Energy Gel: A New Product Introduction (A) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Energy Gel: A New Product Introduction (A) Case Solution

Introduction

High Performance Corporation (HPC)’s Vice President is planning to introduce new product under the food division, which is “Energy-Gel”. The company is claiming that this product will be better than the ‘traditional energy bars’ in terms of “carbohydrates” and “electrolytes”, etc. There has been a detailed study conducted onissues, such as: cannibalization, cost of building & machines and a projected cash flow has also been made in order to look at the company’s financials in more details. The aforementioned issues are further discussed below: (Artur Raviv, January 01, 2003).

Energy Gel: Treatment of various items of cash outflows

Item	Whether relevant/irrelevant	Reasons
Capital Expenditure – modifications to the building	Relevant	Hold advanced line.
Capital Expenditure – packaging machinery	Relevant	Mandatory as they have already taken in past.
Capital Expenditure – new mixing machine	Relevant	To improve viability.
Cannibalization – loss of cash flow from energy bars	Relevant	It was out trend by energy gels (hence declining).
Additional selling expenses	Relevant	Selling expenses would be same cost per unit sold on Energy-Gel
Additional general & admin expenses	Relevant	Decreasing trend (in future)
R&D expenses (total 2.5 million)	Relevant	Invested huge amount to attract and fulfil customer needs.
Increase in working capital	Relevant	High WC => Inventory (High) => Cost Efficient => Invest to generate passive income

Recommendations in Preparing Cash-flow

Capital Expenditure – Modification to the Building, packaging machinery

We recommend that in order to adapt the “building” and “packaging machinery”;the company will have an estimate of$1.5m and $2m, respectively.

Capital Expenditure required for new mixing machine

In order to be specialized and to bring efficiency new “mixing machine” will charge $3m, and as it has utilized 25% in 2002, which is how we can minimize the cost efficiently.

Cannibalization

As the product has been introduced after researching and investing in “R&D department”; the company will generate more and the losses which it had incurred due to “cannibalization” will be recovered through the product.

Additional Selling Expenses

Selling expenses would be same cost per unit sold on “Energy-Gel” as the case with energy-bar-line.

Keeping the same cost is beneficial for the company as it is not increasing per cost price for now.

Additional general & admin Expenses

General and Admin expense were likely to raise at 12% in 2001 and then by 8% in future.

If we look at the big picture, this expense will decrease and they should work effectively to further lower the general and admin expenses.

R & D Expenses

The company has already invested $2.25 m in “R&D department” to fulfill the needs of its potential customers. The company is working to get all the expenses recovered through its product. It is projecting that the product would be its USP in this division. For other products; the company is ‘utilizing’ more or less $250,000............................

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