Demand forecasting of Cadbury
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Cadbury is a leading confectionery company that manufactures chocolate and other candy products. It produces the popular Dairy Milk chocolate brand. The document discusses Cadbury's demand forecasting process. It provides an overview of Cadbury's operations and product lines. It then covers topics such as segmentation and targeting of customers, advertising methods, demand forecasting techniques, and key performance metrics. Cadbury uses techniques like historical sales data to predict future demand for planning inventory levels and production capacity. Accurate forecasting is important for Cadbury's stock control and decision making.
Demand forecasting of Cadbury
- 1. DEMAND FORECASTING IN CADBURY 1
- 2. PREFACE All praises to ALLAH Almighty who has blessed me with knowledge to accomplish the task of completing this project. This project has given us a chance to observe the practical work of an organization closely and the demanding techniques used by a company to make Forecasts effectively.. Finally this project has enhanced my analyzing power and sense of observation. I am very thankful to our respected course instructor who had assigned me this valuable project. It is her worthy kindness that I am at this level of knowledge. Rabi’aa Naushad BB-A hons 2
- 3. Cadbury Dairy MILK: INTRODUCTION: Dairy Milk is a brand of milk chocolate currently manufactured by Cadbury, except in the United States where it is made by Mondelēz International. It was introduced in the United Kingdom in 1905 by and now consists of a number of products. Every product in the Dairy Milk line is made with exclusively milk chocolate. In June 1905 in England, Cadbury made its first Dairy Milk bar, with a higher proportion of milk than previous chocolate bars, and it became the company's best selling product by 1914. George Cadbury Junior, responsible for the development of the bar, has said "All sorts of names were suggested: Highland Milk, Jersey and Dairy Maid. But when a customer’s daughter suggested Dairy Milk, the name stuck." Fruit and Nut was introduced as part of the Dairy Milk line in 1928, soon followed by Whole Nut in 1933. By this point, Cadbury's was the brand leader in the United Kingdom. Cadbury had a trademark in the United Kingdom for the distinctive purple (Pantone 2865C) it uses on the wrappers of its milk chocolate bars, though an appeal by Nestlé succeeded in October 2013 in overturning that court ruling. 3
- 4. Business Units: Their operations are split into seven business units: 1. Britain and Ireland 5. Europe 2. Middle east and Africa 6. Asia 3. North America 7. Pacific. 4. South America Company overview in Pakistan: Cadbury Pakistan Ltd. is now Kraft Foods Pakistan Ltd. Cadbury Pakistan Limited, one of the best leading confectionery companies in Pakistan, announces its legal entity name change to Kraft Foods Pakistan Limited. The Company has been renamed in accordance with the global acquisition of Cadbury by Kraft Foods Inc, Kraft Foods Pakistan Limited is a wholly owned subsidiary of Kraft Foods. Cadbury Pakistan is a part of world’s largest confectionary company. Cadbury has grown consistently. Since its inception in 1993.The company has tripled the size in past few years. Cadbury has currently a manufacturing plant in Hub. PRODUCT LINE: 1.Cadbury Dairy Milk; Cadbury Dairy Milk Wowie 2.Cadbury Dairy Milk Crackle 3.Cadbury Dairy Milk Roasted Almond 4.Cadbury Dairy Milk Fruit and Nut 5.Cadbury Dairy Milk Shots 6.Cadbury Dairy Milk Silk Vision Statement; Cadbury’s set out a vision to achieve “a Cadbury in every pocket” dream by increasing the penetration of chocolates. Mission Statement; We can easily understand the mission statement by following points like; Cadbury’s mean quality This is our promise Our reputation is build upon quality Our commitment to continuous improvement It will ensure that our promise is delivered 4
- 5. The Brand Purpose: Dairy Milk is something that gives its consumers true happiness. How do we know that? All of our survey respondents, visitors, friends, and family mentioned that Dairy Milk is a sweet indulgence, an inexpensive paradise, a stress relief, that takes you away from the problems and gives you a moment of true happiness. But what exactly does true happiness mean? From consumption to post consumption, it reminds them of the true meaning of life, the simple things that make them happy. Because life has many big moments, but Dairy Milk is for those small moments, the extra special ones that rekindle the inner flame. And it isn’t all surface level. It has the ability to completely change ones mood, to revitalize and re-energize and to make one nostalgic. This is what Dairy Milk has always been about and what it should always remain to be. So then what led to this true happiness campaign and what were the factors, locally and internationally that had to be considered while positioning CDM this way? Globally Cadbury has always been positioned around “Joy”; from their Joyville website to their fun and quirky ads. However, they have focused on different aspects of joy in differing markets. 5
- 6. CONSUMERS VIEW: Customers get sentimental and emotionally attached. We can see that it had really affected the minds and psychology of consumers E.g.-when the company advertised its brand by tag lines ‘’Kuch Meetha Ho Jaye " However, the consumers had stopped purchasing the bars for sometime after the worm controversy. Segmentation and Targeting: One notable form of customer segmentation that Cadbury utilitizes is behaviorial segmentation, which is based on actual customer decision-making processes towards Cadbury’s products. Once dividing these customers by that base, they target them by providing specific product offerings. The relevant segments are the following: The Break Segment, Impulse Segment and Take-home Segment. Break Segment:This segment describes products which are normally consumed as a snatched break and often with tea or coffee. Impulse Segment:These products are most often purchased on impulse while consumers are walking buy or shopping for other household goods. Take-home Segment: This describes products that are normally purchased in supermarkets, taken home and consumed at a later stage due to its sheer quantity. AWARDS OF CADBURY INDUSTRY WISE: Over the years, Cadbury World has won a number of industry-recognised awards from its offers, its services, through to its marketing and advertising campaigns. Recent awards and nominations include: 2008 (Finalist & Highly Commended) Access for All Category, Excellence in Tourism Awards 2008 (Bronze Winner) ‘Gordon’ Radio Campaign, created by BIG, Cream Awards 2008 (Winner) “You Can’t Eat the Exhibits in a Zoo” print campaign, created by Big, Roses Award 2008 (Runner Up) Recognition of Disability Facilities, Group Travel Awards 2007 (Finalist) Group Leisure Awards 6
- 7. THE PRODUCTION FLOW OF CADBURY: 7
- 8. Selection of product: From above of these products I select the Cadbury dairy Milk chocolate which is the one of product of Cadbury. In 2003 Cadbury’s made Dairy milk into super brand, bringing a number of different products under the name dairy milk branding for example dairy milk with bubbles. Production of Cadbury Dairy Milk chocolate: Many of the newer Dairy Milk Varieties are now manufactured in the Republic of Ireland, France and Poland. Dairy milk Chocolate itself is also manufactured in France and these products are sold in the U.K and from U.K to all other countries. Understand the Market place and Customer Needs: Cadbury dairy milk chocolate understands the new market which is targeted. First it selects the targeted customers like Kids, Youths and then made products according to their needs. Cadbury Dairy Milk Chocolate made by company which offers to specific market, specific customers and also to all type of customers. Marketplace also selected by Cadbury Dairy Milk according to customer needs and requirements. Designing a Customer Driven Marketing Strategy: Cadbury Dairy Milk Chocolate Design such a strategy which is customer driven. I mean it target those markets which is profitable for the company. It includes production, product, selling and marketing concept. Production concept; Cadbury Dairy Milk Chocolate is a product which is favorable by customers and affordable by customers and Cadbury also focused to improve the quality according to customers’ needs and requirements. And also improve the production and distribution like improve the transportation chain. Product concept; Consumers favor the Cadbury Dairy Milk Chocolate because it offers the quality, distinctive features, Affordable price and Cadbury company devotes its full time to satisfy the new consumers and retain the oldest consumers. Selling concept; Cadbury D.M.C has good promotional and selling concepts. It promotes through electronic 8
- 9. media and by advertisement channels. Marketing concept; Cadbury D.M.C achieved its organizational goals and objectives because they know customers requirements like if they want to target school children it made sashes and made small packing which Childs easily afford. And also targets the specific market like niche markets. Capturing Value from Customers: It means how company build strong relationships with customers and provides his customers to better products as compare to price which he pays against the product. Cadbury D.M.C provides all the above values and it also explains with the help of the following points. Future Sales; Company also focuses to increase its future sales by different ways like Cadbury dairy milk chocolate have more consumers and they also provide low price and more valuable and highly affordable products. Market share; Market share means Cadbury dairy milk have high market share and it is becoming higher because it gives more valuable products to consumers. Market profit; If Cadbury wants to earn more profit as compare to its competitors then it have to maintain strong relationships with its competitors by giving less price, good packing and also to make them loyal customers. Forecasting a Key Factor: Forecasting gives Cadbury a prediction of the selling trends of products. To make the forecast, the trend line must be accurate. That is the reason for why forecasting products for Cadbury is vital, this relates to stock control because forecasting helps Cadbury to predict how much stock is needed to produce the required amount of products. 9
- 10. Problems with forecasts The accuracy of Cadburys forecast depends on many factors below are the most common: - Will the external environment remain the same? -Will there be significant changes in the economic, technical and social environment? For example if customers all started to earn more maybe this would change their lifestyle and encourage them to buy more luxury products and chocolate is a luxury item. - Will the external environment remain stable? -Will Cadbury keep the same objectives and follow the same polices? DEMAND FORECASTING: A demand forecast is the prediction of what will happen to your company's existing product sales. Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter anew market. It would be best to determine the demand forecast using a multi-functional approach. Estimate of expected demand over a specified future period. Also called forecast demand. The inputs from sales and marketing, finance, and production should be considered. The final demand forecast is the consensus of all participating managers. You may also want to put-up a Sales and Operations Planning group composed of representatives from the different departments that will be tasked to prepare the demand forecast. Determination of the demand forecasts is done through the following steps: 1. 2. 3. 4. 5. 6. 7. Determine the use of the forecast Select the items to be forecast Determine the time horizon of the forecast Select the forecasting model(s) Gather the data Make the forecast Validate and implement results 10
- 11. DEMAND FO RECASTING O F CADBURY: Cadbury is the largest confectionery market in the world. It holds second position in the 50 largest confectionery market. Nearly 175 years it survived in the market. But it should keep the same image in the market. It should keep researching about their SWOT analysis and market penetration to improve their market. “ Cadbury’s Dream is an exciting new addition to their white chocolate portfolio and marks a further commitment by cadbury’s to this market. As leaders in the white chocolate market for adults, we plan to drive further market growth through the introduction of a complete cross category range. ” Cadbury’s innovation remains one of the key elements to the company’s success with new brands. Cadbury keep changing their catering tastes and lifestyles with quality products and the strong brand values. Advertising Methods ADOPTED BY CADBURY: Television The reason for selecting television is to focus on more customers. Advertising in television is expensive. But it reaches more customers at a time. Banners The banners will be in front of the Retailers shop and near to the hospitals. The shop is the place where customers engaged to buy products in their routine life. And the hospital were the patients are visiting on a regular basis 11
- 12. Promotion By giving Advertisements, encourage customers to buy a product. People intend to participate in competition. As a part of new strategy we will announce 10,000 exciting prices by text or online entry by giving feedback about Cadbury Diet. As well as runner up prizes for the carnival theme. It motivates the customers to buy more chocolates. Consumer Behaviour Decided to make the customers marketing orientated mainly to younger customers by making the products affordable and appealing to children. Advertise in different ways to reach the product in the market. Research the type of chocolates that satisfy the customers and their tastes. Positioning Strategy: Capability: Ensure world-class quality Developing world-class skills, processes and way of working will motivate people and it helps to improve reward winning performance. Customers confirm by Commitments which have been carefully selected to both improve business and ensure on the wider world. Marketing Strategy Having a clear Vision into Action plan helps to read the customers mind by surveying. This aligns the energies and efforts of teams behind the brands, markets and projects. If these are carried out successfully then it will help on revenue, margin, and market performance. Building commercial capabilities and recruiting employees from urban areas for product distribution. Ghana is the place we are mainly aiming to increase cocoa production. Delivering preferred products at competitive cost with other competitor which affordable by the customer and their satisfaction. Allocating Resource for the New Product Development. i.e., ‘Cadbury Diet’ Market Leadership Strategy In the confectionery market Mars, Nestle and Galaxy are the main competitors. Introducing new brands and promotion to customers and retailers helps to increase sales revenue. Advertisements in channels and newspaper helps to retain the brand name in the customers mind. Promotion By giving Advertisements will encourage customers to buy the product at least for the competition. As a part of new strategy we will announce 10,000 exciting prices by text or online entry by giving feedback about Cadbury Diet. 12
- 13. DEMAND GRAPH OF CADBURY: 13
- 14. Demand driving efficiency: We recognise that it is not enough to just grow faster; we must also be more profitable. We are now 18 months into the implementation of our VIA, a programme that is intended to increase our margins from around 10% in 2007 to mid-teens by 2011. During 2008, we have made good progress with a number of major initiatives that are already delivering benefits. All of these initiatives involve considerable project management skills and resources, and we have been able to successfully build on the experiences we gained during the implementation. Website / Information Technology : Cadbury World’s new website (launched 2009) is built using the MOSS web builder system. This allows content to be updated easily and provides simple data around number of visitors to the site, which pages are the most popular, and what downloads are accessed the most. The website allows the visitor to select the content they wish to view, is easy to navigate and gives the visitor the opportunity to actively participate in the website content by uploading their pictures and stories of the Cadbury World experience and also link to peer-to-peer sites including Facebook and Bebo. 14
- 15. our priorities Priority 2008 activities 1. Growth > > > > Achieved 8% revenue growth in focus brands Rationalised underperforming products and ‘tail brands’ Drove consumer preferred brands such as Wispa Gained scale in Turkish route-to-market by combining gum and candy distribution 2. Efficiency > > > > > Realised SG&A cost savings, improving operating margin by 100 bps Reduced central costs, improving operating margin by 20 bps Reconfiguration of the supply chain in the UK and Ireland Continued the turnaround of underperforming businesses Divested non-core assets such as Monkhill candy 3. Capabilities > Strengthened the commercial capabilities of our global category teams > Invested in Science and Technology to support innovation and quality > Removed organisational complexity to speed up decision making and in market execution > Maintained investments in finding and developing key talent ‘Fewer, Faster, Bigger, Better’ ‘Relentless focus on cost & efficiency’ ‘Ensure world-class quality’ performance scorecard Goal 2008 result Comments Annual organic revenue growth of 4–6% Base business revenues up 7% For the second successive year, we exceeded the top end of our goal range. Total confectionery share gain Market share* up 40 bps to 10.5% Mid-teens trading margin by 2011 Margins up 180 bps to 11.9% Strong dividend growth Dividend growth of 6% 7% 40 bps 11.9% 6% We delivered good global market share growth and increased share in the UK by 50 bps. Strong underlying operating margin progress was driven by the initiatives within the VIA plan, principally the early benefits of restructuring and improvements at our underperforming businesses. While the increase is in line with our progressive policy, the pay-out ratio is somewhat ahead of our medium-term target of 40–50%. 15
- 16. Efficient balance sheet With interest cover of 7.6 times, a debt to EBITDA ratio of 2.1 times and a BBB credit rating, we maintained a good balance of efficiency and prudence in uncertain economic times. Growth in return on invested capital (ROIC) ROIC up 110 bps ROIC is a good measure of the effectiveness with which we are using our shareholders’ resources. In 2008, we invested in restructuring to make longterm efficiency improvements. This resulted in strong profit growth off a modest increase in invested capital. 110 bps Independent Variables affecting demand of Cadbury Dairy Milk: •Price: This product is a brand loyal product, so if there is a slight increase In the price, the demand of the product will remain unaffected. But if there is a decrease in the price, the demand of the product may slightly increase.(Source: Galaxy Varieties, Rajkot) •Income: If the income of the people increases, the demand of the product also increases and if the income of the people decreases, the demand of the product decreases because then people will go for lower price chocolate like éclair or melody of Rs.1 or Rs. 2. So, there is a positive relationship between income and the product demand.(Source: Survey Result) •Population & Age group: This product is meant for the children, adults and also for the old people so the age groups are not much affected the demand of the product so demand remain same and by the increase in the population, the demand of the product also increases. (Source: Group Discussion) •Brand Image: The brand image of the Cadbury plays an important role in the demand of the Cadbury. This product has built such a brand image that it has much attracted the mind of the consumers so they will not like to switch over to the other brand •Consumer’s taste and preferences: Cadbury produced milk chocolates by using the high quality of cocoa bean and the taste has still remained the same which has touched the heart of the consumers. So, they will not like to go for any other product. •Competition: There are many competitors like Cadbury 5-star, Nestle Kit-Kat, parle chox, foreign chocolates (Chinese Chocolates), lotee etc. in the market so if the price of the competitors increases, the 16
- 17. demand of the dairy milk also increases. But if the price of the competitor’s decrease, the demand of the dairy milks not much affected by it.(Source: Survey Result) •Price of Complementary Goods: Cadbury dairy milk is made from the milk, sugar, cocoa bean and cocoa powder. SUPPLY CHAIN OF CADBURY: In 'Our Business Principles' Cadbury Schweppes continues: "We believe that good ethics and good business go together naturally, to produce the best long term results for all our stakeholders." The original Cadbury company was heavily influenced by the Quaker values of the Cadbury family who started the chocolate business over 150 years ago. The Quakers promote justice, equality and social reform. The legacy of these ideals informs Cadbury Schweppes' culture today and unites its many businesses around the world who uphold this heritage and act in an ethical manner. From the outset, Cadbury treated employees with respect and cared for their welfare. The company's site at Bournville, near Birmingham, has always been more than just a factory having extensive amenities such as housing, sports facilities and parks all being part of the original complex. 17
- 18. Cadbury use times series method of forecasting: Cadbury plan their production process by using a time series method asthishelps Cadbury to accurately produce the needed amount ofchocolate at thecorrect period of time. A time series showshistorical data that can be used and analysedto predict futuretrends. Christmas and Easter are peak selling times for all chocolate manufactures including Cadbury, this isobviously because chocolateproducts make good gifts for these occasions.Time series analysis does not explain the casual relationship betweenvariables & how they will be in future also. It simply assumes thatpast behaviourof the variable will continue in future also. Hence time seriesanalysis tries to find out the factors which affect the behaviourof thevariable. The changes in the variable over a period of time are divided into 4components. They are, 1. 2. 3. 4. TRENDS SEASONAL VARIATIONS CYCLICAL VARIATIONS RANDOM FLUCTUATIONS Advantages of Demand forecasting: The data helps Cadbury to reduce wastage and producethe amount ofproducts that customers would purchase.-The data is reliable if collectedproperly/accurately.-The forecast helps Cadbury to makeproducts efficiently as it helpsCadbury to set a target of the amount ofproducts needed; there arealways enough products to supply tocustomers. Disadvantages of demand forecasting: 18
- 19. Cadbury need to have a lot of past data in orderfor the time seriesmethod to be used accurately to predict salesfigures.-If the external environment doesn·t stay stablethen there will beproblems with the forecast for example if the pricesof the raw materials used to produce Cadbury productsincreases then the price ofthe product has to increase in order for Cadbury tomake a profit fromthe product produced. This may affect the customerspurchasing trends.-The data may be biased or representative. Business plan of Cadbury from 2008-2011: 19
- 20. APPROACH TO RISK MANAGEMENT: Risk Area Impact Management External Risks Competition with global, > Competitive strategies based> regional and local players as on price or offer resulting in well as private label pressure on profits > > Industry consolidation creating large competitors who can gain market share > Market volatility of traded items particularly commodities and foreign exchange Global economic conditions and impact on customer, channel and consumer Poor predictability of costs > leading to poor profits and cash realisation Negative impact on revenue > and profit > > Continue to improve the effectiveness of competitor analysis Support the brands with relevant and consistent innovation and communication Attain preferred supplier status with product offer and superior service Effective hedging processes at the Group level as well as transaction hedging at the local level Adapt sales and marketing strategies including innovation to respond to changing consumer and customer behaviour Focus on effective route-to-market and customer service Be diligent about costs and efficiencies P14 P47 P17 P14 P21 P13 Internal Risks Significant supply chain > Failure to deliver planned cost savings > Employ strong capital project reconfiguration as set out by > Reduced customer service levels management the VIA strategic plan > Enhance regional demand forecasting and network planning 20
- 21. Product quality and food safety Consumer health concerns, damage to > Maintain strong quality reputation and loss of revenue standards and awareness > Continue to deliver effective training > Promote excellence in manufacturing disciplines The new organisation – operating model, control, capabilities, costs efficiency Failure to deliver faster decision > Clarify and communicate the making, global consistency in business details of the operating model processes or planned cost savings > Place the right people in key roles and define precise accountabilities Growth agenda – price, innovation, execution Failure to deliver against planned growth targets > Drive towards fewer, faster, bigger, better innovation programmes > Continue focus on effective price management and compelling market execution P30 P20 P20 Strategic Risks Use of funds – resource allocation, delivery and accountability Ineffective use of investment funds – > Align capital allocation failure to deliver target cost savings or process to the current business benefits business priorities > Ensure tight project governance structures maintained within new organisation structure > Continue to drive for excellence in project management P20 Underperforming markets Damage to corporate reputation and shortfall against financial targets through failure to deliver against recovery plans in key ‘turnaround’ markets P10 > Continue to implement recovery strategies > Provide adequate funding and appropriate management resources to deliver plans Control Environment Compliance culture Inconsistent business processes and > Regular self-assessment and practices and inability to drive decisions key financial controls quickly through the business > Continue to communicate clear policies > Deliver high quality training Business continuity planning Ineffective or slow response to major supply chain disruptions leading to inability to supply customers and financial loss Sustainability – environmental and social responsibility Damage to business and reputation > Maintain momentum in through failure to deliver on published delivery of sustainability targets targets > Monitor progress regularly Health, safety and security of Harm to employees and damage to > Regularly monitor compliance > Regularly review, test and update business continuity plans for all critical supply chain operations P30 > Ensure continuing adherence 21
- 22. employees reputation to comprehensive health, safety and security policies > Continue to deliver effective training and regularly monitor policy compliance Looking Forward: Cadbury has plans to move from a product brand to a service brand, where it intends to open up cafes termed “Cadbury Cocoa House”. These cafes will be Cadbury branded, traditional English style cafes where you can expect to enjoy a delicious afternoon tea, along with a range of Cadbury-themed goods. Cadbury aims to have an edge over rivals such as Starbucks and Pret a Manger by selling alcohol alongside its more traditional beverages. The first of these delicious chocolate themed cafes is proposed to be constructed in London.If this service-themes proposition works out, then Cadbury can hope to go worldwide with the same idea by opening up stores in Singapore. Seeing the local success of Milo as a chocolate and family brand, Cadbury would like to attempt becoming the same in the confectionery category. Non-melting chocolate invented by Cadbury's Chocolate which does not melt in hot weather has been developed by Cadbury's – but it will not be sold in Britain because our summers are not warm enough. Food scientists working at Cadbury's research plant in Bournville, near Birmingham, claim their new Dairy Milk bars will remain solid even when left in 104F (40C) heat for three hours. But the company, which was taken over by American food group Kraft two years ago, says it will only sell the product in warmer countries like India and Brazil because there is "no market" for it in the UK. The decision was attacked by critics who accused Kraft of reneging on a promise to provide "British chocolate for British people" at the time of the controversial takeover. Robert Halfon, Conservative MP for Harlow, told the Mail on Sunday: "It seems that we do all the innovating, then they give the best of British to people overseas." Chocolate taster Angus Kennedy added that there was "no reason" the chocolate could not be sold in Britain during the summer, particularly considering children's messy tendency to store sweets in their pockets. 22
- 23. Conclusion & recommendations: Demand forecasting is widely used by business firms to estimate the future demand of their products & services. Business firmsuse historical or past date to explain future demand. The estimation of future demand helps the business firms toanalysetheir production, distribution, selling, advertisement &promotional activities & the cost involved in covering theseactivities. Recommendations can be considered by business firms toenhance their performance in serving its customers the best. Customer·s complaints should be welcomed & handledeffectively. A quick response to customers complaint can bring apositive impact on part of business firms Suggestions from customers should be taken intoconsideration. I can say that Cadbury is a multinational company and its product Cadbury dairy milk chocolate is a cash cow for the company. It is well established SBU. Cadbury dairy milk is a market leader. More profitable as compare to other products of the Cadbury. 23