BACKWARD INTEGRATION STRATEGY OF AN AUTOMATIC GAS DECK OVEN DISTRIBUTOR

• Main Author: William
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/34877
• Institution: Institut Teknologi Bandung

In the recent years, there has been a shift of food consumption pattern in Indonesia. The demand for simple and instant food such as bakery products (Bread loaf, cookies, and cakes) has been rising significantly. Based on the data in Food Consumption Statistics 2017 released by Secretariat General Data Centre and Agricultural Information System, Ministry of Agriculture, the consumption for white bread loaf itself has increased by 473% from 2013 to 2017. This increase shows that bakery products will play an important role in fulfilling the food consumption needs in Indonesia in the future. With the rising consumption of bakery products, bakery equipment suppliers or distributors such as PT XYZ will also play important roles in providing the best bakery equipment and machineries for the breads and cakes producers. Normally, one of the most essential equipment for these breads and cakes producers is baking oven because most of breads and cakes require baking process in oven. With the current technology, the most commonly used type of oven nowadays is Automatic Gas Deck Oven (AGDO). This AGDO covers 20% of PT XYZ’s yearly sales which make this product exceptionally important to PT XYZ. Since there is no AGDO manufacturer in Indonesia, majority of the AGDOs available in Indonesia are imported from China. Unfortunately, in the past two years there has been increasing price of these imported AGDOs due to various external factors. This increasing price is a business issue to PT XYZ since the company position itself as a distributor of low to middle priced bakery equipment. In this thesis, analyses to find a strategy to solve this business issue were done using combination of TOWS matrix and Grand Strategy Matrix as the conceptual framework. Based on the alternatives strategy recommendation resulted from TOWS matrix and the position of PT XYZ in Grand Strategy Matrix, backward integration strategy into the AGDO manufacturing industry is chosen as the most optimum strategy to solve the price increase issue. Further analyses were also done to figure out how should PT XYZ expands to manufacturing industry and whether the strategy can really lower the price. By comparison table, the best mode of expansion PT XYZ should perform is by internal development. Cost analysis was also performed to compare the production cost per unit with the price of buying imported AGDO since the manufactured AGDOs cost cannot exceed the price of imported AGDOs. Based on the cost analysis, the production price per unit can be lower than buying price with the condition that the established manufacturing company produces at least 96 units of oven per month to achieve the necessary economies of scale. In addition, based on the expected implementation plan schedule and budget, if PT XYZ executed the backward integration strategy and invested in starting a manufacturing company, the calculated Net Present Value resulted in a positive net profit. Therefore, to also prepare for the further price increase of the imported AGDOs in the future, it is recommended for PT XYZ to perform the backward integration strategy.