Conduct some research to explain the value of cost classifications for IL and how this may assist Tom Cat in improving their decision-making processes.?

The story of the Innovation Ltd. (IL)starts with itsfounder Tom Cat. It’s a story that impresses and inspires, encourages and heartens: a story of determination and tenacity, of unfailing vision and unwavering focus of one man who, 48% against all the odds, found a way of changing an industry. IL Founder, Tom Cat had a unique vision - he wanted to offer consumers the finest tea based products on earth and to do so with ethics and integrity. Tom Cat consistently delivers on his commitment to sharing the finest and most authentic cup of tea and tea based-products while being true to their very strongly-held principles of doing business as a matter of human service. With a humble beginning IL emerged as a major manufacturer of tea-based drinks and desserts in Australia. Tom Cat’s vision is to establish the company as a premier brand in the Australian tea-based product market. 

The company produces and sells iced tea drinks, teaflavoured ice-cream and tea-flavoured confectioneries. The market faced by IL is dynamic and highly competitive. Driven by growing interest in healthy ready-to-drink beverages and the increasing health consciousness among baby boomers and younger adults, IL enjoyed a fourfold increase in sales between 2012 and 2018. However, the company faces fierce competition from new local and international competitors for retail shelf space in supermarkets and other retail outlets. IL’s competitors offer fast delivery from local production center’s and/or lower prices in their bid for shelf space. Without sustaining its hardly earned share of shelf space in retail outlets, IL cannot maintain its momentum. To tackle the challenges posed by its competitors, IL places a strong emphasis on research and development. 

The company has a 15-person research team in its headquarters. The research team maintains close working relationships with CSIRO Food and Nutritional Sciences and the Monash University and has a good track record in developing successful new products for the company. Some of IL’s new products developed by the team include tea-flavoured chillers and tea-flavoured ice cream. These products played a key role in allowing the company to achieve the exponential sales growth in the last six years. Materials used in the production of IL’s products are acquired from a variety of sources. IL imports JAS certified organic tea leaves from Japan for its premium tea product lines and Rainforest Alliance certified tea leaves from Kenya for other products. Spices are imported from India, while additives and other chemical products used in production are imported from the United States and France. For fresh produce and packaging materials, Australian products are used. All materials are ordered by the corporate procurement manager and are delivered to the warehouses of the manufacturing plants directly. IL is based in the state of Victoria. The company has its corporate headquarters in South Yarra under a long term lease and all production takes place in wholly-owned manufacturing plants in Dandenong, Keysborough and Clayton. The company currently employs more than 1,300 employees and around 80% of them are based in the three manufacturing plants. Each manufacturing plant operates as a separate business unit and produces a range of products. 

For example, the Dandenong plant produces iced chai tea chillers, iced peach tea and green teaflavored ice cream. Each plant has a comprehensive range of processing, packaging and storage facilities, and runs its own fleets of trucks for the transportation of materials and distribution of products. Production of all IL’s tea-based products begins with extraction of tea extract from tea leaves. Tea leaves are cleaned, batched and extracted with an integrated single-pass tea extraction system which is installed in each plant. The system produces tea extract which is cooled, clarified and formulated for further processing. The tea extract is subsequently used as the base for tea drinks and as an additive for other tea-based products such as ice-cream.Further processing of tea-based products is marked by high degree of variation. Each type of tea-based product has certain unique manufacturing processes. For example, production of teaflavoured ice-cream involves pasteurization, homogenization and ageing processes and the production of tea drink requires coagulation, filtration, and chlorination of water. Equipment associated with those unique processes (e.g. pasteurizer) is used in the production of relevant products (e.g. ice-cream) only. Some manufacturing processes such as mixing and cooling are shared by multiple products but at different stages of their production. 

For example, mixing process takes place at the beginning of the production of tea-flavoured ice-cream but occurs in the middle of the production of tea-flavoured lollipop. As such, capacity management of shared equipment like mixers and coolers has become a major issue for the company. To cope with the complexity in its manufacturing operations, IL invests heavily in flexible manufacturing systems and information technology. Each plant has its own computerbased information system that is connected to the central mainframe computer at the headquarters. IL sells its products directly to retailers through its well-established national sales force. Tom Cat puts a lot of effort into development of IL’s sales force. The company currently has a network of sales offices in all eight states and territories of Australia. Each state/territory sales office has a regional sales manager and a team of 20 - 30 sales representatives. 

The regional sales managers are directly responsible to Tom Cat. The company also has a 24-person corporate marketing team headed by Tom Cat himself, a team that comprises a small number of staff dealing with customer queries and complaints. IL’s sales force gives the company a competitive edge in the competition for retail shelf space.

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