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Name – Anubhav Singh

Roll No - 0910010

Supply-Demand Management study of a


Sanitary Napkin Maker

1. Company Background
2. Market analysis & Demand Behavior
3. Production Details
4. Analysis
a. Calculate optimal inventory for finished goods & inventory
costs
i. Lead Time Demand
ii. Safety inventory
iii. Effect on Working Capital

b. Calculate optimal inventory of raw material & inventory costs


i. Lead Time Variability
ii. Lead Time Demand
iii. Safety Inventory
iv. Cycle Inventory
v. Effect on Working Capital

c. Product Mix Analysis

d. Effect of Government business


i. Lead Time Demand
ii. Safety inventory
iii. Optimal product mix between Government & private
iv. Effect on Working Capital

5. Conclusion
1- Company Background

Royal Hygiene is the maker of ‘She’ brand of sanitary napkins. ‘She Comfort’
brand was launched in the year 2003. The sanitary napkins were imported from
North America and sold under ‘She comfort’ Brand in India. By Jan 2005, a
manufacturing facility was created at Turbe near Mumbai, under the name Royal
Hygiene Care Pvt. Ltd. Recently the company shifted its production to Kandla,
Gujarat. The company saw a turnover of over Rs 25 crores for 2008-09. The
company is growing at an impressive rate and is aiming a 50 crore turnover for
2009-10.

2.a-Market Structure

Feminine Hygiene ironically has not been the priority of Indian women so for. As
of now, only 5% women use sanitary pads in India. In China, 55% women use
sanitary pads with a market potential of 4 Billion USD. There are 1300
manufactures in China compared to only 5 major manufactures in our country.
The penetration rate in developed countries is close to 100%.

Recently napkin usage has been promoted by Governments in various states by


way of free distribution of the products to women in Tier II cities and towns. This
has worked as an extra demand for manufacturers. The suppliers are selected
under bidding system and are assured a minimum fixed quantity to be supplied.
This demand stream does not require any marketing effort and has the potential
to provide significant contribution margin to the business.

The company maintains higher MRP than the other premium products in the
market. However, it provides volume offers to its customers to bring the average
price lower than competitors. The market is largely segmented into modern trade
(large retail houses) and retail (traditional general merchant and pharmacy
shops).

2.b- Main competitors:

Indian feminine hygiene market is estimated at Rs.1000 crores per annum


entirely dominated by large MNC’s like P&G, J&J & HUL. P&G, J&J manufacture
in India, where in the others like HUL are importing from China and
subsequently marketing in the country.

P&G is the market leader with its brand ‘Whisper’ holding more than 52%
market share followed by J&J at 39% and Levers at 5%. She Comfort enjoys 2%
market share. Balance 1% sales are shared by eleven smaller companies.

Modern trade (organized retailers) accounts for roughly 30% of its volumes.
However, the company is forced to give higher discounts to large retail houses.
Its contribution margin is lower for a market segment where it has lower
volumes at the moment. However this has paid off. Its brands are ranked no 2 or
3 by shelf space in the large retail format in key cities. In Bangalore it ranks 1st by
shelf space in key Pantaloon locations. Royal Hygiene Health Care has already
taken 3rd position (ahead of HUL) in terms of sales in this format of business in
an industry with roughly 11 players.

2.c- Demand Behavior

Sanitary napkin demand behavior is a boon for any manufacturer. It is used by


any user once in a month for an average of 4 days. So for a sizable group of
women, it can be safely assumed that the demand will be evenly distributed in a
month and the quantity required would be fixed. Once customer is satisfied with
the product, usage has almost no discretionary component and very high brand
loyalty due to personal nature of the product. The only change in demand should
really come from new customer additions. So if the company expects to double
its sales, it can be safely assumed that 50% of sales would have near zero
volatility and the rest 50% would have some volatility based on the firm’s speed
of customer addition (and product switch by new customers in the initial trial
stage).

3- Production Details

The company has source its production units from China. The ZYG type line that
the company deploys runs at the maximum speed of 200 pads/minute with the
normal steady operation speed of 150 pads/minute.
Size of the equipment: length: 10.5m x width: 1.5m x height: 2.4m
Weight of the equipment: about 4.5 MT

3.a- Plant Output Details

Providing
Designed Output for Monthly
Sr. Operationa
Description Speed Per breakdowns Output
No l Speed
(PPM) Shift - 75% Pcs
Efficiency
1 Panty Liner Machine 160 156 94,000 70,500 5,287,500
2 230 mm Regular Napkin Machine 150 140 84,000 63,000 4,725,000
3 284 mm Regular Napkin Machine 110 104 63,000 47,250 3,543,750
4 315 mm Regular Napkin Machine 100 88 53,000 39,750 2,981,250
5 284 mm Ultra Large Napkin Machine 210 200 120,000 90,000 6,750,000
6 315 mm Ultra Large Napkin Machine 210 200 120,000 90,000 6,750,000

*PPM – pieces per minute


*10 hour shift, 3 shifts a day, 25 days a month

The company has 3 production lines in their Kandla plant. As per the latest
estimates, the company has seen over 50% increases in its demands FOR 2009-10,
owing to market penetration and also due to Government contracts to supply
orders to low income and rural areas.

The production line is a single phase process. The machines are fully automated.
All the raw material (resin, pad, lining etc) are fed in the production line in
different parts of the process. The machines generate an average of around 150
pieces in a minute.

3.b- Sales data for 2008 calendar year

315mm 284mm 315mm 284mm 230mm Panty liner


2008 regular regular UL UL Regular SP 150
358,10 329,00 964, 599,00
Jan 0 0 949,200 280 637,770 0
457,56 593,10 1,182,55 773, 637,00
Feb 0 0 0 030 794,000 0
437,60 785,55 847,33 955, 986,65
Mar 0 0 0 900 764,800 0
481,26 404,50 979,56 1,061,8 1,132,60
Apr 0 0 0 00 755,800 0
309,20 816,73 799,86 1,117,6 793,34
May 0 0 0 50 1,093,500 0
811,15 399,70 1,469,10 970, 734,09
Jun 0 0 0 250 947,000 0
563,25 436,70 1,046,12 1,152,3 1,023,53
Jul 0 0 0 00 672,900 0
584,32 665,50 987,33 1,421,8 708,35
Aug 0 0 0 50 740,800 0
786,30 596,64 981,63 1,545,1 1,068,70
Sep 0 0 0 00 533,840 0
917,83 810,50 1,385,10 1,405,5 889,10
Oct 0 0 0 00 738,730 0
312,80 759,50 958,45 970, 804,24
Nov 0 0 0 900 882,870 0
18,30 42,2 1,505,32 1,081,7 1,223,30
Dec 0 00 0 00 859,750 0
6,037,67 6,639,62 13,091,55 13,420,2 10,599,90
Total 0 0 0 60 9,421,760 0
Avg Selling 3. 3. 4. 0.
Price 40 10 00 3.70 1.50 60
Total Sales 2.0 2. 5. 4 0.
(Rs crores) 5 06 24 .97 1.41 64
3.c- Demand Behavior Analysis

The company follows the standard sales and marketing mechanism prevalent in
the FMCG & FMHG (health goods) in the country. They sales are broadly
clubbed in 2 categories
• Modern Trade (large retail outfits like Pantaloon)
• Conventional Trade – Small General Merchant stores & Medical Stores

Wholesaler
(Medical industry Medical Stores
supply chain)

Wholesaler
Royal Hygiene
(FMCG supply General Merchant Stores
chain)

Large Retail Outfit

The large formats like Pantaloon are supplied directly. The smaller retails outlets
have the FMCG and the medical industry supply chain. As of now the FMCG
segment shows faster movement of goods than the medical line. However, in the
long run, based on experience of other manufacturers both lines are expected to
deliver similar sales.
Summary Statistics – Sales

Panty
315mm 284mm 315mm 284mm 230mm liner SP
2008 regular regular UL UL Regular 150
Mean 503,139 553,302 1,090,962 1,118,355 785,147 883,325
Min 18,300 42,200 799,860 773,030 533,840 599,000
1,093,50
Max 917,830 816,730 1,505,320 1,545,100 0 1,223,300
Std Dev 251,638 231,961 241,580 228,717 138,608 202,531
Coefficient
of variation 50% 42% 22% 20% 18% 23%

The demand data shows a high degree of variability. As had been mentioned
earlier, the nature of the product usage does not warranty such variability.

Bullwhip effect – Inefficiencies in the Supply Chain

The promoters of the company agree about the stable usage behavior of the
product by end customer. They observed that their demand was coming from the
wholesalers and the manufacturers had made little progress in demand
estimation from them. The large retail buying behavior was much more stable. A
key reason is that for wholesalers in both the chains of medical and FMCG stock
a variety of goods. Sanitary napkins are a very small component of their total
turnover. Besides, they do not have systems and processes that can analyze flow
rates behaviors of various products. Typically the onus of demand management
lies with the manufacturer. Large MNCs like HUL and ITC have developed
sophisticated mechanisms to manage the demand side supply chain. For smaller
manufacturers the movement of goods follows ‘rules of thumb’.

Observations of Manufacturer

There were some observations made by manufacturers which led me to conclude


the following on the demand management issues for the entities in the supply
chain –

Medical Supply Chain –

• Retailers – Chase Strategy


• Wholesalers – Level Strategy with seasonality in purchase.
This behavior is affected by the seasonal nature of some pure medicines (for
example some diseases are more common in summers). This mindset of
medicine ordering spills over in the napkin stocks.

FMCG Supply Chain –

• Retailers – Chase strategy


• Wholesalers – Level Strategy led by forced behaviors of FMCG giants.
It is a common practice followed by large FMCG firms in India where sales
managers push the products to the wholesalers in the last week of every
month. This behavior gets magnified in quarter or year end. Typically the
wholesalers’ demands dip for Royal Hygiene’s products in those periods.

Large Retail Format –

The manufacturers are very satisfied by the efficiency and stability of demand
behavior of the large retails (though the pricings involve a lot of negotiations).
The company’s products enjoy the highest shelf space in some of Pantaloon’s
stores in Bengaluru and Delhi. This has earned the manufacturer credibility from
Pantaloon. The purchase strategy has seen focus from senior managers of
Pantaloon for Royal Hygiene’s products.

4.a- Inventory Analysis – Finished Goods

Capital
Inventory blocked -
Mean Stdev of Lead Safety Safety Carry Finished
monthly monthly Time stdev Service Inventory Inventory Cost Goods
Product demand demand Demand of LTD level (units) (Rs lacs) (Rs lacs) (Rs lacs)
503,1 251,63 251,57 177,93
315mm regular 39 8 0 5 90% 228,033 7.0 1.0 8.0
584,9 174,73 292,47 123,55
284mm regular 52 6 6 7 90% 158,345 4.4 0.0 4.4
1,090,9 241,57 545,48 170,82
315mm UL 63 9 2 2 90% 218,917 7.9 0.0 7.9
1,118,3 228,70 559,17 161,72
284mm UL 56 7 8 0 90% 207,252 6.9 0.0 6.9
785,1 138,59 392,57 98,00
230mm Regular 41 6 0 2 90% 125,594 1.7 0.0 1.7
Panty liner SP 883,3 202,55 441,65 143,22
150 18 6 9 9 90% 183,555 1.0 0.0 1.0
Total 28.9 1.0 29.8
Assumptions – Lead Time– 0.5 month (same as lead time for local suppliers of raw material)
Cost of funds for inventory carry cost = 14% (interest on working capital loan)
Service Level for estimating safety inventory – 90%

*Cycle Inventory estimates

As per discussions with the promoter, it did not seem that the firm consciously
categorizes its finished goods inventory as cycle and/or safety inventory. Given
that their lead time to supply is around half month, cycle inventory has been
estimated below.

Mean Mftg
monthly Costs Cost of
demand (Rs per Icycle
Product (units) unit) (Rs lacs)
315mm 503,13 7.7
regular 9 3.06 0
284mm 584,95 8.1
regular 2 2.79 6 Holding Costs for Cycle
1,090,96 19.6 inventory @14% = Rs 8.7 lacs
315mm UL 3 3.6 4
1,118,35 18.6
284mm UL 6 3.33 2
230mm 785,14 5.3
Regular 1 1.35 0
883,31 2.3
Panty liner 8 0.54 8
Total 61.80

The total Finished Goods Inventory related costs estimates comes to –


Safety + Cycle [including their holding costs] = Rs 1crore (approx)

Working Capital & Inventory – actual data:

Average
Holding
(months Rs
Inventory ) lacs
Raw material (imported ) 3 234.00
Raw Material (local) 1 10.72
Finished goods 1 194.90
As per the company’s figures it has finished goods inventory of almost double
the size of the estimates of the optimal inventory.

Reasons for Deviation –

1. The study assumes 1 kind of buyer. However, there are 3 distinct lines of
buyers – FMCG line, FMHG & Large retails. Ideally the demand
variability should be estimated separately for each line. Analysis should
also be done by product lines (315 mm or 214 mm etc). However the
detailed data break up was not available.

2. Holding Period – while the lead time to ship the products is about half
month, the firm maintains 1 month of cycle inventory. This is a function of
their sales & marketing strategy. The company has set a target to double
its turnover this year and has been growing at over 50% rates for the past
2 years. They have also gone for aggressive advertising campaigns. In this
scenario the concept of mean monthly demand doesn’t hold for the firm.
It would like to see a significant increment in its sales every month. At
this stage the firm believes that it has to push its products aggressively to
the retailers. They have achieved success in key areas with Pantaloon
stores.

4.b-Inventory Analysis – Raw Material

Raw Material Details

The raw materials for the napkins are all imported. Over 90% of the material
comes from Europe and the rest from China. The packaging material is procured
locally. The table below shows the supply behavior of the imports and locally
procured raw material. Given that the company is young and growing and also
short of funds (the company invited investments from investors last year and is
looking for fresh investments), the lag time on its raw materials supply is a
hindrance that ties up its crucial capital.
Sr. Lead
No Raw Materials Source Time
1 Fluff Pulp Imported 74 days
2 Super Absorbent Polymer Powder Imported 90 days
3 Perforated Film Imported 42 days
4 Air Laid Material Imported 42 days
5 Non Woven Imported 42 days
6 PE Back Sheet Imported 74 days
7 Release Paper Imported 74 days
8 Hot Melt Adhesive Imported 42 days
9 Pouch Film Imported 74 days
10 Adhesive Release Sticker Imported 30 days
Packaging Material
1 Poly Bags Local 30 days
2 Carton Boxes Local 15 days
3 BOPP tape Local 15 days

The tables below show the consumption details and selling price at the unit level.
The company makes 6 types of products and currently has widest bouquet of
products made in India. Whisper, the market leader gets some of its product
lines from China.

Raw Materials Consumption Rs


Product - 1 (SAP 315MM-REGULAR) 1.62
Product - 2 (SAP 284MM-REGULAR) 1.50
Product - 3 (SAP 315MM-ULTRA LRGE) 1.73
Product - 4 (SAP 284MM-ULTRA LRGE) 1.47
Product - 5 (SAP 230MM-REGULAR) 0.61
Product - 6 (SAP 150MM-PTE LINER) 0.27

Net
Selling Direct Direct Packing
Type of Napkin Price material Labor material
315mm regular 3.40 1.62 0.20 0.15
284mm regular 3.10 1.50 0.18 0.15
315mm UL 4.00 1.73 0.20 0.13
284mm UL 3.70 1.47 0.18 0.10
230mm Regular 1.50 0.61 0.10 0.17
Panty liner SP
150 0.60 0.27 0.06 0.05

Raw Materials Breakup for 315mm regular & ultra large

The 315mm product categories are the object of the analysis. Focus has been to
study the raw material consumption details of the 2 categories and the impact on
the supply side inventory behavior and the recommended optimal inventory
position given the lead times and the demand for the product. The inventory
analysis has been finally carried over the entire product range.

Raw Materials 315 regular 315 ultra large


Fluff Pulp 17.5% 0.31 24% 0.45
Super Absorbent Polymer Powder 1.2% 0.02 1.6% 0.03
Perforated Film 5.1% 0.09 1.1% 0.02
Air Laid Material 5.6% 0.10 1.1% 0.02
Non Woven 41.9% 0.74 43.5% 0.81
PE Back Sheet 6.8% 0.12 7.5% 0.14
Release Paper 2.8% 0.05 3.2% 0.06
Hot Melt Adhesive 3.4% 0.06 3.8% 0.07
Pouch Film 3.9% 0.07 3.8% 0.07
Adhesive Release Sticker 3.4% 0.06 3.2% 0.06
Total 92% 1.62 93% 1.73
Packaging Material
Poly Bags 4.0% 0.07 3.2% 0.06
Carton Boxes 3.0% 0.05 2.7% 0.05
BOPP tape 1.7% 0.03 1.1% 0.02
Total 8.7% 0.15 7.0% 0.13
Overall Total 100% 1.77 100% 1.86

For simplification, raw materials are broadly classified into three categories –

• R1 - Lead Time > 70 days, average = 75 days


• R2 - Lead Time between 30-70 days, average = 40 days
• R3 - Lead Time <30 days, average = 15 days

Raw materials are clubbed on the basis of their lead time. The approximate breakup
composition of their usage across products is 55%, 45%, 10%.
2008
(Rs) R1 R2 R3
3,268,49 2,674,21 594,27
Jan 0 9 1
3,622,03 2,963,48 658,55
Feb 1 0 1
3,397,38 2,779,67 617,70
Mar 1 5 6
3,289,24 2,691,20 598,04
Apr 4 0 4
3,456,73 2,828,23 628,49
May 5 8 7
4,039,53 3,305,07 734,46
Jun 7 6 1
3,393,29 2,776,33 616,96
Jul 6 3 3
3,676,65 3,008,17 668,48
Aug 7 4 3
3,692,18 3,020,87 671,30
Sep 1 6 6
4,755,32 3,890,72 864,60
Oct 8 3 5
3,310,90 2,708,92 601,98
Nov 7 4 3
3,072,49 2,513,86 558,63
Dec 6 0 6
Rs
lacs R1 R2 R3
Total 429.74 351.61 78.14
Mean 35.81 29.30 6.51
Min 30.72 25.14 5.59
Max 47.55 38.91 8.65
Std
Dev 4.5 3.7 0.8
Rs lacs
Capital for
Mean Stdev of Lead Cycle Inventory carry cost &
monthly monthly Time Stdev of Service Safety Holding safety
Product demand demand Demand LTD level Inventory Cost inventory
R1 35.81 4.5 89.53 7.1 90% 9.1 1.27 10.36
R2 29.30 3.7 39.07 4.5 90% 5.8 0.81 6.56
R3 6.51 0.8 3.26 0.6 90% 0.7 0.10 0.84
*EOQ estimates

The company could not provide data on the costs it incurs for ordering. As a
thumb rule, we assume that the firm should purchase 1 month of supplies in a
single order. The estimates of cycle inventory are as follows –

Cycle Inventory = mean monthly demand/2 = (35.81+29.30+6.51)/2 = 35.81

Total Capital required for Raw Material Inventory related costs –

Cycle + Safety + Holding = Rs 53.57 lacs

Working Capital & Inventory – actual data:

Average
Holding
(months Rs
Inventory ) lacs
Raw material (imported ) 3 234.00
Raw Material (local) 1 10.72
Finished goods 1 194.90
*monthly inventory data was not available

As can be inferred from the calculations above, the company maintains almost 4
times inventory than what seems to be the optimal inventory level. Given the
lead times it has observed from its suppliers, a raw materials inventory over Rs 2
crores is not warranted. Given its cash flows, the company cannot afford to block
its capital in inventory.

Reasons for deviation –


1. Holding Period: The analysis assumes that the company should order 1
month of supplies. However, the firm’s data suggests a holding period of 3
months. Given the lead times in supplies the optimal figure should lie
somewhere in between. Even then the firm would be storing about Rs 1
crore more of inventory than would be required.
2. Currency Risk: The firm imports most of its raw materials from Europe
and some from China. Re volatility has been a real risk, especially in the
last 18 months. As of now the company does not intend to drain resources
in currency risk management and prefers to buffer its safety inventory.
Given the production volumes, it might be a prudent step.

4.c – Product Mix Analysis

The product contribution details based on the variable manufacturing costs and
production quantity per minute are given below –

Net Variable Production Average


Selling cost per Contributio Production Contribution
Product Type Price unit n per minute per minute
315mm regular 3.94 1.97 1.97 117 230.5
284mm regular 3.85 1.83 2.02 105 212.1
315mm UL 3.00 2.06 0.94 78 73.3
284mm UL 3.61 1.75 1.86 66 122.8
230mm Regular 1.83 0.88 0.95 150 142.5
Panty liner 1.15 0.38 0.77 150 115.5
*Sales & marketing cost are assumed to be fixed, since marketing campaigns are focused uniformly on the
‘She’ brand rather than individual product lines.

The 315mm and 284mm regular lines show the highest contribution rate.
However the sales data show them to be ranking 4th and 5th by sales. The net
selling price for the 284mm UL seems to be disproportionately high compared to
other products based on the size and material consumed. The company probably
has not focused on the contribution rate generated by the products. With its
rapid growth plans it would be prudent for the firm to push the products with
the highest contribution rate to improve its bottom line. While the preferences of
consumers should be the primary driver, for new customers, right product
positioning based on bottom line contribution should be adopted. This would
also require co-ordination with the sales and marketing team. As of now the firm
has been advertising the ‘She’ brand as a single entity. The large MNCs have
much more sophisticated campaigns, promoting individual product lines. Royal
Hygiene has to develop its product differentiation strategies to maximize its
profitability.
4.d- Government Contract

The State Governments have recently put a lot of emphasis on feminine hygiene.
The Government has laid put promotional programs to distribute sanitary
napkins free of cost in low income and rural areas.

The Government follows a bidding system for a pre-determined supply quantity.


Under the Government purchase agreement, suppliers get a fixed fee per month
and the production costs. The company supplies the regular line of its napkins
products.

At this stage the Company has capacity to cater to its private and public sector
demands. However, in near future the company will be forced to rationalize its
production mix. While the Government contracts are expected to reach as high as
20% in the near future, the promoters are hesitant to increase their production
capabilities on the back of Government contracts. In the short term till the private
sector demand mandates a ramp up in production capabilities, the company will
have to streamline its production process to optimize its returns.

Product Mix Problem

• Government Demand

Costs for Government production-


o Direct Material +
o Direct Labor +
o Production Overheads
= Production costs.

There is a provision for a fixed fee over the production costs. There is a slight
reduction in direct material costs, as the company does not provide the premium
packaging that it provides for the private sector products. The company also
does not incur sales and marketing costs for the Government supply.
As per the contracts, the company won’t earn any contribution over its variable
costs to Government supplies. However, it is able to contribute towards
recovering its fixed costs based on the fixed fee received. Therefore it is
recommended that the firm bids for the contracts based on variable costs of its
cheapest products 230mm & 284mm regular lines (panty liners are not procured
by Government). This would maximize its chances of winning the bids.

5. Conclusion

Royal Hygiene is in a lucrative market where there are tremendous opportunities


of growth. The firm’s growth has been impressive. Their sales strategies seem to
have shown impressive results. With a little revaluation of their operations they
can improve their performance and meet their growth targets. The following
areas need some re-calibration of their efforts –

• Aggregate Sales & Operations Planning – the firm is facing the classic
case of uncertain demand from its wholesalers for products whose
consumption pattern would probably show the least variability in the
market. The inefficiencies in the supply chain lead to sub-optimal
inventory levels & probably also misallocation of sales force in promoting
the wrong products.

o Coordination of efforts for sales estimation – The firm needs to


expend efforts in collecting point of sales data and collaborate with
demand side supply chain to coordinate its sales and operations.
With the large retail chains, the demand flow is much smoother.
The efforts need to be focused on retail trade in both the FMCG and
medical supply chain.

o Inventory Management – The firm can reduce its raw materials


inventory by approximately Rs 1 crore. The working capital
funding cost is 14% which is not insignificant. While the finished
goods inventory is also on the higher side, given the growth
strategy, it is not recommended that they reduce it. The firm still
needs to grow its footprint in some regions of the country, and this
might actually lead to increase in finished goods inventory. The
cost savings on the supply side could be channelized towards
market expansion and products push in the market.
o Lead Times of Suppliers – As all the raw material is imported, there
would be little chance of improvement on the lead times. The firm
has already begun to make one of its raw materials in house,
leveraging its promoters engineering background (beyond the
scope of this study). The firm should continue to expend its energy
on this front and focus on product and process innovation as this
would be the key to its survival.

o Waste reduction – Precise data was not available on rejection rates


of the products. But given the nature of the product (the product
has foldable wings and flaps and a napkin has three layers of
covers which are stuck together with a special glue, the rejection
rate of the production process is high. Since this is a single phase
production process, improvement in this area would require
innovative ‘tweaking’ to the ZYG machines. The team had done
such changes in the pulp slice width that would suit the Indian
customer requirements. Similar customization with focus on waste
reduction can be a significant driver of profitability.

• Overall Manufacturing Capabilities – Based on conversations with the


promoter, I would place the manufacturing set up in Stage II. The
production facility was shifted from suburbs of Mumbai (with rampant
power outages) to Kandla where the firm has seen significant savings in
electricity and transport. Kandla is an exporters’ hub. Railways have
heavy traffic from hinterlands to Kandla for exporters. Railways give
significant discounts on its return freights towards hinterland. Overall the
manufacturing set up is placed competitively to other manufacturers.
However, there are opportunities in process design and sales and
inventory rationalization to enable manufacturing to provide a strategic
advantage. The Cap Ex related barriers to entry in this business are low.
The growth opportunities are likely to invite other players. In such a
scenario it becomes all the more important that the firm develops strategic
advantage through improving its production and sales process.

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