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BACKGROUND Grow or die is a well-known business adage that symbolizes why many firms have a
long-term goal of significant growth. Market share is a common indicator of firm
growth within an industry, and most firms attempt to obtain increasingly higher
amounts of market share. Capacity increases are usually required to satisfy any major
increases in market share, yet market share does not always equate with profitability
and competitiveness.
This Case Study is a classical business problem which P&G faced when it decided to
go for Value correction to the extent of 50% in its Laundry Business namely Ariel and
Tide.
Hence, started…
It was not just Value Correction, it was one of the toughest business transition which
Product Supply (PS) at P&G India had to undergo in recent times!
KEY CHALLENGES
1. Risk in Market Launch
Product Supply (PS) is the kingmaker for this Value Correction. Madhusudan
(Country Manager, India) was in no mood to settle for anything less than 98.5% Fill
Rate. Rightly so, as this was one of the biggest strategic interventions which P&G
was making in the Laundry business to increase its Value and Volume share in
India.
THE RACE THE RACE FOR CASE
(Extra Capacity)
THE RACE FOR GROSS MARGIN (Profitability)
THE RACE FOR MARKET SHARE
(Supply Chain readiness to meet the Volume Explosion)
THE RACE FOR ORGANIZATION
(People and Skill for Sustainability)
Hence, PS got into Race for Case… Arpan (Plant Manager) had to strategize his
moves!
* Refer to Annexure -1 on the estimated forecast as a result of this intervention.
2. Profitability
Capacity increase shall come at a cost to the Laundry Business Unit. The choice of
technology platform can tilt the transition either ways…
As is the case in every business transition, GBU (finance) wanted the NPV (3 year)
of capacity increase from PS to be positive which will make the India business
break-even at minimum. The GM had set out his expectation that he was looking
for Low capital Low Risk Solution.
Hence, PS got into Race for Gross Margin… Arpan (Plant Manager) was at
loggerheads with Madhusudan asking for 98.5% Fill Rate and GM asking for Low
LOCAL SOLUTION
MARKET LAUNCH
To be aborted
IDEAL SOLUTION
required from PS by General Mgr
STD P&G TECHNOLOGY
RISK (Start Up)
Hig
h
Low
High Low
Risk Low Capital solution. He got his Supply leader (Deepak) and Engineering
SPOC (Seema) to cast the die against all the odds!
3. Supply Chain Readiness
Post Value Correction, volume explosion was inevitable. The challenge was to
make sure that P&G’s supply chain is ready on all the fronts, namely Suppliers of
Raw and Packaging material, Warehousing Space, Capacity alignment between
the Make and Pack operations, distribution Readiness, etc. There has to be a firm
plan so that P&G can respond if its competitors strike back with further price cuts.
Arpan (Plant Manager) has to convince the multi-functional team of Marketing,
finance, R&D, CBD with a detailed plan and BCP to counterattack the competitors…
As is the case in PS, you can’t take short cuts! You have to follow all the systems
and yet be ready for the RACE…
4. Organization Readiness
50% Value Correction and double the capacity definitely calls for step change in
the organization capability in order to handle the project and start-up post the
completion. The big question is where and how can you get the talent pool in such
a short time without compromising with the letter and the spirit of law?
Amit (Plant HR Manager) was asked to get these resources without any lead time.
Hence started the Race for Organization!
RACE QUESTIONS Finally, the launch took off in a great way and the actual demand left all the
projections far behind. As can be seen in the Annexures 1&2, the forecast before the
launch was 2000 MSU/year while the actual demand spurted to 8000 MSU/year in a
short span of 3 months after the launch.
So, Deepak (Operations Manager), Amit (HR Manager), Seema (Engineering Manager),
Praveen (Logistics Manager), and of course, Arpan have a tough task at their hand!
They have to answer these 5 basic questions supported with strong data and analysis
(as expected of all P&Gers):
1. What should be the strategy for capacity increase - Invest in house or should
they outsource? Do a best value option analysis.
2. What should be the counter-attack strategy for the competitors if they
decrease the price further?
3. Value Correction was done with some base profitability in mind. However,
the actual demand left them with no option but to go for capacity increase…
The problem at hand is which quadrant of the Matrix should they opt for: P&G’s
standardized technology with low risk or low cost local technology with high
risk?
4. How should they manage the value chain and streamline it to make the
Capacity/Demand ratio >1.1?
5. What will they do to manage the organizational Challenge of getting the
extra talent with no lead time and yet bridge the skill gap?
ANNEXURES ANNEXURE 1 Estimated forecast before and after the value correction.
MSU is a unit of Measure.
SKUs in context are Sachets and Base Bags in Ariel and Tide respectively.
ANNEXURE 2
SKU Mix and the spurt in Volume. Projected Volume distribution between Sachets
and base bags before and after the Correction.
ANNEXURE 3
Snapshot of Actual Demand before and after the Value Correction in the market.
ACTUAL DEMAND (MSU) for Charm in first year of launch:
Before Charm launch
1st year of Charm launch
Ariel Sachets 550 2200
Ariel Bags 900 1455
Tide Sachets 250 1480
Tide Bags 700 3000
Total Demand (MSU)
2400 8135
Total Sachets (A+T) 800 3680
Total Bags (A+T) 1600 4455
ANNEXURE 4
Flow of material in the Supply Chain
MAKING OPERATION
RAW MATERIAL
BASE POWDER
BASE POWDER
PACKING OPERATION
Base Bag Packaging
FINISHED PRODUCT
Sachet Packaging
ANNEXURE 5
Making Rate (Current) and Future based on forecast and actual demand.
Making Capacity Data 1 MSU = 12000KGs
Formula Current Rate (tons/hr)
Ariel 30 TPH
Tide 40TPH
Schedule utilization: 90% I Production Reliability: 88%
PACKING CAPACITY DATA
Average rate (Tons/ hr)
# Lines Before Launch
Needed based on forecast
Needed based on Actual Demand
Sachet 2 2 ? ?
Bags 2.7 2 ? ?
ANNEXURE 6
Cost data for Capacity Increase
Making:
• Cost of outsourcing Intermediate (bulk) from contract locations: Rs500/MT
• Lead Time to start a contract location for intermediate: 3 months
• Cost of making the intermediate (bulk) In-house by increasing the in-house
capacity: Rs300/month
• Lead time to increase the In-house capacity for bulk: 12 months
Packing:
Bags:
• Cost of Packing base Bags at contract location: Rs350/MT
• Leadtime to start a Bags packing location: 4 months
• Cost of Packing Base Bags In-house: Rs300/MT
• Leadtime to install a Bags Packing m/c Inhouse: 6months
• Cost of P&G Standard UVA m/c: $800M
• Cost of Local Hassia Redatron m/c: $200M
Sachets:
• Cost of Packing Sachets at contract location: Rs1600/MT
• Leadtime to start a sachet packing location: 3months
• Cost of Packing Sachets In-house: Rs1000/MT
• Leadtime to install a Sachet Packing m/c Inhouse: 6months
• Cost of P&G Standard Hassia m/c: $700M
• Cost of Local Shubham m/c: $70M
Other Information:
1. The contract location for Packing has to meet Health safety and environment
guideline if it is to be operated for more than 4 months.
2. Repacking location at any excise free zone saves tax out go.
3. ITOS location has to undergo through a GMP audit and get a Rating of > 50%
before start up.