4. Applying a Backward Vertical Integration Strategic
Approach (BVISA) through advanced technology:
• This value proposition report focuses on a Backward Vertical Integration Strategic Approach (BVISA) which makes use of advanced technology
in specific areas of Unilever Southern Africa’s value chain particularly focusing its manufacturing operations with regard to the products it
makes locally and their individual inherent supply chains in respect to raw materials used in the manufacture of said products.
• The BVISA Project Proposal basically refers to the implementation of new direct product packaging printing technology in current Unilever
Factories to replace the usage of 3rd party vendor packaging materials such as labels(shrink Sleeves, Self Adhesive, Screen Printed Containers
etc). The effect of implementing new technology in the form of tangible machinery takes on the form of a Backward Vertical Integration
method. Such new technology involves using KRONES AG’s new DECOTYPE Direct Printing Machinery.
• The DECOTYPE BVISA can be said to be a Project Decision for Unilever at a Strategic level. This BVISA Project Proposal encompasses the
following key decisions in a Project Financial Management Scenario namely:
1. Investment Decision: Why should a DECOTYPE BVISA project be undertaken?
2. Financing Decision: How should the necessary funds be raised to implement a DECOTYPE BVISA Project?
3. Dividend Decision: How much/if any cash should be allocated each year as a return to shareholders taking into account the effect of the
DECOTYPE BVISA Project on current cash reserves and the capacity to allocate returns as well as the amounts to be retained in order to
facilitate a smooth integration of the DECOTYPE BVISA Project.
*Please note: This report is externally generated, thus financial modelling and other Quantitative Data and measures will not be investigated with regard to the above factors in the DECOTYPE BVISA
Project since such information can only be obtained internally and is highly sensitive and confidential. Therefore this value proposition report will focus on purely Qualitative aspects regarding the
DECOTYPE BVISA Project.
5. 1. Investment Decision
• The DECOTYPE BVISA Project will require substantial funds to implement, thus it is imperative to highlight the short and long term returns that will be reaped with the
project implementation.
• Key Financial benefits to the implementation of the DECOTYPE BVISA Project will include:
1. Increase in Profits through cost reduction
> In the ultra competitive Fast Moving Consumer Goods (FMCG) Industry, reducing unit costs to maintain competitive prices while still maintaining great profit
margins is critical concern. The DECOTYPE BVISA Project will reduce unit costs by effectively removing the 3rd Party Suppliers’ mark-up on direct raw material
components such as Labels and other direct Packaging which account for a larger percentage of a products final ‘LOOK’.
2. Minimal Investment Payback Period
Given the Billions of product units per each Unilever Brand being produced, the direct cost benefit will be highly material in nature and the opportunity cost savings
should yield a positive cash flow figure in a short time. Also, KRONESAG would probably endorse the technology at a lower price to Unilever as they would possibly aim
to use the successful implementation of the DECOTYPE Technology at Unilever as a Marketing Platform to showcase to the world the benefit of the DECOTYPE
Technology. Thus the capital expenditure would be minimal as a joint venture could be entered into with KRONES AG whereby they would bare some of the capital
costs or reimburse Unilever in the form of rebates on the Machine once it proves to be highly successful. Thus from a risk point of view, the DECOTYPE BVISA Project
should not hinder Unilever’s Financial Position in a material way.
3. Smoothing the variability of Cashflows.
Implicit costs that cannot be directly/openly traced such as the costs negotiating/renegotiating trade contracts such as forward contracts, quantity rebate structures.
For example if demand exceeds projected supply and more labels are required but which fall out the negotiated quantity contract with a vendor, Unilever may need to
pay a premium for short notice order, or hold meetings with Vendors to discuss new terms reflecting the latest demand figures while in real time it faces losing sales on
a national scale. Therefore regarding product related variable costs, the DECOTYPE BVISA Project would reflect a positive relevant cost saving.
In terms of smoothing the variability of cashflows to Unilever Investors are concerned, the DECOTYPE BVISA is unlikely to affect the cash reserves of Unilever or its
financial position in a material manner since the DECOTYPE BVISA Project would be implemented in a Pilot or phased method to the most relevant factories first.
