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Lembu Dairy Beyond Milk Case Solution

Solution Id Length Case Author Case Publisher
2063 827 Words (5 Pages) Patrick Heng, Terence P.C. Fan Singapore Management University : SMU255
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An existing firm can expand its business vertically by collaborating with its distributors or setting up its own retail outlets where the product can be sold to the end customers. In the case of Lembu Dairy, the company which is involved in producing milk, they can vertically integrate forwards by entering into different product segments, which may include butter, ice cream, yoghurt, or cheese as these products are produced after the milk has been processed. Hence, it can be understood that vertical integration allows firms to generate more value from their business operations and lock in higher profit margins (Harrigan, 1984).

Following questions are answered in this case study solution

  1. Vertical Integration of Lembu Dairy

  2. Impact of Transportation Sensitivity

  3. Most Profitable Option for Lembu Dairy

Case Analysis for Lembu Dairy Beyond Milk Case Solution

Lembu Dairy will however, have to install additional plant and machinery to be able to proceed with the processing operations necessary to manufacture any of the four options it has shortlisted. As the company is already a milk producer and milk is the main ingredient for the shortlisted options, it will be better able to structure its equipment for increased synergies. Not only this, but it will then be able to cater to a huge market segment that is not just restricted to milk but also demands other dairy products (Stuckey & White, 1993). Also, there has been a rise in the production of milk in most of the neighboring countries, which is why diversifying product segments through vertical integration by the installation of the necessary equipment would allow the company to benefit from a competitive edge in the market.

2. Impact of Transportation Sensitivity

The transport sensitivity on the potential of a locally produced product depends on the type and the nature of the product. For non-perishable products, transport sensitivity is low and is just limited to the associated costs. However, this is not the case for the perishable items as they have limited shelf life and can get stale on the route. As Lembu Dairy is planning to target Singapore as part of its diversification plan for Asia, the transportation element would significantly impact. If the distance would be too long, the milk products might go bad, resulting in a loss for the business. Also, if the distance would be too long, the cost of goods manufactured will rise, which will adversely influence the profit margins of the business (Carter & Ferrin, 1996). This cost will mainly be high because of the increased freight cost as well as the refrigeration cost as the dairy products will require to be refrigerated throughout the transit.

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