Harvard Case - Rwanda Trading Company: Facing a Cash Flow Crisis
"Rwanda Trading Company: Facing a Cash Flow Crisis" Harvard business case study is written by Marlene M Reed, Kendall Artz. It deals with the challenges in the field of Entrepreneurship. The case study is 6 page(s) long and it was first published on : Jun 1, 2017
At Fern Fort University, we recommend Rwanda Trading Company (RTC) implement a comprehensive strategy to address its cash flow crisis, focusing on improving operational efficiency, optimizing inventory management, and securing additional financing. This strategy should be implemented through a combination of short-term and long-term measures, prioritizing immediate cash flow stabilization while laying the groundwork for sustainable growth.
2. Background
Rwanda Trading Company (RTC) is a rapidly growing import-export business in Rwanda, facing a severe cash flow crisis despite strong sales. The company?s success has been fueled by its entrepreneurial spirit, innovative approach to sourcing products, and effective marketing strategies. However, rapid expansion has led to challenges in inventory management, inefficient operations, and a reliance on short-term financing. This has resulted in a precarious financial position, jeopardizing the company?s future.
The case study focuses on the company?s founder, Jean-Claude, and his efforts to navigate this crisis. He faces the challenge of balancing immediate cash flow needs with the company?s long-term growth aspirations.
3. Analysis of the Case Study
The case study highlights several key issues contributing to RTC?s cash flow crisis:
Financial:
- High inventory levels: RTC?s rapid growth has led to overstocking, tying up significant capital in inventory. This is exacerbated by the company?s reliance on a single supplier and lack of robust inventory management systems.
- Short-term financing dependence: RTC relies heavily on short-term loans and trade credit, leading to high interest expenses and a vulnerable financial position.
- Inadequate financial planning: The company lacks a comprehensive financial plan, including cash flow projections and budgeting, hindering proactive management of financial resources.
Operational:
- Inefficient operations: RTC?s rapid expansion has outpaced its ability to implement efficient operational processes, leading to inefficiencies in procurement, warehousing, and logistics.
- Lack of technology adoption: The company relies on manual processes for inventory management, accounting, and customer relationship management, hindering efficiency and hindering data-driven decision-making.
Strategic:
- Limited market diversification: RTC?s focus on a single supplier and limited product portfolio exposes it to risks related to supply chain disruptions and market fluctuations.
- Lack of a formal growth strategy: The company?s rapid growth has been driven by entrepreneurial instinct, but lacks a structured strategy for sustainable expansion and market penetration.
Key Frameworks:
- Porter?s Five Forces: Analyzing the competitive landscape in the import-export industry in Rwanda will help identify opportunities for differentiation and competitive advantage.
- Value Chain Analysis: Mapping the company?s value chain will identify areas for improvement in efficiency, cost reduction, and value creation.
- Financial Ratio Analysis: Analyzing key financial ratios like liquidity, profitability, and efficiency will provide a quantitative assessment of the company?s financial health and identify areas for improvement.
4. Recommendations
To address RTC?s cash flow crisis and ensure sustainable growth, we recommend the following:
Short-Term Measures:
- Inventory Optimization: Implement a robust inventory management system, including ABC analysis, reorder point calculations, and just-in-time (JIT) inventory management techniques. This will reduce overstocking, free up cash, and improve operational efficiency.
- Negotiate Payment Terms: Negotiate longer payment terms with suppliers and customers to improve cash flow management. This could involve exploring trade credit options or offering discounts for early payments.
- Secure Additional Financing: Explore short-term financing options like invoice discounting or factoring to alleviate immediate cash flow pressures. This should be done strategically, considering the associated costs and risks.
- Cost Optimization: Identify and implement cost-saving measures in areas like procurement, warehousing, and logistics. This could involve negotiating better prices with suppliers, optimizing warehouse space, or exploring alternative transportation options.
Long-Term Measures:
- Develop a Comprehensive Business Plan: Create a detailed business plan outlining the company?s long-term goals, growth strategies, and financial projections. This will provide a roadmap for sustainable growth and attract potential investors.
- Invest in Technology: Implement technology solutions for inventory management, accounting, and customer relationship management. This will improve efficiency, streamline operations, and provide valuable data insights for decision-making.
- Diversify Product Portfolio: Expand the product portfolio to offer a wider range of goods, reducing dependence on a single supplier and mitigating risks associated with market fluctuations.
- Explore New Markets: Expand into new markets within Rwanda or explore export opportunities to other African countries. This will diversify revenue streams and drive growth.
- Build Strong Partnerships: Develop strategic partnerships with suppliers, distributors, and logistics providers to improve efficiency, access new markets, and reduce costs.
- Develop a Formal Growth Strategy: Create a structured growth strategy outlining the company?s target markets, competitive positioning, and expansion plans. This will provide a clear roadmap for sustainable growth.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Mission: The recommendations align with RTC?s core competencies in sourcing, marketing, and distribution, and support the company?s mission to provide high-quality goods at competitive prices.
- External Customers and Internal Clients: The recommendations focus on improving customer service, product availability, and operational efficiency, enhancing customer satisfaction and employee morale.
- Competitors: The recommendations aim to strengthen RTC?s competitive position by improving efficiency, diversifying product offerings, and expanding into new markets.
- Attractiveness: The recommendations are expected to improve liquidity, profitability, and growth potential, making the company more attractive to investors and lenders.
6. Conclusion
By implementing these recommendations, RTC can effectively address its cash flow crisis, improve operational efficiency, and position itself for sustainable growth. The company?s entrepreneurial spirit, innovative approach, and strong market presence provide a solid foundation for future success.
7. Discussion
Alternatives:
- Downsizing: RTC could consider downsizing operations to reduce costs and improve cash flow. However, this would likely result in job losses and could damage the company?s reputation.
- Selling the Business: RTC could consider selling the business to a larger company or private equity firm. However, this would mean relinquishing control and potentially losing the company?s unique identity.
Risks and Key Assumptions:
- Implementation Challenges: Implementing the recommendations requires significant effort and commitment from the company?s leadership and employees.
- Market Volatility: The recommendations assume a stable market environment. Economic downturns or political instability could impact the company?s performance.
- Competition: The recommendations assume that RTC can maintain its competitive advantage in the market. Increased competition could affect the company?s profitability and market share.
8. Next Steps
To implement the recommendations effectively, RTC should:
- Establish a dedicated team: Form a cross-functional team responsible for implementing the recommendations and monitoring progress.
- Develop a detailed implementation plan: Create a detailed plan outlining the steps, timelines, and resources required for each recommendation.
- Secure necessary funding: Identify and secure the necessary funding to support the implementation of the recommendations.
- Monitor progress and make adjustments: Regularly monitor progress, identify any challenges, and make adjustments to the implementation plan as needed.
By taking these steps, RTC can navigate its current challenges, achieve sustainable growth, and secure its future in the Rwandan market.
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Case Description
This case is about a for-profit social enterprise in Rwanda named the Rwanda Trading Company (RTC) which purchases coffee beans from coffee growers in the country, roasts the beans and exports them to other coumtries. The company was begun in 2009 by Todd Brogdon who also managed the organization. The primary goals of the company were twofold: (1) Have a positive impact on the poorest of the poor in the country; and (2) To be profitable. RTC has been able to achieve these goals since its founding by working with the Rwandan coffee growers on a multi-year agriculturalo training program. All had gone well until the spring of 2016, when a German company named SRO which owned such coffee companies as Peet's Coffee & Tea and Green Mountain (which was owned by Keurig) decided to change the terms of its contract with RTC. A provision in the contract RTC signed with SRO was that their company would carry 180-day receivables. Brogdon immediately realized that this would lead to a serious cash flow problem that would threaten all of the good work they had been able to perform with the Rwandan coffee growers.
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