salaahkaaras theneedythegreedythesilky

7/29/2019 Salaahkaaras TheNeedyTheGreedyTheSilky

1/10

The Needy, The Greedy & The SilkyKantilal Rathore | Dhawal Pratap Singh | Mohan Kumar

Faculty of Management Studies, Delhi


2/10

Background

Kitchen CookersCurrent situation

Sales: 200 million lbs.

Market position: #3

Quality conscious customers

Competitor

Very strong brand Strong innovation culture

Growth Driver

Quality Products - Innovation

Cold Drink CansCurrent situation

Sales: 300 million lbs.

Market position: #2

Top purchase criterionPRICE

Price parity with category Leader

Competitor Very strong brand presence

Growth Driver

Increasing brand presence

Sidinga

Current situ

Sales: 100 m

Market posit

Top purchas

Highly variab

No competit

Growth Driv

New Custom

Customized o

Client: National manufacturer of aluminum based consumer products

Cannot increase capacity in existing plants. Solution? OFFSHORING? BUY/B


3/10

30%

50%

15%5%

Total cost split up

Cost Benefit Analysis

CostsCosts in UK

(/lb.)

Costs in

China

(/lb.)

Labor 0.3 0.03

MaterialAluminum sheet 0.3 0.24

Other Material (incl. Packaging) 0.2 0.15Variable overhead 0.05 0.07

Fixed overhead 0.1 0.06

TransportationChina to U.K distribution center NA 0.15

U.K Distribution center to customer 0.05 0.05

Total 1 0.75

0

50

100

150

200

250

300

350

Kitchen Cookers Cold Drink Cans Siding & Exterior

accessories

Total Production cost in UK (in mn )

Total Production cost in China (in mn )

Major cost of Production (in UK

Offshoring Manufacturing to Chtotal cost of production by 25%

Annual Savings by offshoring en

China

Kitchen Cookers : 50 millio

Cold Drink Cans : 75 millio

Sliding & Exterior accessor

But, there are more factors to consider for offshoring other than Cost!!!


4/10

Increasing wages rates (20% annually*)Labor arbitrage may not be for long termInflation, Appreciating CurrencyCost savings will reduce in long term

High lead time for Transportation (4-5 weeks) Low adaptability to changes in demand

No prior experience of operating from foreign location

Intellectual Property protection

Working conditions

Other Uncertainties (Export Control laws, Political situation, Tax rate)

Sourc

Chinese Yu

Advantage China

Cost Savings (lower, material arbitrage)

Focus on other core tasks (Branding, Marketing, Supply chain etc.) to increase sales

Gain foothold in new market areas (China)

Access to new pool of resources which may be hard to find in UK

Offshoring to China Advantages & Risks


5/10

Analyzing Offshoring Opportunity

Customer Purchase depends on the Quality of the Product and not on cost

Category leader is known for Strong Innovation and Quality

People in UK perceive Made in China products as Poor Quality

Offshoring manufacturing of Kitchen Cookers to China

Affects quality perception of Kitchen Cookers & may negatively impact sales

Kitchen CookersCustomer Perce

Kitchen Cookers Offshoring Recommendation : No

Focus on Innovation and quality of products to increase sales

Recommended features/specifications to highlight/incorporate

Manufactured from virgin Aluminum to ensure zero contamination

Automatic Locking system

Visual Pressure Indicator

10 year guarantee

Source: * http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-
http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/http://www.jwtintelligence.com/2012/08/data-point-western-consumers-conflate-chinese-made-chinese-branded/


6/10


Customer Purchase depends only on Price

China has strong expertise in cool drink can manufacturing

Demand fairly constant (Customers: Soft drink selling companies)

Low cost of Mfg. in ChinaFurther reduce price to increase sales

Cool Drink Cans (B2B market)

Cool Drink Cans Offshoring Recommendation :

Rich pool of aluminum

Yes

Offshore Mfg. to China & focus on increasing the Brand Presence in UK

Suggestions to acquire new customers/improve customer relationship

Price the products 5% lower than the market leaders price

Highlight cost saving & reliability in delivery to acquire new customers

Provide custom pricing to customers as per quantity ordered & payment

cycle (Possible discount range: 0-5% discount)

Assumption: Cost of Mfg. is reduced by 25% with offshoring. Pass some benefits to customers to increase sales.


7/10


Customer Purchase depends on Style and Design

Demand for the segment is highly variabledifficult to offshore

Most products are customized for customersdifficult to offshore

Cost is not a major criteria for the customers offshoring to arbitrage cost

leads to higher lead time and reduce customer satisfaction

Siding and Exterior accessories

Siding & Exterior accessories Offshoring Recommendation :

Siding &

Focus on developing/expanding the market to increase sales

Recommendations to Increase Sales (Develop the Market)

Increase awareness among the people through Promotion & Marketing

Lower the price (make it affordable for more people)

Focus on increasing sales to develop the market

Establish strong foothold via strong customer relationships & Brand

building

No


8/10

Recommendations to Mitigate Risks in Offshoring

The offshoring Contract Agreement should include all the following provisions

Accurate description of the products (Product specifications, raw materials and packag

Ordering procedure, shipping terms and delivery arrangement

Price for the finished product and the payment terms

Warranties and contractual protections relating to the delivery and quality of the produ

(If manufacturer does not deliver on quality requirements or time)

Requirement : Manufacturer develops & maintains suitable business continuity practic

Escape clause for business

Dispute resolution procedure

Countrys laws that govern the agreement

IP protection, Selling rights

Miscellaneous Risk Mitigation procedures

Hedge against currency fluctuations

Appoint Quality Manager in China to perform regular Quality checks


9/10

Recommendations

AssumptionCapacity vacated by Cool Drink cans Mfg. can be used for Mfg. other products with minimal cost incurred than set

of tools, fixtures, machine etc.)

Cool Drink Cans Kitchen CookersS

Operating Plan

Offshore Manufacturing to

partners in China(Contractual basis)

Utilize capacity vacated by cool drink c

lbs.) to manufacture additio(Kitchen Cookers & Siding & Exte

Strategy to

Increase Sales

New customer acquisition

Reduce Price by 5%

Provide customized pricing

Enter into long term contracts

Focus on Quality & Innovation

Highlight new features &

quality in promotions

Improve quality inspection

Devel

Cr

M

Cu

Set up a 2 member tem in China

Reach out to the existing customers (soft drinks selling companies) in China

Analyze possibilities of selling cool drink cans directly from offshore manufacturing facility


10/10

salaahkaaras theneedythegreedythesilky

Documents