Business Function

| October 22, 2018

Going
for growth by investing in people, products and plant

Hazlewood Sandwiches
Greencore’s traditional
activities lie at the start of the food production chain, whereas the new
convenience foods operations are at the end of it, and include many products
with high added-value.

Hazlewood Sandwiches is
the largest company within Greencore’s Chilled Foods Division. It employs 3,000
people, of whom 2,000 work at Manton Wood and 650 work at the company’s Park
Royal site that serves London and southern England. There are also 350
distribution staff employed in 15 depots across the UK. It’s a huge operation –
every year the business uses 7 million loaves and 244 million prawns.

Hazlewood Sandwiches’
mission statement is: ‘to lead the UK chilled sandwich market’.
The £25 million invested
in the Worksop factory supports this mission by:
·
providing modern facilities
·
tripling production capacity compared with the previous site.

The sandwich market
A market comprises all
the buyers and sellers of a particular product such as sandwiches or pizzas.
Firms need to know the size of the market in which they compete. Market size is
measured in two ways:
1. by value – e.g. total
sales annually of £100 million for Product A
2. by volume – e.g. 1
million units of Product A sold each year.
Currently the UK
sandwich market is worth £3 billion – representing 1.8 billion sandwiches – and
is growing at around 6each year. Hazlewood Sandwiches is the world’s largest
producer of sandwiches.
The pie chart shows the
major sectors (retail suppliers) of the purchased sandwich market. For
Hazlewood Sandwiches the major multiples (e.g. Asda, Safeway) provide an
important and growing sector of that market.
The market continues to
grow because:
·
People’s lives are becoming busier, leaving them less time to
prepare food. More women go out to work (about 50% of the labour force), and
many of them have more than one job.
·
People are taking shorter lunch breaks, leaving them less time for
a midday meal.
·
Many busy working people can now afford to pay others to make
sandwiches for them – they are said to be ‘cash rich, time poor’.
·
Sandwich quality has greatly improved, with interesting recipes
designed to meet individual customer requirements.
·
More people look for new types of sandwiches with ingredients that
reflect what they have eaten when travelling abroad.

Investing in plant
To grow, organisations
need to invest. They face many possible investment choices. Wise investment
decision-making involves identifying investment opportunities that offer the
best chance of a high return. The buoyant market for sandwiches offers
worthwhile investment opportunities. The company has made two significant
investments in sandwich manufacture.

1. In 1998 Hazlewood
Foods purchased Breadwinner Sandwiches in London, with a production capacity of
1 million sandwiches per week.
2. Recently, Hazlewood
Sandwiches has spent £25m to build Manton Wood in Worksop with a weekly
production capacity of 3 million sandwiches: it currently produces 2 million.
This factory is the world’s largest sandwich plant.
In business there are
several ways to appraise or evaluate the value of any contemplated investment.
A comparatively
straightforward method of investment appraisal is the payback method. This
involves calculating the number of years it would take a project (e.g. Manton
Wood) to pay back (in cash flows) the original investment outlay.
A second method is to
find the Net Present Value (NPV) of a proposal. This takes account of the fact
that the repayment of an investment is distorted by inflation over time (prices
usually rise over time). It recognises, for example, that a £ possessed now is
worth more to a business than a £ to be earned next year and in following
years, and for two main reasons: that £’s existence is more certain (next
year’s £ is less certain to be earned) and its purchasing power is likely to be
higher because of price rises in the meantime. This method therefore calculates
all cash flows in terms of today’s money (NPV) and compares these with the
capital to be invested in the project.
A third method, the
Accounting Rate of Return (ARR), looks at profits rather than cash flows and
measures the rate of return on capital employed – the organisation will have a
target figure in mind.
In deciding whether to
invest in the project, financial controllers at Hazlewood Sandwiches calculated
the likely profits from the new factory, using a profit and loss forecast. A
simplified format of this is shown below:

Profit and loss forecast

Given the growing market
and a tripling of production capacity, the company’s forecast was for a
significant improvement in financial return which would generate a rise in ARR.
The company also
anticipated that the average cost of each sandwich it produced would fall,
because:
·
The new factory offers a superior production flow line. Compared
with the old factory, less labour would be required to move raw materials and
finished stocks.
·
Stock levels of inputs are reduced. Just-in-time delivery methods
reduce stock wastage e.g. there are 3 bread deliveries daily.
·
Stock levels of output are zero. Output leaves the factory
immediately on completion.
As a result of the
investment appraisal and profit and loss forecast, the Greencore Group Board of
Directors was confident the new investment would be a success and approved it.
In making their decision
the Board recognised that:
1. The financial projections
were soundly based and met the company’s investment criteria.
2. The old factory’s
limitations was holding back growth and losing opportunities for the company.
3. Direct customers
(large retailers) wanted a supplier with more extensive state-of-the-art
facilities.
4. Superior factory
layout would improve efficiency e.g. higher volumes, faster production, fresher
quality.

Investing in people
Many businesses see
their workforce as their greatest asset and recognise that a highly motivated,
intelligent, properly trained, committed workforce is best placed to deliver
the best results.
Sandwich making remains
labour intensive. Although machines butter the bread, and apply the mayonnaise
almost all other ingredients are added by hand. So the workforce needs to be
committed to the task. Commitment comes from two main sources:
·
a belief in the worth of the product (and therefore the worth of
the job)
·
a feeling of being valued by the employer.
Businesses that get
these two aspects right help not only their workforce but also themselves,
because labour productivity remains high, absenteeism stays low, labour
turnover is reduced, and recruitment costs fall.
Manton Wood offers an
excellent working environment, and Hazlewood Sandwiches has introduced focused
employee initiatives, including:
·
An extensive induction programme designed to make new recruits
feel part of the team.
·
Opportunities for employees to take National Vocational
Qualifications relevant to the food industry, so enabling them to progress and
develop within the company.
·
Flexible, family-friendly working practices e.g. a ‘mothers’
shift’ with working hours tailored around young mothers’ childcare needs and
schooling arrangements.
·
An on-site hairdresser, gymnasium, company shop, cash machine,
state-of-the-art restaurant, IT training and a dry cleaning service.
Faced with a 5-mile
move, 95of Hazlewood Sandwiches employees agreed to ‘stay on board’. The
company has won ‘Investors in People’ status, a nationally recognised benchmark
for companies that have demonstrated specified levels of employee care. Labour
turnover has decreased by 50% following the move.

Investing in products
To stay ahead of the
competition, firms need to monitor customer requirements, introduce new products
and modify existing product lines. Hazlewood Marketing Department used customer
research to establish the requirements of two customer groups:
1. direct customers:
retailers
2. end customers:
shoppers.
Hazlewood Sandwiches
produces the well-known ‘Sutherland’ brand, and retailer brands for multiple
retail customers including Boots, Asda, Safeway, Co-op, Somerfield, Sainsbury
& Europa Stores, Esso, Texaco, Total. Retailer-branded sandwiches allow
retailers to express their own particular brand values – through such aspects
as healthy eating, quality packaging, brand labels, etc. Hazlewood Sandwiches
works in partnership with its retail customers to produce specific sandwiches
that are ideal for that particular retail outlet’s end customers – the consumers.
A team of account and
development experts is attached to each of its major customers who work with
the retailers to decide on new products, the distribution of existing products,
packaging and many other details. In a growing, changing market, new products
are continually coming on stream and old ones are modified or withdrawn.

Conclusion
Hazlewood Sandwiches
operates in a highly competitive growing market, which it leads. To retain that
lead, the company has an ongoing programme for investing in state-of-the-art
plant, people and product development. In this way it gives customers and
consumers better choice while providing higher returns to shareholders from
increases in profits and higher rates of return on investment.

(Adopted from.businesscasestudies.co.uk/”>www.businesscasestudies.co.uk)

Question
1 (400 words, 25 marks)
What is meant by investment appraisal?
Discuss three main reasons that led Hazelwood Sandwiches to make capital
investment.
Question
2 (400 words, 25 marks)
Discuss the differences, advantages and
disadvantages of the three investment decision techniques mentioned in the
case.
Question
3 (400 words, 25 marks)
Explain why it’s important for
organizations to invest in people. Describe ways in which organizations, such
as Hazelwood, invests in its employees. Support your answer with other
examples.
Question
4 (400 words, 25 marks)
“Many businesses see their workforce as
their greatest asset”. Discuss from the HRM function and the accounting
function perspectives.

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