GEP GamEPlan 2017 - Case

Elantra Group, a US-based conglomerate with diversified business interests in chemicals, pharma,
consumer goods and financial services, announced their full-year FY-17 results. The groups
EBITDA is up by 6% and the revenue is up by 16%. The results have surpassed market
expectations, leading to a 5% increase in their share price. However, the Group CEO, Mr. Akira
Nakamura is not happy. He has called in Mr. Brian Cotter, the Group COO, for a discussion on the
groups performance.

Mr. Nakamura: Brian, I was surprised to see the financial results of Elantra Foods and Elantra
Insurance. For Elantra Foods, we launched 3 new products (Choco-cereals, Meat nuggets and
Tasty pasta) in the market this year and started a new online channel Elantra Mart for food
distribution. On expected lines, our revenue increased by 12%, however our profits grew by a
mere 3%. The high operating cost is killing our profits. I know you have been working very hard
to improve our supply chain efficiencies, but the results are yet to be seen. Where did we go
wrong?

Mr. Cotter: From a supply chain perspective, this has been a challenging year for Elantra Foods.
We launched three new products, but all of these were in new categories. Our existing supplier
base was unable to handle the new product requirements. Hence, we partnered with 80 new
suppliers to provide the required food ingredients across the globe. Considering that new
suppliers need to meet Elantras high quality standards, a team was put in place to regularly audit
and manage contract compliance for all these new vendors. This increased overheads and
delayed deliveries of raw materials, which added to the downstream costs.

Mr. Nakamura: Despite such measures, we had to recall our meat nuggets in APAC region due
to quality issues!

Mr. Cotter: Unfortunately, yes. One of our batches of meat from China was infected with A1D1
virus which was not detected in our internal quality checks. This recall also exposed our supply
chain inefficiencies. It took three months to identify all the SKUs which were infected and a month
to identify the source of the infection. We lost $100 million in the recall process, but more
importantly it damaged our brand. Elantra Mart, too, is facing high percentage of product returns
and fraudulent deliveries. Our operational capabilities within Elantra foods have been inadequate
to manage product recall, product return and customer complaints at such a large scale.

Mr. Nakamura: And what about our Insurance business? Our Y-o-Y EBITDA for Elantra Insurance
fell by 5% for FY17. This was quite unexpected, given that we have started operations in new
insurance verticals of health and property.

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Mr. Cotter: Most of our new customers have enrolled in our newly-added Health and Property
insurance verticals. We are seeing major increase in our third-party service costs & claims
processing costs. Real estate is a tough sector to work in. We have increased our staff to conduct
site verifications & check all past records of that site to understand the annual premium we
should charge the client. Unlike Life insurance, verifying the authenticity of all these records is a
time-consuming and cumbersome process. Even for the health insurance business, the new
regulations mandate us to maintain verifiable data of customers past medical history. We had
many cases this year where clients did not have the necessary documents in place for us to
process their claims. This meant increasing our staffing in the claims processing department. As
you are aware, claims processing is manpower intensive and we are yet to reach the industry
standards for turnaround time and accuracy.

Mr. Nakamura: Look Brian, the manpower overhead and time delay indicates a larger issue of
erroneous supply chain planning and process design. Overall, the situation is very challenging for
us. Our foods business is facing stiff competition from the online players. Also, the customers in
the insurance business are really sensitive to the premium they pay. Hence, it is absolutely
essential that we have a supply chain which is not only lean and efficient, but also keeps our core
principle of customer delight intact. From what I read of the market, status quo could very well
lead us to extinction. Look at the market leaders in different industries - we have the top
ecommerce players using drones to do the last mile deliveries, companies using Artificial
Intelligence to recommend when & what products to buy, NASDAQ shares being traded on
blockchain based platforms etc. These companies are true leaders, and their leadership is a result
of their innovation drive and their steady investment in technology. And we here at Elantra
havent even scratched the surface when it comes to transforming our supply chains. For the
problems you stated for Elantra Foods and Elantra Insurance, have we looked at them from a
technology perspective? Are there technology based solutions we can adopt to fix the
inefficiencies? What will it take for us to become a leader in these industries and stay ahead of
the curve?

Mr. Cotter: Well, I do not have definite answers to these questions as of now. But, I completely
concur with your views. We have a challenge in front of us and like always, the company will
stand up to this challenge and deliver. I am meeting the supply chain heads of each business unit
this Friday. We will have our recommendations ready for your review in two weeks from now.

Mr. Nakamura: Thank you, Brian. While providing recommendations, keep in mind the synergies
we can potentially have with our other business units and our core principle of customer delight.

Mr. Cotter: Of course, Mr. Nakamura!

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 Appendix
Elantra Group FY-17 Financial Summary

FY -17 Financials (in US $Millions)

Foods Insurance Pharma Chemicals
Gross Revenue $53,739 $19,800 $17,933 $8,290

EBITDA $5,399 $4,205 $6,133 $1,162

Y-o-Y % change in EBIDTA 3.00% -5.00% 14.00% 23.00%

Elantra Foods & Elantra Mart

Elantra foods has its business operations in 3 major regions North America (US & Canada), APAC
(Major markets - India and China) and EMEA (Europe, Middle East and Africa).

Elantra mart (e-commerce portal for Elantra foods) has been launched in the US only.

Of the new products, Choco-cereals was launched across all 3 regions, tasty pasta in NA and EMEA
regions and meat nuggets in NA and APAC regions.

Elantra Foods follows a hub and spoke model with each of these regions having a local
manufacturing plant for each food product available in that region. Raw materials may be
sourced either globally or locally depending upon availability. From each manufacturing plant,
finished goods are transferred to a centralized DC for each country and from there to smaller DCs
in each commercial zone.

FY-17 Financial Results (Region-wise split) for Elantra Foods in US $Millions

North America EMEA APAC

Gross Revenue $37,320 $12,110 $4,309

EBITDA $3,349 $2,270 -$220

Y-o-Y % change in EBITDA 5% 3% -30%

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New Product Revenue in FY17 (in US $Millions)

FY-17 Revenue (in US $Millions)

North America EMEA APAC
Choco-cereals $605 $335 $145
Meat nuggets $925 - $665
Tasty Pasta $180 $365 -

Elantra Mart Top Product Return Reasons

Broken Packaging 39%

Stale product 14%
Late Delivery 11%
Incorrect order 7%

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Elantra Insurance

Below data is for Elantra Insurances US Operations only (~80% of Elantras insurance business)

REVENUE SUMMARY (in US $Millions)

Revenue Streams 2016 2017 Y-o-Y Increase
Life $8,000 $8,100 $100
Auto $6,500 $6,700 $200
Property $0 $900 $900
Health $0 $800 $800
Total $14,500 $16,500 $2,000
OPERATING COST (in US $Millions)
Cost Categories 2016 2017 Y-o-Y Increase
IT $1,700 $1,900 $200
Facilities $1,500 $1,660 $160
Claims Payout $3,200 $3,400 $200
Claims Processing $400 $700 $300
Third Party Services $1,160 $1,900 $740
Taxes $720 $800 $80
Legal $640 $680 $40
HR $400 $440 $40
Miscellaneous Expenses $400 $440 $40
Marketing $400 $680 $280
Travel $200 $240 $40
Total $10,720 $12,840 $2,120

- Claims processing includes claims processing costs, claims mitigation & other claims
management services
- Third Party Services include Consulting services, Financial services, Appraiser services,
Third Party Administrators, Underwriting services, Adjusters, Actuarial Services, etc.
- Office Expenses include cost of real estate, print, office equipment, postal services,
mail/courier & other utility expenses

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 Participants corner
Participants are expected to prepare a five slide presentation (excluding appendices) for Mr. Cotter
which fulfills the requirements as laid out by Mr. Nakamura. Participants are allowed to select one
industry - either Elantra Foods (including Elantra mart) or Elantra Insurance for an in-depth analysis
and recommendations. Your presentation should cover the following key points-

Which technologies (Blockchain, IoT, AI, RPA or similar others) would be relevant for Elantra,
given the latest developments across industries? Looking at the end-to-end supply chain
design for the chosen company, which problems would they solve, how would they solve
them and what would be their impact vis-a-vis the current state?
Business case for each recommendation and a priority road map for implementation
Vendor landscape and criteria to select the appropriate vendor for Elantra

Format for Submission:

The submission must only be made as a .ppt or .pptx file for the presentation
Name your files as GEP Gameplan_<Institute Name>_<Team Name>
Include an extra slide stating your institute name, team name and team members names
within the presentation (apart from the 5 analysis & recommendation slides)
Submissions that do not follow the file format, slide limit or the naming convention will not
be considered for evaluation

Content of Submission:
The slides should clearly capture all possible & reasonable solutions to the problems faced by
Elantra.
Please clearly indicate the assumptions made while proposing the solutions along with
references/sources used

Submission Timeline:
Deadline for submission of the case solution is 23:59:59 IST on 11th Sept, 2017

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