Nirma

How Nirma Pruned Its Costs It is cost that has decided the outcome of the Great Indian Sud Wars. A package, adorned by a girl in white, sells a cool 5.97 lakh tonnes per annum. At 35 per cent, Nirma has a marketshare which is 5 percentage points higher than transnational Hindustan Lever Ltd's (HLL). Not only has Nirma managed to retain its leadership for over 2 decades, it has notched up a respectable share in toilet soaps as well. The success of the Ahmedabad-based manufacturer is the story of how its 59-year-old CEO, Karsanbhai Patel, broke the cost barrier. COST COMPETITIVENESS. The formulation was perfect: low-cost manpower and low capital. In the 1970s, Patel realised that the price of HLL's detergent, Surf--which lorded over the detergents market--was high for a country like India. So, Patel set up a chain of workshops--which helped him to get excise-concessions--where the detergent was mixed manually. Although the manufacturing mode was primitive, it was ideally suited to a laboursurplus market. With a workforce of 10,000 and 200 managers, Nirma's reduced its wage bill to a fifth of HLL's. BACKWARD INTEGRATION. But as the business environment changed, the manufacturer's strategy evolved as well. Even as the excise-concessions were withdrawn in 1982, Nirma had to contend with a whole host of new competitors. To survive, Patel had to integrate backwards into the manufacture of AOS, Linear Alkyl Benzene (LAB) and soda ash, and consolidate his capacities. Upstream strategy still drives Nirma today. Explains Kalpesh Patel, 36, Executive Director: "Scale economies have helped us to reduce our procurement costs." So has in-house manufacture. Indeed, sophisticated processes have helped the company to cut down raw material costs by 15 per cent. DEMAND CHAIN MANAGEMENT. Initially, Nirma sourced packages from 10 vendors but incurred high costs because of scale diseconomies at the suppliers' end, and their inability to deliver on time. By centralising packaging, Nirma has been able to cut its inventory cost by over 40 per cent. Further cost savings have come from a flat distribution system. Today, Nirma is directly connected to the distributor; there are no carrying and forwarding, or warehousing agents in between. THE SUSTAINABLE ADVANTAGE. What is it that makes a cost-leadership strategy work in the long run? A combination of low-cost labour, superior processes, and a mindset that is rooted in cost-consciousness. Those are the three big twists in Karsanbhai Patel's soap opera.