MANAGERIAL ANALYSIS AND COMMUNICATION

PGDM-RM, IRMA
CASE ANALYSIS 1- VARUN NAGAR COOPERATIVE SOCIETY

Name of group - Sherlocks Date of Submission- 08.09.20

Roll No’s- P41078, P41081, P41083, P41094, P41107, P41117

1. Executive Summary:
Varun Nagar Agricultural Cooperative Society (VNACS) deals in the procurement of agricultural
produce from farmers and its marketing. It also procures and supplies important agricultural inputs
such as seeds, fertilizers, and pesticides to its members Mr Agarwal, the Manager of VNACS is
faced with a decision problem involving the sale of paddy, paying back procurement fee to farmers,
repaying the bank overdraft taken, and buying fertilizers All these problems require him to make a
decision now which is going to decide the cooperatives future course of actions. Hence, the image
and reputation of society are at stake. Mr. Agarwal, after evaluating all the possible alternatives
decides to defer the sales of paddy by 6 months and pay back the farmers’ procurement fee using the
cash reserve from the overdraft. Also, he chooses to buy fertilizers 6 months later. This decision
deems fit for the welfare of all the cooperative members and other stakeholders.

2. Main report:

A. Situation Analysis
Introduction to the Situation-
The stakeholders, in this case, are Mr Agarwal, the Manager of the VNACS which is involved in the
procurement and marketing of agricultural commodities, the cooperative members from whom the
paddy has been procured, Mr Dwivedi, the manager of the Jaldhara District Cooperative bank, and
the National Fertilizer Corporation.
Mr. Agarwal wants to preserve the good reputation that the society has enjoyed over the years and at
the same time wants to ensure that the welfare of the farmers is not compromised. Hence, he wants to
minimize the risks undertaken by the Society.

Statement of objectives-
Mr. Agarwal has to ensure the overall welfare of the farmers and the cooperative society as a whole.
He also needs to maintain a good image of the society which has been built over many years
Therefore, he needs to take the best decision which takes in interest the expectations of all the
stakeholders involved.
Decision Problem Statement-
 Should Mr. Agarwal pay the farmers right now, or defer the payment?
 Should he sell the stored paddy now or delay the sales by 6 months?
 Should he accept the offer made for the fertilizer or buy after 6 months?
 Should he repay the overdraft now or extend the overdraft further?

Criteria of Decision Making-

 Welfare of the cooperative members
 Reputation of the Cooperative
 Efficient Operations

B. Decision Process
Generating Alternatives
First Alternative- Defer the sales of the stored paddy by 6 months and pay back the farmers’
procurement fee using the cash reserve from the overdraft. Also, buy fertilizers 6 months later @ ₹
300/bag.
Second Alternative- Sell the paddy now at the current price of 5 lacs and pay back the farmers
using this amount. Use the overdraft to buy the fertilizer at ₹ 250/bag and extend the overdraft
further.
Third Alternative- Repay the overdraft as on 31st March, sell the paddy at the current price of 5
lacs, and use this money to pay the farmer. Buy fertilizers after 6 months at ₹ 300/bag.

Evaluation of Alternatives

The choices are evaluated based on the degree of agreement with the criteria chosen.

Implementation
Mr Agarwal can pay the farmers as on 31 st March 1991 using the ₹ 5 lacs cash, we have with us on
the date and he continues to store the paddy for the next 6 months and sell it when the price is
expected to increase to at least ₹ 6000/tons. In this scenario, the total remuneration from the sale of
paddy will be at least ₹6 lacs. Then he can buy the fertilizers at the regular price of ₹ 300/bag
purchasing 2000 bags costing to be ₹ 6,00,000 while continuing his overdraft with bank.

Conclusion
In conclusion Mr. Agrawal after implementing the suggested solution can maintain the goodwill of
the cooperative by making the payments to farmers on time and also, he is able to make a net benefit
of ₹ 75000 by selling paddy at minimum price of ₹ 6,00,000.

Special Note- Contingency plan

Pay the interest on the overdraft for 7 months (September 1990-March, 1991), sell 6 tons of paddy
for ₹ 30000 and use the amount generated plus the remaining amount (5lacs) from repaying the
interest to either:
1- Buy fertilizers at ₹ 250/bag by April 1991
2- Repay the farmer the procurement fee
 This contingency plan, which has a lot of assumptions involved, can only be implemented if the
chosen alternative fails. Since the assumptions taken for this plan are difficult to evaluate given the
current information, its implementation remains difficult at present.

ANNEXURE
Liabilities Amount (Rs) Assets Amount (Rs)
Overdraft 500000 Cash 500000
Payment liability to farmers 500000 Inventory 500000

Options available for sale of paddy

After 6 months
Scenarios Sell Today After 6 months (min) (max)
1 2 3
Revenue 500000 620000 750000
Cost of Paddy 500000 500000 500000
Net Gains 0 120000 250000
Benefit from sale (Percentage) 0 24 50

Options available for purchase of fertilizer

Purchase &
Purchase Fertilizer after 6
store fertilizer
Scenarios months
right now
1 2
Cost of fertilizer   600000 500000
Storage 250 per month N. A 3000
Labour and equipment   N. A 25000
Insurance 20,000 per year N. A 10000
Fertilizer Loss 5% of stock N. A 25000
Interest on Overdraft 10% p.a. on 5 lacs N. A 25000
Total Expense   600000 588000
Benefit of cost     12000
Benefit of cost (Percentage)     2.4

Calculating Break even (Sell after six months)

Scenarios Amount

Cost of fertilizer   500000

Storage 250 per month N. A
Labour and equipment   N. A
Insurance 20,000 per year 10000
Fertilizer Loss 5% of stock N. A
Interest on Overdraft 10% p.a on 5 lacs 25000
Total Expense   535000
BREAK EVEN COST   5350 Rs/ton
     
 Balance Sheet for each alternative

1 Paying back the farmers

Liabilities Amount Assets Amount

Overdraft 500000 Inventory 500000

Total 500000 Total 500000

Selling of paddy and purchase of fertilizers after 6 months

Liabilities Amount Assets Amount

Profits 75000 Fertilizers 600000

Overdraft 525000    

Total 600000 Total 600000

Profit from sale of paddy after 6 months - ₹ 75,000

Net Benefits of ₹ 75,000

2 Selling Paddy right now and paying back farmers

Buying fertilizers with remaining liquidity

Liabilities Amount Assets Amount

Net Loss -25000    

Fertilizer
  Overdraft 525000 stock 500000

Total 525000 Total 500000

Cost benefit in buying Fertilizer 6 months prior - ₹ 12,000

Net Loss will be ₹ 13000

3 Selling Paddy right now and paying back farmers

Using the remaining liquidity to pay back the overdraft

Buying fertilizers after 6 months for ₹ 6,00,000, by extending the overdraft limit to ₹ 6,00,000

Liabilities Amount Assets Amount

Fertilizer
Overdraft 600000 stock 600000

Total 600000 Total 600000