Kanann: CIMA OCS Preseen May & Aug '24

Introduction

In the saddle manufacturing industry, tradition often intertwines with innovation, creating a landscape where craftsmanship is as valued as modern technology. Kanann, a company with deep-rooted history in saddle making, finds itself at a pivotal point, needing to embrace change to meet the evolving demands of the equestrian market.

Industry Overview

The equestrian market in Keeland is flourishing, contributing significantly to the GDP, with a notable percentage of households owning horses​​. Saddle makers cater to this market by selling to wholesalers and retailers, rarely directly to end-users. The trend of riders owning multiple saddles for specific disciplines has driven global sales, indicating a market shift towards specialized products​​.

Global Trends and Developments

Saddle manufacturing is diversifying, with a high concentration of makers in regions with long equestrian traditions. The industry is witnessing a move towards more automated production techniques, especially in areas like leather cutting. However, the craftsmanship in stitching and assembly remains reliant on skilled labor​​. Design improvements are also notable, with the incorporation of high-tech materials like carbon fiber to create lighter and stronger saddle trees​.

Internal Dynamics at Kanann

Kanann's journey in the saddle manufacturing industry has been marked by a commitment to traditional craftsmanship. The company operates a single production facility, where the entire process, from cutting to packing, is meticulously carried out​​. Despite a move towards automation in areas like leather cutting, the essence of Kanann's production relies heavily on the skilled hands of its artisans​​.

The company's financial management practices reflect a similar traditional approach. With non-integrated financial recording systems and a standard absorption costing system, Kanann's financial operations require regular reconciliation and updating to remain accurate​​.

Limitations and Areas for Improvement

While tradition is a valuable asset, Kanann's reluctance to innovate has led to certain limitations. The company's general-purpose saddles, with their more traditional design, struggle to compete in a market that increasingly favors specialized products for specific equestrian disciplines​​. This has resulted in limited appeal in modern markets and a relatively small market share in Keeland, despite the flourishing equestrian sector​​.

Moreover, Kanann's sales channels and distribution methods, while effective in maintaining close relationships with wholesalers and retailers, may benefit from embracing direct-to-consumer sales and digital marketing strategies to expand their market reach​​.

Financial Reporting and Costing Systems: Further Insights

Kanann's financial systems exhibit a traditional approach that may not fully cater to the needs of modern business analytics. The lack of integration in the financial recording systems necessitates regular reconciliations, which can be time-consuming and prone to errors. Additionally, the company's use of a standard absorption costing system based on direct labor hours, with a single fixed absorption rate, may not accurately reflect the true costs of production, especially in an industry where materials and labor can vary significantly between products​​.

The company's record-keeping practices are not sophisticated, with materials like webbing simply allocated to "production" rather than to specific saddles. This approach undermines the accuracy of cost allocation and product profitability analysis. Furthermore, the traditional view that "a saddle is a saddle" has historically led to a simplistic approach to costing, where the cost of a saddle was calculated as total costs for the year divided by the number of saddles produced. While there have been efforts in recent years to refine the system, such as recording direct labor times per saddle and specific materials needed for each type of saddle, there is still room for improvement to provide more useful management information​​.

Order Processing Systems: Room for Modernization

Kanann's current order processing system relies on traditional methods, with orders from wholesalers and retailers received via email, phone, or in person. The sales team's efforts to maintain close relationships through regular visits are commendable, yet the system could benefit from modernization​​. Implementing a more streamlined, digital order processing system could enhance efficiency, reduce errors, and provide real-time insights into sales trends and inventory management. Additionally, exploring online platforms for direct-to-consumer sales could open up new revenue streams and broaden the customer base.

Suggested Improvements

To secure a stronger position in the competitive saddle manufacturing industry, Kanann should consider the following improvements:

• Product Innovation: Embrace the trend towards specialization by developing a range of saddles tailored to specific equestrian disciplines. Incorporating high-tech materials and design improvements can enhance performance and appeal to a broader market​​.
• Modernize Production: Further automate production processes to increase efficiency and reduce reliance on manual labor. This could involve investing in advanced machinery for leather cutting and assembly​​.
• Enhance Financial Systems: Upgrade financial recording systems to integrate different areas of the business. Adopting more sophisticated costing methods, such as activity-based costing, can provide more accurate and useful management information, enabling better decision-making and product pricing strategies​​.
• Streamline Order Processing: Implement a digital order processing system to improve efficiency, accuracy, and customer satisfaction. Consider developing an online platform for direct-to-consumer sales to expand market reach and diversify sales channels.

By addressing these limitations and embracing a fresh perspective, Kanann can navigate the equestrian market with renewed vigor, ensuring that its rich heritage is complemented by a forward-looking approach to saddle manufacturing.