Cost Benefit Analysis for Agar Supply

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Tableof Contents

Executive Summary 3

Cost Benefit Analysis Agar Supply 3

Introduction 3

Project overview 4

Feasibility study scope 6

Blooming foods 6

Grissom’s Greens 7

Troyer Foods 7

Cost Benefit analysis of Digitizing Agar Supply 8

Cost Benefit Analysis for a new distribution channel 9

Recommendations 10

References 10

ExecutiveSummaryCostbenefit analysis is a comprehensive method employed for economicevaluation for a medium size company such as Agar Supply. Agar Supplyis a profit making enterprise in the food and food distributionindustry. The company has grown to see the need for better IT systemsas it seeks to open up a new distribution channel. It seeks tocontinue to create and deliver economic value to its shareholders asit seeks to expand and consolidate its operational process in linewith technological advances by minimizing both cost and risk. In thisregards, the paper will provide a framework for the assessment ofcost benefit process of Agar Supply. In addition, the provisions andcontexts will encompass different aspects of the firm in a bid toensure that the cost benefit analysis of the company provide theactual processes and potential principles of the firm. The costbenefit analysis will provide a significant structure on the numerousfeasible projects that the firm wish to carry. CostBenefit Analysis Agar SupplyIntroduction

Agar Supply is a Small and Medium Enterprise with its core objectivesaligned towards meeting the expectations of the American foodprocessing and food distribution industry. In an economicperspective, this industry is one of the largest and most significantin relation to meeting basic human needs. Agar Supply aims atexpanding in the local US market through sustainable strategies asthe economy expands and consumer tastes tend to be more affluent,distribution locations change, IT developments transform theoperating environment, costs of raw materials and services increaseand trade patterns shift spontaneously in line with the dynamics ofsupply and demand.

This paper intends to conduct a cost benefit analysis on feasibilitystudies on a number of projects that Agar Supply has undertaken.These feasibility studies relate to the opening up of new offices,the creation of new distribution channels as well as valuing variousalternatives to the realization of these projects. The main reason ofthe cost benefit analysis will be towards the determination ofappropriate channels for optimized distribution and deliveryservices.


Agar Supply has grown into a respectable SME pegged on the ability toconform to the market dynamics as dictated by customer preferences.The growth and success of the company is attributed to a businessstrategy which ensures it is very selective on how it chooses newdistribution channels more so a true dedication to adhering to coreorganizational values and quality standards.

The company is looking for new locations to set up new offices andnew distribution processes. To aid in decision making on these twoprojects, a cost benefit analysis is vital. It is important to notethat a CBA provides a strong starting point in evaluating thesuitability of project options (Sunstein, 2013). In comparing projectproposals via a CBA paradigm it is easy to accurately pin point whichproject is best for the company strategic objectives towardsincreasing shareholder value through increased profitability. This isbecause the CBA follows standard procedures and thus a project isassessed in the same manner as the next.

A feasibility study on the other hand determines whether Agar Supplycan adopt a particular project and generate sales and profitabilitylevels as desired. Food output funding was seen as a significantchallenge in all services as it was seen that the current arrangementin other companies within the industry with regard to funding permeal needed to adhere to innovative service delivery processes(Walker, Pan, Johnston, Adler-Milstein, Bates&amp Middleton, 2005).More so, customer expectations with regard to the provision of anassortment of attractive food options relative to social and culturalorientation affected sales forecasts significantly. It was thusdetermined that funding arrangements ought to be reviewed inaccordance to contemporary changes in the food services anddistribution industry. This is especially the case as futureexpectations tend towards client-focused services through integratedcase management models (Nickel, Ross &amp Rhodes, 2009).

It was also seen that the development of an IT system supporting allaspects of Agar supply which include center based distributionservices and on wheels distribution services was important in linewith strategic objectives. This is important in enhancing ClientDatabase Management Systems, logistics, and finance, output andsystem evaluations. It was further seen that an IT support system wascritical towards enabling accurate and reliable supervision of newdistribution channels in an increasingly complex food and FoodDistribution Service requirements. Without a stable and efficient ITsystem, Agar Supply could tend to struggle unnecessarily in servicedelivery.

There was also the need to consider incorporating meals on wheelsdistribution channels in an effort to diversify on the current targetcustomer base. It was perceived that incorporating the health andcommunity oriented food service sector was an unexplored niche market(Walker et al. 2005). Agar Supply has the capacity to diversify thisnew market and is presented with a number of advantages giving thefirm a competitive advantage over current commercial and communityservice providers.

The proposed model is such that it aims to create a system, whichrealizes operational independence that is, center based distributionchannels and meals on wheel distribution channels. This was seen asimportant towards on demand evaluation of the new projecteffectiveness and efficiency in service delivery (Mircea, Ghilic-Micu&amp Stoica, 2011). However, some processes will be integrated intoa standardized reporting system to allow for oversight monitoring,assessments, and business management protocols. This will be madepossible by aligning the IT and operational processes on a standardplatform which will enable information sharing among differentcomponents.

Feasibilitystudy scope

Representatives from two major food distributors Troyer foods andPiazza produce were interviewed. Two small-scale distributors werealso interviewed in an effort to ascertain which challenges theyfaced to offer more credibility to the proposed food distributionchannel. The three small-scale distributors included Grissom Greensand Blooming foods (Countryman, 2012).


This is a local cooperative grocery distribution store whose corebusiness processes revolve around supplying locally produced organicfoods. It has three stores all located within Bloomington County andeach store independently generates its own food produce purchases(Countryman, 2012). As such, this small company is dedicated towardsoffering support services to farmers and thus hosts twice a weekfarmer’s markets in two of its independent grocery stores in thegrowing season. Over the past few years, the company has noted thatdemand for locally produced organic foods has been increasing.Efforts have been aimed towards determining avenues through which thelocal growers can be accorded assistance in availing more produce toother institutions.

One way with which the company has been able to assist farmers is toconnect it with another food distributor with refrigerated foodstorage space with a comprehensive business insurance policy(Krassie, Goodwin-Moore &amp Singleton, 2010). Blooming foods hasthus enabled the local farmers to continue availing produce to itsstores, a point from which the larger company collects the produce.This has enabled the farmers deliver more produce without the needfor increasing the cost of delivering these produce to anotherlocation. This was viewed as a good innovative means through whichfarmers could increase profitability and Blooming foods effectivelyoptimize the use of its available recourses (Countryman, 2012).


This is a small business run by a single entrepreneur acting as adistribution channel for a number of farmers during different growingseasons depending on the nature of the produce.The entrepreneur hasalso been evaluating on options available with regard to establishingmore outlets such as either directly selling to a larger distributoror increasing more outlets (Countryman, 2012).

Piazza Produce is a medium size company operating in Indianapolis andoperates a number of delivery sites, which are well connected to acentral warehousing complex. The company is able to cover most of theMidwest states such as Indian, Illinois, Kentucky and Ohio. It has aloyal customer base to whom the locally foods appeal (Krassie,Goodwin-Moore &amp Singleton, 2010). Piazza produce sources itsproduce directly from local farms and is now in the process ofincorporating more firms into its business models. Produce is pickedup from farms, transported to the company’s main warehouse and packhouses before it is packages, and redistributed to the Midwest.


This is a relatively large organization in Indiana with four majorfacilities strategically located in the state. The company recentlyacquired a food produce distributor from Bloomington County (Krassie,Goodwin-Moore &amp Singleton, 2010). The acquired distributorcontinues to operate in the county. Troyer Foods offers its clients awide array of food products, from fresh farm produce to meat anddairy products sourced both locally and internationally.

CostBenefit analysis of Digitizing Agar Supply

The project involves opening up a new distribution channel, meals onwheels. To be able to be in contact with distribution vans and tracksthere will be the need for an information system, which allows realtime communication (Mircea, Ghilic-Micu &amp Stoica, 2011). Toassess and evaluate the feasibility of digitizing Agar Supply, thereis the need for a comprehensive CBA to determine properly its worthto the company.

Many digitization projects outline costs encountered, two mainchallenges realized in this project involve variable, and caveatswhich tend to determine the final cost. The second challenge is thatthe real cost tend to be much higher compared to the projectedcosts.It is important to point out that research indicates that thedigitizing process forecasted cost tend to be a third of actual costs(Sunstein, 2013). This is especially the case with discrepanciesarising from commissioning or upgrading the IT system, labor costs,which call for a specific skill pool, and the management costs whichare long term in nature.

The benefits of digitizing are numerous as they enable organizationsto meet strategic objectives faster through the ease of informationprocessing, data storage and real time relay of information(Davenport, 2013). Digitizing Agar Supply is likely to reset the firmwith a more focused approach towards meeting both short term andlong-term objective (Mircea, Ghilic-Micu &amp Stoica, 2011). Forinstance, the new meal on wheels distribution channels could benefitgreatly from real time information relay and optimize on theutilization of available resources. The company will be able to haveinformation stored in a central database allowing information inputand access available with regard to the operations of differentdepartments. Digitizing will also help cut on unnecessary overheads(Mircea, Ghilic-Micu &amp Stoica, 2011).

CostBenefit Analysis for a new distribution channel

As Agar Supply seeks to expand its operations, it has to look foravenues with which to make the best out of available investmentchannels to realize sustainable profitability (Dowlatshahi, 2010).The meals on wheels distribution channel is aimed at targeting thebroader community such as schools, hospitals, infrastructuredevelopment construction crews and other similar communitydevelopment projects. This may be considered as targeting the low-endsegment of the food service distribution market but this is not theview of the overall project. There are such functions as weddings andother community functions that will target the high-end market inline with the company policy. For the low-end market, the company’srespected brand will definitely attract new clients in need forquality food and service delivery. The American population isbecoming more affluent hence the need to diversify into this market.

The cost of the meals on wheels distribution channels will beconsiderably lower as compared to the opening up of a localizedfacility (Dowlatshahi, 2010). It will not only be flexible but willalso cater for a wider market segment as well as enabling the companyto diversify further on its investments portfolio. The labor skillset will be flexible expanded as well and more so serve to project afavorable company image to the public.

The benefits of this project include a shorter start time, widermarket, better brand awareness and flexible service deliverymechanisms (Dowlatshahi, 2010). These will enable the company realizereturns on invests at a much faster rate than it would in setting upa new facility or acquiring an already established distributionchannels.


Agar Supply is a well-established brand name and its customerspositively appraise it service delivery operations for food safety,wide array of menus and ideal pricing. Digitizing Agar Supply andintroducing the meals on wheels channel will work hand in hand inenhancing service delivery. In the past, similar projects havesuffered from poor access to information and technical support forinstance, food safety queries, supplier options, menu analysis anddelivery alternatives. As witnessed in the different company’sresearched in the feasibility study, what the market calls for isgreater and broader reach to the consumer. Agar Supply will thereforehave moved into a new niche market by reaching the consumer asopposed to the traditional way.


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