Le Petit Chef

Harvard Business School Case #602-080

Case Software #XLS-265
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Raw Materials 65% Cavity 15%
Direct Labor 10% Power Supply 25%
Indirect labor 6%
Microwave System
(magnetron, wave-guide)
15%
General Overhead
& Depreciation
11% Door 10%
Logistics & Stock
Holding
5% Controls 10%
Development 3% Final Assembly 10%
Total 100% Other 15%
Total 100%
Cost of Grill, Crisp &
Control*
40%
* Impact of providing an additional "grill" feature on the cost structure of a basic microwave oven
Exhibit 2: Cost Structure of a microwave oven as % of total cost
Microwave Cost
Structure
Module & Assembly Costs
Source: Company Data
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
World 23.1 20.5 25.3 19.5 22.5 25.1 28.2 27.3 27.7 31.7
US 9.4 8.1 7.5 7.0 7.1 8.2 8.9 8.9 8.8 9.0
Japan 2.8 3.2 3.1 3.1 3.6 3.3 4.8 3.3 3.3 4.9
Europe 8.8 7.1 7.7 6.9 8.0 8.3 8.2 8.4 8.7 9.1
France 1.6 1.2 1.6 1.2 1.3 1.3 1.4 1.4 1.5 1.6
Germany 2.9 2.2 2.2 1.9 2.2 2.2 2.3 2.4 2.5 2.6
UK 2.1 1.0 1.1 1.1 1.4 1.6 1.4 1.5 1.5 1.6
Spain 0.3 0.5 0.6 0.6 0.9 0.9 0.9 0.9 0.9 0.9
Italy 0.2 0.6 0.7 0.7 0.7 0.8 0.5 0.4 0.4 0.5
Sweden 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Austria 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3
Belgium 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Portugal 0.0 0.1 0.1 0.1 0.0 0.1 0.1 0.2 0.2 0.3
ROW 2.1 2.1 2.3 2.5 3.9 5.3 6.4 6.7 6.9 8.7
Exhibit 3: Worldwide Shipment of Microwave Appliances: 1990-1999 (million Units)
Source: Adapted from European Marketing Data & Statistics, issues 1992-2001; International Marketing Data & Statistics, issues 1992-
2001; Casewriter's estimates
Type of project:
Incremental revenue
New revenue
Cost-reduction
R&D 0 1 2 3 4 5
Technology development
Design
Prototype development
Production model design
Total R&D hours 0 0 0 0 0 0
Total R&D costs 0 0 0 0 0 0
Manufacturing
Line set-up costs
Sourcing contracts
Total Manufacturing costs 0 0 0 0 0 0
Marketing costs 0 0 0 0 0 0
Sales & Distribution costs 0 0 0 0 0 0
Total Initial costs 0 0 0 0 0 0
Discount rate
PV of Total Initial Costs 0 0 0 0 0 0
Original projections: units sales
% increase in unit sales
Inceremental unit volume 0 0 0 0 0 0
Projected unit price
Projected incremental revenues 0 0 0 0 0 0
EBITDA margin projection
Projected Incremental EBITDA 0 0 0 0 0 0
Discount rate
PV of Incremental EBITDA 0 0 0 0 0 0
EBITDA PV of project 0 0 0 0 0 0
Total Project EBITDA NPV 0
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Exhibit 10: NPV calculation worksheet
Comments
Expected to increase existing revenue stream
Expected to create a new source of revenues
Expected to improve margins by reducing cost
Projected new unit sales
Projected unit price
Projected revenues 0 0 0 0 0 0
EBITDA margin projection
Projected new EBITDA 0 0 0 0 0 0
Discount rate
PV of new EBITDA 0 0 0 0 0 0
EBITDA PV of project 0 0 0 0 0 0
Total Project EBITDA NPV 0
Original projected unit sales
Projected unit price
Original projected revenues
Incremental EBITDA margin from
cost-reduction
Projected incremental EBITDA 0 0 0 0 0 0
Discount rate
PV of Incremental EBITDA 0 0 0 0 0 0
EBITDA PV of project 0 0 0 0 0 0
Total Project EBITDA NPV 0
Source: Company data
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Project Description Resources
Required*
(person-
months)
Time to
completion*
(months)
NPV of
project*
(FF)
Comments
a New intelligent line of microwave
cooking appliances with multiple
sensors, and controls with fuzzy
logic intelligence [This involves
developing new control systems to
permit continuously varying
magnetron power settings.]
306
[90 is for
electronics
alone + 216
additional for
platform
development]
18 7,000,000 Extensive technology
development involved
b Cost reduction of the Egalit to
develop a low-cost, low-end
Fraternit line
72 12 20,000,000 Proposal from
marketing
c New, original design of a low-cost,
low-end Fraternit line
180 18 10,000,000 Counter-proposal from
R&D
d Develop a "Libert-express" quick-
heating model by upgrading to a
new, more powerful magnetron
24 6 15,500,000 New, more powerful
magnetron developed
by supplier
e Add a larger cavity model to the
Libert line
30 6 14,400,000 40L model proposed
Exhibit 13: Proposed Microwave Oven R&D Projects
*Calculated as of December 1999
Engineering groups in the
Microwave R&D group
Number of
Engineers
Application area
Concept/design/aesthetics 6
Future products, sensor applications, industrial
design
Mechanical 10 Integration, cavity/wave-guide design, prototyping
Power electronics 5 Power supply and magnetron controls
User interface/electronics 2
Code development, circuit design and outsource
relationships
Test kitchen 3 Performance tests, recipe development
Conventional cooking* 4 Convection and grilling elements
Exhibit 14: Microwave Oven R&D Group
*These engineers were a shared resource with the other kitchen-top appliance R&D groups
Project Description Current
Estimated
Ship Date*
Original
NPV of
Project
(FF)
Resources
Reqd to
Completion*
(Person-
months)
Comments
1 Improve external finish, colors
and contours of both lines, to
make them more aesthetically
differentiated
May'00 16,000,000 25 Market feedback from
retailers
2 Redesign wave-guide to
improve wave diffusion in cavity
in Libert line
Jun'00 12,000,000 48 Feedback from test-
kitchen
3 Change grill element material in
Libert to make it longer-lasting
Mar'00 7,000,000 12 Sales & Service
feedback
4 Modify HV power supply design
in both Egalit and Libert to be
tolerant of fluctuating or under-
voltage conditions in some
countries
Sep'00 5,000,000 36 Sales & Service
feedback
5 Reconfigure component layout
in Egalit line to reduce overall
volume occupied and develop
an Egalit-compacte model
Dec'00 12,000,000 72 Proposal from
marketing
6 Add halogen lamp grilling
capability to Egalit line
Jun'01 22,500,000 108 R&D proposal
7 Redesign the Egalit user
interface for faster user input
(one-touch cooking) and
expanded recipe offerings
Jun'00 13,700,000 18 All major competing
models have this
Exhibit 15: Ongoing Microwave Oven R&D Projects
*Calculated as of December 1999