Spil Case Analysis

Solid Plastics India Limited (SPIL)

Business Case Analysis

Team members: (Group 4 / Sec B) Ravi Ranjan 081 Anjali Chinchanikar 056 Varun Rai 096 Brajesh Kumar Anupam 059

Company Background   

Started in 1993. Collaborative JV between SPL(Germany) and Founder MP Based in Kolkata and started business in Hyderabad in 1996.

Financial Structure:



SPL-USA – 33% shares. Share capital – 50 mn Long term loan provided by SPL USA – 10 mn Promoter stake – 67% i.e. 34 mn. Total secured loans – 30 mn.



Accumulated losses – Rs 30 mn

   

Processes

Main Equipments      

Press Multipurpose lathes Shapers Cutters Grinders Gears

   

Plastic Moulding Oil furnace opn Light m/c shop opn Plastic granulation

Products – UHMP ( Ultra High Molecular Weight Plastics)

Type of Product Catalogue

Usage/ Industry

1. Gears, round bars, pump casings etc

General Engg. purposes

2. Filtration components, wear elements

Water filtration system

3.Coil and coil processing components

Cold rolling steel industry

4. Fender facings 5. Bottling, conveyor and packaging

Harbor and port operations Bottling, conveyor and packaging

6. Bulk Material handling equipments

Steel and power plants

7. Kind of bulk materials

Bauxite, coal, grains etc

Product characteristics for paper industry   





Due to high molecular weight, the product had following competitive advantages Durability Wear resistant Low coefficient of friction have excellent sliding properties because of its homogeneous and washy surface Reduced maintenance due to reduced shutdowns. In spite of initial high prices, advantages put together made UHMP very competitive

Competitive Scenario 70 60 50 40 30 20 10 0

60 50 30

Chinar Kolkata

Kapoor Kanpur

35

Krishna Banglore

SPIL Hyderabad

Sales in 2003 millions

Dimensions

1m x 4.5 m

1.2m x 4.5 m

1m x 1.5 m

1m x 2 m

Broad product mix: Long plates for Lining Facts • Globally 40 % business of UHMP - from liner business. • Price of SPIL liners – 110 /kg. • Price by Krishna Bangalore – 75 /kg. • High cost due to smaller size of press. • Present sale of liner – 5 tons/month.

Broad product mix: Std wear and tear components Facts • Could be made either through machining or even cast directly in press with the help of dies. • Sold as repeat purchases. Example – packing rings for railways and trolley wheels for push carts. • Railways required 20000 pieces/year. • Through molding process, the trolley wheels could be sold at Rs 52 to Rs 82 per wheel with an contribution of Rs 20/ per wheel.

Broad product mix: Extruded square bars Facts • Against a sale price of 300/kg, competitor was selling at 150/kg. • Sold to large numbers of distributors, fabricators as well as to the end customers. • Similar to rounds and bars product sold by steel plant.

Distribution of orders : Size vs Value

81 % of orders having only 26 % of values

35 30 25

24 20

20

19

19

18

18 15

15

9

10

7

7 5

4

5 0

29

4 0

0 0-5000

500010000

1000020000

2000050000 % of orders

50000100000

100000200000

% in value

200000500000

5000001000000

Distribution of customers 183

200 % of rev

150 81

100 50

Value added products – Bottle, conveyor and Gen Engg equipment

152

33

33

18 22

10

0 Bottling and conveying

Paper

Liners

% of total revenue

General Engg

6

1

Railways

Commodity product: Liners and paper industry

No. of customers

Issues :  Marketing the customized products for a large base of customers.  Small orders.

Railway business Messy, dirty and painful but unavoidable.  Being supplied at Rs 100 per piece against the manufacturing cost of Rs 180 per piece.  Investment of 1 Mn required in small presses and dies to reduce the manufacturing cost to Rs 60 per piece. 

Sales per customer Sales per customer

Market segments

%

Value in mn

Bottling and conveyor

33

20

81

0.25

General Engg

10

6

183

0.03

Railways

6

4

1

4.00

Total Value added

49

30

265

0.11

Papers

33

20

152

0.13

Liners for mining and mat handling eq.

18

11

22

0.50

Total Commodity

51

31

174

0.18

customers

Commodity vs Value added Commodity or semi finished

Value added or fabricated

Price sensitive

Less price sensitive

Undifferentiated

Differentiated

Application well established

Application varies

Fewer customers

Large number of customers

High cost of entry

Low cost of entry

Run 24 hrs/day long runs

Short production runs

Low cost production critical

Quick quotes important

Low manpower, high automation

Good estimation required

Production orientation

Market / customer oriented

Efficiency critical

Service critical

Good cost control

Innovative

Commodity vs Value added Commodity or semi finished

Value added or fabricated

Strong in procedures

Design capability

Less flexible

Highly flexible

Big is beautiful

Small is beautiful

Raw material buying is critical

Pricing is critical

Low margin per unit

High margin per unit

Suits professional mgmt style

Suits entrepreneurial style

Saleswise dealer distribution 25%

23%

23%

20%

15%

20%

20%

1mn

<.01 mn

13%

10%

5%

0% >1.5 mn

1mn-5mn

% of dealers

No business

6.1 5.56 5.5 5.5 5.25

Responsiveness Pre tendency Order executor

6

Support from head office

6

System for monitor orders

6.1

System for offers

Tendering and negotiation

6.25

After sales support

6.7

Commission payment

6.85

Price and payment terms

7

Despatch arrangements

7

Documentation

Support from branch

9 8 7 6 5 4 3 2 1 0 Product quality

Satisfaction and Feedback of Dealers 8

SWOT analysis Strength

Good

Product quality More than 10 yrs industry experience Weakness No market segmentation Focus on Short term goals Threat of substitute Threat Low cost manufacturers in commodity product Opportunity Regular orders from railways Increase in customized products demand

Dilemma: How to turn around SPIL Options for SPIL Professional approach Vs Entrepreneurial approach

Issues Lack of Leadership qualities in Mr. MP.  Accumulation of loss. Need immediate turn around strategies.  Lack of proper analysis of industry attractiveness. 

Lack of Leadership in Mr. MP –  Focus on only short term goals.  Opportunistic behavior.  No selection of market segment.  Lack of subordinate development.  Poor listener  Focus on sales instead of focusing on marketing.

Short term turn around strategies 

   

Increasing cash flows by improving operational efficiencies like – reduction in scrap generation, utilization of scrap as a raw material, faster order execution. Financial restructuring the debt durations. Invest 1 mn for smaller presses and dies to save cost on railways material. Stop taking small quantity orders. Increase margins on the value added products in bottle and conveyor equipment.

Scrap generation and its utilization Price of raw material

75 per kg

Stock of Scrap

600 tons

Value of Scrap

450 lakhs

Accumulated losses – 30 mn Locked value in Scrap – 45 mn

Long term turn around strategies 

Selection of Market segments – Focus on high margin and high market potential industry. Withdraw from Gen Engg where the sales/customer value is very low.



Restructuring the marketing and sales department. Key Account Manager for each key clients based on the value of business.



Rationalization of dealers: 43 % dealers have sales less than .01 mn. Reduce the number of dealers in those areas and increase the dealers where the demand is high. Ex – Mumbai area.

Long term turn around strategies cont… Proper HR policies:  Attracting and retaining the talented Managers and CEOs.  Create an environment of innovativeness where every employee is empowered to take decision at his level. Branding the Value Added Product:  Communicate the advantages of the value added product so that customer can perceive a difference in SPIL product. Becoming cost competitive in Commodity market:  In Commodity market price is the only differentiator.

Marketing effort: Value added vs commodity Value Added

Commodity

Product Quality

High

Low

Place

Low

High

Pricing

Low

High

Promotion (Advertisement)

Low

High

Industry attractiveness analysis

Interpreting Industry Analyses High entry barriers Suppliers and buyers have weak positions

Attractive Industry

Few threats from substitute products Moderate rivalry among competitors

High profit potential

Munish Thakur

2–28

Industry attractiveness analysis Bottling and conveyor

General Engg

Railways

Liners Papers

Threat of new entrants

Low

Low

High

High

High

Bargaining power of supplier

High

High

High

High

High

Bargaining power of customer

Low

Low

High

High

High

Threat of substitution

Low

Low

Low

Low

Low

Competition

Low

Low

High

High

High

Market Attractiveness vs Ability to compete matrix Ability to compete High Bottling and Conveyor (Invest and grow) High Market attractiveness

Medium

Low Railways (Risky be cautious)

Liners

Phased withdrawal

Paper

Gen Egg (Dog, harvest, disinvest)

Medium

Low

Market Potential vs Margin Market Potential High

Railways Liners Papers

Bottle and Conveyors General Engg. Margin

Value Added

High

Commodity

BCG Matrix Market Potential High Margin

Star Bottle and Conveyors

Branding to create a differentiation in customer’s mind

Papers

Railways Commodity Cash Cow

? Liners High market potential , high sales/customer value

General Engg. Withdraw

Summary : Restructuring of SPIL Marketing restructuring: Selection of market segments, Key account managers for key clients, rationalization of the no. of dealers etc

Operational excellence: Asset utilization, utilization of scrap, product innovation, inventory mgmt, supplier value management etc

Organizational restructuring: Long term and short term goals, HR policies , empowerment etc

Thank You



BACK UP

Threat of New Entrants: Barriers to Entry



Economies of scale Product differentiation Switching costs Access to distribution channels



Product differentiation

  

 Unique

products with value addition and service component

 Satisfied

Customer

Bargaining Power of Suppliers 

Supplier bargaining power is high as 

Suitable substitute products are not available.



Suppliers’ goods are critical to buyers’ marketplace success



NOCIL is the only supplier for the resin.

Threat of Substitution 

Substitution threat is low as 

Teflon is a superior substitute to UHMP but it is 15 times costlier.