

0

0

168089.08

35

0

0

168089.08

36

0

0

168089.08

37

0

0

168089.08

38

0

0

168089.08

39

0

0

168089.08

40

0

6564.13

164995.49

41

0

0

161901.90

42

0

0

161901.90

43

0

0

161901.90

44

0

0

161901.90

45

0

0

161901.90

46

140356.33

0

232080.06

47

9931.84

13865.76

299601.42

48

0

15210.93

287965.30

49

0

17299.61

266948.96

50

0

6569.01

251186.71

51

0

5051.28

243004.12

52

0

21645.2

223904.23

53

0

2430.66

207302.19

Figure 4. Weekly Purchase, Sales, and Average Inventory for Leading Beverage Company Products (in INR)
A line chart shows the weekly purchase, sales, and average inventory for leading beverage company products.

The x-axis represents the week ranging from week 1 to week 53 with bi-weekly increments. The y-axis represents the values for the weekly purchase, sales, and average inventory ranging from 0 to 900,000 in increments of 100,000. The details shown in the chart are tabulated below.

Week

Weekly Purchase (Amount)

Weekly Sales (Amount)

Average Inventory (Rs.)

1

43534.8

99927.96

596435.4946

2

98035.36

143064.01

552472.4723

3

142466.58

101941.18

557047.2304

4

534156.54

576460.14

563981.4583

5

237276.83

229743.54

556643.7061

6

170254.06

222184.75

545847.0746

7

320913.35

233780.88

579610.8452

8

106863.01

212367.11

582269.706

9

412593.21

173143.31

656586.8199

10

115060.78

297622.65

701506.4977

11

161309.08

248486.82

585431.5702

12

160347.14

231459.26

520644.6614

13

413065.85

121242.37

641852.331

14

63378.37

237107.26

710989.7373

15

191765.7

140530.94

658972.5549

16

110982.9

266476.42

616287.5643

17

231875.77

213997.79

559064.4307

18

319205.12

240184.89

619705.3048

19

192491.88

172908.27

680735.1517

20

170765.98

236065.66

668515.7251

21

235567.38

204688.4

660874.954

22

376485.9

352814.9

694838.9059

23

80276.66

167430.46

644829.4774

24

500028.71

338210.39

667728.7698

25

274010.93

345955.79

726746.2019

26

450661.32

325943.17

768547.0029

27

172384.36

288728.36

779024.8216

28

165095.02

137328.84

736408.6321

29

364638.59

372290.55

756338.8628

30

119754.2

158823.41

739170.7973

31

689000.61

537522

807699.0691

32

218149.69

391262.07

819409.6517

33

377740.57

417723.23

735395.4736

34

359746.51

402965.79

721757.8374

35

709933.19

660602.51

764362.0781

36

204255.86

389618.77

733102.1796

37

232191.14

384404.46

587675.4437

38

208602.64

267434.21

499222.7539

39

529658.45

321547.85

591734.4362

40

351994.58

352816.07

720462.9877

41

194393.74

170519.28

748340.8923

42

82991.76

179185.25

724741.0138

43

279585.16

305844.91

680076.9606

44

336312.68

349250.22

682509.0583

45

236151.37

209404.08

709123.5019

46

263598.76

291879.14

719588.4638

47

143263.49

208812.71

684706.3425

48

438748.57

402948.93

686142.1615

49

1316.31

149439.92

645713.284

50

342420.14

249905.84

629133.0631

51

236970.79

262357.25

672837.2839

52

100028.93

186003.02

625931.3313

53

133534.04

99029.19

607588.4885

Figure 5. Weekly Purchase, Sales, and Average Inventory for Leading Body Care Company Products (in INR)
A line chart shows the weekly purchase, sales, and average inventory for leading body care company products.

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