Operation Management Case Studies Combined

This document is authorized for personal use only by Prasad Kulkarni , of KLS Gogte Institute of technology Belgaum till
18th November ,2020. It shall not be reproduced or distributed without express

written permission from Indian Institute of Management, Ahmedabad.
Indian Institute of Management

Ahmedabad IIMA/PROD0020
Bharat Steel Furniture Company
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In February of 1964, Mr. Chakra Deo, the managing director of Bharat Steel Furniture
Company (BSF) received a telephone call from the firm’s city-depot, goods
depot, where finished goods
inventory was stored. The depot informed him that the stock of folding chairs on hand was
insufficient to meet the shipments scheduled for the week. Mr. r. Deo immediately gave orders
for the factory to increase the rate of production of the chairs and to send to the depot any
finished products that were in the plant.
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BSF was a small sized, family owned firm, located in an industrial estate in Madras. It
employed 64 people including Mr. Deo, 4 clerks, a sales manager, 5 sales men and four shop
supervisors. The company manufactured folding chairs and folding
folding tables, and large steel
cabinets. During the fiscal year March 1962 to February 1963, it earned a before-tax-profit
before of
Rs. 70,600, on a turnover of Rs. 8 lakhs. A breakdown of sales by product line is presented
in Exhibit-I. Mr. Deo said that the sales mix for 1963-64
64 appeared to be similar to that for the
previous year, although indications were that total sales would be considerably greater.
Over the past several years, the yearly growth in sales had averaged approx. 20%.
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Retail sales of BSF’s products followed a definite seasonal pattern. Customer purchases of
chairs and tables were at their highest levels during the period from October through
December, and then declined sharply. The demand
demand pattern for steel cabinets was similar, but
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not quite as peaked. Twenty percent of the total year’s
year’ss sales of cabinets was made in the
year’
month of October, just before Diwali, and 10%10% was made in each of the months from
November through April. During the peak periods, sales activity for all three products
varied greatly from state to state, depending on the dates of local festivals and the t
announcement of industrial bonuses.
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Mr. Deo had formed a separate company to act as the sole selling agent for all BSF products
outside of Madras city. This firm received a 2½%
2 commission (on the suggested retail price)
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on all sales to distributors. It supervised BSF’sBSF selling organisation which covered 4

neighbouring states in addition to the state of Madras. The distributors were selected by
BSF’ss sales department, in consultation with
w Mr. Deo. Competition was very keen, and,
since little product differentiation existed, either in design or quality, BSF had decided to
suggest prices 2-5%
2-5% under those of its competitors. Because there was so little product
differentiation, Mr. Deo believed
believed that the customer would buy whatever the dealer had in
stock. BSF therefore decided to give the dealers a high markup (10-12½%)
(10 seemed to be the
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average for the industry) so that they would be encouraged to carry a large inventory of BSF
products. A dealer
dealer stockout invariably meant lost and irreplaceable sales. A factory sales
price had then been selected which would give the dealers a 15% margin on the selling price
and would allow 2½% for the sole selling agency.
In addition to the distributor system,

syste BSF had its own sales depot, which had a show room
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in the city. Approximately 25%

25 of the company’s total sales were made by this depot, which
was the only selling agent in the city. The 2½% commission was not paid to the selling
Prepared by Professor M. R. Copen, Indian Institute of Management, Ahmedabad.
This case has been prepared by the Indian Institute of Management, Ahmedabad, in co co-operation
with the Small Industries Extension Training Institute, Hyderabad, as a basis for class discussion.
Cases are not designed to present illustrations of either correct or incorrect handling of administrative
problems.
© 1964 by the Indian Institute of Management, Ahmedabad.
This document is authorized for personal use only by Prasad Kulkarni , of KLS Gogte Institute of technology Belgaum till 18th November ,2020. It shall not be reproduced or distributed without express
2 of 7 IIMA/PROD0020
company on any sales made by the depot.
Finished products were despatched daily to the depot for storage, since the finished goods
storage area at the plant was not able to hold more than a week’ss production. In addition to
the show room and some small office space, the depot contained a 60’ x 60’ shed for storage
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purposes. Approximately
mately l/3 of the storage space was reserved for each product line.
Monthly stroage costs were Rs.630 (see Exhibit II). In addition, the company suffered a loss
equivalent to 5% of sales each year, due
ue to damage of goods, most of which occurred in the
handling involved in storage. The cost of transporting 100 chairs from the industrial estate to
the depot was Rs. 20/-. It cost another Rs. 15 to transport the chairs to the railroad station
which was located
cated approximately half way between the depot and the plant. Most of the
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finished products were shipped by rail, F.O.R. However, when a distributor was in a hurry,
he would frequently request delivery by road transport. The extra cost was charged to him
but delivery time on long trips was reduced by two or more weeks.
All orders from the distributors went to the sole selling agent.
agent. These orders were forwarded
to BSF’s sales department (as were the orders from the city depot) on printed forms which
indicated the items and the number of each that were required. The sales department
confirmed the orders without specifying the delivery date, sent one copy to the city depot as
a shipping order, and sent a second to Mr. Deo, for production and billing purposes.
part--time
part
Usually, Mr. Deo and the works engineer (as part-time
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time employee who was a retired public
works engineer) sat down with these forms at the end of each month to plan the next
month’s production. In addition to the orders, they received a report of the city depot
inventory positions and a summary of the plant inventory and production status. On the
de
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basis of these figures, they worked out a weekly schedule for the following month. The
supervisors then planned daily operations within these figures. Except in peak periods,
over
when 2nd shifts or unskilled workers were added and over-time was worked by skilled
yees, the plant worked one shift, 6 days a week.
employees,
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Since distributor sales were at their highest level immediately after the monsoon season, and
ring monsoon season were generally unreliable
since deliveries during unreliable, BSF’s sales demand
peaked in the months of May and June.
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Between 20 and 25% of their orders requested delivery in this two-month period. Exhibit III
presents the monthly inventory, production and sales
sale figures for folding chairs during the
period March 1963 to January l964. Exhibit IV gives the monthly sales figures for the
previous year.
The folding chair consisted of 3 basic sub-assemblies:

sub a tabular frame, a back and a seat. A
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brief description of the manufacturing process is given in Exhibit V. A similar series of

operations were carried out for the manufacture of tables. The manufacturing process for the
cabinets was simpler, involving only the shearing and bending of metal sheets, riveting, and
painting.
The basic raw material for the furniture was sheet steel of approximately 20 different sizes
and gauges. The sheet steel was a government controlled item, but only 30%30 of the firm’s
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requirements were met by the government allocations. Although Mr. Deo had been trying to
get this percentage raised, he did not think there was much hope in the forse
forseeable future.
Twenty percent of BSF
BSF’s needs required and were met by imported steels, and the remainder
had to be acquired in the ‘open’ market at a premium of Rs.200/- per ton over the controlled
price of Rs.1000/-. Deliveries of the government allocations were made at an average
interval of 3 months, although they might be as much as 6 months late. The company carried
an average inventory valued at Rs. 4,60,000 of which approximately 1.8 lakhs represented
finished goods and the remainder represented raw materials or goods in process.
As raw materials were received, they entered a ‘‘bank store” which was located in the
factory. The bank financed 85% of the cost of the materials and charged BSF 9%
9% for the
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service. Every week, the company then released the materials it needed by making a cash
payment. Approximately 4½-55 tons were required on the average, per week.
Mr. Deo said that the company was losing Rs. 0.90 on the sale of each chair; h however
owever h he
believed it necessary that BSF continue to manufacture chairs to support table sales. He said
that the sale of chairs was necessary to maintain the sale of tables, since most purchasers
asked for sets, and the company realised a profit of Rs. 8.03 on each table, according to his
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figures. Exhibit VI presents a rough breakdown of BSF’ss cost computations. Direct material
cost was a total of all of the costs of raw materials (steel, paint, rivets, etc.) going into the
product. Direct labour cost was computed in the following manner: each of the
manufacturing operations was classified into one of the following four categories - those
requiring skilled labourers, those requiring semi-skilled,
skilled, work done by unskilled llabourers,
and jobs requiring teams of workers. Standard times were fixed for all operations (based on
previous experience). The average consolidated wage rate for each of the four categories was
computed
ted and was multiplied against each standard time to wh which it corresponded. These
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figures were totalled to give a direct labour figure. At the end of the year, any variation
between labour costs at standard time and actual labour cost was included in the factory
overhead account. The average consolidated wage of all workers in the factory was
approximately Rs. 125/month. Factory overhead was allocated in proportion to direct
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labour, except where major itemss could be traced to a particular product (e.g. the
depreciation of the tube bending equipment was split between the chairs and the tables, on
the basis of their direct labour content, and none of this was applied to the cabin
cabinets) . Direct
materials, direct labour, and factory overhead were ththen totalled to give factory cost. Selling
and distribution overhead and nd administrative overhead were allocated in direct portion to
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factory cost. These were then

hen summed to give the total cost figure.
Mr. Deo was of the opinion that, with proper marketing research and publicity, table and
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chair sales could be increased threefold. already made a study of his layout with a
threefold. He had al
view to improving operations by reducing the time and cost of manufacture. His study
stowed him that an an investment of Rs. 1,250 would free 580 square feet of factory floor
space and speed up production 10%. However, since he was strongly opposed to
production by at least 10
go,
letting any of his employees go
go,, he said that the savings in materials handling time would
not result in any cost reduction. Since he estimated that BSF was presently operating at less
than 65%
5% of physical capacity1 he was of the opinion that little would be gained by such an
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investment at this time, and that the only immediate result would be additional idle time. In
addition, since the company was actually selling the folding chairs at a loss, he did not think
it worthwhile to expand chair production. He did not believe it was wise to increase the
selling price, because he thought it would affect sales adversely and the net result would be
a loss to the company.
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Mr. Deo explained this figure as follows:

1
His total wage bill for direct labourers in 1962-63

1962 was approximately Rs. 64,000 of which the direct labour content
of production was only Rs.
Rs 41,000.
41,000/64,000 = 64%
-------- = 64%
64,000
Exhibit I
Sales during Fiscal Year March 1962 - February 1963
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Item Sales in Rs. at Factory % of Total Factory Sales P
Price
rice per U
Unit
nit
price
Folding Chairs 3,57,000 44.6 17.56
Folding Tables 45,000 5.7 39.00
Steel Cabinets 3,98,000 49.7 282.00
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Exhibit II
Monthly Cost of City Depot, Storage Facilities
Rs.
Rent 200
Electricity
Labour
Tax & Insurance
N 30
350
50
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630
Exhibit III
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Production, Sales and Month-end

end Inventories of Folding (In Units) March 1963 - January 1964
Production Sales Inventory

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1963 Mar 2376 1385 1120

Apr 3123 2171 2077
May 3782 2830 3029
Jun 2291 2823 2497
Jul 4280 2554 4223
SP
Aug 2829 2357 4695

Sep 890 2274 3311
Oct 1143 2535 1919
Nov 1242 2163 998
Dec 2183 2269 912
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1964 Jan 906 1210 608

Total 25045 24571
Exhibit IV
Sales of Folding Chairs in Units — March 1962-February 1963
1962 Mar 1132
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Apr 1744
May 2251
Jun 2436
Jul 2330
Aug 1759
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Sep 1925
Oct 2018
Nov 1873
Dec 1616
1963 Jan 834
Feb 427
Total 20345
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SP
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Exhibit V
Manufacturing Process for Folding Chair
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Standards in No. of
Tabular Frame
Chairs per shift
1 Sheets of standard lengths were sheared into strips of the required 200
width: (Semi-skilled operator)
2 At one end the strips were re bent into a V for about 6 inches of 200
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length. This was then rolled by a hammer. (S-S)
3 This end was held in the grip of the pulling- rod of a hydraulic pipe 350
rolling machine and the materials were pulled through a die which
made the place cylindrical throughout its length. (S-S)
4 The seam was gas-welded
welded manually by two welders (skilled) 60 chairs per welder
5 The extra-welding
welding was ground off on an emery wheel (two 55 chairs per
operators). (Semi-skilled) operator
6 The pipes were cut to required
ired lengths by a band saw (Unskilled) 200
7 Three bending fixtures were used on various components (U)

N (a)
(b)
1000
400
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(c) 400
8 Holes were drilled in the bent components (S) 500
9 The bent components were levelled (U) 500
10 The chair frame wass assembled (U) 27 chairs/man
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11 The chair frame was levelled (S) 500

12 The chair frame was dipped in a red oxide tank and dried (S
(S-S) 200
13 The frame was sanded a and
nd dipped in a paint tank for the first 100
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coating. It was then dried. (S-

(S-S)
(S-S)
S)
14 The frame
ame was sprayed an
and
a nd
d then dried in an oven. (S) 400
15 The frame was assembled to back and seat of the chair (U) 100
Standards in No. of
Seat and Back
Chairs per Shift
1 Sheets were sheared to proper size and sent to the press shop (S
(S- 1000
SP
S)
2 Components
Components were cut and formed (S
(S-S) 250
3 The back and the seat were dipped in red oxide and dried (S
(S-S) 400
4 The back and the seat were dipped in paint for the first coating. 400
They were then dried. (S
(S-S)
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5 The back and the seat were sprayed and then dried in an oven. (S) 400
6 The parts were assembled to the frame of the chair. (S
(S-S) 100
U = Unskilled
S-S = Semi-
Semi-Skilled
S = Skilled
Exhibit VI
Cost per 100 units of output (1962-63)
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Chairs (Rs.) Tables (Rs.) Cabinets (Rs
(Rs.)
.)
Direct Material 1119.30 1644.06 13074.00
Direct Labour 94.00 230.84 1360.00
Factory Overhead (Note l) 319.94 695.96 4289.00
Factory Cost 1533.24 2570.86 18725.00
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Administrative Overhead (Note 2) 196.62 329.84 2392.00
Selling and Distribution (Note 3) 116.93 196.14 1422.00
Total Cost 1846.79 3096.84 22539.00
Cost Per Unit 18.46 30.97 225.39
Note 1: For 1962-1963,

1963, Factory Overhead was approximately Rs. 137
13
137,000
7,000 broken down as follows:
Direct Labour Overrun (Actual-Std) 27,200

Indirect Labour (C people)
Supervision (Factory, including Works Engineer)
Rent (Factory)
Interest (Bank Stores & other factory related loans)
N 7,700
20,600
7,400
41,500
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Power (Machinery) 4,500
Light 700
Depreciation 20,800
Supplies & Tools 4,600
Misc. 2,000
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137,000
Note 2: For 1962-63

63 Administrative Overhead was approximately Rs. 77,000 as follows:
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Office Rent 600

Office Staff 9,600
Supervision & Directors’
Directors’ Salaries 34,300
--factory
factory related item
Interest (Non-factory items) 20,000
Telephone & Stationery
Stationery 1,600
Power (Light) 300
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Depreciation (Office equipment) 100

Canteen Subsidy & tea 6,000
Legal Fees 2,400
Misc. 2,100
77,000
Note 3:
3: IIncludes
ncludes commissions, depot charges, salesmen’s salaries, advertising, etc. In actuality, BSF performed
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all selling, functions - the Sole Selling agent was a company in name only, carrying no inventories and
having no separate personnel of its own.

Ahmedabad IIMA/CMA0185(D)
IIMA/CMA0
IIMA/CMA 0185(D)
185(D)
Dudhudyog Dairy (D)
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The General Manager was interested in Mr. Anand’s recommendations.
mendations. But he wanted to
verify how monthly price/volume could be regulated to achieve a break-even.
break-even.
breakeven.
In September, milk price did not come down as expected previously.viou

viously.
sly. It was doubtful
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whether the Dairy would get enough milk at 55 paise per litre paid to farmers. To bring out
the wanted supply, an attractive price was necessary, otherwise the Dairy would not be able
to compete with other buyers in the short-run — and,, in the long-run,
long-run,
long- run, even if the Dairy
depressed the price, this meant that milk would not ‘pay’ the farmer so well, and he would
produce less. Considering these factors, Mr. Anand assumed the following average purchase
price structure.
Price Per Litre (Paise)
60 to the producer
4 to the primary society or contractor
5 to Cooperative Union or the Dairy for chilling
N
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69 at the point when the Dairy’ss tanker picked it up
At the same time, Skim Milk Powder (SMP) costs had risen. The expected costs were as
follows:
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Rs. 2 for imported SMP/kg.

Rs. 4 for Indian SMP/kg.
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Rs. 3 average for 50/50 mix.
Actually, imported SMP was slightly more than Rs. 2 in November 1964, but little SMP was
available, so the net average cost was unlikely to exceed Rs. 3 per kg.
Considering
ring these changes, excluding some adjustments each month for minor changes in
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volume and allowing full depreciation on fixed assets, the handling cost (from chilling
customers) was calculated to be Rs. 8,561,000 assuming a minimum summer
centre to customers)
collection
tion of 160,000 litres daily (see Appendix 4).
Now, the monthly price/volume had to be regulated so that the Dairy got a ‘net
contribution’
contribution’ of at least Rs. 8,561,000.
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There were two distinct views regarding the volume handled by the Dairy. According to the
t
first view the Dairy should handle only toned milk during the summer and whole buffalo
Prepared by Professor P. S. George, Indian Institute of Management, Ahmedabad.

Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for classroom
discussion. They are not designed to present illustrations of either correct or incorrect handling of
administrative problems.
2 of 10 IIMA/CMA0185(D)
milk during the flush season. This would result in an increased use of SMP. The second view
was that the sales of whole milk and toned milk should be maintained during summer at a
pre-fixed
fixed level and during the flush season, extra fresh milk should be collected so long as
was more economical than SMP. Decisions on the volume and price of different products
during different seasons should be based on the fluctuations in demand.
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Considering all these factors, Mr. Anand made the following assumptions in preparing the
budget for the scheme:
1. Supply arrangements permit a minimum of 160,000 -litres

litres daily in June, the lowest
month of the summer.
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2. Sale prices are varied four times yearly in accord with season price/supply variations.
(4.5%,, 9%) and low fat milk.
(4.5%
3. Three milks - buffalo milk (6.5% fat, 9% snf), standard milk (4.5%,
(l.5%, 9%) — are offered and cards issued to take up the output obtainable from 160,000
P needed for standardised and low fat milk so that the final volume
litres daily plus SMP
of those three milks are in ratio 35:40:25 respectively in June.
4. Marketable surplus varies seasonably in accord with the reports on supply and demand,
and the Dairy’s purchase price varies from the 60 paise average in such a way as to
capture a share of the surplus, which falls to 160,000 litres in summer and rises in winter.
increase, sale prices are varied in accordance
5. As the Dairy’ss purchases of liquid milk increase,
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with the previous recommendation — and the demand, from the cardholders, responds
to price.
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6. To the extent that liquid milk purchases permit (over 160,000 litres daily) standardised
and low fat milk are made by separation (rath ((rather
rath than by addition of SMP) and the
resultant fat is marketed at a net Rs
Rs.. 7.50
7.50 per kg.
7. Transportation from chilling centre to dairy for raw fresh milk purchased, per litre extra
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(over 160,000 litres daily), is 0.89 paisa.

8. Bottling, transport to selling point and selling expenditure for liquid milk distributed,
per bottle
tle extra (over 160,000 x 2.3 daily) is 0.013 paisa. Assuming that buffalo milk and
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standard milk are sold only in ½-litre

½-litre bottles, and 50 per cent low fat milk is sold in ½-
litre bottles and the remaining
remaining 50 per cent milk in ¼ -litre bottles.
ge selling prices of 86 pais
9. Average paise, 64 paise and 36 paise were taken for buffalo milk,
standard milk and low fat milk.
In short, the objective was that, over the whole year, at the minimum supply of 160,000 litres
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daily, the contribution to fixed costs (that is, the excess of revenues over out of pocket costs
as defined above) should be Rs Rs. 8.5 million (or a little more). Accordingly a monthly
operating schedule was prepared (see Appendix 5).
While the General Manager and Mr. Anand were discussing this, schedule, the General
Manager
Mana ger raised the following points:
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1. The response of consumers on price change is not appropriate.

2. In certain months, when the milk price is low, the use of SMP can be reduced by
collecting more milk. Since fat has a marginal value of Rs. 7.50 per kg., that will make it
economic to offer a relatively better price in the rainy and winter seasons. (In other
words, in the rainy and winter seasons, the price offered for milk should be a relatively
higher percentage of the summer price than it had been in the past.)
3. It may be very difficult for the Dairy to charge more than 80 paise for a litre of buffalo
milk, (in June 1965, the Dairy’s selling price was 70 paise per litre — and even this was
the result of an increase some six months back. A further increase of 16 paise per litre
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would result in adverse political reaction.)
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EC
SP
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Appendix 1
Seasonal Variation in Milk Production
(Daily production of milk in 1000 litres)
Season Urban Area Rural Area
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Winter 71 132
Summer 67 69
Rainy 57 105
Average 68 102
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Appendix 2
Utilisation of Daily Milk Production
Season Consumption (1000 Converted milk products Sold as liquid

litres) (1000 litres) Milk (1000 litres)
Milk
A. Urban area
Winter 5.8 2.4 62.8
Summer 3.5 1.2 62.3
Rainy
Average
B. Rural area
6.1
5.1
N 0.8
1.5
1.5
60.1
61.4
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Winter 34.6 42.9 54.5
Summer 15.7 17.5 35.8
Rainy 27.3 31.5 46.2
Average 26.5 30.6 44.9
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Appendix 3
Average Cost of Production Per Litre of Milk (Paise)
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Items Urban area Rural area

Feed 34 32
Paid labour 2 1
Misc. recurring
recurring expenses Total cost 2 -
Total Cost 38 33
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Depreciation on animals 10 3
Depreciation on capital investment 1 2
Unpaid labour 4 8
Gross cost 53 46
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Appendix 4
Handling Cost Estimates
At a daily minimum intake of raw fresh milk

160,000 litres 260,000 litres 360,000 litres
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(Rs.1000’s) (Rs.1000’s) (Rs. 1000’s)
Tanker transport 520 960 1440
Chilling centre to Dairy 72 79 85
Dairy plant:
Reception:
Maintenance & Repairs 5 5 5
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Spares 5 5 5
Pay & allowances 34 40 46
Liquid milk processing:
Maintenance 5 5 5
Spares 5 5 5
Pay and allowances 36 54 54
Oil and lubricants 73 117 162
Miscellaneous
Bottling:
Maintenance
N 10
1
10
1
10
1
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Spares 10 10 10
Bottles (22% of daily bottles used) 526 910 1270
Foil 411 676 953
Crates 5 5 5
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Products processing:
Maintenance and repairs 5 5 5
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Spares 5 5 5
Pay & allowances 27 45 45
Packing materials 375 557 792
Miscellaneous 1 1 1
General:
Coal 150 225 315
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Power 450 720 1000

Water 300 480 576
Building & grounds 5 7 10
Maintenance 5 7 10
Sanitation 5 6 7
Detergents 10 16 22
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Miscellaneous 1 1 1
Distribution
Transport
Petrol, oil & lubricants 66 96 145
At a daily minimum intake of raw fresh milk

160,000 litres 260,000 litres 360,000 litres
(Rs.1000’s) (Rs.1000’s) (Rs. 1000’s)
Maintenance & spares 225 355 395
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Selling points:
Maintenance 20 33 47
Misc. (lights, etc.) 10 17 23
General:
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Miscellaneous 1 1 1
Engineering:
Material and spares 10 15 20
Miscellaneous 2 2 2
Quality control:
Chemicals and glassware
Pay and allowances
Maintenance and repairs
Miscellaneous
N 25
107
5
1
40
121
7
1
56
136
7
1
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Administration and accounts:
General administration accounts, internal
audit:
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Machines and maintenance 100 125 150

Stationery, postage, tel. 100 125 150
Security, canteen, medical aid, etc. 150 200 250
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Stores, issues, and receipts:

receipts:
Miscellaneous 1 1 1
Purchase and disposals:
disposals:
Miscellaneous 1 1 1
SP
Transport 28 46 46
Interest and audit 700 750 800
Depreciation on vans, plants and equipment @ 1787 1800 1900
CD, buildings @ CD, air conditioning @ CD
Total 8561 11497 14294
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This document is authorized for personal use only by Prasad Kulkarni , of KLS Gogte Institute of technology Belgaum till 18th November ,2020. It shall not be reproduced or distributed without express written permission from Indian Institute of Management, Ahmedabad.
Appendix 5
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ices and Quantities
Budget for Dudhudyog Dairy: Seasonal Prices
Price Dairy Total Price Daily Total Price Daily Total

per volume amount per Volume amount Per litre Volume amount
litre (litre) (Rs.1000) litre (litre) (Rs.1000) (np.) (litre) (Rs.1000)
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(np.) (np.)
April May June
Sales
Buffer milk 95 81,800 95 81,800 95 81,800
Std. milk 70 93,835 5024.1 70 93,835 5192.1 70 93,835 5024.6
Low fat milk 42 57,365 42 57,365 42 57,365
Fat total for the month (1000 kg.) Rs.7.50 kg 99.45 745.88 36.27 272.02 -
ON
Sub-total 5769.98 5464.12 5024.6
Expenses
Buff. milk 72* 211 4557.6 79 178 4359.2 82 160 3936.0
SMP total for the month (1000 kg.) Rs. 3/kg 56.7 170.1 153.5 460.5 197.1 591.3
Over Budget 13.6 5.0 -
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Sub-total 4741.3 4824.7 4527.3
Net Contribution 1029.18 639.42 497.3
July August September
Sales
Buff. milk 90
EC 83,500 90 83,500 90 83,500
Std. milk 67 96,000 5109.1 67 96,000 5109.1 67 96,000 4944.3
Low fat milk 40 58,500 40 58,500 40 58,500
Fat, total for the month (1000 kg.) Rs.7.5 kg. 24.24 185.55 92.75 695.22 58.11 439.2
SP
Sub-total 5294.65 5804.32 5383.5

Expenses
*
Buff. milk 77 174 4353.4 69 208 4449.1 62 192 3571.2
SMP, total for the month (1000 kg.) Rs.3/kg. 178.5 535.5 63.7 251.1 124.2 372.6
Over budget 3.94 13.24 8.54
IN
Sub-total 4892.84 4713.44 3952.34

Net contribution 401.81 1090.88 1481.16
PY
Appendix 5 (Continued)
Price Dairy Total Price Daily Total Price Daily Total

per volume amount per Volume amount Per litre Volume amount
litre (litre) (Rs.1000) litre (litre) (Rs.1000) (np.) (litre) (Rs.1000)
CO
October November December
Sales
Buff. milk 78 85,500 4461.8 78 85,500 4317.9
85, 78 85,500 4461.8
Std. milk 53 89,000 58
58 98,000
98 58 98,000
Low fat milk 34 60,000 34 60,000 34 60,000
Fat, total for the month (1000 kg.) 49.77 374.78 44.46 333.45 78.18 586.35
Sub-total 4836.58 4651.33 5048.15
ON
Expenses
*
Buff. Milk 63 192 3749.8 64 190 3648.0 63 206 4023.2
SMP, total for the month (1000 kg.) 143.7 431.1 144.4 433.2 104.7 314.1
Over budget 8.59 8.09 12.79
Sub-total 4189.49 4089.29 4350.09
TI
January February March
Sales
Buff. milk
Std. milk
EC
82
62
85,000
98,000
4726.6 82
62
85,000
98,000
4269.2 82
62
85,000
98,000
4726.6
Low fat milk 36 60,000 36 60,000 36 60,000

Fat, total for the month (1000 kg.) 84.22 631.65 34.22 256.6 98.33 737.48
Sub-total 3350.25 4525.8 5464.08
SP
Expenses
Buff. milk 67 209 4521.8 69 186 3593.5 69 216 4620
SMP, total for the month (1000 kg.) 96.3 288.9 144.9 434.7 76.8 230.4
Over budget 13.59 6.59 15.49
Sub-total 4824.29 4034.79 4865.09
IN

*Includes 9 paise spent at the primary centres
PY
* Includes 9 paise spent before collection by Dairy’s tanker
* Includes 9 paise spent before collection by Dairy’s tanker.
CO
ON
TI
EC
SP
IN
SUMMARY
Total liquid milk collection 70,671,000 litres

Purchase price (including 9 np) 49,383,000
PY
Average price + 9 np 69.8
Fat sales 700,650 kg.
SMP used 1,519,500 kg.
Income (1000) Expenditure (Rs.1000)
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Milk 57,367.7 Milk 49,383.0
Fat 5,254,9 SMP 4,558.5
Over budget 103.43
62,622.6 54,050.93
N
T IO
EC
SP
IN

Ahmedabad IIMA/MAR0046
The State Trading Corporation of India
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The State Trading Corporation of India (STC) was established on 18th May 1956 as a joint
stock company. It was registered with an authorised capital of Rs.1 crore, wholly subscribed
by the Government of India, divided into shares of Rs.100
s.100 each. The authorised capital was
increased to Rs.2.5 crores in 1958 and Rs.5 increasing
s.5 crores in 1959 in order to cope with the incre
activities of the Corporation. The functions of the, Corporation,oration, as outlined in the
Memorandum of Association, are “to to organise and effect exports from and imports into
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India of all such goods and commodities as may be determined by the company from time
to time and to undertake the purchase, sale and transport of and general trade in such goods
and commodities in India or anywhere else." The main considerations which led to the
setting up of the Corporation were:
(1) To overcome the difficulties

lties experienced in expanding India's
India foreign trade,
particularly with State Trading countries, in commodities entrusted to it.
(2) To explore new markets for traditional items of exports and to develop export of
ON
new items with a view to diversifying and expanding the export trade.
(3) To undertake import and/or internal distribution of any commodities in short

supply with a view to
o stabilising prices and rationalising distribution.
(4) de-land.
To arrange for imports on bulk basis to bridge gaps between supply end de
I
(5) To supplement private trading generally.
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The central aim behind the establishment of the STC was thus to broaden and enl enlarge the
scope of Indian exports and to procure essential imports on an economical basis. It may be
useful to state here that STO is not a department of the Government. Neit Neither does it enjoy
any special privileges under an Act of Parliament as tthose of L.I.C. or the State Bank of
India. It is a company registered under the Indian
Indi Companies Act and has to comply with its
provisions like any other company. How However, as its entire capital is held by the Government
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of India, administrative control of the Ministry of

a, it is under the administrati
Commerce,
rce, and has to undergo the commercial audit of the Auditor General of India.
SP
Historical Background
Surprisingly
Surprisin
Surprisinggly State Trading was first mooted in India by the business community
ly the idea of Stat
during the period of Second World War. The fear that the activities of the United Kingdom
Commercial Commission would deprive India not only of the profits of export trade but
also benefits of direct contracts with foreign markets made them believe that a government
organisation
organisa
organis ation
tion would be more suited to deal with foreign purchpurchasing missions which had
IN
channelized trade into directions not always to the advantage of the country. As the United
Prepared by S.C. Mehta and B.C. Dalal, Indian Institute of Management, Ahmedabad.
Case material of the Indian Institute of Management, Ahmedabad is prepared as a basis for class
discussion. Cases are not designed to present illustrations of either correct or incorrect handling of
©1965 by the Indian Institute of Management, Ahmedabad.
2 of 10 IIMA/MAR0046
Kingdom commercial Commission was wound up immediately after the cessation of the
war, the question of state trading was almost shelved in the background.
Immediately after the achievement of independence the idea of State Trading g was once
again revived. Att this time international prices of some export items of India rose very high
PY
enabling the traders to make exorbitant profits. The Government triedried to intercept a part of
the profits through high export duties but State Trading was considered as a better means
for mopping up the excess profits. In 1949 a Committee was appointed, with Dr. P.S.
Deshmukh as Chairman to go into the pros and cons of State Trading. The Committee
submitted its report in August, 1950.
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Some of its recommendations were:
(1) The Government ent might entrust its trading activities in food grains and fertilizers
to a statutory organisation which should be called the STC;
STC;
(2) The STC might take over all the import and export
port
p operations
ort opera
oper tions of a commercial
ations
nature which were then handled by different departments of the Central
Government
(3) The Corporation might, in addition,, taktake

ta kee u
up he import of East African Cotton
p tthe
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and exportt of short staple cotton and the products of cottage industries;
(4) When a particular

cular commodity was found Trading, then
found to be suitable for State Trad
only the possibility of raising revenue for the State should be considered as an
additional ground
nd for resorting to State Trading and
(5) In items,
n the case of certain luxury item
ite ms,
s, the prices of which generally remain high,
I
State Trading could be resorted to for the purpose of raising additional revenue.
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The committee further urged the reorganisation of the iinternational trade on co-operative
lines and emphasised the need for increasing the use of services of the InIndian banking,
shipping and insurance
ce organisations towards that end.
The Government did not accept the recommendations of Deshmukh Committee and iin 1952
set up another committee with Mr. S.V. Krishnamurthy Rao as C Chairman. This committee
E
reported thatt in view of the altere

altered
alt ere conditions in world market, it was not necessary for a
STC imports
C to take over even imp
im ports grains, cotton and fertilizers. The committee however
orts of food gr
recommended the setting up of a STC for the export of handloom cloth and the products of
certain selected small-scale
ted small-
small -scale and cottage industries. Thus both the committees were in favour
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of a limited sphere for State Trading.
The Taxation Enquiry 1953-54 also looked into the question of State Trading
Enquiry Commission 1953
that the conditions prevailing in the country did not
and dismissed the idea on the ground th
warrant such a step and the governmental machinery and the personnel were not adequate
to the task involved.
IN
It was only towards the end of the first plan period that the government found it necessary
to exercise more control over business for fulfilling the plan targets and decided to set up the
STC. The main considerations before the Government were:
(1) Insufficiency of import and export control, on the import side to ensure the
supply of essential goods required by producing units at reasonable prices and
on the export side to insulate the internal price level against the fluctuations iin
the foreign market.
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(2) The need for maximising foreign exchange earnings to help finance imports.
(3) Failuree of small firms to push sales road through competitive exporting
(4) Danger of competitive exporting spoiling foreign markets for Indian goods
(5) Unsuitability of the existing trade channels to undertake promotional work
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abroad
(6) Need for diversification of foreign trade and the establishment of trade relations
with State Trading countries.
Trading Activity
An idea about the trading activities of the STC C can be got from Exhibit I and II which give a
complete list of the commodities handled by it for im ports and exports respectively
imports res during
the year 1962-63. STC's activities can be broadly
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y divided into two, namely, (i) direct trade, in
which the Corporationtion enters into direct contractual obligations and invests its own funds
and (ii) indirect trade in which contracts arere concluded between foreign and Indian traders
but the Corporation assists the conclusion and implementation of the contracts, brings
buyers and sellers together, obtains import licences, guarantees quality, and uses its good
offices in matters like settlement of disputes. For the purpose of indirect trade the STC
enrolls private businessmen as business associates and presently has on its list nearly GOO
I
such firms.
CT
The trade of the Corporation,

tion, as revealed by Exhibit Ill, has increased considerably.
consider
Beginning
inning with Rs.9.19 crores in the year 1956-57,
1956 the STC's direct trade became of the order
of Rs.86.81 crores in the year 1962-
1962-63.
1962-63. has also registered a similar increase
63. Indirect trade ha
1957-52 to Rs.54.48 crores in 1962-63.
from Rs.12.48 crores in 1957-52
Exports and imports

E
Ass regards exports, the Corporation has tried to introduce new ite items in various world
East
markets, particularly the Ea
E st European countries,
ast countries besides making efforts for increasing the
existing
quantum of existin g items.
items. Over a period of about 8 years the Corporation has been able to
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earn foreign exchange worth Rs.195.66 crores from its direct export trade. Corporation has
succeeded in creating new markets abroad fo for a number of commodities. Some of the new
markets are:
i. U.S.S.R.: Woollen fabrics, cotton textiles, knitted wear (Woollen), shoes and
blades, cigarattes, fruit juices,
chappals, readymade shirts, sports good, razor blad
IN
soaps and cosmetic, nylon socks, tacked tea and instant coffee, opium etc.
ii. Hungary; Woollen fabrics, shoes and chappals, woollen knit wear, cotton
Hungary
textiles, etc.
iii. Turkey: Sewing machines, cycles, fans, electric bulbs, fountain pens, tiles,
imitation jewellery, etc.
iv. German Democrat Republic: Storage batteries, shoes, art silk

lk fabric,
fabric, liquor,
liquor,
surgical equipment, etc.
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v. Switzerland: De-oiled cake
vi. Bulgaria: Shoes, razor blades
vii. Czechoslovakia: Chappals,

als, razor blades, woollen undervests and underpants,
paint brushes, etc.
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viii. Yugoslavia: Sports goods
ix. Poland: Shoes
x. manganese and chrome concentrate.

North Korea: Ferro-manganese
xi. Indonesia: Cotton Yarn.
The Corporation also tries to export

ON
rt items which are difficult to move on their ow
own because
international prices. The Corporation
of the disparity between the domestic and international Cor does this
evenn at a loss in order to earn some foreign exchange on theseth commodities. Among the
commodities exported on n a loss are groundnut oil, Manioc meal, sodium bichromate,
bi de-
oiled linseed cake, lemongrass oil, cement, etc.
The STC has either directly been exporting these goods or assisting the private exporters
I
hes
h
through subsidies to undertake these esee exports. The losses on these goods are met out of the
tion makes on imported commodities offering scope for a higher
profits which the Corporation
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me out of the Trade Development Fund created

me
margin of profit. As a part of these losses is met
from normal profits of the Corporation. At At the end of 1962-63
1962 this fund stood at Rs.2.78
crores.
In order to diversify exports and to develop the export potential of the small and medium
Corporation
Corporatio
scale industries, the Corporation n has launched the,
th scheme of "Export Aid for Small
E
Industries." This scheme aims at fostering direct business relationship in the field of export
i
marketing between small Indian manufacturers and foreign importers and offers assistance
to manufacturers in exploring markets pricing their products, designing attractive
liter
packaging, preparation of sales literature and credit facilities. Through these efforts it has
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been possible
ossibllee to
ossib to conclude export orders worth Rs.21 lakhs and more orders are in the final
negotiation.
negotiati
stages of negotiation.on. The working of the
t scheme has proved that a large variety of product
manufactured by the small and medium-scale
manufactured medium industries are acceptable to overseas buyers,
ey are
if they are effectively marketed.
m
In addition STC has generated a large volume of export through, the mechanism of barter
IN
and link deals. Under these arrangements imports of essential items from a country are
a non-traditional items. These
linked with equivalent value of exports of traditional as well as
deals are operated through fins of repute in those countries. The value of the total trade,
both imports and exports, under these arrangements was of the tune of Rs.32 crores in 1962-
63.
As regards the imports, the STC's turnover of direct imports in the year 1962-63 was about
fertilizers
Rs.52 crores. The imports can be broadly categorised into four heads: (i) imports of fertilize
(ii) imports of raw materials for the purpose of Industrial productionuction (iii) imports of
commodities like newsprint, pulps etc. for current consumption and for the manufacture
nufaacture
nuf cture of
consumer goods. (iv) Imports of commodities in short supply for mopping off excess profit
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and utilising the margin for export promotion.
One of the objects of channeling imports through the Corporation

ration is to secure the
advantages of bulk purchases and handling and thus
us bring down their prices for internal
distribution.
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Besides the direct imports, the STC
C assists the private trade and industry to import essential
capital goods, raw materials and other commodities. s. In the year 1962-63
1962-63 the volume of such
indirect imports was Rs.23 crores for actual users on whom no service
service charge is levied, and
about Rs.32 crore forr stock and sales purposes on which a service charge ge is recovered
charge
char r to
cover the overheads.
The Corporation also arranged to import marine diesel engines from Japan to meet the
requirements of various State Departments of Fisheries. Recently it has entered into a
contract with a British firm for the import of textiles machinery required for the use of 18
different mills selected by the Textile Commissioner
ON
issioner from the private, co-operative
co and
public sectors.
Internal Distributers
The Corporation is acting as agents of the Government of India in regulating the distribution
of cement in the country.ry. Under the Cement Control Order of 26th June, 1956
1 trading and
internal distribution of cement has been entrusted to the STC
ST with a view to rationalising the
I
movement of cement within the country and to reduce the strains on railways, to make
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cement available
ilable et uniform prices all over the country and to secure an equitable
distribution. Under this arrangement
arrangement
arrangem ent cement is supplied to consumers at a uniform price at
all rail heads in the country. During 1963-64
1963-64 the
th Corporation's turnover in cement was of the
order of Rs.128.68
128.68 crores. The Corporation started this function on a remuneration of 1.25
per cent of turnover but it was later reduced to 40 paise per ton.
The STC has also been called upon to undertake the purchase and disposal of imported cars
E
offered
ed for sale by Diplomats and other foreign nationals. The scheme was introduced in
order to conserve
serve foreign ex-change
ex-change
exchange and regulate the resale market of these cars. In 1962-63
the Corporation purchased 55 cars out of which 24 were made m over to the various
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Government departments, State undertakings

undertakin and tourist agencies on actual cost basis and
the remaining were sold to the general public by tender system.
Buffer Stock Operations
The central idea

idea
idea behind the buffer stock operations is to maintain a particular
particula price.
Whenever the price in the market decline below this price, the buffer stock agency offers to
IN
buy large stocks at the declared price. The creation of additional demand
de thus raises the
market price. Similarly if the market price rises above the declared price, the agency starts
selling at the declared price out of its own stock. This is how the buffer stock agency
eliminates
eliminates fluctuations in prices.
Under directions of the Government, the STC has undertaken buffer stock operations in
respect of seedlac, jute, and lemongrass oil. The major objective has been to ensure fair prices
to primary producers and thereby to maintain ultimate production uction at optimum level and
continuity of exports. The Corporation has succeeded in carrying conviction to the growers
growers
that they need not sell their produce below the minimum prescribed levels. It has also beenbeen
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able to impress upon the trading ing community that if they did not fall in line with the
business to
objective of ensuring minimum prices to producers, they would lose their business to the
alternative arrangements made by the STC.
Other Activities
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The STC assists Government Departments and public enterprises in procuring certain
essential supplies. For instance, in 1962-63
63 it supplied 8.92 lakh tons of iron ore to Hindustan
Steel Limited. The Corporationtion also makes arrangements for business houses in India to
participate in trade fairs and exhibitions abroad.
The STC has a scheme of self-insurance stood at Rs.1.165

insurance and its Insurance Reserve Fund st
crores at the end of 1962-63. A price Fluctuation
ation Reserve, presently amounting to Rs Rs.90
lakhs, has also been set apart for providing cover against seasonal and sudden decline in the
prices of some of the commodities directly traded by the Corporation.
ON
Summing Up
The main achievement of STC has boon in the field of exports where undoubtedly it has
Droved instrumental
strumental in promoting trade in a large number of items both traditional and
new. Within a short time its attempts to diversify trade have borne fruits and exports
particularly to regimental economies have increased consi considerably. Another important
contribution of the Corporation has been the alerting of private traders. Now they are
I
convinced that if they do not maintain a certain minimum
mini code of conduct the STC would
CT
step in to set matters from its very inception, the Corporation has met
ters right. Unfortunately from
with severe hostility from private traders. They believe that it has been conceived with the
idea of gradually elbowing out private trade. They forget that trade is no longer on
occupation
upation for a few but a vital national economic activity which must be conducted in a
systematic way to serve the general
general interests
int of the society. In fact the STC endeavors to
supplement and not to supplant private trade,
t to complement and not to compete with the
private trade. Whenever possible, STC imimplements contracts through the established trading
E
channels.
No doubt the STC

he ST
S TC presently
C as prese
presently constituted has certain inherent weaknesses. It is mostly
ntly cons
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manned by Government officials who do not possess business

busines experience and the requisite
initiative. There is also the need for greater coordination between the private trade and the
STC. But on the whole record of the Corporation is quite satisfactory and itsit trade both in
volume and range of commodities has been b rapidly growing. In fact its rapid growth
compelled the Government to bifurcate the STC into two portions by forming a separate
Corporation styled as the Minerals and Metals Trading Corporation of India. This
Corporation was brought into being on 1st October, 1963 and took over all assets and
IN
liabilities pertaining to minerals and metal trade from the STC.
Recently
Recently the pricing policy followed by the Corporation has encountered some criticism,
and it has been accused of charging high prices for the goods imported by it and thus
earning fabulous profits. Most of the criticism, however, arises out of inadequate
appreciation of the facts of the situation. In case of commodities like fertilizers the margin
charged by the STC ranges from ½ to 1 per cent and the entire benefit resulting
sulting from the
bulk purchases of these commodities is passed on to the buyers. Similarly the margin on
news-print
print is also kept as low as to 1 per cent. These low margins even do not cover the
overhead expenses.
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In case of non-ferrous metals, which are required for the development of Small Small industries,
the margin charged is about 3 per cent. For commodities like pharmaceuticals,
pharmaceuticals, chemicals,
raw silk etc., the Corporation
ion keeps a margin of about 10 per cent. In case of commodities
like caustic soda, soda ash, sodium sulphate etc., which are also produced indigenously, the
price are so fixed as to ensure that there is not much of a difference between the two prices
CO
so that domestic production is not adversely affected and middlemen do not earn excessive
profits. No doubt in case of commodities like betelnuts, cloves, mercury, camphos etc., the
Corporation
tion charges a high margin but this is mostly because of a wide difference between
the domestic and international prices. If the Corporation fixes a lower margin, the difference
will be pocketed by the middlemen without out any substantial benefit
benefit to the consumers and
an at
the same time would be deprived of the funds it barely barely needs for promoting country's
exports.
I ON
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SP
IN
Exhibit I
State Trading Corporation
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Quantities of Commodities Handled during 1962-63.
Imports
1 Wheat 17,091 M/T 24 BetelNuts 4,319 M/T
24,45,608
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2 Copper 23,810 M/T 25 Cinera carbons Pcs.
3 Zinc 21,795 M/T 26 Cotton Yarn 23,000 lbs.
Raw silk & spun silk
4 Lead 3,397 M/T 27 yarn 143 M/T
5 Aluminium 2,767 M/T 28 Hops 32,920 lbs.
6 Ferro-Silicon 715 M/T 29 Newsprint 43,445 M/T
7 Platinum 2,624 M/T 30 Ferro-Vanadium
Ferro-
Ferro-Vanadium
Vanadium 4,580 kilos
8 Stainless steel
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2,408 M/T 31 Art silk yarn 23,77,983 lbs.
9 Camphor 210 M/T 32 Copra 26,617 M/T
10 Sodium sulphate 9,486 M/T 33 Copra cake 9,616 M/T
11 Sulphate & Potash 2,476 M/T 34 Copra oil 2,636 M/T
12 Chilean Nitrate 10,257 M/T 35 Ferro-chrome
Ferro 58 M/T
13 Hydro-sulphate of soda 35 M/T 36 Rock salt 162 wgns.
I
14 Muriate of Potash 54,327 M/T 37 Cloves 825 M/T
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15 Rangolite 'C' 451 M/T 38 Cassia 84 M/T

16 Polystyrene 114 M/T 39 Coconut oil 5,431 M/T
Bleached sulphate pulp
17 Caustic soda 34,138 M/T 40 of reeds 1,296 M/T
Tacks lasting & pin
18 Soda Ash 20,230 M/T 41 Heels 13 M/T
19 Pooled Nitrogenous 4,65,211 M/T
4,65,21 42 Yanman Diesel engine 429 Nos.
E
20 Rayon Grade C. Soda 8,000 M/T 43 Polyster Fibre 4,54,574 lbs.

21 P.V.C powder 7 M/T 44 Staple Fibre 17,641 Bales
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1,24,000
22 Phenol Kilos 45 Hyper Phosphate 188 M/T
23 Mercury 220 M/T
IN
Source: STC Annu

Annual Report, 1962-63.
Exhibit II
State Trading Corporation
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Quantities of Commodities handled during 1962-63
Export
37,37,238
1 Iron Ore M/T 21 Rice 1,341 M/T
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2 Manganese ore 4,16,680 M/T 22 Palmyra Fibre 1 M/T
Manganese
3 Dionide 1,595 M/T 23 Black pepper
pepper 130 L/T
4 Mica 1,222,865 24 Henna powder 346 L/T
5 Chrome Ore 7,377 M/T 25 Bicycles 51 Pcs.
6 Bausite 49,716 M/T 26 Fountain pens 700 Dozs.
14,88,203
7 Kyanite ore 200 M/T 27 Cotton Fabrics Mtrs.
8 Ferro-Manganese 8,679 M/T 28 Dry Ginger 6 L/T
ON Sugar Packing
9 Sillimanite ore 44 M/T 29 cloth 500 Bales
10 Sodium Bichromate 114 M/T 30 Hessian cloth 1,108 Bales
11 Salt 1,72,913 M/T 31 Sugar bags 750 Bales
12 Tobacco 19,401 Bales 32 Sunmica Sheets 1,100 sheets
2,36,905
13 Woolen Fabrics Mtrs. 33 Hessian Twine
Hess 73 Bales
I
3,28,296
14 Shoes pairs 34 L. Twill cloth 50 Bales
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15 Pulses 8,491 M/T 35 Razor Blades 3,950 Pkts.

16 Lemongrassoil 4,320 kilos 36 Ground Nut oil 14,173 M/T
17 Cotton Yarn 978 Bales 37 Ground Nut cakes 21,215 M/T
18 Handloom Fabrics Sundry Items 38 Groundnut Kernels 327 M/T
19 Senna Seeds 98 kgs. 39 Opium 40 M/T
20 Manoic 1,643 M/T
E
SP
Source: STC Annual Report, 1962

1962-63.
IN
Exhibit III
STC's Progress At a Glance
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( in crores of rupees )
Year Exports Imports Direct Indirect Total
1956-57 5.79 3.40 9.19 ---- 9.19
1957-58 30.10 17.96 28.58 19.46 48.06
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1958-59 36.72 27.34 35.95 28.25 64.20
1959-60 32.35 36.28 42.82 27.00 69.82
1960-61 40.86 68.42 64.69 46.00 110.69
1961-62 40.02 84.26 77.39 48.00 125.39
1962-63 43.08 96.36 86.81 54.48 141.29

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Source: STC Annual Report, 1962-63.
I
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IN

Ahmedabad IIMA/PROD0006(A)
Punjab Machinery Company (A)

In July 1964, Mr. Darshan Singh, Chief Executive, Manufacturing Division of Punjab
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Machinery
inery Company, was discussing with the Production Manager, Mr. S. A. Krishnan,
about various steps to be taken to hasten manufacturing activities
ities at the plant. 3½
3½ years ago,
the company had entered into a technical collaboration agreement with a foreign machine
tool manufacturer, to produce radial drilling machines and universal milling machines.
Most of the production and tool room machines had ad been installed in the new factory
building. Thee company's own model of milling machine known as "Bharat" was being
CO
manufactured for over a year. A manufacturing target had been set for the different types of
machine tools for the current and the following
ng three years as given in Exhibit 1. Almost all
the materials required for the production of Bharat milling machine had been stocked. The
company had employed a few engineers recently and the total strength stood at 32
supervisory staff and about 220 workers.
Company History:
Punjab Machinery Company (P.M.) was well-known

known as a trading company which sold many
N
types of machinery, electrical equipment, textile machinery, power plants, machine tools
etc., both imported and indigenous. For some products, P. M. was the sole selling agents.
The company had a well established sales organisation and a number of branch offices in
IO
different cities of India.
Manufacturing Activities:
Industrial Humidifiers: As a trading organisation, Punjab Machinery Company had fair fairly
T
intimate knowledge of the products it was selling, the market demand for the products, sales
trends, possible profit margin etc.
etc. Even as the demands were increasing, import restrictions
on machinery became stringent, particularly from 1958 onwards. Ther Therefore P.M. itself
EC
thought of becoming a manufacturer and in 1963 signed a collaboration agreement with one
of the West European firms to progressively manufacture industrial humidifiers. This was
their first manufacturing activity.
To start with, the company

company sub-contracted
sub-contracted to a firm to make the humidifiers based on design
and drawings supplied by P.M P.M.
P. M.. In tthe year 1961-62 the company sold 58 humidifiers. Later
the company started making
making these units on its own (after settling the terms of royalty etc.,
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with thehe collaborators) and the first semi

semi-central unit 1 was manufactured in April 1963. In
thee following one ye
y
year
ear
ar P.M.
P.M fabricated and sold 32 units.
Machinery Manufacture
Manufacture: While the fabrication wing of the company started selling
industrial humidifiers from 19 1960, the machinery wing started its activities with the
production of machine vices from June 1960. In 1961 a Manufacturing Division was
established at the head office, situated 200 miles from the plant. The workshop for
IN
fabrication as well as for machinery manufacture was a space of about 11,030 sq. ft. within
1
One of the types of humidifiers. Another type was known as a central unit.
Prepared by Professor B.K. Hegde, Indian Institute of Management, Ahmedabad.
Case materials of the Indian Institute of Management, Ahmedabad is prepared as a basis for class
2 of 18 IIMA/PROD0006(A)
the factory building of a sister concern. Three types of machine vices plain, swivel and
universal were being made. During the year 1962-63, the company made 400 machine vices.
In June 1962 a proto-type

pe of a German make of universal milling machine was made by P.M P.M..
(this was later named "Bharat").. This was possible almost entirely because of the innovative
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ideas and drive of the company's Production Manager, anager, who in fact was in charge of the
entire manufacturing
facturing activities including the fabrication of industrial humidifiers. Except for
purchased parts like electric motors and accessories the milling machine was really an
indigenous product. In the year 1962-63, 63, P.M. made another milling machine. Government
Governme
inspectors graded it as Grade F machine. After this successful achievement the company
concentrated more on the production of milling machines and less on machine vices vices 2, which,
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incidentally, we're difficult to sell.
During the financial year 1963-64 (July - June) 14 milling machines were made and sole. The
selling price was around Rs. 25,000.
The order backlog for Bharat milling, machine as of July 1964 was 30 machines. Most of tthe
orders were from training schools and engineering colleges.
Foreign Collaboration:: After 1953, the Government of In IIndia

ndia
dia banned the import of certain
sizes of milling machines and radial drilling machines. This affected P.
N
P.M. which was sole
distributor of these machines made by an European firm. Therefore early in 1961, P.M.
entered into a technical collaboration with a firm to manufacture milling and radial drilling
machines in India. The collaboration was with the same firm which formerly was supplying
IO
these machines to P.M.. Under this agreement two sizes of radial drilling machines
mac and one
size each of horizontal, vertical and universal milling machines were to be made by P.M.
with all technical know-how how and some personnel made available to them by the
collaborators. The manufacturing plan was a phased programme by which initi initially (for the
first couple of years) only some parts were to be made at P.M. and the rest imported from
T
the collaborator's firm abroad. Meanwhile the Bharat milling machine production was to
continue. Targets of production were laid for the different machi
machine tools as given in Exhibit
1.
EC
The Situation in July l964

964
964
Buildings & Facilities:

Facilities: After launching the new machine tool manufacturing project some of
the old machines as well as the new ones bought for the purpose of this project were
installed in a new factory
factory building just a few hundred yards away from the old one. The
new factory building measured 136 meters x 40 meters. The factory building was intended to
SP
accommodate the machine shop, tool room, heat treatment area, carpentry, assembly,
despatch and the
the office. In addition, another building to house the factory canteen and the
training school was also being built. The total cost was estimated to be about Rs. 10 lakhs.
Plant
ant & Machinery:
Machinery A list of plant and machinery, including appliances, tools and
accessories - those existing before taking up the project as well as those additionally bought -
is given in Exhibits 2
2-A and 2-B. The list also includes machines used almost exclusively in
IN
connection with the production of industrial humidifiers. The total cost of plant and
machinery was about Rs. 51 lakhs. The installation cost including cost of foundations were
estimated to be around 5 to 6 6% of the value of the machines. Most of the machines were new
2
In 1964 the manufacturer of vices was discontinued.
and those which were old had been in use varying from one to three years.
The Chief Executive wanted to have at least some idea as to whether these machines would
be sufficient to achieve the target production on the basis of one shift working. As a trial, one
of the engineers was asked to determine the capacity y required for the manufacture o off the
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company's model. Production on the new machines had not started. Neither standards nor
sufficiently accurate past data were available. Therefore, the engineer decided to try the
following two methods:
1. Take the collaborator's standards for their model of milling machine, assume an
efficiency of 60% and then calculate the number of machine-shifts
machine
machine--shifts
shifts required of
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various groups of machines (i.e. milling, drilling, lathes, etc.) for the production
of Bharat milling machine. Thiss approach was considered to be satisfactory since
the milling machine of the collaborators was more or less of the same type and
size as the one being made by Punjab Machinery. Capacity calculations based on
machines as per Exhibit 2^3 are given in Exhibit
Exhibit 3.
2. Take past actual time -records

records for the manufacture of Bharat milling machine
and from which calculate machine shifts needed for different groups of
machines. Capacity calculations are shown in Exhibit 4.
The following results were obtained from the two methods of ca
(a)
capacity calculations:
N
By using the standards available for the collaborator's milling machine, it
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appeared
red that the total available capacity on one shift basis was more than
adequate; probably even for the production of all the types of machines and to
meet the targets laid as per Exhibit 1.
(b) By using past actual time data for the production of Bharat milling machine and
T
by using machines listed in Exhibit 22-A, the available capacity was found to be
totally inadequate for a production rate of 5 machines per month. With the
addition of more and faster machines
machines- as listed as Exhibit 2-3, the situation
EC
would be better, All the same, if past data were to be relied upon, it was doubtful
whether even the additional machines would overcome the capacity shortage,
considering that radial drills (2 types) and the collaborator's design of milling
machine were also to be manufactured.
Materials & Supplies:

Supplies: In July 1964, almost all the raw materials and parts required for
manufacturing Bharat
Bharat milling machines were in stock at the stores of P.M. The nature of
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materials used were predominantly (a) alloy steel (chromium - nickel - molybdenum steel)
bar stocks of different sizes, and (b) grey iron castings. The electric motor for the drive,
electric starter, switch
switch and such other accessories were to be bought from outside. Exhibit 5
provides a list indicating most of the materials used in the manufacture of this machine. The
materials required for one machine along with a list of the stocks available as of July 196
1964 3
can also be found in the same Exhibit. All materials except those marked with an asterisk
were available in the city where the head office was located. The purchase officer, working
IN
in the head office and reporting to the Chief executive, Manufacturing Division, purchased
these materials. The llead time for the purchase and delivery of these materials at the factory
varied from two weeks to twelve weeks. Materials were generally trans
transported to the factory
3
Out of about 500 parts in total, only the requirement of some castings, purchased parts and accessories is
shown in this Exhibit.
by trucks. Castings for the machines were obtained from the foundry of a sister concern
located within a kilometer from Punjab Machinery factory.
General supplies like lubricating oils, cotton waste, consumable and special tools were also
purchased through the purchase officer at head office.
PY
Manpower & Managerial Resources:
The manufacturing unit had a total strength of about 253 of which 32 were supervisory and
the rest were direct and indirect workers. About
bout 60 workers belonged to the humidifiers
manufacture department. Among the supervisory staff two were engineering degree
holders, one with 6 months' experience and the other with two years' experience, and five
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people were engineering diploma holders. Their total experience varied from two to eight
years. Of the remaining, one who was in charge of accounts was a commerce and law
graduate. The remaining supervisory staff had a formal education of intermediate or less,
but had risen from ranks and had practical experience in the shops varying from eight to
twenty years. Other than those mentioned above there
here were two technically qualified people
from the collaborators - one, mostly in machine tools and jig and tool design and the other in
production, planning.
Because skilled Workers

machinists. Only
On N
rs were scarce, a craft training school was set up to train workers as
inists. There were ten trainees as of July 1964. Only
ly those who had passed their
th school
final examination and knew enough English to understand instructions were taken in the
training school.
IO
There was no formal organisation existing till July 1964. In July, however, the Production
Manager announced the organisation structure through a circular sent to all department
/section heads.
eads. As per this, the organisation was to be as shown in Exhibit-6.
T
Systems and procedures in thee company:
For the two types of machine tools to be produced under the technical collaboration, all
drawings and particulars regarding operation sequence, jigs and fixtures, used, standard
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times etc., were already available. It was intended that almost all the jigs and fixtures needed
wouldd be made at Punjab Mach
Machinery
inery Company. From the details it was clear that many of
the machines used d by the collaborator
collabora
collabo ra (for which the operation sequence and standards
were relevant) were different and so were the cutting tools used. Some of the machines did
not have the power capacity and speed range to use tools like carbide tipped tools. Though
some machines had this capacity, P.M. had so far used mostly high speed steel tools.
SP
With respect to the production of Bharat milling machines almost all the draw
drawings were
available but they did not indicate specific toler
tolerances, allowances and such other finer
details. Operators machi
machined the parts looking at the assembly or part drawings supplied to
them. Even these did not mention allowances or tolerances nor det detailed instructions for
machining.
IN
The company did not maintain much in the way of forms control or records mainly because
the manufacturing activity itself was small in the preceding months. However, there were a
stores requisition form, a shop order card and a few statutory records.
In discussin
discussing the steps to be taken, Mr. Singh wanted to cover as wide an area as possible
and in sufficient depth. In fact he was keen on each aspect being studied in detail so that
additional preparatory work, if necessary, could be come as early as possible. Faults in the
work done so far had to be remedied and finally some sort of priority assigned for the
various jobs. Both Mr. Singh and Mr. Krishnan, the Production Manager, agreed to put the
newly recruited management trainee (not included in the manpower resource figure
referred to earlier) on this job and to have Vis report based on available facts. If his report
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was found acceptable Mr. Singh and Mr. Krishnan intended to implement the same.
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N
T IO
EC
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IN
Exhibit 1
Punjab Machinery Company (A) Production Targets
Type of machine tool Target Production Nos.
PY
1964-65 1965-66 1966-67 1967-68
1967
1967--68
68
Sept - June
1. Radial drill - size A 60 100 120 150
2. Radial drill - size 3 30 40 60 75
CO
3. Milling machine (foreign design) 40 60 100 180
4. Bharat milling machine 50 75 75 *
5. Industrial humidifiers 50 60 60 60
* It had been planned to discontinue the manufacture of Bharat milling machine, and step up
production of foreign design machine instead.
Note: Targets for 1968-69

69 onwards would be the same as for 1967-68.
1967-68.
1967- 68.
N
T IO
EC
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IN
Exhibit – 2A
List of Plant and Machinery
A. Existing (before going into production of collaborative products)
PY
Sr.No. Particulars No. of Cost in RRs.
s.
machines (Rounded off to the
near
nearest
est hundred)
1. Universal Milling Machine 7A5U 1 63,700
2. Vertical Milling Machine FA57 2 1,02,300
3. Horizontal Drilling Machine FA5II 2 1,04,600
CO
4. Tapti Milling Machine TJ-1* 1 22,000
5. M.K. Make Lathe MB-1 1 6,700
6. M.K. Make Lathe LX-200 1 17,700
7. M.K. Make Lathe RL.-R1 2 63,100
8. M.K. Make Lathe RL-R2 1 36,100
9. M.K. Make Lathe RL-R1 1 29,700
10. Madras Make Lathe SD-1 4 45,200
11.
12.
13.
14.
M.K. Make Lathe MBD-1
Cooper Shaping Machine 3P-24
Lathe RT-26
Gear Shaper OH-6
N 2
1
1
1
13,000
21,400
16,500
36,000
IO
15. Champion Planer No.2 1 14,300
16. Universal Tool and Cutter Grinder B
BN-102
BN
N--102
102 2 38,800
17. Horizontal Surface Grinder BPH-300
PH--300
PH 300 1 33,600
18. Radial
adial Drilling Mac!:i.ie RM-
RM-51
RM -51
51 1 37,700
T
19. Horizontal
orizontal Boring Machine H
H-63
H--63
63 A 1 62,000
20. Horizontal Boring Machine H
H-100A
H--100A
100A 1 1,44,400
21. Wolf Flexible Shaft Grinder 1 800
EC
22. Wolf flexible Shaft G

Grinder
rinder FFO 1 500
23. Wolf Electric Tool
ool Post G
Grinder
Grriinder
nder 1 500
24. Praga Bench
ench Drilling Machine 2 4,800
25. Wolf Portable Electric Drilling Machine W04C 1 400
26. SHM Air Compressor 1 2,100
27. Ashok Flexible Shaft G
Grinder 1 900
SP
28. Cordia Tool Post G

Grinder
Grinde
rinde DD-20 1 900
29. Wolf Portable Drilli
Drilling Machine I32C 1 200
30. Ettco
Ettco Tapping
Tapping attachment 1 700
31. Spartan GGrinder
rinder 1 400
32. Cobra Hacksaw Machine 1 3,600
33. Lax-Arc
Lax-
Lax -Arc
Arc W
Welding Equipment* 1 3,100
IN
34. Mc Rugger Hydraulic Hand Operated Floor Crane 1 3,900

HP-2
HP-
HP -2
2 No. 2065
35. Cast Steel Anvil 1 300
* Used almost exclusively in the manufacture of Industrial Humindifiers.

Exhibit 2A (contd)
Sr. No. Particulars No. of Cost in Rs.

machines (Rounded off to
36. Chain Pulley Block 5 ton 1 1,100
PY
37. Wood Turning Lathe KL-65 1 1,300
38. Tilting Arbour Saw Band Rockwell CL-8636 1 1,030
39. Dominion Spindle Moulder DV 1 3,300
40. Sanco Spray Gun 1 100
41. Osaka Spray Gun B-Type 1 -
42. Japan make Spray Gun C-Type 1 100
CO
43. Blue Printing Machine 1 1,000
44. KND Air Compressor 1 700
45. Simpson Trolley 5' x 3' x 10 Cwt. 1 600
46. Wolf Die Kit DG-1 1 300
47. Press Brake. LO 200* 1 1,15,400
48. Universal Shearing Machine NUD* 1 21,600
49. Guillotine Shearing Machine NT 200/4* 1 21,600
50. Guillotine Shearing Machine NTF-3150/6-3 * 1 10,400
51. Praga Pillar type Drilling machine 2 3,400
52. Single Sided Fly Press P-5* 1 400
53.
54.
55.
56.
Single Sided Fly Press P-6*6*
Single Sided Fly Press No.6*
Hand Lever Shearing Machine*
Rolling Machine XZ/200*
.6* N 1
3
1
1
600
1,500
200
7,200
IO
57. Universal 3ending Machine XH-200/1-25*
200/1--25*
200/1 25* 1 9,600
58. All-Cut Bandsaw Machine* 1 10,200
59. Heavy Duty Grinder 1 3,500
60. Cooper Slotting Machine HOV-
HOV-16
HOV -16
16 1 12,400
61. 'Indare' Transformer 1 5,600
62. Edge Bending Machine* 1 300
T
63. Lax Hand

and Operated Pressure test pump 1 500
64. Flexo tube Englishh make Flexible Shaft 1
Grinder 1 1,100
EC
65. Wolf Indian Make Drilling Machine EG2C 1 200

66. Letter Balance 1 -
67. Avery Weighing Machine 1 6,000
68. Hand operated Ceil Winding Machine 1 400
69. Czech. Make Profile Projector 1 8,300
70. Pigmy Hydraulic Pallet Truck 1 1,500
71. Set of metric thread Change Gears for MBD-l 1 600
SP
* Used almost exclusively in the manufacture of Industrial Humidifiers.

IN
Exhibit 2-B
List of Plant & Machinery
PY
B. Additional Machines Budget as of 30.6.1964
Sr. Particulars No. of Cost in Rs.

No machines (Rounded off to the
nearest
nearest '00).
1. STAR Brand 20 Ton Power Press* 1 4,100
2. Universal Grinding Machine, 2UD/750 1 37,900
3. Gear Shaper, model OH-6 1 43,800
CO
4. Radial Drilling Machine, VR-8 1 55,100
5. Amer 154 Spot Welding Machine* 1 4,100
6. Capstan Lathe, R-5 5 1,93,800
7. Pedestal Grinder 1 1,100
8. Make Lathe, M3D.1 2 17,100
9. Praga ½" Bench Drilling Machine 1 1,600
10. Universal SS & SC Hollow Spindle Gap Bed 1
Lathe, Modal TR-130 1 97,000
11. Universal Tool Cutter Grinder, BN-102 1 19,300
12. Semi-Automatic Copying the, SP-25E25E 1 1,47,100
13.
14.
15.
16.
Twist Drill Sharpening Machine BNV-80
Single Spindle automatic-Lathe- AD-25
Capstan Lathe, R-80
Horizontal Surface Grinder, BPH-2020
80
25 '
N 1
1
1
1
12,800
41,200
801,700
19,600
IO
17. Vertical 3orin-j & Turning Machine SK-
SK-12
SK -12
12 1 1,851,400
18. Plate Edge Planning Machine HHP-HHP-12*
HHP -12*
12* 1 1,77,000
19. Piano Milling Machine, ER0-8 8 1 4,21,500
20. Horizontal Boring Machine, H-100A
100A 1 1,35,500
21. Radial Drilling Machine, VR-104-A
104--A
104 A 1 74,500
T
22. Gear Hobbing ng Machine, FD-

FD-6
FD -6
6 1
23. Piano Milling Machine, FP-
FP-16
FP-16
16 1 38,900
24. Vertical Surface Grinding Machine 1 3,90,300
BPV-300/1500
300/1500 1 30,500
EC
25. Horizontal Surface Tool Grinding Machine

BPH-20N
20N 1 27,000
26. Double Housing Planning Machine 8D 8D- 1 3,32,400
16/8330
27. Radial Drilling Machine VR-
VR-4
VR -4
4 2 50,750
28. Radial Drilling Machine
Machine VR -2 2 28,500
29. Power Driven Sending Machine XOM/2000/4* 1 25,800
SP
30. Double Housing Planning Machine "0"0- 1 3,73,600

16/8000
31. M.K. Make Lathe, RL
RL-R-2 2 74,400
32.. Semi-automatic
Semi-
Semi -automatic
automatic Milling Machine FB
FB-40V 1 98,000
33. Cooper Shaping Machine, ASAS-12" 1 7,130
34. SRM Air Compressor 1 2,100
35. Pratap Drilling Machine 1 7,300
IN
* Used almost exclusively in the manufacture of industrial humidifiers.

Exhibit 2-B (Contd)
Sr. No. Particulars No. of Rs.

Cost in Rs.
PY
machines (rounded off to
the nearest'00)
Balance b/d
36. M.X. Make Lathe, RL-R1 2 47,100

37. Capstan Lathe, R-30 1 81,900
CO
38. Universal Milling Machine, F/.5U 1 66 ,200
39. Capstan Lathe, R-5 5 1,89,000
40. Tool Room Milling Machine, FN- 25 1 49,000
41. Universal Tool & Cutter 3rinder, BN-102 1 21,100
42. Vertical Surface Grinding Machine BPV-700/3000
700/3000 1 83,000
43. Guillotine Shearing Machine NTF-3150/6-3 1 47,200
44. Bhadravati Lathe* 1 16,200
Freight paid. To be allocated to the machines upto 30.6.1964.

N 27,500
IO
* Used almost exclusively in the manufacture of industrial humidifiers.
T
EC
SP
IN
Exhibit 3
Capacity calculation for production of Bharat milling machine
PY
Collaborator's machining time data taken within assumed efficiency of 60,%
Type of machines No. of production Capacity available per Capacity required for
machines month @ 30% utilisation Bharat milling machine
available for 26 days on single shift manufacture at a rate
basis. of five machines per
CO
(Exbt.2-3)
60%
month at 60%
efficiency
Machine-shifts Machine-shifts
Machine
Lathes 11 229 59
Capstans 13 270 51
Single spindle auto lathe
Killing machines
1
5
N 21
104
8
47
IO
Planers 4 83 21
Horizontal borers 3 62 49
Shaper & Slotter 1 21 14

T
Radial drill 6 125 25
Pillar drill 2 42 14
EC
Sear generator 3 62 9
Cyl. grinder 1 21 29
Surface grinder 4 83 8
Total 54 1123 334

SP
IN
Exhibit – 4
Capacity calculation for production of Bharat

arat milling machine with past actual time data as basis
PY
Type of machines No. of production Capacity available per Capacity reqd. Capacity
available m/cs month @ 80% utilisation for Bharat surplus (+) or
( Exhibit 2-A) for 26 days on single milling rn/cs. deficit ((-)
shift basis, (m/c shifts) manufacture at (machine
a rate of five shifts)
m/cs per
month at past
CO
actual time
data* (m/c
shifts)
Lathes 13 270 987 -717
Milling machines 6 125 395

39 -270
Slotter & shaper 2 42 126 - 34
Drilling machine 1 21 56 - 35
Grinding machines
Boring machines
2
2
N 42
42
193
182
-151
-140
IO
Planer 1 21 114 - 93
Gear cutting machine 1 21 43 - 22

T
Total 28
8 584 2096 -1512
* Past data on actual times was tak

ttaken
aken
en from records for two batches. Time values varied widely. All the
EC
same average was taken as this agreed with the overall average for the 14 machines produced
earlier.
SP
IN
Exhibit 5A
PY
Particulars of materials required for Bharat milling machine
Material: EN-24 steel:
Sr.No. Size dia Quantity Cost per kg. Cost of Stock on Value
(mm) required per material per hand(kg) (6 x 4) Rs.
machine(kg) machine
(4x3) Rs.
CO
1. 2 3 4 5 6 7
1. 45 3.6 3.83 14 186 712

2. 50 1.4 4.64 7 138 640
3. 55 0.5 N.A. - 180 -
4. 60 12.6 N.A. - 81 -
5. 65 2.0 2.14 4 552 1181
6. 70 2.6 4.39 11 370 1624
7.* 73 8.6 6.12 53 31 190
8.
9.*
10.
11.*
75
80
83
85
1.8
9.0
2.6
4.5
3.78
N.A.
2.80
2.80
6.50
6.50
N 7
-
7
29
955
186
1132
1188
3601
-
3170
7722
IO
12. 90 12.4 4.22 2190 9241
13. 95 2.6 4.00 10 Nil -
14. 100 23.4 4.40 103 1984 8730
15.* 105/108 5.8 6.63 38 188 842
16. 115 19.9 6.66 133 1348 8978
T
17. 120 7.0 6.66 47 216 1439

18. 125 1.8
8 6.66 12 386 2571
19. 132 0.6 4.40 3 715 3146
20.* 140 6.8
6.8 4.44 30 784
EC
21.* 150 1.4 6.60 9 244 1610

22.* 180 2.4 4.13 10 552 2280
*Available
vailable only outside the city
SP
IN
Exhibit 5-B

EN- 1A Brightdrawn free-cutting steel
PY
Sr. No. Size Quantity required Cost per Cost of Stock on Value of
dia per machine (kg) Kg. material hand kg. stock
(mm) Rs. per (6 x4)
machine
(3x4) Rs.
1 2 3 4 5 6 7
CO
1. 5 N.A. N.A. - 2 -
2. 8 0.74 1.89 1 131 247
3. 9.5 0.78 1.85 1 38 70
4. 11 1.13 1.81 2 55 99
5. 13 4.45 1.50 7 289 434
6. 16 7.35 1.50 11 174 261
7. 19 20.70 1.51 31 1262 1893
8. 22 0.36 1.61 1 34 55
9. 25 5.09 1.51 8 226 341
10.
11.
12.
13.
14.
28
32
35
38
41.5
4.39
3.55
2.5
4.31
4.56
1.52
1.53
1.52
1.52
1.52
N 7
5
4
67
17
271
208
192
133
146
412
318
292
202
222
IO
15. 45 11.46 1.52 8 216 328*
16. 48 5.01 1.52 9 365 555
17. 50 4.40 2.03 1 219 444
18. 53 1.1 1.46 13 172 251
19. 56 8.72 1.55 5 496 769
20. 60 2.79 1.61 - 194 312
T
21. 63 N.A. N.A. - 603 -

22. 66 N.A. N.A. 5 Nil -
23. 70 2.74 1.74 10 417 726
EC
24. 75 N.A. 1.61 - 354 570

25. 80 6.43 N.A. 7 Nil -
26. 82 N.A. 2.40 - 158 379
27. 85 3.03 N.A. - 254 -
28. 93 N.A. N.A. 600 -
SP
N.A . - Not available

IN
Exhibit 5C

Stocks of certain purchased parts
PY
Sr. Description of part No. No. required Cost Stock on Value
No machine Per piece hand Rs.
Rs.
1. NBC - 120 Ball bearing 1 5 57 Nos. 285
2. S IV N 209 Roller bearing 1 16 87 " 1,392
CO
3. SRO 6206 Ball bearing 1 5 57 " 285
4. NBC 325 Ball bearing 2 7 114 " 798
5. SRO 6005 3all bearing 2 7 106 " 742
6. SXF 6209 Ball bearing 2 23 114 " 2,622
7. SXF 30305 Taper roller bearing 1 7 57 " 399
8.
9.
Steyr 32305 Taper roller bearing
Steyr 30304 Taper roller bearing

4
1
N 9
10
280 "
56 "
2,520
560
IO
10. Steyr 32212 Taper roller bearing 1 33 88 2,904
11. Steyr 51106 Thrust bearing 3 11 170 " 1,870
12. SRO 51105 Thrust

rust ball bearing 2 8 124 " 992
T
13. SRO 51113 Thrust bearing 1 10 57 " 570

EC
Note. Stocks of various cas

castin
castings
tings
gs re
req
required
qui
uirred
ed are not given here, as the list is too lengthy.
On an average castings required for 22 milling machines were available as of August, 1964.
SP
IN
IIMA/PROD0006
Exhibit 6
PY
Panjab Machinery Company (A)
Manufacturing Division - Organisation

isation Structure
Managing Director
CO
Chief Executive Manufacturing
Production Manager
Assembly Inspn. Prod. Planning Painting Jig & tool design Tool Room Training School Drg. Office Pattern Shop Stores
ON
Machine Shop
Production
Maintenance Construction Administration
TI
Humidifiers Manufacture Shop-in-charge
EC
Executive Trainee Foreman
Supervisor
SP
IN
PY
CO
N
IO
Radial Drilling Machine: A drilling machine is used
used for drilling holes in workplaces. Radial
drilling maculae is used in drilling, workpieces too heavy to be moved easily and too large
T
for other drill presses. It has a horizontal aria that tthe operator can adjust up the down on
the column and a head that he can position along the arm. Radial drills nay have arms 4 to
12 feet along the columns 9 to 26 inches in diameter. Radial drilling machines permit the
EC
drill to the swiveled

veled at angles and moved accurately fro from one position to another.
Milling Machine:: Mulling machines remove metal by feeding the wor work-piece against a
rotating multi-blade
blade cutter. The milling cutter, having no motion other than rotation, is
circular shaped. As the work is passed under this cutter, each tooth removes a small amount
of metal,
al, resulting in a continuous cut completed in one pass. In addition to cutters of this
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type, which are supported on an arbor, other cutters may be held in the arbor socket. Milling
machines perform a great many operations and are considered the most vers versatile of all
machine tools.
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N
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Vertical Milling Machines:: have cutters whicker at about a vertical axis.
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Horizontal Milling Machines:

Machines: rotate the cutter about a horizontal
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Universal Milling Machines:

Machines: are milling Machines with the added feature of a table swivel
which permits cutting g of spirals. They can perform the jobs done both by the horizontal and
the vertical milling machines.
Industrial Humidifiers:
Humidifiers: these are equipments used to control the humidity inside a room or
a factory as a whole.
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Machine vices:
vices: Th
Thee most popular
p workpiece holders used for gripping irregular flat
workpieces in such
such operations as milling, drilling, sawing and filing.
Jigs & fixtures:

fixtures: These
These are devices for holding and petitioning a workpiece. Fixtures have
either clamps, jaws, pins, plates or block, for gripping the work piece. There are several
types of fixtures and are classified according to their usage. The principal difference between
a fixture and a jig is that a fixture does not guide the cutting tool. Fixtures save money and
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ttime
ime in production process, as they hold the workpiece in a chosen
c position to eliminate the
need for difficult setups and special attachments. Fixtures allow quick and flasy loading and
unloading of workpieces, give solid support to a workpiece for making large cuts reduce
scrap and eliminate bending and twist
twisting of workpieces.

Ahmedabad IIMA/CMA0066
Aditya Mills Limited

In October 1966, Mr. Poddar, the Executive Vice-President of Adityaa Mills Limited was
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worried about two types of problems:
1.What type of cotton to purchase for petting the required quality off yarn?
yarn?
2.What counts of yarn should be produced in order to get maximum profit for the Mills
Mills?
These questions were posed to him by the Director of the Managing Agents.
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Historical background
Aditya Mills Limited, a public limited company,, was incorporated in the year 1960. An
industrial licence was granted
ted for this purpose to the company by the Government of India.
India
Si the first phase, a spinning plant with 25000 spindles and 500 looms
loom was contemplated. It
was estimated that the project would cost Rs.4.80 million as follows
follows:
Land, building and plant

N Million (Rs.)
10.85
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Preliminary expenses 0.10
Capital issue expenses 0.10
Pre-operation
operation expenses 0.25
Working Capital 3.20
Contingencies 0.30
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Total 14.80
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The capital outlay was envisaged to be met by the following resources:

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Prepared by P
Professor
rofessor D. K. Desai, Indian Institute of Management, Ahmedabad.
Descriptive and analytical material is produced at the Indian Institute of Management,

Ahmedabad, for use in class discussions. It is not designed to illustrate effective or
ineffective handling of administrati
administrative problem. Opinions directly stated or implied in these
IN
materials are th
the writer's, and do not necessarily reflect those of the Indian Institute of
Management, Ahmedabad.
The material is taken from the Project Report on "Optimum Product

Product-mix in a Cotton Yarn
Mill" prepared by Mr. P. D. Poddar for presentation at the Programme for Young Executives
1966.

2 of 18 IIMA/CMA0066
Million (Rs.)
Equity share 5.00
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Preference shares 1.00
Loan from I.F.C. 5.00
Differed payments 0.90
Loan from banks against
hypothecation of current 2.90
assets
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Total 14.80
Capital
The company had an authorised capital of Rs.l0.00 million divided into 6 lakh eq
equity shares
of Rs.10 each and 40,000 preference shares of Rs.l00 each. In the year 1962 capital to the
extent of Rs.6.00 million was issued out of which Rs .4.96 million of equity aand Rs.1.00
Rs.4.96
million of preference capital was subscribed. The preference shares were to be redeemed, at
the end of 12 years and carry an annual dividend of 9.285% (subject to deduction of tax at
the prescribed rates).
Location
N
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The plant was situated at Kishangarh in the State of Rajasthan. This place is at a distance of
16 miles from the city of Ajmer on National highway No.
No 8 and also on Delhi-Ahmedabad
main line of Western Railway.
The spinning plant was commissioned

issioned in the month of March, 1963 on trial run basis. The
full capacity could be achieved only by the middle of 1964. By the end of 1964 the Rajasthan
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State Electricity Board imposed cuts in the supply of power on account of shortage of water
in Chambal from where the supply was being ma made. The position deteriorated further by
the end of 1955 and further cuts were imposed. Although the company had installed a
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generating set of its own, considerable number of spindles had to be kept idle for want of
power.
The company has embarked upon a scheme of expansion by another 10,000 spindles which,
when
hen implemented, would make an installed capacityc of 35,000 spindles. The Rajasthan
Financial Corporation has sanctioned a loan of Rs.2.00 million with a proposed increase in
the paid up capital by Rs
Rs.. l million. The outlay estimated around Rs.4.50 million is proposed
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to be met with a proposed increase in theth paid-up capital of Rs.1 million, loan of Rs.2 million
and arrangem
arrangements
arrangements of mach
machineries on deferred payments and the internal resources of the
company.
company
compa ny..
Financial position
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The source of finances of the company has been: (i) share capital and borrowings (Exhibit 1).
As the business has been expanding the sales have increased fourfold from 57.45 lakhs in
1963 to Rs
R
Rs.160.76
s lakhs in 1965. The profit before tax and interest rose from 3.02 lakhs to
Rs.16.07
.16.07 lakhs (Exhibit 2). In terms of financial ratios the company was showing the
soundness of the business (Exhibit 5). The organisational set-up of the company is given in
Exhibit 2.
Technical details about spinning mills
The cotton yarn manufactured by spinning mills is used in the manufacture of handloom
cloth, power loom cloth and hosiery goods. Handloom weavers mostly use se reeled yarn
which is called "Hank Yarn" whereas power loom and hosiery industries use yarn on cones.
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Fineness of the yarn is indicated by its count. Count means number of hanks (840 yards)
which will weigh one pound. If the fineness of the yarn is such thatt 100 x 840 = 84,000 yards
will weigh one pound it is said to be of 100 counts but if it is coarser yarn and a length of 20
x 840 = 16,800 is sufficient to weigh one pound it will be called yarn of 20
20 counts. Higher the
count, finer will be the yarn.
Any spinning mill, subject

ubject to certain limitations, can produce a variety of yarn i.e. Yarn of
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different counts. A mill, according to its size, generally produces 2 to 10 different counts
count on
account of limitations on (a) capacity of different departments, (b) availabi availability of raw
materials and (c) potentialities of sales. As the resultant yarn goes
goes finer, the production from
each spindle goesoes on decreasing on weight basis and such decrease is usually more mor than
proportionate. Secondly, for finer yarns, the realization of the capacities of the departments
prior to 'spinning proper' is less for equal numberr of spindles than that required for coarser
yarns. For this reason, in a given mill capable of producing counts ranging between say 20s
to 80s, if all the spindles are worked on 80s probably much of the capacities of the
preparatory department may remain
quir
qu ired
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emain idle whereas if all the spindles are run on 20s, the
preparatory departments may not be able to feed all the spindles. Again for producing finer
yarn better quality of cotton would be required ed and the cotton ssuitable or 20s will not do if
one wants to spin 60s. Conversely, though coarser yarn can be produced out of better variety
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of cotton that may not prove economical. Moreover, if either the yarn of 80s or 20s only is
produced in the said mill, the quantity produced may not be saleable by the sales
department at a given point of time. The margin of gross profit too, depending upon
demand and supply position, will ill vary
vary
va ry from count to count. The mill has, therefore, to
decide about the combination of different counts which could be produced with the given
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limitations of the departmental capacities, availability of raw materials and sales

possibilities. The spinning process in the mill is explained in Exhibit 5.
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As the manager has many alternatives in terms of count combinations on production side,
he has also manyany alternatives for procurement of cotton. The specific characteristics on
which different cotton varieties are selected by cotton breeders are staple length, fibre
weight, H.S.W.C.
.S.W.C. (pressly strength) maturity and percentage of motes. However, in trade
only feel, cleanliness, colour and count strength product (C.S.P.) are considered for selection
of cotton for spinning purposes. The explanation of technical terms about characteristics of
cotton is given
iven in Exhibit 6.
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Blending Problem of Cottons
Aditya Mills produced yarn of the following ccounts:
20s wound and reeled

224s
4s wound
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32s wound
36s combed and wound (mainly for hosiery
40s wound
44s combed and wound
60s combed and wound
For the production of yarns of different counts different types of cottons were used. Many
times two or more types of cottons were blended to produce a yarn of a particular count to
reduce cost.
The types of cottons which counts were as follows:
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Type of Cotton For which counts
Digvijay
L 147
52s, 36s, 40s, 44s
CO2 (Saurashtra)
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American Niddling
32 OF (Punjab)
197-3 (Rajasthan) 20s, 24s
Burri American
Mr. Poddar knew that there were techniques available, which would provide guidelines for
blending of different cottons to produce a specific count. He was wondering whether these
techniques could be applied in the specific situations of Aditya Mills.
The Professor advised that the linear programming

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So when he attended a training programme for young executives organised by the Indian
Institute of Management, Ahmedabad, he discussed this problem with one of the Professors.
Pro
programming technique could be usefully applied to
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the problems posed by Mr. Poddar provided he could quantify the characteristics of fe feel,
cleanliness and colour of different cottons to have the yarn of a specific count with specific
characteristics.
Mr. Poddar consulted Mr. Toshniwal, the Executive President of the Mills, who had studied
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cotton technology. He said, "It is difficult to qu

quantify those characteristics. I would attach 80
per cent weightage, to spinability alone. This is measured by count strength product (C.S.P.).
Feel, cleanliness and colour ar
aare
ree important but their weightages would be 15, 10 and 5 per
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cent respectively. Although

ough it is difficult to quantify the characteristics of feel, cleanliness
and colour, one can give ratings out of 10 to different types of cottons".
Mr. Toshniwal and Mr. Poddar then constructed a table giving the C.S.P. and ratings fo for
feel, cleanliness, and colour for different types of cottons and for yarns of different counts
(Exhibit 7). Mr. Poddar supplied these data to the Professor of IIMA, who worked out the
programming solutions for the blend of cottons for the yarns of 20s and 32s.
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Mr. Poddar compared those solutions with the actual blends which they were adopting at
the Mills
lls (Exhibit 8). This made him take special interest in the modern management
techniques a and
nd he decided to learn more about them. When he attended the course on
management for Young Executives organized by the Indian Institute of Management,
Ahmedabad, he learnt more about the linear pro programming techniques. He got so much
interested in the application of linear pro
programming techniques that he decided to use it for
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the problem of the combination of counts of yarn. In order to convince himself that the
technique provided a better solution than the trial and error method which he followed, he
selected a very
v simple problem.
In the mill he was required to select a production strategy for producing counts 20s and 40s
with a view to obtaining maximum contribution to overheads. The departmental capacities
which he thought would be bottlenecks were those of (l) Ring frame, and (2) Carding
departments.
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In the Ring frame department 11000 kgs. of yarn of 20s or 4300 kgs. of yarn of 40s could be
processed per day. In the Carding department 9300 kgs. of 20s or 6800 kgs of40s could be
processed. In terms of utilization of capacities of Ring frame and carding departments per
100 kilograms of yarn for 20s or 40s, the information was as follows.
Utilization of capacities per 100 kilograms of yarn
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Department Type Available capacity per day
20s 40s
Ring Frame 6.55 12.08 730 (Hundred Spindles)
Carding Frame 2.53 3.18 218 (Machines)
Mr. Poddar knew that generally profit per spindle was used as a guide line for judging the
relative profitability of various counts. However, in view of the requirements of the
problem, he worked out profit per kilogram of yarn of different counts. N
coun In doing this he
came across the tough problem of costing. He knew that several methods of costing were
followed. However, in yarn industry where speeds, drafts, hanks and twists per inch
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changed so often, he thought that the best method would be to use operational hours for a
given unit of production as a basis for allocation of costs. Although this method did not give
very accurate countwise costing, it was considered more suitable for the purpose of sselection
of a combination of counts. He worked out the figures for pro profit per kilogram of yarn of
different counts (Exhibit 9). For one simple problem of making a choice between two counts
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viz. (20s, 40s) he used rounded figures of Rs

Rs.9
Rs.90
.900 and Rs.250 per 100 kilograms for 20 and 40
counts respectively. He used d the graphic method, for the solution of the problem. He
observed that by traditional method he would have selected count 40s and obtained the
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profit of Rs.10750
.10750 by producing only 4300 kilograms of yarn of count 40s as the Ring frame
department would take only that quantity. As against this by this method h he could hope to
get Rs.11445.
This encouraged him to

to use this technique for the solution of the problem of count-mix
count with
which he was confronted.
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The count-mix
mix Problem
The most common counts which the mill used to manufacture were as follows:
20, 24, 32, 38, 40, 44, 60

For 20s there were two processes. The yarn could be sold as reeled or wound. For other
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counts the process of reeling was not used. As indicated in Exhibit 5, the spinning process
involved, utilizing the capacities of different departments (l) Blow room (2) Carding (3)
Draw frame (4) Comber (5) Simplex (6) Ring frame (7) Minding and (8) Reeling.
He consulted various people in the mills and worked out the requirements of the uses of
different sections for 100 kilograms of yarn of different counts. The data are presented in
Exhibit 10. He also observed that so far as yarn of 36s was concerned, it could be sold if the
daily production was limited to only 500 kilograms.
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He also observed that the productive capacity of each department was limited as
follows:
Total
productive
Unit
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capacity on
3 shift basis
Blow room 10.2 Scutchers
Carding 21.6 Machines
Draw-Frame 6.9 Delivery
Comber 17.3 Delivery
Simplex 45.46 100 Spindles
Ring-Frame 730 101 Spindles
Winding
Reeling
141
150 N 10 drums machine
Machines
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From the data on profit per kilogram of different counts of yarn (Exhibit 9), he saw that
profitable count was 60s giving Rs. 492 profit per 100 kilograms. However, he was not ready
to believe, because of his earlier experience, that he should produce only this count. As this
was a problem in which several counts and several types of capacity restrictions were
involved, he wass considering whether he should take help of a consultant. Secondly, if he
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could obtain the services of a consultant and got an optimum solution,

solu could that solution be
right types of cotton to get the proper blend?
used relating to the purchase of the right
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The monthly requirement of different types of cotton as per present use was as follows:
Bales of 392 lbs. each

1 Digvijay 200
2 L 147 300
3 Saurashtra CO2 100
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4 320 F 600
5 197-3 300
6 Burri American 500
2000
Mr. Poddar wondered whether he could change this pattern of consumption of cotton to get
maximum profit.
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He was also wondering whether something could be done to remove capacity rrestrictions.
Exhibit 1: Balance Sheets

(Rupees in lakhs)
Liabilities 31.12.65 31.12.64 31.12.63
1. Paid up Capital 59.63 59.62 59.59
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2. Reserve and Surplus 7.87 2.15 -
3.Long Term borrowing and
109.55 110.58 98.99
other liabilities
177.05 172.27 158.58
Assets
4. Gross fixed assets 138.48 134.44 121.86
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5. Less depreciation 17.75 10.53 -
6. Net fixed assets 120.75 123.91 121.86
7. Current Assets:
a) Inventories 47.25 33.09 28.83
b) Book debts 2.24 8.26 1.05
c) Cash and book balances 1.16 0.59 0.44
d) Loans and advances 3.44 2.54 4.48
8. Deferred expenditure 1.88 1.88 1.88
N 177.05 172.27 158.54
T IO
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Exhibit 2: Income and Expenditure

(Rupees in lakhs)
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Income 31.12.65 31.12.64 31.12.63
Sales 160.76 128.38 37.43
Closing stock 20.18 15.44 9.9
180.94 143.82 47.33
Less Opening stock 15.44 9.9 -
Value of sales
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195.5 135.92 47.33
Other income 0.63 1.25 0.64
Total income 183.5 135.92 47.33
47.33
Expenditure
Raw materials 102.53 83.63 32.22
Salaries and wages 14.56 11.47 4.61
Manufacturing expenses 9.98 9.54 3.82
Managing agents remuneration 0.5 0.3 0.25
Depreciation
Sales expenses
Other administrative expenses
N 7.2
11.05
4.44
3.65
8.5
5.34
-
1.65
2.4
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Total expenses 156.06 128.45 44.95
Profit before tax and Interest 16.07 11.74 5.02
Interest 7.03 5.85 2.78
Tax provision - - -
Profit after tax 9.04 5.85 0.24
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Dividend 3.29 - -
Profit retained 5.75 6.86 0.24
EC
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Exhibit 3: Financial ratio

(Rupees in lakhs)
PY
1965 1964 1963
I. Cost structure
1. Raw materials consumed and ether
manufacturing expense as per cent of
61.9 62.4 68.0
value of production
2. Total expenses as percentage

94.9 96.5 100.8
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value of production
i. Profit after depreciation and

interest but before taxation
a.as percentage of sales 5.8 4.5 -
b.as percentage of total net assets 5.1 3.4 0.1
c.as percentage of gross fixed assets 6.5 4.3 0.1
d. as percentage of net worth
13.3 9.5 0.4
III. Efficiency in the use of Funds
1.Value of production as percentage

of net worth
2. Value of production as percentage
245.1
95.4
N 218.8
77.7
79.4
29.8
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of total net assets
Increase in
1965 over 1964 1964 over 1963
IV. Growth
a. Gross fixed asset 3.0%
3.0% 10.3%
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b. Net Worth 9.6% 3.6%

c. Sales 25.2% 242.9%
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Exhibit 4: Organisational set up
Managing Agents
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Executive President
Executive vice President
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Secretary Engineer Spinning Master
Shift Incharge Spinning Supervisor

Sale Accountant Stores
Shift Assistants Spinning Assistants

Asstt. Accountant
The duties allotted are as follows:
Executive President: Overall charge of the affairs of the company with p

on the technical side. The Engineer and Spinning Master are directly-
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particular stress
directly-handled by him.
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Executive Vice President: Deputy to the Executive President.
President.- He handles the commercial
side in greater details which includes Inventory Control, Finances and Expansion.
Secretary: Company Law matters, Stores and. Accounts.
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Engineer: Workshop, maintenance of humidification, power supply, boiler and

generating set.
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Spinning Master: Production and Plant maintenance.

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Exhibit 5: Spinning Process*

The spinning process consists of three states: (i) opening of the raw material, freeing it from foreign
matter and mixing it thoroughly; (ii) drafting and parallelizing of the fibres; and (iii) twisting of the fibres
into yarn. Cotton is first passed, through different kinds of openers, where it is beaten well and
separated from trash and foreign matter. The fairly clean, loots cotton is then converted into a com- com-
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pressed sheet, called lap, in the Scutchers. The lap is then transferred to the carding machine where
the fibres are separated, and mixed thoroughly, and the last traces of impurity and neps are removed.
The carded fibres come out in the form of a thin web, which is condensed into a silver. The carded
silver is combed, if required, in the case of finer cottons before passing it on to the next process of
drawing.
Combine is done in order to: i) remove the short fibres and increase the regularity of staple length; (ii)
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bring about better parallelization of fibres composing the yarn; and (iii) remove the impurities that are
still present in the carded sliver, so that better lustre of the yarn could be obtained.
With the card sliver as the foundation of yarn manufacture, every succeeding process in cotton
spinning has a two-fold object to perform. The first is to carry the material a little further in the
constructive process and the second is to minimise the defects of the proceeding stages. The object
of drawing, which follows carding, is: (i) to obtain a parallel arrangement of the fibres contained, in the
sliver; and (ii) to make it even. The dual action of the process
process is achieved, in the draw frame by the
principle of doubling and drafting.
The subsequent processes in the fly frames are a continuation of the drafting process, with or without
doubling, the aim being the attenuation of the sliver with a corr
state of fineness of the yarn is achieved. Since the
corresponding
correesponding N
sponding reduction in thickness until a
the process cannot be achieved in one st
ordinary fly frames, the operations is carried but in stages. The drafting in the semi-final
semi
step with
stage is
accompanied by some twisting to impart sufficient strength to the roving to withstand the strains of the
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next operation.
The final stage is the actual spinning in the ring frames, when the roving is drawn out in the form of
yarn of requisite fineness, and necessary twist is imparted, preserving, as far as possible, the
uniformity of the original roving.
T
EC
*Indian Control Cotton Committee, Bombay, Cotton in India-part III, (1960), pp. 49-50.
SP
IN
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CO
N
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Exhibit 6: Technical Terms about characteristics of cotton
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The staple length of the cotton in fineness of associated with the strength fitness of yarn that can be
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spun from it. The world's cottons vary in mean fibre length from about ½ inch to 2½ inch. The
importance of fibre length is due to two factors: firstly, it is length that determines the detailed
construction of the machinery for processing; secondly, it determines the amount by which fibres
overlap one another in the yarn. The greater the overlap, the easier it is to bind the fibres together by
twists, and hence the longer fibres make it possible to spin either stronger or alternatively finer yarns.
Fibre Strength:
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Fibre Strength may be measured either as the strength of a single fibre or as a strength of bundle of
fibres. As the yarn consists of bunch of fibres twisted together the bundle strength of fibres would
obviously have a better relation to yarn strength than the single fibre strength. The press by strength
tester is used to test the bundle strength of yarn. The strength is measured as thousand pounds per
square inch. The United States Department Agriculture suggests the following grades for rating
cottons according to strength.
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Strength in thousand
lbs. per so. Inch Rating
Above 95 Very strong
86-95 Strong
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76-85 Average
66-75 Fair
Below 66 Weak
Maturity:
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A suitable technique
ue is developed at the technological laboratory, Bombay to identify mature and
immature fibres. An acid dye, carbolan violet 2 R.S. is used in this test.
es
est.
t. The immature fibres take up
deeper shade than the mature ones.
The fibre weight per unit length of a cotton as a criterion of its fineness is affected by isi variation in
the maturity of fibres composing the sample. In order to give proper weightage
weightag
weighta gee to fibres falling in the
three maturity classes, the idea of maturity coefficient was developed. The maturity coefficient for
Indian Cotton is given by the relation.
M + 0.6 H
Mc =
100
+ 0.4 I N
Where Mc = Maturity coefficient, M,, H and I represent the percentages of mature, half-mature
half and
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immature fibres, respectively in the sample;
H.S.W.C
The spinning quality is relate two o different properties of fibres. Several regression equations,
equation
T
connecting, the spinning value of ccotton

otton and one or more of its measur
measurable fibre properties, have
been worked out. A regression equation, which is of vide application to a majority of Indian cotton is
given below:
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X1 = 78.9 X2- — 79.2 X3 — 24.8

2 4.8
Where X1 = H.S.W.C.
i. e. highest standard warp count, which is defined as the finest count that could be economically spun
with a twist multiplier of 4.0 to g
give
ive a standard lead strength.
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X2 = mean fibre length (inch)

-6
X3 = mean fibre weight per inch (10 OZ)
Count str
strength
ength product:
product::
product
Since most of the cotton is span into yarn, it has been generally accepted, that the spinning value of a
cotton
otton represents its quality. The question as to how best the spinning value is assessed has not yet
been fully answered. There, are mainly three ways in which the relative merits of different cottons can
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be asserted: (i) by spinning: all cottons to one count with the same twist
t multiplier and judging the
spinning performance from the lea strength or count strength product ( C . S . P . ) . (ii) by spinning all
cottons into two known count; and a third count, its value being based on the lea strengths of the two
known
known cocones;
nes; and (iii) by deriving one count having a standard strength; which can be economically
spun, the value being
bein based on the lea strengths or count strength products of three or more counts.
The first method has been adopted in Egypt, where the count strength product for SCB yarn, spun
with a twist multiplier of 3.6 under standard atmospheric conditions, it used to judge the spinning value
of cotton. The second method is followed in the United States. Here the twist multiplier employed for
spinning, the yarns is not the same in all cottons and is varied according to the staple length of the
cotton — higher the stable length, lower the twist multiplier used. Although it is possible to judge the
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spinning performance of cottons by this method, it cannot be used to ascertain the comparative
performance of different cottons.
The third method, which has been adopted at the Technological Laboratory, Bombay, consists in
deriving an integrated value based on the performance of a cotton in three counts; it is a single index
in
which assists in ranking the cottons according to their quality. This method is described below:
Standard values for lea strength for various counts are fixed as follows.
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Count Breaking Count
Strength Strength
(lb.) Product
(c) (s) (C.S.P.)
14 90 1280
16 81 1296
18 73 1314
20
22
24
67
62
58
N 1340
1364
1392
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26 54 1404
28 51 1428
30 46 1440
32 46 1472
34 44 1496
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36 42 1512
38 40 1520
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40 32 1560
50 33 1650
The standards an obviously arbitrary, but they represent the average qualities of the types of cotton
that are used in the mills. The plot of count strength, product against count is a straight line, AB
(Figure l). Further, as the count becomes finer, the standard count strength product increases instead
of being constant, which means that a higher standard of quality is demanded of finer counts.
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A cotton, whose spinning value is to be determined,

dete is spun into a count, with a twist multiplier of 4.0,
which is veil within its spinning
spinning capacity. On the basis of the lea strength of this count, two further
counts are spun with the same twist multiplier (4.0) as before. Thus, there will be three counts and
their respective count strength products. A plot of the count versus count strength product for these
three counts is made on the same graph paper where the standard count strength product Versus
count line is plotted (Figure l). Let these points be D, E and F. The standard spinning test line AB has
an opposite trend to that of the experimental spinning line DEF. The count, corresponding to the point
of intersection between the standard spinning test line and the actual spinning test line, if taken to be
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the highest standard count to which this cotton could be spun with a twist multiplier of 4.0. It will be
seen from the figure that if any cotton is spun iin to a count lower than the highest standard count, the
count strength product realised would be gre greater than the standard value given for that count in the
above table and vice versa. Also, the highest standard, count would vary with the twist multiplier
employed for spinning the thre
three counts. It is, therefore, necessary that, in order to get the comparative
spinning values of different cottons, they should all be spun with the same twist multiplier.
Exhibit 6 (Contd.)
Figure 1: Estimation of Highest Standard Count
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Exhibit 7(A): Characteristics of different types of cottons

Digvijay I - 147 CO-2 American 320-F 197- Burri
(Saurashtra) Middling (Punjab) 3(Rajasthan) American
1. C.S.P. (1)20s - - - - 1650 1600 1530
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24s - - - - 1550 1500 1520
32s 1750 1550 1750 1700 - - -
38 s 1700 1550 1700 1500 - - -
40 s 1650 1450 1600 1500 - -
2. Cleanliness -100 80 96 55 80 70 60 50
3. Feel (10) 8 6 6 4 6 2 4
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4. Colour (10) 8 6 4 8 6 4 2
5. Price per candy
(Rs.) 1650 1550 1600 1500 1270 1230 1250
Exhibit 7(B): Requirement of yarn of different counts

Characteristic
/Counts 20s 24s 52s 36s 40s 60s
C.S.P.
Cleanliness (100)
Feel (10)
1600
60
4
1500
60
4
N 1700
70
6
1700
70
6
1650
70
6
1800
75
8
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Colour (10) 4 4 6 6 6 4
Exhibit 8: Comparison of optimum solution of blending of cotton

with the traditional method
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Optimum Solution
Optimum Traditional method
20s 32s 20s 32s

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Verities
1. 320-F
F (Punjab)
0.5 - 0.15 -
2. 197-
197-7
197-77 (Rajasthan) 0.5 - 0.35 -
3. Burri America - - 0.5 -

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4.Digvijay 5.L-
5.L-147
5.L-147
147 - 0.14 - 0.3
6.CO-2
6.CO-
6.CO -2
2 (Saurashtra) - 0.43 - 0.2
7.American middling - 0.29 - 0.3
Cost of the blend 1250 0.14 - 0.2

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C.S.P. 1625 1585 1247 1605

Feel 4 1700 1722 1720
Cleanliness 65 6 3.8 6.2
Colour 5 71 56.5 69.5
6 3.3 5.6
Exhibit 9: Cost, Sale and Gross Profit per 100 Kilograms of yarn
(in Rupees)
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Items of /Counts costs 20(R) 20(W) 24 32 36 40 44 60
A Direct materials
Cotton cost per candy 1250 1200 1250 1550 1650 1650 1650
1650 2200
kilograms adding waste 407 424 407 498 600 528 598 787
Cotton cost per (15.80%) (15.90%) (15.90%) (14.20%) (29.20%)
29.20%
29.20%)) ((13.90%
(13.90%)
13.90%)) ((28.90%
(28.90%)
28.90% (27.20%)
Less:
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Waste realization 7 7 7 7 35 7 35 41
Material cost 400 417 400 491 565 521 563 746
B. Direct expenses
For power, re -ling or winding 32 31 38 48 45 57 63 80
fringe benefits packing
C. Semi-variables 38 37 45 53 75 66 87 123
Stores,
Salary
Wages
Fringe benefits 17%
Insurance
Service Charges
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Engineering
Workshop
Boiler
Humidity
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Building maintenance
Total cost A+B+C 470 485 484 58* 685 644 713 948
Ex-mill sales price 501 589 521 685 980 880 868 1441
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Gross profit 10S 137 83 295 246 256 492
Exhibit 10: Capacity requirements (count

(counterwise) per 100 kilograms of yarn
Capacity/
Count 20 (R) 20 (W) 24 32 56 40 44 60
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Blow room 0.08 0.08 0.08 0.09 0.1 0.09 0.1 0.11
Carding 2.53 2.53 2.53 3.18 3.6 3.17 3.59 6.22
Draw frame 0.65 0.65 0.65 0.69 1.27 0.69 1.26 1.26
Comber - 2.33 - 2.32 2.32
Simplex 0.45 0.45 0.49 0.56 0.78 0.61 0.78 1.05
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Ring-frame
Ring-
Ring-frame
frame 6.55 6.72 8.75 12.08 14.5 16.92 18.45 28.59
Winding - 2.1 2.25 3 4.27 3.73 4.1 5.71
Reeling 2.5 - - - - - - -
Exhibit 11: Optimum solution for blends of different cottons for different
counts of yarn per candy for minimising the cost of cotton
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Cotton / Counts 20s 24s 32s 36s 40s
320-F 0.5 0.5 - - -
197-3 0.5 0.5 - - -
Digvijay - - 0.14 0.14 0.16
L-147 - - 0.43 0.43 0.67
CO2 Saurashtra - - 0.29 0.29 0.17
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American Middling - - 0.14 0.14 -
Cost per candy of the
1250 1250 1585 1585 1575
blended Cotton (Rs.)
Exhibit 12: Optimum solution of the product

product-mix of
Counts
to overhead
Quantity to be
produced daily
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different counts of yarn for maximising the contribution
Contribution
Cont
cover head (Rs.)
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20s 2876 2612
24s 5365 7350
36s 500 475
Total: 8741 11437
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Limiting Constraints Shadow price Rs.

1 Ring frame 15.8 per 100 spindles
2 Winding 6.9 per 10 drums
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3. Sales 63.5 per 100 kilograms of yarn

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Calcutta Cosmetic Company Limited

In March 1966, the Factory Manager of Calcutta Cosmetic Co. was considering the proposals
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of the Plant Engineer. These referred to the introduction of a maintenance workshop in the
plant. Calcutta Cosmetic Co. was one of the large manufacturers of cosmetic and toilet
preparations in India with its head offices and manufacturing facilities in Calcutta. It was
established in 1949 as a marketing organisation. Its products were manufactured by another
firm on contract, but were sold under Calcutta Cosmetic's brand names. In 1962 Calcutta
Cosmetic took over the manufacturing along with all the facilities and personnel connected
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with Calcutta Cosmetic's products from the other firm. This move helped Calcutta Cosmetic
to control itss production costs to a very large extent and at the same time it improved the
morale of the employees by making them part of the organisation whose products they had
been producing. The factory employed about 500 workers, of whom about 320 were
permanent employees and the rest were temporary. The number of temporary employees
varied between 150 and 200; but never come more than 200. The Management was very
much opposed to increasing the total number of employees. The factory worked all the three
shifts for six days a week. It had a small maintenance department consisting of a plant
engineer, a foreman and eleven mechanics. The operations of the company had always been
very profitable. The company grew at an average annual rate of 12
amounted to Rs.4.2 crores.
Manufacturing facilities
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12%. In 1965 the sales
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Most of the manufacturing operations of the company consisted of mixing the purchased
raw materials in the required proportions (sometimes treating them with steam) and filling
the mixtures into bottles, tubes, tins etc., depending on the product. The factory consisted of
a leased three storey building. Since it involved handling of bulk materials, good use of
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gravity was made. The raw materials, from the stores and warehouses at the ground floor,
were elevated
d to hoppers in the top floor by means of a freight lift. After mixing and other
preparatory treatments, the mixture flowed down to the first floor where the filling was
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done. The final products were lowered to the ground floor by means of a slat conveyor for
packing and shipping.
In the mixing department on the top floor there were hoppers for receiving the raw
materials, and the mixers themselves. The mixers were very simple machines consisting of a
pan or a vessel to put the ingredients in. In the pan or vessel there were a pair of paddles or
rollers revolving on arms extending from the central shaft. The central shaft was connected
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to a motor through a reduction gear. The motor usually was a simple 33-phase induction
motor. Except in certain cases, like the mixers for the toothpaste, the paddles or rollers were
made of steel. In the case of tooth paste, they were made of stainless steel. There were 10
mixers of which three were used for the toothpaste, three for other creams, three for toilet
powder and the
the last one for hair oil.
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The mixtures from the mixing floor flowed down to the first floor for filling. There were
three major lines of filling - one for tube another for liquid and the third for powder. The
tube and liquid lines had four machines each, and the powder line had five machines. All
Prepared by Professor R. Balachandra, Indian Institute of Management, Ahmedabad.
these were complicated imported machines. They were all automatic, except for the
introduction of the containers into the machine and for removing the containers from the
machine after filling. These two operations were performed by two girls. Once the empty
container was introduced into the machine, the container moved on a small conveyor to the
filling station; it was then positioned under the filling head when the metered quantity of
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the appropriate mixture was forcedrced into it. Next the container moved to the sealing station
or stations, depending upon whether only one or more sealing operations were to be
performed. After the container was sealed, it moved on to the next station where it was
picked up and packed in a suitable carton. The series of operations were essentially the same
for all the filling machines.
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The cartons were then placed on a slat conveyor which transported them to the ground
floor. A group of packers packed these cartons into deal wood boxes and nailed them up.
The filling machines, though complicated, were quite small in size-

size- The essential parts of
this machine were:
1. a motor and; gear pump to force the mixture into the container;
2. a motorised link conveyor to move the containers at pre-set spee

speeds;
3.
4.
the filling nozzle;
the sealing heads.

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Since the rate of pupping the mixture was quite small, both the motor and pump were also
small. A small motor was used for moving the conveyor as the weight moved was very
little. The parts of the pump and the nozzle for the tooth paste machines were usually made
of stainless steel.
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Apart from these machines, the only other mechanical equipment was the slat conveyor
between the first and ground floor which was used to transport the cartons to the packing
section. The freight lift, although used by this company, belonged to the land-lord
land from
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whom the building was leased.
Though plenty of steam was used in the operations, the company did not own a steam
boiler. The required steam was bought from the neighbouring factory which had excess
steam capacity. The piping for the steam was the property of Calcutta Cosmetic.
Plant Maintenance
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The plant maintenance consisted of five types:
1. Electrical
2. Mechanical equipment, spares and fabrication

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3. Civil
4. Piping
5. Testing of Pressure Vessels etc.

These five services were all purchased from outside parties.
1) Electrical Maintenance
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The factory had about one hundred electric motors of varying sizes. Most of the motors were
part of the production equipment. The maintenance of these motors, as well as maintaining
the other related equipment like starters etc., was all contracted out to an electrical
engineering firm. The firm sent one of its electricians once a fortnight to check up the motors
and other electrical equipment. If anything was suspected of breaking down in the
immediate future, it was replaced by a good one i.e., one that had been recently overhauled.
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The replaced equipment was taken to the electrician's firm, where it was overhauled and
kept ready for use, either with the firm or returned to Calcutta Cosmetic to be kept in a
separate store.
If there was any breakdown in between the visits of the electrical Contractors, the company
mechanics replaced the motors with the ones from the stores. The firm was paid on a
monthly basis for
or the routine checkup plus for any repairs and overhauls done during that
month on n an average the monthly bill for this activity ran to about Rs.400/
Rs.400/- for the fees and
Rs.750/ - for the repairs and Overhauls of which Rs.200/-was spent on materials.
2) Mechanical Equipment Spares and Fabrication:

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The breakdowns in the mechanical equipment used to be mostly by the wearing out or
physical breakage of some part. Since the company did not have workshop facilities to
manufacture the spares required for the machines, the manufacture of these was contracted
to an outside workshop. 1 The company's maintenance foreman had a very good idea of how
many of each part had to be stocked. He controlled the inventories of the spares and
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suggested to the plant engineer to ord

order
or der
er for
for more spares from the workshop as and when he
felt he had to stock more. The spares store was completely under the foreman. The company
did not maintain any records for the spares inventories. The imported spares, like stainless
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steel parts, were kept in the main store and records were maintained for these. The company
was all the time trying to substitute indigenous components wherever feasible.
The purchased spares used to cost the company about Rs.2,100/

Rs.2,100/-per month, of which
Rs.500/- was for the imported spares.
Any fabrication work was again contracted out and it used to cost on an average about
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Rs.500/- per month. The cost of labour in this Case was Rs.200/- a month.
3) Civil
This consisted mostly of building repairs and alterations. It was always contracted out and
on an average the cost incurred per month was about Rs.200/
Rs.200/- for labour and Rs.300/- for
the materials.
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4) Piping
Maintenance of the steam piping was also contracted out. Its cost per month was about
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Any major breakdowns which could not be set right by the company's maintenance workshop was also sent to
the same outside workshop.
Rs.225/- for the labour and another Rs.100/- for the materials.
5) Pressure Vessels
The testing and maintenance of the various pressure vessels was also contracted out. The
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cost incurred was about Rs.100/- per month.
The Maintenance Department
Calcutta Cosmetic had a very small maintenance department. It consisted of the Plant
Engineer who was responsible for all the maintenance activities listed above. He was also
responsible for suggesting newer equipment wherever feasible and also to substitute the
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imported spares by indigenous spares.
He was assisted by a team of maintenance staff consisting of one foreman and eleven
mechanics. Four mechanics were assigned for each shift and the foreman always came in the
first shift.
The mechanics generally attended to the faults of the machines. Most of these faults were in
the filling section. They were generally of minor nature like the fixing of the caps in the
containers being faulty, or the filling being underweight or overweight, or the labels being
incorrectly placed.
The mechanics also attended to set-upsups of these

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these machines whenever there was a change in
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the size of the container: also, depending upon the supply of the mixture, they would adjust
the rate of filling.
Any minor breakdown was attended to by the mechanic on duty. He would check the
machine and diagnose ose the trouble. If a part was found defective, he would remove it, and
replace it by a fresh part from the spares stores. If the breakdown was of a major nature, he
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would report to the foreman. The foreman would locate the trouble and then inform the
plantt engineer of the repairs to be undertaken. The plant engineer would then place the
order with the workshop. But, the major breaks were however, very rare. Regular
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lubrication and periodic checkup of the machines were also done by the maintenance
departmentt personnel. On an average day, the setups and breakdowns of the filling
machines were as given in Exhibit I. The number of set set-ups varied considerably, depending
on many factors like availability of containers, availability of the mixtures, warehouse
demandnd and sometimes the availability of packing crates. The breakdowns on the machines
also varied - but the powder filling machines operated very efficiently.
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The mixers broke down very infrequently because of their rugged construction. Apart from
that, the production rate of the mixers was much faster than the filling machines. There were
enough storage facilities for the mixtures. Hence, a breakdown on the mixer generally did
not affect the production.
The maintenance department operated under an annual bud budget broken into monthly
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figures. The Plant engineer was held completely responsible to operate within the budget.
All expenses incurred by the maintenance department were charged to it. These included
labour, materials, purchased maintenance and supplies. At present the maintenance budget
constituted about one thirtieth of the total labour expense.
The mechanic was paid a basic wage at an average rate of Rs.1.31 per hour. In addition, he
was paid employment benefits which amounted to 51% of his basic wages.. Compared to this
the basic wages in the other departments (excluding the 51% benefits) were:
Production - Making - Rs.l.23/hour
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- Packing - Rs.l.l3/hour
(Warehousing)- Rs.1.2l/hour
Plant Engineer's Proposals
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The Plant Engineer had always felt that theree were many advantages in having their own
maintenance workshop. Hee argued that such an internal shop would provide better control
on costs and eliminate many of the worries which his department had in chasing the outside
contractor. He envisaged a small maintenance workshop which would consist of a few basic
machine
hine tools and a few extra men, as detailed in Exhibit 2. The extra men would work only
one shift a day.
He felt that by having these facilities, the amount of purchased maintenance could become a
negligible
egligible amount. As the scale of operations increased, it would definitely be advantageous
workshop
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to manufacture the spares and repair the equipment inside the factory. Also having a small
shop in the factory would enable him to experiment on some new handling devices
and improvements in the production line which would ultimately bring down the cost of
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production.
He also felt that there were some disadvantages. The equipment planned could prove to
have excess idle capacity. The men also may not have enough work. He was not very certain
of the last point as he had found that the present maintenance people were always busy.
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Exhibit I
Calcutta Cosmetic Co. Limited
Breakdowns and Setups in the Filling Section Breakdowns
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No. Line No. of machines Production Breakdown Time/
rate/minute machine in 8 hours
1. Tube 4 50 tubes/ 20 mins. - 30 mins.
2. Liquid 4 40 units/ minute 15 " - 30 "
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3. Powder 5 40 units/ minute 0 - 15 "
Set up:
No. Line Time for set up Average No. of set up/24 hours
1. Tube 30 mins. 2
2. Liquid 25 mins. 3
3. Powder 10 mins. N
Exhibit 2
3
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Calcutta Cosmetic Co. Limited
Proposed Equipment and men for the maintenance Workshop Equipment
No. Machine No. of Machines Cost Rs.

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Kirloskar Harihar Lathe 1 9,000

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Tapti Milling Machine 1 22,000
Praga Bench Drill 1 2,400
Cooper Shaping Machine As

As-12 1 7,100
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Advani Welding Machine 1 4,800
Total 5 45,300
• Mens 1
• Welder/Pipe Fitter 1
• Machinist 1
•
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Sheetmetal & other jobs 1

• Electricians 1
Total 5
Note: The two electricians, if appointed would do all the electrical work and this would avoid the
electrical contract work. Similarly all the parts manufactured and pipe fittings would be done
by the workshop personnel.

Bajaj Auto Limited 1

The company was started in the year 1945-46;46; at that time it operated under the name of
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"Bachraj Trading Corporation Ltd". During 1962, it was registered as a Public Limited
Company and the company started production of scooters and autorikshaws by assembling
imported components supplied by its Italian collaborators. During 1962, the rate of assembly
of scooters and autorickshaws
kshaws was 500 and 50 per month respectively. During 1963, 1963,
1963, the
company got a license for manufacturing upto 12,000 scooters autorickshaws per year on
single shift basis.
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The company phased its programme of substituting Indian made compon
components
comp onen
ents
ts for imported
components, in such a way, that after producing each lot of 3000 scooters, about 20 20%
indigenous components were introduced
troduced and their future imports stopped. By the end of
1964, the company had succeeded in introducing Indian made components
components upt
upto about 75%
of the total of about 1250 components. All the time, from 1962 onwards the company had
been growing fast in all the areas such a installation
tion of machinery, hiring people and
increasing the types and numbers of factory-made,
made, components etc. As of November 1966
only 31 parts, constituting about 12% of the value Content of the scooter were being
imported; all the remaining N
ing were either indigenously manufactured or procured from
Indian vendors. The company’ss growth rate could be well judged from the financial figures
given in Exhibit -1. Till November 1966, the company had already' sold out 43,000 scooters.
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The company was under the control of a General Manager, assisted by Chief Engineer,
Commercial Manager and Works Manager. Chief Engineer looked after drawing office,
development of factory-made
made parts, and tool room and also helped vendors in making parts
for the company. Commercial Manager was responsible for stores and an purchases. Works
Manager had the overall control of all the productive
productive shops,
s and of Planning section also.
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The Inspection Department directly under General Manager.
Planning of production
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During the lastt week of every month, Mr. Firodia, the General Manager called a production
meeting. It was attended by Works Manager, Chief Engineer, Commercial Manager,
Planning Engineer,
gineer, Machine shop
shop Superintendent and Materials Controller also. At this
meeting they discussed
iscussed all the ma
major difficulties faced by each of the officers during the
previous month
onth and also those difficulties which would most likely come up during the
following month. The decisions taken at such a meeting were of an extremely multifarious
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nature.
re. The important one was about the number of scooters and autorikshaws to be
produced during the following month. This decision was affected by large n number of
constraints such as:
(i) Shortage of raw materials (ii) restricted availability of the import

i licences for purchasing
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1
Strictlyfor private circulation within the Institute.
Prepared
repared by Professor S.C. Aggarwal, Indian Institute of Management, Ahmedabad.
Case material of the Indian Institute of Management, Ahmedabed, is prepared as a basis for class
discussion. Cases are not designed to present, illustrations of either correct or incorrect handling of
© 1967 by The Indian Institute of Management, Ahmedabad.
raw materials and finished components, (iii) capacity of the company's manufacturing
shops, (iv) limited capacity of indigenous vendors manufacturing components for the
company, and (v) the incompetence of the firms supplying castings
gs and forgings to the
company.
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The multiplicity of the considerations involved in taking decisions about monthly
production could be well gauged from the minutes of one such meeting, which are given in
Exhibit II.
Planning Section was mainly-guided-by

by certain policy decisions provided to them by the
managements. The most important out of them were:
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a. Scooter
cooter parts and their procurement, was to be on monthly basis; i.e., orders
were issued on yearly basis indicating the monthly delivery schedule which was
subject to conformation letter on
b. Raw-material planning was geared to a cycle based on minimum of 6 months

consumption, i.e., when the balance of any of the raw material came down to 6
months level necessary steps to procure the deficient items were ta
taken;
c. Imported and indigenous raw-materials

materials were ordered, as soon as the total
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amount in stocks plus on order came, down to about 9 months' consumption
figure. Generally, each order covered a period, of 9 months to one year. All
suppliers were given a delivery
ry schedule covering the full order in small lots.
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As regards raw material the planning department maintained detailed and up up-to-Date
records with the help of a stock-card-system.
system. The balance shown in these cards was on day-
day
today basis. Every 3 months thee Planning Engineer, himself checked each of these cards and
got prepared a list for all the items needing immediate
immediate attention. A copy of this report was
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sent to Commercial Manager who was expected to take immediate further action.
In relation to bought-out
ut components, castings and forgings from indigenous sources, and
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factory-made
made components, the Stores prepared a monthly list of all the items whose balance
was less than a month's consumption. Copies of this list were given to Planning Engineer,
Commerciall Manager and to the Purchase Department as well.
Planning Section had categorised all the items into four categories: (a) items made out of
bars and tubes, (b) items machined out of castings and forgings, (c) items fabricated out of
sheet
heet metal and (d) units
units consisting of several components but bought-out
bought in the assembled
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form. For each of these categories the Planning Section maintained separate stock cards and
progress cards (as shown in Exhibit III and IV) - stock cards for each of the raw-material and
progress cards for each of the components. For keeping these cards up up-to-Date, the Planning
Section was helped by the following:
1) All the issues were authorised by the planning section only,

All so they had their
own copy;
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2) Stores was always sending them a co

copy of the goods receipt issued to suppliers;
3) All the production shops sent a copy of each and every credit slip, which they
received from stores, against the delivery of finished components, to the
planning section.
All this information was constantly flowing to the Planning Section. Tabulating this took one
to two days and this became the time lag between the completion of receipt or issue of items
and their entry on to the cards.
In addition to the above functions the Planning was issuing job orders for all the production
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shops in the factory. The decision about issuing, job orders was based on several factors:
i. The batch size for any factory-made items was to be kept at a minimum of 2000
as it was considered economical; and it covered about 2 month's consumption
consumption
also. Thus a job order for any particular items was issued every alternate month,
when machine capacity was available and there was enough raw material for
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2000 pieces in stock.
ii. Great care was taken to see that there was no discontinuity between two job
orders for the same item, that is before one job
job-order
ne job- order got closed the other job
-order
order was already on the 'shop-floor
floor so that specialised and costly machinery
could be kept under use without any interruption.
This way the cycle timings of individual lots varied from 2 to 3 months.
onths. Monthly production
target for each item was 1200, i.e., 1200 components for the regular production and about
2 job orders should ever be on the shop-floor

Exhibit V) moved along with its lot from mac machine
ma chine
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200 for spare parts. Planning Section in particular was greatly concerned that not mere than
floor simultaneously. Job order form (as shown in
hine to machine. The entries on job cards
showed operation sequence, names of operators, particulars of the time spent by them in
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completing eachch of the operations and also "the delivery Dates
Date of the finished components to
the Stores. In a way, also this card had all the data as regards manhours, machine-hours
machine and
also the points of time for starting and finishing a particular operation on the batch. The
delivery column indicated day-to-dayday progress as regards the actual position 'of the finished
components.
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The Planning estimated that there should be a lead of about 1000 pieces between two
consecutive operations and it was considered extremely desirable If there was a lead of
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about 2000 pieces between the 1st operation and the last operation and these batches might
belong to two different job orders.
Stores and Material Control
Materials "Controller, described that the stores has categorized all the items into five
different classes:-
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1. C.K.D. imported components (completely knocked down components)

2. Bought-out
Bought
Bought--out parts from the indigenous sources
3. Factory-made parts
4. Raw materials - including castings, forgings and imported materials
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5. All the miscellaneo

All miscellaneous and consumable items such as paints, chemicals, tools,
spares, lubricants etc.
The main functions of the Stores are:
i) Receiving materials,
ii) Preparing monthly stock statement for purchase and planning sections
iii) Issuing fortnightly danger-level reports about items which are urgently needed
within next ten days for keeping the assembly line going.
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Material Controller stressed that the company
pany was trying its best to eliminate any such
danger-level reports. As of November 1966, several difficulties existed which must be
overcome before a steady-state could be reached. Those were:
i) Rejection rate of the bought-out

out components and materials was quite high,
sometimes 10 to 15% because the suppliers had not gained enough technical skill
so as to meet stringent inspection requirements,
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ii) Certain vendors were not having reasonably good and adequate precision
machinery and measuring instruments; some of them could not keep pace in
supplying the growing demand of the company, and
iii) Most of the- bought-out items being non-standard,

standard, the suppliers were hesitant to
install enough specialised machinery just for filling
filling company's orders which also
were not guaranteed.
The management had a bread-based

The various components were dividedvided into three
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based policy in regard to keeping stocks of various items items.
threee categories - A, B & C. 'A' Category items
thre
were relatively costly and difficult to procure, an
aand
nd
d their stock was to be kept at less than two
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months requirements. 'B' Category items were of medium cost and their stock was not to
exceed
eed three months requirements. 'C' 'C' Category items which were low priced - like nuts,
bolts-etc., and their stock could be upto
upto one year's requirements.
requireme However, inspite of the
above there were some items, which sometimes were in short supply and the Purchase
Department had to chase them very closely.
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During 1966,, the company carried stocks worth Rs.68

Rs lakhs to 70 lakhs and their monthly
consumption was valued at about Rs.22 lakhs. To give an idea about the turnover of the
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materials (for scooters only) in

in stores, the rupee value of the actual stocks as on the closing
day of October 1966 and also the rupee value of the actual consumption during this month
are given here below:
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Turnover of the materials (for scooters only)
Group of items Re. value of the Re. value of

inventory on the stores
closing day of consumed
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October 1966. during
(Rs. in lakhs) October 1966.
(Rs. in lakhs)
Indigenous components 31.55 7.0
Castings and Forgings 2.25 1.5
Imported components (CKD) 1.59 2.5
Rubber materials 0.33 1.5
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Upholstery materials 0.61 0.35
Oils and Lubricants 0.95 0.034
0.0
Tools & Grinding wheels 8.2 0.25
Raw materials 7.2 .1.8
Machinery spares 3.8 0.010
M.E. materials 0.5 0.02
Hardware & abrasive materials 0.58 0.025
Sundries N 0.1 0.25
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Purchase Department
Every March, Commercial Manager held discussion with the General Manager and decided
upon_a tentative production programme for one year in advance. This became the starting
point for initiating all the purchase operations. The purchase department had to deal with all
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the components going into the manufacture of scooter. There were about 500 items to be
bought-out
out from indigenous sources (These 500 had some sub sub-assemblies also; thus the total
number of parts was nearly 1050). The factory
factory-made items were about 200 in number. There
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were another 11000 items which were purchased only to fulfill all the manufacturing
requirements. The overall distribution of items amongst various groups was as shown
hereunder:
Description of the group No. of items
Machinery spares 2000

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Tools 6860
Vaspa-
Vaspa -auto
auto parts or sub
Vaspa-auto sub-assemblies 800
Separate rikshaw parts 700
Raw materials, Sheets, Tubes and Tool materials 500
Paints Chemicals and Lab. chemicals 554
Electrical goods . 400
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Hardwares, abrasives, pipe fittings upholstery and

miscellaneous
100
Total 12000
Replying to a question of the researcher, Assistant Commercial Manager, described that they
had a definite policy as regards making purchases of vendor items. That included:
1. The company must have atleast two good suppliers for each and every item and
each of the supplier sh6uld preferably supply more than one item.
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2. The management thought helping vendors in developing their capacities and
technical skill was in the long-range interest of the company.
3. For small, value items, large inventory was to be kept/which might cover from 6
months to 12 months’ requirements.
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4. There were items such as rubber parts, machine parts having close tolerances,
sintered parts, intricate forgings and certain special types of castings for which
no reliable supplier existed, and the purchase section was still responsible for
their continued supply.
5. For getting certain components machined from outside, raw materials were
supplied by the company to outsiders
siders for about 4 months' requirements in one
lot; they completed the jobs and billed the company for machining and labour
charges only.
6. The company had to work on hand-to

hand-to - mo
mou
mouth
uth
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th supply, in case of rubber tyres
and tubes; and there had been hardly any occasion when a stock of more than 10
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to 15 days consumption existed.
Purchase received monthly stock statement from stores, Asst. Commercial Manager himself
ticked allll the items which were falling short of 3000 sets (that means about 2 months' total
consumption), and a shortage list was got prepared. Then a second list was prepared for
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items whose stocks had gone down below 1200 sets (i.e., bel below one month's consumption).
For top priority items, the Purchase Department received a fortnigfortnightly danger-level list of
items whose stock became ame less than 500 sets. This list generally, contained about 30 tto 50
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items; (about 25 factory-mademade components and another 15 to 20 Vendor items). Second

priority was given to the list for items below 1200 sets, then on third priority attention was
paid to list showing items falling short of 3 months' requirements. Th The Manager was quite
critical if the fact that about 50 percent of the purchase personnel efforts had to be devoted to
procure items included in danger
danger-level
da nger list. That needed chasing vendors, outside suppliers,
lot of telephoning and sending telegrams and cables to the suppliers.
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Shop
p Operations
Machine shop superintendent also received a copy of the monthly stock statement meant for
Works Manager, fromfro
from
m this he could know in advance, which components should be
immediately loaded on machines and what priorities should be attached to each of them.
Machine Shop Superintendent together with the Planning Engineer, who had all the up-to-
Date records about the raw materials position about okayed number of parts, and about the
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parts in-
in-process,
in-process,
process, took decision about the job to be accomplished during the month.
Economic lot size for most of the components had been determined to be about 3000, but
because of cconstant raw material shortages job orders in smaller lot sizes of 1500 to 2000
were issued. In case of pressings and stampings, a lot of less than 4000 to 5000 units was
never taken up, because a smaller lot would be highly, uneconomical would, because of
the very high set-up costs involved. ;
Production shops of the company had been specifically planned t» manufacture a

component or a group of similar components only. Though each of shops had some general
purpose machines, but their layouts and capacities were such that they could not be easily
and economically loaded with component's other than the assigned ones. For each
component, operation-sequence-sheetsheet existed. From past records the Machine Shop
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Superintendent had prepared capacity estimates about thee number of particular components
which can be produced in each individual shop. All the machines were assigned with loads
for about 7 to 10 days in advance. Each foreman allotteded workload to each of the machine
operators at the start of the shift and a daily
aily production report for each of
of the shops was
prepared by their respective supervisors.
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These reports showed the operation number and the quantity produced during each of the
shift on each individual machine. Machine shops worked on 94 components and p press shops
prepared additional 105 components. In shops also, top priority was given to the
components shown in fortnightly danger-level
level list, next priority to the components given in
monthly stock statement for shortages and the rest of the capacity was k kept loaded with
routine job-orders.
orders. Each job order on the average had a time cycle of about 5 to 8 weeks.
For controlling total operations, there were certain performance induces accepted by the
management. These were always to be maintained irrespective
irrespective of how" much effort was
spent. The important ones were:
i) At any
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y time at least 6000 forgings for each of their components must be in-
process (i.e., forgings on order plus in shops)
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ii) Att least 4000 pieces of castings fo
ffor
orr each particular component must b
be under
processing.
iii) Att least 6 to 9 months' requirements of raw materials must be in process (raw
materials on-order
order plus unfinished pieces in shops)
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Researcher's Observations
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Looking-to the above details the researcher felt that there was an extremely great amount of
effort going into the planning and contro
ccontrol
ontro of material flow. He thought that ever, making
conservative estimates the following amount of personnel time could easily be debited
towards this:
i) 100% of planning section personnel time, because they

the hardly-devoted any time
to machine
machine-
machine-leading,
-leading,
leading, establishing time standards or in preparing definite
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schedules;
ii) 50% of the Purchase Department personnel time was being spent in contacting
vendors, truckers etc., which could otherwise have been more beneficially spent
in planning for future purchases and in finding out the most efficient and
reliable suppliers;
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iii) About 20%

About 20 of the stores personnel time was spent in preparing on a Continual
basis, materials and components stock position reports such as - monthly
shortages and fortnightly danger - level reports; an additional 20% of their time
was required for receiving and issuing items in small lots because of their hand-
to-month-supply position; &
iv) About 10% of the shops supervisory staff time had always to be spent in helping
planning section for supplying them with necessary information about the
components in-process
process and also in meeting the continued shortages of one or a
group of components shortly required on the assembly line; this time otherwise
could have been spent in work simplification supervising technical details of
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operations and thus reducing the percentage rejection rates.
During his discussion with for Manager and the Director, the case researcher suggested, if
the company would like to introduce inventory control charts, which had proved
quite useful in several foreign firms in stabilizing the overall system named ' Inventory-
Inventory
Production-Sale-System' and had been found greatly helpful in reducing the total operating
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costs of such a system.. To this suggestion both of them agreed, and they told told that let the
planning engineer, help you in collecting all the data required for such charts.
Preparation of In-Pro-Sales Charts
Firstly, surveying all the items the researcher and Planning Enginee
Engineer
Engine agreed that there were
err agreed
about 70 factory-made
made items which were the costliest amongst all. Their value content was
very high and from past records it was clear that their
heir
h eir sstoc
stock
tockk positions had been erratically
fluctuating. They both came to the conclusion that it would be best to start with this group,
positions.
In view of the existing practices in relation to the control

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because greatest savings could be possible only through controlling their overall stock
control charts, it was verified that the

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selected group of items,
ems, for which variations end control limits were to be computed,
consisted of nearly homogenous and similar items as regards their handling costs and the
costs of space required for their storage etc. Further it was agreed upon that the demand for
scooters
rs is infinite and any number produced would be sold out. The main objective of
preparing these charts would be to balance the production of these items in relation to the
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sales and existing inventory levels.
For preparing charts, it became essential to reduce all the figures to rupee values so as to
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achieve a common basis of comparison. These were to be combined into a single factor
called In-Pro-Sales
Sales factor (i.e., Inventory-Production-Sales
Inventory factor). Further it was assumed
that a fixed operating interval of one calendar month would be most suitable, because from
the point of view of management control neither it would be too short nor too long a period.
Preparing a control chart at the close of every month would bring into ffocus all the items
whose productionion and-sales
and-sales rates needed adjustments.
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The following
ing data were required
req
req to compute In-Pro-Sales factor (IPS) values:
I = rupee value (actual production cost) of inventory for the item, at the close of the
month,
S = rupee value of sales of the item (i.e., the price of components used in assembly or
dispatched
dispatched as spare parts during the previous month, based on selling price
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minus dealers commission)
P = rupee value of production of the item during the month (i.e., actual production
cost)
The researcher with the help of Planning Engineer collected the above said value figures for
64 items, chosen for the study, for the month of October 1966. These values are shown
tabulated in Exhibit VI. Then IPS factor for each of the items was calculated using the
formula:
I+P
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IPS =
S +1
Unity in the denominator was added to eliminate the situation when sales were zero and the
IPS would become infinite.
Once again all the items were tabulated in the order of increasing sales value S as shown in
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Exhibit VII. Then X the grand average for IPS values was computed which came out to be
equal to = 0.9897. In the last column of Exhibit VII are entered the range values R3 for each
of the sub-group
up of 3 items in the row of the last item of each ' sub-
sub-group.
sub -group.
group. These ranges were
the differences, between the maximum and the minimum values of IPS for each of thei their
respective sub-groups. R3 the average for range values lues also was computed, it was found
equal to 1.203. For plotting charts, upper and lower control limit IPS values we were needed.
These were calculated using the formulae:
= X + E 2 R3
UCL
= X − E 2 R3
LCL N
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The values of E2 were taken from 'Manual on Quality Control of Materials, 1951;
1951 these had
been statistically estimated, with the assumption that the estimated limits exten
extended three
standard deviations above and below the average. Limits calculated in such a way would
rarely give a false indication that a particular value of IPS is too far from the expected or
control value. Those were calculated as below:
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UCL = 0.989
.989 + 1.772 x 1.203 =
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0.989 + 2.132 = 3.121
LCL = 0.989 - 2.132 = -1.143 .
Finally, making use of all the item

item’s IPS values, X value and the values of both the limits, the
control chart was plotted as shown in Exhibit VIII.
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Looking to the
the chart, several conclusions were drawn. Those were:
a) Since the grand average value of IPS was 00.989, the sum of inventory and
production was more or less equal to consumption (sales) rate of all the 64 items.
b) Since the average is less than unity and about 60% of the items had their IPS
values between Z
Zero and unity, therefore they were likely to run out of stock any
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time.
c) Lower control limit had negative value of (-1*143), which meant an imaginary
situation, but then looking to value of upper control limit = 3.121, it was found
that LPS values were greatly wide apart; that meant that inventory policy in
regard to these items was not stable and accurate, only management thought so.
d) LPS values for items varied from 0 to 3.2, and no point fell outside control limits,
that also*indicated that the two limits were wide apart and e definite action
action in
this regard was necessary. Finally, after sending copies of the control chart to
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General Manager and nd to the Director, Managing Agent. The responsible
requested for an interview with the director, who was in station on that day. He
gladly agreed to spare about an hour.
Researcher: Sir, Your Planning Engineer and myself both have conducted this study and
we have taken up only 64 components out of a total of about 125 1250. Our
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criterion of selection was that only high value items and those undergoing
included.
included.. Looking to IPS
similar type of manufacturing operations were to be included
chart and also to so many actual shortages occurring every month, we think
that the present inventory
entory policies followed by your management are not very
satisfactory. Could you kindly comment upon this?
Director: In Automobile Industry, inventory is one of most important things, probably

the most important. Any auto- auto-manufacturer
auto-manufacturer
manufacturer can never think of
manufacturing
nufacturing all the components in his own plants, he must purchase, a
components, sub-assemblies
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majority of standard and specialised items from outside vendors. For
we are having about 800 outside vendors, supplying us about 360
F example
assemblies etc. In our country such suppliers are just

beginners many of them do not even possess the necessary technical know know-
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how, the manufacturing skill and the important measuring instruments even.
Quite often company helps them in their engineering and manufacturing
problems, butt still several of them have difficulties about materials, labour,
machinery or sometimes about finance as well. Many items included in your
chart also are either supplied by them in rough form, or after completing a
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few operations
perations or without heat
heat-treating and grinding. It is mostly their
inability to supply that is becoming the greatest bottleneck for the company in
keeping its stock-levels stabilized.
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Researcher: I think that a major part of personnel time in planning section, in purchase
section in stores section and a smaller fraction of time in workshops also is
being spent in keeping the scooter assembly
assembly-line provided with all the
required number of components, so as to keep the line going. To be frank
with you, I think this is too much and feel coconfident, that if the cost of this
total time is calculated and compared with the cost of carrying, even about
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100% higher inventories of these charted parts, one will definitely conclude
that even with the proposed 200200% inventories, the total costs will be lesser.
Sir, what are your comments upupon such an assessment?
Director: I can agree with you only in part, such as:
i) the receipt of several vendor items in stores is really in smaller lots, this does
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involve lot of time, stationary and labour hours,
ii) the issue to assembly line is in smaller lots, only in case of vendor components
whose supply position is hand-to-mouth, &
iii) suite a large number of company's vendors are relatively new with us though
they promise supply in larger lots on schedules Dates; but being

inexperienced they have their own difficulties.
Month to month position is improving and I hope after a couple of more year
ell these bottlenecks will be resolved and the inventory floww will be much
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smoother. As regards, your comment about overall all savings even after
increasing inventory levels by 100%, I am doubtful. At present we might
achieve some savings but on the long term basis, we are on the correct path.
Researcher: Are you having economic lot sizes for batches of components and if so,
so, then
why the finished components
ts are passed on to stores every day in small lots?
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In my view this is also an inefficient utilization of clerical and material
handling effort.
Director: The company has established economic lot sizes for most of the components
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and they are quite satisfactory. As regards depo depositing
dep ositing
siting finished components to
stores daily, I think firstly this type of arrangement is quite helpful in keeping
the stocks constantly, upDated, d, secondly because daily production is being
recorded in n a production report, after which the workers, responsibility is
over,therefore it becomes highly des desirable
de sir
iraable
ble that such items go under the
custody of stores.
res. Quite possible, a little amount of
spent with this sort of an arrangement
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o clerks' and movers' time is
arrangement but I think it is negligible and even if it
is slightly more, I would say it is worth it.
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Researcher: Could you kindly let me know about, any specifi
specific indices which you might
be using for constantly checking and comparing the appropriateness of the
levels of inventory and production?
Director: In school we were taught very many such indices. I have been trying several
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of them one by one or several of them simultaneously, but as yet I have not
been
en able to pinpoint any of those
t indices which you might be thinking of.
While studying books and articles, many indices do attract attention, but on
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applying we find that none fits ideally to our situation. Frankly speaking after
many trials, for the present we have some simple decision rules, defin
defining that
a certain minimum-
minimum-covering
minimum -covering
covering a definite period of consumption must be
maintained for various categories of homogenous items. Such decision
decision-rules
are giving out quite satisfactory results. Considering overall picture of the
company we have established a few objectives and all our our- effort and
attention, at present is directed towards their fulfilment. Those are:
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a) Stabilize, production of scooters at 2000/month;
b) There should be atleast 4 to 5 times turnover of the total working

There
capital;
c) Help develop suppliers and vendors in the long range interest of the
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company; and
d) Because of government imposed price-control the company must get

production at the lowest costs.
Researcher: Do you think that In-Pro-Sales charts as prepared for this study can serve you
as a continual guide for controlling Inventory-Production-Sales system?
Director: It is too early to comment upon this, because I personally would like to take
action as per suggestion given therein, study its effects, and then only after
operating 5 or 4 months this way, I may be able to say something. Now if you
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permit, I would like to ask you a question about control charts. Please let me
know what will be the best method of narrowing down the control limits.
Researcher: One thing we can easily

ly do is that after one month's operation, multiply X,
the grand average value of IPS by a factor
= Total rupee value of sales during past month
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Total
otal rupee value of sales predicted for the next month
Fixing this as average valuee of IPS and then proceeding this way, after a
couple of months’ operations you will definitely arrive at an optimum
average value of IPS and the control limit values w
will
ill also get automatically
standardized and narrower, and thus the management will be aable to achieve
the desirable goal.
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13 of 25 IIMA/PRO0033
Exhibit I
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Bajaj Auto Limited
Company's financial position as on 3lst March of the years
(in lacs of Rs.)
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1961 1962 1963 1964 1965 1966
1. Total fixed assets after depreciation
9.16 61.37 86.23 100.44 129.81 155.30
2. Materials and products for use and sale
ON
16.78 33.86 51.29 67.89 79.74 106.47
3. Loans given3 advances cash and bank balance etc.

- 7.65 8.44 6.02 21.60 12.91
4. Reserves
2.16 10.66 26.15 34.26 44.01 51.98
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5. Total liabilities
58.36 102.88 145.96 174.35 231.15 274.68
6. Total sales including excise duty

EC 88.23 116.29 140.27 183.87 290.16 230.74
7. Plant and machinery after depreciation

3.30 16.07 34.34 43.29 63.88 84.31
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Exhibit II
Bajaj Auto Limited
Minutes of the production meeting held on 29-12-1965 in G.M.'s office to discuss the production
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programme for the months of January arid February, 1966.
For Chassis shop only hold-up is Axle Shaft Support and they can produce 6 chassis a day
continuously.
In press shop 2 thousand sets in addition to 3,000 sets already completed should be produced.
G.M. will explore possibility of developing Wind Shield Assy. complete with Fibre Glass.
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400 Condensors which are received should be sent back and Commercial Manager will arrange for
their replacement with the correct ones.
Commercial Manager will report on the development of the Magnets with Elrpo International.
Commercial Manager will order 2 months stock of Pole Shoes in January and thereafter one months'
stock.
Dr. Bajaj has to make an application to the Committee appointed to allocate scarce materials.
21 SWG wire is available for 1,500 Units
19 SWG wire is available for 4,000 Units

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Rest of the wires are available for 8,000 Units
10% minimum and 20 maximum should be provided in case of supply of knurled bush and Brass Pipe
bush required for Crank-case.
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Raw material for 1st Speed Gear Vespa to be sent to Hakimrai Jaichand for forging of 2,000 sets.
Commercial Manager will report on the development of Press forgings from M/s. Hakimrai Jaichand.
They should develop one such die to start with.
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We should continue to get forgings from G.K.

G.K.W. for Main Shafts.
Wyman
an Gorden supply of Main Shaft forgings should not be continued.
We should receive 4,500 forgings of Front Wheel Axle by Feb/March 1966.

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Exhibit III
Bajaj Auto Limited
Stock Card for Raw Material
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1) Size and quality of Raw Material :-
2) Name of Supplier or Manufacturer :-
3) Total Material required for 1000 V + 100 A :-
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4) Parts to be Manufactured :-
Part Part Name Qty/ Blank size No. of Material

No. Veh Pieces
Piece per for 1000
V+A sheet V + 100 A
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5) Stock Position
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Date Opening Balance Receipt Issue REMARKS
Qty. Unit RCIA No.a

No.and Qty. M.R.No.and Qty.
Date Date
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6,000 sets of materials for silencer tubes should be ordered.
Commercial Manager will explore possibility of developing Trunion Forging with M/s. Bharat Forge.
Chief Engineer will explore the possibility of changing the design of Trunion and till that time
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Commercial Manager will obtain quotation for the old part (Trunion) from Bharat Forge.
All tools which were being imported

ported from Piaggio and abroad will have to be developed in our factory
or outside. All shop Supervisors are directed to prepare such detailed list where imported tools are
required to be developed and will send the same to Commercial Manager for procurement well in
advance.
Chief Engineer should give the sizes of Raw materials of H.S. Steel for necessary imports.
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Aluminium channels should be sent to Bombay for pressing.
Extruded sections for inner aluminium channels will be ordered for 6 months.
months.
For End Cap we have to develop IIIrd source of supply.
Petrol Cock Rod
We have to fabricate die for this part and the same will be ready within 4 months' time.
1,000 sets of materials required for Foot Rest should be ordered

ordered out.
N Sd/.
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General Manager
BA/WM/110/Z/
29th December, 1965

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c. c. to General Manager.
c.c. to Dy. General Manager.

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c.c. to Commercial Manager.
o.c. to Mr. Pokarna.
c.c. to Works Manager.

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c.c. to Chief Engineer.
c.c to Material Controller.
c.c. to Planning Engineer.
c.c. to Mr. Badve Incharge Chassis Line Vaspa & APE

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c.c. to Dr. Bajaj.

Exhibit IV
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Bajaj Auto Limited
Progress Card
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Part Name: No. off : Material per piece: Assly:
Part No.: Raw Material : - do - (1000V + 100A) Model:
Date Recpt. Raw Material Stores Shop Finished Parts Stores

Sect.
1 2 3 4 5 6 7 8 9 10 11 12
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Date Remarks
Qty. Scrapped
Finished Parts
Qty. Issued to
Qty. Issued to
Store by M.C.
Assly by M.R.
Shop by M.R.
Raw Material
Qty. Recd. In
Qty. Recd. In
Copy Advice
by G.D.Note
from ship by
Qt. Recd. In
from Stores
Spare parts
R.C.I,A. Ist
Qty issued
Qty. issued
Balance of
Balance of
Balance of
Stores by
Opening
Opening
Opening
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by M.R.
(Finish)
R.C.I.A
Shop
M.C.
CT
S PE
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Exhibit VI
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Bajaj Auto Limited
S. No. Part No. Description of part Qty. per Rank in I P S I + P

Scoter order of I in Rs. P in Rs. S in Rs. S+1
sales
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1 46633 Brake pedal pin 1 2 1601.95 550.85 1762.76 .779
2 2/94379 Clutch Bush Assly 1 41 12297.60 11401.60 21471.45 1.104
3 77352 Engine Gear 1 12 3670.24 3377.92 7427.42 0.949
4 59098 Clutch Plate Single 1 1 2151.36 1804.80 2002.00 1.978
5 59370 Clutch Plate Double 2 8 5633.12 5550.28 4884.88 2.308
6 16821 Clutch Plate Small 1 11 1946.84 2886.94 6516.51 .742
7 50100 Clutch Cover 1 19 9165.60 10 389.96 9089.08 2.150
8 97984 Clutch Level External 1 51 16340.77 13668.85 29719.69 1.010
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9 55288 Motor 1 60 43033.50 11716.50 81681.60 0.670
10 46675 Com 1 32 1356.56 62.00 17497.48 0.077
11 29721 Startor assembly 1 62 28677.32 28072.88 85685.60 0.662
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12 89025 Cluster Gear 1 56 36421.58
36421.58 42143.28 42682.64 1.841
13 89911 Corona Gear 1 52 5689.44 9482.40 32952.92 0.460
14 82085 Main Shaft 1 58 1573.15 19300.35 57657.60 0.363
15 46605 Stem 1 7 1389.28 2061.12 4844.84 0.712
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16 48349 First Sneed Gear 1 39 0.00 5990.40 20700.68 0.289
17 22698 Second speed Gear 1 44 14942.07 11885.94 24064.04 1.115
18 22699 Third Speed Gear 1 36 20418.10 10606.90 18658.64 1.663
19 96046 Crank Csss Assly 1 64 341318.85 4584.70 215375.16 1.606
20 77413 Sector Gepr \ss3y 1 46 6907.45 12174.25 26186.16 0.729
21 77414 Sector Goer 3pindle 1 9 4558.42 5150.54 5425.42 1.789
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22 47166 Gerr Shifter .lousing 1 14 7571.78 3209.74 7767.76 1.388'
23 59708 Carourretor Housing 1 33 4935.80 4889.40 17737.72 0.503
24 48791 Cylinder Block 1 61 0.00 20333.31 85545.46 0.238
25 94417 M.G. Pin 1 10 1279.26 3490.02 5845.84 0.816
26 96150 Kick Starter Pedal 1 35 8855. 16 13629.36 18418.40 1.221
S
27 89026 Starter Gear 1 16 9471.84 5695.20 8208.20 1.848

28 48421 Cylinder Head 1 45 41084.92 20553.00 26106.08 2.361
29 89575 Rear Wheal Flange
ange 1 55 5928.48 22441.23 38698.66 0.733
IN
30 2/23831 Rear Brake Drum 1 40 8713.66 1938.46 21381.36 0.456

31 78169 Rear Brake Shoe 2 24 5533.92 5119.20 11611.1.60 0.917
Exhibit VI Cont…
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S. No. Part No. Description of part Qty. per Rank in order I P S I + P
Scoter of sales I in Rs. P in S in Rs. S+1
Rs.
32 84118 Steering Column lube 1 38 14699.92 13488.50 20380.36 1.383
33 2/23208 Front Brake Drum 1 34 11193.60 1144.80 18338.32 0.673
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34 21999 Front, Brake Shoe 2 26 648.07 0.00 12492.48 0.052
35 78725 Front Wheel Hub 1 59 11419.42 34043.25 66466.40 0.684
36 78742 Front Wheel Axle 1 50 5585.46 16316.58 29349.32 0.746
37 2/78734 Hub Pin 1 18 0.00 1105.64 8468.96 0.123
38 2/78731 Hub Pin 1 15 521.64 1892.16 8168.16 0.296
39 35581 Trunion 1 42 1272.70 10982.40 22902.88 0.535
40 110641 Handle, bar 1 63 230.88 37305.36 92202.11 0.407
41 80302 Guide Tube 1 13 0.00 2953.94 7657.65 0.386
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42 5UD98 L.H. Sleeve of Handle Bar 1 28 12587.84 6050.54 12812.80 1.455
43 51220 R.H. Sleeve of Handle Bar 1 29 8682.56 11386.40 12812.80 1.566
44 14345 Wheel Rim 3 47 1476.97 11056.54 27987.96 0.448
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45 18306 Number Plate 1 5 2928.00 1587.50 3103.10 1.455
46 35444 Bonnet 1 54 103.05 9102.75 34384.35 0.268
47 80625 Chassis of imagine Side 1 53 41-68.80
41 13126.40 33633.60 0.523
48 80626 Chassis of Tool Box side 1 49 6630.19 7622.35 29159.13 0.491
CT
49 85163 Upper part of Chassis 1 23 5558.29 0.00 11021.01 0.595
50 93044 Lower Part of Chassis 1 31 5655.08 2059.20 17177.16 0.333
51 70376 Body Diaphragm 1 17 14144.61 11709.63 8378.37 3.082
52 83392 Steaming Column Cover 1 27 5856.03 1309.95 12762.75 0.056
53 97741 Shield 1 57 5684.00 11368.00 143043.00 0.396
54 59101 Clutch Box 1 6 1890.80 2975.40 4354.35 1.117
PE
55 86453 Cowling 1 20 1738.08 4008.60 9188.18 0.625
56 54060 Front wheel Guard RH Half 1 21 572.90 0.00 10120.11 0.056
57 54661 Front Wheel L.H. Half 1 30 572.90 0.00 10120.21 0.056
58 83996 Luggage carrier frame 1 25 5168.80 0.00 14664.65 0.352
59 87409 Petrol Tank Bottom 1 3 13182.96 13167.00 11981.97 2.199
60 87564 Upper Half Box(Silencer) 1 4 6135.38 2820.00 2822.82 3.171
S
61 81381 Lower Half Box(Silencer) 1 43 6150.42 2820.00 2822.82 3.176

62 87238 Snare Wheel Bracket 1 48 814,32 0.00 23 073.05 0.035
IN
63 47211 Tool Box 1 37 643.08 4715.92 27987.96 0.101

64 21860 Wheel Rim 3 10673.52 0.00 200020.00 0.533
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Exhibit V
Part No Part no. Shop No. Works Order Cost Card

Reference
No. of Serial No Date of Issue Closing Date Signature of Planning Approval of
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parts to Officer Foreman
be made
Operation Name of Badg Date Date Date Date Date Date Date Date Date Date Date Date Tot Wa Total
Sequal Operato e No. al ges value
r Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr hrs
N
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Total
Prog.
Total
Total
Prog.
CT
PE
Total
S
Total
Prog.
Total
Bajaj Auto Ltd. Form No. MT-
MT
MT-28/3
-28/3
28/3 JOB ORDER No.
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Ching wad
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Exhibit V Conti…
Reserve Side C Job Card
CO
QTY
Vouche
Recent
r No.
Delivery
N
Date
Operation Name of Badge Date Date Date Date Date Date Date Date Date Date Date Date Tot Wa Total
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Sequal Operator No. al ges value
Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr Qt Hr hrs
Total
Prog.
Total CT
PE
Total
Prog.
S
Total
IN
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Total
Prog.
Total
CO
N
IO
CT
S PE
IN
Exhibit VII
Bajaj Auto Limited
S.No. of the Rank in IPS Range R3

item order of
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sales
4 1 1.978
1 2 0.779
60 3 3.171 2.392
61 4 3.176
45 5 1.455
54 6 1.117 2.059
CO
51 7 3.082
5 8 2.308
21 9 1.789 0.293
25 10 0.816
6 11 0.742
3 12 0.949 0.207
41 13 0.386
22 14 1.388
38 15 0.296 1.092
27 16 1.848
51
37
7
55
17
18
19
20
N 3.082
0.123
2.150
0.625
2.959
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56 21 0.056 2.094
57 22 0.056
48 23 0.595
31 24 0.917 0.861
59 25 2.199
34 26 0.052
T
52 27 0.056 2.143
42 28 1.455
43 29 1.566
58 30 0.352 1.214
EC
50 31 0.333
10 32 0.077
23 33 0.503 0.426
33 34 0.677
26 35 1.221
18 36 1.663 0.990
64 37 0.533
SP
32 38 1.383
16 59 0.289 1.094
30 40 0.456
2 41 1.104
39 42 0.535 0.648
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Exhibit VII Conti.
S.No. of the Rank in order of IPS Range R3
PY
item sales
62 43 0.065
17 44 1.115
28 45 2.361 2.295
20 46 0.729
44 47 0.448
63 48 0.191 0.538
CO
48 49 0.491
56 50 0.746
8 51 1.010 0.519
13 52 0.460
47 53 0.523
46 54 0.268 0.255
29 55 0.733
12 56 1.841
53 57 0.396 1.445
14 58 0.363
35
9
24
11
59
60
61
62
N 0.684
0.670
0.238
0.662
0.321
IO
40 63 0.407 0.424
19 64 1.606
Grand Total:-
Total:- 63.341 25.269
T
EC
SP
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Exhibit VIII
Bajaj Auto Limited
0 1 2 3 4 Item
4
• 1
60
PY
61
• 45
54
• 51
• 5
• • 21
25
6
10
• 3
CO
41
• 22
• 38
• 27
51
37
• 7
Upper control Limit

20
55
56
Lower Control Limit
57
• 48
31
59
•
• N 34
52
42
43
58
30
IO
50
10
23
• • 33
• 26
• 18
• 64
32
• 16
T
30
40
• 2
• 39
62
EC
• 17
• 28
• 20
44
• 63
48
36
50
8
• 13
SP
• 47
• 46
29
• 12
• 53
• 14
35
• 0
60
• 24
IN
• 11
• 40
19
70

Amul Foods Ltd.
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In the beginning of the year 1956, Mr. Kurien, General Manager of Amul, was powder over
Particularly,
Particularly,
the problem of utilizing milk left over after supplying to Bombay Milk Scheme. Particularl y,
during flush season, October to February, its farmer-members suppliedsupplied much larger
quantity of milk this sometimes could be 250% of at delivered in summer season. On one
side, he considered the obligation of the company to continue accepting milk from its
societies’ members, whenever and in whatever amount they supplied;
plied; on the other hand, he
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was giving a serious thought to the opportunity of making money in baby-food
baby-food
baby- food market by
starting production of baby foods out of extra milk.
Company Background
Amul Foods Limited started its operations of collecting milk, and pasteurising it during the
year 1948, for purposes of supplying milk to Bombay, located at a distance of 266
26 miles. The
company used a daily shuttle service of modern refrigerated rail cars to transport milk to
Bombay. After 8 years’ operations, in the yearr 1956, the company was faced with the
problem of extra milk. The farmer-members N
members of its village societies in flush season were in
position to supply more milk than the company needed. And they wanted that the company
should accept all their milk throughout the year. Otherwise they were not very happy. The
company had only one outlet, i.e., Bombay Milk Scheme and so it had to agree always to
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their terms. These were the two major reasons, which led Mr. Kurien to search for other
outlets or towards the manufacture
ture of milk-based
milk-based
milk- based products.
products
At one time, during 1956 when the milk producer’s

producer village societies’ programme had
gathered momentum, the company met this situation by accepting milk from-societies
from by
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rotation only on certain days.
India, at that time had noo baby-food

baby-food
baby-food production units and was importing about 3,000 tons of
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baby foods annually, based mainly on cow-milk.

cow Exhibits 1 and 2 give the position of
imported milk-base
base foods and the licensed capacity of factories within the country at that
time. During those very days, scientists of Central Food Technical Research Institute in
Mysorere have succeeded in developing a process for producing Infant baby foods from
buffalo-milk. A news item about this process appeared in daily newspapers in June 1954.
Several parties
arties contacted the Institute for getting a licence for the process. Whereas the
Institute itself also contacted a couple of larger companies which manufactured
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pharmaceuticals products or did business in baby foods. After several discussions with
various groups the question of selecting the place and licensing the party was examined at a
meeting attended by the Institute’s scientists and General Manager from Amul the decision
was taken in favour of Anand.
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Before going into production, the company

company’s management weighed all the pros and cons or
such a move. The main criteria which weighed heavily in favour of setting-up baby food
manufacturing facilities, at Anand were:
Prepared by Professor S.C. Aggarwal, Indian Institute of Management, Ahmedabad.

Case material of the Indian Institute of Management, Ahmedabad, is prepared as a basis for class
i) Problem of surplus milk as discussed above;

ii) Union Minister’s request to G.J. for utilizing indigenously developed process and
promise government support;
iii) Pride in doing something new;
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iv) Ready market for baby foods;
v) Company had well-developed by-
developed butter market (which would be produced as a by
product);
vi) Expected returns were attractive because baby foods seemed to offer higher margins;
vii) Baby foods offered a large expanding market in future;
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viii) Milk in India, was always a short-supply
supply item, therefore milk based products would
never be a losing business, because the productivity of Indian cattle is miserably low fat
and it might never come up to demands;
ix) The company’ss objective of increased milk price to the farmer-
farmer-members
farmer -members
members of its societies
(for example, raw milk price paid to its farmer-members
farmer-members
farmer- members has gone
gon up by about 35
Percent during 1965-67);
x) Some
ome intuition was there, and the year 1960 was considered quite opportune to start
production;
xi) Diversification would absorb overheads;;
xii) Complementary
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omplementary facilities such as collection of milk, testing etc., existed or could Milk
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Scheme would no longer be in a position to dictate prices to the company;
xiv) To make Amul a household name in India; and
xv) That the turn-over of the capital would considerably increase.
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Years of growth (1960-67)
ood and cheese plants started production in the year 1960. During the period 1960 to
Baby food
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1967, the company had started the manufacture of several other products such as skimmed
milk powder casein,in, butter and ghee. The company also operated a lime juice, plant,
plant banana
cattle-feed
cattle-
powder plant and a large cattle-feed feed plant. The continued progress of Amul is shown by
Exhibit 3. Exhibit 4 gives the financial position of the company during the last 3 years viz.
-67
1964- 5 to 1966-67
This being a company, working on cooperative basis, had a seven year plan (1963-70) for
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doubling milk production through the development of its activities in the field of animal
husbandry, animal nutrition, livestock marketing and extension etc. The total estimate of
expenditure on this plan was somewhat near Rs.385 lacs.
bligation of the
Obligation the company long-term
long objectives
seller market and could have made much more money, but did not
The company was in seller’s
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do so because of the following obligations:
a) It should continue supplying milk to Bombay Milk Scheme. The management did not
want to forget the past, when BMS was the only customer, and it was with its help, that
the Union has progressed to its present position.
b) Making money from baby foods was not the primary aim.
c) Government demands for condensed nsed milk or powder milk during periods of emergency
must be met at controlled prices.
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Right from the start, management of the company had established a few well defined
objectives in relation to its operations. The most important was that only quality products
products
will go out of the plant. The management paid particular attention to consistency in quality.
Looking to demand trends the company was to make all efforts to increase production of
baby foods. Temptation of seller’ss market were strong but had to be avoided. The product
was to be distributed all over India equitably irrespective of other considerations, Amul was
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to remain extremely cautious in choosing ng its marketing associates. Only reliable, respectable
and people with integrity would be its partners.
Role of CFTRI
set-
Central Food Technological Research Institute Mysore is one of the national laboratories set
baby-foods
up by CSIR. Realizing the important need of producing baby foods within the country, the
investigations for developing the process
scientists of the Institute have conducted investigations
(described in the following pages) of making infant baby food powder from Buffalo milk. In
foreign lands baby foods were prepared using cow - milk as the only raw- N
raw material. In India
cow milk was in acute shortage, so they used buffalo milk as raw material and succeeded in
making powder which when dissolved in water was comparable to human milk.
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The main problems, they had to face were in regard to the digestibility of powder milk made
out of buffalo milk. One was higher buffering
buffering capacity, second the higher calcium and
phosphate content, third larger proportions of caseins aand dense nature of curd formed in
the stomach. The experts of CFTRI conducted a series of experiments in their laboratories
and succeeded in developing methods for modifying buffalo milk so as to bring it as close to
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converting buffalo milk into baby food is given

human milk as possible. The flow chart for co
in Exhibit 5.
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Along with product development CFTRI conducted several other initial studies:
i) Bacterial
rial quality of milk and its effect on the final product
ii) Shelf-life of the final product at different temperatures
iii) Uniform
niform density of the product
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iv) Solubility end reconstruction properties and

v) Clinical
linical trials at various places (hospitals, nursing homes etc.)
The scientists and doctors were of the opinion that such studies were very important, for
making the product superior.
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Agreement with National Research Development Corporation of India
After the product was successfully developed by CFTRI, they referred it to NRDC who were
a section of the Union Ministry of Industry and Commerce working as coordinating link
between the laboratories research organisations and the factories. They were charged with
the responsibilities of helping the laboratories of research organization in developing a
process from the laboratory str.ge to the production stage. They also helped companies in
the full exploitation of process or of inventions by providing them with funds at this critical
juncture when hardly ly any Indian company would be readily coming forward to make a trial
on still-untried
untried processes or inventions, with their own funds. This way NRDC made them
interested in the product/process.
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To be specific, NRDC did the marketing of newly developed processes/products.
ocesses/products. In a way
they served as coordinating link between the research effort on one side and the prospective
production companies on the other side. They did everything to their best capability in
satisfying the companies about the success of the new processes/ Inventions. When the
prospective industrial or manufacturing company got satisfied with the process NRDC
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entered into an agreement with the company on behalf of the national laboratory/individual
scientist/private research organisation. These
hese agreements covered the terms of licensing a
process/product to the prospective customers. Such agreements generally covered period of
10 to 15 years and they were mostly on royalty basis. In the beginning fixed royalties just at
nominal rates and after a certain period of time the royalty increased in steps ind reached up
to 2 to 5%’ of net sales value NRDC charged a commission for its marketing services varying
30 to 40 % from the total amount of royalties collected.
During November, 1956, on the request of CFTRI, CFTRI, NRDC provided Rs. 10,000/- to Amul
Foods Limited for a trial production of two tons of Milk powder. The company could
prepare it with its existing facilities for whole milk powder.
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The company getting convinced of the usefulness of the product,
pro and of the possibility of
developing its markets submitted a proposal to NRDC for agreeing to pay a royalty of 1% of
cost price, this was not accepted by NRDC.
NRDC.
NRD C. NRDC, on the other hand, made a counter offer
for issuing , an exclusive license to the company
company if it was prepared to pay a royalty of 6 paise
per pound of infant food sold, for a period of 14 years.
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During those days minimum selling price for baby foods in the market was Rs.3.50Rs. per
pound, Hence 6 paise per pound was a little less than 2 per cent. NRDC considered it quite
low in view of the exclusive nature of the license, NRDC being the representative for CFTRI
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bargained for licensing terms and after several meetings and lot of discussions
finally on 8th March 1958 in a meeting held in Delhi, attended by Mr. Kurien-General
Manager of Amul, Prof. Thacker-
Thacker- the then Director General of CSIR and others, the
following terms mid conditions for royalty payments were agreed upon:
i) Royalty: 2 paise per pound for first two years

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4 paise per pound for

fo the subsequent years
ii) Prior: 14 years
iii) Nature of license: Exclusive for whole of India
The samples were tried on babies by CFTRI through, pediatricians of a few Mysore
hospitals. The trials on infants, 4 to 8 months old, proved that the product was easily
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digested by babi
ba bi and their growth progressed satisfactorily.
babies
In 1960, CFTRI published data on infant baby foods in a special issue of their journal ‘‘Food
Science’’
Science’’ Amul management took objection to this, thinking that this publication was
Science’’.
harmful to the interests of the company and in no way it was in conformity with the nature
of the exclusive license issued to them. Further company thought that they were equal
participants in the development of this project. Therefore, Amul requested NRDC for
reduction in royalty from the existing rates to token royal ties. The company was told by
NRDC that reduction in royalties was possible only if they would agree to the conversion of
their license from exclusive nature to non-exclusive one. Discussion amongst NRDC, CFTRI
and Amul took place in Delhi and the company agreed to withdraw its request. From 1961,
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onwards Amul had been constantly paying royalties to NRDC as per agreement rates, after
every six month. The amounts of royalties for different time periods are given in Exhibit 6.
The total amount of royalties received by NRDC upto March 1967 were Rs.10,20,274.21.
Stages of development
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After the success of a product at laboratory stage, there were always three other stages in the
development of a product:
i) Pilot Plant product-development stage;

ii) Full-scale process-development stage, and
iii) Market development stage
The first thing in each of the stages was largely a matter of enquiry and planning. The
simultaneously.
company undertook these activities more or less simultaneously.
i) product
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Amul had little difficulty in accomplishing pilot plant product-development,
they could make use of its already existing equipment (which they had for the
manufacture of whole milk powders) for making trial runs of this product. The
because
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pany aimed at bringing out a product as good as the imported one. After collecting
company
test data information, the company management was convinced about the good quality
of the product. Next problem before the company was to devise a schedule of vital
trade elements.
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ii) Full scale process development stage consisted of: (a) development of supply of raw
materials, packaging materials and containers, (b) development of production facilities
for baby foods and complementary products
products, (c) calculations to ensure that extension of
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company’ss pit dub line would enable the company to invest in increased milk
production.
From baby food production, butter would come but as a by-product. by The company
market
planned to expand its existing butter production capacity and marketing operations.
Net being very sure, the company thought that the production cost of baby, food should
not be extraordinarily high and it; decided to install substantial cheese making capacity,
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so that if cost of baby; goes out of reach of all but the richest minority, the company can
Cheeze production. Cheeze being a luxury product, would well look
switch over to Cheeze
after future inflationary cost factors.
establishe a high degree of prestige for its products in the outside

iv) The company had established
market. The company had selected its butter distributors carefully and during last 4
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years of marketing, Amul butter has established a good name in the market. Amul had
become an accepted name for the quality dairy product. So the company believed that
the distribution of baby food also should be given to only competent dis
distributors who
knew their job well. In other countries as well as in India baby foods were generally
marketed along with pharmaceuticals. So the company searched for a distributing
organization dealing with pharmaceuticals and after contacting several of them Voltas
became its partner.
Process Development
The chemical composition of human milk, cow’ss milk and buffalo milk as analyzed by
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Indian scientists is given in Exhibit 7. For converting buffalo milk to infant baby food
powder, the following steps (see Exhibit 5 also) were involved:
a) Removal of pert of fat content from buffalo milk and bringing it down to about 2 percent;
b) Addition of required amounts of phosphates and citrates to lower the curd tensio
tension (such
tension is harmful to the digestion of infant babies);
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c) Addition of sugars and vitamins
d) Homogenisation and pasteurisation of liquid milk
up in the milk powder form.
e) Concentration and final dry-up
The composition of baby food powder in the final form is given in Exhibit 8.
CFTRI scientists and Amul Engineers worked jointly for the development of the production
process. They had to consider, discuss and reach an agreement on each and every detail of
during pasteurization the temperature was to be maintained at 185°F, this avoided

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the process. Decisions had to be taken in regard to several important issues. For example,
preheating before concentration. This step involved, quite a few technical difficulties, these
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could be overcome only after long experimentation.
Preconcentration was to be picked up on a gravity flow falling

falling-film evaporator, which was
quite new in those days. This equipment provided only a single
single-pass and very low retention
time during, concentration. In addition, a very high temperature spiral heater was built into
this unit, which ensured sterile concentrate out of the plant.
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Controversy existed whether to use spray drying process against conventional roller drying
technique, after preconcentration of baby food mix. Known high solubility and higher, value
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off spray dried baby food was coupled with very low shelf
shelf-life under tropical conditions, this
had become known to the company from experience with dried whole – milk to powder. On
the other hand roller dried products was stable in keeping-qualify (known since long), and
heeded little education to consulting masses; no doubt it had poor solubility.
On rollers amino-
amino-acid
acid got destroyed, was well known in the industry. Knowledge of market
amino-acid
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also favoured that the company would better start with conventional product and then
gradually educate consumers towards a better nutritive product later.
To overcome deficiencies in the process, a defensive had to be thought of. The sump in twin
roller process, high concentration of milk and slow speed of rollers, all went against the
quality of the product. Mr. Shah, while in Germany, came across ″Fine Film single roller
drier″
drier ″.. This unit had only one drum, ran faster, and its dried
drier″. dried-up film was fine, because of
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even spread of concentrated milk by a rubber roller. Retention time on the roller was very
low. Derating could be accomplished by lowering the steam pressure within the drum.
Required concentrate percentages were lowered from 60% TS, (TS = total solids) to 40% TS
in order to achieve quality on nutritive side. Such a combination of evaporator and drier in
one unit was a great help in producing quality product economically, and it was because of
this, that the company could afford to sell baby foods at cheaper rates in comparison with its
competitors.
Losses of vitamins in the process had to be made up by mixing up dry. Fine precision
mixing unit was the problem of sanitary design and it was to have a-mix-accuracy
accuracy of
1:10,000. The company technologists in consultation with CFTRI succeeded in adding
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needed vitamins to the product. Samples were drawn every 300 minutes for quality testing.
Solubility of powder was found to be at 99.5%.
Most of process problems were thrashed out; at the development stage itself, and since then
till August 1967, never a need had been felt for any significant modifications in the process.
But, two problems had been felt constantly - (i) of density and (ii) of varying density from
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time to time due is small operational changes.
The company was doing much compacting in, vitamin mixing unit to even but but’ density by
building in vacuum silos, to India this company was the first
irst to build It’s
It’ss vacuum silos out
It’
of M.S. lined with epoxy resin to withstand vacuum pressure.
Because there was no surety about density, the company printed weights on the lids of
boxes (this practice continued even in August 1967). No doubt, tin packaging
packa was expensive,
but following the market conventions it had to be adopted. For improving shelf -life and
oxyg
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vitamin potency, several alternatives were contemplated upon but finally nitrogen gale
packaging of tins had to be adopted. For which, initial oxygen content less than it was
essential for keeping the powder in a hygienic condition for one year at 37OC.
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automatic
automatic-type
To accomplish that, a Special automatic- type nitrogen packaging machine was purchased,
-type
which could not give satisfactory service because of non-availability
non of uniform--and exact-
to-size containers This had to be replaced, by an extracting and gassing chamber
c and hand-
dealing in open had to be resorted to. Packaging machine in a way has become a blocked
capital.
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Project
ect Planning and its Completion
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The old factory was hot planned for any parallel expansion of this nature Restricted capacity
of electrical substation, boiler house and water supply were in the way. They presented their
own problems of blending the new with the old. For the company, it was difficult to make
any detailed calculations in advance, because firstly it was not sure of its production cost
estimates. Secondly the management thought that in the initial stages even if there were
some fosses, the existing operations of the company would be able to provide enough safety
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for their absorption, and therefore it was decided to go ahead with the project.
Company was granted licence in September 1959. The foreign exchange was limited to Rs.7
lacs only and that was also under West German Credit Cr Scheme. Total cost of plant was
estimated at Rs.30 lacs. Out of Rs.30 lacs, Rs.25 lacs were taken in the form of loan from
Government of Gujarat to be repaid during 3rd five-year
five plan period.
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Management decided to send their project manager Mr. V.H. Shah to Germany, so that he
could select the necessary equipments, which must be imported, within the amount of
permitted foreign exchange. The breakup of the total costs was as under:
Amount in lacs of Rs.

Imported equipment 7
Equipment procured or got fabricated indigenously 10
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Buildings & structures 10
Miscellaneous for modifications & coordination etc. 3
Total Rs.30 lacs
Considering the processes used by other milk-powderpowder manufacturers in foreign

foreig
for eign
n countries
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and for various other technical reasons,
easons, Mr. Shah decided to incorporate roller-drying
roller
process with other equipments. Germany was in a way not the right place to look for
dairying equipment. (Most appropriate would have been Denmark, New Zealand, Holland
or Sweden) In Germany, there was not ot a single manufacturer who could supply all the
pieces of equipment needed for the project, so he had to try many chemical equipment
manufacturers and had to take special precautions that different pieces ordered with
different suppliers matched fully with, each other. It was a happy coincidence that Mr. Shah
could not find a 2-rolIer
rolIer drier in Germany but he came across a single
single-roller high speed
drier. Fortunately, in operations single-roller
roller drier proved to the much superior to two-roller
two
design because it greatly-improved N
improved the qualities of the product. After a great search, in the
end orders were placed with five different suppliers.
On return from Germany Mr. Shah was faced with many other problems such as all had to
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be accomplished in a manner as not to interfere with the existing process lines. It was a
problem of converting a single plant into a complex plant handling multiple products.
A separate raw milk handling section had to be laid out, because the process required high
temperature shock treatment, (heating the milk to a high temperature of 80°C in a fraction of
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a second and then cooling it), sedimentation, and flashing for eliminating bovine disease
factor from the finished product. Air borne contamination was to be eliminated from the
environments
ments of baby foods production, which he solved by getting installed clean clean-air
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doors’ system. Everytime a door opened, the blowers blew

blowers together with double doors’
clean-air
air under pressure in the space between the two doors, and this way outside air could
never enter production environments. In procuring indigenous pieces equipment, the
company had to o face inconveniences and there was some sacrifice on quality also. Tanks,
storage bins, silos, electrical plant, erection material, fabricated ccomponent, air blowing
units, refrigeration plant, pipings, structures, troughs, conveyors, etc., were fabricated
locally. Several conveyers had to be designed and prepared in company
company’s work-shops, as no
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In Laic supplier was prepare to fabricate them.
Plant fabrication and installation were planned to be completed in 9 months, and it was
successfully achieved. Managers were unanimous in telling that it was a joint effort of all of
them. Mr. Shah, the planning -- manage, mentioned that much credit goes to the colleagues
who
w company’s
ho conceived this project and held immense degree of faith in handing it to company
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department against tempting foreign collaboration offers.
Trial production runs were made, quality control procedure were devised for taking
batches of the product, and three tests - viz. bacterial purity test (ii)
samples from various batche
nutrition contents test and (iii) shelf life test - were designed for quality control purposes.
From, organizational point of view, the company decided to make qualify control engineer
directly responsible to General Manager. Such an administrative set – up ensured rigid

quality standards. To be doubly sure about quality the company was getting its products
certified by ISI.
The production started on 31st October 1960. Amul’s plant capacity was 11 tonnes/days. By
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November 1963, the company had reached its full licensed annual capacity of 15 1500
00 tonnes.
tonnes.
By this time, management had arranged to import another single roller
oller drier (the main item
needed for increasing capacity) and applied for increase rease in the licensed capacity.
capacity
Government readily agreed to a total capacity of 25000 tonnes/year. Again dduring
dur ing 1966 the
uring
company requested for further increase in capacity upto, 3600 600 tonnes
tonnes which was also
allowed.
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Yearly production figures for Amul baby foods during first seven years production are
years of pro
shown in Exhibit 9. Year
ear to year production of milky products in India is given in Exhibit 10.
Exhibit, 11 makes a comparison of company’s position within
ithin the Indian baby food industry.
in
Marketing Partners
For distribution purposes Voltas have been made partners on October 31, 1960; 19 and for
advertising functions Messrs. Advertising and Sales Promotion Limited of Bombay were
way partnership for its baby food operations. They jointly faced the questions:
i) What strategy should, be followed in launching the product?

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selected after considering several advertising agencies. This way the company was having 3-
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ii) Which methods must be used to inform, and educate the market?
iii) How to organize physical handling and sales of the finished product?
product
Market survey was initiated in April 1960,

1960, and about Rs.4 lacs were spent for advertising
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and on publicity during-first-year.

year.. The company
year company was a partner of CFTRI in the development
of the process they thought that the product might have better customer appeal, if the
package carried some printed markings or information indicating that the product had been
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wholly developed by Indian scientists. Therefore, they requested CSIR for use of its .crest on
baby food packs. After some clarification,’
clarification, the council permitted it without imposing any
conditions.
Company used actual reports of pediatrician’s and of doctors of Mysore hospitals (who had
conducted trials on babies), in preparing its promotional literature and for advertising
purposes also.
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At this stage, Amul raised a question with the Central Government asking them how their
policy of liberal import licences to distributing companies helped indigenous products; and
as a result of this imports
impo
impo were stopped. But the competitor had already looked into such an
exigency
gency
genc y and had made preparations to manufacture baby foods in India. To great surprise,
the competitor succeeded in putting out its indigenously manufactured product more or less
along with them.
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Production cost was not the main consideration rather marketing was started at competitor’s
price to start with
with. Distributor’s commission was fixed at 3%, and the margin for retailer’s
was kept at 15 15%. As a policy matter, nothing was to be issued on credit to any of the
distributors all were required to give bank guarantees.
Firstly, the company decided to cover Delhi & Bombay and to concentrate on press
advertising which had the right overtones of press and prestige.
On investigations, the company

mpany found that mothers generally consulted doctors and nurses
for selecting baby foods. So promotional literature was mailed to doctors and nurses.
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Visiting salesmen appointed by distributors visited doctors’ offices, nurses, and
pharmaceutical stores in Delhi and Bombay. Wherever they went, they handed out
promotional literature at each of such places. Stocking programmee was such that each dealer
would obtain a reasonable stock. Salesmen invariably clicked that each stockist displayed
the product well and d used sales literature. In the initial stages, during November 1960 Voltas
set up warehousing and transportation facilities in Delhi and Bombay. The company company’s
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competitor drawing upon its experience of 100 years international marketing flooded Delhi
and .Bombay markets to create a feeling that, India was .not. the right place for baby foods.
Making use of their nationwide sales offices, Voltas could quickly establish that while
Bombay and Delhi were flooded with competitor’ss product, other markets in South and East
starved for baby foods during the same period. So Amul decided to go national, knowing
fully well that the competitor did not have the capacity y to swarm all the Indian markets. On
analysis, it was found, that initial difficulties in marketing were because of the following
also:
a) Amul packages contained 500 grams of powder as per ISI: specifications, whereasN
competitors were marketing 450 grams containers. Amul sold 500 grams pack for Rs.4.25
whereas competitor, 450 grams container for Rs.4.00.
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b) Amul was .cheaper weight for weight, but consumer got an impression that it was
higher priced.
c) To start
rt with Amul was extra careful in fixing expiry dates, and thus stamped only 3
months shelf-life duration, whereas its competitor allowed much longer periods.
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d) Competitor was using cheap imported skimmed milk powder in their composition, that
way their production cost was comparatively lesser.
After marketing on all-India
India basis company soon realised, that consumer acceptance
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developed, quite fast. Then consumer

consumer responses to the product were looked into for process-
improvement and adver tising purposes. The company further emphasized upon and made
advertising
sure that the product was available where the consumers wanted it.
By 1966, when there were several other manufacturers (Exhibit 11) and Amul had expanded
its capacity, Amul foods were still in short supply because the competitor
competitor’s prices were
comparatively much higher (Exhibit 12). A system of inspection had been devised by the
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company so as to minimize the chances

chance of retailers overcharging at times of scarcity.
Break-up
Sales Break-
Break up for Amul products for the years 1964-65
-up 1964 to 1966-67 is given in Exhibit 13. The
company never felt a need to conduct any demand trend studies, because Amul baby foods
had always been in short
sho supply. But still commercial manager went out on tours 3 to 4
times a year, he held discussion
discussi with distributors and interviewed certain retailers and this
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way could assess the approximate demand for Amul foods. Such trips proved quite helpful
in planning
planning future operations of the company. During the year.1966-67, the company
marketed 3200 tonnes of baby foods, but the feelers from its distributors indicated much
higher demand. T To have a realistic assessment of the total demand, the company requested
Voltas
as to conduct demand studies during the first half of the year 1967. They found that
yearly about 5,000 tonnes of Amul baby food could be sold without any difficulty. The
company was not in a position to supply so much because of its limited production capacity
and also because of its obligations of supplying liquid milk to Bombay Milk Scheme. At
times, shortage created problems for the company. For example, during 1962 Chinese
aggression and again during 1965 Pakistan’ss aggression, Amul had been requested and
partly compelled by Central Government to produce condensed milk for Defence purposes,
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and thus had to cut out its supplies to several of its regular industrial customers. At times it
created unpleasant relationship with some of them.
Baby foods constituted 25% of company’s activity and it was on the increase, as of 1967,
Amul controlled the industry because nearly 50% of baby food production in the country
was from Amul. Further because of much cheaper selling price and high quality of Amul
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baby food, nobody bought any other brand till he could get Amul’s.
Amul’s. If company ccould
produce management expected the market could easily absorb upto 10,00010,000 tonnes per year
or the competitors will have to reduce their selling prices considerably. If Amul was not
makingg baby food, their prices in the market would definitely have been still higher.
Present and Future Thinking
Company had a thinking that it should limit its operations to vegetarian foods only. To
maintain its leadership, it was always vigilant and kept collecting latest Information on
research and developments of milk and cereal foods. The company could achieve this
through:
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i) Its managers’ travels abroad and their personal contacts,
ii) Discussions with visitors to the company from foreign lands (because many
man international
agencies such as FAO,, UNICEF and others have taken keen interest in the company’s
company
development, so a stream of foreign specialists kept visiting company’s
company plants
throughout the year)
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iii) Getting its personnel trained in foreign lands,

iv) Through participation
articipation in conferences and seminars.
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During 1967, the company started producing part of its baby food, making-.use
making of spray-
drying process. The cconsumer
onsumer received and accepted Amul-spray powder quite favourably
and therefore the company was planning a gradual change-over from roller drying process
to spray drying process, which was a faster and more economical process.
process
All the technological difficulties which existed 7 years ago, and were then badly affecting the
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quality of spray-dried
spray-dried
spray- dried powders, had b been overcome by now. Rather the powder from spray-
drying process possessed better qualities, and certainly in no way it was inferior to
conventionally roller dried product.
As of July 1967, the project development manager was looking into various aspects of o
introducing a new product named weaning foods. He along with other members of the
management team was busy finalizing details of new plant equipment and auxiliaries
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estimated to cost about Rs.60,00,000. Commercial Manager had big plans for marketing this
new product. In a nut-shell the company was greatly concerned about its future and future
problems.
robl
ro ems Answering a query of the case-researcher commercial manager, Mr. Bhatt said
blems
″Once
Once we have set up the existing production line on sound footing,
f the damn thing must
keep producing without bur help otherwise there are still some bugs to be taken out. We
here in Amul believe that the management should be more concerned about the policy
matters and the future, rather than about routine type operating details. If it is not that way,
then we do not deserve to be in the places, where we are.″
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Exhibit 1
Imports of milk based foods in the year 1955-56
Product Weight in tons Value in Rs.
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Whole milk powder 5,823 about 1 crore
Skinned milk powder 28,000 about 4 crores
Infant milk powder 3,017 about 1.6 crores
Exhibit 2
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Factories licensed to manufacture milk powders upto May 1958
Factory Licensed Capacity in tons/month

Amul 125
Horlicks, Patiala 75
Rajkot 25
Glaxo Aligarh Factory Not known
Amritsar factory
N Not known
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Exhibit 3
Progress of Amul
Year ending Number of Number of Paid up share Quantity of milk Cost of milk
31st March societies farmer-societies
societies capital of union collected in products sold .)
members of (000) (Rs. la
lakhs) (million kg (Rs. lakhs)
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1955-56 64 23 3.1 11 74
1956 57 107 27 3.6 14 89
EC
1957-58 130 29 3.9 21 134

1958-59 138 33 4.7 27 211
1959-60 167 40 5.7 23 182
1960-61 195 41 7.4 24 198
1961-62 219 46 7.5 35 315
SP
1962-63 254 58 8.1 50 456

1963-64
64 378 65 10.1 62 603
1964-65
--65
65 421 85 12.6 61 627
1965-66
1965-
1965-66
66 518 110 13.7 66 631
1966-67
1966-
1966-67
67 567 120 16.5 72 755
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Exhibit 4
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Financial Position of Amul Foods Ltd.
From 1964-65 to 1966-67
Liability Assets
1964-65 65 - 67 1966-67 1964-65
1964 65J-66 66-67
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Authorized share Capital 25,00,000 25,00,000 25,00,000 Assets 2,75,48,933 2,92,38,532 3.09,93,767
Paid-up capital 12,56,800 13,70,;600 16,51,100 Development
Scheme Assets 8,085 6 073 5,683
Reserve funds 1,10,20,713 1,59,32,687 1,79,90,529 Investments 5,95,739 2,03 600 2,03,600
Depreciation fund 63,72,473 81,33, 831 99,49,302
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P.F. Investments 7,68,080 9,77,189 _
Staff gratuity fund 3,27,774 3,85,755 — Gratuity Fund
Investments
Investments 3,18,434 3,39,824 —
P.F. 8,45,210 11,36,571 -
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Stocks 88,13,853 1,23,60,602 1,12,52,136
Loans 1,49,85,810 1,09,52,123 1,02,98,403 Advances &.
Current liabilities
& provisions 75,23,074
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l,19,95,20l
95,20l
95,20l 1,24,51,686
Debtors 41,12,910 69,36,351 91,45,948
Net profit 1,80,182 1,64,714 1,90,524 Cash 3,47,002 ,27,311 30,410

Total 4,25,12 056 5,00,89,482
5,00,89
5,00,89,482
,482 ‘5,25,31,544 4,25,12,055 5,00 ,89,482 5,25,31,544
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Exhibit 5
Flow diagram for production of baby food from buffalo milk
Raw Milk
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Pasteurisation
Standardisation (removal of extra fat by

keeping it below 3%)
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Butter production line Baby food line
Addition of sugar
Addition of Fe
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Homogenisation
(Under a pressure of 1000 psi)
Cooling
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Addition of stabilizer
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Drying (roller drier)
Sifting
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Addition of vitamins
Dry - mixing
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Storing (bulk siles)
N2 Packaging (½ kg. & 1 kg tins)

Exhibit 6
Royalties paid by Amul to NRDC
for -the period Rs. Ps.
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1. 4.61 to 30.9.61 3,208.62
1.10.61 to 31.3.62 21,838.56
1. 4.62 to 30.9.62 25,654.53
1.10.62 to 31.3.63 72,772.74
1.10. 62 to 30.9.64 98,425.00
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1.10,63 to 30.9.64 1,65,000.00
1.10.64 to 31.3.65 1,10,967.12
1. 4.65 to 30.9.65 1,30,081.78
1.10.65 to 31.3.66 1,14,221.71
1. 4.66 to 30i9.66 1,26,288.18
1.10.66 to 31.3.67 1,51,815.97
Total 10,20,274.21
Exhibit 7
Chemical composition of human milk, cow’
cow ’s
cow’ss mil
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milk and buffalo milk
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Constituents Human milk Cow’ s milk
Cow Buffalo’s milk
Moisture % 88 87.6. 81
Protein (N x 6.25)% 1.0 3.3 4.3
Fat % 3.9 3.6 8.8
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Mineral Matter % 0.1 0.7 0.8

Carbohydrates (by-difference)
difference) 7.0 4.8 5.1
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Source: Sreenivasamurthy, V. 1953. The Indian Journal of Dairy Science 6, 105.
Exhibit 8
Approximate Composition of Amul Baby Food
Constituents approximate % Vitamins added per 100 g. powder

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Water 3.0 Vitamin A (I.U.) 1500

Protein 22.0 Vitamin D .(I.U.) 400
Carbohydrates (Lactose 33
33TT cane sugar 52.0 Vitamin B1 (mg) 1
19%))
Fat 18.0 Vitamin B1 (mg) 1
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Ash 5.0 Niacinamide (mg) 6

Calcium 1.0 Pyridonine (mg) 0.6
Phosphorus 1.0 Vitamin B12 2
Fe 4mg/l00gms Vitamin C (mg) 30
Exhibit 9
Amul Baby Food Production from 1960-61 to 1966-67
Year Tonnes/year
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1950-61 60
61-62 600
62-63 1375
63-64 1761
64-65 1687
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65-66 2550
66-67 3154 + (220 tonnes of Amul spray)
Exhibit 10
Production of milk products in India (tonnes)
Product 1956 1957 1958 1959 1960 1961 1962 1963 1964 66-67
Milk powder 180 503 952 578 597 784 713 1359 1400 8000
Condensed milk
Malted milk foods 61
-
230
80
431
228
511
N 27
1130
1491
1970
3471
2624
-
3502
6000
4770
6000
-
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Infant foods - - - - - 1845 3682 4202 - 6000
Exhibit 11
n of Baby foods in India during the year 1967.68
Production
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Company Tonnes/year
Amul 3,600
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Glaxo 2,800
Levers 750
Lactogen 800
Others very little
Total 8,000 tonnes (approximate)
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Exhibit 12
Com
C om
Comparative prices of baby foods of different brands
(The following were the pri

prices of baby food powders for a pack of 500 grammes during the month of
July 1967).
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Company
C Production started during 1967 Price in. Rs.
Amul. Nov. 1960 4.34
Glaxo Oct. 1960 5.89
Lactogen 1963 - 64 6.00
Levers 1965-66 6.33
Exhibit 13
Amul products sales break-up (Rupees)
1964 - 65 1965 - 66 1966-67
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Milk 3,01,49,140 2,96,38,624 3,70,88,103
Butter 60,51,927 1,07,20,372 1,38 75,554
Cheeze 14,77,052 12, 93, 305 35,91,161
Baby foods 1,72,93,665 1,07,45,236 76,78,875
Ghee 17,08,545 19,84,814 31

31,35,709
31,,35,70
35,7099
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Miscellaneous 43,12,458 2,04,21,132 2,84 22 241
Kanjari (cattlefeed) 17,33,031 73,45,139 1,32,75,875
Mehsana products - 90,70,586 1,05,74,570
Total 6,27,25,818 2,22,19,208 11,76,41, 988

11,76,41
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Indian Institute of Management Ahmedabad IIMA/PROD0317
ULTRON: Managing Warehouse Space and Item

Obsolescence
It was October 2016. Despite it being the peak festival season in India when sales were
highest for ULTRON (the leading white goods manufacturer in India), Niraj Kumar, the
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logistics head of ULTRON, and Ravindra Ahuja, the warehouse manager for the logistics
division of ULTRON (in Gujarat, India) were not at ease. With an inventory of products
older than 180 days and a growing product portfolio, managing a warehouse manually
without any warehouse management software had critical issues such as, not being able to
maintain First-in First-out (FIFO) for inventory and low picking efficiency (Since white
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goods are subject to risk of obsolescence, FIFO method is used for inventory valuation). The
fairly large unit size of each stock keeping unit (SKU) made it nontrivial to manage the
warehouse without warehouse management software. Ahuja was evaluating various
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options possible to achieve FIFO at no additional software expenses.
ULTRON
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ULTRON was a large Indian conglomerate operating in various business verticals, one of
which was consumer electronics division comprising of air-conditioners, washing machines,
refrigerators, LCD/LED televisions, microwave ovens and small home appliances. The
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company operated 16 manufacturing facilities and 62 warehouse facilities across India.
Apart from its own consumer electronics division, the company also acted as a distributor
for several international consumer electronics brands in India. ULTRON’s revenue in 2013-
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14 was about USD 4.92 billion and the profit was about USD 11.2 million.
Warehouse Overview
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In Gujarat in India, the company had four warehouses, the largest of which was located in
Gandhinagar, having capacity of one lakh square feet (9,290 square metres). This warehouse
was originally a manufacturing facility which was later relocated. The layout of the
warehouse is provided in Exhibit 1. All warehouses located across the country were
similarly operated. Thus, we will be using the Gandhinagar warehouse as an example to
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illustrate the processes within a warehouse.
All warehouses operated by ULTRON were multi-brand facilities, which housed products
from more than one brand within the same location. Apart from brands owned by
ULTRON, multi-branded products from partner companies were also warehoused and
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distributed from the same facility.
Overall, there were more than 500 SKUs grouped under 12 different product categories from
six brands. A sample SKU product list indicating the average statistics per month in the
warehouse and corresponding SKU dimensions are shown in Exhibit 2a and 2b. The product
composition in the warehouse is shown in Exhibit 3.
Prepared by Professor Debjit Roy and Mayank Pratap and Premm Raj H (PGP Students), Indian
Institute of Management, Ahmedabad.
©2018 by the Indian Institute of Management, Ahmedabad
Each warehouse was divided into several areas to store the products of different brands. The
area allocated for a brand was further divided into smaller areas for different product
categories. Products within a category were stacked one over each other based on stacking
norms belonging to the product. These norms were indicated on the packaging material for
each product.
The dimensions of the warehouse are illustrated in Exhibit 1. The vertical usable space was
24 feet, of which only 10-12 feet were currently used due to the limitation of stacking norms.
Vertical expansion in the current setup was not an option. The floor utilization of the
warehouse peaked at 90 - 100% during the festival season from September to November.
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The warehouse operated for one shift every day, starting at 9:30 am and ending at 6:30 pm.
The order requests from retailers for each day were processed by the supervisors from
morning 9:30 am based on order invoice ID and location of dispatch. Dispatch of goods
usually started at 12 pm noon every day. Vehicles owned by the warehouse facility were
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used for transportation to retailers. The list of dispatch vehicles available at the warehouse is
given in Exhibit 4. An internal audit was performed every month to track the products
within the warehouse.
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The warehouse consisted of a mix of skilled and unskilled labour for its daily operations.
The employee details of this warehouse facility are given in Exhibit 5. The employees were
trained to perform all operations within the warehouse such as loading, unloading, put-
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away and picking. This cross functional training increased labour productivity.
Warehouse Processes
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Docking bays
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There were four docking bays in the warehouse as seen in Exhibit 1. Based on availability,
each docking station was used for either inbound or outbound operations. Apart from these,
there was a spare docking bay located at the rear of the warehouse which was rarely used.
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For consolidation of order items, there was significant amount of space located near the
docking stations for loading and unloading products.
Inbound
Products manufactured in ULTRON’s factory would arrive at the warehouse during any
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time of the day. Every inbound product would be scanned into the SAP based inventory
management system using the serial (SR) number. No physical inspection was done after
entry into the warehouse, before updating into the inventory management system. Based on
initial security checks for relevant purchase order and product quantity, the supervisors
would provide permission to unload the products and assign labour for the same.
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Put-away
Once the goods were unloaded, the supervisors would assign labourers to put-away the
products in their respective locations within the warehouse. Manually operated hydraulic
fork lifting pallet trolleys were used to move the goods to their destinations. 14 such trolleys
were available within the warehouse facility. A sample image of this trolley is shown in
Exhibit 6.
Picking
A pick-list containing the invoice ID, date of invoice and model number would be generated
by the supervisors and handed over to the pickers. As there was no warehouse management
system in place, the picking was not done using a serial number. Supervisors knew the exact
location of each model inside the warehouse and would direct the pickers to these locations.
Dual cycles
To reduce the transit time between successive picks or put-aways, the warehouse followed
dual cycles. Unlike traditional single cycle put-away or picking operations which were done
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sequentially causing significant deadheading time, dual cycles performed both put-away
and picking in one cycle. That is, an employee performing put-away of inbound goods was
also provided with a pick-list for picking, using which the employee could pick an item on
his way back to the consolidation area near the docking bays. This is illustrated in Exhibit 7.
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On an average it took around five minutes for an employee to start from the consolidation
area for put-away or picking and return to the consolidation area. The number of products
which could be transferred in a single cycle varied across categories and is listed in Exhibit 8.
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In many cases, a pallet was not used for transporting the goods in a trolley due to the bulky
nature of these goods. This could have led to damages to the protective packaging while in
transit within the warehouse. N
Returns
Returns constituted about 1-2% of the entire shipments from the warehouse. This could have
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been due to a variety of reasons such as product malfunction or product obsolescence. In
such cases, the service department within the warehouse checked for potential defects and
corrected them in house and sold the products as seconds at discounted rates.
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Problems faced
The problems faced by the warehouse manager are listed below:

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1. Being a large appliance warehouse, movement of goods within the warehouse was slow.
The average per unit SKU value was very high, thus any damage to the goods while
moving them could prove to be expensive.
2. FIFO maintenance – Due to the lack of a warehouse management system, it was not
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possible to track the manufacturing aging of the products in the warehouse.

Additionally, moisture within the warehouse could damage the packaging of the goods
if they were left unattended for a long time. Repackaging of the goods would cost the
warehouse an additional USD 7.5 per box.
3. In the current setup, the location of a product could vary with time and usage. Products
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were stored based on availability of space within the warehouse. This could lead to low
picking efficiency due to the lack of a warehouse management system to track the exact
location of any product within the warehouse. The large variety of SKUs and small
quantities also added to the low picking efficiency.
Options Available
To maintain FIFO and improve the picking efficiency, Ahuja was considering the following
options.
1. Mezzanine floor: Building a mezzanine floor would provide him sufficient space to
demark the new goods from the old ones. This space would also enable them to have a
double-deep storage with aisles on both the sides, which would provide the labourers,
access to every product stacked at a particular location independently. The setting up
and the removal of the mezzanine floor was easy and less time consuming. The capital
investment required for setting up a mezzanine floor was USD 20-40 per square metre.
2. Colour coding: A colour coding scheme could be used to identify the new and the old
inventories in the warehouse. The colours could be used to identify the inventories based
on the month of arrival of the consignment. This could help in maintaining the FIFO as it
would be easier to identify the older inventories in the stack. At the same time, it could
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also create complexity as there were more than 500 SKUs across six brands. The cost of
100 colour coded stickers was about USD 1
3. Pallet flow rack system: A Pallet Flow Rack system as shown in the Exhibit 9 is an
efficient solution to handle the FIFO problem in a warehouse. In this system the racks
have an inclined structure to enable the flow of the pallet under gravity. The loading can
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be done from the back of the racks and the unloading is done from the front side. Once a
pallet is unloaded from the front the next pallet in the rack comes to the unloading
position. The number of boxes which can be stored per product using one standard
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EURO pallet of 1200 mm by 800 mm dimension is shown in Exhibit 2b. The capital
investment required for setting up a pallet flow rack system was USD 80-100 per square
metre, for one level of pallet rack space.
4. Dedicated fast pick area: Another option was to have a dedicated fast pick area for the
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critical product categories where the frequency of picking and put away were high. The
older inventories could be stacked in the dedicated fast pick area, whereas the new
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inventories could be stacked at the back of the warehouse and be shifted to the fast pick
area as and when required. During the peak season, the shifting of inventories from the
storage to the fast pick area could be a problem as the labour utilization during the
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season is high. No capital investment was required for this option.
The options stated above could be used to maintain the FIFO in the warehouse but to
improve the picking efficiency it was very important that the labourers be able to identify
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which part of the warehouse they had to go to to retrieve the inventory and how they could
reach the location in the shortest possible time. A racking system with a layout which could
identify exactly where the product is located in the warehouse would be useful. To reduce
the time taken to access the various parts of the warehouse, an efficient aisle configuration
such as cross-aisle or angled aisle could be used to optimize the pick path. This kind of a
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configuration required software support which could prove to be very costly.
Conclusion
The speed of current operations in the warehouse was fairly high due to the absence of
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additional processes associated with a warehouse management system. Wondering if these

were the only possible options to achieve FIFO at no additional software investment costs,
Ahuja was thinking about the course of action to be taken before meeting his supervisors the
next morning.
Exhibit 1: Warehouse Layout
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(Height of the warehouse is 35 feet of which 24 feet is usable)

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Source: Authors
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Exhibit 2a: Average Statistics per month in the warehouse (Data from October 2014)
Average Incoming Incoming Outgoing Outgoing

Category Product
Inventory Shipments Quantity Shipments Quantity
AC 1.0T S 356 1 97 45 187
Air Conditioner AC 1.5T S 186 14 522 90 591
AC 2.0T S 40 2 65 10 42
Colour TV CTV 21 2683 56 4418 135 4230
LCD 22'' 41 2 6 1 5
LCD Television
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LCD 32'' 75 1 1 6 6
LED 16'' 279 4 160 1 10
LED 20'' 561 6 260 17 204
LED 22'' 786 20 1743 45 1454
LED 23'' 148 1 224 8 194
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LED 24'' 703 24 2617 107 2136
LED 28'' 133 1 11 11 114
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LED 29'' 476 6 680 42 819
LED Television LED 32'' 4768 39 2823 173 4016
LED 39'' 449 N 8 813 20 306
LED 40/42'' 793 28 1880 85 2436
LED 46'' 2 1 1 2 2
LED 48'' 5 1 1 0 0
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LED 50'' 374 9 338 43 432
LED 55'' 214 9 128 17 105
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LED 65'' 0 1 5 1 5
19/20 L 107 3 300 16 241
Microwave 21/23 L 131 6 878 16 783
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Oven 25/26 L 70 3 196 19 203

27 L 34 1 150 5 52
150 L 115 3 226 7 108
170 L 480 2 90 27 296
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190 L 4924 56 2634 229 1895

215 L 219 12 334 43 348
Refrigerator 230 L 12 1 1 3 3
47 L 197 10 325 22 340
600 L 9 7 74 8 42
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650 L 42 1 5 0 0
80 L 154 4 381 13 596
Food Processor 211 1 2 8 200
Small Home
Iron 495 2 1152 5 755
Appliances
Grinder 204 7 1112 4 740
6 Kg 663 3 238 24 330
Washing
6.2 Kg 143 2 20 8 45
Machines
6.5 Kg 365 16 527 58 450
Average Incoming Incoming Outgoing Outgoing

Category Product
Inventory Shipments Quantity Shipments Quantity
7 Kg 225 4 19 23 205
7.2 Kg 1633 4 97 21 243
7.3 Kg 150 1 11 1 2
7.5 Kg 639 2 12 15 132
7.8 Kg 64 1 1 13 59
8 Kg 268 4 59 11 57
Source: Company Records
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Exhibit 2b: Sample SKU dimensions in the warehouse
L W H Stacking Palletizable Per Pallet load

Category Product Y/N (EURO pallet)
mm mm mm Norm
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AC 1.0T S 900 350 585 3 Y 6 boxes
Air
AC 1.5T S 920 350 600 3 Y 6 boxes
Conditioner
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AC 2.0T S 920 350 600 3 Y 6 boxes
Colour TV CTV 21 615 177 375 6 Y 30 boxes
LCD LCD 22'' 702 156 402 6 Y 35 boxes
Television LCD 32'' 884 212 600 4 Y 9 boxes
LED 16'' 530 122
N 320 6 Y 78 boxes
LED 20'' 480 170 343 6 Y 48 boxes
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LED 22'' 702 156 402 6 Y 35 boxes
LED 23'' 650 135 440 6 Y 32 boxes
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LED 24'' 650 135 440 6 Y 32 boxes

LED 28'' 692 122 480 4 Y 36 boxes
LED 29'' 702 156 480 4 Y 28 boxes
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LED
LED 32'' 884 212 600 4 Y 9 boxes
Television
LED 39'' 1097 190 734 3 Y 8 boxes
LED 40/42'' 1097 190 734 3 Y 8 boxes
LED 46'' 1355 212 877 2 N -
LED 48'' 1355 212 877 2 N -
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LED 50'' 1355 212 877 2 N -

LED 55'' 1387 178 879 1 N -
LED 65'' 1387 178 879 1 N -
19/20 L 452 360 250 3 Y 12 boxes
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Microwave 21/23 L 452 360 250 3 Y 12 boxes

Oven 25/26 L 452 360 250 3 Y 12 boxes
27 L 560 575 335 3 Y 6 boxes
150 L 570 670 1095 2 Y 2 boxes
170 L 570 670 1095 2 Y 2 boxes
Refrigerator 190 L 570 670 1205 2 N -
215 L 570 670 1205 2 N -
230 L 570 670 1480 2 N -
L W H Stacking Palletizable Per Pallet load

Category Product Y/N (EURO pallet)
mm mm mm Norm
47 L 405 475 533 4 Y 6 boxes
600 L 620 675 1592 1 N -
650 L 620 675 1592 1 N -
80 L 475 500 825 3 Y 4 boxes
Food 607 Y 12 boxes
277 337 3
Small Home Processor
Appliances Iron 252 115 122 3 Y 90 boxes
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Grinder 235 210 237 3 Y 45 boxes
6 Kg 620 635 1035 2 Y 2 boxes
6.2 Kg 620 635 1035 2 Y 2 boxes
6.5 Kg 620 635 1035 2 Y 2 boxes
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7 Kg 620 635 1035 2 Y 2 boxes
Washing
7.2 Kg 865 545 1100 2 Y 1 boxes
Machines
7.3 Kg 865 545 1100 2 Y 1 boxes
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7.5 Kg 865 545 1100 2 Y 1 boxes
7.8 Kg 865 545 1100 2 Y 1 boxes
8 Kg 865 545 1100 2 Y 1 boxes
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Exhibit 3: Product composition across categories at the warehouse
Product type Percentage composition

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Refrigerators + Washing machines 50%

LCD/LED/CTV + Small home appliances 30%
Air conditioners + Coolers 20%
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Exhibit 4: List of vehicles available for dispatch at the warehouse
Type of vehicle Number available

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Tata 1109 Truck (24 ft) 1

Tata 407 Pickup 3
Tata Maximo 4
Tata Ace 1
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Total 9
Exhibit 5: Employees at the warehouse
Employee Designation Number available Skill level

Warehouse manager 2 Skilled
Supervisors 7 Skilled
Put-away and Picking personnel 24 Unskilled
Exhibit 6: Hydraulic fork lifting pallet trolleys at the warehouse
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Source: The Kovai Forklifts. (n.d). Products. Retrieved from http://www.kovaiforklift.com/mahindra-swaraj-

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forklifts.html
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Exhibit 7: Dual cycle operation at the warehouse
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Source: Authors
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Exhibit 8: Number of products transferrable in a cycle using a trolley
Product Number transferrable in a cycle

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Refrigerator (Big – Above 200 L) 2

Refrigerator (Small – Below 200 L) 4
Washing Machines 4
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Colour Television 10
LED/LCD Television (up to 29’’) 20
LED/LCD Television (32’’ and above ) 12
Microwave Oven 10
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Air conditioner (Split) 6

SHA (Carton of 10 units) 8
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Exhibit 9: Pallet Flow Rack System
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Source: Next Level storage solutions. (n.d). Retrieved from https://www.nextlevelstorage.com
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Indian Institute of Management Ahmedabad IIMA/PSG0128
Employee Provident Fund Organization (EPFO):

Towards consumer centricity
“Recent initiatives of Employee Provident Fund Organization (EPFO) such as Online
Registration of Establishments (OLRE), Internet Banking and Digital Signature have
helped us, employers a lot. Our employees have also benefitted because of Universal
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Account Number (UAN) based settlement and it’s linking with Aadhaar. This is
particularly beneficial in a region like Firozabad, where there is always a very high in and
out migration of labor force”
--Representative of Firozabad Glass Syndicate
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Employee Provident Fund Organisation1
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Employee Provident Fund Organisation (EPFO) is a Government of India (GoI) organisation
under the administrative control of Ministry of Labour and Employment. It was established
soon after the Indian Independence with the purpose of ensuring social security for
industrial workers and their dependents. The EPFO in India is one of the world’s largest
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social security organisations today. It maintains more than 15 crore accounts of its members
and it caters to employees in both public/private organisation with employee strength of 20
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and more. An employee earning a salary of less than INR 15,000 pm is entitled for an EPF
account.
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The Employees’ Provident Fund came into existence with the promulgation of the
Employees’ Provident Funds Ordinance on 15th November, 1951. It was replaced by the
Employees’ Provident Funds Act, 1952. Later the Employees’ Provident Bill was introduced
in 1952 to institute an organisation for providing provident funds for employees in factories
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and other establishments. The Act is now termed as the Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952, which extends to the entire country except Jammu and
Kashmir. EPFO was instituted on 1st November 1952.
The Act and schemes framed under it are administered by a tripartite board constituting (i)
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the Central Board of Trustees, (ii) Employees’ Provident Fund, consisting of representatives
of (state and central) Governments, and (iii) employer organisations and their employees.
The constitutional structure of EPFO is discussed in Appendix 1. In the years, 1952-54, 1,267
organisations and 542,904 members were enrolled with EPFO. In the year, 2016-17, the
number of organisations grew to 9.26 lakh and members upto 4.6 crores from 190 industries;
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cement, cigarettes, electrical, mechanical and general engineering, iron and steel, textiles are
the major industries covered. Annexure 2 has the growth in numbers of the subscribers
(employees and establishments) over the years.
1 A glossary of various acronyms and abbreviations in the context of EPFO is provided at the end of this case.
Prepared by Prof. N. Ravichandran and Prof. N. Sundaravalli, Indian Institute of Management

Ahmedabad.
Case Studies of Indian Institute of Management Ahmedabad are developed solely as a basis for class
management problems.
© 2018 by the Indian Institute of Management, Ahmedabad
2 of 26 IIMA/PSG0128
The EPFO operated three schemes: (i) EPF Scheme 1952, (ii) Pension Scheme 1995 (EPS) and
(iii) Insurance Scheme 1976 (EDLI). The EPF scheme allowed employees to save funds on a
monthly basis, which was accumulated along with interest and was payable in full, upon
retirement or death. The employees were also allowed partial withdrawals for family needs
such as children’s education or marriage, illness or for buying properties.
The EPS scheme also proposed a provision of monthly pensions to employees, their
survivors / dependents upon the employees’ retirement or death. If an employee becomes
physically disabled during his employment, the EPS scheme allows partial pension to such
employees.
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The EDLI scheme offers protection to employees, in case of any eventualities during their
employment, such as accidents or death, linked to the amount in their PF account.
To support a very large number of employee members, 120 EPFO offices were operational in
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the country, by 2016. Each office functioned on its own in isolation. Each EPFO office was
affiliated to a nationalised bank (the State Bank of India – SBI) branch and all financial
transactions of the EPF office were executed through this dedicated branch. These 120 offices
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across the country processed 1.2 crore claims on an annual basis. Annexure 3 has the details
of EPF offices in the country. The claims to these offices were submitted manually with the
employee’s signature and the employer’s counter signature. The manual processing needed
verification with relevant records of the employer and the employee. Then the information
technology infrastructure was modest and localised.
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As per the mandated rules, each member employee was required to maintain a personal
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bank account in a nationalised bank and contribute 12% of his salary on a monthly basis to
his EPF account. The Employer members were required to deposit 12.5% of the wages on a
monthly basis, to the EPF account of the employees as the contribution of the employers’.
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There are broad administrative guidelines articulated by the Central Board of Trustees (CBT)
of the EPFO regarding withdrawal of such funds, transfer of individual EPF accounts and
remittances to be made by the employers which is illustrated in Exhibit 1.
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The funds generated in the EPF accounts were managed by a set of portfolio managers
appointed by the CBT (EPFO). These managers invested these funds in a broad array of
financial instruments available in the market, to realise optimal interest revenue. The CBT
(EPFO) proposed policies and periodic guidelines on such investments and fund
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management so that returns can be maximised. The host of services offered by EPFO to the
various classes of stakeholders is figuratively illustrated in Figure 1.
Three Major Processes
The fundamental operational structure of EPFO is defined by the following three major
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processes.
Coverage Process: The Employees’ Provident Fund and Miscellaneous Provisions Act 1952
applies to the factories engaged in industries specified in Schedule-I of the Act or other
establishments notified and engaging 20 or more employees. Before the digitisation era,
employers voluntarily enrolled themselves for coverage of their eligible employees. There
were no strict rules to ensure / verify enrolment of organisations that fell under the category
of EPFO coverage, unless a complaint was registered against a defaulting organisation.
However, an establishment which is not otherwise covered under the Act can be covered
voluntarily where the employer and the majority of its employees have agreed that the
provisions of the Act should be made applicable to their establishment under section 1(4) of
the Act from the date of agreement or from any subsequent date specified in such
agreement. The current mechanism allows two modes for coverage:
 Application by the establishment: An establishment can apply online for EPF code
number through the Online Registration of Establishments (OLRE) portal. EPF code
number is allotted automatically after system based verification of the employer’s details
and the PAN data available with the Income Tax department. The whole process of code
allotment including verification of PAN is online and there is no physical interface
between the employer and the EPFO Officials.
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 By EPFO field offices: Where an otherwise coverable establishment did not apply for
coverage, the respective field office conducts the survey of the establishment and enters
the details of such establishment through the OLRE; the code number thus allotted is
communicated to the establishment, thereby completing the process of coverage.
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Compliance Process: Once covered under EPFO, member organisations are required to
comply with the provisions envisaged under the act and the three schemes of the EPFO, viz.,
Employees’ Provident Fund Scheme 1952, Employees’ Pension Scheme 1995 & Employees
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Deposit-Linked Insurance Scheme 1976 by enrolling their employees as members of the
fund, deducting provident fund contributions from their salaries and depositing their own
share as employers’ contribution to the employee’s EPF account. N
Benefit Delivery: The following three schemes are framed under the EPF act and
administered by EPFO for smooth delivery of benefits to entitled member employees;
Details are provided in Exhibit 2.
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(i) The Employees’ Provident Funds Scheme 1952 (EPF) – (w.e.f 1st November, 1952)
(ii) The Employees’ Pension Scheme 1995 (EPS) (w.e.f. 16th November, 1995) {replacing
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the Employees’ Family Pension Scheme 1971}

(iii) The Employees’ Deposit Linked Insurance Scheme 1976 (EDLI) – (w.e.f. 1st August,
1976)
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The core objective of the EPFO is to provide social security to the industrial employees who
are economically vulnerable. This is accomplished by administering three different schemes.
The CBT of EPFO is the custodian of the bank deposits made by the employees and the
employer contributions. It is important that the CBT manage the EPFO funds for optimal
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return. Since the amount available in an individual EPF account is the money that belongs to
the employees, every administrative arrangement should be made to ensure that the funds
are available to the employees for their bona-fide needs. In addition, EPFO has to ensure
compliance by employer organisations. A member centric (employers and employee)
administration is a prerequisite for ensuring social security of employee members, who are
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the primary stake holders of EPFO. The employer is required to provide for the employees
welfare. The EPFO is an administrative arrangement to provide sustainable social security to
the Indian labor force that is economically vulnerable. The challenges faced by the EPFO
stakeholders are summarised in Appendix 2.
Process Reengineering and Digitalisation
In the year 1983, there was an attempt to computerise and minimise paper-based
transactions. Computer Maintenance Corporation (CMC) was engaged as consultants for the
same. It took six long years for CMC to install an in-house computer due to stiff resistance to
change from within the organisation. After much persuasion, EPF staff federation agreed to
computerisation of some processes. During 1989-90, a computer system consisting of 2 Super
PC/ AT-386 with 8 terminals each was installed in the Bombay regional office.
In 2010-11, a computerisation project was initiated to address the challenges to provide

efficient, accessible and timely services to subscribers and employers. The project was
implemented in phases in collaboration with the National Informatics Centre (NIC). In the
first phase, a basic application software was developed for settlement of claim in the field
offices. Eventually, it was improved and institutionalised to minimise paper based work
flow.
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Historically, the contribution by employer organisations was processed manually through
the EPFO. This meant that the employer will produce appropriate documents (paper based
challans) to the EPFO office by the 7th of every month after depositing the dues in the
designated SBI branch. This was difficult to be adhered to within the prescribed time limits.
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After manual reconciliation of accounts, individual accounts of members were credited with
the dues on a monthly basis. However, the process of manual reconciliation resulted in a
delay of upto 6 months or more for crediting the amount to member accounts. The members
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could finally see their total entitled contributions in their own passbooks only after 4-6
months. This resulted in a number of complaints from the members after further
prolongation. Another problem with this process was that the defaulting organisations
could be identified only after several months which resulted in heavy delays and
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inconveniences. When the defaults were detected, the only recourse was legal actions under
the provisions of the act.
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In 2012-13, an online receipt of Electronic Challan cum Return (ECR) was introduced to
facilitate the online submission of returns (Exhibit 3). These returns could be used for
making payments through the banks. Even then the electronic payments were made to the
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designated branches of SBI. The individual offices where operating in isolation. There was
no consolidated information available in the system. The information available to the local
office (EPFO) was dated and not on real time. The subscriber had to wait for several months
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to know the status of his remittances in his account.
In April 2016, a committee was constituted under the chairmanship of the CPF
commissioner to implement process improvement initiatives. The first step was to convert
all paper based transactions into online digital processes.
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Before digitalising the processes, centralised accounts were created for remittances as well as
transfers. Major changes have been facilitated by the introduction of the centralised National
Data Centre at Delhi and the alternate data centre at Hyderabad. This was the most
challenging and difficult part of the modernization exercise where all servers
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in 120 EPFO offices were dismantled; central servers with software facilities were installed;
connectivity for real-time operation was established in all the EPFO offices. This took place
between April 2016 to December, 2016. In effect, the linkage between the EPFO regional
offices and the designated SBI branch was dismantled. It was no longer necessary to route
all financial transactions through the designated SBI branch only.
The centralisation of business processes through national data centre was the landmark that
paved the way for multi-banking and centralised receipt of all payments through electronic
mode. The requirement of enclosing receipts to the local SBI branch was done away with on
24th December 2016 when new electronic challan cum receipt system (ECR 2.0) was
introduced. Multi-banking transactions were facilitated and payments to EPFO could be

directly made through any bank. Thirteen banking portals were integrated with EPFO portal
for this purpose. Other banks were serviced through the aggregator.
As a consequence of the centralised receipt of payments and electronic challan cum receipt
system, the employer organisations could get instantaneous electronic receipts for their
payments. The subscription amount was credited to the member account within the next
working day (compared to the earlier response time of 6 months). The ECR system
considerably improved the reconciliation process in the EPFO and made it efficient. Since
credit information was available instantaneously, follow up on adherences by employers
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were now possible on a real time basis.
Centralised account and multi-banking transactions reduced the administrative cost of

EPFO operations considerably from 1.10% to 0.65% of wages. Since the launch of the ECR,
the remittance status of the employer organisations (that includes names of the employees to
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whose accounts contributions were made, remitted amounts, dues) was made available in
the online establishment search facility. Therefore, principal employers who were earlier
dependent on the manual copy of the challan receipt supplied by the contractors were able
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to verify payments on their own. This made the establishments more compliant.
Further, principal employers registered with EPFO and Govt. Departments that were not
registered with EPFO could upload details of the contracts awarded, and that was available
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to the EPFO for verification. This improved transparency, reduced the cost of compliance for
principal employers and appropriate coverage of eligible employees.
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Availability of up-to-date remittance information to EPFO offices reduced the delays in
taking actions on defaulting establishments, and thereby reduced the number of instances of
approaching the courts for payment recovery. For this purpose, a real-time default
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management system was constituted in July, 2017.
Transfer of EPF accounts when a member changes a job or gets transferred to another
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location required significant amount of follow up. This was primarily due to the manual
record keeping procedures. Further, the financial transactions were generated, processed,
updated in a local environment consisting of employees (passively employer is involved),
affiliated to regional EPFO office and the designated bank branch. With the centralisation of
accounts and online Electronic challan cum return, administrative actions were almost
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nullified, when a subscriber changed employments or locations. The only requirement was a
valid digital signature representing the employer in the new location for a seamless transfer
of account. The account number generated for the employee is unique and subscriber
specific (employee or employer) and also independent of physical locations. Linking
flexibilities across employer organisations allowed easy accrual of benefits to employee
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subscribers with only a digital authorisation from the new employer. Earlier procedures of
benefit transfer through cash from one organisation to another during job changes were
done away with.
Since 1st May 2017 (Labour Day) the EPFO launched an online claims processing system
(Exhibit 4). Using this system, EPFO members could now apply for PF final settlement,
pension withdrawal benefits, PF part withdrawal for the purpose of housing loan, illness of
member/family, marriage of self or dependent, post matriculation education of children,
natural calamity etc. as provided in Employees’ Provident Funds Scheme, 1952, directly
from the member interface. For availing such service facilities, members were only required
to have an activated Unique Account Number (UAN, detailed in the following paragraph)
and an operational, registered mobile number.
The EPFO operations are essentially decentralised in nature and are orchestrated by the
regional office. All financial transactions and benefit delivery processes are interfaces
between members, member organisations, regional office (EPFO) and the designated bank
branch. Due to online challan and receipt processing and central accounting, the tight
coupling between the bank branches and the regional offices is no more valid. To streamline
the processes, EPFO mandated registration of every member (employer and employee) with
a unique identification number. This unique number was called UAN (Universal Account
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Number) and was launched by Hon’ble Prime Minister in October, 2014. The UAN database
was populated with various KYC2 details for reliable identification of the member and to
enable e-driven services.
A new unified portal was made operational on 24th December 2016 with various UAN based
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services. In addition to mandated UAN for enrolment with EPFO, Aadhar seeding (online)
and verification were also introduced and made mandatory effective from 1st July 2017. As
on 26thDecember 2017, 1.15 crore members have verified their Aadhar number in the UAN
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database.
To promote e-governance initiatives GoI launched the mobile application UMANG. EPFO
enabled its services through UMANG - to view EPF account passbook, to file and track a
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claim, to obtain remittance details by establishment ID, all instantaneously. Several general
enquiry services such as searching for an establishment, searching an EPFO office, knowing
claim status etc. were also launched.
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EPFO also developed an integrated online portal that enhanced the member experience. E-
passbook was provided to the members through both online and mobile app, UMANG.
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Since member accounts were credited every month and members were intimated of the
deposits through e-passbooks immediately, reconciliation, if any, could be resolved
immediately. e-passbook of EPF members were also available on the web portal
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(www.epfindia.gov.in) of EPFO. Members, once registered on the portal, could view the
transaction details in their PF accounts, take printouts, register complaints / redressal and
resolve most of the issues in an online mode. Specifically complaints from subscribers have
been registered through EPFiGMS and CPGrams3and the details are presented in Appendix
4 (a) and (b).
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In addition to the e-governance initiatives, several system level improvements were also
implemented by EPFO. They are briefly summarised here.
Impacting employer members:

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Employees Enrolment Campaign 2017 (EEC): EPFO launched Employees Enrolment

Campaign 2017 to increase the scale of coverage. About 50 lakh members were enrolled
during January to March 2017. The campaign was subsequently expanded for another 3
months.
2 KYC stands for Know Your Customer, a scheme through which nationalized banks and other agencies in India
verify and keep an updated record of their customers’ credentials.
3 Refer to epfindia.gov.in; EPFiGMS and CPGramsare Online grievance redressal systems
The EEC proposed attractive schemes such as (i) incentives to employers in the form of
waiver of administrative charges, (ii) nominal damages @ Re 1/- pa and (iii) waiver of
employees share if not deducted. The objective is to increase the number of member
employees under EPFO coverage. The entire campaign added 1.01 crore workers to the
existing members.
Exemption Establishment monitoring system: In September 2017, EPFO introduced an

online monitoring system to effectively monitor and regulate the exempted establishments.
There are approximately 1550 exempted establishments with corpus of about INR 3 lakh
crores. Compliance, transparency and accountability are better ensured, when the exempted
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establishments are monitored electronically and the scores are published on a regular
(monthly) basis (Exhibit 5).
Impacting Subscribers:
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UAN for a prospective employee: Registration of new employees was made more rapid.
New employees could apply and receive Aadhar based UAN through online mode without
any physical documentation. Aadhar number, bank details and a contact mobile were the
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only three data required for EPFO membership. Once verified, UAN was intimated as a text
message (sms) to the registered mobile number.
Facilities for International Workers: EPFO entered into a bilateral social security agreement
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(SSA) with 19 countries to protect the interests of Indian professionals and skilled workers
employed abroad. EPFO, as the nodal agency facilitated an online portal (since August 2017)
for international workers who seek certificate of coverage (COC). Claims of International
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workers under Social Security Agreement can be made on the last day of employment in
India.
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Aadhaar enabled Digital Life Certificate (Jeevan Praman): This initiative enables a
pensioner to digitally submit proof of being alive (online) to EPFO for annual pension
continuity, and thereby preventing physical presentation and submission of paper based
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certifications. The verification is done through software developed by Department of

Electronics and Information Technology and National Informatics Centre (NIC) and uses the
Aadhaar based Digital Life Certificate for pensioners. In 2016, EPFO tied up with more than
2 lakh Common Services Centres (CSC) outlets for facilitating digitally enabled services such
as Aadhar seeding and Jeevan Praman for the convenience of those subscribers who did not
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have an internet access.
Self-Certification of Claims: Availing medical advance and withdrawal from EPF account
by subscribers were simplified. Self-certification was introduced to avail advances,
eliminating the submission of medical certificates or other physical documents.
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Simplified Claim Form: In February 2017, EPFO introduced a single page composite claim
form (Appendix 3) by consolidating multiple claim forms. Attestation of employers on claim
form was done away with for employees whose UAN was linked with Aadhar and KYC
verified.
Impact on EPFO Staff:
Cadre Restructuring in EPFO: Based on the reports of Cadre restructuring Committee (a

sub-committee of the CBT) and the Anomaly Redressal cum Implementation Committee,
Ministry of Labour & Employment, EPFO approved the internal Organisational and Cadre
Restructuring on 27th December 2016. New offices were created and existing offices in
various parts of the country were upgraded. This enabled appropriate HR interventions in
upgrading and promoting the EPFO employees and to resolve many longstanding staff
grievances.
E-Court Management System: EPFO had about 75,000 unsettled cases under various
provisions of the EPF act, as of early 2017 and they were being processed and redressed
using physical documents. An online software was developed to address this issue.
Consequently, all pending cases were transferred to be handled and resolved online.
Accordingly,(i) the process became more transparent and status tracking also became easy
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and (ii) assignment of duties to officers was based on the work load thus, enabling even
distribution of work load. This facilitated fair and speedy disposal of the pending cases. The
number of cases that have been registered and disposed over the years is presented in
Appendix 5 (a), (b) and (c).
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Future challenges
EPFO underwent an unprecedented transformation in this short span. The conventional
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processes was substantially simplified and replaced by online systems with an interface to
mobile applications. Universal Account Number was a new concept that provides unified
and unique access to the members. The centralised accounting and online challan cum
receipts system changed the EPFO subscriptions processing. The linkages between the
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subscribers, employee organisation, regional EPFO and the designated bank branch were
not relevant anymore. EPFO truly became a centralized organisation with regional offices to
support branding, increase subscriptions, dispose disputes rapidly and monitor compliance
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efficiently in real time. Appropriate monitoring system for exempted establishments has also
made EPFO more employers friendly. Customer centricity is fostered by enabling the
subscribers to check the account balances instantaneously, to process claims rapidly with
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simplified claim forms, and by provisioning online pension renewal and part withdrawal of
funds. Employer attestation and physical certification from other entities are dispensed with,
for subscribers to claim and withdraw money that is due to them. The quasi-judicial
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responsibility of the EPFO officers became more transparent, professional and efficient.
EPFO initiatives began to be appreciated by subscribers, member organisations and its staff.
EPFO thus transformed itself from a standard bureaucratic government organisation to a
socially responsive agile technology enabled member centric organisation.
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All the changes were initiated since 2014. Today, the EPFO operations have now become
modern, digital and transparent, although, EPFO has a long history of having several
unverified subscribers’ accounts. The massive task was to update data and information
related to every subscriber and member organisation. It is not clear as to how EPFO should
approach this issue.
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The applications had become digitalized and the transactions were online and on real time.
Every application related to the subscriber was mobile enabled. The unified EPFO portal
provides complete information related to member organisations and subscription members.
Through its various initiatives and processes, EPFO provided social security to a class of
Indian employees; some of whom had limited or zero awareness about technology. What
were the other initiatives that the EPFO should pursue so that all classes of employees
endorse and utilise the technology platform for availing EPF services? Should EPFO
consider alternate channels such as kiosks for connecting with the subscribers?
From a social perspective, EPFO is considered the largest social security network in the
world. Every attempt has been made to bring in a large eligible workforce into the EPFO
mainstream coverage. Still there is a huge gap. How does EPFO envisage bridging this gap?
It has been reported that certain benefits of the schemes were exploited. What preventive
and corrective measures were considered by the EPFO to prevent this misappropriation?
Consequent to digital enablement and business processes re-engineering, the role of

employers and executives undertaking the mundane tasks of the EPFO became reduced.
This distorts the power equation of the EPFO staff and the organisation members, given that
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the EPFO staff was influential earlier, but deteriorating now. Is there a need for formal
coping mechanisms to help EPFO officers to deal with the emerging situation?
The digitalisation and business process re-engineering initiatives in the last few years have
fundamentally altered the core business process of EPFO. The changes were driven by the
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top management team. However, it is imperative for the EPFO to think about how
innovative approaches can be perpetuated to the organisation to make it user friendly and
relevant to the changes in technology and society. This may have implication in the
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recruitment of officers, their nurturing and training inputs. EPFO was also expected to
address issues related to appropriate organisation ecosystem and culture to facilitate
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Figure 1: Illustrative representation of EPFO services to various stakeholders
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Legend:
ECR Electronic Challan Receipt
OTCP Online Transfer / Claims Processing
EPFiGMS EPF i-Grievance Management System
TRRN Temporary Return Reference Number
UAN Universal Account Number
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sOCS Online Claim Submission
COC Certificate of Coverage
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Annexure 1: Stakeholders Feedbacks and suggestions on recent initiatives of EPFO

Changing image of EPFO
The new employer friendly and employee centric face of EPFO has invited praise from all the
stakeholders. Various steps were undertaken by the department to promote ease of doing business
and improve service delivery and grievance handling mechanism. The publicity through hoarding, FM
Clips, Newspaper & TV advertisements were appreciated by employers, members and EPF
employees. The members valued these hassle free mechanisms for claim submission as they did not
have to wait for their claims to be attested by the employer first before submission to the EPFO.
Unified Portal for establishment
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This resulted in the consolidation of various portals for Online Registration, Online ECR/Challan
submission, UAN KYC seeding, online transfer claims etc. The employer is now able to discharge his
EPF related responsibilities through a single portal itself. However, some employers and employers’
representatives are still unaware of all the functionalities provided under the Unified Portal. This office
has publicised the functionalities under Unified Portal through emails, meetings and seminars with the
employers. Additionally, work flow charts and Power Point presentations with screenshots of different
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functionalities were made available on the website itself under Our Services >ForEmployerstab and
the same was updated from time-to-time incorporating additions /modifications made in the Unified
Portal.
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Unified Portal for Members
Members appreciated that they were able to view their profile, service history, UAN Card, Passbook;
manage their contact details & KYC, prefer claim online and track it. New functionalities related to
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member details correction, resolution of queries and grievance generation could be added in the
Unified Portal for Members itself so that they are able to trigger minor / major corrections in their
details, raise a query or generate a grievance.
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UMANG Application
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Umang Mobile App was welcomed enthusiastically by employers, members and the pensioners.
However, this facility was available to only those members who have activated their UAN with mobile
number. Facility of seeding KYC, activating UAN with mobile number and generating request for
minor member details correction was made available to the member in the App itself.
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Employees Enrollment Campaign-2017
The employers provided feedback that this was the first ever voluntary disclosure kind of scheme
which allowed them to correct their inadvertent mistakes. Even though the government departments,
Municipal Corporations were the beneficiaries of this scheme. A surprisingly welcome face of the
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EPFP was using persuasion to correct the mistakes instead of penalising.
Jeevan Praman Facility in Coordination with CSC
This facility was welcomed by few pensioners but it needed vigorous publicity through newspaper /
electronic media advertisements.
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Staff grievances
A portal for grievance redressal of staff and officers was launched so that EPF members can lodge
their grievances online that would be solved in a timely manner. This would be considered as a good
administrative measure. Such a portal was launched earlier, however, have been discontinued since.
This measure is expected to motivate work-force.
Pensioners
To capture the Digital Jeevan Pramaan of the pensioners, a special drive was initiated. Through
these initiatives, apart from capturing Digital Jeevan Pramaan through PC in the office, they were are
also able to take Digital Jeevan Pramaan through UMANG mobile App through Mobile with
fingerprint and IRIS scanner device and our pensioners specially those who are not able to come to
this office due to medical condition like paralysis etc. Such pensioners appreciated the services
provided by EPFO at their door step. This activity was noted by the media and the details were
published by the local media (news item enclosed).
Opinions of Employees
Claims filing and settlement had become easy and prompt due to the recent changes in Adhaar
seeding. Filing was made easy due to the reduction in submission of documents in advance in case of
claims. Online submission of claims was a long awaited facility which has been provided and working
fine. The UMANG app provided details of contribution, status of claim etc., thus improving
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transparency.
Opinions of Employers
The replacement of various returns under EPF with ECRs reduced the paper work. Online remittance
gave them the freedom from standing in long queues in the banks and also improved reconciliation.
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Facility to monitor contractor compliance was given a sigh of relief.
EFPO Employee Opinions
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Online claim settlement became easy and reliable. It has reduced efforts and time significantly.
However, rejection ratio increased primarily due to wrong filing of Form 31. The main reason for this
was that members were seen to apply for advances for which they were not eligible thus leading to
rejection. To overcome this problem, it was decided that validations for eligibility should be provided in
Form 31.
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Annexure 2
Growth in EPF subscriptions and scale of operations over the years
S.N. Details 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18*

1 No. of contributing subscribers (in Crores) 3.26 3.49 3.76 4.12 4.36 4.5
2 No. of Establishments 4,53,143 4,73,228 4,94,960 5,20,217 5,48,218 5,33,298
3 No. of Un-exempted Establishment 4,49,908 4,70,418 4,92,169 5,17,461 5,45,497 5,30,676
4 Amount of Subscription 5,81,40,75,12,364 6,68,52,79,45,843 8,10,60,28,07,063 9,83,40,74,39,321 11,11,98,23,07,431 8,77,73,67,79,968

4(a) EPF Subscription 4,31,79,58,43,176 5,01,18,77,10,996 5,82,41,88,92,867 6,82,30,15,70,950 7,79,01,02,76,208 6,22,35,66,51,133
4(b) EPS Subscription 1,43,52,00,18,740 1,60,45,46,59,612 2,18,95,31,86,275 2,88,80,00,64,592 3,18,70,32,25,198 2,44,04,03,39,270
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4(c) EDLI Subscription 6,09,16,50,448 6,88,55,75,235 9,23,07,27,921 12,30,58,03,779 14,26,88,06,025 11,33,97,89,565
5 No. of EPS Processed 48,46,507 54,57,609 56,85,673 49,82,010 51,55,394 41,68,122
6 No. of claims Processed 1,11,37,898 1,23,71,106 1,30,38,274 1,18,69,519 1,21,99,010 1,01,85,340
7 Claim amount Processed in Rupees 3,33,93,00,90,755 3,89,23,55,42,870 4,62,90,22,13,767 4,76,38,73,84,294 5,03,40,14,19,714 4,32,06,30,58,548
8 No. of PF Account Transfers 1,06,53,546 1,19,65,373 1,24,63,595 1,11,43,958 1,15,41,113 97,93,407
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* Upto December, 2017
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Annexure 3
Number of EPF offices in the country
S.N.
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Establishment Numbers
1 Head Office, Delhi 1

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2 Zonal Offices 21
3 Regional Offices 135
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4 District Offices & Special State Offices 117

5 Traning Institutes 6
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Annexure 4 (a)
Details of Grievances received from EPF subscribers through EPFiGMS
Opening Closing Percentage of

Year Received Total Disposal
Balance Balance Disposal (%)
2012-13 28,752 2,48,072 2,76,824 2,48,971 27,853 89.94
2013-14 27,853 1,71,224 1,99,077 1,94,490 4,587 97.69
2014-15 4,587 1,79,893 1,84,480 1,82,321 2,159 98.83
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2015-16 2,159 2,20,745 2,22,904 2,21,624 1,280 99.43
2016-17 1,280 2,39,913 2,41,193 2,38,959 2,234 99.07
2,234 2,88,006 2,90,260 2,81,910 8,330 97.12
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2017-18*
Grand Total 66,865 13,47,853 14,14,738 13,68,275 46,443
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* From 1.04.2017 to 21.12.2017
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Annexure 4(b)
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Details of Grievances received from EPF subscribers through CPGrams
Opening Closing Percentage of

Year Received Total Disposal
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Balance Balance Disposal (%)
2012-13 44 1 45 0 45 0
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2013-14 45 464 509 387 122 76.03
2014-15 122 3,188 3,310 3,159 151 95.43
2015-16 151 6902 7,053 6,872 181 97.43

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2016-17 181 9916 10,097 9,876 221 97.81
2017-18* 221 12,954 13,175 12,513 662 94.97
Grand Total 720 33,424 34,144 32,807 1,337

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* From 1.04.2017 to 21.12.2017

Annexure 5 (a)
Prosecution Cases u/s 14 of Act decided (As per Annual Reports)
Year u/s. EPF Scheme u/s. EPS 95 Scheme u/s. EDLI Scheme
2016-17 935 732 247

2015-16 4,463 3,459 2,987
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2014-15 1,232 623 660
2013-14 407 266 314
2012-13 414 169 173
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Annexure 5 (b)
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Cases of Assessment u/s 7A (As per Annual Reports)
No. of cases disposed No. of cases pending at the

All India
during the year
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end of the Financial Year
2016-17 15,199 23,284
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2015-16 13,855 20,804
2014-15 14,625 16,820
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2013-14 18,062 17,138

2012-13
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18,732 17,147
Annexure 5 (c)
Cases of Levy of Damages u/s 14B (As per Annual Reports)

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No. of cases disposed No. of cases pending at the

Year
during the year end of the Financial Year
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2016-17 1,15,845 63,751
2015-16 1,43,347 94,319

2014-15 1,35,741 1,19,128
2013-14 38,255 50,098

2012-13 35,402 9,368
Exhibit 1: PF Contribution by Employee and employer
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Exhibit 2: Brief Description of Schemes and Benefits
Benefits under the schemes: Following three Schemes were framed under the Act and are
being administered by the EPFO.
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1. The Employees’ Provident Funds Scheme 1952 (EPF) – (w.e.f 1 November, 1952)
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2. The Employees’ Pension Scheme 1995 (EPS) (w.e.f 16 November, 1995)
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3. The Employees’ Deposit Linked Insurance Scheme 1976 (EDLI) – (w.e.f. 1 August, 1976)
Provident Fund Scheme Pension Scheme Insurance Scheme

 Accumulation plus  Monthly pension for members  The benefit provided in case of
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interest upon retirement, on superannuation/ retirement, death of an employee who was
resignation, death. disability. member of the scheme at the
 Partial withdrawals time of the death.
allowed for specific  Monthly pension for dependents
expenses such as house of deceased member viz.  The family will get an amount
purchase/construction, widow(er), children, linked to either the average
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higher education, parent/nominee. balance in PF account during
marriage, illness etc. preceding 12 months or 20
 Past service benefit to times of the average wages of
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participants of erstwhile Family Rs. 15,000/- of the last 12
Pension Scheme, 1971. months of the member subject
to a maximum of Rs. 6,00,000/-,
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4Source:EPFO Information Handbook

http://www.epfindia.com/site_docs/PDFs/RTI_PDFs/RTI_InformationHandbook.pdf
Exhibit 3: ECR Processing
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Exhibit 4: Claim Settlement Process
Employee /Member submit CLAIM FORM through:
1. EMPLOYER
2. DIRECTLY TO EPFO OFFICE

(if UAN is activated and seeded with Aadhaar, Bank Account)
3. ONLINE
(if UAN is activated and seeded with Aadhaar, Bank Account)
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RECEIPT NUMBER is generated for each
claim at EPFO office and SMS is sent
acknowledging receipt of the claim form
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Claims are sent to
ACCOUNTS SECTION
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Pension Claims, if
found in order, are
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Claim is PF & Insurance forwarded to

RETURNED Claims are settled if PENSION SECTION.
/REJECTED, if found in order; SMS
defective. is sent to the
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member
Pension Payment
order (PPO) is
NEFT/CBS file is generated and sent to
SMS is sent prepared in CASH Pensioner and the
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regarding SECTION and concerned Bank.

return/rejection sent to
of claim to the designated bank
member for crediting Monthly statement of
members Bank Pension Payable is
Account generated and
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forwarded to concerned
Bank for payment.
Designated bank
credits the amount in
member’s Bank Bank credits Pension in
Account Pensioner’s Bank Account on
the very 1st day of every month.
5Source:Standard Operating Procedure (SOP) for settlement of claims in EPFO.
http://www.epfindia.com/site_docs/PDFs/Circulars/Y2017-2018/Manual_SOP_ClaimSettlement_10800.pdf
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Exhibit 5: Exempted Establishments
The following is the system of online performance evaluation of exempted establishments based on
six parameters
S.no Parameter Allocation of Points

100 points were given to the establishment which has
Transfer of fund before
1 transferred the provident fund before due date and for any
due date
belated transfer, the points were deducted proportionately.
100 points were given to the establishment whose Trust has
invested 70% or more of the investable corpus. For those
2 Investment
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establishments that did not invest 70% or more of the
investable corpus the points were deducted proportionately.
100 points were given to the establishment that transferred
3 Remittance to the Trust the full PF accumulations for a month to the Trust and points
were deducted proportionately for non-transfer of the funds.
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100 points were given to the establishment whose Trust had
declared rate of interest at par or more than the EPFO rate
4 Interest declared
and for declaring less rate of interest. , Points in this case
were deducted proportionately.
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100 points were given to the establishment which had settled
all the claims of the members within 10 days and points were
5 Claim settlement
deducted proportionately for untimely non-settlement of the
claims.
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100 points were given to the establishment whose Trust's
6 Audit of Accounts accounts were audited till FY 2016- 17 and the points were
deducted proportionately for not getting the accounts audited.
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Based on the above parameters, a rank list of performance monitoring of PF exempted
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establishments will be prepared for the preceding month in which returns were required to be filed and
this will be published on the EPFO Website on the first day of the succeeding month. This system of
ranking the establishments was envisaged to develop a healthy competition among the exempted
establishments and to enable the concerned organisation to evaluate their performance.
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6EPFO Document: Introduction of Real Time Monitoring System for Exempted Establishments Regarding.
Reference: EPFO, Head Office Circular No. C-Misc./Ex. Return/2013Nol-ll/7247 Dated: 19.07.2017.
Appendix 1: EPFO Organization
Central Board of Trustees (CBT), EPFO
Main functions of the Central Board are:
 Administration of the funds created and vested with the Board
 Delegation of Administrative & Financial powers as it may deem necessary for efficient
administration of the schemes.
 Appointment of officers and staff.
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 Maintenance of accounts of income & expenditure in the prescribed form and manner.
 Submission of Audited Accounts (with comments of CAG) and Annual Report on

performance of EPFO to the Government.
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Sub – Committees of the Central Board of Trustees
The Sub-committees of Central Board (consisting of the representatives of employers, employees,
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Government and domain expert) were constituted to aid and advise the Board for specific purposes. A
brief description of the responsibilities of the representative Sub-Committees are given below.
Finance Investment and Audit Committee
 Oversee the investments being done by the portfolio managers.

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 Watch timely investment of trust money with a view to realising the optimum return thereon.
 Issue such directions, as maybe considered necessary, to the portfolio managers in regard to
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investment-re-investment of redemption proceeds, interest etc. in accordance with the
prescribed pattern of investment and guidelines.
 Recommend rate of interest for the Members of the Fund.
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 Recommend formulation of guidelines for utilisation of the Special Reserve Fund and conduct
periodic review of utilisation of Special Reserve Fund.
 Audit related issues.
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Exempted Establishments Committee
 Oversee the working of exempted establishments in all respects and make suggestions for
consideration of the Board to improve working of the exempted establishments.
 Consider and suggest additional guidelines for grant of exemption/relaxation.
 Review the role of exempted trusts in the context of changing business environment and
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current experience.
Executive Committee, Central Board Trustees (EPFO)
The Executive Committee is a statutory Committee that is constituted from amongst the Members of
the Central Board of Trustees by the Central Government. Its purpose is to assist the Central Board
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of Trustees, EPF in the discharge of its functions relating to administrative matters. The Executive
Committee has a term of two years and six months. Secretary, Ministry of Labour & Employment,
Government of India is the Chairman of Executive Committee, CBT (EPF). The Main functions of the
Executive Committee are:
 Opening of Sub-Regional Offices/Sub-Accounts Offices.

 Approval of the proposal for the purchase of land and estimates for constructing Office
buildings and Staff quarters.
 Creating new regions/up-gradation of existing regions.
 Hiring office buildings on monthly rent exceeding Rs50, 000/-.
 Considering the investment policy and making appropriate recommendations to the Board
on liberalisation of investment pattern.
 Specifying work norms for Staff and Officers of the Organisation.
 Framing/amending the rules relating to method of recruitment, pay and allowances and
other conditions of service of the Officers and Staff of the EPFO.
Sub- Committees of Executive Committee, Central Board (EPFO)
Committee on IT Reforms
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 Recommend policy level decisions for implementation of IT Reforms in EPFO.
 Oversee entire process of IT Reforms in EPFO.
 Any other matter referred by Chairman, CBT, Executive Committee or the Central PF
Commissioner.
Committee on Building & Construction
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 Examine proposals for acquiring / purchase of land and building/ construction referred to
the Executive Committee.
 Examine the proposal for acquiring land/building/construction including its technical
feasibility, financial viability and drawings etc. which require consideration of the
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Executive Committee, other than those proposals involving acquiring of land / building /
construction from or through the Central or State/ Public Sector Undertakings.
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Appendix 2: Administrative Challenges
 Compliance of employers’ deposits, in terms of timeliness and amount of deposits was

difficult to monitor. Deposits were traditionally done through paper-based bank transactions
using challans by the employers. Therefore physical verification was the only option to check
the deposit dates as well as the amounts and it was cumbersome.
 There was absolute lack of accountability on employers’ part.
 Employees could not verify their own balance amount in the account, because there was no
easy means to check deposits made, other than personally visiting the banks.
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 The EPFO faced difficulties in transferring the employees accounts when they changed their
jobs from one workplace to another. The organisation either faced account duplication or the
employees could not withdraw their due amount in a timely manner with reasonable efforts.
 There was a significant delay due to paper work, and approvals, by all stakeholders.
Employers deposited late, verification of deposits was delayed, and everyone seemed to have
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a reason that was not acceptable..
 EPFO’s across the country operated as individual offices and were not connected to each
other; so an employee could have multiple accounts, as per his / her change of employments.
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Some of the accounts were dead, operational and there was no means of tracking them.
 Benefits did not reach the beneficiaries at the right time and processes were so mismanaged
that there was a total lack of empathy towards a class of society, whose welfare and security
was the sole purpose of the creation of EPFO.
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 While EPFO attempted to increase its scale in terms of coverage of sectors and number of
beneficiaries, it was becoming increasingly difficult to manage the complexity of operations in
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a smooth, transparent and effective manner.
 Both the employees and employers considered the EPFO more as a deterrent or an
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unwanted bottleneck in their everyday operations, and this defeated the entire purpose of its
creation and existence. Deposits and withdrawals were difficult to process.
 EPFO faced lack of commitment in processing of applications for withdrawals, monitoring of

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deposits, change of employment related queries and so forth.
 Apart from offline settlement of deposits and claims, reviewing and manually processing each
application that ran to 3-4 pages for various services was very complicated and cumbersome.
The monitoring of exempted establishments was also ineffective. Very basic information was
available online and it was difficult to evaluate the performance of the establishment with the
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available data. Several complaints were filed about the ineffective monitoring of exempted
trusts.
 EPFO staff also had a number of grievances, main being stagnation of various cadres. A
number of officers recruited in 1999 did not get any promotion. Cadre restructuring within
EPFO had become a priority.
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Appendix 3: Composite Claim Form in Death Cases
www.epfindia.gov.in
Mobile No.
[Form-20 (PF Payment)/ Form 10-D (Pension)/ Form-5 IF (EDLI)]
1 Tick whichever is/are Pension ( )

applicable Provident Fund ( ) Type of Pension Insurance EDLI ( )
Claim:
2 Name of the deceased member (in CAPITAL
letters)
3 Father’s Name : a)
Spouse’s Name : b)
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4 Marital status of deceased member
(a) Aadhar Number of the deceased member (if
5 available)
(b) Universal Account Number (UAN)
(c) PF Account Number (in case UAN not
available)
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6 Date of Leaving Service
a) Whether Scheme Certificate has been issued
7 (Yes/No)
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b) If yes, Number of Scheme Certificate
c) Scheme Certificate issuing office
8 Period of Non-Contributory
Service (Year/Month/Days)–(To be filled by the
employer)
9 Date of death of the member
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10 Whether the member had died while in service
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(Yes/No)
CLAIMANT’S DETAILS FOR PROVIDENT
FUND, PENSION & INSURANCE (EDLI)
*Particulars of the claimant/minor/nominee(s)/legal heir(s)/surviving family member on whose
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behalf the claim is submitted
SN Name Father’s/ Aadhar Gender Date of Marital Relationship with

11 Number birth status
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Spouse’s Member Guardian

Name
i
ii
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iv
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* In case of more than five family members, the details of family members may be furnished in a
separate sheet, duly attested by the employer.
BANK ACCOUNT DETAILS FOR PAYMENT OF PF & EDLI

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Bank account details for Claimant-I Claimant-I Claimant-III

12 payment
Name
Savings Bank Account
No.
Name & address of the
Bank
IFSC Code of Bank
7http://www.epfindia.com/site_docs/PDFs/Downloads_PDFs/Form_CCF_death.pdf
BANK ACCOUNT DETAILS FOR PENSION
Bank account details for Claimant-I Claimant-II Claimant-III Claimant-IV

payment
13 Name
Savings Bank Account
No.
Name & address of the
Bank
IFSC Code of Bank
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14 Full Postal address of claimant
Pin ………………
Certified that the particulars are true to the best of my knowledge.
Claimant’s Signature
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Employer’s Signature
Designation & Seal
of Employer
Name: ……………………………………
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Glossary of Abbreviations and Acronyms
: Assistant Provident Fund Commissioner

APFC
CAG :
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Comptroller and Auditor General
CAIU : Central Analysis Intelligence Unit
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CBT : Central Board of Trustees
CMC : Computer Maintenance Corporation
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COC : Certificate of Coverage

CPF : Central Provident Fund
: Common Services Centers
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CSC
DA : Dearness Allowance
EC : Executive Committee
ECR : Electronic Challan cum Return
: Employee Deposit Linked Insurance Scheme 1976
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EDLI
EEC : Exempted Establishments committee
EPFO : Employees' Provident Fund Organization
EPF : Employee Provident Fund Scheme 1952
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EPS : Employee Pension Scheme 1995

ETFs : Exchange Traded Funds
FIAC : Finance Investment and Audit Committee
INTUC : Indian National Trade Union Congress
NEFT : National Electronic Fund Transfer
NIC : National Informatics Centre
OLRE : Online Registration of Establishments
PAN : Permanent Account Number
PEIC : Pension & EDLI Implementation committee

PMPRPY : PradhanMantriParidhanRojgarProtsahanYojana
PMRPY : PradhanMantriRojgarProtsahanYojana
PPO : Pension Payment Order
SSA : Social Security Agreement
TRRN : Temporary Return Reference Number
UAN : Universal Account Number
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Indian Institute of Management Ahmedabad IIMA/BP0401
Rivigo
INTRODUCTION
It was November 10, 2016. Deepak Garg, Chief Executive Officer of Rivigo Services Private
Limited (Rivigo), was contemplating on the future of the company with the author, even as
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he and his team were to come to terms with the fact that Rivigo was about to become the
third largest fleet owner in the trucking business in India, in just over two years. They had
placed an order in August 2016 for 1200 trucks for delivery over six months which would
take their fleet size to 2700. This was the single largest commercial vehicle order since 2012.1
As of November 6, 2016, Warburg Pincus, a private equity firm, had invested USD 75
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million (mn) (about INR 500 crores (crs)2) in Rivigo for a minority stake. This was one of the
largest equity financing rounds by an Indian startup that year. Garg had told Economic
Times, “This (funding) is going to be primarily utilized towards technology and hiring. We
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have to scale up our tech talent, investments in Internet of Things (IoT), automation and data
sciences a lot more. We also have to build our next level of leadership cadre, given the
growth we‟re seeing.”3 N
Rivigo‟s acceptance in the market was because they had cut down long haul delivery times
by about 50%. For example, Rivigo made the National Capital Region4 (NCR) to Bengaluru
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delivery in 44 hours5 against the average 88 hours6 and the NCR to Guwahati delivery in 46
hours against the average 122 hours. Such timings in the surface transport industry were
even comparable to air, but at cheaper rates. Rivigo achieved this using a relay system in
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which the drivers changed every 5-6 hours at a pit stop,7 thus keeping the vehicle on the
move even as drivers signed off to take rest. Rivigo operated with purely owned fleet, while
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1 Narasimhan, T. E. (2016, August 12). Logistics start-up Rivigo places Rs 500 crore order with Ashok Leyland.
Business Standard. Retrieved from http://www.business-standard.com/article/companies/logistics-start-up-
rivigo-places-rs-500-crore-order-with-ashok-leyland-116081200911_1.html on October 24, 2016
2 1 USD = Rs 67.8037, Retrieved from http://www.exchange-rates.org/converter/USD/INR/75000000/Y on
November 14, 2016
3 Gooptu, B. & Shrivastava, A. (2016, November 7). Rivigo raises $75 million in Series C funding from Warburg
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Pincus. The Economic Times. Retrieved from http://economictimes.indiatimes.com/small-biz/money/rivigo-

raises-75-million-in-series-c-funding-from-warburg-pincus/articleshow/55282791.cms on November 8, 2016
4 The National Capital Region (NCR) is a metropolitan region that includes Delhi and 22 districts in the
neighbouring states of Haryana, Rajasthan and Uttar Pradesh covering a total area of 58,332 square kilometers
and population of 46,069,000 as of 2011. Retrieved from
https://en.wikipedia.org/wiki/National_Capital_Region_(India) on November 20, 2016
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5 https://rivigo.com/case-studies/27-industrial-and-cpg/44-accelerating-sales-of-seasonal-products
6 Transport Corporation of India Limited and Indian Institute of Management, Calcutta (2016). Operational
efficiency of freight transportation by road in India: 2014-15 (3rd Edition). Gurgaon: Transport Corporation of India
Limited
7 Rivigo chose the name „pit stop,‟ inspired by Formula One car racing, where pit stops provided quick
changeover of tyres and other essentials during a race.
Prepared by G. Raghuram, Professor and Pooja Sanghani, Research Associate, Indian Institute of
Management, Ahmedabad. Research assistance by Kalrav Shah is acknowledged. The authors would
like to thank Deepak Garg, Gazal Kalra, Saurabh Chaudhary and many other executives of Rivigo for
their cooperation towards this case.
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major trucking companies owned a small proportion of trucks they operated. Such trucking
companies typically rented from smaller fleet operators (owning five to ten trucks) or single
owner-drivers.8 The company felt that anywhere to anywhere Full Truck Load (FTL) service9
within three days in India should be possible in future with additional pit stops (They had
more than 40 operational pit stops in October 2016 supporting their service routes). Exhibit
1 compares average journey times on popular routes with that of Rivigo.
What industry analysts would view as dizzying growth was in part achieved by
sophisticated technological solutions. “The solutions we are working on are globally
applicable. At the right time in future, we would aspire to take our offerings global. As we
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do, we want to protect our interests and that is why the need to file patents outside India,”
said Garg10, on filing three patents in the United States of America (USA) for algorithms
created by it for their business. These algorithms helped manage fuel efficiency, availability
of drivers in relay system and full/part loading plans. Rivigo‟s trucks were equipped with
intelligent sensors to integrate communications and control using real-time solutions.
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GENESIS OF RIVIGO
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The company was initially set up as TrucksFirst Services Private Limited (TrucksFirst) on
August 11, 2014 in Gurugram (then Gurgaon), a city in the state of Haryana.11 (Gurugram
was a city southwest of New Delhi housing about 300 offices of Fortune 500 companies12.)
The company was renamed as Rivigo Services Private Limited on July 31, 2015. The
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company was founded by Garg and Gazal Kalra. The name Rivigo was inspired by the river,
associating itself to attributes of „pace, growth, transformation, persistence, overcoming
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hurdles and flexibility‟.
Garg graduated in Mechanical Engineering (1999-03) from the Indian Institute of

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Technology (IIT), Kanpur and did his Master in Management from the Indian Institute of
Management (IIM), Lucknow (2004-06). He worked at McKinsey & Company (McKinsey) as
a consultant in operations for over eight years. In early 2014, the entrepreneur in him made
him reflect and consider that it was time to do something impactful on his own. While
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mulling over a few ideas, as varied as manufacturing corrugated boxes to coal mining
advisory, his Indian consulting experience made him realize that the trucking and logistics
sector had scope for significant improvement in their service levels. In April 2014, Uber
Technologies Inc., had just launched its foray into the logistics sector in New York City.
They also attracted their largest equity funding of USD 1.2 billion (bn) in June 2014.
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Influenced by this, he thought that an Information Technology (IT) based aggregator service
could impact the trucking industry, which had a large number of small fleet operators, like
what had happened in the call taxi industry.
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8 Raghuram, G. (2016). An Overview of the Trucking Sector in India: Significance and Structure. In Roy, D., et al
(Eds.), Trucking Business Management: Cases and Concepts (pp. 1-13). New Delhi: McGraw Hill Education (India)
Private Limited
9 Products: Prime (FTL). Retrieved from https://rivigo.com/products/prime on October 26, 2016
10 Gooptu, B. (2016, October 3). With 3 surface transport patents in US, Rivigo takes road less travelled. The
Economic Times. Retrieved from http://economictimes.indiatimes.com/small-biz/startups/with-3-surface-

transport-patents-in-us-rivigo-takes-road-less-travelled/articleshow/54649091.cms on October 25, 2016
11 Trademarks of Trucksfirst Services Private Limited. Retrieved from https://www.zaubacorp.com/company-
trademark/RIVIGO-SERVICES-PRIVATE-LIMITED/U74999HR2014PTC053030 on October 28, 2016

12 Modi, A. & Choudhury, K. (2016, February 20). Jat stir shakes India Inc. Business Standard. Retrieved from
http://www.business-standard.com/article/current-affairs/jat-stir-shakes-india-inc-116022000835_1.html on
November 15, 2016
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He joined a McKinsey assignment for automobile Original Equipment Manufacturers

(OEMs), which got him an opportunity to travel around in India. He realized that poor
service levels (transit time and delivery reliability), uncertainty of return loads, shortage of
drivers and lack of information (both to customers and fleet operators) affected the logistics
industry. One of the activities in this assignment was a corporate social responsibility
program for distributing pillows to truck drivers. While travelling from New Delhi to Vapi
(a city in the state of Gujarat), in June 2014, and talking to drivers about the issues they faced
in their profession, he realized that a major cause for shortage was that typically a long haul
truck driver spent up to 25 days away from home. Such lifestyle also made drivers more
vulnerable to contractible diseases and substance abuse. “They lose social respect, leading to
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them being called the „37th caste‟ in the Indian village. The problem is not in truck driver‟s
income or skill gaps, but the problem is deep rooted in his terrible lifestyle away from his
family leading to social disrespect and stigma,” said Garg.13
It occurred to Garg that an aggregator service would not work unless the more basic
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problems were addressed. He felt that a model which would bring drivers back home within
24 hours would attract driver supply. He was aware of the crew change system in the
railways, which typically ensured this. Such a model would also ensure continuous
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movement of the truck. He thus conceptualized the relay model, with driver changes at pit
stops. Further, this model would not work with trucks hired from the market since the
practice was that a driver would remain with a truck. Consequently, owning trucks would
be a necessity. Garg felt that while this would require significantly higher capital
investment, it would have the benefit of greater control and reliability.
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At this time, Garg decided to quit McKinsey to enter the trucking industry. With a strong
conviction that he had an earthshaking idea, he reached out to all his friends from IIT, IIM
and McKinsey inviting them to join him in his venture. The very act of reaching out and
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related discussions allowed him to hone his idea even more sharply. McKinsey was
unwilling to let him go and suggested that he could work on a half-time basis, while he
tested operationalizing his idea. It was a tempting proposition. But then, reflecting more
deeply and inspired by a McKinsey senior‟s advice “If you have to sail the high seas, you
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have to lose sight of the shore”, he decided that if he were to give the venture its full due, he
would have to give it his whole time and energy. He put in his papers to quit in August
2014.
Kalra, who knew about him in McKinsey and more recently through her husband who also
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worked in McKinsey and had done an assignment with Garg, first met Garg in mid-July
2014. After hearing about this idea directly from Garg, she decided to join the venture. Kalra,
a graduate in Textile Engineering from IIT Delhi (2003-07) and a Business Analyst at
McKinsey (2007-09), had just earned her joint Master in Management and Master in Public
Administration (MPA) from Stanford University and Harvard Kennedy School respectively
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during 2011-2014. She was looking for an opportunity to be involved in a meaningful

venture in India. Her earlier explorations of doing something meaningful had got her to
work as a political intern for Naveen Jindal, a Member of the Lok Sabha14 (2009-11) and then
13 Shrivastava, A. (2016, November 7). Inviting truckers for dinner was big startup idea of Rivigo's Deepak Garg.
The Economic Times. Retrieved from
http://economictimes.indiatimes.com/small-biz/entrepreneurship/inviting-truckers-for-dinner-was-big-
startup-idea-of-rivigos-deepak-garg/articleshow/55283582.cms on November 10, 2016
14 Lok Sabha or House of the People is the Lower House of the Parliament of India. The people directly elect the
members of Lok Sabha, once in five years. Retrieved from http://parliamentofindia.nic.in/ls/intro/p1.htm on

November 14, 2016
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seek an MPA degree along with her deferred admission for Management. She had merit
scholarships for both the programs.
A batch-mate of Garg from IIM Lucknow also decided to join the venture. The three of them
teamed up to establish TrucksFirst with a paid up capital of INR 718,755 and authorized
capital of INR 2,700,000.15 The company was registered on August 11, 2014, the same day
that Garg left McKinsey. One of their first setbacks was when the IIM Lucknow batch-mate
decided to leave them within a few days after the company was registered.
Saurabh Chaudhary, a McKinsey colleague during 2008-11 and who subsequently worked
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with Adani Logistics, was one of the recipients of a text message from Garg regarding the
venture. Excited by the venture, he decided to explore possibilities while on leave from
Adani Logistics during September-October 2014. Chaudhary, a graduate from Birla Institute
of Technology and Science, Pilani (1989-93), joined the Indian Railway Traffic Service, where
he worked for 12 years in Central Railway until he joined IIM Calcutta for his Master in
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Management during 2005-07. After one more year in the Railways, he joined McKinsey in
2008 based on his campus placement. He then joined Adani Logistics to look after their
railway and logistics business in 2011.
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The period from mid-August to end-October 2014 was very intense in the efforts to
operationalize the venture. The team decided that to demonstrate the efficacy of their model,
the route from NCR to Mumbai/Pune would be a good first route for a distance of about
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1355/1495 kilometers (kms). Given that a driver should not be driving for more than six
hours continuously at an average of 45 kilometers per hour (kmph), 250 kms would be a
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good average for each driver relay. They thus figured that apart from a hub in the NCR, they
would need five intermediate pit stops. At this time, they were seeking their first customer
with the proposition of doing the entire distance in less than 30 hours. They managed to
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convince Gati Limited, an express distribution company, which was then offering its
customers a six day service about the possibility of a 30-hour transit. They also had to work
on a minimum fleet size to keep the return flow of trucks to ensure that the drivers reached
their base in around 12 hours, but definitely within 24 hours. They arrived at a starting
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service package that would involve a fleet of 15 trucks, with a second fuel tank (so as not to
require refueling for the entire round trip) and Global Positioning System (GPS) based
tracking ability.
While considering the type of fleet, he approached senior executives of Ashok Leyland (AL),
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who Garg knew through an earlier assignment. A contract including maintenance was
worked out with AL, which would involve a service level agreement to ensure minimum
guaranteed uptime of the fleet. The contract would also provide for modifications to the fleet
as required, including the second fuel tank. AL was then the second largest commercial
vehicle 16 manufacturer in India with a market share of 19% for medium and heavy
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commercial vehicles17 during 2013-14.
15 Rivigo Services Private Limited. Retrieved from https://www.zaubacorp.com/company/RIVIGO-SERVICES-

PRIVATE-LIMITED/U74999HR2014PTC053030 on October 31, 2016
16 Narasimhan, T. E. (2014, December 15). Ashok Leyland looks at pruning to grow bigger. Business Standard.
Retrieved from http://www.business-standard.com/article/companies/ashok-leyland-looks-at-pruning-to-

grow-bigger-114121501141_1.html on November 20, 2016
17 Sharpe, B., (2015). Market analysis of heavy-duty vehicles in India (Working Paper 2015-4). Retrieved from The
International Council on Clean Transportation website:

http://www.theicct.org/sites/default/files/publications/ICCT_India-HDV-market_20150809.pdf
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Garg first approached ICICI Bank to mobilize funds for buying the trucks. Being a first time
user, the bank was unwilling to provide funds. But Garg‟s insistence and background finally
made them agree to fund five trucks. He could finance the remaining ten trucks through
Hinduja Leyland Finance Limited18, a non-banking financial company19 (NBFC).
The team decided to locate the hub in Pataudi, a town in the Gurugram district of Haryana,
located 26 kms south of Gurugram. Apart from being the southern end traffic catchment for
the NCR, the fuel rates were cheaper. While Kalra focused on developing the Pataudi hub,
Garg and Chaudhary went on a road trip to identify pit stop locations on a lease rental basis.
(Kalra would later reminisce with the author about her journey from Palo Alto (her
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McKinsey location) to Pataudi!) They located the pit stops on the National Highway at
Jaipur, Bhilwara and Kherwara in the state of Rajasthan, and at Vadodara and Vapi in the
state of Gujarat. These pit stops were 210, 455, 700, 960 and 1205 kms respectively from
Pataudi. One of the considerations for these locations was the availability of drivers for their
relay model. During the trip, they also recruited drivers. Subsequently, they recruited
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executives to man their pit stops. The focus on recruitment was those with IIT/IIM
backgrounds.
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The team had given itself a deadline of September 25, 2014, the start of Navaratri20, for their
first trip. However, it took longer for everything to fall in place and they could manage their
first trip from Pataudi to Pune on October 11, 2014. They fulfilled their journey time promise
and thus established the proof of concept.
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Funding and Growth
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The team‟s vision was to achieve growth speedily. Though their first customer was Gati
Limited, who offered them consolidated trips of their Part Truck Load (PTL) business, the
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team felt that initially FTL business was where they could make an impact. Subsequently,
they saw that their proposition also held value for the PTL business and perishable business
through reefer trucks. The team was also clear that the operations would be planned and
supported through a strong IT back bone involving GPS, sensors, back end algorithmic
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optimization and data analytics. This would be a part of their core competence. Towards
this, they started building up a tech team.
Garg and Kalra explored financing of their business ideathrough angel funding. TrucksFirst
raised INR 61.8 crs (USD 9.6 mn) on April 14, 2015 from SAIF partners (Mauritius based
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venture capital company), referred as Series A round.21 SAIF partners typically invested in
the early stages of its portfolio firms in India. Singapore Post and Thomas Netzer, Director
(Travel, Transport and Logistics) at McKinsey also participated in the round. Garg had
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18 Hinduja Leyland Finance Limited is promoted by AL and Hinduja Power Limited. It is India's leading vehicle
finance NBFC according to the ICRA - Retail NBFC and HFC Credit Report, 2016. Retrieved from
http://hindujaleylandfinance.com/index.php/about-us on November 15, 2016
19 Non-banking financial companies are financial institutions that provide banking services without holding a
banking license. These institutions typically are restricted from taking deposits from the public depending on
the jurisdiction. Nonetheless, operations of these institutions are often still covered under a country's banking
regulations. Retrieved from http://www.investopedia.com/terms/n/nbfcs.asp on November 15, 2016
20 Navaratri (meaning nine nights) is one of the most important Hindu festivals. It is celebrated around harvest
time (generally in October) over nine days. It symbolizes the triumph of good over evil. Retrieved from
http://www.bbc.co.uk/religion/religions/hinduism/holydays/navaratri.shtml on November 15, 2016
21 Gupta, B. (2015, May 14). Gurgaon-based logistics services provider TrucksFirst raises $10M from SAIF
Partners. VCCircle. Retrieved from http://www.vccircle.com/news/transportation/2015/05/14/gurgaon-

based-logistics-services-provider-trucksfirst-raises-around on October 27, 2016
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travelled internationally to pitch to these investors. Netzer‟s participation was a

consequence of his hearing about the idea when Garg reached out to McKinsey colleagues.
TrucksFirst utilized this funding in strengthening technology, backend operations and
hiring more staff. Exhibit 2 summarizes Rivigo‟s funding over time.
In early December 2015, Trifecta Capital Advisors (Trifecta), invested an undisclosed

amount in Rivigo. Trifecta had launched only two months back as a venture-debt firm based
out of Gurugram, following the first closure of its maiden fund. Venture debt was becoming
popular amongst entrepreneurs who were denied conventional bank financing and was
viewed more viable than equity, due to its lower cost of capital. Cost of equity ranged from
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24% to 36% while venture debt was available at 15-16%.22 Rivigo was among the three
companies which received funding through Trifecta‟s first investments. Trifecta planned to
lend funds to startups, which had already raised Series A round with an average investment
holding period of 24-36 months. Rahul Khanna, Managing Partner at Trifecta said, “All three
companies represent the best-in-class in their respective categories and are backed by the
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best risk capital investors doing the rounds in India. All of them (startups) have premium
track records and we‟re confident of achieving our target returns…The objective is to back
companies that are beyond the concept stage, and have achieved scale.”23
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With targeted pitches by the executives of Rivigo, markets that valued faster and reliable
delivery started using their services. These included ecommerce, Fast Moving Consumer
Goods (FMCG), automobiles, pharmaceuticals, perishables (as part of a cold chain) and
white goods manufacturers.
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As of December 2015, the company had used its debt funds to buy 550 trucks that serviced
170 unique routes through 18 distinct route types and 40 pit stops across India including
eastern and northeastern parts (generally considered a difficult terrain). Rivigo stayed with
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AL for their entire fleet acquisition. Garg said, “AL was very responsive to our needs, both
in terms of customizing the fleet and providing value added services including maintenance
and driver training.” Exhibit 3 shows the growth of Rivigo in terms of trucks owned, pilots
(Rivigo called drivers as pilots) and milestones achieved. Rivigo developed hubs where
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trucks would be parked after unloading and thus, closing their journey, prior to the
planning and placement for the next loading. At these hubs AL had setup their workshop
for maintenance of the trucks. The hubs were also developing warehouses for the PTL
business. Exhibit 4 gives a map, and listing of the pit stops and hubs.
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On December 17, 2015 Rivigo raised funds by mobilizing INR 200 crs (USD 30 mn) in the
Series B round led by SAIF partners and other investors (names not disclosed). It was
intended for scaling up (about 10 times), establishing IoT, automation and hiring technical
staff over a year‟s time.24 Garg had said, “We‟re thrilled with the faith that SAIF Partners
and other investors have shown in our unique approach to logistics. We‟ll be using the
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22 Gooptu, B. (2015, December 1). Venture-debt firm Trifecta Capital Advisors invests Rs 36 crore in three
startups. The Economic Times. Retrieved from http://economictimes.indiatimes.com/small-
biz/startups/venture-debt-firm-trifecta-capital-advisors-invests-rs-36-crore-in-three-
startups/articleshow/49990079.cms on October 23, 2016
23 Pandita, Ruchi. (2015, December 1). Venture Debt firm Trifecta Capital Advisors invests Rs 36 Cr in three
startups. Knowstartup. Retrieved from http://knowstartup.com/2015/12/trifecta-capital-advisors-36cr/ on

October 28, 2016
24 Vardhan, J. (2015, December 17). Logistics startup Rivigo raises Series B round of $30 million. Yourstory.
Retrieved from https://yourstory.com/2015/12/saif-partners-30-million-into-rivigo/ on October 31, 2016

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proceeds from this round to ramp up our operations.” Rivigo topped the deals in the week
of December 14-20, 2015.
Logistics startups were giving a tough competition to other sectors (home services
marketplace, food tech, analytics, education and healthcare) in raising funds.25 Investors
frustrated with low to no profits after massive funding in ecommerce industry were on the
lookout for logistics startups that engaged newer technological solutions and business
models.26 Deepak Gaur, Managing Director of SAIF Partners, India said, “We look at this
(logistics) sector as a critical factor for the success of India‟s ecommerce industry.
Historically, little capital has been invested in solving logistics problems.”27
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The focus of staff hiring had always been on high quality talent, from premier educational
institutions with experience in related professional organizations. The primary motivation
offered was the opportunity to make a meaningful impact in the road logistics domain.
Rivigo was also nimble in hiring, whenever they saw opportunities. For example, when one
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of the major e-commerce companies delayed its date of joining for offers made at IITs and
IIMs in 2016, Rivigo stepped in on behalf of the e-commerce company to recruit some of
them for positions at Rivigo.
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By April 2016, Rivigo owned 900 trucks, and had 500 employees and signed up with 2000
pilots. All the early planning was done in a small room that they had rented in Gurugram.
As of November 2016, they had grown to occupy all five floors (of 400 square meters each)
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in a modern building and three more in an adjacent building. Chaudhary reflected with the
author that their startup room was smaller in size than their current office bathroom! Within
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18 months of its launch, Rivigo struck deals with big companies like Abbott, Adani Group,
Aditya Birla Group, Havells, Hero MotorCorp, Hindustan Unilever, ITC, Lupin, Nestle and
Reliance Fresh. Rivigo also serviced major ecommerce groups like Amazon and Flipkart.
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Exhibit 5 gives a sample of Rivigo‟s key customers. Rivigo believed in setting up formal
systems for various processes including business development and selling. They did not shy
away from using consultants to help them put such processes in place.
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As given in Exhibit 2, Rivigo raised more debt from two private banks. By October 2016,
they had 1500 trucks, 3000 pilots, 1000 employees, covered 100 cities and serviced 200
customers (Exhibit 3). In November 2016, in the Series C round, they raised their highest
ever single funding from Warburg Pincus.
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SERVICE OPERATIONS AND USE OF IT
Rivigo‟s USP was the uninterrupted movement of its trucks even as pilots rested more often
and could return to their homes in a day‟s time. Garg said, “This creates a huge amount of
value because pilots love it. They are able to come back to their families. Clients love it
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because they get deliveries much faster compared to an environment where truckers have to
stop and rest on the highway.” As the demand grew, Rivigo structured their services into
25 Amberber, E. & Nair, R. P. (2015, December 28). Early-stage deals booming in India, pre-series A deals
dominate December funding. Yourstory. Retrieved from https://yourstory.com/2015/12/december-funding-
roundup/ on October 27, 2016
26 Sachitanand, R. (2016, April 17). With the ecommerce industry set to hit $100 billion by 2020, can logistics
business be far behind? The Economic Times. Retrieved from http://economictimes.indiatimes.com/small-

biz/startups/with-the-ecommerce-industry-set-to-hit-100-billion-by-2020-can-logistics-business-be-far-
behind/articleshow/51859343.cms on October 31, 2016
27 Ibid
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three categories: FTL or Rivigo Prime, PTL or Rivigo Zoom and Cold Chain or Rivigo Green.
As of September 2016, Zoom was available in 100 cities including tier II and III.
Return load management was an important issue for Rivigo. While negotiating with a client
and having assessed the implications on return movement, they proactively sought new
clients who could provide loads for the return direction. If the client for the return direction
was still under consideration/negotiation, they were willing to work through the transport
market. In this market, brokers would enable a possible match for each trip, with clients
seeking movement in the said direction. Otherwise, as a matter of policy, Rivigo worked
with clients directly.
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The pit stop was an important part of their service network, where pilot changeover took
place. There would be two categories of pilots. One based out of the neighboring pit stop
and the other based out of the home pit stop. When a truck came in, priority was accorded to
the waiting neighboring pit stop pilot in the direction of movement. If there were no
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neighboring pit stop pilots, then the home pit stop pilots would be called in advance
through telephone by the pit stop executives (PSE). Pit stops also had a technician to service
breakdowns in the adjacent inter pit stop segments. The changeover time at pit stops had
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been brought down from an initial 10-15 minutes to less than three minutes. At the time of
changeover, pilots were alerted on the nature of cargo, primarily as fragile (through a red
marked envelope) or time sensitive (through a green marked envelope). Exhibit 6 gives
detailed information on the working of a pit stop.
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The company speculated further rapid growth and demand owing to its proprietary
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technology platform and service offering. Gaur of SAIF Partners said, “… We were
particularly impressed by their (Rivigo‟s) smart use of tech and unique operating model
that ensures higher pilot satisfaction, reliability and unprecedented delivery times.” Rivigo
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developed an Application Programming Interface (API), which enabled them to integrate

with the client‟s tracking system and Enterprise Resource Planning application ensuring live
feedback. This facilitated the client‟s inventory planning, and reconciliation of order and
delivery completion. Exhibit 7 shows a screenshot of mobile tracking of the API.
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Rivigo introduced Linear Programming-based Continuous Dispatch (LPCD) service, a

customized client offer for couriers, FTL and PTL segments. This provided continuous
dispatch service charged on a distance based rate system using optimized routes that
incorporated client preference for route planning. This helped achieve higher vehicle
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utilization and lower journey time by aggregating dispatches while maintaining shipment
delivery commitments. At a transaction level, the LPCD service eliminated shipment
reconciliation errors and missing box claims.28 At the planning level, it minimized multiple
transshipments, thus reducing delivery times (up to 50%) and damages (to 0.1%). Exhibit 8
shows the LPCD schematic.
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Rivigo defied delivery limitations in the fruits and vegetables sector as well. Typically,
mango shipments were restricted within a 1500 kms radius to avoid spoilage. Rivigo offered
to connect far-fetched areas like Vijaywada (Andhra Pradesh) to Guwahati in three days for
mango deliveries. Rivigo‟s reefer trucks were equipped with product-wise remote
temperature monitoring systems. A 24x7 control unit that monitored temperature violations
due to breakdown or any other causes made timely interventions possible. This monitoring
28 Industries we serve: Automotive. Retrieved from http://www.rivigo.com/case-studies/24-automotive/22-

breakthrough-innovation-in-auto-oem-supply-chain on October 29, 2016
9 of 35 IIMA/BP0401
gave confidence to the clients, since in most reefer services there was no visibility on how
the pilot maintained the temperature enroute. Rivigo also planned to enable clients to
control the temperature of reefer trucks and cold stores from their location via the central
monitoring desk.
A web application based on Trimble (a company that provided GPS based value added
services) tracked all vehicles on a map from the start to the end of a trip including
warehouse hold time. It created a minute by minute log of running speeds, waiting times,
and the status of the truck. Apart from providing visibility to clients, such data was used to
warn pilots for over speeding and unscheduled stoppages. A placement plan laid out
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specific details of the vehicle to be placed in the next 24 hours including stoppages at client
warehouse or hubs. Rivigo‟s performance database across months and seasons helped
clients predict the number of trucks required at different points of time. Point of delivery
systems and tech-enabled billing enabled speedy checking and approval, making it paper-
free.
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The vehicles were deployed with sensors that checked vitals including fuel consumption,
engine and gearbox components. Pit stop staff had access to real-time truck vitals via the
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centralized technical team for any action to be taken at the pit stop.
To enable use of IT, Rivigo‟s trucks needed customization at the manufacturer‟s end. There
were also physical modifications like the second fuel tank, pilferage avoiding nets on the
N
tank and hidden locks beyond the standard bolt system. The trucks for the Zoom service
included flexible compartments and lashing arrangements for multiple consignees in a
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single truck. Exhibit 9 describes Rivigo‟s fleet and the modifications carried out.
The tech team was organized as a group called Rivigo Labs which developed and managed
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the IoT platform, integrating process automation, data analytics and data science.29 Apart
from applications like API, LPCD and the web application based on Trimble, Rivigo
developed three proprietary algorithms which were patented.
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One algorithm managed fuel efficiency and pilferage by calculating accurate fuel
requirement for a specific trip.30 Factors like ignition on/off situation, vehicle running/stop
condition, and network downtime (when data would not have been collected), were
considered in this algorithm. A centralized fuel desk maintained fuel cost database at
different regions in the country and would authorize refueling of trucks from nearby petrol
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pumps at a pit stop. The fuel desk would select these petrol pumps centrally and make
direct payments. PSEs in turn handed over this information to the truck pilot.
Another algorithm automatically assigned trips to pilots beyond a „first come first served‟
logic. This considered behavioral factors to ensure that most suitable pilots were assigned.
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A third algorithm created three dimensional loading plans to minimize damages to the
products being transported.
29 Rivigo Labs. Retrieved from http://www.rivigo.com/labs on October 29, 2016

10 of 35 IIMA/BP0401
MARKETS SERVICED
Rivigo serviced an array of markets like apparels, automotive, chocolates, couriers and
ecommerce, consumer product goods and industrial, dairy and ice-creams, electricals and
mobile phones, frozen food, fruits and vegetables, and pharmaceuticals. This section is
summarized from Rivigo‟s website where experiences and offer in such markets was
presented,31 with some sourced additions on growth rates.
The apparel industry stood as USD 137 bn in 2016, witnessing a growth from USD 108 bn in
2015. The industry was expected to grow at a Compounded Annual Growth Rate (CAGR) of
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12.84%.32 The industry had increasingly become time sensitive with fashion changes every
three to four months. Typically, delivery time from warehouses to stores took eight to ten
days. Rivigo‟s clients benefitted from services cutting down delivery times by 50 to 70%.
This positively impacted stock availability and sale ability. Further, clients could track their
shipment through Rivigo‟s web platform or mobile application.
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In the automotive industry, channel partners spread across the country would source spares
and parts from OEMs located remotely, taking usually seven to fifteen days for delivery.
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This meant that channel partners had to maintain a higher inventory and sometimes own
warehouses. This also resulted in damages. Low availability of OEM parts, paperwork and
poor accountability resulted in use of spurious products. Service stations located outside
highway routes incurred even higher costs. Auto after parts market was growing into a
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lucrative market offering high returns (25-40%) and was expected to become a USD 15 to 20
bn market in India by 2020. OEM after parts clients also benefitted from tracking and
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visibility options like alerts for upcoming shipments, live tracking of vehicles, log of
completed deliveries and facility to provide electronic proof of delivery. Rivigo shipments
would cost 25-40% of conventional air transfers but with similar journey times.33
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The chocolate industry deliveries were high-value, time-sensitive and required temperature
control for assured quality during transit. Chocolate demand grew with rising income levels
and preference over traditional sweets, but volatile owing to seasonal demand. The industry
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was growing at a CAGR of 15% per annum in 2016 and was expected to witness a CAGR of
around 21% by 2018 34 . These products required temperature of 15-20 degrees Celsius
throughout its supply chain to maintain its shape and quality. Clients were concerned that
reefer truck pilots switched off units to save on fuel costs. Premium chocolates required even
higher quality standards, which were not assured by the logistics providers. With chocolate
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demand reaching tier II and tier III cities, clients incurred higher costs to build more cold
store facilities. With reduced journey time and ability to remotely control temperature across
the supply chain (which they called the closed loop temperature integrity model), Rivigo could
address clients‟ concerns holistically.
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The courier and ecommerce industry introduced fulfillment centers (for collection, sorting
and dispatch of materials) across the country, which would in turn be well connected to
nearby cities (including tier II and tier III) to maximize their reach. Rivigo serviced such
31 Industries we serve. Retrieved from http://www.rivigo.com/industries/ on October 25, 2016

32 Textiles and Apparel, India Brand Equity Foundation: Sectoral Report, January 2016
33 Industries we serve: Automotive. Retrieved from http://rivigo.com/case-studies/24-automotive/22-

34 India Chocolates market expected to cross US $3.2 billion by 2018. TechSci Research. Retrieved from
https://www.techsciresearch.com/news/84-india-chocolates-market-expected-to-cross-us-3-2-billion-by-
2018.html on June 3, 2017
companies for regional line haul requirements through smaller trucks (for example, TATA
ACE of varying lengths like, 14‟, 17‟, 20‟, etc.) using partners, for example, they had one
partner for deliveries in Punjab, Uttar Pradesh and Assam. 35 Rivigo offered milk-route
planning for ecommerce customers, which meant it covered multiple targeted cities in the
region between origin and destination based on delivery schedules for forward and reverse
logistics. Tracking, which was a basic requirement for ecommerce customers, was met
through web and mobile applications (through API as given above). The founder of an
ecommerce company who used their service said, “It‟s not a simple problem to solve and it‟s
not everyone‟s cup of tea, but my business has benefited, from using Rivigo, by atleast 2X
over the last two years, and like mine I am sure many others.”36
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The e-commerce market was expected to reach USD 28 bn by 2019-20, registering a CAGR of
45% over the next four years (2017-20)37.
Clients of seasonal consumer product goods and industrial goods tend to overstock, raising
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their supply costs by about 40% to respond to variable lead times. Unavailability of products
in the peak season affected business. Rivigo connected products from centralized
manufacturing locations to long distance consumption centers. Rivigo claimed to reduce
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client‟s inventory costs equivalent to 15% of logistics cost.38
By 2025, India would rise from the twelfth to the fifth-largest position in the consumer
products market in the world. The market was estimated to grow at CAGR 10.5% and reach
USD 12.5 bn in 2016.39
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A news report read, “The revenue share from the organized dairy segment was expected to
rise to 25% of India's total dairy market by fiscal 2018, up from 19% in fiscal 2015... Even
though the organized dairy segment had been growing at 22% annually for the last five
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fiscal years, it will do even better over the next three years, reported CRISIL... The value
added segment, which includes ice-cream, will witness 22% to 24% CAGR over the next
three years (2016-19).”40 Dairy and ice cream demand was partly affected by wastage in the
supply chain, inducing loss of sales. With faster deliveries and vehicle automation towards
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predictive maintenance, Rivigo attracted such clients. Rivigo offered route optimization
using GPS sensors for milk collection from small farmers and was able to avoid unscheduled
stops during distribution.
Electricals and mobile phones were of high-value and historically moved by air. Multiple
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parties handled the cargo, which resulted in pilferage. Rivigo offered its clients air
35 Industries we serve: Ecommerce. Retrieved from http://www.rivigo.com/case-studies/30-ecommerce/27-

your-trusted-partner-in-path-to-profitability on October 29, 2016
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37 The Economic Times (2016, September 9). Indian e-commerce market could reach $28 billion by FY 2020. The
Economic Times. Retrieved from http://economictimes.indiatimes.com/industry/services/retail/indian-e-

commerce-market-could-reach-28-billion-by-fy-2020-kotak-institutional-equities/articleshow/54249855.cms on
June 3, 2017
38 Industries we serve: Industrial and CPG. Retrieved from http://www.rivigo.com/case-studies/27-industrial-
and-cpg/44-accelerating-sales-of-seasonal-products on October 29, 2016

39 Consumer Durables, India Equity Foundation: Sectoral Report, May 2016
40 Yu, D. (2015, December 23). India's organized dairy sector anticipates rapid growth in the next three years.
Dairy Reporter. Retrieved from http://www.dairyreporter.com/Markets/India-s-organized-dairy-sector-

anticipates-rapid-growth-in-next-three-years on June 3, 2017
equivalent deliveries (end-to-end transit time not exceeding what it would be by air) for
routes less than 1500 kms like Delhi – Mumbai, Delhi – Indore, Delhi – Ahmedabad,
Mumbai – Bangalore and Delhi – Patna. Even if more than 1500 kms, Rivigo claimed to offer
air equivalent service for those routes not well-connected by air, like Hyderabad –
Ahmedabad, Surat – Bangalore and Delhi – Guwahati. For routes above 1500 kms and well
connected by air, like Delhi – Bangalore and Delhi – Chennai, Rivigo provided a transit time
which was one day greater than air. It offered tracking at the bag level.
In the frozen food industry, cold storage costs accounted for about 50% of total logistics
cost. Lower lead times helped clients respond to sudden changes in demand and lowered
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risk of expired stocks. With pilots changing every six hours and having no fuel based
incentives, it was perceived that they had no incentive to switch off the reefer unit, as
compared to the traditional trucking industry where drivers would try to increase earnings
by saving on fuel expenses. Frozen food industry was steadily expanding in the country. It
grew at a double digit growth rate, reaching a size of about INR 19 bn in 2012. The frozen
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food market in India was projected to grow at CAGR of 3% until 2022.41 Rivigo‟s service was
expected to result in about 30 to 50% savings in the total logistics cost for clients.
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India was the second-largest producer of fruits and vegetables in the world. In 2015-16, the
total production in horticulture was estimated at 282.5 mn tonnes. 42 The fruits and
vegetables sector faced post-harvest value loss to the extent of 30 to 40% and suffered from
lowered quality when it reached its end consumers. Rivigo introduced a combination of cold
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storages and mobile pre-cooling chambers (taken on lease) for producers at points of
harvest, which prevented early decay of fruits and vegetables. Certain fruits and vegetables
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grew only at specific locations in the country and had low market reach. Rivigo addressed
the first and last mile connectivity issues by partnering with traders, brokers, commodity
agents and rail/surface transport agents for aggregation. This meant that clients with PTL
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requirements (for example, 500 kgs) in reefer trucks could be serviced.
The Indian pharmaceuticals market witnessed growth at a CAGR of 5.64% during 2011-16,
with the market increasing from USD 20.95 bn in 2011 to USD 27.57 bn in 2016. It was
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further expected to expand at a CAGR of 12.89% over 2015-20 to reach USD 55 bn.43 The
underlying requirement of the pharma sector clients was unbroken cold chain network.
Vaccines, insulin and biologics comprised about 10% of market share and required stringent
temperature management. Certain pharma companies moved 100% of their products in
controlled temperature. Export drugs also required temperature control. Drugs transported
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via a broken cold chain lost their potency, and were rendered unusable. Rivigo was in a
position to service such clients through their reefer services.
PILOT ENGAGEMENT
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Since one of the fundamental premises of this venture was to offer a better lifestyle to
drivers, Rivigo actively engaged and sought feedback from their pilots. During Diwali,
Rivigo executives met pilots at their home with sweets. Chaudhary, who led the pilot
engagement activity, picked up the following sentiments while talking to various people.
41 FnB News (2016, March 13). Frozen food market in India projected to grow at CAGR of 3% until 2022. Food &
Beverage News. Retrieved from http://www.fnbnews.com/Analysis/frozen-food-market-in-india-projected-to-
grow-at-cagr-of-3-until-2022-40254 on June 3, 2017
42 Food Processing, India Brand Equity Foundation: Sectoral Report, April 2016
43 Pharmaceuticals, India Brand Equity Foundation: Sectoral Report, April 2016
A son: “I feel that my father is now going for a duty in an office.”

A mother: “I now feel comfortable getting my son married.”
A pilot: “Given my steady and increased salary, I have now obtained a loan to buy a
second hand car.”
A pilot: “In my earlier job, my wife used to constantly pressurize me to leave my job
since I could not pay the expected attention to my family members. Given my
current work lifestyle, my wife will never let me leave Rivigo.”
A motorcycle dealer in Kherwara: “Recently, our largest buyers of motorcycles have been
Rivigo pilots.”
A freshly recruited pilot from near Delhi: “I never had time to build memories of my home.
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If at all, the only memories that lingered were the riots in 1984 before I took up
truck driving. Now I would have time to watch and absorb the progress in my
hometown.”
Rivigo had tied up with Axis Bank for salaries to be deposited directly to the pilots‟
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accounts. This enabled many of the pilots to get home loans from the bank.
Rivigo set up various processes for recruitment, training and monitoring of pilots. For
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recruitment of pilots, a requirement would be announced locally at a pit stop. The PSE
would shortlist applicants based on age (preferably between 30 and 40) and experience (five
years). Area Managers (AMs) would send these shortlisted applicants for pilot engagement
test (and training) conducted by the headquarters before they joined duty. There had been
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no turnover of pilots so far, except when Rivigo had them leave based on behavior
(primarily related to safety) after due warnings.
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Rivigo viewed focus on safety as critical to their business.44 They aimed to achieve seven
sigma level of safety, which would imply no more than one accident per 10 mn km run.45
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Rivigo viewed their pilots as critical for safety. Detailed pilot engagement process (Exhibit
10) and safety checks (Exhibit 11) were developed. Under a separate contract with AL, two
technicians and a Driver Training Inspector were made available at the pit stops.
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FUTURE PLANS
In the fiscal year 2016-17, the company targeted to add 500 employees, many of whom had
already been recruited. Exhibit 12 provides the core Rivigo top management team and
Board of Directors. The staff was organized into the tech team, business development,
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planning, vehicle monitoring, trip monitoring, pilot engagement, hub functionaries and pit
stop functionaries.
During the year, they projected to spend USD 80-100 mn in scaling up the network of hubs
and pit stops (from 40 to 200) and owning more trucks (from 1500 to 2500-3000).46 While
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Rivigo intended to own majority of its truck fleet, they wanted to experiment with a
marginal contribution to the fleet by aggregators. Garg said, “We have done the math, and
44 Dashi, D. (2016, April 21). The total road deaths were 146,000 in 2015, implying about 400 per day. 400 road
deaths per day in India; up 5% to 1.46 lakh in 2015. The Times of India. Retrieved from
http://timesofindia.indiatimes.com/india/400-road-deaths-per-day-in-India-up-5-to-1-46-lakh-in-
2015/articleshow/51919213.cms on November 20, 2016
45 Safety: Safety checks. Retrieved from http://www.rivigo.com/safety on November 5, 2016
46 Gooptu, B. (2016, April 25). Rivigo gearing up to spend $100 million in new fiscal to beat rivals. The Economic
Times. Retrieved from http://economictimes.indiatimes.com/small-biz/startups/rivigo-gearing-up-to-spend-

100-million-in-new-fiscal-to-beat-rivals/articleshow/51972028.cms on November 3, 2016
there is money in the bank. We will grow by 3X-4X this year. Unlike most others, we have
access to debt funding with banks. That‟s the beauty of our business model.”47 Garg targeted
a revenue run-rate of USD 100 mn within the second quarter of FY 2016-17.
Rivigo was working with Wabco (Belgium based supplier of technologies and services to
commercial vehicles) to experiment with anti-collision devices to see how they worked on
Indian roads. The company installed these devices on a few trucks for trial runs on the
Delhi-Mumbai route.48
Rivigo was very bullish about their market. They saw opportunities in white goods and cold
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chain. (The company had plans to spend INR 700 cr till 2021 to expand to 2500 refrigerated
trucks.49) They also saw potential in express logistics services which would support the
growth of manufacturing, ecommerce and retail sectors. The overall logistics market was
projected to reach USD 302 bn mark by 2020.50 They expected the implementation of Goods
and Service Tax (GST) to have a significant impact in improving logistics. Client warehouse
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locations and sizes would be restructured. The downtime for vehicles was expected to
reduce as the GST would eliminate the need for filing of waybills, entry permits and
compliances under local tax law. 51 This would make the overall logistics market more
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competitive.
Rivigo competed with a number of established logistics players such as Gati, Blue Dart and
TCI Group among others, as well as newer entrants in the aggregator space such as
BlackBuck (Exhibit 13).
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Garg said, “We are completely shifting away from the way things have worked for so many
decades. Once you make that shift, you have to also prove the model for the entire
ecosystem… We were the largest buyers for trucks last year, and have been this year as well.
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Till the extent we can establish and grow the ecosystem to a level, where we are confident
that the same level of service can be achieved through the aggregation model, we will scale
that.”52 Garg was thus open to the aggregator service model, though after the appropriate
ecosystem was created. Such ecosystem would include a significant improvement in pilot
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lifestyle, social security and compensation.

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47 Ibid
48 Singh, S. R. (2016, April 21). Tech-driven logistics firm Rivigo on road to be largest platform by 2020. The Hindu
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Business Line. Retrieved from http://www.thehindubusinessline.com/economy/techdriven-logistics-firm-

rivigo-on-road-to-be-largest-platform-by-2020/article8505405.ece on November 6, 2016
49 Press Trust of India. (2016, September 25). Rivigo to scale up reefer trucks fleet to 2,500 by 2021. Business
Standard. Retrieved from http://www.business-standard.com/article/pti-stories/rivigo-to-scale-up-reefer-

trucks-fleet-to-2-500-by-2021-116092500178_1.html on November 7, 2016
50 Shu, C. (2015, December 18). Rivigo, An Indian Logistics Startup That Uses Tech to Ensure Driver Safety,
Raises $30M Series B. Techcrunch. Retrieved from https://techcrunch.com/2015/12/18/rivigo/ on November

8, 2016
51 Pai, V. (2016, November 7). Logistics provider Rivigo secures $75M from Warburg Pincus. Medianama.
Retrieved from http://www.medianama.com/2016/11/223-rivigo-funding-75m/ on November 11, 2016
52 Gooptu, B. (2016, April 25). Rivigo gearing up to spend $100 million in new fiscal to beat rivals. ET Tech.
Retrieved from http://tech.economictimes.indiatimes.com/news/startups/rivigo-gearing-up-to-spend-100-

million-in-new-fiscal-to-beat-rivals/51973194 on November 4, 2016
Reflecting on Garg‟s vision and leadership, Gaur of SAIF Partners said, “Deepak Garg has
the extremely rare combination of a grand vision, execution excellence, and business
foresight with deep care for personal relationships.”53
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Exhibit 1
Average Journey Times
From NCR/Delhi to Hours

54 55
TCI Report (2014-15) Rivigo
Mumbai 52 26
Bangalore 88 44
Chennai 95 48
Kolkata 83 36
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Guwahati 122 46
O
C
N
O
TI
EC
SP
IN
54 Transport Corporation of India Limited and Indian Institute of Management, Calcutta (2016). Operational
efficiency of freight transportation by road in India: 2014-15 (3rd Edition). Gurgaon: Transport Corporation of India
Limited
55 Industries we serve: Industrial and CPG. Retrieved from http://www.rivigo.com/case-studies/27-industrial-
and-cpg/44-accelerating-sales-of-seasonal-products on October 20, 2016

Exhibit 2
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Funding Details
Sr. Investor Investor Type Country Funding Nature Utilization Date
No.
1 Garg, Kalra and friends Starting with INR Promoter August 11,
34 lakhs and going Equity 2014 and later
up to INR 1 cr
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2 ICICI Private Bank India About INR 2 cr Debt September/
3 Hinduja Leyland Non-Banking Financial India Debt October, 2014
Company (NBFC)
C
4 SAIF Partners Private Equity Firm Mauritius INR 61.8 cr Equity Technology, backend April 14, 2015
Singapore Post Corporation (Public Singapore (USD 9.6 mn) operations and hiring
56
Postal Licensee) Series A
N
Thomas Netzer (McKinsey‟s travel, Angel Investor
transport and logistics director) (Individual)
57
5 Trifecta Capital Advisors Venture Debt Firm India Debt December 1,
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2015
6 SAIF Partners Private Equity Firm Mauritius INR 200 cr Equity Expand in operations December 17,
(USD 30 mn) and technology 2015
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(introduce IoT)
58
Series B
7 Kotak and HDFC Bank Private Bank India INR 300-400 cr Debt
8 Warburg Pincus LLC Private Equity Firm USA INR 500 cr Equity Scale up technology November 6,
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(USD 75 mn) (IoT, automation and 2016
59
Series C data sciences) and
hiring
56 Gupta, B. (2015, May 14). Gurgaon-based logistics services provider TrucksFirst raises $10M from SAIF Partners. VCCircle. Retrieved from
http://www.vccircle.com/news/transportation/2015/05/14/gurgaon-based-logistics-services-provider-trucksfirst-raises-around on October 22, 2016
SP
57 Pandita, R. (2015, December 1). The amount which has been invested by Trifecta was not disclosed, but they announced that they were going to invest between Rs 5-20
crores for Rivigo. Venture Debt firm Trifecta Capital Advisors invests Rs 36 Cr in three startups. Knowstartup. Retrieved from http://knowstartup.com/2015/12/trifecta-
capital-advisors-36cr/ on October 30, 2016
58 Verma, A. (2015, December 17). Logistics startup Rivigo raises $30M from SAIF Partners, others. Techcircle. Retrieved from
http://techcircle.vccircle.com/2015/12/17/logistics-startup-rivigo-raises-30m-from-saif-partners-others/ on October 30, 2016
59 Gooptu, B. & Shrivastava, A. (2016, November 7). Rivigo raises $75 million in Series C funding from Warburg Pincus. The Economic Times. Retrieved from
IN
http://economictimes.indiatimes.com/small-biz/money/rivigo-raises-75-million-in-series-c-funding-from-warburg-pincus/articleshow/55282791.cms on November 16,

2016
Exhibit 3
Growth
60
Sr. No. Time Trucks Pilots Milestones
1 October 2014 15 30
61
2 December 2015 550 1000 18 route types, 170 unique routes, 40 pit
stops
62
3 April-May 2016 800-1000 1500-2000 500 employees, 200 unique routes,
63 64
40+ pit stops, 250 reefer trucks
4 September 2016 1000-1200 2000-2500
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65
66
5 October 2016 1500 3000 1000 employees (50 in the technical team),
100 cities, 200 customers
6 April 2017 2700 4500 Order in process for 1200 trucks
67
(Planned)
O
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N
O
TI
EC
60 Discussion with Rivigo

61 Verma, A. (2015, December 17). Logistics startup Rivigo raises $30M from SAIF Partners, others. Techcircle.
Retrieved from http://techcircle.vccircle.com/2015/12/17/logistics-startup-rivigo-raises-30m-from-saif-
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partners-others/ on October 27, 2016

62 Singh, S. R. (2016, April 21). Tech-driven logistics firm Rivigo on road to be largest platform by 2020. The Hindu
Business Line. Retrieved from http://www.thehindubusinessline.com/economy/techdriven-logistics-firm-

rivigo-on-road-to-be-largest-platform-by-2020/article8505405.ece on October 27, 2016
63 Press Trust of India. (2016, May 22). Rivigo aims to increase headcount by 500 this fiscal. The Economic Times.
Retrieved from http://economictimes.indiatimes.com/small-biz/startups/rivigo-aims-to-increase-headcount-

IN
by-500-this-fiscal/articleshow/52386314.cms on October 27, 2016


trucks-fleet-to-2-500-by-2021-116092500178_1.html on October 27, 2016
65 Khedekar, N. (2016, August 5). Rivigo, a tech-enabled logistics startup bets big on driver relay system for faster
delivery. Tech2. Retrieved from http://tech.firstpost.com/news-analysis/rivigo-a-tech-enabled-logistics-

startup-bets-big-on-driver-relay-system-for-faster-delivery-328496.html on October 27, 2016

67 Press Trust of India. (2016, August 11). Logistics Startup Rivigo placed order for 1200 Ahok Leyland trucks;
Business Standard Retrieved from http://www.business-standard.com/article/companies/logistics-

start-up-rivigo-orders-1-200-ashok-leyland-trucks-116081100944_1.html on October 27, 2016
Exhibit 4
68
Pit Stop and Hub Locations
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C
69
List of Pit Stops
Sr. No. State Pit stop Sr. No. State Pit stop
1
2
Andhra Pradesh
Andhra Pradesh
Vishakhapatnam
Ongole
N 21
22
Maharashtra
Maharashtra
Bhiwandi
Dhule
3 Andhra Pradesh Vijayawada 23 Maharashtra Malkapur
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4 Assam Goalpara 24 Maharashtra Nagpur
5 Assam Guwahati 25 Maharashtra Nanded
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6 Bihar Patna 26 Maharashtra Solapur

7 Bihar Bhagalpur 27 Odisha Balasore
8 Bihar Muzaffarpur 28 Odisha Berhampur
9 Gujarat Surat 29 Rajasthan Bhilwara
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10 Gujarat Vadodara 30 Rajasthan Jaipur

11 Gujarat Vapi 31 Rajasthan Kherwara
12 Haryana Jamalpur 32 Telangana Adilabad
13 Karnataka Belgaum 33 Telangana Hyderabad
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14 Karnataka Bengaluru 34 Uttar Pradesh Agra

15 Karnataka Chitradurga 35 Uttar Pradesh Lucknow
16 Madhya Pradesh Indore 36 Uttar Pradesh Gorakhpur
17 Madhya Pradesh Narsinghpur 37 Uttar Pradesh Kanpur
18 Madhya Pradesh Pitampura 38 Uttar Pradesh Varanasi
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19 Maharashtra Pune 39 West Bengal Kolkata

20 Maharashtra Aurangabad 40 West Bengal Siliguri
68 Rivigo‟s Pit stop. Retrieved from https://www.scribblemaps.com/maps/view/Rivigos_Pit_stop/rivigo on

November 15, 2016
69 Derived from the map
70
List of Hubs
Sr. No. Hub State Operational from
1 Pataudi Haryana October 2014
2 Pune Maharashtra October 2014
3 Bhiwandi Maharashtra November 2014
4 Bengaluru Karnataka February 2015
5 Ahmedabad Gujarat April 2015
6 Hyderabad Telangana June 2015
7 Kolkata West Bengal July 2015
8 Chennai Tamil Nadu July 2015
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9 Guwahati Assam August 2015
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Exhibit 5
71 72 73 74
Sample Key Customers
C
Sr. No. Category Customers
1 Automotive Hero MotorCorp
2 Automotive MRF
3 Ecommerce Amazon
4 Ecommerce
N Flipkart
5 Electricals Havells
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6 Electricals Voltas
7 Express distribution Gati
8 FMCG Godrej & Boyce
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9 FMCG Haldrirams
10 FMCG Hindustan Unilever
11 FMCG ITC
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12 FMCG Jockey
13 Food processing Nestle
14 Perishables Adani Group
15 Perishables Aditya Birla Group
16 Perishables Reliance Fresh
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17 Pharmaceutical Abbott
18 Pharmaceutical Lupin
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trucks-fleet-to-2-500-by-2021-116092500178_1.html on November 3, 2016
72 Press Trust of India. (2016, May 18). Logistics firm Rivigo to treble truck fleet to 3,000. The Times of India.
Retrieved from http://timesofindia.indiatimes.com/business/india-business/Logistics-firm-Rivigo-to-treble-

truck-fleet-to-3000/articleshow/52325102.cms on November 3, 2016
73 Gooptu, B. (2016, April 25). Rivigo gearing up to spend $100 million in new fiscal to beat rivals. ET Tech.
Retrieved from http://tech.economictimes.indiatimes.com/news/startups/rivigo-gearing-up-to-spend-100-

million-in-new-fiscal-to-beat-rivals/51973194 on November 3, 2016
Exhibit 6
75
Vadodara Pit Stop Visit
A loaded reefer truck arrived from Kherwara (Rajasthan) at 8:57 a.m. The pilot from the truck reported
to the PSE and closed his account (including for payment at state borders). Another pilot, who had
been given instructions in a green coloured envelope (signifying time sensitivity) for the outward
journey to Vapi (Gujarat), inspected the truck for horn, seat, tools in the truck, seals (in the rear) and
reefer unit temperature before taking over. The truck left at 8:59 a.m.
About 80 trucks passed through Vadodara pit stop daily, with roughly 40 movements in the north and
south directions. Typically, a pilot from Kherwara would make a round trip to Vadodara with a waiting
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period of about two to three hours and travel time of four hours and 15 minutes (one-way). This would
mean a pilot could return to his home in 12 hours. However, depending on the flow of traffic, this was
not always possible. On the day of visit, at 9:00 a.m., 10 pilots from Kherwara and three pilots from
Vadodara were waiting in anticipation of trips. When the waiting period exceeded eight hours
(considering the planned deliveries in next 12 hours), the PSE could authorize dry runs, which meant
that additional home-bound pilots would travel as passengers. The table below shows arrival and
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departure times (First In First Out principle) of pilots from Kherwara at 11:00 a.m.:
Sr. No. Name Arrival time Departure time
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1 Bipin 01:25 a.m. 11:00 a.m.
2 Kantilal 01:25 a.m. Waiting
3 Hakar 01:40 a.m. Waiting
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4 Kailash 02:05 a.m. Waiting
5 Jeevanlal 03:25 a.m. Waiting
6 Javed 05:15 a.m. Waiting
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7 Rajendra 08:55 a.m. Waiting
8 Mahendra 09:30 a.m. Waiting
9 Ramesh 10:00 a.m. Waiting
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Pilot instruction envelopes were colour coded as green for time-sensitive (express) and red for
product-sensitive (fragile) deliveries as shown below.
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SP
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75 Visit by authors, October 28, 2016

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A schematic of the facilities at the pit stop is given below. Typically a pit stop would have the AM‟s
office, PSE‟s office (where local pilot training or engagement was also conducted), washrooms,
resting space, storage for toolkits and spares, and parking facilities (for trucks and staff). First-aid kits
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and inverters were also available. In the event of an accident, the AM would reach the location at the
earliest possible time. His first responsibility was to understand pilot‟s condition and provide required
medical attention. The AM also ensured that vehicle and delivery documents were in order and
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clarified procedural queries from border functionaries to minimize time spent at crossing the borders.
A centralized team would send necessary vehicle documents to the PSE, if they expired in transit
.
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Car parking for staff
AM office PSE office Storage and

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washrooms on first floor
Extra space Resting

2-wheeler space
(truck parking)
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parking for staff
Service Road
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NH 48
In view of growth in traffic, the existing pit stop would be moved to a new location. This new facility
had more parking and office space, where more staff could be accommodated. This facility had two
resting rooms for pilots (for overnight stay) and restrooms. Pit stops were typically leased for 11
months.
Each pit stop had the following staff. The AM was responsible for four pit stops (Kherwara, Vadodara,
Surat and Vapi) and one hub (Ahmedabad). Four PSEs worked in three shifts, including for leave
periods. The AM reported to a Territory Supervisor at the regional level, who then reported to the core
team (top management).
Driver Training
Area Manager
Inspector
Team Leader Technicians
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Pit Stop Executive Pit Stop Executive Pit Stop Executive Pit Stop Executive
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PSE was responsible for daily scheduling of trucks at the pit stop. One tablet was provided at every pit
stop for accessing the web application. The vitals from sensors were maintained in a database for
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performance of vehicles and pilots. The screenshot of the application for scheduling and trip details
for a truck are shown below.
N
O
TI
EC
SP
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O
C
N
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Exhibit 7
76
Mobile Tracking Application
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O
C
N
O
TI
EC
SP
IN
76 Industries we serve: Apparels. Retrieved from http://www.rivigo.com/case-studies/25-apparels/25-making-

fashion-last-long on October 29, 2016
Exhibit 8
77
LPCD Schematic
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C
N
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77 Industries we serve: Automotive. Retrieved from http://www.rivigo.com/case-studies/24-automotive/22-

Exhibit 9
78
Fleet and Modifications
Rivigo‟s entire fleet comprised of the following AL truck models. The trucks procured from AL were
modified/ fitted with sensors to support Rivigo‟s algorithms. The body was made by Ekta Unity,
Pataudi (Haryana).
Model No. Type Chassis Carrying Expected Reefer

length capacity fuel efficiency unit
feet Tons kmpl
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2516 Multi axle 32 25.0 4.5 Yes
Boss 1212 Single axle 22 12.9 6.5 No
Customized Multi axle 24 25.0 Yes
Following physical changes were made:
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1. Two fuel tanks (each 350 liters capacity and covered by nets to control pilferage)
2. Hidden locks
3. Flexible compartments and lashing arrangements
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Following sensors were installed:
1. Fuel sensors (real-time fuel level)

2.
3.
Engine and gearbox sensors
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GPS device for real-time tracking and visibility through web and mobile applications
4. Dynamometers to detect the frequency of braking (also called speed volatility). It also
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detected over speeding (speed limits covered in exhibit 6) and mileage
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Exhibit 10
Pilot Engagement
Each pilot was contracted for a period of two years at a fixed salary. They were entitled for additional
performance based incentives which were for (1) achieving desired mileage, (2) following safety
checks, and (3) least unscheduled stoppages. Additionally, they were paid for time at client
warehouse for loading or unloading. On the other hand, the pilots were expected to have a valid
„Transport License‟. The pilots were issued a toolkit bag and uniforms. The salary was directly
credited in their bank accounts.
All pilots at Rivigo were insured for permanent disability or death. The pilots were mandatorily insured
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under the Prime Ministers Insurance Scheme for life insurance cover and for medical insurance. The
medical insurance included hospitalization and provided cover to the pilots‟ families.
79
The company outlined the following processes for pilot safety. The pilots were issued warnings
when they exceeded the speed limit for 5% of the journey duration. The pilot‟s contract was
terminated after two such warnings.
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“Focus on efficiency, not speed
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Drivers are trained by explaining to give emphasis on the need for eliminating unscheduled stoppages
and inefficiency in driving rather than speeding to meet turn-around time.
Driver safety trainings N

While selection process, a half day safety training conducted by Driver Training Institutes. Safety
weeks have been organized quarterly with engaging content, interactive training sessions and
competitions focused on importance of driving safety.
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Performance dialogues
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Monthly performance dialogues with drivers covering their performance on various safety metrics
such as average speed, over-speeding and speed volatility.
‘Safety Sujhaav’ sessions

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Every fortnight workshops (e.g. seat belt awareness) have been organized for safety.
Rewards & recognition
Most responsible drivers adhering to high standards on safety metrics receive regular rewards &
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recognition to reinforce culture.
Drug & alcohol testing
Comprehensive drug & alcohol testing conducted before the start of every trip at the time of handing
over the vehicle to the driver to ensure the safety.
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Safety pledge
A safety pledge before taking a driving duty has been given.”
79 Safety: Driver safety. Retrieved from http://www.rivigo.com/safety#driver-safety on October 26, 2016

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The company outlined the following checks focused on pilot safety :
“Performance based incentive model
Driver incentive is linked to his efficiency and not turn-around times. Smooth and controlled driving is
incentivized up to 60% of the base payout.
Driver selection process
Automated past driving history check and personality tests to judge risk taking potential, are an
integral part of the driver selection process.
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Fatigue management
Auto-allocation of driving duties ensuring drive time is 4-6 hours and adequate cooling time has been
provided between trips.
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Per trip feedback
Feedback is provided at the end of every trip based on outliers in trip performance like over-speeding,
speed volatility, etc. This encourages pilot to drive responsibly promoting good driving behaviour and
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dissuading rash driving.
Driver app
Driver can check past performance history of his duties and his improvement over various metrics. He
is encouraged to improve over them and alerted to any consistent decrease.
N
Rewards & recognition
O
Most responsible drivers adhering to high standards on safety metrics receive regular rewards &
recognition to reinforce culture.”
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EC
SP
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80 Safety. Retrieved from http://www.rivigo.com/safety on October 26, 2016

Exhibit 11
Fleet Safety Checks

81
The company outlined following safety checks for fleet operations :
 “Timely pre inspection checks

Pre inspection at the start of each trip to ensure truck is in a safe condition to ply. On-time
scheduled maintenance after running fixed kilometres.
 Tyre replacements on regular intervals

All tyres are regularly monitored by our partner vendors and are changed specific time
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intervals.
 24x7 alert based vitals monitoring

Round the clock vitals monitoring of airbrake pressure, engine oil pressure, coolant level,
temperature to ensure ideal driving conditions. Any alerts or exceptions handled on priority
through our 24x7 control tower.
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 Speed governors
Speed governors installed in entire fleet to limit speed in accordance with government
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regulation (as per Road Transport and Highways Ministry's 2015 amendment to the Central
Motor Vehicles Rules, 1989).
 Autonomous braking systems

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Autonomous braking systems are installed to ensure truck halts in case obstacles are sensed
within braking distance.

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Trucks are always within 2-3 hours from nearest help
Having pit stops at regular intervals of around 250 kms, helps us to provide any required
assistance to every vehicle at any points of time. All the pit stops are supported by 24X7
maintenance teams.”
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SP
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81 Safety: Fleet safety. Retrieved from http://www.rivigo.com/safety#fleet-safety on October 26, 2016

Exhibit 12
Core Team
82
Top Management
Sr. Name Designation or Portfolio Qualification Ex-employer

No.
1 Deepak Garg Founder IIM Lucknow, McKinsey
IIT Kanpur
2 Gazal Kalra Co-Founder Harvard (MPA), McKinsey
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Stanford (MBA),
IIT Delhi
3 Abhishek Mohan Rivigo Prime, E-Commerce IIM Banglore, McKinsey
& Courier Solutions IIT Roorkee
4 Bablu Tewari Rivigo Zoom GATI
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5 Gaurav Punia Operations Planning & ISB McKinsey
Control
6 Hemant Technology IIM Bangalore, Adobe
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Khandelwal IIT Delhi
7 Kshitij Vijayvargiya Rivigo Zoom McKinsey, JP
Morgan Chase
8 Major Prashant Operations Ex-SVP of Ops,
Kapur
N HSBC India, Ex-
Indian Army
Officer
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9 Piyush Kakkad Finance CA, CS Vodafone
10 Ranju Goyal Legal & Corporate Affairs CS, Law (DU), InoxWind, DLF,
SRCC IB Power
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11 Sambit Sathapathy Rivigo Green McKinsey,

Abbott, ITC
12 Sanjeev Sharma Rivigo Prime, Auto & ISB Accenture, NTPC
Industrials
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13 Saurabh Field Engagement IIM Calcutta Railways,

Chaudhary McKinsey, Adani
14 Vinay Dhanani Operations (North & IIT Delhi ITC
Central Zone)
SP
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82 About us: Team. Retrieved from http://www.rivigo.com/about-us/team on November 10, 2016

Board of Directors
Sr. No. Name Company Position

1 Deepak Garg Rivigo Founder
2 Gazal Kalra Rivigo Co-Founder
83
3 Deepak Gaur SAIF Partners India Limited Managing Director
84
4 Mukesh Bansal Myntra Founder
(as independent director)
85
5 Viraj Sawhney Warburg Pincus Managing Director
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84 Chanchani, M. (2016, October 5). Myntra founder Mukesh Bansal joins the board of Swiggy & Rivigo. ET Tech.
Retrieved from http://tech.economictimes.indiatimes.com/news/startups/myntra-founder-mukesh-bansal-
joins-the-board-of-swiggy-rivigo/54687730 on November 10, 2016
85 Gooptu, B. and Shrivastava, A. (2016, November 7). Rivigo raises $75 million in Series C funding from
Warburg Pincus, The Economic Times. Retrieved from http://economictimes.indiatimes.com/small-

biz/money/rivigo-raises-75-million-in-series-c-funding-from-warburg-pincus/articleshow/55282791.cms on
November 10, 2016
Exhibit 13
Major Market Players
Trucking was critical to freight logistics in India. Freight carried by trucks accounted for nearly 60% of
the modal share. According to the report “Logistics Market in India 2015-2020” by market
researcher Novonous, the entire logistics industry in India was pegged at USD 300 bn and was
expected to grow at a CAGR of 12.17% by 2020.The exhibit gives a brief description of some of the
market players, besides Rivigo.
86
1. Transport Corporation of India (TCI)
Transport Corporation of India, with revenues over INR 2,900 cr, was India‟s leading integrated
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multi-modal logistics and supply chain solutions provider. Incorporated in 1958 as a “One Man,
One Truck, One Office” company, TCI progressed within its division both internally and externally
across boundaries to serve businesses among various industry verticals by being an intrinsic part
of the customers‟ logistics process. It was equipped with highly advanced modern technology and
innovative business solutions. The corporation was composed of 6 special divisions catering to
the various needs of logistics namely: TCI Freight, TCI Express, TCI Supply Chain Solution, TCI
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Global, TCI Seaways and TCI Foundation. They had an extensive network of 1,400+ company
owned offices, 11 mn sq ft of warehousing space and a strong team of 6,000+ trained employees.
C
87
2. BlueDart
Formed in 1983, they were South Asia's premier courier and integrated express package
Distribution Company. They had an extensive domestic network covering over 35,000 locations,
and serviced more than 220 countries and territories worldwide through their group company
DHL. Headquartered at Mumbai, it employed over 10,804 people and earned revenue of INR
2,553 cr. As of November 2016, it owned 9,673 vehicles.
N
88
3. Gati
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Gati, founded in 1989, was India‟s pioneer in Express Distribution and supply chain solutions, with
a strong presence in Asia Pacific region and SAARC countries, along with an extensive network
across India providing timely deliveries to 19,000 pin codes, covering 672 out of 676 districts in
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India. Gati‟s integrated and IT backed multi modal network of air, road and rail coupled with pan
India warehousing facilities, allowed them to provide customized supply chain solutions to
customers across industries. With an annual turnover of INR 1527.3 cr, it operated a fleet of more
than 5,000 vehicles and employed more than 6,000 young workforce. It was equipped with over
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600 offices and 3 mn sq ft of warehousing capacity.
In 2015, several startups emerged in the inter-city transportation aggregator space such as
Blackbuck, 4TiGo and Truckola. Unlike Rivigo, these companies followed an “asset-light” model i.e.,
they did not own any trucks.
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1. BlackBuck
Keeping technology at the core, BlackBuck, founded in April 2015, aimed to redefine the logistics
landscape of India, making it reliable and efficient. Their comprehensive approach to problems
created an impact on the entire ecosystem of transportation, which stitched across a large
number of livelihoods. BlackBuck worked with over 150 B2B clients from across 250 locations in
89
India. Their motto was “Making Freight Simple & Effective.” Starting with 10,000 trucks in
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December 2015 to operating 50,000 trucks in May 2016 to further expecting to work with over
100,000 trucks in 2017, BlackBuck claimed to serve customers who order close to 20,000 trucks
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a day to small businesses that order around 3 trucks a month.
86 About Us: TCI 360 degrees. Retrieved from https://www.tcil.com/tcil/tci360.html on June 3, 2017
87 Corporate Profile: Fact sheet. Retrieved from https://www.bluedart.com/aboutus.html on June 3, 2017
88 About Us: Gati Profile. Retrieved from http://www.gati.com/about-us/gati-profile/ on June 3, 2017
89 About Us: Blackbuck. Retrieved from https://www.blackbuck.com/ on June 3, 2017
90 Ghosh, A. (2016, June 8). BlackBuck, along with rival Rivigo, are changing India‟s road transport in their own
data-driven ways. Deal Street Asia. Retrieved from https://www.dealstreetasia.com/stories/blackbuck-rivigo-

43456/ on June 19,2017
2. Truckola
Truckola was a technology focused cargo transportation service company founded in September
2015 that aimed to revolutionize the way transportation worked. They provided a full range of
transportation services to clients using best-in-class technology. They believed that transporters
were amongst the most underappreciated communities in the country for the service they provide,
thus empowering the transport community with tools to run their fleet with pride, respect and joy.
For clients, their proprietary software provided complete visibility to all transactions and removed
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the frustration of constant phone follow-ups. Truckola's online platform helped aggregate
demand and supply for inter-city transportation of goods and helped cut costs for cargo owners
while improving incomes for vehicle owners. About 10,000 vehicle owners were associated with
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the platform and Truckola‟s services were used by about 120 clients. .
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3. 4TiGO
Founded in September 2015 by two IT Industry professionals, Fortigo Network Logistics Pvt Ltd
was backed by investments from Accel Partners and the IT and Social Impact visionary, Nandan
Nilekani. 4TiGO, The Truck Network, facilitated its participants to break away from the constraints
arising out of the opacity and inefficiencies of the current eco-system. The 4TiGO platform
empowered its participants with knowledge, technology and confidence in their ability to fund and
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manage their business effectively and efficiently. Using the cloud-based platform of Fortigo
Network, consignors, consignees, fleet owners, transport companies and agencies could
exchange information, transact and manage their entire business. The logistics startup aimed to
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get 5,000 trucks by the end of 2017, adding to the fleet of 1,200 trucks with which it began its
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operations.
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91 About Us: Truckola. Retrieved from https://truckola.in/#about on June 3, 2017

92 Vageesh, N. S. (2017, January 27). Truckola aiming at 'tech-led' disruption in trucking. The Hindu Business Line.
Retrieved from http://www.thehindubusinessline.com/economy/logistics/truckola-aiming-at-techled-
disruption-in-trucking/article9504939.ece on June 19, 2017
93 About Us: 4TiGo. Retrieved from https://www.4tigo.com/about-us on June 3, 2017
94 Kulshrestha, A. (2017, January 11). Nilekani-backed 4TiGo eyes $10 million. The Economic Times. Retrieved
from
http://economictimes.indiatimes.com/small-biz/money/nilekani-backed-4tigo-eyes-10-
million/articleshow/56468064.cms on June 19, 2017
ABBREVIATIONS
1. AL: Ashok Leyland

2. AM: Area Manager
3. API: Application Programming Interface
4. bn: Billion
5. CAGR: Compounded Annual Growth Rate
6. cr: Crore
7. FMCG: Fast Moving Consumer Goods
8. FTL: Full Truck Load
9. GPS: Global Positioning System
10. GST: Goods and Service Tax
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11. IIM: Indian Institute of Management
12. IIT: Indian Institute of Technology
13. INR: Indian National Rupee
14. IoT: Internet of Things
15. IT: Information Technology
16. kmph: kilometers per hour
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17. kms: kilometers
18. LPCD: Linear Programming-based Continuous Dispatch
19. McKinsey: McKinsey & Company
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20. mn: million
21. MPA: Master in Public Administration
22. NBFC: Non-Banking Financial Company
23. NCR: National Capital Region
24. OEMs: Original Equipment Manufacturers
25. PSE: Pit Stop Executive
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26. PTL: Part Truck Load
27. Rivigo: Rivigo Services Private Limited
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28. Trifecta: Trifecta Capital Advisors
29. TrucksFirst: TrucksFirst Services Private Limited
30. USA: United States of America
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31. USD: US Dollars

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Indian Institute of Management Ahmedabad IIMA/MAR0490
Okhai-Centre for Empowerment:
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Refashioning the Lives of Rural Women
The Okhamandal region in Gujarat, painted in earthy shades of brown, simmers in the hot sun
perennially. The vast expanse of barren land is interrupted only by scattered villages, thorny shrubs
and the occasional camel cart. In this mono-hued scenery, sitting outside their humble dwellings are
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small groups of tribal women. They create a stark contrast to the austere surroundings with their
brightly coloured pieces of cloth, over which they are bent, fingers swiftly employing needle and
thread to weave an intricate and traditional tale on fabric…..
Source: Article - Tales told in tapestry, Tata Website1
INTRODUCTION
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Okhai was the name attributed to the people of the Okhamandal region2 that covered the
area from Dwarka to Okha town in the Gujarat state of India. Okhai-Centre for Empowerment
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(see Exhibit 1) was conceived by the Tata Chemicals Society for Rural Development
(TCSRD) (see Exhibit 2) in 2002 as an innovative social enterprise to empower women of
Okhamandal by providing them opportunities to work and earn. In FY 2015, Okhai
recorded revenue of nearly INR 10 million (see Exhibit 3 and Exhibit 4). The management
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team of Okhai now wanted to achieve a turnover of INR 1 billion by FY 2025. Was this target
achievable? What could be the best strategy for Okhai to move to the next level? These were
the key concerns of the leadership team at Okhai.
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The head of community development at Tata Chemicals Limited (TCL), Alka Talwar,
shared:
We want to project Okhai as a brand representing the artistic skills of rural Indian artisans,
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especially women. Many NGOs working in the handicraft sector in India struggle with
quality, design, procurement and marketing issues despite having a broad base of artisans
with them. We intend to collaborate with the artisans associated with them by sharing our
best practices to scale Okhai. It can be a win-win situation for all the stakeholders. At the end
of the day, the artisans should make money.
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1www.tata.com/article/inside/biLqJvOGapA=/TLYVr3YPkMU= (accessed on September 20, 2015)

2www.census2011.co.in/data/subdistrict/3812-okhamandal-jamnagar-gujarat.html;
(accessed on September 20, 2015); See Exhibit 5 for map.
Prepared by Professor Sanjay Verma and Shubhi Thakuria, Research Associate, Indian Institute of
Management, Ahmedabad. The authors are thankful to Ms. Alka Talwar and Mr. Premal Pandya
from Tata Chemicals Limited for their support in writing the case study.
THE INDIAN HANDICRAFT INDUSTRY
Anything made by hand with some artistic value, with/without functional utility is termed
as handicraft.3 Owing to its rich culture, history and traditions, India is one of the major
producers and suppliers of handicraft products in the world.4 According to a study
conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM),
India's handicraft exports were expected to cross the INR 240 billion mark by FY 2020-21.5
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The Indian handicraft industry is fragmented, with more than seven million regional
artisans and more than 67,000 exporters/export houses promoting regional art and
craftsmanship in the domestic and global markets. The handicraft sector is important for the
Indian economy as it is one of the largest employment generators and accounts for a
significant share of the country’s exports.6
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ORIGIN OF OKHAI
In 1995, a team from TCSRD led by Vivek Talwar, then head of CSR at Tata Chemicals,
conducted a socio-economic survey of 42 villages of the Okhamandal region. It was the
home of economically penurious tribals, who were dependent on agriculture as their
primary source of income. The region received scanty rainfall and mere agricultural output
was not sufficient to earn a livelihood. The women of the region had handicraft skills unique
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to their region. The walls of their huts were decorated with unique applique7 work and
embroidered hangings. Their work depicted human figures, birds and animals and reflected
their association with nature, lifestyle, rituals and legends. The style of work was popularly
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known as Okhai.
TCSRD identified the need to provide a platform to the women of Okhamandal to showcase
their talent and provide them with an alternative source of income. They started a
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programme in the handicrafts section at Mithapur8, using the artistic skills of 35 women
from 14 villages of Okhamandal. In 2001, the programme had 200 women. The initiative
provided a wider market to the Okhai products and a constant source of income to the
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women artisans, thus simultaneously helping to preserve the traditional crafts of the region.
In 2003, handicraft development activities under TCSRD were branded under the name
‘Okhai’ to promote better market linkages. Extension activities were taken up to ensure that
the 150-200 women associated with the initiative earned at least INR 2,000 per month. In
2004, Okhai doubled its sale to INR 600,000 from the previous year, which further motivated
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the team to scale up production capacities significantly. Over the years, the quality and the
outreach of Okhai products has kept on increasing. In 2007, 400 women artisans were
associated with Okhai, earning a monthly income in the range of INR 500-5,000.
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3www.india-crafts.com/business-reports/indian-handicraft-industry/handicraft-introduction.htm (accessed on
September 20, 2015)
4www.india-crafts.com/business-reports/indian-handicraft-industry/handicraft-overview.htm (accessed on
September 20, 2015)
5www.business-standard.com/article/news-cm/indian-handicrafts-exports-may-cross-rs-24k-crore-mark-by-
2020-study-115062900334_1.html (accessed on September 20, 2015)

6 www.ibef.org/exports/handicrafts-industry-india.aspx (accessed on September 20, 2015)
7Ornamental needlework in which pieces of fabric are sewn or stuck on to a larger piece to form a picture or
pattern; en.wikipedia.org/wiki/Appliqu%C3%A9 (accessed on September 20, 2015)

8Mithapur is a town situated in extreme tip of lower jaw of Gujarat, India. It has the oldest plant of TCL and is
regarded as the birthplace of Tata Chemicals.

Okhai was registered as a separate trust in 2008. It was from here on that Okhai started
focussing on profits, self-sustainability and scalability. The year 2008 also saw a focus on
product development, design, procurement, quality assurance, brand promotion and sales
activities. The city of Ahmedabad located in Gujarat was regarded as one of textile hubs of
India. Tata Chemicals had a vacant office space in the city which was allocated to Okhai in
2009 and named as Okhai Studio. Premal Pandya, a former sales and marketing executive in
TCL, was assigned the responsibility of heading and revamping Okhai. He said:
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Understanding the nature of the garments business, viz. cash flow, retail presence, customer
preferences, with continuous training and upgradation, was a daunting task for me.
However, the hope of doing something exciting in Okhai persuaded me to take up this
initiative. It was challenging to start something from zero and take it to another level.
Nusrat Dayamakumar, sales and marketing manager at Okhai Studio, was quoted as saying,
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“We tried to market the culture of Okhamandal so that its rich heritage is known to people across
India and abroad.” Embarking from Okhamandal, Okhai gradually expanded its scope and
incorporated women from Haldia9 in 2010 and Babrala10 in 2011 under its spectrum. Haldia
promoted jute craft while Babrala promoted the traditional Mughal art of Karjobi.
Depending upon the skills of artisans, at each location, products were innovated, designed
and marketed under the single umbrella of ‘Okhai-Centre for Excellence.’
PRODUCTION PROCESS
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The production process of Okhai products is shown in Exhibit 6. The major steps involved in
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the production process are elaborated below along with the issues associated with them.
1. Procurement of Raw Material
Okhai’s production centre was located in Mithapur. The fabric was mainly outsourced from
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the nearby states. Initially, one person from the Okhai team went personally to purchase the
fabric, but later the process was digitalised using online applications. Pandya recapitulated:
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These days, even small suppliers from villages use technology. Once, when I went to Bagru
village of Rajasthan to purchase the material, the seller installed the application on my mobile
so that I can digitally access the designs... Now, we don’t go personally to the supplier’s place.
Most of the raw material is finalised digitally. There are no intermediaries in procurement.
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The timely and appropriate procurement of the raw materials was very challenging. Jayant,
master designer at Okhai, explained:
Today, if I order raw material for 9-10 designs and all of it comes at the same time, it occupies
large space. Designing fabrics takes its own time; till then the fabric is lying with us, but the
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clock starts on the supplier’s side for the recovery as soon as it is procured. Our credibility is
lost, if we do not pay on time. Meanwhile, if the stitching unit is closed, the artisans get a
wrong perception that we have no work to do. There is a constant pressure to engage all the
units.
Okhai appointed its artisans as part-time workers, who worked from home at their pace and
leisure. This system had its set of advantages and disadvantages.
9Haldia is a town in West Bengal state of India where the manufacturing unit of TCL is located.
10Babrala is a town in Uttar Pradesh state of India where the manufacturing plant of TCL is located.
For the close-knit community of tribals, social functions were given priority over
professional work. Anupama Vaghela, the manager of the Okhai store at Mithapur,
narrated:
Once we were given a large consignment. One large roll of cloth material was to be
embroidered for export as curtains. Working on this was challenging as the cloth was white,
and conditions in the village were not conducive to keeping it clean. Women were unable to
complete the order according to the required quality and timeline. From this experience, we
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learnt that we should take only those orders that can be managed.
2. Designing
Designing was done at the Ahmedabad Okhai studio. A team of four people, headed by the
master designer provided designs and the colour combinations to stitch fabrics. A single
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batch consisted of nearly ten designs, each with a few colour variations. The ideation of a
pattern took a day, and the consideration of embroidery, color combination, etc. took
another two days. It took approximately three days for a design to get finalised and the
designing of an entire batch took almost a month.
A. Sample Preparation and Design Finalization

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The designing team at Okhai prepared samples at the Okhai Studio according to the
latest market trends and skills of the Mithapur artisans. The sample prepared at the
studio was sent to Mithapur, a semi-stitched sample was prepared by the women at
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Mithapur and returned to the studio. After the designer approved the semi-stitched
sample, the bulk cutting and the stitching process began at the tailoring unit at
Mithapur. Per design, approximately 200 pieces were made. The appropriate quality
checks were done at every stage to ensure that the product fulfilled the quality
parameters. It took a processing cycle of nearly one month for each design to get
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processed and two to three months for the complete batch to get processed. Jayant
added:
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There is a constant pressure on us to expedite the production process. When the

product goes into the market, it gets an exposure when people come, see and buy it.
The feedback helps us to prepare the next design appropriately. As of now, our target
is 60 days, in which we want to complete 2,000 pieces.
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Established benchmark data was not available, and hence Okhai was unable to
determine the time taken to produce the given number of products in the given duration
by the competitors in the market. Hence, it decided to understand the necessary
indicators of production and processes by collaborating with educational and research
institutes.
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B. Bulk Cut and Distribution
The cut-cloth was then sent to the women at their homes for embroidery, along with a
work kit. “It allows them to work in their village environment, at a time of their choice,” said
Alka. A member of the Okhai team prepared kits for the artisans. Each kit contained the
required fabric, thread, mirrors and other items required for the product. Another
member distributed kits to the women and explained the design, quality parameters and
stipulated timelines.
C. Final Stitching
Once the embroidery was completed, the batch went through another quality check after
which the final stitching was done at Mithapur. The quality checks were conducted at
every step, starting from the ideation to the final production. Jayant said, “At every stage
of production and product development we need to check for quality. During procurement, we
need to ensure that we procure the right raw material. While designing, we ensure that the
colour, motifs and textures work.”
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D. Tagging and Packing
After the final stitching of the product, another round of quality check was done; the
products were tagged and packed for delivery. Colour bleeding continued to be a
teething problem. Light colors were considered safe as they did not bleed. Every product
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of Okhai had a tag that provided washing instructions. Afterward, the photo-shoot was
done to prepare a catalogue of the products. Talwar said, “We realised that giving
incentives for on-time delivery and good quality works better than deducting payments for bad
quality.”
3. Marketing
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In India, the handicraft industry was not as well organised as other sectors. It did not have a
well-established distribution system. Dayamakumar added:
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We try to optimise every possible idea which comes to us. Only if the market grows for Okhai,
can we increase the number of artisans and their average income. Streamlining the supply
chain process along with the production process continued to remain a challenge for Okhai.
How could the production process be optimised?
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Initially, people purchased Okhai products with the notion of charity. It was difficult to
decide whether to change that perception or not. Talwar said, “We want people to buy our
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product as a choice, not as a favour.” Was that the appropriate decision? What could have been
the marketing strategy to ensure this? About the advertising policy, Pandya said, “We have to
work very cautiously here. If we do not see quick, tangible returns, we do not spend any money.”A
major challenge in the garment business was to understand the pulse of the market. Some
designs flew off the shelf instantaneously, other times they lay in the store for months.
Jayant stated, “Liquidation of some of our stocks is challenging for us. The success rate of our
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designs is in the range of 70%-90%. The leftover products had to be sold at discounts.”
SELF HELP GROUPS (SHGs)
A self-help group (SHG11) was a village-based financial intermediary committee usually

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composed of 10–20 local women or men. The members made small but regular contributions
over a few months until there was enough capital in the group to begin lending. Funds
could then be lent back to the members or others in the village for any requirement. In India,
many SHGs were associated with banks for the delivery of micro-credit12.TCSRD promoted
Okhai through SHGs in the Okhamandal region.
11www.yourarticlelibrary.com/india-2/self-help-group/self-help-group-shg-of-india-meaning-need-and-
objectives/66718/ (accessed on September 20, 2015)

12 www.microworld.org/en/about-microworld/about-microcredit (accessed on September 20, 2015)
Each SHG comprised one head, called pramukh (head) who distributed the work amongst
the group members, kept records, performed quality checks and handled the payment
distribution. The group members provided mutual support to each other to achieve mutual
goals. Milind Gajjar, deputy manager at TCL Mithapur, elaborated, “Due to the male
dominated society and the low literacy rate of women, initially it was difficult to convince them to
form SHGs. Patience and perseverance were required to tackle these issues with sensitivity.”
The TCSRD team helped in forming the SHGs to bring together women who had earlier
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lived in virtual isolation from the rest of the world, with limited facilities. The women of
Okhamandal became SHG members after paying an annual fee of INR 25. TCSRD provided
them training after assessing their competency level using a skill-based test. Under SHGs,
women were classified into three categories, A, B and C, based on their skill level. A was
regarded as the most skilled and C was considered to be the least skilled. The focus was to
enhance the skill of women members (see Exhibit 6).
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PORTFOLIO OF PRODUCTS
Every design consisted of collections pertaining to spring, summer, winter and festivals.
Pandya added:
For the last five to six years, we had been focusing only on cotton fabric and vegetable dyes,
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now we plan to add other fabrics and dyes as well. Women are being trained to work on
several fabrics like silk, linen, etc. These products will also come out very soon. We are
thinking of coming up with formal dresses having an Indian and ethnic touch. We have
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designed handmade blazers, trousers and suits for office. Our product range is different from
the traditional black suits available in the market.
Okhai products achieved the Craftmark certification13 in 2012. The Okhai store in Alpha-One
Mall of Ahmedabad commenced operations on January 1, 2012. The year also marked the
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association of Okhai with several domestic and international brands. It got associated with
retail outlets in Mumbai (Suruti & Karigar), Pune (Good Home Store) and Kolkata (Sasha).
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Meanwhile, the Mithapur centre also recorded a rise in production along with an
improvement in the quality of the products and in the earnings of its women. As the
production quantity increased, it became difficult to maintain quality standards.
Subsequently, Okhai reduced its offerings. Pandya shared:
If our product goes to Bangalore from Gujarat, we do not want it to get rejected and come
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back to us due to quality issues. Therefore, we decided to work selectively on selected

products. We chose to focus mainly on women’s garments like kurta14, shawls, skirts and
aprons. We have a small stitching unit, from where we generate 1,500-2,000 pieces a month;
we need to double the capital. Many women want to be Okhai artisans, but we are limited by
the fact that we are pushing only 2,000 pieces for processing due to the limited capacity of our
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stitching unit.
Initially, accessories and carry bags were made mainly from pieces of cloth that were left
after the garments were stitched.
13Craftmark is an initiative of the All India Artisans and Craft workers Welfare Association, which helps denote
genuine Indian handicrafts, develop sector-wide minimum standards and norms for labeling a product as a
handicraft product, and increase consumer awareness of distinct handicraft traditions.
14 It is a popular upper garment for men and women in India with several variants. See Exhibit 7 for the design of
a Kurta.
Later, there was an enormous demand for bedcovers, cushion covers, wall hangings,
tablecloths, curtains, etc. mainly as corporate gifts. Okhai started making such products
exclusively. The traditional designs and colour combinations were also evolved to cater to
the taste of the urban population and give a modern contemporary look to the products.
Exhibit 8 shows the portfolio of Okhai products in 2015.
PRODUCT MERCHANDISE
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1. Retail Outlets and Exhibitions
In July 2008, the first retail outlet of Okhai was launched in Himalaya Mall of Ahmedabad.
Pandya shared, “In Himalaya Mall, the Okhai store was located in the right most corner of the third
floor. After some time we realised that this was a poor choice for a retail store to operate in. We
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understood that the first preference of customers is to see the left side in the retail segment.”
In January 2012, the retail outlet was shifted to Alpha-One Mall, which was one of the
famous Malls in Ahmedabad. Pandya added:
The environment and audience of the Gujarati shopping market in Alpha-One was most
suited for Okhai. There were shops available on the first floor, but their rent was five times
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our turnover. It was not possible for us to rent it. Hence we rented an outlet on the third
floor. Eighty percent of people who entered the store, ended up buying our product. After
three years, now we feel the need to shift from the top floor to the second floor to attract more
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customers.
The Okhai store at Ahmedabad won the best store award for two consecutive years for its
overall performance, décor, merchandising and sales pattern. Over a thousand consumers
were queried in a survey to ascertain their comprehensive opinion towards Okhai’s flagship
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store. It was evaluated on the basis of the customer’s perception towards the store and also
on the sales generated in the last financial year.15 Dayamakumar elaborated:
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Since we are an NGO, operated through a trust, funding is a key challenge in opening retail
stores directly. We choose to tie up with different partners and boutiques in various metro
cities of India to sell Okhai products. We also sell Okhai products through our corporate
network. So, keeping in mind our limited resources and money, we are planning to expand
slowly.
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The Pune outlet of Okhai was launched in January 2014. The third store of Okhai, Okhai-
Karigar started in June 2014 at Jamshedpur. It was a joint venture with Tata Steel that
included products made by the rural artisans of Jharkhand. Okhai products were also
available in multi-brand outlets of metro cities in India. Besides selling the products through
the retail outlets, Okhai primarily sold its products in various exhibitions held in different
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cities via renowned NGOs. Pandya shared:
Cash flow is vital to us, and thus, apart from exhibitions, we go to Tata group offices. It serves
as a good market for us as we don’t have to spend much. If our sales person stays at a hotel,
the entire earning at the exhibition might be spent in transport. If we have access to a Tata
guest house, I prefer to make his staying arrangements there. Besides, we are also looking for
collaborating with different NGOs from the Tata group itself.
15www.tata.com/article/inside/V2F8gdhMB!$$$!E=/TLYVr3YPkMU=(accessed on September 20, 2015)

2. Online Portal16
In June 2014, Okhai’s e-portal was launched. Speaking at the launch of the website, Talwar
quoted:
It is an extremely positive development for Okhai and the members of the SHGs, who will
now be able to witness their handicraft and its growing demand on an interactive online
platform. By taking these applique handicrafts online, it will not only help in furthering the
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cause but also spread awareness about the traditional craft of this region, thus helping us to
preserve a rich part of our cultural heritage. We aim to keep up with such positive
developments and brighten the life of thousands of women from Okhamandal as well as the
millions who've never been there.
The portal had started showing its impact online as it is accessible 24*7, where people could
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browse, view and purchase the products anytime. Pandya added:
Slowly and gradually Okhai’s portal is going to pick up popularly. We have also become
active on Facebook. We want to push our portal rather than going on other online shopping
sites. We prefer not to tie up with other e-sellers, primarily because our products are priced a
bit higher as compared to products present on those portals due to the intricate handwork.”
Was that a good idea? Alka shared:

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We need to ensure that a certain minimum number of pieces of each design and size are with
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them. On the e-commerce platforms, inventory is tied up and often left unsold which blocks
money. For us, it is important to ensure the rotation of funds. If someone orders and we do
not fulfill, it is not good for us and the e-commerce website as well. In our portal, products are
linked up to our store.
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INCOME OF ARTISANS
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After successful completion of the training, the women received a card with a code number
that recorded details of all the work done by them. The card recorded the payment status of
each woman. The monthly income of artisans ranged between INR 500-5,000. It depended
on the number of pieces prepared by the artisans, the time taken and the intricacy of the
embroidery involved.
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The designing team decided the embroidery. The cost of stitching was communicated to
each SHG leader by the production team before the distribution of work and the artisans
negotiated the payment rate.
COMPETING WITH COMPETITORS

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Fabindia17 and Biba18 were two important competitors of Okhai. Biba exclusively catered to
the demand for female apparel and accessories. Fabindia produced diverse products like
clothing for men, women and children, accessories, furniture, cosmetics and organic-food
amongst others. Most of the competitors in the handicraft business usually operated through
two different units.
16www.Okhai.org (accessed on September 20, 2015)

17 www.fabindia.com/ (accessed on September 20, 2015)
18 www.biba.in/ (accessed on September 20, 2015)
Pandya explicated:
Initially, we worked as suppliers to the key players in the market, who are now our
competitors. We feel that the price is the primary differentiating criterion of Okhai with
popular premium competitors. We purchase the raw materials from the same vendors, our
material is also vegetable die block printed, and our product has more handwork than theirs.
We tried pitching our products slightly higher, but it was not too successful. Also, some of
our competitors have numerous stores. If some designs do not sell at one place, then they have
the option to sell at some other store. But this is not so in our case; if our product doesn’t sell
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in our primary store, we can’t push it to other stores.
Embroidery was a slow paced and skilled job and hence hand-made products were costly.
To make the customers understand this was again an issue. Machine embroidery was faster
than the hand work that artisans did. The local machine-made products which were
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available in the market at the extremely low prices also posed serious competition to Okhai.
TRAINING PROGRAMS
The parent trust TCSRD conducted the training programs at Okhai. The lead designer at
Okhai identified the particular type of craft in which artisans were required to be trained.
The artisans were then nominated for the training and taught the standard Indian cuts and
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fits of kurtas. Pandya added, “We identified that we need to increase the production of bed-sheets
from 300 to 500 per month; thus we required 30 more women to do the applique work. Accordingly,
TCSRD trained these people.” In 2008, Okhai sent 50 women to the reputed National Institute
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of Fashion Technology (NIFT)19 for training.
Pandya shared:
Getting them out of home to the stitching unit was tough, taking them from Mithapur to
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NIFT, Gandhinagar for three months was a difficult task. Training them helped us in
ensuring quality cuts and stitching. One of the things that we learned was that our main
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competitors could make a kurta in 2.3 metres of cloth while we were using 3 metres. We
realised that we were wasting a lot of material. As far as cutting is concerned, we are perfect.
But, a lot of materials get stuck in inventory or work in progress; we are still trying to
address these issues.
OKHAI IMPRINTS
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An article published by Geetu Vaidh20 quoted:
Empowerment enterprise, entrepreneurship, profit and annual turnover may be common

sounding words in an urban set up and coming from a B-school graduate, but one does sit up
and take note when the person using these is a simple tribal with not much education, and
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more so when the person happens to be a woman from one of the most backward areas in the
country.But this is true in the cases of Ramiben and Laxmiben from the hinterland of Gujarat
The women were proud to be associated with Okhai. It had become a status symbol for them
to belong to the Okhai family.
19 www.nift.ac.in/ (accessed on September 20, 2015)

20 www.tribuneindia.com/2014/20140309/spectrum/society.htm (accessed on September 20, 2015)
The Okhai website quoted,“Okhai brand has become a powerful statement by the women of
Okhamandal villages over the years. A statement that empowers them, a statement that gives them
and the region an identity, a statement that makes people notice this beautiful form of art and
patronise it.” Ramiben, one of the Okhai artisans, shared,
I have built a pucca house and educated my children from the income I got from Okhai. People
approach me now and request me to advise them on improving their lives, and I get a lot of
respect from the villagers. I have travelled to other places for exhibitions, even travelled to
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Bangalore alone. What I did not get within the four walls of my home, I have received from
Okhai. It is my wish that my children, a girl and a boy, receive the best education. My
husband also supports my view. We faced opposition from my mother-in-law who said it was
a waste of money to educate our daughter. I replied that I would spend my own money on
educating my daughter.
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THE WAY FORWARD
Pandya shared:
Okhai is like a start up with no funds. TCL initially gave us some seed capital to start, and it
was an interest-free loan. We were supposed to return the money to them. Five years back the
turnover of Okhai was about INR 2.5 million, and now it is around INR 10 million; the scope
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is still phenomenal. The model is now good enough to be easily replicated at different
locations. Once the local trade/abilities of the artisans are identified, and its gradation is
done, plans can be made and implemented efficiently.
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Is it the right time to expand Okhai’s product portfolio or not? Should Okhai be like Biba
which solely focusses on female apparel or Fabindia which has diversified into apparel,
furniture, eatables and other products? Where should Okhai position itself? Should it go in
for marketing or not and how should it go about it? Is it appropriate to open more retail
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outlets or to promote the selling of Okhai products via exhibitions? What could be the
strategy to deal with local and global competitors in the same field? Should Okhai continue
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making its products or should it take on the trading route? These were some of the
significant concerns for Okhai. It had started exploring different locations and mediums for
expansion. Jayant added:
When I got to know that we have a target of INR 1 billion over the next ten years, I was
nervous and doubtful. But Premal explained to me that after being in the market for so long,
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we had understood the whole business of this field. Now for expansion, we have to focus on
increasing our outreach and adding more people. We have to develop our strategy
accordingly. How can we improve our product and processes? Have we understood the
market correctly or not? Are we selling the product at the right price? Are we able to deliver
our product in time? These are questions that we constantly try to analyse to have a better
understanding of this business; it also helps us to perform better.
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Exhibit 1(a): Okhai Logo
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1(b) Display at ‘Okhai-Centre for Empowerment’ at Mithapur
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Source: Okhai Mithapur Office
Exhibit 2: Tata Chemicals Society for Rural Development (TCSRD)

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Tata Chemicals Limited (TCL) set up the Tata Chemicals Society for Rural Development (TCSRD) in
1980 to promote its social objectives for the communities in and around Mithapur, where its facility is
located. This service was further extended to the communities in and around its Babrala and Haldia
facilities. The Society works to protect and nurture the rural populations in and around TCL's facilities,
and helps people achieve self-sufficiency in natural resource management, livelihood support and the
building of health and education infrastructure.
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Taking into account the different geographical spread of the three regions and their individual
subcultures, different agricultural, economic and development programmes have been implemented
in these regions. Tata Chemicals Limited was one of the first organizations to hold an Impact camp,
which was held at Mithapur in the year 1982, providing eye care to hundreds of patients at the
Mithapur Hospital. Tata Chemicals Limited was also the first organization to run world’s first hospital
on wheels – the Life Line Express, through Jamnagar district for the first time between November 21,
2004 and December 21, 2004.
Source: TCSRD Website

Exhibit 3: Okhai Revenue, In Indian Rupees(INR)

Financial Year Turnover
2001-2002 1,34,000
2002-2003 1,64,000
2003-2004 3,40,000
2004-2005 6,00,000
2005-2006 9,02,000
2006-2007 14,25,00
2007-2008 23,35,00
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2008-2009 21,09,00
2009-2010 36,00,00
2010-2011 42,91,00
2011-2012 2,889,463
2012-2013 57,83,715
2013-2014 60,27,647
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Source: TCSRD and Okhai Annual Reports
Exhibit 4: Comparative study of Mithapur, Okhai- Centre for Empowerment Balance Sheet
(In INR)
Year/Parameters 2011-2012 2012-2013 2013-2014
Total Liabilities/Assets N 12,301, 467 1,24,42,268 1,31,77,666
Total Expenditure/ Income 5,714,790 64,90,420 84,19,312
Loan, received from TCL 1,500,000 15,00,000 15,00,000
Loan, received from TCSRD, Mithapur 3,200,000 32,00,000 32,00,000
Loan, received from TCSRD, Babrala NA 1,27,701 18,701
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Source: TCSRD and Okhai Annual Reports
5(a): Present statistic of women artisans and staff at Okhai

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Locations No. of Women artisans No. of SHG No. of Permanent staff

Mithapur(Gujarat) 300 23 8
Babrala (Uttar Pradesh ) 31 9 Nil
Haldia (West Bengal) 16 3 Nil
Ahmedabad studio NA Nil 13
Source: Okhai team

Exhibit 5 (b): Map of various Indian places showing operational areas of Okhai
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Source: TCSRD 2011-2012 Annual Report

Exhibit 6: Production Process at Okhai
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Source: Okhai Mithapur Office
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Exhibit 7: Depicting Female and Male Kurta
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Source: Okhai Website

Exhibit 8: Porfolio of products at Okhai (FY15)
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No Category No Category No Category

A Apparels B Home Furnishings C Lifestyle Accessories
Women 1 Bed Cover Collection 1 Shopping /Jhola Bags
1 Long Kurta 2 Cushions 2 Purses
2 3/4th Kurti 3 Wall Hangings 3 Sling Bags
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3 Top 4 Curtains 4 Mobile Pouch

4 Dupattas 5 Toran 5 Coin pouch
5 Shawls 6 Runners 6 Spec pouch
6 Stoles 7 Jewellery Pouch
7 Patiala Dupatta Set 8 Files/Folders
8 Patialas 9 Notepads
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9 Salwars 10 Key rings

10 Leggings 11 Name tags
Men 13 Laptop Bags
1 Long Kurta 14 Laptop Sleeve
2 Short Kurta
3 Ties
Source: Okhai Website and Okhai Office

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Through the years, Raymond had been consistently reckoned as the torchbearer of quality
and style, as was indicated by its ever increasing customer base, and ranked amongst the
first three fully integrated manufacturers of worsted suitings in the world.
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Location of textile plants and warehouses
Raymond had three textile manufacturing plants in Chhindwara, Vapi and Jalgaon districts
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of the Indian states of Madhya Pradesh, Gujarat and Maharashtra, respectively. Most of
Raymond’s fabric was manufactured and distributed from Vapi and Chhindwara. The
manufacturing process at these two plants involved dyeing, re-combing, spinning, weaving
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and mending, finishing and folding (see Exhibit 1).
). In contrast, manufacturing at the Jalgaon
plant ended with the weaving and mending process. The Vapi and Chhindwara plants
shared the finishing and folding of the fabrics woven in Jalgaon. These two plants also had a
warehouse each located within their premises to store the material before the orders were
dispatched to the customers.
Warehouse layout
The Chhindwara warehouse had two floors, each with an L-shaped layout. Each floor was
divided into different zones based on the location of the racks. The ground floor had zones
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A and C, and the mezzanine floor comprised zones B and D (see Exhibits 2 and 3). All the
zones at the distribution center together comprised 10,504 bins of which 537 bins in zone C
on the ground floor were reserved for rolled pieces. The rolled pieces could not be stocked in
any other bin. The remaining 9,967 bins were used for bolt pieces. Exhibits 4 and 5 show the
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rolled and bolt pieces.
The storage racks were loosely segmented into different areas based on market scenarios.
product and customer mix. For instance, Raymond
The markets were classified according to product
exclusive showrooms and multi-brand outlets we were two distinct markets. Similarly, good-
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length pieces (9-19 meters) and odd-length pieces (less than 9 meters) constituted different
markets. While the racks were separated based on markets on the floor, market scenarios
were not distinguished in the software for the warehouse management system (WMS). This
implied that the correct positioning of an SKU (an SKU was a bundle of multiple pieces with
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similar specifications, the only possible variation being in the size of individual pieces; also
the number of pieces could vary across SKUs) in the storage rack of its market was entirely
dependent on the competency of the workman. This was especially challenging when an
SKU belonged to multiple markets. For instance, out of the 30,000 pieces of an SKU, 20,000
might belong to Market 1, 7,000 to Market 2 and the last 3,000 to Market 3. A workman who
was not aware of this distribution could have put all the 30,000 pieces in the rack for Market
1. Further, SKUs belonging to multiple markets were combined and transferred from the
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folding unit to the warehouse on a single trolley. Once the SKU was scanned in the folding
department, it was transferred to the warehousing account.
Storage requirement
The SKUs were placed in bins. The warehouse at the Chhindwara plant stored
approximately 15,754 SKUs encompassing 25,92,550 meters of fabric. The storage
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requirement was expected to increase by 40% in the next one year (see Exhibit 6).
Bin and piece dimensions
In each storage rack within a floor, the bins were stacked vertically over each other in levels.
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The number of levels varied between two and four. The structure of a bin is shown in
Exhibit 7.. The standard bin dimensions and average piece dimensions are shown in
Exhibits 8 and 9,, respectively. Note that the actual dimensions of each piece were quite
variable due to the difference in length and fibre quality. For instance, a coat fabric was thick
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and would have likely occupied more space in a bin than a cotton fabric. It was, therefore,
difficult to establish the exact piece-wise bin capacity. Further, while the bin dimensions
were fixed, there was no system defined upper limit for the number of pieces that could be
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ascribed to a bin. This allowed a workman to scan and attribute an SKU to a bin even if that
bin was full to its physical capacity.
Storage policy
A put-away team member would put the material in one of the bins and scan the bin
number and SKU number to facilitate traceability. More than one SKU could be put in a bin,
and the put-away person decided the location of the bin for each SKU by reading the brand
name on the tag and based on his experience. There was no system guided storage plan,
making it difficult to induct a new person into the team. If the bin selected by the workman
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was crammed, he would put the material on the floor and omit the scanning procedure.
Alternatively, he scanned any random bin number for the SKU without actually putting the
material in that bin. This blocked the walkways and led to overutilisation of some bins even
though the warehouse had sufficient capacity and several bins were lying underutilised.
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More importantly, such practices made it very difficult to locate the SKUs in the warehouse,
affecting the picking process, and caused long delays in fulfilling the customer orders. Due
to these operational inefficiencies, Raymond encountered problems such as cancelled orders,
high inventory, ageing of stocks, and generation
generation of surplus stock resulting in higher
discounts offered in the markets.
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Inward receipt of finished goods

goods from the folding department
As the warehouse was situated inside the plant, all the materials were received at the
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warehouse from the plant’s folding unit. Each consignment was delivered in ‘pieces’. A
piece represented the cut and folded fabric and measured between 3 to 12 meters in length
and had a unique batch number. The pieces could have different shapes. For instance, rolled
pieces were cylindrical whereas bolt pieces were cuboidal (see Exhibits 4 and 5,
respectively). The workmen moved these pieces to the warehouse on trolleys. At the
warehouse entrance, the inbound personnel scanned the materials on trolleys to confirm
receipt. The materials were then moved to the bin areas for storage by the put-away team.
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Exhibit 10 shows the monthly fluctuation between inward receipts and orders picked in the
warehouse. The handoff process between the folding and the receiving area is described
below.
At the folding area
 Scan a piece using a handheld device

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 Put into 921 location in the SAP system (received from folding but not yet
stored in the warehouse bin location)
 Transfer to warehouse in a mixed trolley
At the warehouse
 Store in a bin identified by the put-away person (bin location loosely defined
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by the market)
 Scan the piece again using a handheld device (optional)
Picking process
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Picking took place in the warehouse in two shifts, one from 7:30 a.m. to 3:30 p.m., and
another from 3:30 p.m. to 11:30 p.m. On an average, approximately 2,917 pieces of 12 meters
each were picked on a given day.
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A pick-list was generated in the warehouse for every out bound delivery (OBD) order
received from the sales team. Stock availability was not taken into consideration at the time
of preparing the pick-lists. Due to the demand-supply gap, this sometimes led to picking
inconsistencies. For instance, if only one piece of an SKU was available in the warehouse
and five customer orders required a piece each, five pick-lists were created and each order
picker requested the aforementioned SKU. There was no reservation system in place to
allocate the SKU to one order picker. WMS software was updated only when the last piece
of the SKU had been picked.
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Raymond followed a just-in-time picking policy, that is, orders were picked as they were
schedule within a shift which led to some time-
received. There was no pre-defined picking schedule
intervals of very high picking rates and others with very low picking rates. An illustration of
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the hourly picking schedule observed in the warehouse is shown in Figure 1. In a ten minute
interval, 0-3 pieces were picked by a picker in the warehouse. The high variance in picking
rates caused underutilisation of manpower during low picking intervals and mandated
overtime or hiring contractual workers during high picking intervals. The overtime in the
warehouse was approximately 5,000 man days in a year. There was a need to improve the
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workforce management for picking operations.
In addition, the picking efficiency was low at 80%. As a bin often contained different types
of SKUs, an order picker had to read the tag of each piece in the bin to identify the desired
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SKU. There were also instances where an SKU was not in its correct position. In these cases,
there was a high level of reliance on the picker’s ability and prior knowledge to find the
material in the warehouse.
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Figure 1: Number of pieces picked by an order picker in an hour
3.50
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3.00
3.00
2.50
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2.00
2.00
Number of
pieces picked 1.50
per order picker
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1.00
1.00 0.75
0.50 0.30
0.00
0.00
0‐10 10‐20 20‐30 30‐40 50
40‐50 50‐60
50‐ 60
50‐60
Time (Minutes)
Source: Company records
Packing process
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Once the picking process was complete, the goods were moved to the packing table. The
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materials were sorted and arranged according to OBDs. An OBD order had three to 50
pieces. A packing team member entered the OBD number in the WMS software and scanned
the barcode of each piece. After all the pieces had been scanned, a bale number was
generated. The pieces of each bale were put inside a high density polyethylene (HDPE) bag
and the bag was sealed with a tape. Each bale was stitched by hand using hessian cloth, and
manually labeled through stencil marking. The bales were then strapped with the help of a
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strapping machine, manually weighed, and sent to the dispatch unit for outdoor delivery.
The packing process was labour intensive (requiring approximately 25 persons to pack 700
bales), time consuming and prone to errors.
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Naik and his team were brainstorming alternate approaches to address the core issues. Some
of the key decision questions that the management needed to answer to improve warehouse
performance were the following.
1. What type of storage strategy should be adopted – no mix strategy (1 SKU per bin) or
mix strategy (more than 1 SKU per bin)?
2. How should the bin location for each SKU be decided, and how should an SKU be
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directed to its bin at the time of inward receipt?

3. How should the picking efficiency be improved?
4. Should the packing process be automated?
5. Should there be only one warehouse location or a warehouse-within-warehouse
setup?
6. What are the recommended KPIs (Key Performance Indicators) to monitor
warehouse performance?
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Exhibit 1: Plant Operations and Dispatch Process
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• The process of straightening and stretching the fibres thereby obtaining
Combing
maximum spinning capacity.
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Top
• Dyeing is the process of imparting colors to the textiles.
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Dyeing
Recombin
• After dyeing, the straightening and stretching of the fibres is done again.
g
• Spinning involves processing of wool rovings (long narrow bundle of fibres)

Spinning into yarns.
Weaving N
• Two different sets of yarn are interlaced to form a fabric.
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&
Mending
• Processing the yarn to improve the performance and look.

Finishing
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• Fabrics are finally folded as per the laid down specifications.

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Folding
Source:: Interview with company officials

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Exhibit 2: Chhindwara warehouse ground floor layout
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Zone A
Zone C
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Exhibit 3: Chhindwara plant mezzanine floor layout
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Ceiling Height = 22 feet Zone B Zone D

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Source:: Company records

Source
Exhibit 4: Rolled piece
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Source: Company records N
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Exhibit 5: Bolt piece (also known as ‘thaan’
thaan’’ in Hindi)
thaan
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Source
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Exhibit 6: Projected market scenario and stock details – Chhindwara Plant
STORAGE 0 to 50 Mtr 51 to 150 Mtr Mtr

151 to 450 Mtr 451 to 600 Mtr
451 to 600 601 to 900 Mtr 901 Mtr & above
MARKET TOTAL SKU TOTAL STOCK
TYPE SKU MTR SKU MTR SKU MTR SKU MTR SKU MTR SKU MTR
A1 Market 1
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5503 1051144 2454 52800 1337 123673 1251 348370 173 86969 102 74712 186 364620
A2 Market 2 6504 318581 4125 90750 1925 125125 440 92400 9 4620 3 2331 2 3355
A3 Market 3 2146 54738 1899 22639 185 15340 54 12818 7 3274 1 667 0 0
A4 Market 4 915 167743 318 6756 169 17833 338 99990 90 43164 0 0 0 0
A5 Market 5 347 129349 138 3300 68 5742 54 15730 54 27665 12 8712 21 68200
A6 Market 6 650 193600 292 14300 110 14300 66 24750 66 33000 72 49500 44 57750
ON
A7 Market 7 292 83270 128 3520 61 8250 66 24750 17 8250 8 11000 12 27500
A8 Market 8 3388 608279 1362 34045 935 88825 825 206250 108 56595 70 50818 88 171746
A9 Market 9 490 17418 453 6904 25 2072 3 554 0 0 7 5091 2 2797
A10 Market 10 776 26447 681 11044 68 5367 20 4459 4 2158 2 1615 1 1804
A11 Market 11 1049 979000 0 0 0 0 495 192500 168 99000 193 165000 193 522500
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Total Total 22060 3629569 11850 246058 4883 406527 3612 1022571 696 364695 470 369446 549 1220272
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Exhibit 7: Storage bin
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Exhibit 8: Standard bin dimensions

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Source
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Exhibit 9: Average piece dimensions
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Exhibit 10: Monthly fluctuations in inward receipts and orders picked
Length in Meters
(Thousands)
120
100
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80
Warehouse
Packaging
60
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40
Warehouse
Receipts
20
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0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Day

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Navigators Logistics Company Private Limited
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In July 2013, Preet Shah, the Executive Director of Navigators Logistics Co. Pvt. Ltd.,
Gujarat, arrived at his office to begin his day’s work. Navigators Logistics was a road
transportation company. They transported hazardous chemical products to chemical
companies in Gujarat, Madhya Pradesh and Maharashtra.
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Preet looked at the profit and loss statement of the company for the last three years and was
not surprised to find out that the company’s profit had almost been constant for these years.
He was facing regular issues with the clients in terms of fluctuation in demand volumes and
extended credit period. The spread of demand of his clients was not consistent throughout
the year and that was the major point of distress. The fluctuation in demand curve was so
wide that at times it led to the fleet being fully utilized while at other times the fleet was idle.
Not only this, during the times of full utilization at times even more trucks had to be rented
from the market. The scenario was even worse during turbulent economic conditions when
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the clients used to suffer and it reflected on his company’s business as well. The payments
from clients used to be delayed and at times it even took three to four months to get the
payment released. This was a matter of serious concern to Preet. Apart from the issues
arising from demand fluctuation and extended credit period, another issue was troubling
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Preet. The organization had to incur huge maintenance cost as the humidity at Kandla port
(where loading used to take place) caused corrosion of the trucks.
In addition to the external factors, there were certain issues in the way the organization used
to function. Due to the extended credit period, man-hours were wasted in follow ups for
payments, which were unproductive. Also, the the company used the pen and paper medium
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for data entry which was inefficient as lot of time was wasted in trip calculations. The
drivers used to report falsely on the amount of money spent on diesel, as the organization
had no mechanism to check the same. All these issues adversely affected Navigators
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Logistics’ business and the accounts further weakened during unstable economic condition.
Despite of the fact that the issues were many, Preet this time was determined to solve the
problems that the organization was confronting, both, internal as well as external ones. The
decisions to be taken involved (a) whether to continue with the existing clients only or to
think about restructuring the entire client portfolio (b) what changes were to be brought
about to manage the issues in internal operations (c) what growth strategy and technological
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reforms should he bring about and (d) what he had to do to acquire the competitive edge in
his business? Decisions to address these problems had to be taken at the earliest to facilitate
the future course of action.
ABOUT NAVIGATORS LOGISTICS
Navigators Logistics Co. Pvt. Ltd., a logistics solutions provider was established in the year
2008 with the vision to become a major integrated logistics service provider in India.
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Prepared by Professor Debjit Roy, Indian Institute of Management, Ahmedabad.

Cases of the Indian Institute of Management, AhAhmedabad, are prepared as a basis for classroom
For its existing clients, majority of them being based in and around Gujarat, it took care of
logistics management and ensured safe and timely mely delivery of goods. Moving a step
forward, apart from transporting goods, Navigators Logistics intended at streamlining and
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managing the end to end supply chain process of its clients.
Navigators Logistics was engaged in transportation on of various types of liquid cargos, gases,
chemicals, etc. It intended to extend its services beyond transportation, and wanted to serve
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as a strategic planning partner to its clients by extending services such as analyzing material
shortfall, giving more visibility to their supply chain inventory, enhancing customers’
experience and likewise, to its clients.
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To serve the needs of its existing clients in a better way and also to add new clients to its
folio, the organization had expansion plans in the years to come. In addition to this, the
organization was also looking forward to diversify and provide solid cargo handling
services and warehousing services to the clients. This would enable the organization to
move a step further in achieving its mission to provide top quality logistics services to help
improve the supply chain management of its clients, by offering value added services such
as building customer relationship, warehousing (for clients having storage needs), daily
consumption planning and visibility of inventory to mention a few.
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Navigators Logistics had a unique style of operation. It had mostly dedicated its vehicles to
specific clients/products on long term basis, so as to be able to offer consistent services.
However, the exclusive vehicle system was feasible only for contractual clients, such as
GSPC, whereas, for all the other clients the vehicles were to be pooled. This strategy was
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adopted to indirectly push more clients to enter into a contract with Navigators Logistics,
thereby providing the company with an estimate of the volumes of demand.
BACKGROUND
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Navigators Logistics has its registered office at Ahmedabad, Gujarat. It also has branch
offices situated at Bharuch, Gandhidham and Kandla (see Exhibit 1). The Ahmedabad office
of Navigators Logistics was founded jointly by Mr. Ketan Shah and Mr. Chirag Patel in the
year 2008. While Mr. Ketan Shah brought with him the expertise in the field of chemical
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trading and transportation, Mr. Chirag Patel was himself a chemical engineer. Mr. Ketan
handled administration, finance and business of the company and he was also the founder
of Multichem Corporation, a chemical trading firm that had an in-house transportation
department for more than 25 years. Preet Shah s/o Mr. Ketan Shah was the Executive
Director of the office. He had been associated with the company since January, 2012. He
managed business development and operations at Navigators Logistics and also looked
after the in-house transportation department of his father’s chemical trading firm Multichem
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Corporation.
After finishing his MBA, Preet had initially joined the commercial banking department of a
leading private sector bank in Ahmedabad. Perceiving his role at the bank to be
monotonous, he quit his bank job and decided to join family’s traditional chemical trading
business. The dynamic nature of the transportation business motivated him to join
Navigators Logistics. Moreover, since the Shah family was based in Ahmedabad, it provided
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him the necessary support and also consideration from a number of family members.
SERVICES OFFERED
Initially the company decided to venture into the field of transportation services, in
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particular, transportation of Ethylene oxide gas, which was extremely hazardous to carry.
However, the segment was very niche to cater; it also had a very limited scope for growth
due to the limited end application of the product. So, the company decided to venture into
transportation of crude oil which was subsequently followed by hazardous chemicals, in
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tankers. The distribution was spread across India and that decided the future course of
action for the company. The company achieved expertise in handling and transporting
hazardous supplies. Navigators Logistics as an organization was committed to provide
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professional transportation services of hazardous liquid chemicals.
There were a number of statutory requirements to be fulfilled for transporting hazardous

material. The tanks had to be calibrated every year and the license of vehicles needed to be
renewed from time to time. The license in this regard was issued by Petroleum & Explosives
Safety Organization (PESO). All these renewals had to be done well before time to avoid any
safety issues. Also, the drivers carrying the cargo had to be trained appropriately for safe
and risk-free transportation and the company needed to ensure that every driver had a
training card, authorizing him to carry hazardous material. This card was also to be
endorsed by the regional transport office along with the valid license. The company had to
petroleum class A/B, 2002. Some of the important rules are listed below:
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abide by certain rules and regulations that were laid by PESO under the petroleum rules for
No leaky tank or container containing petroleum shall be tendered for transport.

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 No person while engaged in loading or unloading or transporting shall smoke or
carry matches, lighters or other instruments capable of producing ignition or
explosion.
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 Petroleum shall not be loaded into, or unloaded from any vessel or vehicle between
the hours of sunset and sunrise
 Every tank vehicle used for the transport of petroleum, in bulk on land shall be built,
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tested and maintained in accordance with the requirements laid down in the Third
Schedule and be of a type approved in writing by the Chief Controller
 The tank should be fabricated and mounted on the vehicle chassis by a manufacturer
approved by the Chief Controller.
 should be 97 percent of its gross carrying

The net carrying capacity of the tank shou
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capacity in case of petroleum Class A and 98 percent for petroleum Class B.
 A portable fire extinguisher (10kg, dry chemical powder or equivalent) suitable for
extinguishing petroleum fire should be carried in an easily accessible and detachable
position and away from the discharge faucets on every vehicle which is transporting
petroleum by road. Additionally, one dry chemical powder type fire extinguisher of
1kg capacity should be carried in the driver’s cabin of the vehicle.
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 unloaded from a vehicle until its wheels have

Petroleum should not be loaded into or unlo
been secured by efficient brakes or by scotching.
ASSETS
The only vehicle employed by the company in transportation was the Truck.. The company
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used to buy their own trucks. Exhibit 2 shows the picture of a truck used by the company.
When Preet joined the company in 2012, the company operated with a fleet of 29 trucks of
various manufacturing companies (Tata, Mahindra,ndra, Ashok Leyland, and Eicher). All the
trucks were fitted with tanks made up of mild steel. The gross capacities of these tanks were
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31 tons and 25 tons. The complete distribution of trucks used by the company can be found
in Exhibit 3.
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PROBLEMS WITH THE EXISTING TANKS
The mild steel tanks used by company had a lot of issues with them. Though a mild steel
tank used to cost just around INR 2.5 lakhs (as compared to other investments), the
maintenance costs of these trucks would add up to huge amounts (see maintenance costs for
various years in Exhibit 4). Most of the tankers were loaded at Kandla Port. The humid
weather there used to make the tankers rusty. It required proper and periodic maintenance
for proper fitness of the tanks. The tankers had to be painted with special anti-rust coating
and proper servicing of the trucks had to be done (once in every 6 months) to ensure long
life of trucks and also reduce the risk of leakage. All these measures used to add up to huge
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maintenance costs and despite all these costs, the trucks had to be divested in 4-5 years.
CLIENT BASE
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The initial clients of the company were GSPC, Pon Pure Chemicals, CJ Shah Specialty,
Sanjay chemicals, Simali Industries and Balaji Formalin. These clients were located in
Gujarat, Madhya Pradesh and Maharashtra. These clients were of high value to them as they
were associated with the organization since Navigators Logistics was founded. These clients
were mostly local and small scale chemical industries. Exhibit 5 reflects the location of
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various clients on the map of India. Refer to Exhibit 6 and 7 for the share of individual
clients towards the total business.
ROUTES
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The routes on which the company operated were generally short, covering a distance of not
more than 1600 kilometers in a round trip. The average distance per round trip was around
714 kilometers (refer to Exhibit 8 for complete data of the routes and trucks for the year
2011-2012). The routes that the trucks used to follow were majorly national highways and
state highways. Refer to Exhibit 9 for the routes on the map of India.
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Vehicle Tracking System (VTS) and Fleet Utilization
The company had installed VTS on each of its trucks to monitor the location during the trip.
This way they could provide their clients with the whereabouts of their goods while in
transit and also the time when the consignment would reach the destination. GPS data of the
trucks could be used to calculate utilization of the fleet. Refer to Exhibit 10 for GPS data of a
truck for all the days of May 2012. The average utilization of that truck was 13.23 percent for
that month.
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_________________
1 USD = 63.34 INR

On an average, 4 days were taken by a truck for one round trip. The distance covered in a
round trip was 700 kilometers on an average. The average number of trips taken by a truck
per month was around 5. The average utilization of the trucks was 13.69 percent per month
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in the year 2011-2012. Refer to Exhibit 8 for average monthly data of the trucks for the year
2011-2012.
Route Profitability
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The fixed cost of the chassis of the truck was around
ound INR 20-22 lakhs. The cost of mild steel
tank was INR 2.5 lakhs. The operational costs, administrative costs, maintenance costs and
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financial costs accounted for a total of around INR 90,000 to INR 140,000 per vehicle per
month. The revenue generated per vehicle per month was approximately INR 100,000 to
INR 150,000. Thus profit generated per route was around INR 15,000 to INR 45,000 per
month. Refer to Exhibit 8 for complete data.
EXTERNAL PROBLEMS
After joining the business in 2012 and having worked for one year, Preet began to realize
that he was not comfortable in doing business with the existing clients. There were various
problems associated with these clients that made him uncomfortable in doing business with
them. These were:

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Scattered client base:: It became difficult for Preet to do business with traditional
techniques and scattered client base after having professional banking experience and
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qualification. The clients with whom the company operated at that time were mainly
local chemical importers and small scale chemicals manufacturing companies. They
were not contractual clients. These clients were sole proprietors. They were not
professionals and he found it uncomfortable to do business with them, on a personal
level.
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 demands: There were inconsistent demands from these

Inconsistency in volume of demands:
clients over the year. During the year, in case of turbulent times in market, their volume
demands used to decrease abruptly affecting the cash flows of Navigators Logistics.
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This fact is evident from Exhibit 7 and Exhibit 11 which shows the range of average
volume demands of various clients over the year. For instance, the average monthly
volume demand of Pon Pure chemicals ranged from 400 tons to 600 tons which was not
profitable for the company.
 Low utilization of vehicles year The utilization of the fleet over the year was
vehicles over the year:
not sizeable enough owing to the low demands of these clients. The average utilization
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of the vehicles every month was just around 15 percent. 40 percent utilization was on
the behalf of vehicles rented in market. Ho
However it was not profitable enough. Rest of
the times the vehicles used to remain idle which was unprofitable as stand by costs of
each vehicle was around INR 2500-3000 per day. Moreover during turbulent times in
economy, the utilization of vehicles would come down to a mere 5 percent per month
which was certainly not profitable.
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 paymasters: The clients were poor paymasters. There were unnecessary follow ups
Poor paymasters
with the clients for payments. The receivable period of payments by the clients
extended to about 4-5 months. This had an adverse effect on the cash flows of the
company.
 Very little growth opportunities:: Since these clients were mostly small scale
proprietors, their growth over the years was not remarkable. This was evident from the
fact that the profit that the company made remained almost the constant across the
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years from 2009 to 2012 (See Exhibit 8). In a service based industry like transportation,
business growth is directly proportional to the growth of its clients. Since these clients
didn’t reflect any remarkable growth and their solvent demands never increased much,
Navigators Logistics was also not able to expand its operations much over the years.
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INTERNAL PROBLEMS
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Apart from the problems stated above, the company faced problems internally as well. The
company failed to match the estimated outcomes and was untouched by the technological
innovations taking place. All the data entry was done using the pen and paper medium
which was very inefficient and time consuming. The internal reporting and accounting
system was weak. Dispatches were not planned properly. Lot of time was wasted in un-
necessary follow ups with the clients and other associated agencies during loading, like
terminal customs and clearing agents. A lot of time was wasted in manual trip calculations,
like driver’s expenses, trip duration, etc. All the transactions were made through cash which
was inefficient. Diesel accounted for 70-75 percent of operating costs and there was no way
of keeping a check on money actually spent by drivers on diesel as the dealings were in
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cash. No emphasis was laid on the technical aspects of maintenance and wheel replacement
issues. Old traditional vendors were associated with maintenance work. Drivers’ health and
safety were not given adequate attention. They had to drive continuously for days and as a
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result they suffered from fatigue.
Impact of external issues on the functioning of Navigators Logistics
The major effect of the issues that company faced with clients reflected on the cash flows of
the company. Coming from the small scale industries background, these clients never placed
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orders for large volume of solvents and as a result the company never generated high
revenues at any given time. Also the clients were poor paymasters and the company had a
credit period stretched to over 5-6 months. The unprofessional nature and the negligent
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attitude of the clients hindered the growth of the company. The clients themselves didn’t
grow much over the years and as a result the company never really got a chance to grow.
CORE ISSUES
Preet believed that their client base and functioning of the company was such that it was not
facilitating the growth of their business. Following the economic crisis of 2012-2013 and
having faced all the above said issues, Preet pondered upon what to do. The decisions to be
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taken revolved around (a) Whether to go with the original clients or to restructure the client
base? (b) What should be the criteria for deciding new clients? (c) What growth strategy
Preet should have adopted? What technological reforms should he have introduced to make
the company more efficient? (d) What unique features should the company adopt to make
them different from their competitors?
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Exhibit 1
Location of various offices of Navigators Logistics in Gujarat
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Source: Authors’ Analysis
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Exhibit 2
Photo of truck used by Navigators Logistics
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Exhibit 3
Distribution of fleet of Navigators Logistics
Manufacturing Number of Gross capacity Number of Material
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company trucks (tons) wheels of tank
Mahindra 2 31 12 Mild steel
Eicher 2 31 12 Mild steel
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Tata 5 25 10 Mild steel
Tata 9 31 12 Mild steel
Ashok Leyland 11 31 12 Mild steel
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Exhibit 4
Revenues, expenditures and profits of the company
(in INR)
Year -> 2009-2010 2010-2011 2011-2012 2012-2013
Revenue 7811778 17618273 35840621 53903763
Operating and other expense 3945315 10437055 25664153 36548859
Administrative expense 271833 415921 1392123 2531060
Employees benefit 436545 1000031 2455039 3854949
Financial charges
Depreciation
Total expenditure
1146218
10006529
6826440
N 2244258
2260459
16357724
3679268
4430045
37620629
7318759
6816892
57070518
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Profit 985338 1260549 1780008 3166755
Exhibit 5
Location of clients on the map of India
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Exhibit 6
Distribution of quantity of material transported to various clients
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Exhibit 7
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Quantity of material transported to various clients
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Client Product Monthly average of Monthly quantity of
quantity of material material transported
transported to to various clients
various clients (tons) ( tons)
GSPC Crude Oil 350 270-430
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Pon Pure Chemicals Solvent ((Petrochem
(Petrochem)
Petrochem)) 500 400-600
CJ Shah Solvent (Petrochem) 300 250-350
Sanjay Chemicals Solvent (Petrochem) 75 50-100
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Simali Industries Solvent (Methanol) 600 450-750

Balaji Formalin Solvent (Methanol) 350 300-400
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Exhibit 8
Typical monthly data for trucks for the year 2011-2012
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Route Number of Round trip Total days Monthly Run Time Total
trucks used distance taken in trips Utilization revenue
on the route (kilometers) round trip (INR)*
Kandla to 5 500 3 5 10.00% 600000
P
Gandhinagar
Kandla to 5 70 2 8 6.67% 400000
Bhimasar
Kandla to 4 40 1 10 3.33% 500000
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Gandhdham
Kandla to 5 592 4 4 13.33% 550000
Ahmedabad
Kandla to 5 1312 6 3 20.00% 700000
Vapi
Kandla to 5 1640 8 2 26.67% 850000
Mumbai
Average Average Average Average Total
distance number of monthly utilization revenue
travelled days taken trips per per truck per month
per truck
per month
in round trip
= 714.82
N
per truck
per month
in round
trip = 4.1
truck per
month
= 5.17
per month
= 13.69%
= 3600000
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* Gross profit ranges from 25-30 percent of the revenue
Exhibit 9
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Routes on which trucks operate on the map of India
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Exhibit 10
GPS data of a truck for May 2012
Y
Date Driving Idle Time Standing Total Time Distance Utilization
Time Time travelled
(hh:mm:ss) (hh:mm:ss) (hh:mm:ss) (hh:mm:ss) (km) (%)
1/5/2012 0:00:55 14:22:02 9:37:03 24:00:00 5.0 0.00
P
2/5/2012 3:27:24 2:22:56 18:09:40 24:00:00 141.2 14.38 T Kandla
3/5/2012 11:11:38 1:44:30 11:03:52
1:03:52 24:00:00 452.0 46.60
R to
4/5/2012 8:30:37 1:33:25 13:55:58 24:00:00 343.3 35.42
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5/5/2012 3:48:17 3:59:33 15:12:10 24:00:00 149.9 14.90 I Mumbai
6/5/2012 4:22:03 1:42:53 18:55:04 24:00:00 176.3 18.19
P
7/5/2012 3:53:48 1:30:57 19:35:15 24:00:00 156.2 15.68
8/5/2012 2:56:36 0:46:02 20:17:22 24:00:00 117.2 12.22 1
9/5/2012 0:00:00 0:00:00 24:00:00 24:00:00 0.0 0.00
10/5/2012 3:43:21 5:24:56 15:51:43 24:00:00 153.4 15.62 T Kandla
11/5/2012 6:00:59 9:16:10 8:42:51 24:00:00 235.4 25.01
R to
12/5/2012 2:16:27 13:33:47 8:09:46 24:00:00 87.0 9.44
13/5/2012 4:16:43 3:21:21 16:21:56 24:00:00 166.4 17.78 I Vapi
14/5/2012
15/5/2012
16/5/2012
1:55:39
1:37:59
02:52:49
8:22:14
1:35:53
1:19:14
13:42:07
21:46:08
20:47:57
N 24:00:00
24:00:00
24:00:00
62.0
54.8
100.8
7.99
6.67
11.94
P
2
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17/5/2012 0:41:18 0:36:29 22:42:13 24:00:00 16.4 2.85
18/5/2012 3:55:39 1:03:58 19:00:23 24:00:00 142.0 15.99
19/5/2012 6:15:37 1:44:02 16:00:21 24:00:00 246.4 26.04
20/5/2012 3:18:59 0:20:37 20:20:24 24:00:00 127.2 13.75
21/5/2012 0:00:00 0:00:00 24:00:00 24:00:00 0.0 0.00
T
22/5/2012 0:00:00 0:00:00 24:00:00 24:00:00 0.0 0.00
23/5/2012 0:43:15 8:08:05 15:08:40 24:00:00 17.2 2.99 T Kandla
24/5/2012 2:06:13 3:35:51 18:17:56 24:00:00 82.4 8.75
R to
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25/5/2012 2:01:37 1:11:11 20:47:12 24:00:00 80.4 8.33

26/5/2012 0:13:45 1:47:06 21:59:09 24:00:00 5.2 0.90 I Ahmedabad
27/5/2012 4:08:03 8:30:52 11:21:05 24:00:00 163.2 17.22
P
28/5/2012 4:55:17 8:19:58 7:44:45 24:00:00 182.0 20.48
29/5/2012 1:23:22 8:03:43 14:32:55 24:00:00 49.2 5.76 3
30/5/2012 4:04:30 3:34:14 16:21:16 24:00:00 161.6 16.68
31/5/2012 3:53:58 1:37:55 19:28:07 24:00:00 141.2 12.45
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Source: GPS data of Navigators Logistics

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Exhibit 11
Client demand for the year 2011 - GSPC and Pon Pure
P Y
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T IO
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Spare Parts Procurement Planning at

KM Trans Logistics
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“We want to turn our inventory faster than our people.”
James Senegal
“Less emphasis on inventories, I think, may tend to dampen business cycles, because
business cycles are typically in the grasp of inventory cycles and heavy industry cycles.”
Paul A Volcker
CO
It was a clear and sunny winter morning of February 2014 in Gidani. However, the people in
the office of the Executive Director of workshop operations, KM Trans Logistics India Pvt. Ltd,
were in a somber mood. Anuj and Arihant Jain, the Executive Directors in-charge, were
discussing fresh problem created by store managers of the workshops in Gidani and Gurgaon.
The problem was disorderly procurement of spare parts (for repair and maintenance of trucks)
by store managers. Every few days, adhoc purchase orders were raised for vendors in batch
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quantities of 50 or 100.
Anuj picked up his phone to call the store manager in Gurgaon while Arihant paced the room
thinking what could be done. The store managers were only harbingers of the larger issue at
hand. The challenge was to start seeking alternative solutions to stabilize ordering of spare
parts. Better inventory management tools would prove to be just the right thing at a time when
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the company had started to make losses owing to a slow and sluggish manufacturing sector.
Kundanmal Mukanmal Trans Logistics Pvt. Ltd., was a road transportation company
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functioning as a logistics provider for flatbed steel and finished automobiles (primarily for
passenger cars and light to medium cargo vehicles).
With the Gidani workshop dedicated to repair and maintenance of a large fleet of 175 trucks;
management of spare parts inventory was a major cause of concern. A software programme to
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calculate what to order and when to order seemed to be the best possible solution to them at
that moment. A software solution named ‘MIST’ - MIS for Transporters - was procured from a
vendor in Delhi. Though it was a miniature Materials Requirement Planning (MRP) system,
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providing features such as alarms, notifications, automatic invoicing, and inventory control; the
software was not capable to estimate the values of inventory control input parameters.
THE COMPANY
KM Trans was founded by two brothers, Kamal Kumar Chandwar and Prabhachand Chandwar
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in the Pink City, Jaipur, in India on August 23, 1988. Their father, Madan Lal Chandwar
migrated to India at the time of partition between India and Pakistan. The family started
Prepared by Professor Debjit Roy and Arindam Bandyopadhyay, PGP Student (2012-14), Indian Institute
of Management, Ahmedabad.

business with textile retail stores in Pakistan and India, and then sold the business to start a
Spices Trading business, naming the company as Kundanmal Mukanmal Traders Pvt. Ltd.
When the business did not perform as per the expectations, they started manufacturing storage
tankers for diesel, petrol, and lubricants, including the gigantic ones seen at depots owned by
large oil companies. This too, did not work out too well and the Chandwar brothers decided to
venture into logistics and transportation business throughout India. An organizational structure
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chart is given in Exhibit 1. A detailed family tree is presented in Exhibit 2. Exhibit 3 highlights
the income statements for three fiscal years - 2010-11, 2011-12, and 2012-13.
The company did fairly well in the lucrative logistics and road transportation business, with the
lion’s share (96%) of the total revenues of the company coming from road transportation of
flatbed steel and manufactured automobiles. It chose to transport only those goods such as steel
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and cars which had higher turnover and profits, in addition to the benefit of having to deal with
only professional managements in both categories. Hence, even after 25 years of business, the
company was not considering transporting any other commodity in the near future. The rest of
the revenues (4%) of KM Trans came from Kota stone polishing and some real estate activities.
KM Trans maintained a fleet of 625 flatbed and car carriers, and had recently added chassis
carriers to the fleet – making it three categories of vehicles in all. Nearly 600 (97%) of the owned
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vehicle fleet were manufactured by TATA Motors.
The ‘car carriers’ segment transported nearly 17,000 cars per month. The ‘chassis/truck carrier’
segment transported around 225 trucks per month, while the ‘Flatbed Steel’ business segment
carried nearly 11,000 tons of steel per month.
The company owned two workshops. The Gurgaon workshop was spread on a sprawling 0.5
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acre open land near Manesar, Haryana, whereas the Jaipur workshop in question was located in
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Gidani, a village in Dudu District of Rajasthan which was nearly 50 kms from Jaipur, the capital
city of Rajasthan. Out of the 625 trailers, 175 were repaired and maintained in the Gidani
workshop, whereas the remaining 450 trailers were maintained by the Gurgaon workshop
which enjoyed locational advantage being close to Delhi, the national capital. The Gurgaon
operations faced minimum labor problems as the laborers there were paid on salaried terms
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and conditions (unlike Gidani where payment was on per job basis). The salaried payment
structure worked well there because of a professionally managed team and trained and more
educated workers who demanded a fixed minimum remuneration. However, since the Gidani
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workshop was equipped with better technology and machinery, some trailers would come for
repairs en-route their delivery to the client. The family was based in Jaipur city and hence, the
Gidani workshop enjoyed direct care and attention from the owners.
KM Trans faced competition only from small time flatbed steel transporters in West and North
India, and a few from South India. In car carriers business, there were small to medium sized
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transporters who generally associated with known contacts of dealers. Hence, there was
competitive rivalry amongst them. Also, there was stiff competition from steel transporters
from the East. There were a number of steel manufacturers including large conglomerates such
as TATA Steel and JSW Steel, which had long term contracts with transporters making it very
difficult to get new clients in the East. The company, therefore, had almost all of its loading
points located in the northern and western half of India – Jammu and Kashmir, Himachal
Pradesh, Delhi, Punjab, Haryana, Rajasthan, Madhya Pradesh, Maharashtra, Andhra Pradesh,
Karnataka, Kerala, and Tamil Nadu.
Unloading points, however, were spread throughout the country. “You will find KM Trans
unloading points including warehouses right from Srinagar in the North to Kanyakumari in the
South. At least one KM Trans unloading point could be located at every 50-100 kms on the map
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of India. However, the same cannot be said about loading points,” said Arihant. “Even drivers
are reluctant to go to the East for picking up loads since they are not aware of the routes and
fear bad roads and weather due to incessant rains. Most of the drivers are from the North and
West,” he added.
KM Trans executives decided to transport only flatbed steel since hot rolled / cold rolled
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(HR/CR) coils were huge and needed special machinery and cranes to be loaded and unloaded.
During the early formative years of the business, there were a few cases of the HR/CR coil
loosening from the shackles, getting untied and ramming into the horse1 of the truck, badly
damaging the horse and killing the driver instantly. After such instances, the company decided
to transport only flatbed steel. Since majority of steel plants were located in East India, the
major transporters were located in East, East-North, and South-East parts of India exclusively.
KM Trans enjoyed locational advantage since the steel plants in western India had them as a
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major transporter, primarily because Eastern part of the country was handled by other key
players such as East India Transport Agency (EITA), DARCL, and several other small players
with an annual gross turnover varying from INR 100 to 1,000 million annually. Other players in
flatbed steel and automobile carriers business across the country were - SVLL, IDEAL, Del-
Baroda-Road Carriers, Del-Gujarat-Freight Carriers, Chetak, Mahavira, etc.
What have I done!!

I
CT
Before the clock on the desk struck 10AM, Anuj wanted to act. As he stared at the computer
printout of an invoice, he prepared to call Suresh, the store manager in Gurgaon to make him
understand the seriousness of the situation created by adhoc ordering. His fingers trembled in
anxiety.
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In Gurgaon, the store manager was enjoying his early morning tea with the fellow mechanics at
the workshop. Suddenly, his phone rang. He fumbled to take the call, knowing whom it was
from, feeling nervous already.
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Suresh: [In a disturbed voice] Hello Mr Anuj. How have you been doing? I hope
everything is going perfectly.
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1In a truck, the front part containing the locomotive machinery with the driver, engine and cabin is called the horse,
whereas the latter part which carries and contains the load is called trailing part or trailer. The horse part is self-
sufficient for locomotion and powers the truck whilst the trailer is just a passive carriage with no power or
propulsion mechanism. The truck cannot move without the horse part.

Anuj: Good morning Suresh! I called to check if you’re aware of Invoice # 3128906
dated 4th January 2014 sent to Advance Automobiles; 3 barrels2 of engine oil. I
hope it sounds familiar.
Suresh: Yes. Dinesh (store helper) placed the order 2-3 days back. Has anyone from
Advance Auto replied as to when they are going to supply it? I’m expecting the
barrels to be here before evening.
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Anuj: They’d rather not deliver it. I want the order cancelled.
Suresh: [cutting short] But why? Trucks were waiting last week due to engine oil
shortage. I didn’t want a repeat of that situation and hence I ordered the barrels
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that would take care of the demand for next 15 days! Are you sure we need to
cancel it?
Anuj: Suresh, for the past several months, I have been noticing the irregularities in
making spares available on time. On several occasions trucks have to wait due to
shortage and at other times you order in huge excess. Do you realize that we
incur an interest cost which amounts to a staggering 10% of the excess
inventory?! Had we been required to pay rent for the storage space or very high
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insurance premiums, our business would not be running till this date! I hope
you understand my point. Also, please do the order cancellation as soon as
possible.
Suresh: Yes, I understand, Mr. Anuj. I thought I had predicted the demand correctly last
week but two accident and five oil change cases came in together which consumed
lots of engine oil. After that, I could do nothing but to make the next trucks wait.
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Hence, this time I thought it better to order in excess. Did I make a mistake?
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Anuj: Suresh, we need to be very careful from now on. We cannot continue like this.
Our income statements have begun to show losses for the first time in several
years. Next order onwards, we need to provide a better order quantity estimate
for each spare part that you include in the e-mail every time you place an order. I
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hope you will be able to do that.
Suresh: Yes. I will ensure that I calculate properly before ordering next time.
SP
Workshop Operations
The Gidani workshop was fairly self-sufficient as far as repair and maintenance of trucks was
concerned. The family decided not to engage authorized service centers for repair and
maintenance of trucks because they not only increased the cost per repair, but also caused
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excessive delays, taking up to five days to repair small problems which could be fixed in a
matter of a few hours if done in-house, provided mechanics and all spare parts were made
available. On some occasions, service centers even performed unnecessary repairs, that is, parts
that might not need repairs in the near future were replaced or tampered with unnecessarily.

2One barrel equals 210 liters of fluid (oil or lubricant). In workshops, fluids are ordered in multiple units of barrels.
Opened or unsealed barrels are generally rejected at the time of inspection.
Recently, the workshop acquired a TATA authorized service center status. It continued to hold
repair operations for its own trailers. The management did not plan to engage in repair work for
trailers owned by other parties as it would be hard to deliver others’ trucks on time, when they
were struggling to keep pace with their own fleet. The number of trailers owned by KM Trans
(with the categorized breakup) during the last three years is given in Exhibit 4.
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The workshop procured all its spares inventory from authorized dealers of spare parts and
stored them in its own stores in the workshop after batch inspections at Jaipur sales office. Spare
parts were issued to mechanics for repair and maintenance. Shortage of spare parts was
generally not a major problem for the workshop. When a truck arrived at the workshop, the
driver was expected to first inform the security personnel at the gate about the problems in the
truck that required repair. If it was a very minor issue requiring less than 30 minutes of repair
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time (for example, headlight broken, minor lubrication, small wiring changes), it was not
allowed to enter the premises. Repair was done outside the gate directly on the service lane
outside the workshop.
All repairs were carried out in-house. Some parts were procured from local dealers at lower cost
– which might be of inferior quality, but the advice of expert technicians and the works
manager was generally taken in cases of deviation from genuine component purchases.
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The bays and mechanics were reserved for KM Trans fleet only. With regards to outsourced
repair, a few cases of accident, engine overhaul, Fuel injection pump (FIP), steering, radiator,
turbocharger, boring engines, and alignment were contracted to third parties who were allowed
to bring mobile vans to the workshop for conducting repairs. Sometimes, giving a call to mobile
repair vans worked well to save time and trouble. Some tasks such as wheel balancing had to be
necessarily outsourced as it was not feasible for the company to incur high fixed costs of
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purchasing and maintaining computerized high technology machinery which would be used
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sparingly. In case of outsourced engine overhaul, the truck would occupy the bay for the entire
duration of time the engine was under repair (separated from the horse). These trailers weighed
several tons and it would be costly to invest on a machine that could tow away the trailer while
the engine had gone for repair. This was another factor contributing to low efficiency of
operations.
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Some spare engines, engine components, gears, radiators, and a few critical components were
repaired and kept as standby on rotational basis to save time and money during emergency
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delivery situation. Delays were greatly minimized using these spare components.
Seasonality of jobs also played a role in spare parts ordering – for example, in the rainy season,
tyre problems and accidents were more frequent. During summers, engine overheating and
head repairs were more common; while in winters, lamp repairs were frequently reported by
drivers. Anuj neither wanted to use the MIST software for ordering seasonal items, nor was he
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interested in calculating inventory parameters for such items since they could be ordered on-
demand and at will.
Store Operations
The stores were located within the workshop premises in both Gurgaon and Gidani. The Gidani
workshop was established in June 2004 when the company decided to carry out repairs on their
wholly-owned fleet rather than involving authorized service centers. The stores were
established in 2009 and renovated once in 2011 to create space for more spare parts.
Prior to 2009, spare parts were managed by a local third party vendor in Jaipur. The vendor was
given some space in the workshop to stock parts and operate efficiently. However, things did
not work out well as there were frequent problems of trucks waiting for spare parts. Also, there
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were repeated issues of over-pricing and fraudulent billing. Hence, the vendor was de-
contracted and the company decided to start stocking parts on their own.
Exhibit 5 shows the layout of the stores. The engine room as shown was also established in 2011
when the company started stocking spare engine, gear and clutch components. As seen in the
layout, there was a tyre and lubricant storage room where, in addition to five barrels of engine
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oil and 1-2 barrels of lubricant; new and used tyres were kept. Tyres were ordered by very
senior executives of the company because of heavy inspection and high level of adherence to
minimum specifications and quality and high expense incurred in purchasing. Each tyre was
procured for a price of minimum INR 18,000, ordered only from specialized vendors, inspected
thoroughly for marks, proper treading, thickness, sturdiness, shape, design, and several other
parameters and was tested at the workshop before being accepted. After it passed inspection, it
was stored in the room as given in the layout. Because of these reasons, “we would like to keep
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tyres out of our calculations, they were procured by senior executives anyway,” said Anuj.
The main store room, as seen in the layout, was 5m X 6m in size and had four rows of storage
racks, each row having five racks making it a total of 20 racks. There were six shelves in each
rack and these shelves were separated from one another by a vertical gap of nearly two feet.
When all the shelves were full, the spares which would not be affected by dust, moisture, water,
chemicals or pests and rodents were kept on the floor. This room could hold 5 to 10 units of
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each spare part. Exhibit 6 contains the list of top 50 spare parts used in the workshop. These
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were either the most expensive or the most fast-moving components used in trucks, in other
words, of utmost interest and importance for the store manager. Exhibit 7 contains the usage
pattern of each of these parts for 36 months i.e. from January 2011 to December 2013.
The fast moving (highest demand) items were kept close to the stores helper for easy
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accessibility. The heaviest items were kept in the lower shelves whilst the lighter ones on the
top. Engine Oil was the most frequently used item followed by light bulbs. Engine oil arrived in
barrels and the barrels were taken directly to the lubricants and tyre storage room. There was an
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electric-mechanical extraction system that pumped out required amount of oil from the barrel in
varying amounts corresponding to each type of truck. This prevented any oil contamination or
back-flow into the barrel. There was less than 0.5 per cent oil wasted due to spillage or pilferage.
The same applied to other spare parts as well. Wastage, in whatever small amounts, happened
only if there was some technology upgrade or the truck for which the part was intended got
irrecoverably damaged or was sold. There was negligible loss incurred due to bad
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recordkeeping.
The spares room cleaning and maintenance cost was nearly INR 7,500 per month. The store
manager got a salary of INR 15,050 per month and the store assistant got INR 13,000 per month
as compensation. Both these executives were present at the store during regular working hours
of the workshop from 10.00 AM to 6.00 PM daily with an hour of break in between. They were
responsible for tracking parts arrival, issuing parts to mechanics, updating job sheets and parts
requisition, and updating the inventory level on computer. Mechanics generally did not have to
wait for more than five minutes to get the requisite spare parts.
KM Trans paid an insurance premium of INR 18,685 per annum for the spare parts and the
stores. The opportunity cost was nearly INR 2,500 per truck per day hence it was crucial for all
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parts to be made available on time. Any delay in parts availability that made a truck wait for the
next day to get repaired was unacceptable. The cost of processing orders - forms, paper, phone,
email, labor, and other things was nearly INR 1,500 per month.
The workshop did not use any computer-based intelligence or software for inventory
management. The MIST software was to bring in a welcome change, reducing manual effort
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and errors in procurement schedules.
Procurement Policy
Parts were ordered via a two-leg transportation mechanism wherein the Jaipur sales office acted
like a miniature warehouse for preliminary counting and inspection of the next incoming order.
A bunch of vendors catering to the orders of all the transporters in Gidani area packed the
combined set of spare parts into a van such that all the space in the van was fully utilized. The
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van did the rounds in Jaipur almost daily and each transporter got his orders delivered,
counted, and inspected before the van left for the next transporter. The van was released from
duty only when it was empty. KM Trans got some or the other invoice delivered every day. On
average, every spare part got delivered twice a week – mostly due to mismanaged inventory
orders by store managers. This comprised the first leg of transportation.
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Figure 1: Two-Leg Transportation at KM Trans workshop stores in Jaipur.
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TC1
TC2
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Dealer
KMT K M Trans Jaipur
Hired Van
Sales Office for
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Inspection & K M Trans

Intermediate Hired Van
Warehousing
Spare Parts Dealer K M Trans Workshop

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TC3
TC4
1 Leg Transportation
st 2nd Leg Transportation
NOTE: TC1 to TC4 denote the other transportation companies in Jaipur being served by the same dealer. The same
van distributes parts to all the companies in the vicinity. As many parts as possible are filled in the van before it
leaves for its rounds. This is done by the dealer to save transportation costs.
In the second leg, the parts from the Jaipur sales office were taken to the workshop stores as and
when the need arose. The order quantity and procurement schedule in the second leg too
depended on the discretion of the store manager, rather than an analytical or quantified
mechanism of calculating when and how much to order (see Figure 1). The van used for the
second leg transportation was hired by KM Trans and not by the parts dealer or any other
party. If a part was required urgently such that waiting for a van to be hired would make the
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trucks under repair wait on the bay; an executive of the workshop was authorized to carry the
part(s) in his personal vehicle on way to office.
Shipping Costs came to nearly INR 20,000 per month (tempo, carriage of parts, packaging items,
etc.). Handling costs (loading, unloading, and miscellaneous expenses), generally incurred once
every week, was nearly INR 980 per order for the first leg from dealer to Jaipur office and INR
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200 per order for the second leg from Jaipur office to workshop.
Most transporters in the vicinity of Jaipur followed this two-leg transportation scheme since it
allowed for the registered sales office to do a preliminary inspection and intermediate
warehousing. Also, it prevented shocks in inventory – when there was either too low or too
high demand for repairs. After KM Trans started their own stores, they actually saved
transportation costs, out of schedule deliveries, and also streamlined the procurement to a great
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extent. Price fluctuations reduced, fraudulent billing was eliminated completely, and most
importantly, the instances of trucks waiting at the bays requiring repair due to shortage of spare
parts reduced considerably.
The average time for arrival of parts from the dealer to the intermediate Jaipur warehousing
office was generally 1.5 days with a standard deviation of 0.2 days. From the warehouse it took
an average of one day for the parts to reach the workshop store with a standard deviation of 0.2
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days. Hence, from the time orders were placed, parts generally reached within three days.
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The Mystery of MIST!
As Anuj and Arihant pondered over the issues plaguing their store operations and whether,
how and when the MIST software could be put in place to streamline their inventory
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procedures, the phone rang once again at 4.15 PM.
Caller: “Hello Mr. Arihant.”

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Arihant: “Yes, who is it?” Arihant switched on the loudspeaker for Anuj to hear.
Caller: “This is Hari calling from Delhi regarding our MIST software deal with KM
Trans.”
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Arihant: “Hello and Good Morning. We need to discuss a few things. The most important
among those is - What all parameters do we need to supply to the software to
make it take over inventory control all by itself?”
Caller: “You need to provide maximum inventory order-up-to level, inter-order time
period in days, and the reorder level for each of the spare parts. After that, it
should be able to take over.”
Arihant: “OK. When can you send a technician over to set things up here?”
Caller: “Not before 21st February but definitely before 1st March. We only have a single
visiting technician earmarked for semi-premium customers and he is going to
leave for Calcutta on 1st of March.”
Arihant: “That is going to be a problem. We do not have the calculations in place at the
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moment. The server hardware hasn’t been set up as yet. It is hard to believe that
you do not have any other technician who can guide us. Please make alternate
arrangements.”
Caller: “Sorry for the inconvenience, Mr. Arihant. The only advice that I can give you is
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to ask you to upgrade your membership to a premium category. Then we can give
you a dedicated technical advisor and consultant. This will cost you INR 254,000
in addition to your current subscription.”
Arihant: “We will think about that. But as for now, please book 28th February as our
meeting date with your executive. There is no way we can finish our inventory
calculations before that.”
Caller: “Definitely. Goodbye.”

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Arihant: “Goodbye.”
Anuj stared at Arihant trying to absorb his brother’s predicament. February 28 was fast
approaching. There was hardly any chance of them completing their number work till the
executive arrived but it had to be done anyway to prevent inefficient inventory ordering in
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future. INR 254,000 for a dedicated consultant was too much of a price which they could do
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well without spending. They wondered what to do.

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SP
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EXHIBIT 1
KM Trans Organizational Structure
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K M Trans
[The
Company]
K K Chandwar Prabha Chand

[MD & Chandwar
CO
Founder] [CEO & MD]
Amit Chandwar
Finance HR [Director Operations &
Marketing]
CA1 Anuj Jain Arihant Jain Gaurav Berera

(Chartered
Accountant)
IR
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CA2 Sahil Sharma

Sales & Flatbed
(Chartered Recruitment [Works Marketing Business
Accountant) Manager]
I
Supervisor Dinesh Arya
CT
Supervisor Supervisor Chassis Carrier

Workshop Spares Store [Works
Reporting Works Business
Floor Manager]
Floor &
Data Entry Store In- Marketing
Floor Incharge Accident In-
TEAM Charge Functions
Charge
E
Mechanics Mechanics
(Accident Storekeeper
SP
(6 Teams) Mechanics)
Subordinate
IN
EXHIBIT 2
Family Tree
Kamal Kumar Chandwar

Amit Chandwar
PY
[Founder & Current MD;
BA, Gold Medalist] [MBA Mkting, Sydneham
Started his career at the College, Mumbai]
age of 16 with father's Joined the business in
business of spices 2001, started car carrier
trading. Started KM Trans business. Currently in
in 1988. Fleet of 15 charge of purchasing, sales
trucks, LPG Cylinder and BD.
CO
transportation
Arihant Jain
Prabha Chand Chandwar
[Executive Director;
[Co-Founder & Current Masters in International
Madan Lal Chandwar CEO; M.Com, LLB] Mgmt. from IE Business
[Grandfather of Anuj & Responsible for overall
ON School]
Arihant Jain] leadership, business Incharge of overall field
Carried forward the growth and HR, IR, and sales and marketing and
legacy of the Family Recruitment. Backbone of chassis carrier business.
Business named the family business.
A key figure in the case.
'Kundanmal Mukanmal
Traders Pvt Ltd' with
spices trading. K M Trans
Logistics was started by
his sons Prabha Chand &
I
Kamal Kumar Chandwar.
Anurag Jain
CT
[MBA Marketing]
Joined Kota Stone

business in 2006,
Naresh Kr. Chandwar currently handling all
[M.Com, LLB] the responsibilities of
Kota Stone business.
E
Started his business career

at the age of 20 with spices
trading. Moved to Kota
SP
Stone Polishing and

processing factories
business. Runs 2 factories in Anuj Jain
hometown Ramganj Mandi [Executive Director;
(Dist. Kota, Rajasthan). M.Com, Delhi
University]
Handles all daily
workshop operations
IN
in Jaipur. One of the

key figures in the
case.
Source: Interview and Company Records

EXHIBIT 3
KM Trans – Income Statements
Income Statements (in INR crores) 2010-11 2011-12 2012-13

Revenues 155.75 181.13 190.87
PY
Operating Costs 120.70 140.41 153.90
Gross Profit 35.05 40.72 36.97
Admin Expenses 2.03 2.53 2.91
Selling Expenses 22.53 26.59 23.86
Employee Benefit Exp. 2.59 3.35 4.49
PBIT 7.63 8.25 5.71
CO
Interest Expense 6.48 7.69 7.13
PBT 1.15 0.56 -1.42
Tax 0.26 0.19 -0.15
PAT 0.89 0.37 -0.32
EXHIBIT 4
ONFleet Size Variation
(September 2010 - December 2013)
As on Date Car Carrier Flat Bed Carrier Chassis Carrier TOTAL

30/09/2010 356 140 0 496
31/03/2011 359 142 0 501
I
30/09/2011 401 174 0 575
CT
31/03/2012 412 160 0 572

30/09/2012 417 152 05 574
31/03/2013 412 143 25 580
30/09/2013 420 119 53 592
E

SP
IN
EXHIBIT 5
Stores Layout
PY
CO
I ON
E CT
SP
IN

EXHIBIT 6
Spare Parts List – Top 50
(Most Expensive & Most Frequently Used)
Min Cycle
Part Cost
Part No. Part Name Supplier Supplier Name Order Service Co/Cu
INR
Qty. Level
PY
P_0000M1 Engine Oil Ch4 167 Shell Advance 209 100 0.010
P_275225200 Clutch Plate 60No. 4,200 Tata Vijay 5 100 0.005
P_275225400 Pressure Plate 9,600 Tata Vijay 5 100 0.005
P_278609139 Air Filter Outer 1,001 Dealer Vijay 20 100 0.005
P_278607989 Water Separator 371 Tata Vijay 24 100 0.005
P_0000M5 Crown Oil 85W140 158 Shell Advance 209 100 0.010
CO
P_0000M2 Engine Oil Ci4 175 Shell Advance 209 100 0.010
P_272425200 Clutch Plate 75No. 5,796 Tata Vijay 3 100 0.005
P_252718130 Oil Filter N/M 1,052 Tata Vijay 10 100 0.020
P_272425400 Pressure Plate 10,062 Tata Vijay 3 100 0.005
P_0000M4 Gear Oil 80W90 158 Shell Advance 209 100 0.010
P_278609119 Diesel Filter 185 Tata Vijay 24 100 0.005
P_278609139 Air Filter Inner 330 Dealer Vijay 20 100 0.002
P_0000M7 Coolant 135 Valvoline Vijay 50 100 0.001
P_278618139 Oil Filter 210 Tata Vijay 24 100 0.005
P_265172300 Door Lock 221 Vendor Ramanuj Motor 20 100 0.005
P_269126204
P_278605999
Synchro Cone
Tappet Cover
ON
1,690
67
Dealer
Tata
Vijay
Vijay
10
120
100
80
0.002
0.005
P_257681100 Side Glass 83 Vendor Shubh Laxmi 48 100 0.005
P_100000124 2467 Bulb 15 Dealer Goyal 220 80 0.010
P_10020010 Clutch Booster 3518 4,587 Dealer IMPL 4 100 0.005
P_269126204 Synchro Cone 5/6 1,754 Dealer Vijay 6 100 0.002
P_278609999 Fuel Strainer 108 Tata Vijay 20 80 0.005
I
P_278615999 Fan Belt 398 Tata Vijay 10 50 0.001
P_278620999 Viscous Ass. 3516 4,700 Dealer Bhagwati Intl. 2 100 0.002
CT
P_100001566 Wheel Bearing 857 Nbc Metro Sales 5 100 0.002

P_100000124 2441 Bulb 14 Dealer Goyal 220 80 0.010
P_278615999 Fan Belt Tensioner 1,849 Tata Vijay 5 80 0.002
P_278620999 Water Pump Bs2 2,013 Tata Vijay 3 100 0.002
P_400004124 Head Light Bulb 12V 181 Dealer Goyal 20 80 0.002
P_0000M9 Brake Oil 250Ml 233 Tvs-Girling IMPL 10 100 0.002
E
P_278613999 Kit 1/226 357 Webco IMPL 10 80 0.005

P_257689100 Cabin Shocker 422 Tata Vijay 10 80 0.002
P_400004244 Head Light Bulb 24V 201 Dealer Goyal 20 80 0.002
SP
P_278614605 Hump Hose 172 Vendor Modi Motor 10 100 0.005

P_300003070 Kit 3/70 357 Webco IMPL 10 80 0.005
P_278613999 Kit 1/215 193 Webco IMPL 10 80 0.005
P_261854249 Horn 24V 255 Dealer Shubh Laxmi 10 100 0.005
P_266835607 Rear Wheel Oil Seal 55 Silver Seal Modi Motor 30 100 0.002
P_269854209 Horn 12V 151 Dealer Shubh Laxmi 10 100 0.005
P_300003066 Kit 3/66 236 Webco IMPL 5 80 0.005
IN

P_700000000 Three Bond Big 90 Vendor Modi Motor 20 100 0.005
P_26216033 Alternator Cutout 737 Dealer Shubh Laxmi 3 70 0.001
P_800000016 Joint Socket 6Way 55 Dealer Shubh Laxmi 20 100 0.001
P_261854500 Combination Switch 401 Vendor Shubh Laxmi 5 100 0.003
P_257633407 Front Wheel Oil Seal 35 Silver Seal Modi Motor 30 100 0.002
P_266835605 Axle Packing 8Hole 6 Moto Modi Motor 60 100 0.001
P_600006001 Fog Lamp 177 Dealer Shubh Laxmi 48 70 1.000
EXHIBIT 7
Parts Usage (2011)
(Month-wise Count)
Part No. Part Name Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
P_0000M1 Engine Oil 0 451 580 468 489 692 535 1634 1170 633 840 878
PY
P_275225200106 Clutch Plate 6 3 3 4 11 3 5 14 15 6 19 22
P_275225400105 Pressure 0 0 1 2 0 1 4 4 9 3 8 7
P_278609139908 Air Filter 8 14 20 14 25 28 20 18 51 12 31 32
P_278607989916 Water 40 37 26 36 47 40 39 106 68 48 124 116
P_0000M5 Crown Oil 0 45 46 55 62 80 30 288 202 107 45 97
P_0000M2 Engine Oil 501 149 0 0 0 0 0 0 0 0 0 0
P_272425200134 Clutch Plate 1 1 1 0 0 0 0 1 2 1 2 0
CO
P_252718130145 Oil Filter N/M 0 0 0 0 0 0 0 0 0 0 1 0
P_272425400129 Pressure 2 0 0 0 0 0 0 1 1 0 1 0
P_0000M4 Gear Oil 0 0 0 42 50 289 41 244 149 106 94 79
P_278609119904 Diesel Filter 4 37 26 36 47 40 39 105 68 49 124 119
P_278609139909 Air Filter 10 15 17 11 25 28 20 20 50 15 26 29
P_0000M7 Coolant 49 54 34 41 38 62 49 47 77 68 52 41
P_278618139902 Oil Filter 22 29 15 24 46 34 27 110 53 32 107 89
P_265172300105 Door Lock 23 21 22 23 25 14 22 38 22 33 88 99
P_269126204623 Synchro 0 ON0 0 0 0 0 2 5 9 8 0 0
P_278605999928 Tappet Cover 42 39 46 34 7 10 54 101 98 93 226 138
P_257681100153 Side Glass 48 53 49 24 45 45 57 49 132 84 123 151
P_10000012467 2467 Bulb 305 172 204 344 312 267 332 443 641 424 474 532
P_10020010 Clutch 0 0 0 0 0 0 0 0 0 0 0 0
P_269126204635 Synchro 0 0 0 0 0 0 2 5 5 5 0 0
P_278609999920 Fuel Strainer 16 9 9 7 4 12 15 19 24 11 38 36
P_27861599996302 Fan Belt 3 13 4 10 4 4 7 7 9 3 8 7
P_278620999937 Viscous Ass. 0 0 0 0 0 0 0 0 0 2 2 0
I
P_100001566563 Wheel 1 0 1 2 0 0 1 3 3 3 4 1
P_10000012441 2441 Bulb 446 280 250 207 228 309 353 615 546 484 468 471
CT
P_278615999902 Fan Belt 1 1 1 3 0 2 3 1 1 0 0 0

P_100001580572 Wheel 2 1 4 1 2 1 1 6 5 3 2 2
P_278620999959 Water Pump 0 0 0 1 0 1 1 0 2 0 1 1
P_4000041243 Head Light 15 0 4 11 24 7 8 18 20 16 24 18
P_0000M9 Brake Oil 9 9 6 11 4.5 8 10 8 15 15 30 14
P_278613999920 Kit 1/226 2 5 5 5 4 0 4 2 4 5 10 3
P_257689100149 Cabin 1 0 2 0 2 1 2 3 4 4 3 3
E
P_4000042443 Head Light 12 17 20 16 28 14 16 14 25 22 26 17

P_278614605802 Hump Hose 3 1 6 3 6 3 4 11 11 12 9 13
P_300003070 Kit 3/70 1 3 2 2 1 6 4 5 5 3 14 17
SP
P_278613999916 Kit 1/215 5 4 3 4 2 3 6 6 2 4 7 13

P_261854249910 Horn 24V 5 4 2 2 4 2 15 3 20 10 35 5
P_266835607701 Rear Wheel 7 8 6 13 10 2 2 11 24 13 12 30
P_269854209980 Horn 12V 1 3 9 9 12 10 11 22 27 25 8 10
P_300003066 Kit 3/66 1 1 1 3 4 1 3 8 3 4 14 14
P_257633403103 Wheel 5 2 0 0 0 0 2 1 2 0 0 3
P_7000000001 Three Bond 14 5 3 4 2 4 6 14 10 12 8 15
IN
P_26216033 Alternator 1 0 1 1 0 0 0 0 0 0 1 0
P_80000001601 Joint Socket 9 10 16 19 20 17 25 24 26 25 44 21
P_261854500101 Combination 3 1 0 1 0 2 2 1 5 0 3 2
P_257633407801 Front Wheel 4 6 0 2 0 0 0 5 3 2 9 14
P_266835605301 Axle Packing 12 6 5 11 6 6 1 4 35 21 13 43
P_600006001 Fog Lamp 0 0 0 0 0 0 0 0 3 5 8 6
Parts Usage (2012)
P_0000M1 Engine Oil Ch4 803 1191 555 0 0 0 0 0 274 496 520 633
P_275225200106 Clutch Plate 60No. 12 29 29 9 22 28 31 17 10 16 6 10
P_275225400105 Pressure Plate 60No. 7 9 6 8 0 14 8 9 10 6 5 3
P_278609139908 Air Filter Outer 62 116 77 52 46 80 42 92 63 93 35 46
PY
P_278607989916 Water Separator 69 200 87 43 232 234 116 103 148 153 90 119
P_0000M5 Crown Oil 85W140 86 304 70 105 67 32 67 371 239 157 176 42
P_0000M2 Engine Oil Ci4 0 0 0 0 0 0 0 0 228 351 205 256
P_272425200134 Clutch Plate 75No. 1 1 2 6 0 1 1 0 1 1 2 1
P_252718130145 Oil Filter N/M 0 2 1 51 54 21 1 7 39 27 33 47
P_272425400129 Pressure Plate 75No. 1 1 2 6 3 2 3 2 0 0 1 1
P_0000M4 Gear Oil 80W90 72 284 47 91 48 36 52 191 148 81 37 55
CO
P_278609119904 Diesel Filter 70 199 88 43 232 234 116 104 147 153 90 117
P_278609139909 Air Filter Inner 61 111 76 52 46 81 40 78 57 91 35 46
P_0000M7 Coolant 36 73 130 155 114 193 88 107 124 207 55 59
P_278618139902 Oil Filter 55 163 78 28 146 79 92 63 116 107 62 82
P_265172300105 Door Lock 68 84 55 58 35 45 155 52 58 31 35 41
P_269126204623 Synchro Cone 0 0 0 0 11 15 4 0 12 6 7 6
P_278605999928 Tappet Cover Gasket 140 159 88 244 183 131 192 133 168 174 82 200
P_257681100153 Side Glass 81 122 169 52 149 59 166 54 136 75 152 59
P_10000012467 2467 Bulb ON 472 370 594 518 339 621 578 605 900 438 716 743
P_10020010 Clutch Booster 3518 0 3 1 0 1 1 0 1 2 4 5 2
P_269126204635 Synchro Cone 5/6 0 0 0 0 18 7 5 0 8 2 3 5
P_278609999920 Fuel Strainer 47 48 28 46 111 127 70 106 93 41 92 54
P_27861599996302 Fan Belt 12 35 9 8 37 27 9 9 15 7 7 3
P_278620999937 Viscous Ass. 3516 1 1 0 0 0 1 2 2 1 2 2 1
P_100001566563 Wheel Bearing 566/563 8 2 0 1 6 10 1 4 15 4 23 3
P_10000012441 2441 Bulb 421 345 262 262 290 257 385 482 410 347 429 649
P_278615999902 Fan Belt Tensioner 1 2 6 12 0 1 2 2 3 3 3 2
I
P_100001580572 Wheel Bearing 580/572 5 1 1 5 1 13 1 5 15 7 21 2
CT
P_278620999959 Water Pump Bs2 1 4 4 1 5 2 5 1 2 2 7 2

Head Light Bulb 12V
P_4000041243 6 1 3 0 0 0 0 58 30 34 19 33
43T
P_0000M9 Brake Oil 250Ml 13 16 10 11 11 13 14 16 17 16 15 15
P_278613999920 Kit 1/226 7 5 23 13 6 15 4 11 14 26 11 12
P_257689100149 Cabin Shocker 6 5 8 12 11 8 15 8 14 18 8 12
Head Light Bulb 24V
P_4000042443 34 0 0 0 0 0 0 0 33 5 5 9
E
43T
P_278614605802 Hump Hose 50 27 15 20 17 32 38 23 10 21 23 38
P_300003070 Kit 3/70 3 10 7 9 14 19 10 12 15 13 14 14
P_278613999916 Kit 1/215 4 8 8 15 10 17 7 16 16 31 10 24
SP
P_261854249910 Horn 24V 11 6 1 6 3 3 10 4 7 6 7 16

P_266835607701 Rear Wheel Oil Seal 30 24 42 21 26 35 42 55 88 41 39 53
P_269854209980 Horn 12V 3 5 7 10 6 14 9 12 22 14 13 10
P_300003066 Kit 3/66 12 14 18 3 4 1 3 8 3 4 14 14
P_257633403103 Wheel Bearing 32308 1 1 2 4 3 2 0 2 2 4 2 4
P_7000000001 Three Bond Big 13 28 19 2 8 12 0 1 22 18 26 15
P_26216033 Alternator Cutout 6033 3 3 3 4 4 1 2 2 1 1 2 1
IN
P_80000001601 Joint Socket 6Way 21 31 27 27 20 23 11 19 22 22 19 15

P_261854500101 Combination Switch 0 2 4 2 0 2 2 1 6 0 1 3
P_257633407801 Front Wheel Oil Seal 10 12 20 21 15 22 37 54 68 34 26 34
P_266835605301 Axle Packing 8Hole 19 123 26 134 33 31 138 62 177 43 26 57
P_600006001 Fog Lamp 2 1 0 0 0 0 0 0 0 0 3 5
Parts Usage (2013)
P_0000M1 Engine Oil 635 594 480 686 1010 491 639 866 633 671 304 548
P_275225200106 Clutch Plate 21 19 12 14 15 15 31 28 28 12 8 7
P_275225400105 Pressure 8 5 5 5 4 2 7 9 15 3 6 0
P_278609139908 Air Filter 85 59 49 35 77 34 54 32 74 13 48 19
P_278607989916 Water 171 66 73 107 73 41 69 175 96 48 19 55
PY
P_0000M5 Crown Oil 159 301 125 278 216 151 286 87 95 239 359 306
P_0000M2 Engine Oil 244 237 169 316 481 255 207 431 252 230 89 165
P_272425200134 Clutch Plate 12 3 9 10 9 4 12 25 13 3 5 4
P_252718130145 Oil Filter 67 27 50 75 27 45 12 61 25 27 14 14
P_272425400129 Pressure 1 2 2 3 6 2 5 8 9 2 2 0
P_0000M4 Gear Oil 94 104 85 154 157 144 103 101 142 156 193 151
CO
P_278609119904 Diesel Filter 171 67 73 107 73 41 69 175 96 48 20 55
P_278609139909 Air Filter 77 53 46 33 71 35 36 29 67 15 23 15
P_0000M7 Coolant 107 66 78 114 136 125 115 126 377 290 88 128
P_278618139902 Oil Filter 80 19 70 28 17 21 23 93 24 28 7 14
P_265172300105 Door Lock 52 42 20 126 31 119 61 67 109 48 13 27
P_269126204623 Synchro 5 4 5 14 1 4 12 27 19 11 4 6
P_278605999928 Tappet 90 216 76 54 61 56 288 216 366 147 93 128
P_257681100153 Side Glass 66 44 39 142 129 121 68 135 89 85 97 54
P_10000012467 2467 Bulb 316 383 293 347 561 782 414 338 643 606 485 537
P_10020010 Clutch 2 1 0 2 0 1 6 9 5 5 4 2
P_269126204635
P_278609999920
Synchro
Fuel
3
47
ON
4
53
0
48
4
116
4
51
7
97
9
48
15
112
9
108
4
73
1
24
1
39
P_27861599996302 Fan Belt 47 7 12 9 25 8 17 54 23 8 5 14
P_278620999937 Viscous 1 0 2 1 4 4 1 4 4 2 2 0
P_100001566563 Wheel 22 28 4 1 1 6 4 16 22 12 3 6
P_10000012441 2441 Bulb 240 292 270 117 484 208 195 340 288 445 293 344
P_278615999902 Fan Belt 5 1 9 0 3 3 7 11 4 2 0 2
I
P_100001580572 Wheel 15 27 1 5 0 2 15 12 3 9 4 4
P_278620999959 Water Pump 1 0 0 7 0 2 10 1 3 2 1 2
CT
P_4000041243 Head Light 28 36 16 20 23 31 24 41 81 44 26 52

P_0000M9 Brake Oil 16 15 14 15 15 39 36 42 28 18 17 18
P_278613999920 Kit 1/226 10 12 18 20 3 28 10 21 22 6 9 17
P_257689100149 Cabin 14 8 7 9 15 15 18 19 26 12 13 2
P_4000042443 Head Light 12 3 12 9 6 15 9 21 79 30 9 12
P_278614605802 Hump Hose 45 9 12 6 19 16 27 23 21 10 15 3
P_300003070 Kit 3/70 7 8 3 6 3 2 9 12 10 6 3 14
E
P_278613999916 Kit 1/215 8 24 6 29 4 30 12 35 23 6 10 14

P_261854249910 Horn 24V 9 12 12 22 6 21 8 26 7 1 3 3
P_266835607701 Rear Wheel 37 48 23 150 37 15 49 68 43 116 68 42
SP
P_269854209980 Horn 12V 10 9 4 5 8 10 25 28 16 15 19 3

P_300003066 Kit 3/66 12 14 18 8 8 4 18 13 12 5 5 4
P_257633403103 Wheel 4 17 1 3 4 4 9 4 3 17 5 5
P_7000000001 Three Bond 22 13 16 28 14 26 24 86 55 35 16 37
P_26216033 Alternator 4 2 4 5 1 0 4 2 4 3 3 5
P_80000001601 Joint Socket 11 10 15 11 117 10 22 30 32 39 16 14
P_261854500101 Combination 13 5 0 2 2 2 6 4 1 2 3 5
IN
P_257633407801 Front Wheel 26 40 19 92 29 9 41 48 78 103 103 36

P_266835605301 Axle 49 247 22 170 59 18 265 64 65 153 81 91
P_600006001 Fog Lamp 8 6 2 1 0 0 0 0 0 0 5 2

Ahmedabad IIMA/RJMC0023
RJMC0023
State Innovation & Research Foundation, Solapur
PY
May 15, 2012: Siddharam Mashale, Secretary,, State Innovation & Research Foundation,
Solapur (SIRF), and members of SIRF’s core team, were reflecting on the conference
Innovation for Quality Education that they had organized on April 28 and 29, 2012.2012 SIRF
was a loose network of about 300 government primary school teachers, and the conference
1
had aimed at providing these teachers, and others as well, a platform to showcase their
CO
work and generate enthusiasm for educational innovations. The conference was held at
Solapur, a city in the western Indian state of Maharashtra, where SIRF had its office. It was
attended by more than 350 teachers, educationists, officials of the state’s Education
Department and a few political leaders who were interested in education.
education. This was the first
time in its six-year
year history that SIRF was holding such a huge conference.
The participants seemed to be very appreciative of SIRF’s initiative. A number of interesting

presentations
ns had been made, and the local press had highlighted the academic purpose of
ON
the network. SIRF’s website had also been launched during the conference. Mashale and his
team felt that with the successful organization of the conference, the time had now come for
SIRF to expand its reach and scale up its operations. But they were not sure of how to go
about it. They knew that their resources were limited. All of them engaged with SIRF as
volunteers and hence had to find time for their voluntary activities after
afte completing their
regular teaching work. Funds were also limited;
limited; in fact, the core team felt that if the financial
constraints could be relaxed, expansion would be easy.
I
The core team noted, “The biggest concern for us right now is funding; we want to expand,
CT
but without finances it is not possible.

possible. We have always believed that the only way we could
take the organization to greater heights was through more conferences like the April
conference. Our infrastructure is also very weak. We need a separate office for SIRF. Here
we want to have a library for teachers and we want to use it to hold our ‘clinics’. We are
talking to a political leader for some land, but funding for the construction has to be raised.
There are challenges, and there is a lot of work to be done.”
E
BEGINNINGS OF THE JOURNEY
In 1997 a few young primary school teachers working in government schools in Solapur
SP
district, Maharashtra, were motivated to form a Dhadpad Manch (Bustling Forum), by the
then Deputy Education O Officer, Suman Shinde. Initially, there was a lot of enthusiasm, but
when she was transferred, work slowed down.
The year 2004 was a turning point for the teachers, since they were contacted by the Ravi J.
Matthai Centre for Educational Innovation (RJMCEI), Indian Institute of Management,
IN
1 There
T here were a few teachers from higher levels as well.
Prepared by Professor Vijaya Sherry Chand, Indian Institute of Management, Ahmedabad. The
author wishes to thank Dilip Palsaniya and Tarun Gangwar for their research assistance.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class discussion.
They are not designed to present illustrations of either correct or incorrect handling of administrative
problems.
2 of 5 IIMA/RJMC0023
Ahmedabad, and invited to share their innovative work with the RJMCEI. The work of the
four teachers who were instrumental in forming the Dhadpad Manch, Siddharam dharam R.
Mashale, Ananta H. Baodhankar, Rahul Londhe and Balasaheb Wagh, was studie studied
d and
documented by the RJMCEI, and they were honoured with an award. Thee group was
motivated and thought of popularizing the idea of innovative teaching by roping in other
PY
innovative teachers. The teachers felt that they should form a body outside the government,
government,
since the transfer of officials had hindered their work earlier. In February, 2006,
2006, with the
support of RJMCEI, SIRF (State Innovation & Research Foundation,, Solapur),
Solapur), was founded
as a registered society. The ‘office’ was housed (and continues to be housed) in Wagh’s
home.
CO
Initially, SIRF set up the following goals for itself: to provide a platform to innovative
teachers to showcase their work; create healthy competition among the teachers;
teachers transform
the idea of innovative teachers into “innovative ve schools”;
schools”;; communicate to teachers
schools”
innovative ideas in the field of education; and engage in discussions on the problems that
teachers faced in their classrooms.
INITIAL EFFORTS AND SPREAD
SIRF started with a Teachers’ Clinic, which was a weekly

weekly discussion
discussion of individual teachers’
ON
subject-related problems, teaching methods. These clinics aimed at coming up with
innovative solutions to the problems. They were supplemented by Students’ Clinics, weekly
discussions with students on their learning p problem
roblems.
s. 2 As the work picked up, more
problems.
teachers joined the network. The process of joining was very informal. Whenever SIRF came
across some news which praised the work of a primary teacher, the team would call up the
teacher with congratulations,, explain about SIRF and ask the teacher to join the movement.
Whenever there were training workshops for fresh primary teachers, SIRF teams would
I
contact them, present SIRF’s work and talk about innovative teaching.
CT
attract teachers to the network was a

One initiative which popularized SIRF’s work and attracted
weekly column named Srajansheel Shikshan (Creative Education) in Dainik Sakal, a Marathi
newspaper, by Prashant Kothadiya, which presented the innovative teaching methods of
Mashal felt that this initiative was responsible for
SIRF teachers. This series ran for a year. Mashale
attracting a large number of teachers to the network. It also attracted the attention of many
in leadership positions. For instance, the President of India, Hon’ble Smt. Pratibha Patil, read
E
one of the articles during a visit to Maharashtra, and called up Ananta Baodhankar to
congratulate him. An organization in Nagpur which works for the education of bidi
workers, contacted SIRF after reading another article and asked for assistance. Similarly,
SP
articles written
written by Professor S.D. Mokashi spread SIRF’s message to teachers.
As a result of these factors, SIRF had grown into a network of 300 teachers by February 2012.
pride “These members have converted ordinary schools into innovative
Mashale noted with pride,
schools. We say with great pride that SIRF members can be spotted easily in a crowd of
teachers.” Many of the members have in recent times received local and state awards. SIRF
teachers.”
IN
2The problems posed by teachers and students were both academic and non-academic. In the early
SIRF’s core team members used to visit different schools to conduct these clinics. Now, with
years, SIRF
increasing pressure on their time, the members conduct the clinics on the phone or at Solapur on
weekends.
teachers were also engaged in textbook writing work, and in projects on the State
Curriculum Framework.
KEY ACTIVITIES (December 2006-February 2012)
Education Innovation Conference: The RJMCEI, Indian Institute of Management
PY
Ahmedabad, invited SIRF to co-organize a national conference of innovative teachers at
Lonavala, Maharashtra, in December 2006. This is activity provided a platform for the young
network to demonstrate its organizational capabilities.
Workshops on New Projects: Various workshops were organized at the taluka level level. This
level was chosen in order to keep travel costs down.. In these workshops,
workshops, teachers who had
CO
carried out projects presented the theory and practice of their work.
work. Such guidance has been
provided to 390 primary and secondary teachers from six districts of Maharashtra.
Guidance on Work Research: Some teachers were re motivated to move from projects to
“work research”—research on the difficulties they faced in the classroom. A workshop on
“Work Research for Teachers” was organized to help this process. This initiative was similar
to the well known Action Research approach. Twenty six teachers have completed such
work research.
ON
Workshops for DEd Students: Students of the Diploma in Education course have been
provided similar inputs on new projects and work research. student-teachers
research. A total of 618 student
have participated in these workshops.
Exhibition of Educational Articles: SIRF participated in three exhibitions organized by the

government with its exhibit, “Aids to Creative Education”, in 2009-10.
I
Workshop for people e who work for the children of bidi labourers: The Bidi Workers
Kalyan Pratishthan, Nasik, which conducted extra classes for the children of bidi workers
CT
through its high school graduate staff, approached SIRF for a two two-day workshop on
education. Forty-five social workers attended.
eachers Award: SIRF also honou

Innovative Teachers honoured teachers with innovative teacher awards to
motivate them. In 2011, 13 teachers who had been successful in solving problems that
occurred during daily classroom teaching were given these awards. The quality of the
E
experimentt undertaken and the results were considered. The judges were Prashant
Kothadiya (Sakal Social Foundation, Pune) and three educationists. 3
In addition, Mashale was active as a resource person in government-sponsored workshops.

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SIRF also arranged educational

ducation tours for 21 of its members to the best schools of Solapur
eeducation
district,, and published some books written by SIRF members after mobilizing donations.
The authors who had been published included Siddharam Mashale, Balasaheb Wagh, and
Hema Wagh, Mallikarjun S Someshwar—all core team members, and Vaijnath Talikot,
Santosh Jadhav, Rajshekhar Natikar, and Vijaykumar Vasantpure. Three books written by
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3 In the April 2012 conference, 32 teachers were honoured. The innovations were judged by a p panel
comprising Siddharam Mashale, Balasaheb Wagh, Ananta Baodhankar and Prof. Mokashi. Some of
the key parameters for judging were: a) Impact of the innovation; b) Execution of the activity; c) Social
reputation of the teacher.
Siddharam Mashale were purchased and stocked by the state government for all its schools,
as reference material, in 2010. SIRF considered this a significant achievement.
MANAGEMENT OF THE NETWORK
Initially the teachers faced a number of problems in presenting their ideas effectively to
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other teachers and educational officers. This difficulty in communication led to a
devaluation of the work they were trying to do. Some teachers also felt that engaging in
innovative work demanded a lot of their personal time. Often, things would pick up, but an
educational officer would be transferred, and the new person did not show the same level of
enthusiasm. With the formal establishment of SIRF, according to Mashale and Wagh,
communication had become easier.
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SIRF’s activities were primarily managed by a core
ore team consisting of Siddharam Mashale,
Balasaheb Wagh, Ananta Baodhankarr and Mallikarjun Someshwar. All were located in
Solapur. According
ccording to them, lack of an easily accessible common platform for
communication among members was one reason why more teachers could not be involved
in the network management. The communication among members at present was heavily
approach—one
based on mobile telephones. Communication took place through a snowball approach
person called up ten teachers and each of these called another ten local teachers. The
teachers got a chance to talk to the core team
frequency of communication varied, but most teachers
ON
at least once in a month. There were no mass gatherings of all members, but the teachers met
each other during training sessions and conferences. These were unplanned meetings.
The Foundation
oundation seemed to have realized the possibilities of the internet recently. SIRF’s
website was launched during the April 2012 conference. The core team’s reasons for going in
forr a website were “to spread information about the Foundation,
F and to use it as a publicity
medium and as a platform to showcase SIRF’s work.” The website was developed as a
I
student project by a student of a local professor who was sympathetic to SIRF’s mission. The
design and possibilities of the website appeared to be severely limited. Also, SIRF did not
CT
haveve the capabilities to manage the website.
All the work wass done by the members without external support. The administrative
structures—thethe District Institute of Education and Training at Solapur and its state-level
counterpart, and the Education Department,
Depart
D epart were supportive and encouraged the voluntary
work that was being undertaken by these teachers who were actually employed in the
E
public system. The core team felt that this support would continue, since SIRF had managed
to establish some sort of credibility.
credibility. Some of the teachers who were not part of the core team
felt that their desire to do something new and innovative attracted them to SIRF, which gave
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them a platform for peer interaction. For teachers who had already done innovative work,
the recognition
nition they got from being associated with SIRF was felt to be valuable.
The division of work among the core team’s members was unstructured. There was no
official hierarchy in the Foundation, and prior to any event, the core team and a few others
got together and distributed the work keeping in mind their other work commitments. Thus,
every member had to do all types of work of the Foundation—there
Foundation was no fixed role.
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However,
owever,, over time, the members had specialized in certain tasks. Ananta Baodhankar took
However
care of visitors and hospitality related issues. Mashale took care of the finances and minor
tasks like pamphlet printing. Balasaheb Wagh had provided a room in his house for the
office,, and was involved in finding land for a SIRF building; he also took care of educational
office
tours.
During discussions with the core team, it was evident that the members did not feel that the
Foundation was taking too much of their time.. They appeared to be dedicated to the
Foundation, and so found the time outside their regular teaching jobs to carry out SIRF
tasks. As Mashale noted, “This is a mission that we have taken up. We want to achieve
something good for the cause of education. Working for the Foundation does es mean a very
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busy life, but it is satisfying and fulfilling.”
The responsibility for the finances rested with Siddharam Mashale, though others provide
provided
assistance whenever it was required. The annual budget of SIRF (2011- (2011-12)
12) was about
`150,000; 70 percent of this came from donations of SIRF members and the rest came from
donations from other sources. According
ccording to Mashale, frugality is a principle SIRF believed
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in: “Whenever
henever a workshop is held at a school or college, the institution is asked to bear the
expenditure. Most of the workshops are organized in schools where a SIRF member is
working. The members of SIRF also rely on mobile communication, since it is cheap and
convenient.” However, the budget for 2012-13 was expected to be higher since,
since for the April
2012 conference alone, `150,000 had been mobilized from somesome private firms and another
`150,000 had been generated from members and other individuals. The annual audit was
carried out by a Solapur-based
based firm of chartered accountants. The expenditure pattern for
2011-12 was as follows:
Teacher training and other workshops:

ON 50 percent
Printing and stationery: 15 percent
Travel expenses of SIRF core team: 15 percent
Hospitality and miscellaneous expenses: 20 percent
CONCLUSION
I
As they reflected on how to leverage the positive atmosphere generated by the conference in
order to expand and scale up, Mashale and the core team members felt that the entire state
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of Maharashtra,, rather than a region, had to be the focus

focus. Though many members were
located in Solapur district, there were teachers from seven other districts in the network.
Could these people become coordinators for their districts, they wondered. Given the large
pool of about 200,000 teachers in Maharashtra, and even assuming that a fraction of them
could be called innovative, the scope seemed enorm
enormous. Mashale felt that the activity of
honouring innovative teachers had to continue; perhaps the idea could be extended to
E
‘innovative schools’. New activities could include a monthly/quarterly SIRF magazine and
science laboratories in areas where there was a lack of such facilities. The future seemed
promising.
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IIMA/CISG0117
Ahmedabad
Take Solutions, MEA
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It was February 21, 2011 Arif Khan, Chief Executive Officer (CEO) of Take Solutions, Middle
East and Africa (TSMEA)) was to make a presentation to his Board on how to deal with the
challenge of aggressive competition from Motorola in the handheld market of the Gulf
Cooperation Council (GCC) countries. TSMEA was a distributor, system integrator
integrator, and
after sales service provider to Intermec handheld computers in the Direct Store Delivery
(DSD) segment, also called Van Sales Automation Systems.. Motorola had been cutting prices
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and was making an impact on Intermec’s market share. The major GCC country markets market
included Saudi Arabia, United Arab Emirates (UAE), Oman, and Kuwait.
Kuwait. TSMEA operated
directly in Saudi Arabia, UAE, and Kuwait. In Oman, TSMEA operated through Towell
TAKE Solutions LLC, a subsidiary of one of their owners, TAKE Solutions Limited (TSL).
TSMEA 1
TSMEA was founded by Mohammed med Aldamer and Abdullah Aldamer. The company’s
mission statement was to develop mobile computing
omputing systems
systems for eenterprises. TSMEA was a
joint venture owned by the Aldamer familyamily from Saudi Arabia, N
Arabia TSL from India and WJ
Towell Group from Oman. TSL had controlling interest, making TSMEA a subsidiary of TSL
(Exhibit 1). TSMEA wass a leading provider of ttechn
echnology
ology sservices in the mobile computing
technology
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industry in the GCC countries.. Since its establishment in 1992
1992, the company had become a
leader in implementing DSD systems. It had the largest FMCG companies and distributors
across the GCC countries as its clients.
Towards DSD, TSMEA provided complete end-to- end-to-end

end-to- route accounting system including
handheld computers, mobile printers, and the software necessary to integrate them into a
T
complete, working solution. TSMEA wa wass an Intermec ‘Platinum Level Partner,’ offering
their entire line of enterprise mobility products including handheld computers, mobile
printers, barcode scanners and printers, Radio-frequency identification (RFID) , wireless
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networks, and supporting products. The company had extensive experience in integrating
route accounting infrastructure with customer accounting systems and other corporate
enterprise systems. It had
had developed a collection of middleware products and tools to
employ when delivering its systems and services. TSMEA provided custom programming
services to accomplish the integration.
Apart from DSD, TSMEA had diversified into areas like retail, inventory management, asset
SP
tracking, and ssupply

upply cchain
hain management. Exhibit 2 gives details on the activities of TSMEA.
1Company Information, July 20, 2011
Prepared by Professor G Raghuram, Indian Institute of Management, Ahmedabad and N

Chandrasekaran, Vice president (Corporate Affairs), Take Solutions Ltd.
Ltd
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The authors thank Anchal Patil, Lawlesh Tiwari, and Ruhaakhtar Husseni for the research and
drafting support. They are also grateful to the executives of the company who supported them with
data and discussions.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class
2 of 33 IIMA/ CISG0117
The business turnover in 2010 for TSMEA was USD 10 million (m), of which the hardware,
solutions, and services for the DSD segment was around USD 3m. The market size for DSD
was about USD 10m. The overall market and TSMEA’s ’s DSD sales were concentrated in
Saudi Arabia and UAE.
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While TSMEA (selling the Intermec brand) was the market leader in the DSD segment,
segment, the
rest of the market had Motorola and then was fragmented among many players like Psion,
Honeywell, Datalogic, and others including Korean and Chinese brands.
brands. The latter two
operated at the lower end of the spectrum.
Intermec 2 3
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Headquartered in Everett, Washington, USA, the company was, perhaps
perhaps,, best known as the
inventor of the world's most widely used bar code symbology and for its 154 plus patents
critical to the development and use of RFID technology.
Intermec had been helping companies take advantage of the latest technologies for
manufacturing, inventory management, distribution, field service,
service, and other supply chain
environments for more than 40 years. It pioneered many of the data capture, mobile
computing and wireless communication technologies in use, and continued to innovate
through collaboration with leaders in wireless networking and data services, enterprise
software, and other advanced technology developments.
developments.
Intermec developed, manufactured, and integrated

N fully-
integrated sophisticated tools for the fully
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coordinated supply chain. Its core technologies included
included RFID, mobile computing and data
collection systems, bar code printers, and label media. Intermec products and services were
used by the leading companies of diverse industries worldwide to improve the productivity,
quality, and responsiveness of their business operations.
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included
Intermec patents and innovations also include d such familiar devices as the ‘Smart Battery’
technology which was becoming common in portable electronics such as camcorders,
laptops, and handheld computers. The first computerized cash register, some of the world’s
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most widely used bar code symbologies, the first pen pen-based handheld computer running
Microsoft Windows 3.1, and even the wireless personal area network that bluetooth was
based on, were developed by Intermec
Intermec. Exhibit 3 gives an overview of Intermec’s activities
as given in their corporate brochure.
Intermec’s overall sales in their Middle East and Africa division were USD 213m in 2010,
constituting 31.3 per cent of their global revenues. (In 2009 and 2008, the figures were USD
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187m and 290m, constituting 28.4 and 32.6 per cent of global revenues, respectively.)
Out of Intermec’s handheld hardware sales in the DSD segment in Saudi Arabia and UAE;
60 per cent had solutions and services through TSMEA. The remaining 40 per cent
(accounting for USD 22m in solutions and services) were spread over the three other players.
Intermec had the largest user base o of handheld terminals in the region, probably more than
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all of its competitors put together. It worked with many of the leading organizations in the
sector. Aramex and FedEx were two of its most well known customers in
private and public sector
2Retrieved
etrieved on July 20, 2011 from http://www.intermec.com.
3 Retrieved on August 2, 2011 from http;//www.arabiansypplychain.com/article-2360-online-exclusive-colin-
summers-intemec/3/.
the logistics sector. Pepsi, Transmed, Ali Bin Ali Group, Binzagr, and National Food
Products Co were major FMCG manufacturers and distributors. Egypt Post, Emirates Post, Post
and Saudi Post were some of the postal organizations using Intermec. Egypt Air, Emirates
Airlines, and Saudi Airlines were three of Intermec airline customers. Saudi Telecom, Dubai
Municipality, and Jeddah Municipality were key public sector customers, while Carrefour,
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Union Co-op, and the Malia Group were the all famous customers from the retail sector.
TAKE Solutions Limited 4
TSL was an international business technology company, providing ‘innovative, cost effective
and comprehensive’ software solutions for diverse clients through its
its two principal business
areas of life sciences and supply chain management.
ent. TAKE’s product suite in the supply
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chain vertical wass sold under the umbrella brand ‘TAKE Supply Chain’, which offered 16
products with embedded intellectual property that spanned the entire gamut of execution,
planning, and collaboration.
The supply chain suite was driven and marketed by TSL’s US subsidiary called TAKE
Solutions Inc. TAKE Solutions’ supply chain business area progenitor,
progenitor, ClearOrbit,
ClearOrbit and prior
to that BPA Systems, was founded by Michael Palmer, Paul Palmer, and Larry Brouwer in
early 1994 in Austin, Texas, US.. In late 1995, the company released the first version of its
Enterprise Hardware Integration (EHI) platform for connectivity to radio frequency (RF)
devices and bar code printers. Its very first customer was Cisco Systems,
RF mobile applications.
N
Systems who deployed its
In early 1997, BPA announced the availability of a supply chain execution (SCE) application
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with modules for receiving, inventory, manufacturing, shipping, and warehouse labels. One
month later, the company was certified as a partner in Oracle’s Cooperative Applications
Initiative. In September 1999, Austin Business Journal’s ‘Top 25 Fast Growing Private
Companies’ list named BPA at the #10 spot for companies with revenues above USD US 10m.
approved as a Certified Solution Partner in the Oracle
The following month, the vendor was approved
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Partner Program.
In early 2000, BPA announced the availability of a web-enabled version of its EHI platform
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product. In March 2000, the company received USDUS 15m in first round funding to expand its
product
uct line. In September 2000, the company was again listed on the Austin Business
Journal’s ‘Top
Top 25 Fastest Growing Private Companies’
Companies list for companies with revenues
above USD 10m, m, this time at #7. The year closed with Tom Dziersk being appointed as the
new CEO.
BPA Systems announced in early 2001 the adoption of a new name and company vision by
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becoming ClearOrbit.
ClearOrbit. That month, ClearOrbit released Supply Chain Labels, a web-based
compliance label printing service. Also in early 2001, the company named BEC Systems its
preferred implementation partner for its software solutions in the UKU and throughout
Europe. In May 2001, ClearOrbit released the trademarked Gemini Series product suite for
mobile data collection and supply chain visibility, which included a common platform
product, Connect,
Connect and the three applications: Automate, View, and Pro-Act.
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4 Retrieved on August 5, 2011 from http://www.takesolutions.com.

Mobile Computing and the Handheld Computer 5 6 7 8 9
The label ‘handheld computer’ was applied to a wide range of portable electronic products
with differing levels of functionality, target markets, and operating systems. The handheld
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computer industry was at the intersection of the IT, consumer electronics, electronics, and
telecommunications industries.
variation in prices
A typical handheld’s weight varied from 172 gms to over 600 gms and the variation
were from as low as USD 683 to USD 4,151.
151. Features of a typical rugged handheld computer
were mostly QWERTY keypad, wireless connectivity, communication, integration with
SCM/logistics
RFID and barcode, etc. The features could be used in any kind of SCM/l
SCM /logistics
ogistics system or
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transportation sector. Warehousing and DSD were the most benefiting areas, though
firefighters and electricians were also using them. Exhibit 4 gives a brief overview of the
evolution of the handheld computer.
There was also increasing interest from the wireless telecommunications companies for
using handheld computer operating systems in mobile telephones. Hence aattention was
being focused on building up the communications capabilities of handheld computer
operating systems. Exhibit 5 gives an overview of the global market for the handheld
computer
Logistics managers were typically faced challenge

ced with the challen
challe nge
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ge of boosting their supply chain
efficiencies while reducing the overall cost of operations. To support this, the latest
developments in warehouse management systems, RFID technology, and automated storage
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handling had lured the Middle East logistics industry towards an electronic era, leading to
the gradual (and ongoing) demise of manual processes. In particular, the mobile computing
sector
ctor had experienced a period of continued growth in the region, with estimates that
annual demand from customers had increased by approximately 20 per cent over the past
five years.
T
Exhibit 6 gives interviews of senior executives of Intermec and other companies regarding
the prospects of handheld computers in the Middle East. Exhibit 7 gives an overview of
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trends in supply chain technology
Businesses may have bebeenen tempted to base buying decisions solely on a product’s purchase
price, but, the product’s Total
Tot
Total Cost of Ownership (TCO) while not as obvious, also proved to
al Cost
be a more important consideration. The TCO for handheld computers, for example, included
all the direct and indirect costs accumulated over the life cycle of the product, from
support, and repair costs
acquisition to disposal. These costs including training, software, IT support
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which could
ould be higher than the original purchase price.
The following were

were some of the direct costs for acquisition and deployment of handheld
computers that were
were calculated as part of the TCO:
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5Dr. T.H.W. Minshall ((1999). “A Resource-Based View of Alliances: The Case of The Handheld Computer
Industry,” International Journal of Innovation Management, 3(2). Retrieved on August 3, 2011 from
http://www.ifm.eng.cam.ac.uk
6 Retrieved on August 4, 2011 from http://www.intermec.com.

7 Retrieved on August 4, 2011 from http://www.motorola.com.
8 Retrieved on August 3, 2011 from http://www.arabiansupllychain.com.
9 Retrieved on July 20, 2011 from http://www.ruggedaligiz.com.
• Hardware and accessories: handheld devices, plus peripherals such as docks, scanners,
power supplies, protective cases, radio cards, expansion sleeves, etc.
• Maintenance:: software and hardware maintenance and service, extended warranties,
spares, modifications and testing to support new hardware.
• Operations: fees (application service providing,, airtime, etc.), consumables, etc.
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• Services:: integration, training, management, curriculum development, support, etc.
• Software: license fees, application
tion software, development and customization costs, etc.
etc.
Indirect costs were not easy to predict. The TCO included such indirect costs as:
• Downtime: time spent backing up, troubleshooting, restoring and servicing devices, as
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well as reentering data, and recovering
covering work lost due to device failures.
• IT support: help desk, troubleshooting, management and logistics, testing, training, etc.
• Business losses: costs associated with lowered customer service levels, dissatisfied
customers, lost business opportunities, etc.
While the acquisition cost for a product made a large initial impact on budgets, these
additional costs (both direct and indirect) usually played a far larger role in the total cost of
the product. The reason for this became clear when the impact of an indirect cost such as
downtime was explored. Downtime affected the direct user, but the costs extended to many
The Components of TCO

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other people, from disappointed customers to those in the organization who offer support or
work around the problem.
Percentage
P
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End user operation 34
Maintenance 21
Implementation 10
Capital 12
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Technical support 14
Software 9
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TSMEA’s Challenge
With a 30 per cent market share,

share, TSMEA was the leader in the DSD segment. Intermec was
the leader in the handheld hardware for the DSD segment with a 50 per cent share. TSMEA
worked exclusively with Intermec in this segment when offering hardware. On the other
hand, while Intermec used TSMEA primarily, it also worked with other distributors and
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integrators. Generally, in this kind of technology dealership exclusivity was not maintained
as the business required different types of partners to reach the market.
TSMEA’s market share was being challenged by increasing sale

TSMEA’s sales of Motorola due to the
latter’s aggressive price positioning. They reduced the prices to the extent of 20 per cent than
that of Intermec. Motorola reached the market through a number of channel operators who
were small and competing fiercely. Though Intermec was more expensive than Motorola,
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TSMEA had established the brand with service support. Apart from selling hardware,
TSMEA had solutions development and software integration capability to provide value to
institutional customers. Most other dealers did not have this. T The software division of
TSMEA was capable of supporting Motorola and other hardware as well. Generally, a
prospective customer preferred TSMEA along with Intermec hardware.
When a prospective institutional customer bought Motorola instruments through its dealer
and engaged TSMEA for its implementation, the total cost of ownership was lower than a
similar implementation using Intermec instruments. TSMEA was under pressure to reduce
its margin in Intermec sales to sustain market share.
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Motorola was offering a printer which had extra features and was cheaper than Intermec. It
was not sure whether customers found value in such features, but there was the sense that
they had more for what had been paid. While both had a range of handheld products,
TSMEA usually stuck to one model of handheld computers and d printers.
The price range varied depending on the configuration. A typical handheld computer was
priced around USD 1,500 and a printer was priced around USD 1,000. Normally, TSMEA
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hardware.
marked up the prices from Intermec by about 20 per cent to the customer on the hardware
Over the past two quarters, Intermec and TSMEA had each offered to forgo five per cent of
their margin. This however had not made a significant impact on sales.
Customers were not happy with both companies due to delays in deliveries, spare part
prices, and some performance issues. Typically a customer service lead time for order
fulfillment was three to eight months which customers felt to be ttoo long. Performance
issues were more with respect to the printer. Handhelds of both the companies were quite
rugged and performed in extreme conditions, especially in the Middle East. There were
issues when other low-priced
priced brands were deployed.
Intermec had an edge over competition.. Many

N
Many customers had stayed on with them for the
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services provided by TSMEA. Over the past five
last over 10 years. This was attributed to the services
years, if TSMEA had 20 customers a year, five to six were new and the rest were repeat
orders. In the recent three years, TSMEA won about 25 deals against Motorola, while they
lost four. TSMEA primarily engaged with customers during presales and implementation.
Post sales engagement had been only on need basis. This often led to post sales business loss
T
since competition could always sneak in with their offering.
TSMEA was well positioned services compared with many other channel
ioned to offer better service
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players in the Middle East,

East, due to their solutions and software implementation capability.
TSMEA had its service centre for Intermec locally. Motorola had its service centre in the
Czech Republic.. It had some small resellers in Saudi Arabia who offered repair services.
TSMEA and Intermec jointly share

shared their Middle East promotional plan. Similarly, there
were many Motorola partners. In spite of such partnerships, Motorola and Intermec were
the recognized brands
brands.. Whenever TSMEA interacted with customers, they were recognized
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more as Intermec’s representatives. Generally, the dealers sold through networking and
follow up.
up.
The average
verage life of Intermec and Motorola products was about four years. Intermec released
one or two models in a year whereas Motorola released two to three in a year. Intermec had
been manufacturing handheld computers longer than any other company and had an
impressive track record of innovation.
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Intermec’s key advantages over Motorola were that it provided software development tools,
and many key software utilities for security, device management and communication.
worked very closely with key IT vendors such as Microsoft, Oracle, and SAP;
Intermec work
ensuring full compatibility aand ongoing support for many IT standards. Intermec also had a
network of hundreds of software development partners, through whom there were
thousands of applications available. Intermec offered a wide range of configurable options

and add on devices like long range scanners/imagers, QWERTY and numeric keypads,
RFID capabilities etc.
Intermec worked with Cisco, a key technology partner, to provide full compatibility and
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security of Intermec systems in networked environments such as warehouses, retail outlets,
outlets,
and distribution centers. The company had been doing business in the Middle East rregion
egion
for more than 20 years.
Motorola was trying hard to compete. Worldwide, their revenues were around 30 times that
of Intermec. Exhibits 8 and 9 give the global financial performance of Motorola and Intermec
respectively. However, the revenues of the two competitors in the Middle East were about
CO
equal. It was expected that once Motorola got the market share, they might increase the
prices since the reduced prices were not sustainable.
Strategic Options for TSMEA
Mr Khan was examining four options for TSMEA:
• Confront Motorola on price.

• Pursue niche strategy where price may not be a factor.
•
•
Go for multi brand dealership
Focus on opportunities other than DSD.
N
Intermec would have to be influenced to reduce the hardware price by a further 10 per cent.
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Correspondingly, Intermec would expect TSMEA to do the same, implying TSMEA’s
margin would drop to less than 10 per cent. This would make it hard for TSMEA to break
even. In the last five to seven years,
years, TSMEA’s
TSMEA’s revenue w was 70 per cent from hardware
margins, 10 per cent from hardware repairs and services,
services 10 per cent from software, and 10
per cent from software services. Since hardware selling involved more effort, 30 per cent of
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their profitability came from hardware margins.
TSMEA could look for niche handheld segments. This would require significant marketing
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efforts and working with a wider range of hardware models.
TSMEA software worked on all models of handheld computers. TSMEA could go to the
market as a hardware independent company. There was no contract that bound them to
Intermec. However, there was the possibility that the TSMEA partnership with Intermec
could get affected. TSMEA could bring other software companies to Middle
Mi East region.
TSMEA software could be a value addition

add to Motorola. Though it tested successfully with a
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Motorola device,
device, it was not officially validated by Motorola. Some customers had conducted
pilots with TSMEA and Motorola partners side-by-side
side and had chosen TSMEA. If TSMEA
tied up with Motorola, Intermec would consider it as a major threat to their business.
There were also opportunities in segments other than DSD and handhelds.
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EXHIBIT 1
TSL Subsidiary Structure
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CO
Total six
Subsidiaries
N
T IO
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1. TSMEA Turnover in DSD:

DSD: USD 3m
2. Oman Sales of TSMEA are through Towell TAKE
Source: Annual Report 2010-

2010-11
2010 -11
11 Take Solutions Limited (India)
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EXHIBIT 2
Take Solutions, MEA
Introduction
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TSMEA is a joint venture owned by the Aldamer Family (Saudi Arabia), TSL (India)
(India),, and WJ
W J Towell
Group (Oman).
As an Intermec ‘Platinum Level Partner,’ TSMEA delivers fully integrated mobile solutions built for
Intermec devices. The two companies also jointly offer services and products ranging from software
configuration to device selection and deployment. TSMEA's route accounting
ccounting application running on
Intermec devices are used by more than 11,000 Direct Store Delivery elivery (DSD) salesmen and
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merchandisers.
TSMEA's clients include manufacturing and distribution

istribution companies in the business of bakery,
beverages, cosmetics, dairy, FMCG, food, garments, juices, mobile phones, oil & gas equipment,
poultry, and tobacco.
With implementations in more than 75 companies across the Middle East and Africa and more than
18 years of development experience in the mobile computing
omputing software industry, TSMEA is uniquely
qualified to help its customers in their field data collection
ollection applications. It has
ha the largest team of
software developers in mobile computing
omputing in the Middle East and fully
fully equipped service centers in five
offices across Saudi Arabia, UAE, and Kuwait.. It offers
Middle East market.
offers fully
fully Arabized N
Arabized and localized solutions for the
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TSMEA has diversified into areas like Retail, Inventory Management, Asset Tracking,
Tracking and Supply
Chain Management. Its strategic tie-ups
ups with world class solution providers ensure that its portfolio
includes solutions and services for a wide range of industry verticals.
One Stop Mobility Solutions
TSMEA’s
’s ‘One Stop Mobility Solutions’ include:
iinclude
nclude::
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• Hardware Management
• Hardware Repair and Maintenance
• Training
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• Vehicle Installation
• Professional Services
Hardware Management Services include:
• Inventory Management
• Software Loading
oading and Reflashing
Reflashing
• Device Configuration
• Operational Testing
Testing
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• Status Reporting
• Staging and Shipping
Hardware Repair
Repair & Maintenance Services include:
• Inventory Management
• Software Loading and Reflashing
Re
• Device Configuration
• Operational Testing
Testing
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• Status Reporting
• Staging and Shipping
Training
Users responsible for the maintenance and operation of the application must be trained in a ‘hands
on, real world’ environment and focused on all the critical learning types. Training is driven in tandem
with the project plan in order to maximize efficiencies and ensure quick and seamless solution roll out.
Vehicle Installation
A team of highly-skilled and certified vehicle installation technicians travel to each customer branch
antennas, and
during the roll out period. Installation services include device cradles, printers, cabling, antennas,
any other necessary component to ensure a robust mobility environment in the vehicle. The
installation process begins with an assessment of the fleet. After the assessment, the team prepares
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all installation components off site, to ensure that the installation is executed in the most efficient
manner possible.
Professional Services include:
• Presale Consultation
• Systems Analysis & Design
• Project Management
• Software Customizations
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• Integration with Host Systems
• Software & Hardware Implementation
Clients
Bakery Nadec, GCC
Al Hasa Bakery, Saudi Arabia Al Marai, GCC
Al Rashid Bakery, Saudi Arabia Oman National Dairy Products,
Products Oman
Herfy Food Products Co, Saudi Arabia Dhofar Cattle Feed (Al Safwa),
Safwa) Oman
Luisine, Western Bakeries, Saudi Arabia Dandy Company,
Company Qatar
Switz Master Bakers Ltd, Saudi Arabia Sadafco,
Sadafco, Saudi Arabia
Beverages
Pepsi in Jordan, Kuwait, Oman, Egypt, Saudi
Arabia, Turkey, Lebanon, Bahrain, UAE,
N FMCG
Family Food Center
Center, Qatar
Arabian Trading Suplies
Suplies, UAE
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Nigeria IFFCO, UAE
IFFCO,
Red Bull, UAE Binzagar Co (Uni Lever), Saudi Arabia
Abul Jadayel, Saudi Arabia Intercol Bahrain
Intercol,
Qatar National Import & Export,
Export Qatar
Cosmetics Savola Oil Co,
Co Saudi Arabia
Ali Bin Ali, Qatar
Allied (Michael Chalhoub Group), UAE
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Enhance, Oman
Wefag, Saudi Arabia
Dairy Americana Cake, Saudi Arabia
Al Safi Danone, GCC
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Nada, GCC
NBCC, Saudi Arabia
Garments
Food Ajlan Bros, Saudi Arabia
Basamh Trading Co, Co, Saudi Arabia
Baqer Mohebi, UAE Juices
Deemah, Saudi Arabia Al Waha Juice, Saudi Arabia
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Danya, Saudi Arabia

Al Waha, Saudi Arabia Mobile Phones
Armada Distribution,
Distribution, UAE Cellucom, UAE
Qualpro Distribution,
Distribution, UAE
Halwani Bros,
Bros, Saudi Arabia Oil & Gas Equipment
(KRAFT)
KRAFT),, Saudi Arabia
Olayan (KRAFT), Gates Fleximak, UAE
Industries Saudi Arabia
United Food Industries,
Poultry
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Fritolay in UAE, Saudi Arabia

Al Yasra Food Co,Co Kuwait Modern Poultry, Oman
(NFIC Saudi
National Food Industries Co Ltd (NFIC),
Arabia Tobacco
Al Rai Food Industries
Industries, Saudi Arabia Al Oufouk Trading, UAE
ASSARAIN Foods British American Tobacco in UAE, Saudi
Choithrams, UAE Arabia, Egypt, Jordan, Kuwait, La Reunion
Sharbatly Co, Saudi Arabia Island
TSMEA’s Major Milestones

• 1992 - Inception
• 1994 - First van sales project with Al Marai across the GCC, the largest van sales automation
project in the Middle East.
• 1995 - TSMEA wins AlSafi, Najdyah, Nadec, Nada accounts
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• 1995 - Opening of Jeddah and Al Khobar Offices
• 2003 - Opening of Kuwait and Dubai Office
• 2003 - Intermec Outstanding EMEA Partner awarded
• 2003 - Intermec Global Medallion Partner awarded
• 2003 - Premier Solution Partner awarded by Intermec
• 2003 - Intermec Global Service Partner of the Year awarded
• 2004 - Van sales project with British American Tobacco Company
• 2005 - Van sales project
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roject with Pepsi International (KSA, UAE, Lebanon, Jordan & Kuwait)
• 2005 - Intermec Global Service Partner awarded
• 2008 - Intermec Partner of the year, Middle East, India & Africa
• 2008 - Merger with TSL Ltd
• 2009 - Office in India opened
• 2009 - Signs deal with SADAFCO for van sales automation across KSA
• 2009 - National Water Company account win in KSA
• 2010 - Intermec Platinum Partner awarded
TWO CASE STUDIES

Al Marai Diary (Dairy)
Information Needs
• Historical data for sales, returns, delivery,
elivery, and o orders.
rders.
N
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• Settlement sales summary, route activity
ctivity log,
log, route
route s
summary
ummary and cash reconciliation report
• iscount, rental
Free goods, returns, given discount, rental reports.
reports.
• Fresh unload, truck spoilage, ending
nding inventory,
inventory, g ood stock movement reports.
good
Company Profile
Based in Riyadh, the capital of the Kingdom of Saudi Arabia, Al Marai is the largest integrated dairy
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foods company in the world, with a reputation for quality that is unmatched within the gulf countries in
company network extends throughout the Arabian Peninsula,
which they operate. The Al Marai company
pr
leading and influencing the agricultural, dairy processing, and food distribution industries.
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Al Marai has since become one of the foremost food companies in the Gulf. The dedication of the
company's employees and the leadership and direction of management has been the cornerstone of
Al Marai's success. Nowadays, Al Marai is an integrated organization spanning the food supply chain
from dairy farms and arable farms through to retail outlets in six gulf countries, with expected sales of
SAR 3.8 billion (USD 1 billion) a year.
Business Need
Al Marai was facing the new millennium with optimism as it seeks to implement its five
five-year expansion
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strategy based on organic growth and new product introduction. However, the only way to manage
the complexity this brings is to improve their levels of integration and ccross-functional processes,
which is where technology is the key.
Solution Overview
The Saudi-
Saudi-based
based dairy company has been using mobile technology since 1994, when it rolled out the
Saudi-based
first generation of the Intermec Handheld Sales Terminals and RoutePro Sof Software from TSMEA in
Riyadh. Handheld terminals have also been rolled out to the merchandisers, which will allow them to
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collect information on competitors’ activities on the spot. This has allowed Al Marai to react more
effectively to market movements.
Solution Details
Solution
• Salesmen use Intermec handheld rugged computers with Dot matrix printers for on-the-field
on
invoice printing and to generate reports.
• Ability to handle complicated promotions with Accounts Receivable (A/R) functionality and offer
flexible invoice payment terms.
• Full inventory and expense control with advanced route sequencing capability.
• ustomer survey and Image capture
Flexible Survey, Audit, & Merchandising functionality with customer
capability.
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• Flexible messaging capabilities.
• tem specific reports available to salesmen with wide range of informative
Route, customer, and item
returns, and
options like ageing analysis, settlement sales summary, route summary, free goods, returns, and
discounts reports.
The Results
• Ability to plot each salesman's route, sales, stock levels, and credit & cash sales. Given that each
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salesman completes in excess of 30 calls per day, and that the dairy has upwards of 20,000
customers across the Kingdom and the Gulf countries; the ability to plan routes minutely is
essential to ensuring optimal sales force performance.
• Up to the minute information, which enables sales supervisors to have daily conversations with
each salesman to review the salesman's performance and then improve the accuracy of the order
forecasts, which thereby helps increase sales and reduce wastage.
• The integrated system strategy has cemented the organizational integration through the provision
of timely management information.
• Capability to keep a check on its ever-expanding
expanding business. The network and handheld devices
ensuree that its disparate workforce is always reachable.
• Handheld computers and printers for its sales force assist in operations and cater to markets
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across the Middle East region to ensure that top quality milk products reach them on time.
• Fast invoicing and on-time deliveries.
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Pepsi (Beverages)
Information Needs
• Flexible reporting on promotions.
• Historical data for sales, returns, d
delivery,
elivery, and oorders.
rders.
• Ageing analysis reports.
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• Settlement sales summary, routeoute activity

activity log,
log, route
route summary, and cash reconciliation report.
• Free goods, returns, given discount,
discount, rental
rental reports.
reports.
• Fresh unload, truck spoilage,
poilage, ending
ending inventory,
inventory, good stock movement reports.
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Platform
• Windows XP, Win 2003.
• Middleware connectivity from remote locations and depots using Citrix.
• Reporting using Crystal Reports to generate MIS & Sales related information.
Company Profile
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Pepsi is a part of PepsiCo International, a major US Foods company with global sales exceeding USD
510m annually and employing more than 19,000 employees worldwide.
The flagship brand from PepsiCo
PepsiCo, Pepsi Cola is the leading beverage in the Middle East with a market
60%.. Pepsi has its strong presence through franchisees across the Middle East
60%
share of more than 60%.
Kuwai & Bahrain amongst others.
and Africa including Egypt, Saudi Arabia, UAE, Oman, Qatar, Kuwait,
The provision of top quality carbonated beverages is integral to PepsiCo’s operations and the
company is rated as one of the top food companies worldwide with its strong corporate image and
brand equity.
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Business Need
With its expansion into the Middle East market, Pepsi was witnessing a high volume of sales
transactions. However, the company had been heavily reliant on entering data manually from paper
time
with no systems to handle transactions electronically. This was a time-consuming and labor-intensive
process, particularly for the salesmen and the merchandisers. The paper-based system was also not
a very environment-friendly approach.
Pepsi wanted to ensure that any system that was implemented was easy to use and understand.
Given
ven the nature of their job, drivers on the road did not want to deal with cumbersome or complicated
devices. They also required a solution that could be easily integrated with other financial systems like
Oracle E-Business (used by a majority of Pepsi bottlers in the Middle East).
As Pepsi works through a franchisee model, it was a tough task in choosing a best- best-of-the-breed
best -of
of--the
the--breed
breed
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system that suited the requirements of the bottlers. And as the project funding was done by the
bottlers/franchisees; it was imperativee for PepsiCo to choose and suggest a system that was not only
the best in its class but was cost effective as well.
Solution Overview
To address this, PepsiCo opted for ‘RoutePro,’ the flagship product from TSMEA for complete route
accounting needs in the DSD environment. This product was recommended by PepsiCo to be
deployed by each of its bottlers in the Middle East. RoutePro worked with the Intermec 741 handhelds
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and the 6,821 dot-matrix
matrix printers. The project started in KSA with three bottlers in operation that
procured more than 800 Intermec handheld computers and printers. This was followed by successful
rollouts in other geographies like Lebanon, Kuwait, Qatar, UAE, and Oman with a combined total of
roll-out
more than 1,200 devices and printers. There was software implementation followed by the full roll
TSMEA-Intermec
and training of the drivers and engineers in different phases. This TSMEA
TSMEA- -Intermec
Intermec combination
turned out to be a winning one that brought immediate results.
The fact that the solution allowed Pepsi to handle its requirements in an effective and robust manner
was instrumental in Pepsi choosing TSMEA.. It was important that the handhelds could be updated
with routing software and effective discounting and merchandizing capabilities and that is exactly what
RoutePro provided.
based system to the handhelds as they were not used to such a hi

N paper-
Following the initial implementation, there were concerns from drivers about switching from the paper
hi-tech process. However, after
receiving training and beginning to use the system, they began to realize the benefits the system
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could provide.
Solution Details
• Salesmen use Intermec handheld rugged computers with dot matrix printers for on the field
invoice printing and to generate reports.
• Ability to handle complicated promotions
promotions with A/R functionality and offer flexible invoice payment
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terms.
• Full inventory and expense
xpense control with advanced route sequencing capability.
• Flexible survey,
urvey, Audit & Merchandising functionality with customer survey, and image capture
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capability.
• Flexible messaging capabilities.
• item specific reports available to salesmen with wide range of informative

Route, customer, and item
returns and
options like ageing analysis, settlement sales summary, route summary, free goods, returns,
discounts reports.
Benefits
• The drivers now rely on the rugged computers to track their deliveries which has helped with
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increasing driver productivity and fleet efficiency and reduced delivery times.
• Pepsi’s managers have quick access to information to monitor sales and are ensured an
increased return rate for accurate and complete transactions and financial reporting.
• Staffing costs decreased as it is no longer necessary to spend time manually inputting data from
the paper forms. This result in more time spent at the outlets and increased sales and revenue.
• Pepsi has also gained a competitive advantage based on the environmental benefits of a
computer--based
computer based system.
computer-based
• New system has also resulted in immediate cost savings for the company as it now uses fewer
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sheets of paper per year.

• Salesmen
Salesmen are able to achieve their monthly sales targets 22-23
22 days into the month thus bringing
in more money to the company. Additionally, customers can view their billing and proof of
delivery.
Source: Company Information, August 3, 2011

EXHIBIT 3
Intermec’s Corporate Brochure
Intermec technologies have been helping Fortune 1000 companies around the world improve supply
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chain efficiencies for over 40 years. That’s why 70 per cent of them have put their trust in us
absolutely. We not only deliver best in class data capture and mobile computing solutions, we provide
the expertise and connections to implement new systems and provide quality support long after. It’s
that extended scope, a commitment to serve broader business needs that makes Intermec different.
different.
Collaborative Approach
We bring all the right technologies and professional services together for you. Our collaborative,
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connected approach can ensure a more complete and seamless implementation whether your needs
call for our Gen 2 RFID tags and readers, bar code printers and scanners, rugged computers or a
Cisco Wireless Local Area Network (WLAN) infrastructure. But we do more than design and build the
industry’s most complete lineup of rugged, reliable and versatile equipment. We also work with you y to
relationships
get inside your challenges, to know your unique situation and then leverage our strong relationsh
with resellers and industry leading alliance partners to help you create a solution that harmonizes with
your networks, platforms and processes. With Intermec industry experts and our history of data
capture innovation and experience on your side, you’ll be ready to implement your supply chain
system with total confidence.
Leading the Way in Data Capture
technology advancements. In the late ‘60s we invented the first handheld data
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For over four decades Intermec has been the global leader in innovative data capture and other
data-entry terminal. In the
’70s we changed the way the world does business with the invention of Code 39, the most widely
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used bar code symbology. In the ’80s we invented “smart battery” technology and pioneered the first
integrated terminal WLAN.. In the ’90s we launched our first suite of RFID products and introduced the
first combination bar code scanner and RFID reader/writer. Today, Intermec offers the world’s most
comprehensive suite of innovative data capture technologies, all designed to best meet your
enterprise application needs. Our laser scanners offer superior depth of field. Intermec linear imagers
excel at reading poor quality and masked bar codes. Recently we introduced our most breakthrough
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scanning technology to date, a near far auto focus scan engine capable of reading 1D and 2D bar
codes at distances ranging from 6 inches to 50 feet in any orientation. In addition to innovations in
RFID and data capture technologies, Intermec has consistently introduced breakthrough mobile
computing technologies. Most recently, Intermec introduced an all new versatile multi-radio mobile
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computer that ensures total voice and data connectivity via a choice of 3G W Wide Area Networks,
WiFi™ and Bluetooth™. There’s even a high high-quality color camera for documentation at the point of
service. In the future, we will continue to uphold our rich tradition of innovation by keeping our eye on
emerging technologies. We are committed to testing those that show the most promise and only
incorporating the ones that are proven to offer the greatest benefit to you, our customers.
Oracle, SAP and Microsoft.

We’re proud to call the best of the best our alliance partners: Cisco, IBM, Oracle
By integrating our products and services into our partners’ premier software and systems, our
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customers enjoy an unsurpassed level of interoperability, performance and return on investment.
Setting RFID in Motion

Motion
Thousands of companies worldwide rely on Intermec to provide them with the knowledge, products
and services to enhance their supply chain operations through optimized data collection practices,
applications and technologies. With more than 17,500 warehouse solutions and more than 250,000 in
vehicle solutions installed worldwide, few companies can match Intermec’s extensive experience in
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solving real world, mission critical business problems in the broad range of supply chain applications.
Manufacturing Operations
where goods are at any point along the supply chain is key to achieving operating
Monitoring wher
efficiencies. Intermec solutions play an important role every step of the way. From computers to
printers to RFID, our systems and services help manufacturers implement lean principles and add just
in sequence capabilities to reduce errors and significantly increase productivity. Intermec products are
Cisco certified to ensure interoperability and optimum performance. Our Near and Far 2D imager
enables users to scan from 6 inches to 50 feet in any orientation. Bluetooth®-enabled enabled cordless
scanners paired with our vehicle-mounted computers provide tether-free scanning for better flexibility
and safety. Intrinsically safe devices are ideal for environments with combustible substances. Our
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RFID systems automatically track parts and products to reduce labor costs and increase visibility.
Warehouse Operations
Warehouse and distribution center operations require a wide range of rugged data collection systems
and wireless networks for real time tracking of inventory, labor productivity and delivery status. Bar
code and RFID printers enable you to print to tag your shipments with serialized shipping container
codes, facilitating EDI and making deliveries faster and more accurate. From our forklift
forklift mounted and
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mobile computers designed to withstand harsh environments and extreme temperatures to our RFID
readers and handheld scanners that can read location markers up to 50 feet away, we can improve
accuracy by giving you visibility to goods and resources throughout the entire supply chain.
Maintenance and Field Service Operations
Intermec rugged mobile computers link the enterprise with in the field maintenance and service
workers for seamless data exchange and reliable communication. They also enhance asset
management and optimize utilization. Our handheld scanners and RFID tag readers verify that the
correct asset is being worked on with the right tools, record when the tasks are completed, and
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update maintenance records. Intermec mobile computers and mobile printers provide field service
representatives access to product information and customer data, record service activities, issue
receipts and track inventory. GPS technology is also available for driving instructions and tracking
individuals in the field.
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Direct Store Delivery and Merchandising
For businesses that deliver consumer goods products directly from their suppliers/distributors to a
retail store, Intermec products and services add end-end-to-end
end -to
to visibility and efficiency. With Intermec
rugged
ugged computers, printers and communications solutions your employees can concentrate on
making sales, and minimizing stales/ returns. Our systems provide access to key product and account
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information, up-to-date
date special pricing, electronically updated rou
route books, and DEX in real-time so
you no longer have to worry about problems with last last-minute price negotiations. Adding GPS and
WWAN communications ensures that your people can get to the right place at the right time. Just
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what you’d expect from Intermec,

Intermec, the DSD leader for over 20 years.
Retail Store Operations/Management
The better the shopping experience, the more your customers will shop and spend in your stores. Our
linear imagers in wireless handhelds combine the ideal scanning technology with real real-time product
information access to improve customer service and shelf management. Our systems enable you to
quickly look up detailed product information, local inventory in other stores or the distribution centers,
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and finalize customer orders on the store floor. Intermec RFID systems facilitate automatic inventory
Bluetooth-enabled printers used in mobile point-of-sale (POS) and
updates in real time. Portable Bluetooth
line/queue busting solutions can address peaks in traffic and speed up the checkout process. Reliable
voice communication is critical to retail operations. Intermec’s mobile computers with Voice over
Internet Protocol (VoIP) allow voice conversations over the wireless network without the need for an
walkie-talkie
additional walkie-
walkie-talkie
talkie or phone.
In-Transit
--Transit
Transit Visibil
Visibility
ity
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Lower transport and logistics costs, greater customer satisfaction, greater security—it all starts with
in-transit
superior in-
in transit visibility, made possible via a full range of Intermec technologies, software and
-transit
professional services. Now your drivers can record deliveries, maintain a running status of delivery
activity and communicate that information to your back office systems in real time. With a complete
line of batch, wired and wireless data collection terminals and computers, bar code printers, scanners
and quality media supplies, Intermec asset tracking solutions can be integrated into existing systems.
With our rugged mobile computers, businesses can utilize integrated GPS to precisely locate trucks
and personnel. Via Intermec RFID systems, customers can better avoid supply chain disruptions and
bottlenecks and secure shipments and operations against unauthorized tampering.
Integrating the Complete Solution
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Intermec delivers the world’s most complete line of supply chain Products backed by expert
professional and support services.
Mobile Computing Solutions
• Rugged handhelds and fixed mount computers deliver real-time time access to information at the point
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of work, increasing workforce efficiencies and improving customer service
• Globally certified Intrinsically Safe and Non- Incendive devices for hazardous locations
• Robust communication technologies include integrated GPS, WiFi®, Bluetooth® and WAN voice
and data services (including 3G EV-DO or EDGE)
• Seamless integration with leading technologies from Microsoft, Cisco, Wavelink, IBM and others
• SmartSystems™ for quick deployment, device configuration and monitoring, and easy upgrades
Mobile and Fixed RFID Solutions

• Complete scalable RFID product suite includes readers, printers, tags, labels and inlays
supporteded by RFID implementation services to guarantee system performance, all from a single
•
source
Designed for worldwide use on global EPC Gen 2, ISO 18000-
FCC RF certified
18000-6b
18000 N
6b and 6c standards; ESTI and
-6b
Certified compatibility with industry leading software, including IBM, SAP, Oracle and Microsoft
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• Cisco Certified Extension (CCX) for operation in Cisco wireless environments
• Innovative product design includes RFID Forklift with integrated computer, reader and antennas
• Scanning Technology
• Breakthrough suite of data capture technologies to meet every enterprise need
• Area a imagers for close range, omnidirectional and 2D scanning applications that require bar
codes to be read from any orientation
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• art laser scanning technology based on Micro-Electro-Mechanical

State-of-the-art Micro Systems (MEMS)
long-range
long-
delivers unparalleled performance for long-range range bar code applications where remarkable depth
of field and distances of up to 35 feet can be achieved
•
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Linear imagers for medium to close range applications that require exceptional reads of poor
quality or masked bar codes and superior read of higher density bar codes
• Designs incorporate unique form factors, Bluetooth® radios for cordless operation and extended
battery life, all to boost user productivity
Printers and Media

• value-based
value- based to high
Complete lineup of value-based high-performance bar code and RFID printers, plus related
media products to support a broad range of applications in mild to the very harshest environments
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• Fixed printers can control peripherals without the need for a PC, saving money and reducing
points of failure
• Portable printers bring convenience to the frontline worker with a variety of form factors, fast print
speeds and optional Bluetooth® communications for receipt and invoice printing
• SmartSystems™ for quick deployment, device configuration and monitoring, and easy upgrades.
Intermec SmartSystems management software makes it easier than ever to deploy, use and
support
•
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Intermec devices. SmartSystems™ Foundation provides a single, integrated environment for

hands-- free deployment and management of devices located anywhere in the enterprise—at
hands enterprise a
single location or multiple locations around the world. The management software works with
Intermec computers, printers, RFID components, software applications, bar code scanners and
other per
peripherals. Administrators can remotely implement changes to device settings, send OS
upgrades, update software applications, and execute other changes to one device or a group of
devices, making the most of limited IT resources and lowering the total cost of ownership of your
data collection equipment.
• A variety of media—from take-from-stock for fast delivery to customized label material to meet the
most challenging environments
Wireless Networks
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• featured connectivity for wired and wireless access to data at the point of origin through
Full-featured
partnership with Cisco
• A Cisco STI (Strategic Technology Integration) Partner and Cisco Advanced Technology
Development Partner
• Sales, installation and support of a complete line of Cisco Unified Network products and wireless
wirel
LAN infrastructure
• Wireless and RFID products seamlessly integrate into Cisco Unified Networks
• Rugged, dual-radio, enterprise-
radio, WiFi, WPA2, VoIP, advanced Cisco Compatible functions and enterprise
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class wireless security solutions
• Flexible wireless networking products that merge WLAN, WWAN, Personal Area Networking and
VoIP
Software Tools and Utilities
• SmartSystems™ software solutions provide hands-free free deployment and device management of
devices located anywhere in the enterprise—on-site
site or remote Centrally managed firmware and
software applications to save time and cut costs
• Utilities, resource kits and development tools designed to speed up the development of mobility
•
software applications N
Standard development environments include C/C++, .NET, Java, HTML and Microsoft Visual
Studio
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Professional Services
• Expert implementation of WLAN, WWAN and RFID-related

RFID-rela
RFID- rela data capture systems in complex
environments
• Single-source
source rollout services for large, multi-site
multi-site
multi- site locations, including project management,
software development, training, site engineering and logistics services
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• Available in the USA and other major markets

markets
Support Services
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• Over 70 repair facilities worldwide

• A variety of service contract plans available to meet individual customer needs
• Factory-trained
trained technicians using only authorized diagnostics, and repair and test procedures
• Local telephone-based
based technical
technical support
• 24x7 online self-help
self-help
self- help product support
Source: Intermec’s Corporate Brochure 2007

2007. Retrieved on August 3, 2011 from www.intermec.com
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EXHIBIT 4
Evolution of the Handheld Computers
Handheld Computer
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The label ‘handheld computer’ has been applied to a wide range of portable electronic products with
differing levels of functionality, target markets and operating systems. The handheld computer
industry has been formed at the intersection of the IT, consumer electronics, and telecommunications
industries.
The origins of the handheld computer can be traced back to the work of Alan Kay, a researcher at the
notebook-sized
Xerox Palo Alto Research Center, who in 1968 designed the prototype for a notebook-
notebook -sized
sized computer
that would recognize a user’s handwriting and be able to communicate with other computers via
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wireless technology (Carlton, 1997). The technology at that time was unable to allow such a product
to be brought to market.
The 1980s saw the birth and rapid growth of the ‘personal computer’ (PC) industry. Users soon began
to demand portability and from the middle of the decade IT companies began releasing products to
meet this demand. The early ‘portable’ PCs were heavy, expensive, expensive, and had poor displays.
Continuous innovation, miniaturization, and technological advancement meant that in the 1990s
mobile computers were lightweight, reasonably priced, and had almost equal levels of functionality to
desktop systems. These laptop, notebook, and subnotebook computers still required the user to input
data via a keyboard. Around this time there was an upsurge of interest around the concept of the penpen-
based computer. Such a device would eliminate the need for a keyboard by allowing the user to input
Apple Computer (devoting over USD 500m

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data using natural handwriting via a stylus applied to a sensitive screen. Fuelled by predictions of “the
dawning of a USD 3.5 trillion industry” (Sculley,1992),
(Sculley,1992), large investments were made by venture
capitalists and established IT companies to drive developments in this area. Notable examples were
m to the development of its ‘Newton’ series of handheld
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devices) and GO Corporation (a start-up up company that managed to raise over US USD 75m for the
development of its ‘PenPoint’ platform). Despite such investment, most of the products that reached
re
the market failed due to a combination of poor software and hardware performance, high prices.
prices and
inappropriate marketing. The devices that did succeed tended to be those aimed at specialized,
speciali or
vertical, markets, such as mobile sales and stock data capture products released by companies such
as Grid, Norand and Telxon (Red Herring, pen-based products aimed at consumer
Herring, 1994). Most of the pen
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markets in the early 1990s failed to achieve widespread sales.
With the release of the Palm Computing II ‘Pilot’ in 1996, the industry was revitalized. The Pilot
became the fastest PC product take-
uct to reach 1m units sold (Fortune, 10/11/97). The market began to take
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off as IT and consumer electronics companies attempted to replicate the Pilot’s successful formula for
a ‘Personal Information Manager’ (PIM) or ‘Personal Digital Assistant’ (PDA). In parallel, the market
for small, keyboard-based
based ‘Handheld PCs’ (HPCs) began to grow as products such as those based
around Microsoft’s Windows CE and Psion’s EPOC32 operating systems increased in popularity.
Companies within the mobile telecommunications industry also began to take an interest in the
handheld computer market. With the switch from digital to analogue technology, the level of
functionality for mobile telephony that could be offered to both vertical and horizontal markets
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increased dramatically. WWith

ith the cost of airtime falling suppliers of mobile telecommunications
hardware and software needed to offer more functionality to the user. This was achieved by adding
mobile communications functions to handheld computers (via various add add-on devices) or by
incorporating certain handheld computer functions, such as ee-mail access, within a mobile phone (by
re-designing
designing the handset and adding dedicated software).
consumers, continued to
The makers of handheld computer products aimed at specific vertical consumers
pen-operated ‘tablet’ computers
advance their share of markets through the development of pen
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incorporating open or proprietary operating systems.
computers can also be categorised by their target markets - either

The various types of handheld compute
(eg, field-sales
vertical or horizontal. Vertical markets describe users within specific functional areas (e
automation) and industries (eg, healthcare). Horizontal markets refer to the wider consumer markets
automatio
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Handheld computers can also be categorized ed by their platform, which defines the operating system
which the applications the devices will be able to use.
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Much attention is now being focused on building up the communications capabilities of hand
handheld
computer operating systems. This is due to a combination of demand pull and technology push. There
is also an increasing interest from the wireless telecommunications companies for using handheld
computer operating systems in mobile telephones.
The handheld computer industry represents the intersection of a number of previously disparate
industries – the IT hardware and software, telecommunications,
telecommunications, and consumer electronics industries.
As the handheld computer industry matures; the resources, competenc

competences, and capabilities required
by the successful firms are changing and their ability to augment these is critical.
Source: Dr. T.H.W. Minshall (1999). “A Resource-Based

Computer Industry,” International Journal of Innovation Management,
Management, 3(2).
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Based View of Alliances: The Case of The Handheld
3(2 Retrieved on August 5, 2011 from
3(2
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http://www.ifm.eng.cam.ac.uk
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EXHIBIT 5
Global Market
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Rugged Handheld Computer Market Rebounds
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The mobile devices should gain nearly 9 per cent over 2009, with some makers reporting 30 per cent
growth, finds VDC Research.
By Esther Shein, Information Week, August 03, 2010
Sales of rugged handheld mobile computers grew by almost 8 per cent in the first quarter of 2010
“Sales
compared with the same quarter a year ago, after an overall dismal 2009 due to the economic
downturn, according to VDC Research. The market dropped by 30 per cent in certain regions last
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year, most significantly in Europe,” said David Krebs, director of VDC's mobile and wireless practice.
The retail sector took a big hit, dropping 40 per cent, Krebs said. "Clearly what happened was the
downturn in the economy, and retail going into the recession was already soft in terms of their spend
on these solutions. Other industries that saw a drop in sales were manufacturing, warehouse
transportation, and telecom,” he said.
But the outlook for 2010 is better than expected, Krebs said, with performance in the first six months
already up and some companies reporting growth of 20 per cent to 30 per cent higher than 2009. For
2010, VDC Research is projecting the rugged handheld computing market will grow to USD 2.1 billion
worldwide, representing a growth of 8.6 per cent over 2009, with 2.6m units sold worldwide. That
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uptick will continue through 2014 with an annual compound growth of 8 per cent, the firm said.
Manufacturers that will benefit include Motorola, Intermec, Datalogic, Honeywell, LXE, and Psion.
"The surprises were the rate at which the activity increased,'' Krebs said."We were expecting a slower
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start to the year and it picked up... retail has really come back and is starting to spend in a significant
way." Pent-upup demand for the rugged handheld devices is starting to be realized, "driving a boost to
spending for retail shop-floor back-room
floor in addition to back-
back -room VDC Research said in
room warehouse applications," VD
a statement.
The real growth driver for rugged handheld devices continues to be with the "beyond the fence" field
least-penetrated
mobile workers, Krebs said, which is the least-
least -penetrated
penetrated market segment and is only now beginning
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to see the benefits of making certain processes mobile.
Although the market is rebounding, rugged handheld vendors still face challenges, notably, in the
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growth in competition from smartphones and other devices that have mobility applications. Even
though smartphones do not have the level of ruggedness or integrated I/O capabilities, VDC
Research said, they are being eyed more frequently as field devices because of their lower adoption
cost and growth in the enterprise. Customer expectations from a user interface and experience
perspective
rspective are driving the attraction to smartphones, even though there is strong developer support
for field mobile applications on Windows mobile devices, VDC Research said
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10
Source: http://www.informationweek.com/news/hardware/handheld/226500167 accessed date August 5, 2011.
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11
Global Market Share
Business for Seattle-based

based mobile hardware company Intermec is booming in the Middle East, with
the company revealing at GITEX TECHNOLOGY WEEK that the Middle East is currently one of its
strongest regional growth areas.
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“If I look at Western Europe, our business is growing at about 6 per cent per annum. In this region, it
is growing at about 20 per cent per annum and I also look after India, which is growing at about 40 per
cent per annum. It is not a difficult decision to make for us as an organization to put all of our
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investments into the ME and India region,” says Julian Sperring-Toy,
Sperring General Manager for the Middle
East, India and Africa.
Sperring-Toy says that in Saudi Arabia, Intermec
When evaluating its performance in the Middle East, Sperring
is the market leader with about an 80 per cent share in direct store delivery, while in the UAE the
market is still very strong, but the focus is on field service applications. “We like to have quite a mixed
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model of business so we are not dependent on one market sector,” he says.

Intermec released its CS 40, the smallest and most rugged handheld computer in its range, at the end
high-
of last month and is educating visitors on the device this week. The product can not only handle high
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performance scanning, but combines cell phone and data communications features as well.
Intermec has been present in the Middle East for about 20 years and has had an office in the region
for a decade. “From one office with one person in Dubai, we now have offices in Riyadh, Jeddah,
Sperring
Cairo, Bangalore, Delhi and Mumbai. We have gone from one person to about 30,” says Sperring-
Toy.
The company also has a strong presence across Africa, with branches in countries such as South
Africa, Tunisia, Nigeria and Ghana. He says customers in these emerging markets are demonstrating
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high-end
high- end mobile technology.
a healthy appetite for high-end
Published October 19, 2010
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Retrieved
etrieved on August 6, 2011, from
http://www.connectedmobility.com/Events/Channel_Power_Roadshow_2011/Presentations/NE/2_Regional_Cha
nnel_Update_Rene_Schrama.pdf,
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Retrieved on Jan 07, 2011 from http://www.itp.net/popup/print/582311,
EXHIBIT 6
Intermec Interviews
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Interview 1 on why the handheld market is at the cusp of a new wave of deployment in the region.
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Colin Summers, Regional Manager for Intermec Middle East
by Edward Attwood, June 9, 2009
What's your experience in the Middle East and what industries do you serve?
Intermec has been providing handheld computers for more than 20 years in this part of the world. We
manufacture what we would call ‘rugged’ or ‘field’ handheld terminals and
d mobile computers and our
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typical user could be a Courier, Warehouse Packer, Postal Delivery Person, Field Service Engineer,
Van Sales Driver, Merchandiser, Market Research Executive, Fast Food Delivery Guy, Technician,
Medical Professional, Firefighter, Policeman, Restaurant Waitress or Utility Meter Reader. What
everyone above has in common is that they are using the handheld computers to perform multiple
business critical operations in an enterprise organisation.
Can you give me an outline of the products you produce?
We have a wide range of handheld computers for different applications and different users and even
for different environments. The CN3 series of handheld computers, which are rugged field devices,
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which are used by thousands of outdoor field sales and service professionals. This includes the CN3
and CN3E products. A new smaller form factor device, the CN50, was launched early June, also
aimed at outdoor mobile workers. For the Warehouse, Retail and Distribution Centres our flagship
products are the CK31 and CK3 products, which have a different form factor for the different types of
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worker and working environment. We also have non- non-incendive
non-incendive
incendive and nonnon-combustible devices,
including the CK32, which is utilised in markets such as the Petrochemical industry. Our products are
manufactured to strict certifications such as relating to conditions such as temperature (e.g. from -20
degrees centigrade up to >60 centigrade), drop tests onto concrete and high humidity tests
(particularly important for the Middle East region). This underlines the fundamental issue that the
device must survive the rigours of the environment and the often not not-so-gentle use by non-office
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workers!
How are your products differentiated from others in the market?

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Intermec has been manufacturing handheld computers longer than any company and we’ve a track
record of innovation. For example, we were the first manufacturer to offer four radios in a single
handheld computer, with the CN3 offering Bluetooth, GPRS, Wi Wi-Fi and GPS, way ahead of any other
RFID-read capabilities. The devices are
company. We also built the first mobile computer offering RFID
highly integrated with many key components and we offer the widest range of configurable options:
long range scanners/imagers, QWERTY and Numeric keypads, RFID capabilities. In addition we also
supply a mobile enterprise solution, hence peripherals such as printers (e.g. mobile or label printers)
are normally required along with the handheld terminal; the fact that Intermec is the only manufacturer
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who can supply both the computers and printers, and other peripherals devices, is another key
success factor.
What are the other elements that you offer, other than the product itself?
Intermec offers far more than a great piece of hardware. Our success has been built upon supplying
an Enterprise Mobile Platform. Hence there are other key elements elements. We provide Software
Development tools, and many key software utilities for security, device management and
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communication. Hence we work very closely with key IT vendors such as Microsoft, Oracle, and SAP;
ensuring full compatibility and ongoing support for many IT standards. We also have a network of
hundreds of Software Development Partners, through whom there are literally thousands of
We also work closely with Cisco, a key technology partner. This ensures full
applications available. W
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summers-intermec/1/.
compatibility and security of our systems in networked environments such as warehouses, retail
outlets and distribution centres. Equally important is the service you get from Intermec’s Channel
partner. They provide a tremendous experience related to the installation, support and management
of these devices. For example deploying 1,000 handheld computers in a fleet of 1,000 trucks is a bit
more challenging than installing 1,000 desktop PCs.
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How strong is demand for handheld computers in this region?
The demand for these products is growing and growing, my estimate is that the demand for handheld
products across the Middle East market has grown at an average rate of .20 per cent per annum. Our
own growth rate has been phenomenal at an average of 40 per cent over the past 5 years, hence why
we are the undisputed market leaders in the Middle East. The handheld computer business has only
recently moved from a niche market into the mainstream of the IT industry. There are a lot of
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developments happening at the same time, fuelling this growth and these changes. Firstly there are
so many new, different, easier and cheaper ways to connect ‘untethered devices’: GPRS has only
recently become prevalent everywhere, 3G opens up higher bandwidth, Wi- Wi-Fi
Wi-Fi
Fi is just about as
pervasive as you can get and Wi-MaxMax may open up more metropolitan networks. Compare the current
availability of communications in 2009 with 2005, and there’s a world of difference. Equally, the
Software Vendors are all involved making more varied, richer and easier to use applications for the
handheld device market: Microsoft has only recently become the de- de-facto
de facto Software standard for
-facto
Handhelds with Windows Mobile 5 and 5X platforms; while Oracle, SAP, Cybase, Microsoft and a
whole host of other Software companies are realising there is more revenue potential in handheld and
mobile devices than the traditional desktop PC. Plus I believe that we’ve reached an inflection point in
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terms of market and user acceptance, i.e. there is now sufficient experience, knowledge and
confidence that many organisations appreciate that they can no longer operate their business
effectively without handheld computers; i.e. we are reaching a new level of maturity. Five years ago, it
was radically different; there was still a massive credibility gap in terms of accepting whether handheld
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technology could be successfully deployed. In fact leading pioneers and users of Intermec products
such as Al Marai, Binzagr, Pepsi, Aramex and FedEx have all played a great part in building up
market awareness and acceptance.
How competitive is the regional market?

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My simple answer is that every market is competitive, but it’s difficult to define exactly “how
competitive” this market is. Most of our competition is from manufacturers who do not understand the
customer requirements. We have been selling and supporting enterprise handheld projects for liger
than anyone, hence quite a proportion of our business comes from customers who have been over- over
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sold equipment, which simply does not stand up the rigorous use by non-office
non mobile workers and
the harsher environments in which the devices are deployed. The key is being able to show the
customer the ‘Return On Investment’, which is more important right now than ever before. We can
show that cheaper less rugged devices simply won’t survive nor will they give the gains or savings he
or she expects in their organisation. Again defining a ROI for a customer needs years of experience, it
also needs a systems approach with an understanding of the customer’s business processes (which
involves significant on-site
on-site
on- site business consultancy). If Intermec brings this consultative approach to the
customer then we simply don’t lose deals and this has been the key and unique success factor for us
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in this region.
Which companies are using your products in this region?
We have the largest user base of handheld terminals in the region, probably more than all of our
competitors put together. We are fortunate to work with many of the leading organisations in the
private and public sector: Aramex and FedEx are two of the most well-known
well customers in the
logistics sector. Pepsi, Transmed, Ali Bin Ali Group, Binzagr and National Food Products Co are
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major FMCG manufactures

ma and distributors; Egypt Post, Emirates Post and Saudi Post are some of
the Postal organisations using Intermec; Egypt Air, Emirates Airlines and Saudi Airlines are 3 of our
airline customers; while Saudi Telecom, Dubai Municipality and Jeddah Municipality are key Public
Sector customers; while Carrefour, Union Co-op
Co and the Malia Group are all famous customers from
the Retail sector.
What challenges have you faced in the Middle East?
The key challenge continues to be building up the skill sets of the Partner Channel. Our Partner
Channels are fundamental to our business and we focus heavily in building up their technical and
country Service & Repair Centres across
support skills. We have successfully built up a series of in-country
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the region: >15 Centres in the region. Intermec has been doing business in the Middle East Region
for >20 years, hence we have tremendous experience and working knowledge of the region. Most of
the Intermec team have >10 years experience in this business, which enables us to have all-
have an all
important insight and understanding of the real world business issues and operational challenges
facing our customers.
What are your market predictions for the future?
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I believe that we are the start of a new wave of deployment of handheld terminals in this region.
Handheld technology is about to make another stepped incursion into the mainstream IT industry. The
attach rate of mobile workers is still very limited - less than 10 per cent - and there is therefore an
enormous potential of workers (in warehouses, in the field, in sales etc) who are still using manual
paper systems. Hence I believe that we will see the automation of many new mobile workers in many
new organisations; again this relates to a convergence of the availability and capability of wide area
and wireless communications; of new feature applications; increased skill sets, experience and
confidence within organisations and from channel partners to execute successfully on the deployment
easy-to-use,
of the technology and above all else the availability of easy-
easy-to
to--use, multi-functioning and
use, scalable, multi
rugged and robust devices.
Interview 2
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on Mobile Market
by Robeel Haq, June 17, 2009

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How can warehouse operations in the Middle East benefit from the latest developments in handheld
computing?
tics managers are facing the arduous task of boosting their supply chain efficiencies while
Logistics
reducing the overall cost of operations. It’s a challenging scenario and, with limited budgets on hand,
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the timing is perfect to scour the technology market in search of cost

cost-cutting solutions. After all, even
the smallest of improvements can produce a significant dividend on your company’s bottom line.
To support this movement, the latest developments in warehouse management systems, RFID
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technology, and automated storage handling have lured the Middle East logistics industry towards an
electronic era, leading to the gradual (and ongoing) demise of manual processes. In particular, the
mobile computing sector has experienced a period of continued growth in the region, with estimates
that annual demand from customers has increased by approximately 20 per cent over the past five
years.
“The penetration of mobile computing in the Middle East logistics industry has been extremely high in
recent years and this trend is expected to continue in the future,” explains Parminder Kaur Saini,
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industry analyst at research firm Frost & Sullivan.
“Although the global recession has led to budget cuts around the world, the demand for mobile
devices in regional warehouses is being driven by the need for organisations to have the best
systems in place. Manual procedures are no longer desirable for companies that want to lead the
field.”
The increased focus on mobility in the supply chain has translated to a range of new products and
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applications, each designed to improve the productivity of companies. In theory, the implementation of
applications,
such devices will provide a user with remote access to the likes of warehouse management systems
and customer relationship management software, therefore boosting the quality, speed and accuracy
of their daily operations. This also has a domino effect by improving a company’s customer service
levels and, ultimately, their business profitability.
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“These devices are capable of increasing the visibility of supply chain operations and minimising a
company’s losses due to theft, management inefficiencies and damages,” continues Saini. “This is
true for companies that manage their supply chain in house or 3PL companies that operate a network
of warehouses. However, the success factor is dependent on selecting the right product and that is
sometimes a challenge.”
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A number of factors should be considered when selecting a mobile computer, according to Saini,
especially with the growing list of suppliers that are targeting the Middle East. The initial step is
completing an evaluation into current procedures, including the strengths and weaknesses, allowing a
company to highlight its most prominent areas for improvement. Once this is accomplished, it’s time to
search for suitable products – taking into account everything from system integration, functionality and
ergonomics to ruggedness, durability and the vendor’s regional presence.
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“This region has emerged as a lucrative market for mobile computing and a growing number of
warehouses
arehouses will soon be completed in developments such as Dubai Logistics City, Bahrain Logistics
Zone and Prince Abdul Aziz Bin Mousaed Economic City, which will help to fuel demand even further.
This explains the presence of global manufacturers such as Intermec, LXE, Motorola, Datalogic,
Psion Teklogix and Honeywell Scanning & Mobility, each offering something unique for the customer,”
says Saini.
“When researching the market, it’s important to remember your budget at all times and clearly list your
current
nt requirement and goals, in addition to those that are expected in the future too. Suppliers are
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keen to win your business, especially in the current environment, so don’t be afraid to ask lots of
questions, ask for references and test the products for yourself. Such extensive research is necessary
to ensure a company has chosen the right product for their operations and can lead to a faster return
on investment (ROI).”
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Fausto Mamprin, Middle East Area Manager, Datalogic Mobile
What range of handheld computers does Datalogic provide in the Middle East?
We’re focused on rugged mobile computers and produce a range of products for warehouse and
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courier operations, in addition to retail processes.
What makes your products different?

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Datalogic Mobile computers cost-of-ownership. This

s are tested in harsh environments to minimise the cost
means our customers can eliminate their downtime and save on hidden costs.
How strong is demand for handhelds in the Middle East?
Demand is strong in this region and continues to increase, especially in utility and other outdoor
applications.
Is there a lot of competition in the local market?

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track-record of growth
It’s very competitive in the Middle East, although Datalogic has an impressive track
well-established network of partners in the region.
that has been supported by a well
Which companies are using your products in this region?
Our products are purchased by a growing number of small and medium enterprises, in addition to big
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healthcare, and telecommunication industries.

companies in the retail, logistics, healthcare
Rudy Rubeiz, Business Development Manager, LXE
What range of handheld computers does LXE provide to companies in the Middle East region?
We manufacture a complete range of rugged mobile devices, in addition to a unique range of

wearable computers and scanners.
What makes your product different to others in the market?
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Our products can be operated in the most demanding environments, such as cold stores,
warehousing facilities and shipping ports. In addition, the same benefits are offered across our range
of products. For example, mobile computers are equipped with LXE tough-talk, talk, which is a multi-
multi
vendor solution that allows customers to purchase a voice picking solution in the future without having
to invest in new hardware.
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Companies want real-timetime visibility in their supply chain, which is pushing demand for mobile
computers in this region.
Yes, the Middle East is definitely a competitive region, although we are confident that LXE’s range of
mobile products can fulfil the unique requirements of the regional market.
Tarek Hassaniyeh, Regional Sales Manager, Motorola Enterprise Mobility
What range of handheld computers does Motorola Enterprise
and non-rugged
rugged options that have functionalities such as digital cameras, two-way
two
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Enterprise Mobility provide in the Middle East?
We provide the widest range of Enterprise Digital Assistants (EDAs) in the industry, including rugged
radio, GPS and
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barcode scanning.
Motorola offers a ‘one stop’ solution that covers a wide range of activities in the supply chain. Our
products also come with a comprehensive support service.
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How strong is demand for handhelds?
Demand has increased

sed in recent years, which has been fuelled by economic growth in the Middle
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East, with more and more companies expanding their operations.
Customers are looking for value in terms of increased efficiency, cost savings and customer
satisfaction. Although a growing number of competitors are operating in this region, the market has
continued to expand and Motorola products are being used in a wide range of industries, so the
situation is healthy.
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Alaa Nawash, Middle East Sales Manager, Honeywell Scanning & Mobility
What range of handheld computers does Honeywell provide in the Middle East?
We provide the entire range of Optimus and Dolphin handheld computers, from entry-level
entry devices to
industrial-grade
industrial--grade
industrial grade mobile computers.
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Our devices are rugged and can survive the harshest of conditions. At the same time, they are
high-performance and reliability.
ergonomic and recognised for their high

Despite the economic situation, we have noticed that demand is steady for mobile computers in the
Middle East, especially from companies in the logistics, healthcare and government sectors.
What are your market predictions for the future?
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Honeywellell has forecast a period of healthy growth in the Middle East. We are looking to develop our
market share in a number of different verticals, such as logistics, government and retail. In addition, I
believe it’s important to boost our presence in the region and bring our solutions closer to local
customers and partners. This will also improve our ability to provide a greater deal of support on a
local level.
Colin Summers, Regional Manager, Middle East, India and Africa (MEIA), Intermec
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What range of handheld
eld computers are provided by Intermec for companies in the Middle East
region?
Intermec has provided a range of handheld computers in the Middle East for over 20 years, which are
aimed at a very different market to products such as office computers or PDAs. Our typical user could
be a warehouse packer, courier agent, postal delivery person, field service engineer, van sales driver
or utility meter reader. What these people have in common is the need to use handheld computers for
multiple business operations. Our products are rugged and manufactured to strict certifications, with a
comprehensive testing process that covers everything from freezing temperatures to high humidity to
drops onto concrete floors. This underlines the fundamental issue that mobile computers should be
able to survive the rigours of supply chain operations in the Middle East.
What makes your product different to others?

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Intermec has been manufacturing handheld computers longer than any company and we have an
impressive track record of innovation. For example, we were the first manufacturer to offer four radios
in a single handheld computer namely Bluetooth, GPRS, WiFi and GPS. We also produced the first
mobile computer with RFID read capabilities. In addition, we supply a complete solution,
solu which
includes peripherals such as printers that are normally required along with the handheld terminal.
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My estimate is that demand for handheld products across the Middle East has grown at an average
rate of 20 per cent per annum, while Intermec’s average growth has been 40 per cent over the past
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five years. The handheld computer business has only recently moved from a niche market into the
mainstream of the IT industry. There are a lot of dev developments happening and I believe we’ve
reached an inflection point in terms of market and user acceptance.
In other words, there is now sufficient experience, knowledge and confidence within organisations to
appreciate they cannot effectively operate their business without handhelds.

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The bulk of competitors fail to understand the requirements of customers, so a large portion of our
business comes from companies that have been sold equipment that is not suitable for harsh
non-office workers. The key is showing a suitable return on
environments or the rigorous use of non
investment, which takes years of experience. Intermec brings this consultative approach to
success.
customers, which has been key to our success
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EXHIBIT 7
Supply Chain Technology
15
Trends
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It’s easy to name ‘mobility’ and ‘wireless’ as trends, but it’s less clear exactly what direction these
developments are taking and how they can be used to improve business. Here are the top trends and
technologies impacting
pacting supply chain operations spanning production, distribution, retail and remote
service.
• Comprehensive connectivity – from 802.11 wireless LAN technologies, cellular networks,

Bluetooth
• Voice and GPS communication integrated into rugged computers
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• Speech recognition
• Digital imaging
• Portable printing
• 2D & other bar coding advances
• Radio frequency identification device RFID
• Real time location system RTLS
• Wireless and device security
Connectivity
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The various forms of wireless connectivity – Bluetooth for personal area networking, 802.11 wireless
local area networking, and cellular wide area wireless networks for voice and data communication –
are all highly visible and provide compelling business cases for many specific operations. Although
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innovation and adoption is continuing at a strong pace, these trends aren’t new. What is new and
significant is how these technologies are being combined into single devices that provide multiple
forms of wireless functionality, bringing convenience to both users and to IT staff responsible for
managing mobile devices.
Advanced Wireless: Voice & GPS

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Now leading cellular carriers have certified rugged handheld computers for voice communication,
enabling data collection, data communication and cell phone functionality to be converged into one
device. Users don’t need to worry about keeping separate cell phones and computers charged and
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maintained, nor do they need to switch back and forth between devices to complete routine tasks.
Speech Recognition
The ‘other’ voice technology for supply chain operations – speech recognition for hands-free data
entry – is also undergoing a new wave of innovation and adoption. Speech recognition helps
productivity by reducing the need for users to look at a computer display. Following the larger IT
trends of open systems and interoperability, speech synthesis/recognition capability can now be
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easily embedded into numerous legacy software packages, including warehouse management,
picking and put away, inventory, inspection, quality control and other applications. This simplified
(TE)
integration has been made possible by the recent development of terminal emulation (TE)-based
speech recognition technology, which eliminates the need for a separate speech server and a
proprietary interface between the speech system and the application software. TE enables speech
synthesis to reduce the need to look at the display, and speech recognition to function as a true input
technology, not as a separate application that has to be managed and integrated. By using terminal
emulation to format and process speech input/output, data flows from and into existing software
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applications as if it had been entered by bar code scanning, key entry, or whatever method was
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previously used. TE-based speech recognition systems can work with warehouse management
real
systems in real-time, which is another important innovation from traditional speech recognition
technology.
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Top 10 Supply Chain Technology Trends Intermec Whitepaper, Company Information, August 7, 2011
Digital Imaging
Like cellular voice, digital imaging is another technology consumers are familiar with that has now
found a place in enterprise mobile computing equipment and applications. Transportation and
distribution companies are using digital cameras integrated into the mobile computers so their drivers
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can capture proof of delivery store stamped invoices, and detail conditions that prevent delivery.
Portable Printing
Rugged portable printers are routinely used for output when documentation is required. Common
applications include providing signed delivery receipts, purchase orders, work orders and inspection
ts. Using mobile printers and computers together lets sales, service and delivery personnel give
reports.
customers the documentation they desire, while creating an electronic record that frees the enterprise
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from having to process paperwork.
2D Bar Code
ional bar codes have long been a proven and popular technology for operations where it
Two-dimensional
is desirable to present a lot of information in a limited space. However, 2D has remained a niche
technology, in large part because symbols can be difficult to read in many usage environments, As
reading ability has improved, so has the adoption and value of 2D bar coding. The recent emergence
of auto-focus
focus imaging technology will help bring 2D bar codes into the mainstream for item
management, traceability, MRO and other operations.
RFID N
RFID is also more practical than ever before, with clear business cases being demonstrated for asset
management and supply chain operations alike. For example, the U.S. Navy used RFID data entry to
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reduce the time for one mission-critical inventory process by 98 percent. TNT Logistics reduced its
truck load verification time 24 per cent by using RFID to automatically record goods loaded onto its
trailers. Hundreds of other companies around the world are also implementing RFID
RFID-based shipping,
receiving and inventory visibility applications.
RTLS
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RTLS allow you to expand your wireless local area network into an asset tracking system. An
important market driver is the Wireless Location Appliance from Cisco Systems, which enables asset
tracking through a Cisco wireless LAN. Any device connected to the wireless LAN can be tracked and
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located. One application is to track forklifts via their vehicle

vehicle-mounted computer’s radio.
Security
Stronger security is another mainstream business trend and requirement that is supported in supply
chain technology. Mobile computers can be locked down so customer information and other data
can’t be accessed if the device is lost or stolen. Rugged wireless computers and data collection
equipment also support many of the leading securities used to protect enterprise wireless networks,
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FIPS
including 802.11i, 802.1x, WPA, WPA2, LEAP, FIPS-140, RADIUS servers, VPNs and more. Wireless
data collection devices that support Cisco Compatible Extensions (CCX) can be fully included in a
Cisco Unified Wireless Network and take advantage of all the associated management, reliability and
security features, including hacker and rogue access point detection, authentication and encryption,
integrated firewalls and more.
Business needs for security, real

real-time visibility, and up-to-date information don’t stop at the office
door. These needs extend throughout supply chain operations, so reliable information systems must
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extend just as far. Developments in mobile computing, wireless communication, RFID, bar code and
other data collection and communications technologies are helping businesses extend visibility and
control over more areas of their operations.
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RFID
Information systems are the backbone of every supply chain and they are based on automatic data
acquisition techniques to meet the goal of collecting information. RFID is a technology with unique
characteristics that make it suitable to enhance data collection processes along the supply chain.
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Electronic product code (EPC) Global, the standards body sets the standards for how basic product
information is encoded in the RFID chips. The vision that drives the developments of standards is the
universal unique identification of individual items. The unique number, called EPC is encoded in a
Radio Frequency Identification (RFID) tag. There are three types of RFID tags, all of which can either
be read-write or read only.
Passive Tags - simply store data and draw power from a reader whose electromagnetic wave induces
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a current in the tag’s antenna for short-range
range communication (up to 10mtrs).
Semi-passive Tags - use an integral battery to run the chip’s circuitry but draw power from the reader
to communicate.
Active Tags - are capable of communicating over greater distances (up to 100mtrs) but are currently
far more expensive.
The EPC Network also captures and makes available (via Internet and for authorized requests) other
information that pertains to a given item to authorized requestors.
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pin-point the exact
The benefit of an EPC code is primarily derived from the ability to automatically pin
location of goods and documents anywhere within an extended enterprise. Such ability leads to the
following benefits:
•
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Enhance supply chain control- As the location of a part can be identified at every transfer point
with accuracy, the whole supply-chain
chain can be controlled with close to 100 per cent accuracy.
• Security and authentication-AA RFID tag can be written with an identifier chosen by the enterprise.
This unique identifier can be used to authenticate a part or a document. The RFID technology
also supports encryption and other security models so that a tag cannot be easily duplicated or
forged.
•
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Enhanced customer service-The The RFID technology can promote customer service by allowing
faster check-outs,
outs, returns, and personalization of service.
RFID will have a significant impact on every facet of supply chain management from the simple tasks,
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such as moving goods through loading docks, to the complex, such as managing terabytes of data as
information about goods on hand is collected in real time. It has a potential to dramatically improve
supply chain by reducing costs, inventory levels, lead times, stock outs and shrinkage rates;
increasing throughput, quality, manufacturing flexibility, inventory visibility, inventory record accuracy,
order accuracy, customer service, and the collaboration among supply chain members.
The applications fall in the manufacturing, warehousing distribution centers, logistics and retailing
environments.
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17
Industry Outlook
• The worldwide SCM software market returned to doubledouble-digit growth in 2010 as SCM software
revenue totaled USD 6.8 billion in 2010, a 10 per cent increase from 2009 revenue.
• In 2009, the market declined 2.1 per cent with revenue at USD 6.1 billion, said a press rrelease.
• Sales of rugged handheld mobile computers grew by almost 8 per cent in the first quarter of 2010
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compared with the same quarter a year ago, after an overall dismal 2009 due to the economic
downturn. The market dropped by 30 per cent in certain regions last year, most significantly in
Europe.
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Retrieved on October 16, 2011 from http://www.rfid4u.com
17
Retrieved on October 16, 2011 from http://www.informationweek.com/news/hardware/handheld/226500167
• Expected growth worldwide for rugged handheld mobile computer was USD 2.1 billion
representing a growth of 8.6 per cent over 2009, with 2.6m units sold worldwide. That uptick was
expected continue through 2014 with an annual compound growth of 8 per cent.
• The demand for handheld products across the Middle East market had grown at an average rate
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of .20 per cent per annum. Intermec’s own growth rate had been phenomenal at an average of 40
per cent over the past 5 years.
• The handheld computer business had only recently moved from a niche market into the
mainstream of the IT industry.
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EXHIBIT 8
Motorola Financial Data
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Source: Motorola Inc Annual Report 2010. Retrieved from
https://materials.proxyvote.com/Approved/620076/20110307/AR_81910/images/Motorola_Solutions
https://materials.proxyvote.com/Approved/620076/20110307/AR_81910/images/Motorola_Solutions-AR2010.pdf
accessed and downloaded on August 5, 2011.
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EXHIBIT 9
Intermec Financial Data
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Source:: Intermec Inc Annual Report 2010. Retrieved from http://www.intermec.com/public-files/about-
us/investor-relations/en/IN-2010-Annual-Report.pdf,
Annual--Report.pdf
Annual Report.pdf,, accessed and downloaded on August 5, 2011.
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[Type text]
Ahmedabad IIMA/P&IR0209
“I am Omnipresent”
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On 2nd December, 2010, at around 11.45am, Ms. Shweta Pandit, Head, India Operations
Operations of
FV IT Labz received a call from the company’s founder and CEO Mr. Manjeet Singh. Singh He
wanted severe action to be taken immediately against the HR Executive
Executive;; his fault being that
he had approved a day’s leave to Nathan Desai, a young team member at the Bangalore
office, without prior consent from Manjeet. Leaning back in her chair, Shweta
Shweta thought about
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the circumstances which had led to Manjeet’s getting so furious:
Nathan Desai had, on 26th November, 2010, put forward a request for a day’s leave for an
urgent personal reason and the CEO had not been available to approve it. As per the normal
leave procedure at FV IT Labz, an employee had to first get clearance from his immediate
boss, followed by final approval from the CEO. Only after this final approval could an
employee proceed on leave, without which it would be treated as loss of pay. That particular
day, the CEO had been away on a business tour and Shweta was in a meeting with vendors.
Nathan desperately wanted a day’s leave, so he had approa
approached
“Boss, I need to travel outside Bangalore for a day.
Nsaying,
ched his Project Leader saying
day. I want to meet my childhood friend
tomorrow, as it’s really been long time since we met. Everything is unplanned and I need to
leave in three hours….” Though, a few hours earlier,
earlier, he had mailed the CEO with cc to HR
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and Shweta requesting for leave, he was unsure about the response. The Project Leader
nd requested him to grant Nathan a day’s leave. The HR Executive
called the HR Executive and
granted Nathan the leave, and recorded the clearance from the Project Leader.
Manjeet Singh, however, lost his temper when he came to know about the matter and was
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ecutive. For Shweta, such outburst

infuriated with the HR Executive. outbursts were common and she had
learned to live with them. However, thisthis time, sshe was uncertain of the situation which had
manner, insisting action against the HR Executive.
led Manjeet to behave in such a severe manner
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She recalled other

ther similar events that had been happening in the company for the past
several months. On one occasion, the entire project team working for a prestigious client had
been fired as their program
programme me had failed to deliver at the most crucial moment, i.e. when it
went live. The project undergone any test, as there were no professional testers in
roject had not undergo
the company. Shweta time and again had reminded Manjeet, “We must hire a professional
tester to avoid any failure at the last minute” but Manjeet overlooked her view believing that
a tester would be another overhead
overhead. Instead he wanted the teams to be sure about quality.
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Manjeet hailed from a middle class family based in South Delhi. Both his parents had been
in a school run by the Delhi Government. After completing junior college, Manjeet
teachers in
went to the UK to pursue graduate studies in software engineering. Along with studies, he
worked part time for software companies and got acquainted with the software outsourcing
time, India was emerging as one of the major outsourcing hubs of
business model. At that time
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Prepared by Professor Biju Varkkey, and Mrinmoy Majumder, Academic Associate, Indian Institute
of Manageme
administrative problems. This case is based on a lead from a discussion portal. Identity of the
organization and people are disguised.

2 of 3 IIMA/P&IR0209
the world. Post 2000, India was already the base for many such businesses that accepted
outsourced work. The prime reasons were availability of cheap labour and low overheads.
By 2005, major IT companies including few Indian firms had established their strongholds
strongholds in
the market. In most cases in the UK, software development was first outsourced ced to local
firms of medium and small size, who in turn got it executed with help from Indian firms.
firms.
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Manjeet Singh founded FV IT Labz in 2004 with London as headquarters. At the beginning
beginning,
he got software development work through his Indian acquaintances in the UK, UK, and got it
executed in India. He started off by convincing small and medium size clients (specifically
(specifically
UK based) to outsource the IT solutions and services such as Web Development,
Development, Software
Development, Mobile Application Development, E-Business Business Solutions,
Solutions, Search Engine
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Optimization (SEO), Enterprise Resource Planning/Customer Relationship M Management
(ERP/CRM), Hosting Services, and Streaming Solutions to his company.
company. Currently, the UK
office had 7 team members specifically handling
andling the offshore sales and client rrelationship.
During the early years, Manjit had invested his personal money for setting up the compan
company
and getting necessary infrastructure in place. The project team in India comprised of young
and enthusiastic employees who had room to perform independently
independently, since Manjeet was
away and busy scouting for contracts. Salary package
ackage of the employees was at par with
industry standards.
Manjeet’s parents and elder sister, then based at Delhi N

Delhi,, were also part of the Company
Board. While initially his sister guided him in terms of business transactions and
management of the company, he took over the entire charge of the company from 2006. In
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the same year, FV IT Labz’s captive Indian operation was established in BangaBangalore, which
was the Mecca of software development. By March 2010, the Bangalore office had strength
of around 40 employees, though in 2008 it had inc reased to 70, before recession slowed
increased
down the business. FV IT Labz had all the core ttechnical
echnical functions like software design, data
networks and .net domains besides support functions like Accounts, IT and HR. The
wherein eeach departmental head reported to both
company had a dual reporting structure wherein
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the Head, India Operations, and the CEO. The HR department had two personnel, an HR
Executive (Talent Acquisition) Assistant
Acquisition) and an Assis
Ass is Manager (Administration), both of whom
also reported to the Head Operations
Head,, India Operati ons and the CEO. Each and every decision in the
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company had to have the CEO’s final approval.
In 2005, Manjeet appointed Shweta to manage the HR and A Administrative affairs. Shweta, a
postgraduate
raduate in English, used to teach 10 standard students in a high school prior to
th
joining FV IT Labz. Having always nurtured an interest in studying HR, she had enrolled in
te programme,
a certificate programme,, while continuing with teaching. She came across the opening at FV
programme
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IT Labz through an HR consultant when she had completed the said programme, and
decided to join immediately as the firm, being at an incipient stage, would give her a major
role to play
play.. One
One of the few employees who had been with the company since start, Shweta
profes
had grown in her profession along with the company. Eventually, some of these employees
became heads
heads of various fu functions and domains in the firm, and soon Shweta was
appointed as Head
Head, India Operations.
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Manjeet,
Ma
M anjeet occasions asked Shweta to brief him on day to day operations of the
njeet,, on several occasion
company without fail. He emphasized on having an updated status of the projects being
carried out at every stage. He even tracked the moves of each and every employee through
peers and juniors. No transactions and activities, whether financial affairs or even electricity
bill payments could be processed without his final approval. He would constantly be in
touch with everyone in the office from the UK through Skype, video and teleconference on a
daily basis. Shweta had tried to confront Manjeet on his working style. She had told him,
“We need to focus our resources towards developing the workforce rather than controlling
them,” to which he had replied, in a louder tone, “Whatever I am doing is right…, I am the
CEO.” This had happened in February 2007, which was the last time he had visited the
Bangalore office, physically. Since then, he had been remotely managing the company from
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the UK.
By 2009-10, many key employees had left the company. The CEO’s functioning style had had
become the topic of discussion amongst employees. Though the employees never had the
potency to voice against it, Shweta was alarmed about the situation and its impact on the
company. She had on various stages, tried to convince Manjeet to initiate an Employee
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Satisfaction Survey (ESS) and conduct Attrition Analysis; but for him,
him, these issues were
insignificant. His decision making led to a stagnant monetary base and lack of appreciation
for any good work. In comparison to young employees,, the senior team still showed
dedication to work, as the CEO used to take their suggestions and directly interact with
them. Attrition was never a concern for him, since he felt that new talent was always
available in the market to replace. But of late, she suspected that FV IT Labz had gained
negative publicity among the IT T crowd as a whimsical company. Ever since
s Shweta had
been appointed as Head, India Operations, she had aggressively recruited many engineers
and technical staff; quitting from the company would mean letting them down.
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Ahmedabad IIMA/CISG0113
Shut-Down Scheduling at a Leading

Integrated Steel Company
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As Suresh Ramaswamy finished his call and put down the phone, he was visibly stressed
yet excited. Ramaswamy, the general manager of the Hot Strip Mill (HSM) at one of the
leading integrated steel companies in India (LISCO), had just then spoken to the Vice
Vice-
President of Operations - Sunil Gua. Gua had strongly re-iterated
iterated what was top
top-most
top- most on
-most
Ramaswamy’s mind -’This year’s HSM shutdown should be held smoothly without any
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major glitches’.
The Hot Strip Mill at LISCO needed an annual ‘major maintenance’ shutdown that last lasted for
seven days. It was already the first week of April, the start of the new financial year, and the
annual shutdown schedules for HSM and all other mills had had to be submitted to the central
coordinating agency of the company by 21 April. Ramaswamy, who ha had been leading HSM
for the past three years, was well aware of all the things that might go wrong if the HSM
shutdown was not meticulously and minutely planned.
HSM was the company’s N

ny’s most important finishing mill. It ran 24 hours a day, 6 days a week
with a total production capacity of 10,000 tons of steel coils a day and around 2.8 million
tons per year. HSM coils were sold at around Rs.25000 per ton, which mean
meant approximately
Rs.2500 lakhs of steel coils were produced per day in the mill. A production shutdown for
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even a few hours would likely lead to significant losses for the company. Moreover HSM
and its functioning were intricately linked to many other departments and mills in i the
company. Any turbulence at HSM could have massive ripple effects through through-out the
company as described in the next section.
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Possible Problems – What could go Wrong ?
The previous year’s HSM shutdown hadn’t exactly been a smooth operation. A number of
o
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major and minor problems had caused considerable losses to the company, some of which
are detailed below.
processed coils produced by HSM, had run

The Cold Rolling Mill (CRM), which further processe
short of input coils because of the HSM shutdown. Since the CRM depended exclusively on
the HSM for its input, there was not enough prior build-up
build (stock) of coils for the CRM and
hence it could not operate at full capacity. This,
This of course, lead to sub-par production at the
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CRM, and hence losses,

losses, that could have been avoided.
The second problem was that some foreign technicians arriving from Germany, who were
needed for the shutdown jobs did not arrive on time. The shutdown had to be extended for
two days to allow them to finish the more critical tasks and some of the maintenance jobs
that were supposed to be carried out during the shutdown had to be postponed for the next
down-time
down--time
down time of the mill. This increased
increase the risk of additional failures when the mill was
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running and had to be avoided. The technicians arrived late because they were not given
enough advance notice. Technicians needed from overseas need needed to be booked well in
Prepared by Profess
Professor Kavitha Ranganathan, Indian Institute of Management, Ahmedabad
problems.

2 of 8 IIMA/CISG0113
advance (almost four months prior to the date) so that travel/visa arrangements etc. could
be made.
The third problem involved MVC, the major power supplier for LISCO. The previous year,
MVC’s own shutdown for its internal maintenance had not coincided with HSM’s
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shutdown. This meant three additional days when HSM had to be stopped due to
insufficient power supply. While it would have been difficultlt to schedule all shutdowns at
the same time - especially those at external entities like the MVC, - not doing so led to
massive production disruption.
HSM catered to two kinds of customers - loyal customers and opportunistic customers. The
so called loyal customers were high-value
value customers and around 25 percent of HSMs output
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was custom-produced for them. Whether the steel market was doing well or badly, LISCO
could usually depend on its loyal customers for a steady stream of orders. Another 25
percent of HSM’s output was sold at the market for opportunistic customers. The rest of
HSM’s products (fifty percent) were further processed at the Cold Rolling Mill.
Last year, since the shutdown had not proceeded as planned, some loyal customers of HSM
had beenn miffed that their orders were not met in time and had switched loyalties. Losing
some of their loyal customers was the final blow for HSM.
HSM. Understandably, everyone from
the top management of the company, to the marketing division, to the HSM team team, were
aiming and hoping for a better turn of events during this year’s shutdown.
An Integrated Steel Plant - From Ore to Coil

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An integrated steel plant involved the end-to-
end-to-end
end-to-end
end process of converting iron ore to various
finished steel products like coils, plates and other smaller steel structures.
At LISCO, coal was procured from nearby mines and processed at its Coke Ovens to
produce coke. Iron ore from nearby mines along with this coke was fed to a Blast Furnace.
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Sinter (a mixture of ore power and coal) from the in-house Sintering Plant wasalso an input
to the Blast Furnace. The Blast Furnace usually could stop unless there was a major
emergency. The Blast Furnace needed
needed a maintenance shutdown only once in seven years to
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reline the furnace, but this process requir

required
ed 60 days to complete.
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Figure 1: Flow of metal - from Iron ore to Steel products at LISCO
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The Blast Furnaces operated at temperatures of 2000 °C to 2300 °C and produceproduced molten
iron. This metal was sent to the Steel Melting Shops. At the Steel Melting Shops certain alloy
elements were added to the hot metal to convert it to liquid steel. This steel was then sent to
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the Casters.
There were two kinds of casters at ISCO, Slab Casters and Billet Casters. There were three
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Slab Casterss which produced needed a

produced a total of 10,700 tons of slabs per day. Each caster need
maintenance shutdown of four days a year.
Slabs from the slab caster were divided and sent to two locations - the Hot Strip Mill and the
Plate Mill. 10,500 tons of slabs were used for HSM (around 500 tons would be lost in scaling
at the furnace, cobbles and other wastage) the rest would go to the Plate Mill for further
processing. Slabs that arrived
arrived at the Hot Strip Mill were rolled into steel coils. Some of these
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HSM generated coilscoils were then further processed at the Cold Rolling Mill where their
thickness was further reduced. Coils from the CRM were then shipped to customers. Some
coils from HSM did not need further processing and were directly shipped to customers.
The slabs that arrived
arrived at the Plate Mill were converted to plates and sold to customers.
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The billets produced at the Billet Caster made their way to other finishing mills like the
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Merchant Mill and Structural Mill where they were turned into other relatively smaller steel
structures and directly shipped to customers.
Internal Process Flow at HSM
The following describes the process flow of steel at HSM, staring from the Slab Yard (the
place where slabs were stored after they came out of the Slab Caster) and ending at
at the Coil
Yard (the place where the coils produced by HSM were temporarily stored).
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Figure 2:: Process flow at Hot Strip Mill (HSM) starting from the Slab Yard, till the Coil Yard.
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The Slab Yard had d the capacity to store 40,000 tons of slabs. Around 10,000 tons of slabs
stored in the yard could be considered dead slabs - they had been around for a while and
were not actually in circulation, leaving around 30,000 tons for the actual Slab Yard capacity.
slabs were placed in a furnace and heated to about 1100 -1200

From the Slab Yard, the slabs
degree Celsius before they could be processed in the HSM.
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There were two furnaces for this purpose at LISCO, and usually both furnaces functioned
function in
parallel. Slabs were alternately withdrawn from each furnace and sent immediately to the
Mill. Each furnace had
Roughing Mill. ha a capacity of heating 7000 tons of slabs a day.
Each furnace needed

need to be shut down for maintenance once every year. Both furnaces were
different in their maintenance requirements: Furnace 1 needed a shutdown lasting 10 days
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while Furnace two need

needed only 7 days for its maintenance shutdown.
Apart from the furnaces, HSM consist

consisted of two separate mills, the Roughing Mill (RM) and
the Finishing Mill (FM).
( Heated slabs entering the RM were 220 mm thick and 900-1500 mm
in width. After multiple passes in the RM (ranging from 3 to 7 passes, but always an odd
number of passes), the slabs were compressed to a thickness ranging between 45-60 mm.
The width was still maintained anywhere between 900-1500 mm depending on customer
requirements.
The strip then passed through the Finishing Mill where its thickness was further reduced to
anywhere between 1.6 to 16 mm, again depending on the requirement.. The entire strip was
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then rolled into a coil at the Down Coiler. The final coil was around two meters in diameter
and was stored at the Coil Yard. The Coil Yard at LISCO had a capacity of 60,000 tons out of
which 20,000 could be considered dead/slow-moving stock.
As mentioned earlier, HSM (the Roughing Mill and Finishing Mill and related components),
needed an annual maintenance shutdown lasting 7 days. The mill ran continuously for six
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days of the week. On the seventh day (minor shutdown day), smaller maintenance jobs and
roll-changing jobs were performed. However, all the time consuming maintenance jobs were
relegated to the annual shutdown. After the week long shutdown,
utdown,, HSM had to gradually
utdown
ramp up to its full production capacity of 10,000 tons. On the first day,
day, only around 3000
tons of coils were produced. If everything went off well, the production was ramped up to
around 7000 tons on the second day. From the third day onwards HSM was capable of
running at full capacity.
Out of a full capacity of 10,000 tons of coils a day, around 5000 tons made
ma their way to the
CRM needed an annual maintenance shutdown for six days.
Other Factors to be considered for the Shutdown

days. N
Cold Rolling Mill (CRM) for further processing and the rest were ready for direct sale. The
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As mentioned earlier, the functioning of the HSM was intricately related to other
departments and mills at LISCO as well as external like experts and the power supplies
supplies. A
few additional dependencies are mentioned below:
Requirements of the Marketing Department

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Ramaswamy had earlier received a call from

from the head of the marketing department. He was
quite insistent that the marketing personnel should be a part of the shutdown scheduling
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process and had laid down a few requirements to be followed this year, as mentioned
below.
Firstly, the HSM shutdown should

should not affect any of the loyal customers - their orders should
be given first priority and prepared well in advance. Secondly, the t shutdown should be held
at a time when the market was sluggish (which meant that there was relatively less demand
for steell coils). This would ensure that there was minimum loss of revenues from the coils
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sold to opportunistic customers in the open market. The marketing department would
provide data from the previous year regarding monthly demand and sale trends of HSM
coils. This would help Ramaswamy decide what would be a suitable period for the
shutdown this year.
year. (See Exhibit 1).
Storage Management
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The Slab Yard and Coil Yard, both had limited capacity to store stock. During the HSM
shutdown excess slabs might have to be stored outside if the slab-yard capacity was not
sufficient. Similarly, the coil-yard
coil capacity might prove to be insufficient if certain orders
had
had to be produced in advance and stored, stored or if the CRM was shutdown and hence
additional storage space might have to be arranged elsewhere if needed.
Blast Furnace
The blast furnace could not be stopped unless there was a major emergency; it had been
stopped only once in seven years for relining the furnace. During the HSM shutdown, the
excess gas produced by the blast furnace had to be bled. To ensure that minimum excess gas
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was bled, no other finishing mill (like the Plate mill or Merchant mill) could be stopped. This
would ensure that minimum gas had to be bled. Moreover, since the Blast Furnace could not
be stopped, the liquid metal it produced has to be immediately consumed by the Slab
Casters, as liquid metal could not be stored at normal temperatures.. Hence, all the three Slab
Casters could not be stopped at the same time. At the most one caster could be stopped
stopped at a
time, so that the other two Casters could continue to convert the liquid metal into slabs that
could then be stocked.
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Human power Requirement
The in-house (LISCO) maintenance team was needed throughout the day during the HSM
shutdown as well as during other mill shutdowns.. Hence the HSM/Furnace shutdown
could not coincide with the CRM shutdown. Also, the same personnel were also required
for the Slab Caster shutdowns, which was another reason why multiple castors could not be
shut at the same time. To make sure that there was no shortage of in-house
in personnel for
maintenance jobs, only one Caster could be shut at a time, in tandem with the HSM
shutdown.
There were external

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xternal experts needed during the HSM shutdown who needed to be informed
well in advance.
ance. Foreign technicians needed
needed to be informed four months in advance while
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their Indian counterparts needed two months of advance notice.
Safety Requirements
During the previous year’s shutdown, there had been some safety breaches that had resulted
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in minor
inor accidents. A technician working at a height was not wearing a safety-belt and had a
fall. The crane movement was not always accompanied by a bell etc. To avoid any accidents
this year, it hadbeen
been mandated that all personnel should be given coaching by the safety
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departments, prior to the shutdown.
Sales and Production Trend at HSM
The production and sale of HSM coils usually followed

follow an annual pattern. Exhibit 1 shows
the production and sales averages for the last five years.
There is a dip in production

production and sales during the end of the financial year in
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February/March.
ary/March. (See
(See data in Exhibit 1). February has fewer days which accounts for some
production loss. Apart from that, customers tend to avoid acquiring new inventory at the
end of the financial year, leading to less demand.
Galvanized sheets (a particular grade of steel produced by HSM) are in high demand during
the monsoon season of June-July-August.
June Hence both demand and production is usually
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high during those months.
September through
th November witnesses a dip in sales due to the festival season which
slows down the industry throughout the country (overseas sales remain unaffected at this
time). Usually, the major shutdown is also
a scheduled during this time, to leverage the lack in
demand in this period.
The Planning Starts
Ramaswamy had scheduled a meeting with his six immediate reports: Manager-Mechanical,
Mechanical,
Manager-Electrical, Manager-Operations, Manager-Finishing
Finishing and Shipping, Manager-
Manager-
Quality Control and Manager-Human Resources. He and his team hoped to come up with
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an intricate plan that would incorporate all dependencies and come up with a complete
schedule for HSM, its furnaces and all related mills like the Slab Casters, Cold Rolling Mill,
Blast furnace and Plate Mill, in such a waythat the shutdowns were executed smoothly and and
had a minimum impact on the turnover of the company.
Discussion Questions:
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Which are the entities that might get affected, and which ones are likely to affect the HSM
shutdown?
What would be the most favorable time for HSM’s shutdown? When should the other Mills
and the furnaces plan their shutdown? What are the various alerts (timeline
(timelines) to be sent to
various parties? Create an automated spreadsheet solution for the same. What are the slab
and coil storage requirements during and around the shutdown phase? What coils (and how
much) need to be rolled ahead of time so that the shutdown does not have an adverse effect
on other parties?
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Exhibit: Trend from last five years of HSM coil production and sale.
Month Average Sales('000 TONS) Reason for Change Production Trend (‘000 TONs)
January 245 250
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February 220 Financial Year 220
March 230 Ending and less days 225
225
April 240 255
255
May 255 Monsoon 250
June 255 Preparation 245
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July 260 for Galvanized 250
August 255 Sheets 250
September 230 Festivals and 240
October 190 Shutdown 190
November 235 240
December 250 250
Total 2865 2865
Source: Data is for illustration purpose only

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Ahmedabad IIMA/CIPR0004(A)
Pipavav Railway Corporation Limited (A)
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It was already late at night in October 2001, but the lights in Mr Srinivasan’s office at ABC
bank still burnt bright as he restlessly paced the floor. At a meeting next
ext morning,
morning, he had to
take a decision as to whether the Pipavav rail project, operated and managed by the Pipavav
Railway Corporation Limited (PRCL), would fit into the risk profile that his company would
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feel comfortable to lend to. The project was to provide broad gauge (BG) rail connectivity to
Pipavav port from Surendranagar, Gujarat, over a distance of 265 kms. The meeting would
include the top management of PRCL. He was wondering whether he and his team had
been successful in identifying all the risks associated with thisthis railway link project.
project He
wanted clarity on the questions that he and his team should ask the PRCL management in
the context of the risks, and whether the PRCL team would be able to address them
adequately.
The Port of Pipavav
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The port of Pipavav was located at the entrance to the Gulf of Khambhat in the Saurashtra
region of Gujarat. It was situated between the major ports of Kandla and Jawaharlal Nehru.
Its geographical location and relative nearness to the extended hinterland (Exhibit
( 1) made it
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ideal to service Rajasthan, Madhya Pradesh, Haryana, Punjab, Delhi, Jammu and Kashmir,
Uttar Pradesh, Uttaranchal, and Himachal Pradesh.
In 1992, the Government of Gujarat (GOG),
(GOG), through the Gujarat Maritime Board (GMB),
decided to develop a port at Pipavav as an all weather facility for handling bulk, liquid, and
container cargo. This was to be done through a Public Private Partnership (PPP) with
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Seaking Infrastructure Limited (SKIL).

(SKIL). The Managing Director of SKIL, a habitual
entrepreneur, had been pushing the GOG to develop this port, port which had a natural deep
draft (11 meters) and was well ‘harboured’ behind a set of three islands. A private sector
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company called Gujarat Pipavav Port Limited (GPPL) was incorporated as a joint venture
between GMB and SKIL. Pipavav port was India’s firs first public port to be developed and
operated by a private sector company.
Cargo handling operations started at the port in 1996. The port had to its credit (i) a
continuous dry cargo berth of 725 meters (counted as three berths) for handling bulk, break
bulk, and containerized cargo (commissioned in March 1999), (ii) a dedicated liquid cargo
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jetty of 325 meters connected via pipeline to a liquid storage area of 303 acres, and (iii) a
modern ship dismantling yard. The port was handling container and dry bulk ships up to
45,000 Dead Weight Tons (DWT). The cargo handled at the port was Liquefied Petroleum
Gas (LPG)
LPG)) and other petroleum products, liquid chemicals, edible oils, containers, coal,
((LPG
Prepared by Professor G Raghuram and Len Varghese George and Nishant Thusoo, students of Post-
Graduate Programme in Management
Management, (Batch 2002) and Satyam Shivam Sundaram, student of Fellow
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Management, Indian Institute of Management, Ahmedabad. The authors acknowledge

Programme Management
the research support provided by Rachna Gangwar.
The authors thank Indian Railways for their support of the Indian Railways Chair which enabled the
development of this case study.
problems.
2 of 36 IIMA/CIPR0004(A)
cement, fertilizers, oil cakes, and iron and steel. The traffic at the port was 0.7 million tons
(mt) in 1999-00 and 1.9 mt in 2000-01. Given the traffic arisings till September 2001, the
estimate for 2001-02
02 was lower at 1.5 mt. The new private port at Mundra operated by the
aggressive Adani Group, expected to serve the samee hinterland, was beginning to make a
dent. The primary traffic in this region was coal and coke imports, and steel imports and
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exports. Since the capacity of Mundra Port was far higher than the current traffic, the port
offered an attractive turnaround time of about 16-20 20 hours compared to about 3-5 days (72-(72-
120 hours) at other Indian major ports.
There was no rail connectivity to the port, though GPPL and GOG had been writing to the
Ministry of Railways (MOR)) for the same. The nearest railway station was Rajula City,
which was 14 kms away. The immediate connectivity for moving cargo was provided by
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constructing a four-lane road between the port and Rajula City.
ity. The cargo from the Pipavav
port, destined to the northern and northwestern hinterland moved from Rajula City to
Sabarmati (Ahmedabad) over meter gauge (MG) and then was transshipped from MG to BG
for further haulage. This transshipment, besides being time consuming, caused a big
financial drain due to its inherent problems of wagon detentions and pilferage.
pilferage. Further, road
haulage did not quite satisfy the evacuation capacities needed for the port.
Scope of the Project
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In 1992, MOR had begun converting MG rail routes to BG under ‘Project Unigauge’. Most of
the MG rail routes in the northern part of Gujarat were converted to BG, while those in the
southern part, where no major port or industries existed, were left as MG due to insufficient
traffic.
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When the GOG decided to develop an all weather port at Pipavav, it proposed that the 251
kms MG stretch from Surendranagar (the closest BG railway station in the north north-bound
direction) to Rajula City should be upgraded to BG and a 14 km fresh railway line should be
laid from Rajula City to Pipavav port. After repeated requests, provisions to this effect were
madee in the annual rail budget presented in 1997. However, there was no follow
follow-up of the
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same.
MOR was cash strapped and did not have enough funds to invest in this project. Moreover,
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since it was a central authority, it had to consider railway development in India as a whole.
This segment was not on its list of priorities. Apart from low freight volumes, tthe MG link
from Rajula City to Surendranagar carried an average of two passenger trains, each way,
daily. Some freight started moving after the port of Pip
Pipavav started operations.
In order to understand the financial viability of the project, GPPL asked AF Ferguson (AFF)
to carry out an independent traffic study in 1998 on their behalf. In 1999, RITES took up the
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project for a techno- study on behalf of MOR. Based on the two studies,
techno- economic feasibility st
GPPL and MOR decided to carry out the railway project on PPP format.
Creation of Pipavav Railway Corporation Limited
In January 2000 PRCL was created as a special purpose vehicle (SPV) registered under the
1956to pursue the project further. Exhibit 2 gives the Memorandum of
Companies Act 1956
Understanding (MOU) between MOR and GPPL. The scope included construction,
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operation,, and management of the BG rail link from Surendranagar to Pipavav. Exhibit 3
operation
provides a map of the project. The project was divided into two segments: (i) conversion of
the existing MG to BG from Surendranagar to Rajula City (251 km) and (ii) extension of the
above line from Rajula City to Pipavav Port. The conversion segment included five stretches:
(i) Surendranagar to Botad, 77.2 kms, (ii) Botad to Dhola, 42.9 kms, (iii) Dhola to Dhasa, 26.0
kms, (iv) Dhasa to Rajula Junction, 95.6 kms, and (v) Rajula Junction to Rajula City, 9.2 kms.
The project cost as estimated by RITES amounted to `2,700 million. The revised cost at 2001
prices was `3,210 million.. This figure was arrived after accounting for the lease of railway
assets to the SPV at historical costs. The detailed estimated costing is presented in Exhibit 4.
As per the MOU, the role of the
he SPV was defined to: (i) obtain the concession for the railway
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line from Surendranagar to Pipavav, (ii) take all existing assets of MOR connected to the
railway line on lease, (iii) arrange for the funding to cover the entire conversion and
upgradation off the existing systems as well as the debt servicing, (iv) select an entity to
construct the new railway line between Rajula City and Pipavav and upgrade the existing
line between Rajula City and Surendranagar as per the Research, Designs and Standards
Organization
anization (RDSO) standard, and (v) enter into operations and maintenance (O&M)
agreements with the Western Railways (WR), a zonal railway under MOR MOR,, for the railway
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line.
The proposed organizational structure of PRCL is presented in Exhibit 5. The Chairman,
Chairm
Chief Executive Officer (CEO), and over 80 per cent of the other positions had been filled.
Most of the executives including the CEO were on deputation from MOR. While the
corporate office was in New Delhi, the field office was in Ahmedabad.
PRCL would have a debt-to-equity ratio of 1:2. The equity was to be split equally between
the two parties (MOR & GPPL). PRCL was responsible for mobilizing resources through
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equity and debt and undertake the implementation of the project, under the proposed long
term Concession Agreement (CA) as a private railway. The debt component had to be raised
through borrowings from Indian financial institutions/commercial banks. It was in this
regard that PRCL had approached ABC bank.
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Gujarat Pipavav Port Limited
GPPL managed ed Pipavav, the first private port in the country. Its equity was being held by
SKIL (38%),, Port of Singapore Authority (PSA) (25%), Maersk (13.5%), Industrial
Development Bank of India (IDBI) (14.5%), Commonwealth Development Corporation
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(CDC) (6%), and Unit (3%). While GPPL had started as a joint venture
nit Trust of India (UTI) (3%)
between GMB and SKIL in 1992, GMB divested its entire equity in favour of SKIL in 1998, as
part of its port privatization policy. Over a period, GPPL, driven by SKIL, brought in other
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equity investors. GPPL had entered into strategic tie-ups,

tie first with PSA and then with
Maersk, with a view to bring world class port operations expertise to Pipavav.
SKIL was a premier infrastructure company that had built the first private port in the
country, besides a modern ship-dismantling
ship-dismantling
ship- Pipavav. It was currently setting up
dismantling yard at Pipavav
India’s first private sector integrated Special Economic Zone at Positra near Dwarka. PSA
container-handling port in
was the operator of the Port of Singapore, which was the largest container
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container-shipping liner in the world and its participation

the world. Maersk was the largest container
in GPPL was expected to contribute enormously to the evolution of Pipavav as the container
hub of the region. Maersk joined GPPL in June 2001. IDBI offered a range of financial
country. CDC was a Government of UK
products to service the needs of industries in the country
company promoting infrastructure investments in commonwealth counties. UTI was the
largest mutual funds organization in the country.
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Traffic Potential and Market Assessment

Traffic
The project route from Surendranagar to Rajula City constituted an important part of the
railway network in the western region. The railway line capacity on the prevalent MG
sections varied from nine to 21 trains each way per day, shared by both freight and
passenger traffic. Post conversion to BG, the railway line capacity was expected to be 21
trains each way per day with an average payload in excess of 2,000 tons per train as
compared to 1,000 tons on the MG system.
According to the 1998 AFF study,, the estimated traffic of GPPL in the first year of PRCL’s
commercial operations (2003-04)
04) was to be 11.22 mt. This was estimated to grow at a
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compounded annual growth rate (CAGR) of 13 per cent to reach 13.55 55 mt in 2004-05,
2004-05,
2004- 05, 15.86
15.86
mt in 2005-06, 18.40 mt in 2006-07, and 20.67 mt in 2007-08. The port capacity, which was
already 18 mt, would be appropriately increased to handle the growth in traffic through a
fourth dry cargo berth and step-wise increase in draft upto 16 meters.
The share of GPPL’s traffic to use PRCL had been estimated at 51 per cent in 2003-
2003-04,
2003 04, 52 per
-04,
cent in 2004-05, 53 per cent in 2005-06, and 55 per cent thereafter (Exhibit 6).
6). The traffic
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projected by AFF for Pipavav port was viewed as optimistic by byPRCL.
byPRCL They downsized the
PRCL.. They
GPPL traffic to about 50 per cent and then assumed a higher share by rail, based on the
origin and destination of cargo and likelihood of movement by rail (Exhibit 6). Container
cargo was expected to be a major source of revenue followed by bulk and liquid cargo. Of
the 60 per cent container traffic originating in the northern states of Delhi, Haryana
Haryana, and
Punjab; a substantial portion was likely to shift to Pipavav on account of cost and time
considerations. Liquid cargo was primarily expected to be LPG for which an independent
terminal had already been set up at the port. A large number of oil companies had set up
storage facilities for imported Petroleum, Oil, and Lubricants (POL
((POL)
POL products. The fact that
been factored into the AFF report.

Based on the above assumptions by PRCL,
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oil companies had alternate arrangements at their disposal for transporting fuel had not
PRCL, the projected revenue and the estimated costs are

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provided in Exhibit 7 (for a debt/equity ratio of 1:2). For financial analysi
analysis, the interest rate
on debt was assumed to be 14 per cent with two years’ moratorium, aand subsequent
repayment of long term debt in eight years. Income tax holiday
holiday, as applied to infrastructure
projects, had been considered. The profitability figures resu
resulting in a four-year payback and
debt service coverage rising from nearly 2.9 to 15.3 in ten years looked impressive.
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Various corporates like Gujarat Heavy Chemicals Limited, Gujarat Siddhi Cement,
Saurashtra Cement, Indian Rayon, Larsen & Toubro, Gujarat State Fertilizers and Chemicals
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Ltd, and MMTC Ltd were regular users of the port with very large and increasing volumes
of traffic. With the addition of the new railway line, volume of traffic was expected to grow
substantially due to cost advantages of the railways (according to a study by Tata
Consulting Services (TCS), railways become relatively more attractive mode as compared to
road for a distance longer than 300 km).
phenomenal 22 per cent as compared to an overall
Port traffic in Gujarat had grown by a phenom
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growth of 10 per cent for whole of India during the 1990 1990-2000 period. Though this growth
was not sustainable in the long run, the volume of traffic at any stage was expected to be
well above that required for breakeven. In addition to the port cargo, PPRCL also expected to
handle traffic generated by entities located in the vicinity of Pipavav such as the Narmada
Cement Limited (Jafrabad), Larsen & Toubro Cement Limited (Pipavav), Alang
Shipbreaking Yard (Alang), Nirma Soda Ash Plant (Bhavnagar), and the Indian Steel Re-
Rollers Association (Bhavnagar). The conversion to BG and subsequent connectivity to
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Pipavav was also expected to increase the general industrial development of the area and
result in a steady increase in the passenger traffic as well.
Agreements
Agreements
In order to carry the project forward after signing of the MOU, a tripartite Shareholders
Agreement (SA) was signed among MOR, GPPL, and PRCL on March 28, 2001. This was
followed by the CA between MOR and PRCL, and an asset Lease Agreement (LA), both of
which were signed on June 28, 2001.
Key aspects of the SA are given in Exhibit 8. MOR and GPPL held the equity equally
equally.. As per
the SA, GPPL had the right to divest a maximum of 24 per cent out of its total shares i.e.i.e. 12
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per cent of the total company’s share. MOR had the right to divest part of its shares to any of
the Public Sector Undertakings under the control of MOR. Talks were on with Infrastructure
Finance Company Gujarat Limited to give it a minor stake in the project. This transaction
was more financial than strategic in nature. GPPL did not want to divest stake to any of the
other interested parties. The SA also specified various issues related to corporate
governance,, including that the Chairman would be appointed by MOR.
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PRCL entered into a CA with MOR for a period of 33 years on ‘Build Transfer’
Build Own Operate Transfer
basis for constructing, operating, and maintaining the proposed BG railway line between
Surendranagar and Pipavav. PRCL had to pay the lease rent of about ``20 million per year
20 m
and MOR would pay PRCL the proportionate revenue based on traffic moved, after
deducting the O&M
&M expenses. Exhibit 9 gives the salient features of the CA.
As per the LA, MOR leased the assets on historical cost. The annual lease rent at historical
costs was estimated to be substantially lower than the market costs. Though specified in the
agreement, this matter was not favourablyrably received by some of the senior officers of MOR.
The difference between market and historical costs
returns. Exhibit 10 gives the salient features of the LA.
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costs provided a very big boost to the expe
Four agreements including the MOU had thus been signed by October 2001. The overall
expected
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project structure (Exhibit 11) further envisaged a Construction Agreement, Transportation
and Traffic Guarantee Agreement (TTGA), and O&M Agreement. Significant work in
detailing these agreements had already taken place, though the concerned parties had yet to
sign them.
Agreement Organizations Date

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MoU MOR and GPPL 20-01-2000

Shareholders Agreement MOR, GPPL and PRCL 28-03-2001
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Concession Agreement MOR and PRCL 28-06-2001

Lease Agreement MOR and PRCL 28-06-2001
Construction Agreement WR and PRCL Yet to be signed
Transportation and Traffic
MOR, GPPL, and PRCL Yet to be signed
Guarantee Agreement
O&M Agreement
ement WR and PRCL Yet to be signed
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Construction Agreement
During early 2001, GPPL was pushing for finalization of the construction agencies. As per an
earlier approved budget proposal, WR had already started carrying out civil works for
conversion which included modification, strengthening or rebuilding of bridges, earthwork
in bank, cutting of associated drainage works, platforms etc. GPPL was exploring the
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possibility of engaging a private sector contractor. There were not many who had the
expertise for jobs of this magnitude.
Since MOR wanted the passenger train operations to continue, there was a need to convert
the adjoining MG links of Bhavnagar (Dhola–Bhavnagar), Mahuva (Rajula Junction–
Mahuva), and Palitana (Sihor (on the Dhola – Bhavnagar link) –Palitana) into BG. These
conversions were to be undertaken by WR.
Given the above issues,, PRCL decided to offer the construction job to WR, which had an
organization in place. WR accepted and proposed that they would carry out the
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procurement of all materials ials required for the construction works except the rails and
fastenings, sleepers and fittings, ballast, turnouts, cables, and point machines, which were
were to
be procured and supplied by PRCL to WR. This was to leverage the comparative strengths
and flexibilities in procurement between the two organizations.
The construction of rail between the two destinations was expected to be complete within 12
months. Acquisition of land for laying the Pipavav and Rajula City BG rail was to be taken
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care of by WR. All engineering work was to be carried out according to specifications laid
down by MOR and the RDSO. WR was responsible for getting safety certificates after the
completion of construction work. It also had to ensure that the project railways had been
designed, constructed, and commissioned for initial train speed not below 60 kmph, which
would be raised to 100 kmph within due course of time. Construction costs of various
materials had been fixed beforehand. Any cost overrun, on account of increase in duties aand
taxes, was to be borne by PRCL provided WR duly justified these using legal documents.
Due to poor road connectivity along the entire stretch, the MG line would have to be kept
running till all the heavy materials like rails, sleepers, ballast,
designated sites.
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ballast, cables, etc had reached the
Thus, the agreement, which had yet to be signed, required PRCL to appoint WR as an
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Engineering, Procurement, and Construction (EPC) contractor for carrying out all the gauge
conversion works between the Surendranagar and Rajula City stations and laying a new BG
railway line from Rajula City up to an accessible point near the boundary limits of Pipavav
port. This would be the first time that WR would be accountable to an SPV. The WR was
taking its time since it was planning
ning for execution of the additional contiguous connections
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along with the execution for PRCL. Exhibit 12 gives the salient features of the Construction
Agreement.
Transportation and Traffic Guarantee Agreement
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GPPL had to guarantee a minimum traffic of on one mt in the first year, two mt in the second
year, and three mt in the third year to PRCL as a part of the proposed TTGA. In the event of
a failure to provide the guaranteed traffic, suitable penal provisions were made in the
proposed contract. Similarly, WR had to make good the foregone contribution of traffic that
could not move due to non supply of wagons within 10 days of placing the indent. There
were a lot of apprehensions by MOR on inclusion of this proposed liability of WR. It was
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however felt that the response time provided was large enough, based on empty wagon
arisings in the region. Exhibit 13 gives the salient features of the TTGA.
Operations and Maintenance Agreement
The O&M of the BG link was to be the responsibility of MOR through WR. WR had to
guarantee to the SPV timely provision of sufficient number of rakes and wagons to transport
cargo originating or terminating at the port. Suitable penal clauses for non compliance of
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guarantees had been incorporated in the agreement, ii.e. if WR failed to provide adequate
failed to provide guaranteed cargo. There were also service level
wagons or if the port fail
norms, on which, there were again concerns. Earlier versions did not have it. Towards the
O&M costs to the railway, the SPV was to pay a fixed and a variable charge which was
formulated to guarantee MOR a minimum amount from their operations.
MOR had to collect earnings from the traffic originating and terminating on this railway line
and the share of the SPV (being worked out on cost plus basis) was to be apportioned to it
after defraying the O&M costs. This arrangement helped reduce manpower requirement for
the SPV. Public tariff rates, as notified by MOR/CONCOR,
/CONCOR, were to be charged for traffic on
this railway line. However, the SPV and MOR might, by mutual consent, quote special rates
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in specific cases, which had to be preapproved and notified by MOR.
Based project, MOR had agreed
ased on cost of living indices for its workers associated with the project,
to a cap on the O&M cost. The projected costs might go up with th the indices indicating price
rise but a ceiling had been fixed for this. As far as traffic flows were concerned, the project
was found viable at 40 per cent of the capacity originally estimated by the consultants. One
issue was whether the railway would be in a position to meet the demand for rakes from
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PRCL. Another issue was the equal equity stake between the two parties. This enabled a
certain degree of comfort to MOR,, who was responsible for sorting out of likely problem.
problem
However, this equal holding was expected to create negative repercussions on the smooth
functioning of the SPV if both parties were of different viewpoints on any issue in the future.
Exhibit 14 gives the salient features of the O&M agreement.
Project Implementation
Implementation of the project could be split up into two stages: (i) preparatory and (ii)
documentation,
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execution. The preparatory stage included site survey, collection of field data, preparation
and approval of drawings, detailed engineering and cost estimation, preparation of
ntation, etc. The execution stage commenced from the invitation of tenders followed
by actual execution of works on the ground. Most of the preparatory work had already been
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performed by WR. Some of the civil works had already been initiated. A project schedule
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had been prepared. (Exhibit 15)
The company had already placed orders for supply of ballast to six parties and the deliveries
were expected to start from November 2001. The entire railway related works such as new
rails, ballast, and sleepers were expected
expected to be completed by December 31, 2002. The project
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was supposed to go operational in early 2003. Railways had confirmed that they had already
started working on the signaling systems for the project. The new line segment from Rajula
City to Pipavav had ad some special features.
features Since it did not involve any alteration in an
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existing alignment, it was easier to implement. However, given that the route would pass
through difficult marshy lands, more than 26 new bridges and embankments were planned.
Land acquisition had d not been an issue in either the conversion or the new line segments.
Financial Analysis
Mr Srinivasan and his team had carried out a sensitivity analysis based on the revenue
projection and the estimated costs as provided in Exhibit 7. Based on the normal projections,
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a 32.54 per cent internal rate of return (IRR) was expected. It was also recognized that there
were sources of revenue other than the freight earnings. These could be (i) other goods
earnings in the form of demurrage charges, wharfage charges, ground rent, rent etc and (ii)
passenger earnings. The passenger component was due to operations of WR on the Pipavav
railway line. Since
Since these charges had not yet been fixed, the revenue accruing from this
source had not been incorporated in the financial analysis. The cash flow analysis had also
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not included the loan repayments.

Sensitivity analysis for the project was carried out for the following scenarios: (i) 10 per cent
escalation in project cost due to increase in procurement price of materials or delay in
implementation of the project, (ii) 10 per cent reduction in earnings due to competition from
the road services or unforeseen circumstances, and (iii) a combination of both the above
factors. The IRR for the three cases was calculated as below:
S No Scenario IRR (%)

1 Normal case 32.54
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2 Cost overrun by 10% 30.53
3 Reduction in earnings by 10% 30.30
4 Combination of 2 and 3 28.42
Mr Srinivasan had to take a decision for his company.
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EXHIBIT 1
Connectivity of Pipavav Port with Northern and Northwestern Hinterland
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I ON
E CT
Source: Sharma, Y (2008). ‘Public Private Partnership in Infrastructure,’ Vitasha Publishing Pvt Ltd, New Delhi.
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EXHIBIT 2
MOU between MOR and GPPL
th
This Memorandum of Understanding is executed at Rail Bhavan, New Delhi on 20 January 2000.
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BETWEEN
The President of India acting through the Executive Director (Perspective Planning) of the Ministry of
Railways (hereinafter called MOR) of the part
AND
Gujarat Pipavav Port Limited, a company incorporated in India having its registered office at B-1,B
Maharaja Palace, University Road, Navrangpura, Ahmedabad – 380 009, India (hereinafter referred
to as GPPL which expression shall include its successors and permitted assigns) of the other part.
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WHEREAS
1. GPPL, a public limited company, is engaged in the development, management and operations of
the Port of Pipavav, located at Taluka Rajula, Amreli, on the West Coast of India and south coast
of India.
2. MOR is desirous of inviting GPPL together with other investors to set up a Joint Venture
company, to implement the broad gauge link between Surendranagar and the Port of Pipavav.
3. Ministry of Railways and GPPL have agreed in principle for the formation of a Special Purpose
Surendranagar-Pipavav
Vehicle (SPV) for the purpose of executing the Surendranagar-
Surendranagar -Pi
Pipavav
pavav broad gauge link.
ON
Based on the above, without prejudice, the following terms of principle have been agreed upon for
entering into a formal agreement:
1. The object of the alliance between MOR and GPPL is to implement the Broad Gauge Rail Link
connectivity
ty between Surendrangar and the Port of Pipavav together with the rail yard facility at
Pipavav.
2. The alliance shall be in the form of a Special Purpose Vehicle (SPV) ie a joint venture company
between
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Ministry of Railways and its Public Sector Undertakings (PSUs)
AND
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GPPL ((and
and others
others. to be specified)
3. Upon incorporation, the SPV shall be bound by the Companies Act, 1956 and shall abide by all
the rules and regulations stipulated therein.
4. The SPV shall undertake the proposed project of implementing the Board Gauge rail link
connectivity between Surendranagar and the Port of Pipavav.
5. Tentative project cost is Rs
Rs 270 Cr
C rores (R
Crores (Rs Two Hundred Seventy Crores). Any cost over-run,
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over and above the project cost of Rs 270 Crores shall be on account of the SPV. The SPV will
also provide for replacement of assets.
6. The project shall be funded in the following pattern
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• 66 2
2/3%
/3% of the Project Cost shall be funded through a share holding Equity.
• 33 1/3% of the Project Cost shall be funded through Debt.
Equity holding pat
pattern:
i. Ministry of Railways and its PSUs : 50%
ii. GPPL and (others) : 50%
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Note: The amount already spent by the Indian Railways on the proposed Broad Gauge Rail
Connectivity will be reckoned towards the equity contribution of MOR.
7. There will be equal number of Directors in the Board of in the Board of SPV representing Indian
Railways and its PSUs on the one hand and GPPL and others on the other, with the
Chairmanship remaining with Indian Railways.
8. The land, station buildings, MG formation, bridges and all other existing assets of the MG system
will continue to be the property of IR. These assets will be made available to the SPV on lease at
a pre-specified rental after considering the capital-at-charge at historical cost.
9. Subject to the above and upon entering into a detailed agreement between GPPL (and
(and others)
and MOR (and its PSUs) through GM/WR, the SPV shall be responsible for carrying out the
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proposed project.
10. The construction activities shall be awarded to by the SPV on turnkey basis in keeping with the
technical specifications of Railways. Upon completion, the work will require necessary certification
by Commissioner of Railway Safety as per extant rules and procedures.
11. MOR will guarantee to the SPV timely provision of sufficient number of rakes and wagons for the
efficient movement of cargo to and from Surendranagar and the Port of Pipavav (GPPL).
Similarly, the Port of Pipavav will guarantee to the SPV a minimum of 1 mt of traffic on the first
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year, 2 mt of traffic for the second year and 3 mt of traffic from third year onwards. Suitable penal
clauses for non-compliance
compliance of guarantees will be incorporated in the detailed agreement.
12. The operations and maintenance of the board gauge rail link between Pipavav and
Surendranagar shall remain the responsibility of the Ministry of Railways.
Railways. Ministry of Railways will,
however, be fully compensated for such services based on an agreed methodology.
13. IR will collect earnings from the traffic originating and terminating on this time, and the due share
of the SPV will be apportioned to it after defraying the operation and maintenance costs.
14. Apart from the traffic guaranteed by GPPL, Indian Railways will be entitled to run existing and
additional freight and existing passenger services for which the SPV will receive its due d
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apportionment. However, introduction of new passenger trains will require prior consultation with
and consent of the SPV.
15. Indian Railways will be entitled to provide rail connections along the length of the line, in tune with
their future expansion plans.
16. In case of a national emergency, the exigencies of the national requirement will take precedence
over everything else.
17. Public Tariff Rates as notified by the Indian Railways/CONCOR will be charged for traffic on this
line. However, the SPV and the Indian Railway may by mutual consent quote special rates in
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specific cases which may be approved an notified by Indian Railways.
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18. The SPV shall protect and safeguard all the assets of Indian Railways.
19. Any further changes in the MOU necessary to ensure the smooth functioning of the SPV may be
made by mutual consent.
20. MOR and GPPL shall make all efforts on signing this Memorandum of Understanding for finalizing
the terms and conditions of the final agreement within a stipulated timeframe. Each party will
nominate a negotiating team for the purpose.
21. Both parties also agree not to divulge this intention to any third party an and to maintain strict
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confidentiality on the subject whatsoever, till finalization of the final agreement.

22. It is hereby agreed and understood between the parties hereto that this MOU is being entered into
on the basis of good faith and on the bonafide intention of giving effect to the object/terms of this
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memorandum of understanding.
23. This Memorandum of Understanding shall come into effect after due approval of the concerned
agencies of the Government of India and on the date it is executed by the parties hereto and shall
terminate upon the execution of the final Agreement.
24. In witness whereof the parties hereto have by their duly authorized representa
representatives executed this
Memorandum of Understanding on the date and year first above written.
Source: Company Data
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EXHIBIT 3
Project Map
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BG to Viramgam,
Ahmedabad and the rest of
the country
BG to Rajkot and
other parts of
Saurashtra Surendranagar
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MG to Ahmedabad
Botad (Shorter Route)
Dhola
MG to Bhavnagar and Palitana
(proposed for conversion to
Dhasa
MG to other parts retain connectivity)
of Saurashtra N
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Rajula Junction
MG to Mahuva
Rajula City (proposed for conversion
to retain connectivity)
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Pipavav
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Not to Scale
Conversion: Surendranagar to Rajula City
New Line: Rajula City to Pipavav
Source: Authors
Authors’’ representation
representation,, based on the map in the Western Zone timetable
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IN
EXHIBIT 4
Estimated Project Cost
Based on Preliminary Engineering Survey of WR (Base time of cost is January 1997)
Item (` in m)
Cost (`
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Civil Works
Land -
Civil works - formation 161.70
Civil works - permanent way 1,710.21
Civil works - bridges 327.70
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Civil works - stations and buildings 51.96
Equipment, plant and machinery 1.48
Dismantling charges 20.59
Subtotal 2,273.64
Add : General charges @ 6% / 8.5% 136.42
Credit for released material (CRRM) (538.17)
Total Civil Works Cost 1,871.89
Mechanical Works
Signaling and telecommunications
Electrical
N 372.46
37.82
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Mechanical 59.58
Tie tamping machine 50.00
Accident relief wagon 30.00
Total Mechanical Works Cost 549.86
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Cost of project (1997 prices) 2,421.75

Inflation for three calendar years
ears @ 5%
5% per annum = 15.75% 381.43
Cost of project (2000 prices) 2,803.17
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Apportionment of cost
Civil works 2,166.71
Mechanical works
orks 636.46
Total cost 2,803.17
5% contingency and EPC margins 140.16
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Pre-operative
operative expenses and preliminary
p expenses 29.35
Interest
nterest during construction 236.60
Total Project Cost 3,209.28

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EXHIBIT 5
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Proposed Structure of SPV
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Chairman
Board of Directors (BoD)
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Chief Executive Officer
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President (Technical) President (Finance) President (Operations and Marketing)
Manager
Protocol
Manager
Estate
Company
Secretary
CT Manager
Accounts
Manager Personnel
and Legal
Manager
Marketing
Manager
Coordination
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Field Staff Secretarial Staff Group ‘D’ Staff
Civil Engineering 3 Attached to BoD 3 Messenger 3
Operations and Marketing 4 Attached to Functions 6 Driver 5
Accounts 2 Security Guard 5
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EXHIBIT 6
Traffic Projections for GPPL and PRCL
AFF’s Traffic Projections for GPPL
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mt
Commodity 2003-04 2004-05 2005-06 2006-07 2007-08

2007--08
2007 08
Container 3.40 4.54 5.60 6.89 8.03
Coal 3.65 4.13 4.90 5.51 6.21
Fertilizers 1.11 1.41 1.65 1.80 1.94
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Cement/Clinker 0.53 0.54 0.55 0.56 0.56
Iron and Steel 1.49 1.63 1.77 1.92 2.08
Others 1.04 1.30 1.39 1.72 1.85
Total 11.22 13.55 15.86 18.40 20.67
AFF’s Traffic Projections for PRCL

mt
Commodity
Container
Coal
2003-04
2.38
2.05
2004-05
2.96
2.46
N 2005-06
2005-06
2005-
3.55
2.83
06 2006-07
4.61
3.23
2007-08
5.28
3.58
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Fertilizers 0.65 0.87 1.12 1.27 1.36
Iron and Steel 0.02 0.04 0.05 0.08 0.12
Others 0.60 0.71 0.79 0.98 1.07
Total 5.70 7.04 8.34 10.17 11.41
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PRCL’s Traffic Projections for PRCL

mt
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Commodity 2003-04
2003-04
2003- 04 2004-05
2004 2005-06 2006-07 2007-08
Bulk 1.97 2.75 3.62 4.16 5.09
Liquid 0.49 0.56 0.63 0.09 1.00
Containers 1.38 1.51 1.51 1.51 1.51
Total 3.84 4.82 5.76 6.57 7.60
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Source: ICRA (2002). ‘Pipavav Railway Corporation Limited: Due Diligence and Risk Assessment of
Railway Corporation Limited,’ ICRA Advisory Services, July 2002.
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EXHIBIT 7
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Revenue/Cost Projection and Financial Analysis for PRCL
(` in m)
Items Years
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2002-03 2003-04 2004-05 2005-06 2006-07
07 2007-
2007
2007-08
-08
08 2008-09 2009-10 2010-11 2011-12
Cost of providing service 534.47 617.82 677.15 744.85 822.41 870.81 922.87 978.97 1,039.86 1,107.08
O&M insurance 29.39 28.60 27.81 27.01 26.22 25.43 24.63 23.84 23.04 22.25
Expenses of SPV 55.00 55.00 55.00 55.00 55.00 55.00 55.00 55.00 55.00 55.00
Total expenses 618.86 701.42 759.96 826.86 903.63 951.24 1,002.50 1,057.81 1,117.90 1,184.33
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Gross earnings 1,050.65 1,521.39 1,765.04 2,040.88
040.88 2,352.26
2,352.26 2,551.17 2,763.73 2,991.29 3,237.11 3,501.74
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Gross profit 431.79 819.97 1,005.08 1,214.02
1,214.02 1,448.63 1,599.93 1,761.23 1,933.48 2,119.21 2,317.41
Interest on term loan 148.32 148.32 148.32 129.78 111.24 92.70 74.16 55.62 37.08 18.54
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Depreciation 79.36 79.36 79.36 79.36 79.36 79.36 79.36 79.36 79.36 79.36
Operating profit/Profit before tax 204.11 592.29 777.40 1,004.88

1, 1,258.03 1,427.87 1,607.71 1,798.50 2,002.77 2,219.51
Tax 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
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Profit after tax 204.11 592.29 777.40 1,004.88 1,258.03 1,427.87 1,607.71 1,798.50 2,002.77 2,219.51
Net cash accruals 283.47 671.65 856.76 1,084.24 1,337.39 1,507.23 1,687.07 1,877.86 2,082.13 2,298.87
Cash available for debt servicing 431.79 819.97 1,005.08
1, 1,214.02 1,448.63 1,599.93 1,761.23 1,933.48 2,119.21 2,317.41
Interest on term loan 148.32 148.32 148.32 129.78 111.24 92.70 74.16 55.62 37.08 18.54
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Debt repayment 0.00 0.00 132.35 132.35 132.35 132.35 132.35 132.35 132.35 132.35
Debt service coverage ratio 2.91 5.53 3.58 4.63 5.95 7.11 8.53 10.28 12.50 15.35
IN

17 of 36 IMA/CIPR0004(A)
EXHIBIT 8
Shareholders Agreement – Salient Features
Parties to the Agreement The President of India through the Ministry of Railways (MOR),
GOIGujarat Pipavav Port Limited (GPPL)
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Shareholder Warranties
GPPL i. GPPL has all the power and ability to perform the obligations put
upon it by execution of the Shareholder’s Agreement.
ii. It will not be breaching any clause of its Articles of Association by
entering into this Shareholder’s Agreement
iii. It has all necessary licences, approvals and consents, which
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enable it to carry out any obligations arising out of this Agreement.
iv. It has agreed to guarantee a minimum annual aggregate amount of
cargo of 1 million tons, 2 million tons and 3 million tons in the first,
second and third year onwards till the end of Concession Period.
MOR i. MOR has all the power and ability to perform the obligations put
Shareholder’s Agreement.
upon it by execution of the Shareholder’s
ii. statute by entering
It will not be breaching any law, regulation or statu
into this Shareholder’s Agreement.
iii.
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All the acts that MOR undertakes as a party to the Agreement will
be commercial acts rather than sovereign acts.
iv. It will provide the required wagons to evacuate and move minimum
annual freight guaranteed by GPPL to PRCL.
Scope of Business i. All gauge conversion from Surendranagar Station to Rajula Cily
ii. All works in connection with construction of a new broad gauge rail
city to Pipavav.
line from Rajula city
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iii. MOR through Western Railway will be duly appointed and
authorized for operation and maintenance of assets created and
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obtained on lease from MOR during the life of concession period.

iv. PRCL to perform all the marketing efforts required
required, either by itself
or duly appointed third party.
v. To collect through MOR, all the revenues generated from use of
the facilities created.
vi. All other activities that are required by the project and mutually
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agreed between both parties to the agreement.

Share Capital i. The authorized capital of the company is Rs 50,000,000.00
50 (Rs
Five Crore)
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ii. The shareholding pattern is

• GPPL and its assignees 50%
• MOR and its assignees 50%
iii. Expenses incurred by MOR by on project execution, including Civil
Works, shall be adjusted against its payment towards equity capital
of the company. This will happen only after proper review and
verification by GPPL.
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iv. The expenditure incurred by GPPL on project related activities to

be adjusted against its contribution towards equity capital, after
review and verification by MOR.
v. The review of expenses has to be carried out within sixty days of
project execution date. After adjustment of these expenses, the
party with lower contribution towards equity capital shall bring the
required funds with thirty days to keep the shareholding pattern
intact.
Management of the i. Board of Directors will be vested with the responsibility of
Company management, direction and control of the Company.
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ii. The management team under a Chief Executive Officer (CEO) will
conduct day-to-day
day management of the project, who will be ex-
ex-
officio member of the board of directors.
Board of Directors i. The Board of Directors shall consist of a minimum of four and a
maximum of twelve members with the CEO being a professional
person appointed from the open market.
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ii. A shareholder shall be able to appoint a director for every complete
8% shareholding percentage.
Meetings of the Board i. Board meetings are to be held at least every three months and at
least four times a year.
ii. Each Director has to be given 14 days notice along with a detailed
agenda.
iii. The quorum for a meeting shall be constituted if one-third
one of the
members or at least two directors, excluding the CEO are present
in the meeting.
iv.
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Each director has one eligible vote.
v. Affirmative vote of at least one nominee director of each of the
parties is required to pass resolution on any of the following:
• Amendments to memorandum or articles of association
• Commencement of any new line of business or change cha in
nature and operations of business
• Mer
Mergers, spin-offs, bankruptcy,
gers, amalgamation, consolidations, spin
voluntary liquidation and winding up
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• Adoption, amendment of any/or any deviation from the last duly
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approved Business Plans and annual budget beyond 15% of

each line item, on annual basis
• Establish
Establishment
ment of dividend policy and any amendments thereto
• Formation of any subsidiary or the entering into of any joint
venture or similar arrangement by the company.
• Sale or disposal of assets, which would be equivalent to, or be
more than 10% or the gross assets of the company.
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Chairman The MOR shall nominate the Chairman as long as its shareholding
along with its PSU is at least 26%. The Chairman shall be a working
officer of the Railways. If the MOR and its PSU shareholding, taken
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cumulatively, goes below 26%, then the right to nominate the Chairman
shall vest with the largest shareholder.
Chief Executive
Executive Officer The CEO should be a professional appointed from the open market.
The appointment shall be for a maximum contract period of 5 years
subject to renewal
Capital calls and Funding i. The shareholders intend to maintain the Debt Equity ratio for the
IN
arrangements project at 1:2.

ii. The Board of Directors shall make cash calls, on a quarterly basis,
on various shareholders according to the approved annual budget.
iii. The payments regarding the cash calls made has to made full
without any deduction or withholding in respect of set-off, counter
claim, duties, charges, etc.
Defaults in Payment i. In case the default amount is not paid within seven days of cash
call payment
nt date, a final notice shall be sent to the defaulting
shareholder.
ii. The rights of the director nominated by the defaulting shareholder
regarding voting and being counted as part of the quorum shall
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remain suspended till payment is made.
iii. The default can be cured by paying the required amount within
thirty business days of the issue of final default notice. The amount
would include interest at a rate of four hundred basis points above
the prime-lending
lending rate of the State Bank of India.
iv. In case the default continues, rest of the shareholders are free to
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continue with the project at the risk and cost of the defaulting
shareholder.
v. The cost on defaulting shareholder shall be limited to the original
shareholding pattern as well as the intended Debt Equity ratio.
Share Transfer i. Shares cannot be transferred by any of the shareholders from the
date execution of the Agreement until the commercial operations
date.
ii. In case GPPL or MOR want to transfer the shares the other
refusal.
shareholders will have the first right of refusa
iii.
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MOR can assign part of its share along with associated rights and
responsibilities except appointment of Chairman to any of the
PSUs under its control.
iv. GPPL shall have the right to assign maximum of 24% out of its
50% of its shareholding.
v. lock period, as mentioned in (i)
Assignment of share within lock-in
above, will require written consent of other parties to the
Agreement.
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vi. In case of any shareholder intending to set all or part of its holding,
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nu
it will have to notify rest of the shareholders regarding the number
of shares on sale along with the desirous price.
vii. Within thirty days from the date of receipt of the notice to sell, the
non-
non -selling
selling shareholders have to intimate regarding acceptance or
non-selling
rejection of offer. In case of no communication, it will be presu
presumed
that the offer has been rejected.
viii. In case of acceptance of offer, the buying shareholder shall be free
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to buy the shares or direct the seller to nominate it. In case

nomination is to be made to a third party, the buying shareholder
has to ensure execut
execution of the Participation Agreement.
ix. In the event some shares being not subscribed, the selling
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shareholder can sell it to any wiling party within six months from
notice of offer, provided the concerned party is not prohibited by
law from acquiring shares, the buyer does not have any business
conflicting with that of PRCL, and the buyer must be ready to
execute the Participation Agreement.
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Pledging of Shares i. No party shall pledge, mortgage, grant option over, or otherwise
encumber its share without seeking permission form the other
party.
ii. A written consent from the pledge/ mortgagee will be required
seeking its consent regarding adhering to the clauses of the
shareholder’s agreement.
Effective date, term and i. The agreement shall be valid for entire project period, which is co-
termination terminus with the concession period.
ii. It can be terminated prematurely in any of the following
circumstances:
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• Any material change in law making the project unviable
• Mutual agreement between the parties to terminate.
• Governmentnt approvals are not received within six months of
date of execution or are accompanied with conditions,
unacceptable to the parties.
• non-defaulting
In case of breach of the agreement, the non-
non-defaulting
defaulting party
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not
will give ninety days’ notice to cure the breach, which if no
done will lead to termination.
• Bankruptcy or winding up of the company.
Settlement of disputes Settlement of disputes by good faith, negotiation and conciliation
Source: ICRA (2002). ‘Pipavav Railway Corporation Limited: Due Diligence and Risk Assessment of Railway
Corporation Limited,’ ICRA Advisory Services, July 2002.
I ON
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EXHIBIT 9
Concession Agreement – Salient Features
Parties to the Agreement (Parties) The President of India through the Ministry of Railways
(MOR), GOI – “The Licensor”
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Pipavav Railwayay Corporation Limited (PRCL) – “The
Concessionaire”
Scope of Project i. Gauge conversion between Surendranagar to Rajula
City Station and construction of new BG line upto
Pipavav station.
ii. Generation of Traffic and realization of revenue from
freight and container traffic.
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iii. The Project will be a Non-Government
Government Railway within
--Government
the meaning of the Railways Act, 1989.
iv. The Concessionaire shall complete Commissioning of
the Project within the Construction period.
Grant of Concession by MOR to PRCL
Rights of PRCL i. Exclusive
clusive right and authority during the Concession
Period to implement the project.
ii. Right to Commercially Exploit the Project assets.
iii. Develop, design, finance, construct,
construct own and operate
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the Project and market freight services.
iv. Subject to general rule of public tariff rates, to quote
special rates in specific cases.
v. Right to receive its share of tariff from freight traffic on
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the Project Railway.
vi. Freedom to levy and charge tariffs for container traffic
subject to rights of container operations being granted
by MOR to PRCL.
Obligations of PRCL i. To perform and fulfill all its obligations.
ii. Without prior permission of MOR, not to create any lien
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on the Concession except as permitted under the

Concession Agreement.
iii. Without prior permission of MOR, not to assign the th
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whole or any part of the project, nor transfer/ lease/

part except as permitted under the Concession
Agreement.
iv. Completion of the construction of the Project within the
Construction Period.
v. To undertake O&M of the Project through WR.
vi. To keep the Project Assets in proper working condition.
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vii. Indemnify the MOR against all actions and

loss/damage on account of anything done or to be
done by PRCL in connection with the performance of
its obligations.
viii. To comply with all obligations and safety standards
prescribed under the Railways Act, 1989.
ix. PRCL upon expiry of the concession shall transfer
these assets to MOR free from all encumbrances.
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Rights of MOR under the Concession i. All Existing Assets leased to PRCL shall continue to be
property of MOR.
ii. Right to collect annual lease rental from PRCL as per
Lease Agreement.
iii. MOR entitled to run on Project Railway, the equivalent
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of passenger services that already operate on the MG
track without paying any access charge to PRCL.
iv. Right to collect tariff from non-container
container freight traffic
and haulage charges from container traffic.
v. Right to connect the Project Railway with other rail
lines, which are, constructed as per normal expansion
plans of MOR.
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Obligations of MOR i. MOR shall lease the Existing Assets to PRCL for the
entire
e Concession Period.
ii. MOR shall hand over to the PRCL all applicable
permits.
iii. To apportion and pay to PRCL, the revenue collected
through tariff and haulage charges.
iv. The running and operating costs of passenger services
to be borne by MOR.
v. To assist and provide all reasonable support to PRCL
for obtaining the Applicable permits.
Confidentially Obligations
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vi. To maintain and operate at its own cost the Existing
MG line during the execution of construction.
Information marked as confidential received from any Pa Party
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to the other Party shall be treated as confidential.
Period of Concession 33 years commencing on the appointed date unless
terminated earlier in accordance with the terms of
agreement.
Transfer of Assets to MOR Upon expiry of the Concession Agreement
Agreement, the Project
Railway shall be transferred from PRCL to MOR
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Breach of Contract
PRCL Events of Default i. Non-payment of lease charges payable for a year by
Non
PRCL to MOR.
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ii. Repudiation of the Concession Agreement by PRCL.

iii. Appointment of a provisional liquidator for winding up
of PRCL.
iv. Abandonment of the construction of the Project
Railway.
v. Breakdown of any of the project agreements on
account of PRCL default.
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MOR Events of default i. Repudiation of the Concession Agreement by MOR.

ii. Breakdown of any of the project agreements on
account of MOR default
iii. Breach of its obligation under material provisions.
IN
Consequences of Default
a. Notice of Default Upon an Event of default, the non-defaulting
defaulting party shall
issue a Notice to the Party that has committed the default
specifying the reasons for default. If the defaulting party is
able to cure the Event of default to the satisfaction of the
the
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non-defaulting
defaulting party, the Notice of default shall stand
revoked.
If the defaulting party is not able to cure the Event of default,

the non-defaulting
defaulting party may initiate proceedings to
b. Notice of Intent to Terminate terminate the agreement and issue a Notice of Intent to
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Terminate.
The
he defaulting party shall have a period of 60 days to cure
the Event of default. If prior to the expiry of the Remedy
period, the defaulting party rectifies or remedies to the
c. Remedy Period and Withdrawal of satisfaction of the non-defaulting
defaulting party, the Notice to
Notice to Terminate withdrawn.
Terminate will be withdr
Upon expiry of the Remedy period, if the defaulting party
non-
does not rectify or Notice is not withdrawn, the non
defaulting party may terminate the Concession Agreement
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by giving a thirty days notice.
d. Termination Notice On expiry of the agreement, all the assets created by PRCL
shall revert back to MOR for a consideration equivalent to
the Depreciated Replacement Value (DRV) of the assets.
The assets leased to PRCL by MOR shall revert back to
MOR without any financial consideration.
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e. Transport Payment
Transfer Payment on termination on PRCL may require the MOR to purchase all the movable
account of : and immovable assets for a consideration equivalent to;
a. MOR’s Event of Default • DRV of assets + 30% of DRV if the default occurs
within 15 tears of COD.
• DRV of assets + 20% of DRV if the default occurs after
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15 years and within 25 years of COD.

• DRV of assets if the default occurs after 25 years of
COD.
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The assets will be taken over by MOR unencumbered.

(DRV= Cost of replacing the asset on Termination Date
minus Depreciation on Straight line method on the codal life
of assets)
MOR shall acquire all the movable and immovable assets of

IN
b. PRCL’s Event of Default the PRCL at 50% of the book value of such assets.
Transfer Fees and Charges Transfer fees and charges, if applicable at the time of
termination or Normal Transfer shall be borne by the MOR
and PRCL as per agreed proportion.
MOR shall take over the assets but not the liabilities which
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shall continue to be the responsibility of the PRCL.
Force Majeure All the Force Majeure events that are not within the affected
Parties reasonable control.
Settlement of Disputes Settlement of disputes through good faith, negotiation and
conciliation.
CO
EXHIBIT 10
Lease Agreement – Salient Features
Parties to the Agreement (Parties) The President of India through the Ministry of Railways (MOR),
GOI- “The Lessor”
Pipavav Railway Corporation Lim Limited
ited (PRCL) – “The Lessee”
Term of lease The Lease shall be for a period of 33 years from the date of
Lease Rent
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execution of the deed. The term of lease shall be co
with then Concession Period
The annual lease rental shall be a percentage of th
co-terminus
the book value

of Lease Assets. The lease rentals shall be payable in advance
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in four equal installments at the beginning of every quarter of
each calendar year.
Use of Leased Assets The Lessee shall utilize the Leased assets only for the Project
including Commercial Exploitation, and not assign,
Railway, including
transfer, mortgage or create any lien on any leased assets or
part without prior permission of the Lessor.
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Development of Leased Assets The Lessee can construct or modify the leased assets subject to
the terms
terms of the Lease Deed.
Payment of Taxes, Duties, etc The Lessee shall pay all taxes and other charges payable in
respect of the Leased assets.
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Insurance The Lessee shall be at liberty to insure the leased assets

against risks.
Terminal and Renewal The Lease may be terminated in case of termination/expiry of
Concession Agreement. If the Concession Agreement is
terminated beyond the initial period of 33 years, the Lease
Agreement shall also be extended/renewed at terms to be
mutually decided by the parties.
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Disputes In case of any disputes between the parties, the dispute

resolution mechanism in Concession Agreement shall apply.
Payment of Stamp Duty All costs, charges and expenses incidental to the execution of
Lease Deed shall be borne and paid by the Lessee.
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EXHIBIT 11
Project Structure
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Ministry of 50% Equity 50% Equity Gujarat Pipavav
Railways (MOR) Port Limited
and its PSUs (GPPL) and
Associates
Land Lease
Transportation and
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Agreement
Traffic Guarantee
Agreement
Concession
Agreement
Construction
Agreement Western
Debt Pipavav Railway
Railways (WR)
Lenders Corporation Limited
(PRCL)
ON O&M
Agreement
Tariff
Other Users
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EXHIBIT 12
Construction Agreement – Salient Features
Parties of the Agreement The President of India through Western Railway, GOI, Pipavav
Railway Corporation Limited
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Scope of Project i. Performance of and execution of all design, drawings,
engineering, procurement, construction and commissioning
ii. All gauge conversion works between Surendranagar junction
and Rajula city
iii. All construction work for new broad gauge line between
Rajula city and Pipavav
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Scope of Design and Western Railway shall carry out the entire design, drawing and
Engineering engineering requirements for carrying out the construction work
according to the specifications and standards of Indian Railways,
RDSO, BIS
Procurement i. PRCL is responsible for procuring rails, ballast, sleepers and
S&T equipments, which are to be given to WR as free
material. Rest of the material required for construction has to
be procured by Western Railway
ii. The free materials are subject to the inspection by Western
ON
Railway
iii. Western Railway to provide a delivery schedule of material
required to PRCL
iv. The schedules will indicate the site of delivery of material
v. PRCL to bear the cost of procurement, commissioning
additional capacity of Sabarmati Welding Plant over and
above its rated capacity of 10,000 welds per annum, for
undertaking welding works of PRCL
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vi. Cost of any delays occurring due to delays in provision of free
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material by PRCL will have to be borne by PRCL

PRC
Land Acquisition i. The Central Government shall acquire the land for
construction of new railway line as well as conversion of
metre gauge line. However, the cost of land acquisition will
not be a part of the project cost.
ii. WR shall not be accountable towards any delays arising out
of delays in land acquisition between Rajula city and Pipavav
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Construction Works Western Railway shall maintain the existing Metre Gauge services
between Surendranagar and Rajula till the line is blocked for the
final completion. The costs incurred for operating and maintaining
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this line (during construction period) will not form part of the
completion cost.
Inspection and Certification Western Railway shall be responsible for obtaining all the safety
certificates from relevant authorities. PRCL shall be free to get the
project work periodically inspected through its own authorized
representative
Commissioning of Project All the necessary rules and statues and rules for opening of a
IN
railway and passenger services will be followed before

commissioning of the project. Western Railway shall provide all
the necessary documents to PRCL within six months of
commissioning
Project Completion Schedule WR shall try to complete the project by December 31, 2002
subject to the availability of free materials and land acquisition
Monitoring of Work WR shall provide PRCL and Central Project Review Board
(CPRB) details regarding physical and financial progress of work
Performance The tracks shall be designed, constructed and commissioned
permitting
ting train speeds of not less than 50 kmph. WR shall also try
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to increase the speed to 100kmph for freight and passenger trains
considering all permanent and temporary speed restrictions
Contract Value i. WR shall undertake the entire work according to the detailed
detailed
cost estimate of Rs 294.38 crore
ii. In case the cost of the project increases by more than 10%
excluding the already executed work and free supply of
materials by PRCL, WR has to take a written consent from
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PRCL in this regard
iii. No Departmental charges shall be charged to PRCL.
However, D&G charges shall be payable to WR as per actual
cost of the subject to the maximum of 6% of the detailed cost
estimates.
iv. Any cost over runs on account of increase in duties and taxes
shall be borne by PRCL.
v. Any work constituting Material Modification and having a
value of more than Rs 15 lakh, will need prior consent of
vi.
PRCL.
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Any existing rail material being disposed will not credited to
project account.
General Obligation of Western i. Procure all necessary and applicable
app permits, from
Railway Government authorities.
ii. Procurement of appropriate intellectual property rights related
to processes, systems and methods used.
iii. Obtain and maintain at the cost of PRCL all the necessary
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insurance.
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iv. Monitoring and supervision of contracts.

contrac
v. Maintain good industrial relations.
vi. Ensure no barriers are placed on the railway line.
vii. In case of assigning rights and obligations of WR to any third
party, prior consent of PRCL is necessary.
General Obligation of PRCL i. Enable access to WR in the project area
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ii. Assist WR in obtaining licences

iii. Ensure no barriers are placed on the railway line
iv. Pay the monthly payment to Escrow account
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v. Observe and comply with its obligations set forth in this

agreement
Terms of Payment i. WR shall provide to PRCL a monthly statement of fund
requirements for construction work to be taken up in the
subsequent month
ii. PRCL shall deposit the requisite amount in an Escrow
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Account before the beginning of each month

iii. WR shall not be liable for any delays in work arising out of
delays in depositing the amount
iv. PRCL shall compare the monthly fund requirement submitted
at the beginning of each month and the progress report at the
end of month to make any necessary adjustment while
making advance payment for the next month. However, any
adjustment have to be made after seeking necessary

clarifications from WR.
v. In case of any cost over runs arising out of delays in
depositing money in the escrow account, PRCL shall bear
these costs over runs
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Claims of Liability Any claims arising out of execution of the project shall be settled
by WR subject to normal rules and regulations of Railways.
PRCL’s Event of default i. Repudiation of Construction Agreement by PRCL
ii. Appointment of official liquidator for winding up PRCL
iii. Failure of PRCL to adhere to the time schedule for supply of
Free Materials
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iv. Non deposition of requisite amount in the Escrow account
v. Non performance of any act set forth in the construction
agreement for a continuous period of 60 days
WR Event of default i. Non performance of any act set forth
forth in the construction
agreement for a continuous period of 60 days
ii. Repudiation of Construction Agreement
Consequence of default Upon an Event of default, the non defaulting party shall issue a
notice to the party that committed the default specifying reasons
ON
for default. If the defaulting party is able to cure the event of
default to the satisfaction of the non defaulting party, the Notice of
default shall stand revoked.
The defaulting party should have a period of 60 days to cure the

event of default, the no defaulting party may initiate proceeding to
Notice to Intent to Terminate terminate the agreement and issue a Notice of Intent to Terminate.
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The defaulting party should have a period of 60 days to cure the
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event of default. If prior to the expiry of the remedy period, the

defaulting party rectifies or remedies to the satisfaction of the non
defaulting party, the non defaulting party, the notice to terminate
Remedy Period and Withdrawal withdrawn
will be withdrawn
of Notice to Terminate
Upon expiry of the remedy period if the defaulting party does not
rectifies nor Notice is not withdrawn, the non defaulting party may
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terminate the construction agreement
Termination Notice
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Compensation Payable
hall pay WR all reimbursement of advances and all
PRCL shall
PRCL event of Default financial and contracted liabilities made by WR in the course of
construction of the project
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PRCL shall have the option to get the balance work done by any
other agency by prior approval of the MOR. In such such case,
WR event of Default payments to WR shall be made for all the work already executed
and liabilities already incurred as WR is not charging any
departmental charges and does not have a profit element built into
is charges.
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Indemnity Both the parties shall indemnify each other from any proceedings,
actions and third party claims.
Force Majeure All the Force Majeure events that are not within the affected
parties reasonable control
Settlement of disputes Settlement of disputes through good faith and negotiation and
conciliation ON
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EXHIBIT 13
Transportation and Traffic Guarantee Agreement – Salient Features
Parties to the Agreement (Parties) Gujarat Pipavav Port Limited (GPPL),
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Pipavav Railway Corporation Limited (PRCL), and
Ministry of Railways (MOR)/ Western Railway (WR)
Responsibility of GPPL
Minimum Guaranteed Quantity
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i. Freight Traffic 1 million tons in the 1 Year
nd
2 million tons in the 2 Year
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rd
3 million tons from the 3 Year onwards till Termination Date
Decided through a Joint Procedure Order (JPO) to be finalized
ii. Container Traffic by the Parties
Responsibility of PRCL PRCL shall receive from GPPL the MGQ and offer the same
to WR for evacuation and movement
Responsibility of Western Railway
Rolling Stock Based on the indents placed at Port of Pipavav, provision for
ON
sufficient rolling stock for movement of that part of the MGQ
which originate
originate at the Port
Compensation arising out of non-
fulfillment of its obligations
Freight Plan/Freight Forecast GPPL to deliver the Freight Forecast to PRCL and PRCL shall
inform the same to MOR through WR not later than 30 days
prior to the commencement of each month
WR’s Evacuation Schedule MOR through WR shall ensure the supply of rakes in
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accordance with the Freight Forecast
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Statements of Accounts and Computation of Shortfall

Joint Procedure Order The Parties through the JPO shall determine the maximum
maximu
number of indents that can be placed per day at each siding
Upper Limit Indents equal to twice the daily forecast quantity for the siding
lesser
or twice the loading capacity per day, whichever is lesser,
shall be upper limit on the number of indents
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Deemed Freight Traffic In case indents at the Port whose destinations/routes are not
under quota restrictions for a period of 240 hours are
withdrawn after pending as free indents for 240 hours before
supply of wagons, the quantity of freight tonnage that would
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have been accrued to PRCL had these indents been supplied

will be treated as Deemed Freight Traffic (DFT)
Port Traffic Quantity The total tonnage originating/ terminating at the Port at the
end of any calendar year plus the DFT is the Port Traffic
Quantity (PTQ)
Shortfall attributable to:
i. GPPL (S-
(S-G)
G)
(S-G) S-G = MGQ-PTQ
IN
(S-WR)
ii. WR (S-
(S-WR)
WR) S-WR = DFT
PTQ falls short of MGQ GPPL shall compensate PRCL for revenue shortfall
i. Compensation
Compensation Payable by GPPL = Rate per ton Km × 264 Km* × (S-G) – the Variable Cost
to PRCL pertaining to shortfall quantity
ii. Compensation Payable by WR = DFT × 264 Km – Variable Costs
to PRCL
Invocation of Guaranteed In the event GPPL or WR is unable to provide or
Obligations evacuate/move the MGQ in any year, PRCL shall issue a
notice to GPPL or WR as the case maybe
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Force Majeure All the Force Majeure events that are not within reasonable
control of the affected Parties
Events of Default
i. GPPL’s Events of Default a. Non payment by GPPL of an amount claimed by PRCL
for shortfall of MGQ and Invocation of Guaranteed
obligations
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b. Repudiation of the agreement by GPPL
c. Appointment of a provisional Liquidator for winding up of
GPPL
a. Non payment of WR of an amount claimed by PRCL for

ii. WR’s Events of Default shortfall of MGQ and Invocation of Guaranteed
obligations
b. Repudiation of the agreement by WR
ON
a. Repudiation of the agreement by PRCL
b. Appointment of a provisional Liquidator for winding up of
iii. PRCL’s Events of Default PRCL
Termination/Extension of Term Co-terminus

terminus with the Concession Agreement
Note: * Total length of the Project’s railway line
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EXHIBIT 14
Operations and Maintenance Agreement – Salient Features
Parties to the Agreement (Parties) Pipavav Railway Corporation Limited (PRCL) and
Western Railway (WR)
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Scope of the agreement
i. By Western Railway a. Performance of Operations and Maintenance on the
Project Railway.
b. Ensuring prompt evacuation and clearance of the traffic
and make available sufficient number of wagons and
locomotives within 5 days of indents being placed for
such traffic as far as possible.
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c. Collection of Revenues from the movement of non-non
container traffic, haulage charges in respect of the
container traffic and apportioning of net revenues to
PRCL after deducting the O&M cost.
d. Management of accidents, interruptions or any other
events affecting the movement of traffic.
Payment of O&M cost

cost
ii. By PRCL
Term of Agreement
ON
Co-terminus
terminus with the Concession Agreement
Operations and Maintenance:
Responsibilities of WR a. Immediately upon certification by the Chief Engineer,
Western Railways (CE/WR) for freight operations, the
assets shall be deemed to have been taken over by WR
for operation of freight movement and maintenance of the
Project Railway.
b. Operation and maintenance of the broad gauge (BG) rail
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link between Surendranagar and Pipavav
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c. To take-up
take-up
take- up O&M immediately after the BG line is
constructed and certified fit by the CE/WR.
d. Maintenance of the Project Assets and Existing Assets is
maintained as per standards laid down by MOR or its
nominated agencies.
O&M Cost a. PRCL is liable to pay to WR the O&M operations.
b. O&M cost to be applicable from the COD.
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c. O&M Cost shall consists of:

(a) Fixed Cost which shall remain fixed for a particular
year and payable by PRCL regardless of the level of
traffic carried.
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(b) Variable Cost which will be linked with the freight

traffic handled on the Project Railway.
d. WR will be defer the recovery of overhead on O&M cost
for the first five years of operation and same will be fully
th
recovered in five years from the 11 year onwards.
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Revision of O&M Costs

i. Fixed Costs The number of staff deployed for O&M will remain fixed.
xed. Any
upward revision in the staff level will need prior permission of
PRCL. WR’s broadgauge costs to be used as the basis.
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ariable cost will be revised annually based upon the
The variable
annual revision of underlying indices.
ii. Variable costs
Replacement of Project Assets Repairs and Maintenance of the assets will be carried out by
the WR. Replacement of project assets after the lives of these
assets have expired shall be carried out by PRCL or through
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WR. The cost of replacement shall be borne by PRCL.
Traffic Plan, Schedule and PRCL shall prepare an Annual Traffic Plan (ATP) indicating
Operation the estimated freight traffic on the Project Railway and likely
quantities/destinations 3 months before the beginning of every
year.
PRCL will also prepare a Quarterly Traffic Plan (QTP) and a

Monthly Traffic Plan (MTP) based on the ATP to enable the
WR to plan train supply and wagon movement.
Train Schedule and Operation Indents placed at loading points/stations on the Projects shall
ON
be expeditiously dealt with as per extant rules and procedure
of MOR.
Co-ordination A Co-ordination
ordination Committee (CC) shall be formed at the Zonal
and Divisional level for facilitating planning and operations of
Freight Traffic.
Tariff, Revenue collection and apportionment
i. Non-Container Traffic Public Tariff Rates as notified by MOR will be charged and
collected by WR.
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Special Tariffs may be quoted as per provision s of the
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Railways Act and in accordance with the

notifications/instructions of MOR.
WR will collect the haulage charges as notified by the MOR
ii. Container Traffic
from the operator of Container trains.
Apportionment of Revenue WR shall maintain all details of
a. all outward traffic originating on the Project Railway
b. all deliveries made on the project railway of traffic
originating anywhere on the Indian Railways, or within
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the Project.
Based on this WR will calculate the provisional apportionment

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of earnings due to PRCL every month as per rules of WR.
WR shall arrange to pay the amount due to PRCL, every

month after adjusting the fixed and variable operation and
maintenance costs.
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Other Revenues Standard Wharfage and Demurrage charges or any other

container
charges as announced by MOR shall apply for non-container
traffic.
 Wharfage charges shall be paid to PRCL
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 Demurrage charges shall be retained byy WR. However,
hire charges will not accrue for the period the wagons
have incurred demurrage.
General Obligations
Obligations of WR i. To perform all obligations as per O&M Agreement.
ii. Not to assign or create a lien or encumbrance on the
Project assets, without permission of PRCL.
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iii. Pay PRCL the apportionment of revenues.
iv. Bear the running and operating expenses of passenger
services.
v. Comply with all the safety standards as per Railways Act,
Act
1989.
vi. To keep the Project Assets in proper working condition
vii. To ensure timely supply of rakes, wagons, locomotives
and other rolling stock
Rights of WR i.
ON
Utilization of the existing and Project assets for O&M of
the Project.
ii. Right to collect revenues from the customers.
iii. To run on the Project Railway, the equivalent of the
passenger
pas senger services that already operate on the MG track
without payment of any access charges and collect
revenues.
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iv. The right to connect to the project Railway at any point
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other rail lines, which are, constructed in accordance with

the normal expansion plans of the MOR.
Obligations of PRCL i. To make timely payment to WR all costs incurred for
O&M.
ii. In case the apportioned revenue payable by WR to PRCL
falls short of the requirement of such payment, PRCL
shall on its own arrange the full payment.
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Rights of PRCL i. To receive its due share of apportionment of freight

earnings.
ii. Rights for commercial utilization of certain assets
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Events of default
WR’s Events of Default i. Normal functioning of the Project has been non-
operational for freight trains for more than 7 days except
for Force Majeure events or attributable to PRCL.
ii. Repudiation of the Agreement by WR.
iii. Non-payment of dues by WR to PRCL.
IN
PRCL’s Events of Default i. Non-payment of dues by PRCL to WR exceeding a

period of 3 months.
ii. Repudiation of the Agreement by PRCL.
iii. Appointment of a provisional liquidator providing for
winding up of PRCL.
Compensation payable by the Defaulting party to the non-Defaulting Party

Payments to PRCL – WR’s event of i. WR shall be liable to pay all outstanding amounts and the
default terest due on such outstandings within 7 days from
interest
written intimation.
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ii. WR shall not be entitled to collect the proportionate fixed
cost for the entire period of default including 7 days of
default.
iii. non-payment,
In the event of WR’s default on account of non-
non -payment,
payment,
WR shall be liable to pay PRCL, an interest from the date
the payment was due to the date of payment.
Payments to WR – PRCL’s event of i. PRCL shall be liable to pay all outstanding amounts and
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default the interest due on such outstandings within 7 days from
written intimation.
ii. non-
In the event of PRCL’s default on account of non
payment, PRCL shall be liable to pay WR, an interest
from the date the payment was due to the date of
payment.
Accidents and Interruptions WR shall be responsible for any accident unless it is
attributable to a Force Majeure event. The cost of restoration
and relief work including any compensation payable to any
ON
third party, will be payable by the WR, as per MOR rules.
Force Majeure All the Force Majeure events that are not within reasona
reasonable
control of the affected Parties.
Settlement of Disputes Settlement of disputes through good faith, negotiation and
conciliation.
Corporation Limited,’
ed,’ ICRA Advisory Services, July 2002.
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EXHIBIT 15
Timeline for the Project
Time Period (months)
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P. Way: Permanent Way (track and formation)
CRS: Commissioner for Railway Safety
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Ahmedabad IIMA/CIPR0002
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Kolkata Port Trust
On 20th November 2007, Dr Chanda, Chairman of Kolkata Port Trust (KoPT), was was
concerned about the sustenance of its performance. It had reached a plateau, after a few
years of significant growth. A turnaround had happened under his is leadership in five years
since taking over as its Chairman in June 2002. Prior to his assuming charge, KoPT had
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incurred a loss of ` 7.5 cr in 2000-01,
01, holding the tenth position in profitability among all
major ports then. The morale of the employees was low. The spectre of losing jobs and the
closure of a part of the port had seemed imminent. KoPT had held the fourth position, in
terms of traffic, in 2001 among the 12 ports in India. With growth in volume of traffic from
from 30 million tons (mt) in 2001-02 to 55 mt in 2006-07. It had climbed to the second
-07. It
position. This reflected a Compounded Annual Growth Rate (CAGR ((CAGR)
CAGR of 11.2%. With
measures to keep the expenditure nearly constant over the years and increasing the income,
the net surplus in the year 2006-07 was ` 465.1 croreore (cr) 1 (1 cr = 10 million),
million) the second
(JNPT
(JNPT
highest among all major ports after Jawaharlal Nehru Port Trust (JNPT).
ON
Two studies having implications on KoPT were recently submitted. One was the ‘Draft
Business Plan’ submitted in March 2007 by the Royal Haskoning with Crisil and the other
was the report on the ‘Improvement of Container Traffic at Kolkata Dock Complex’ Complex
submitted in November 2007 by the High Powered Committee chaired by Capt PVK Mohan. Mohan
Based on the events of the past five years and the two studies, Dr Chanda had surmised that
“It would not be possible to achieve a long term sustainable growth with the strategies used
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thus far by KoPT. The company needed to break away from them while developing a road
map for sustained growth”.
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BACKGROUND
Kolkata Port was the gateway to Eastern India since 1870. Located in West Bengal (Exhibit
olkata Port was the first major port in India.
1), Kolkata India It was the only riverine major port in India,
situated 232 kms upstream from Sandheads, the mouth of the river Hooghly. This distance
was one of the longest navigational channels (pilotage distances) in the world. To partly take
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care of the long channel access and for growth opportunities, a second port facility was
1977, providing a reduced navigational lead of 115 km from Sandheads.
created at Haldia in 1977,
The berths at the two locations were called Kolkata Dock System (KDS) and Haldia Dock
Complex (HDC) respectively.
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standalone Vessel Traffic Management System (VTMS) along with Automatic

In 2005, a standalone
ntification System (AIS) was implemented in the 87 kms stretch from Sandheads to
Identification
Saugor to guide the vessels. After this, the pilots embarked on to the vessels for pilotage at
Saugor, for the remaining distance to KDS and HDC of 146 kms and 28 kms, respectively,
IN
1
1crore = 10 million
Written by Tathagata Bandyopadhyay, G Raghuram, Yashoverman Sharma, and Niraja Shukla.

Research assistance provided by G Kuberkar, Aswathy Kurup and Kairavi Shah is acknowledged. We
acknowledge the access, time and help provided by KoPT.
2 of 47 IIMA/CIPR0002
instead of boarding at Sandheads, as was done earlier. KDS handled break bulk cargo and
containers while HDC primarily handled bulk cargo in larger vessels. KDS had 344 berths
and HDC 15 berths. The physical structure of the port and facilities at thee docks are given in
Exhibit 2.
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KoPT potentially had a vast hinterland, comprising the entire Eastern
astern India including West
Bengal, the north eastern States, Jharkhand and Bihar (Exhibit 3). It was also an important
gateway port for the neighbouring countries of Nepal and Bhutan. Other Indian states
which contributed to the KoPT traffic were Uttar Pradesh, Uttarakhand, parts of Haryana,
Punjab, Madhya Pradesh and Orissa. KoPT was connected with national and state
highways, railways and national waterways. KDS S was connected with NH-6, NH-2 and NH-
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34 through city roads. NH-41 connected Haldia with NH-66 and the rest of the country. KDS
was connected to Eastern Railway through Sealdah to Budge Budge and Diamond Harbour
sections. HDC was connected to the South Eastern Railway via Panskura. KoPT was
connected to National Waterway 1 (Ganga) and to National Waterway 2 (Brahmaputra)
through the Sundarban delta and Bangladesh.
The Chairman
hairman of KoPT was the executive head of the port and also the Chairman of the
Board of Trustees.
rustees. He was responsible for the overall administration of the port. He was
supported by two Deputy Chairmen
hairmen looking after KDS
KDS and HDC and further supported by
ON
functional heads. The organizational structure of KoPT is described in Exhibit 4.
PERFORMANCE 2001-02
As Dr Chanda reflected on the events and struggles leading to the turnaround of KoPT.
Traffic in 2001-02
02 was 30 mt, stagnant from the previous two years. Overall traffic growth
from 1995-96 to 2001-02, however, had been at a CAGR of 5.9% (Exhibit 5), marginally better
than the
he total major port traffic increase
increase in the same period at a CAGR of 5.5%.
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Unprecedented shoaling in the river channel and infrequent and erratic draft cut had been
delaying the passage of the ships through the long river channel.
c This resulted in high
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demurrage charges to the trade. Over and above this, high freight rates charged by the
vessels were a serious concern. As a consequence, the number of ships calling at KoPT had
not grown. This had reached a high of 2363 in 199
1998-99 and marginally dropped to 2242 in
2001-02.
At KDS, between the years 1999-00 00 and 2001-02,

1999-00
1999- 2001 there was a decrease in export of jute and
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jute products, machinery, iron and steel, and decrease in import of food grain, sugar, and
iron and steel, reducing the
the total traffic from 10.31 mt to 5.37 mt. This was partly due to the
demand going down. While at HDC, during the same period, there was an increase in
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export of thermal coal, iron ore, general cargo and an increase in import of fertilisers, coking
coal, scrap, and food grain, increasing the total traffic from 20.71 mt to 25.03 mt. As a
consequence, at KDS, the container traffic dropped from 147,000 teus (twenty foot
equivalent unit) to 97,985 teus and in HDC, it picked up from 28,000 teus to 93,010 teus. As a
result, the number of ships handled at KDS reduced from 937 to 669 and those handled at
HDC increased
increased from 1,285 to 1,573.
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The operational performance (Exhibit 6) in KDS and HDC improved between 1999–00 and
2001-02 due to upgradation of infrastructure facilities in 2000-01. Improvements at KDS
could also be attributed due to the reduction in traffic. At
A KDS, average pre berthing
detention reduced from 1.03 days to 0.58 days, and average turnaround time of ships
reduced from 6.59 days to 4.71 days. Average output per ship day increased from 2157 tons
to 2215 tons. At HDC, average pre berthing detention reduced from 1.61 days to 0.91 days,
average turnaround time of ships reduced from 5.21 days to 4.01 days and average output
per ship day increased from 5599 tons to 6207 tons.
Financially, the port’s net surplus reduced from a high of ` 173.5 cr in 1997-98 to ` (-7.5) cr in
2000-01 (Exhibit 7) and then increased to Rs 120.4 cr in 2001-02. Until 2000-01, while total
01, while
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income went up, total expenditure went up faster due to thehe dredging expenses,
expenses, and salaries
(due to the 5th pay commission) and retirement benefits. During 2001-02,02, there were no more
arrears due to the 5th pay commission.
From 2000-01, the income dropped from ` 1146.7 cr to ` 875.2 cr in 2002-

2002-03.
200 03. This was due to
2-03.
a reduction in port and dock charges from ` 706.3 cr to ` 375.2 cr,, primarily due to the non-
non
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reimbursement of dredging and maintenance of river charges by the central government.
government
This led to cash flow problems. Salary payments had become ome irregular. There was labour
unrest and wildcat strikes. The port had to seek ` 32 cr of loans in 2001 from financial
institutions to pay pension bills to its 28,000 retired employees.
In October 2001, KoPT had decided to close down Kidderpore Dock (KPD) (KP II due to its high
(KP
operation and maintenance cost. The dock mainly handled pulses and logs. logs It was also rail
linked.. The fixed cost of maintaining a 20 km long rail traffic system was high. KoPT had
started negotiation with Eastern Railway to hand over a part of its railway system.
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Customers from hinterlands like Bhadoi and Mirzapur regions in Uttar Pradesh (UP) had
stopped routing their carpet export through KoPT since the late 1980s. Importers and
exporters located in Kanpur had also stopped using KoPT since 1990s for transporting
vegetable oil, electronic goods, leather goods, plastic granules etc. This had also happened
Noida, etc. This was due to
for customers located in other regions like, Delhi, Ludhiana, Noida
better rail connectivity and services via JNPT.
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KoPT initiated public private partnerships (PPPs) to enhance capacity utilization and the
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throughput of KoPT. At HDC, in January 2002, Berth 12 (container and general cargo) was
leased out to Tata Martrade International Logistics Limited, a joint venture of Tata Steel and
IQ Martrade Germany, for a period of 30 years for its operation, management and
maintenance. The company had invested ` 25.8 cr for modernization of the cargo handling
operations by building infrastructure at the berth. Cargo handling
handl commenced in March
2002. Berth 4A (thermal coal) was allotted on BOT (Build-Operate-Transfer)
(Build basis to
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International Seaports (India) Pvt Ltd in May 2002 for its construction, operation,
management and maintenance for a period of 30 years.
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INITIATIVES TO TURNAROUND
INITIATIVES
On assuming office in June 2002, Dr Chanda tried to assess the causes that had led to such a
situation. Being the oldest and a riverine port with inadequate draft, it could not support the
port calls of large ships that had become more common
comm over the years. The equipments had
become obsolete. Cargo handling involving multiple players including Stevedores (those
who load and unload ships)ships), Steamer Agents, Customs, and Carrying and Forwarding
Agents (CFAs) added to the cost. These players played a dominant role in cargo handling.
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them. The inefficiency of these

The port authority had no control over the charges levied by the
organizations added to the concerns of the KoPT. Compulsory deployment of Dock Labour
Board (DLB) workers in cargo handling created a further hindrance in reducing the costs for
vessels calling at Kolkata.
Dr Chanda felt that discussions with customers including the trade and the shipping lines,
to know their reason of dissatisfaction would help. He constituted four groups of three to
four senior port officers each, called trade relations group, marketing group, customer
relations group and the business development group. The trade relations group was to meet
with the trade to assess the traffic potential, with specific focus on cargo that could, but was
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not using the port. The marketing group had the task of visiting customers and
understanding their requirements. The customer relations group was focused on
transactions. The business development group was to evolve strategic initiatives
nitiatives that could
be implemented over the next five years.
Based on the inputs from the groups, Dr Chanda felt, “There is potential to attract cargo not
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using the port. Port charges seemed to be a deterrent. Customers interviewed expressed
concerns over
ver non availability of equipment, breakdown of equipment, non availability of
pilot, space for keeping cargo/containers inside the dock, non availability of tugs, non
issues
availability of rail rakes, road congestion, parking problem, non delivery of cargo, iss
with Customs, DLB, and CFAs, etc. There appeared to be significant scope for a turnaround
through initiatives in terms of processes and projects.”
Dr Chanda realized that to turnaround,, he had to adopt strategies

strategies, not only to enhance the
revenues and but also to reduce costs by making the operations lean. The traditional
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solution to improve revenues was to increase tariffs. However, this could lead to further
Chanda, along with the
reduction of cargo with a possible reduction in total revenues. Dr Chanda
senior officers including the Land Manager, Mr A K Mehra, Traffic Manager, Mr U Sinha,
Superintendent Traffic Manager, Mr Gautam Gupta and Planning Manager, Mr A K
Mandal, focused on the following key areas:
• Initiatives for customers – Faster process time, ra

rationalization of tariffs, co-operation and
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help for addressing their problems
• Earnings – Pricing, modernization, estate rentals, PPPs
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• Savings – Energy, fuel

• Streamlining of internal processes – computerization of procedures, labour
labo issues
Considering the above, the management came up with the initiatives described below.
Appendix 1 provides a range of news items on the various initiatives and their impact.
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Reopening of KPD II
One of the first things that Dr Chanda did was to reverse the decision of the closure of KPD
II, both to retain the capacity and rail connectivity. This happened in January 2003. One of
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the first commodities to be handled was food grain exports to Bangladesh. The rail
connectivity was upgraded with the support of the railways and rail borne traffic to Nepal
was handled.
Rationalization of Tariffs
Low volume commodities were identified based on the data of the previous few years.
Wharfage charges for this group of commodities were reduced. The charges on containers
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originating from Inland Container Depots (ICD) of other states were reduced to encourage
the out of state customers. Special packages were announced for some sectors like
Andaman, Bangladesh (Narayangunj) and Nepal. Cargo handling charges were brought
surcharges were abolished. Demurrage income was ` 23.5 cr in 2001-02.
down and KoPT surcharg
Demurrage charges were brought down and demurrage free time was relaxed from 3
working days to 7 days (including holidays and Sundays) for all non-hazardous import
cargo. This brought down the demurrage income by 10% in 2002-03,, while increasing the
flexibility for trade.
Allowing Vessel Operation at Deep Drafted Location
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A major operational bottleneck of KDS and to some extent of HDC was the inadequate draft
faced by the vessel operators. Becausese of the inadequate draft, numerous sand bars and
several sharp bends, the maximum length of the vessel that could be accommodated in KD KDS
was only 172 m and in HDC it was upto 240 m. The he tidal variations affected the draft and
therefore loadability of vessels. These deterred larger vessels from calling at these ports.
Even the smaller vessels found it uneconomical because of pilotage time and the costs
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associated.
KoPT had jurisdiction upto Sandheads, where the available draft was about 50 m. The port
gradually started allowing vessel operations at several deep drafted anchorage points
including Saugor, Diamond Harbour, and Sandheads. As a result, large sized vessels had
started calling at the port. Also, by allowing vessels to undertake midstream operations at
these locations, which were outside the jurisdiction of DLB employees,
e the vessel
owners/agents
/agents could deploy private labour to handle the cargo at a much lower cost.
Induction of New Equipment

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To reduce the transactionion costs by improving productivity, two Mobile Harbour Cranes
(MHC) along with nine reach stackers on Own-Operate-Maintain
Own-Operate
Own- Maintain basis were inducted in
Operate--Maintain
KDS in 2004. Prior to 2004,
004, container traffic was dependent on vessels’
vessels derricks which could
move 10 to 12 containers
ntainers per hour. With the induction of MHCs, the productivity improved
to 20 to 22 moves per hour. Later, one more MHC and a number of reach stackers and
tractor trailers were added.
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Two Rail-Mounted Cranes (RMQC) with yard facilities at HDC were procured at a
Mounted Quay Cranes
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total cost of ` 50.0 cr. Five Rubber Tyred Gantry Cranes

Crane (RTGC), one at KDS and four at
HDC were inducted at a total cost of ` 27.5 cr.
Focus on Existing PPPs

The PPPs started at HDC in January and May 2002, 2002 were facilitated for quick
implementation
mentation and enhancement. Berth 12 was equipped with MHCs and forklifts in
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March 2004. Berth 4A was commissioned in February 2004 and the project cost was ` 150.0
cr.
Generation of Revenue from Alternate Sources

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KoPT, from their long experience,

experience had acquired expertise in river and hydrographic survey
which could be used for consulting purposes.
purposes A consulting division was thus started. Soon
they got assignments from organizations like Inland Waterways Authority of India (IWAI),
RITES, IIT Kharagpur, West Bengal
Be Power Development Corporation and Shibpore
Botanical Garden. The earnings from these assignments had been increasing.
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KoPT had an an estate, covering around 3000 acres of land. The earnings from this property
were only ` 20-25
20- cr prior to 2001-02. The lessees stopped paying rents and KoPT was in a
maze of litigations. Dr Chanda said, “The estate management was in shambles. Some
unscrupulous elements were involved in underhand dealings with the defaulters.” Realizing
that it could bring sizable revenue, Dr Chanda with the help of the four officers mentioned
earlier, took initiatives in issuing compensation bill in arranging quick disposal of pending
cases and stopping the unscrupulous elements. As per the compensation bill, if the lease
period had expired but space was still not handed over or eviction notice had been given
within the lease period (because of default in payment, illegal constructions, subletting etc),
but the tenant was not complying, in such cases ‘cheques or pay orders were accepted
without prejudice to the right and contention of KoPT as compensation for wrongful use
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and occupation.’ This was a proxy of rent, which in the court of law could not be treated as
rent. The income from estate rentals as a result increased from ` 69.0 cr in 2001-
2001-02
200 02 to ` 139.0
1-02
cr in 2006-07 (Exhibit 7).
Computerization of the KoPT Offices

Large scale computerization of KoPT offices helped to streamline official transactions. It
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resulted in less dependence on paper work, quick disposal of cases and transparency in i
business transactions. The customers could check the status of their
vessel/cargo/containers/deposit account sitting at their offices. Previously, for preparing
salary bills, provident fund statements for its employees and rent bills for its tenants, KoPT
KoP
had to depend on outside agency and thus had to incur a huge expenditure. But with the
computerization of the offices, these were done in-house
house without any additional man power.
It was estimated that, just by streamlining these operations, annual savings to the tune of `
10.0 cr had been achieved.
Focus on Business Processes

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Chanda felt it necessary to bring about a change in the outlook of the KoPT employees.
KoPT was a service provider. It had to make all efforts not only to prevent customer attrition
but also to add new customers. According to him him,, “The only way to achieve it was to know
the customers’ requirements and their expectations, to give a patient hearing to their calls, to
take immediate steps to address their problems and also to improve the service process to
fulfill their expectations.” To address the day to day problems, a customer relation
relations cell was
I
formed. It had become the eyes and ears of KoPT. The cell took up all kinds of issues with
customers’ problems, sometimes if necessary with
the appropriate authorities to address the custome
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the help of the Deputy Chairmen and the Chairman. The top management (the Chairman,
the Deputy Chairmen, and the Traffic Manager) made a concerted effort to communicate the
above message to their employees at every forum or meeting since Dr Chanda took over.
The top management team and Directors (Port Operation Group, Import Export Advisory
Committee, etc) held meetings with other stakeholders like Customs, Railways, Department
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of Explosives, Sales Tax Authority, Port Health Authority (PHA), Calcutta Electricity Supply
Corporation (CESC) etc to bring about improvements in different stages of the service
process including customs duty payment, timely availability of railway rakes/wagons, and
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certificates for food grains, vegetable oil etc as fit for human
time taken by PHA to issue certificate
consumption. As a result, improvements in many processes were being achieved. Some of
them being:
• Time taken to issue health certificate was reduced on an average from 10 to 12 days to 4
to 5 days.
days.
• Substantial improvement was made in availability of rakes. From 7 to 8 rakes per day in
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2002, the number of rakes handled, increased to 17 to 18 rakes per day in 2007.
• The cargo moving from KPD to Bangladesh via Namkhana (75 km downstream of
Kolkata)
Kol customs clearances procedures ie from sea customs (KPD to
kata) had two custom
Namkhana) and land customs (Namkhana to Bangladesh). This process was streamlined
by the customs clearances. Documents endorsed by sea customs were getting accepted
by land customs in Namkhana.
• Instead of buying electricity from CESC at the commercial rate both for commercial and
domestic consumption, the domestic part was separated by appropriate metering
metering. This
led to a saving of ` 6 to 7 cr annually and reduction of theft.
• All the vehicles which took fuel from the port authority were made to keep a log book on
fuel consumption and engine running. This led to reduction in fuel usage despite traffic
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rise.
• The Energy and Resource Institute (TERI) was entrusted with energy management at the the
port. Recommendations specified by TERI were implemented.
• Special incentives were given to customers like Anandbazar Patrika (a media group).
group)
After the payment of import duty, their cargo of newsprint was given a space for storage
inside the dock area.
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• The counting of empty containers was earlier done both by port authority and customs.
This process was streamlined and customs now accepted the port tally.
PPPs for Proposed Projects

At KDS, construction of three container handling jetties at the proposed Diamond Harbour
cargo terminal had been planned. The project was to be executed through the PPP mode.
The techno economic feasibility had been completed and the proposal for in principle
approval of the scheme by Public Private Participation Appraisal Committee
Com (PPPAC) had
already been forwarded to Ministry of Shipping.
Shipping. Also, the government had instructed
construction of new berths only through the PPP mode.
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COMPETITION
KDS and HDC were expected to face serious competition in the near future from upcoming
private ports in the region. A key port development project in Dhamra in the neighbouring
state of Orissa was likely to come up in the very near future. The competition from the
established port of Paradip, also in Orissa, especially for bulk cargo, was also
a significant.
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Kulpi was another port likely to come up in West Bengal.
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Dhamra Port
Dhamra port was to be developed and operated jointly by L&T and Tata Steel in Dhamra,
Orissa. The two developers were awarded a concession from the Orissa government to build
the Dhamra port on BOT basis for a period of 34 years including 4 years of construction. The
developers formed a company named The Dhamra Port Company Ltd to develop and
operate the port. Situated between Paradip and Haldia, the port of Dhamra was planned
p to
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be one of the deepest ports of India with a draft of 18 m. It could accommodate super cape
size vessels of upto 180,000 DWT. The master plan provided for 13 berths capable of
handling 83 mt per annum of bulk, break bulk and containerized cargo.
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Paradip Port
Paradip port was located 210 nautical miles south of the coast of Kolkata. It was the eighth
major port of the country opened to traffic in 1966. It served a large hinterland of Orissa,
Jharkhand, West Bengal, Chhattisgarh and Bihar. The port mainly dealt with bulk cargo and
had handled 38.5 mt in the year 2006-07.
2006 The port had 14 berths, each one of them
maintaining 13 m draft and the capacity to handle Panamax vessels. The port had plans to
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undertake deepening of channel to provide a draft of 17 m. Additionally, lighterage

operations were carried out at the roadsteads.
Kulpi Port
The government of West Bengal also had plans to develop Kulpi port, off the coast of West
Bengal, a little to the southwest of HDC. Comprehensively master-planned, the Kulpi
Economic Zone would combine modern all weather port facilities, environment-friendly
ship breaking yard, and an industrial park in a single integrated hub. The estimated project
costs were: (1) ` 455 cr (USD 104.6 million) for the port facilities, (2) ` 430 cr (USD 98.8
million) for the industrial park, and (3) ` 40 cr (USD 9.2 million) for the ship breaking
complex, making it a total of ` 925 cr (US$ 212.6 million) for the entire project.
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Dubai-based
based DP World, the world’s third largest port operator, took over the greenfield
Kulpi Port project as part of its acquisition of P&O in February 2006. The first phase would
have a 450 m quay. The second phase would add 450 m of quay length. DP World's partners
in Kulpi Port were the Indian firm MKJ Enterprises rises and the West Bengal Industrial
Development Corporation (WBIDC).
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[Source: The information on the above three ports were sourced from respective port brochures. The
information for Kulpi Port was also sourced from www.wikipedia.org
www.wikipedia.org,, accessed on June 3, 2009.]
2009.
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Location map of competing ports of KoPT

[Source:
Source: Google Earth,
Earth, accessed on June 3, 2009]
2009
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IMPACT ON PERFORMANCE
The above initiatives led to increase in traffic with a higher growth rate. From 30 mt of
overall traffic in 2001-02, it reached 55 mt in 2006-07 07 with a CAGR of 11.2%. KoPT
contributed 13% of total Indian major port cargo and ranking 2nd after Visakhapatnam port
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in terms of total port cargo of the country. The container traffic had surged
surged significantly.
KoPT handled 349,069 teus in 2006-07 as compared to 190,995 teus in 2001-02,02, giving almost
an 80% increase. The traffic performance from 2001-02 to 2006-0707 is described in Exhibit 5.
Amongst all major ports, the number of ships handled at KoPT was highest in 2006 2006-07 at
3,204 ships. There was improvement in productivity at KDS,, as seen in Exhibit 6. 6. Similarly,
at HDC, while the average output per ship day improved, the pre berthing detention and
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turnaround time improved initially and then worsened
rsened due to traffic congestion caused by
more than proportionate increase in traffic.
The net surplus increased from a loss of ` 7.53 cr in 2000-01,

2000-01, and a surplus of ` 120.37 cr in
2001-02 to ` 465.0 cr in 2006-07. This was a consequence of raising incoincome significantly
through marketing and productivity measures, but keeping constant.
eeping the expenditure nearly constant
LOOKING AHEAD
KoPT had thus taken a significant step in turning around its performance, both
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2006-07, Dr Chanda and his team, realizing
operationally and financially. However, after 2006-07,
that the performance had reached a kind of plateau, were looking ahead into the future of
KoPT. They could see two major focus areas, one of sustaining the performance and the
second of facing new challenges. Around this time, there were two successive studies, which
had an impact on the future strategies of KoPT. One was by Royal Haskoning in association
with CRISIL, on the development of a business plan for KoPT. This was commissioned by
the Ministry of Shipping, Road Transport and Highways (MoSRTH) as part of development
I
of business plans for all the major ports by different consultants. This report was submitted
in April 2007. Appendix 2 provides excerpts from this report.
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The other study was by a high powered committee

committ looking at the improvement of container
traffic at KoPT. This was also constituted by MoSRTH in May 2007. They submitted the
report in November 2007. Appendix 3 gives the recommendations of this committee.
The traffic was increasing at a higher rate aat KoPT than the projections made by both the 11th
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Five Year Planlan and NMDP, by 2006 2006-07. This was a positive sign of performance. By
becoming financially strong over the last five years, significant future investments on the
port was planned through internal resources. Being an established port of the east, over the
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years, it had enjoyed a certain degree of traffic.
The future of the port had immense potential strengthened with planned investments
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through various modes (largely PPP) and enhanced capacity. However, there were many
areas which required immediate attention. Streamlining the process of cargo handling,
maintaining minimum draft, modern infrastructure and customer oriented facilities,
competitive tariffs and strong strategies for competition were some of the important
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parameters to focus upon in the future.
s
Independent of these studies, Dr Chanda and his team reflected on some of the major issues
causing concern
concerns to them:
Operating Expenditure
Operating expenditure was the highest amongst all ports in 2006-07,, mainly on account of
high dredging expenses. These accounted for half the operating expenses. The second
highest component in the operating expenses was salary and wages.
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Dredging
Continuous dredging was a major concern, both at KDS and HDC, DC, due to heavy siltation in
the Hooghly River. KDS,, which in 1980s could handle ships upto 8 m draft, was not able to
handle ships more than 6 m draft for most part of the year in 2007 due to restricted
navigable depth. As a result, both KDS and HDC had become feeder ports transhipping
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cargo to ports like Colombo and Singapore. KoPT was doing about 16.83 million m3 of
dredging every year to maintain its channels. The central government was supposed to
reimburse the entire amount of dredging to KoPT. Of the total expenditure on dredging and
marine surveys amounting to ` 397.0 cr,, the central government reimbursed only ` 250.0 cr
in the year 2005-06.
06. The port experienced substantial delays in these reimbursements every
year. This led to decreasing income in the ‘port and dock ock charges’
charges’ component of the
operating income (Exhibit 7), as reimbursements towards dredging were included in it.
Salary and Wages

KoPT had about 41,000 employees in the 1960s
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1960s which got reduced to 14,000 by 2001.
Deliberate measures were taken to reduce this number even further. Some of them were:
• Ban on recruitment
• Reduction in age of superannuation from 60 to 58
• Initiation of voluntary retirement scheme
• Redeployment after training
• Outsourcing
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• More mechanization of work
• Natural attrition
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The number of employees gradually reduced

reduced to about 11,000 by 2007,
2007 contributed almost
entirely by KDS whose manpower reduced from about 9000 in 2001 to 6000 in 2007. KoPT
was expected to face various changes in the manpower profile at its docks by 2016:
• The number of employees retiring by 2016, as estimated in the port’s business plan, was
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expected to create huge shortage of manpower, both at KDS

KD and HDC. It was estimated
that about 3714 employees at KDS and 2254 employees at HDC would be retiring by
then.
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• Following the proposed abolition of the DLB, the KoPT was going to absorb their
workers.
workers. About 500 workers would be added to the total manpower and KoPT had to
take the responsibility of payment of pension to a significantly higher number. KoPT
requested
requeste d the government for a pension fund. This was not approved till 2007 and thus
the absorption was on hold. However, this was expected to happen soon.
• Significant investments were planned for the docks and for new projects at KoPT.
Majority of the capacity addition projects were infrastructure development and
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procurement of equipment as part of the port modernization program. These projects

were expected to generate additional employment in the port.
Catering to the above, the Human Resource (HR) department was required to prepare an
HR plan well in advance, so as to ensure that the required manpower was made available in
right numbers and at the right time. As part of the planning, the HR departments at KDS
and HDC were expected to analyze the impact of the above changes in consultation
sultation with the
respective HODs.
Pension
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KoPT had a huge burden of payment of pensions to its vast pool of retired employees. As
the paper work of the port, including the pension payment activity, was outsourced, the
port did not have any control on the cost of pension over the years. This generated many
‘ghost’ pensioners to whom the payment was given regularly. This process was brought
under control by computerization of the port activities. The burden of pension still remained
significant, mainly due to rising number of pensioners. In 2006, due to this issue, KoPT had
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urged the shipping ministry to create a corpus fund for pension payment. The port later
introduced schemes
started developing its own corpus from the surplus every year and introduce
along with Life Insurance Corporation of India.. However, the number of pensioners was
going to rise as per the business plan estimates.
Operating Income
The two components of the operating income in the revenue statement of KoPT were ‘cargo
handling
ing and storage charges’ and ‘port and dock charges’. Cargo handling and storage
charges increased from ` 334.2 cr in 2001-02 to ` 485.2 cr in 20062006-07. This was attributed
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mainly to the tariff rationalization process adopted at the port. The ‘port and dock charges’
reduced from ` 706.3 cr in 2001-02 to ` 592.5 cr in 2006-07.
2006-07. This component included pilotage
fees, dry dock charges, berth hire charges and reimbursement from central government for
dredging and maintenance of river. All the sub components exhi exhibited a rise except for
reimbursements from dredging which had resulted in the reduction of the total. Other major
sources of operating income were from railway operations and estate rentals (Exhibit 7).
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Tariffs
The tariff rationalization was done in 2002.
2002. Being a significant reason for the turnaround, it
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needed a commodity wise continuous review according to the competitiveness of the

market. For
or sustaining the traffic as a consequence of competitive rates, it would be essential
to focus on relaxing capacity constraints, high
higher productivity and customer oriented service.
Constraints at HDC
HDC, as compared to KDS,
KDS, paid less attention to its overall development over the years. It
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was originally conceived with an idea to cater to the increasing trade of Kolkata, and to act
as a catalyst for growth in the surrounding region. With the development of industries in
Haldia like Indian Oil Corporation Limited
Limited, Hindustan Petroleum Corporation Limited,
Limited, Haldia Petrochem, South Asia Petrochem, Tata
Bharat Petroleum Corporation Limited
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Chemicals, Reliance Industries, Exide Industries, Adani Wilmar etc and with the proximity
to eastern mines, trade in bulk cargo like iron ore, POL, chemicals etc developed
significantly at HDC. As it acted as a feeder hub, larger number of ships started calling at the
HDC. However,
However, the capacity at the port did not develop at the same pace, resulting in
constraints.
capacity constraint
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Issues like berthing congestion, lock gate restrictions, poor road connectivity, inadequate
faced by customers at HDC. The cargo traffic however kept rising while
equipment etc were fa
performance parameters deteriorated. With the dominance of bulk cargo and focus on
KDS for container operations, the container ships had low priority at HDC. This,
developing KD
coupled with inadequate infrastructure for container operations, led to the downfall of
containerized cargo after 2003-04 at HDC.
To address the above issues, Dr Chanda was considering the development of river side
jetties, especially for improving the handling operation
ion of bulk cargo. He also wanted to
create large scale mechanization of operations at HDC, which could handle 20,000
tons/day/berth from the 2007 level of 6,000 tons/ day / berth , by acquiring MHCs and
other sophisticated shore side equipment. On the other hand, a ‘high powered committee’
owered ccommittee
ommittee’’
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which studied container traffic at KoPT (Appendix 3)) had just given its recommendations
for addressing the falling container traffic at HDC. Amongst various short term and long
term recommendations, two significant long term recommendations were the creationcreation of a
second lock gate at HDC and to dedicate one river side jetty for container operation.
Constraints at KDS
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Apart for dredging and hinterland connectivity issues, KDS was facing some operational
constraints leading to delay in cargo handling at its docks. These were:
• Tug shortage
• Lack of adequate equipments like MHCs, RMGC, trailers etc leading to delayed
performance.
• Absence of one window clearance forr permissions/payments to the port, customs and
port railways.
PPP Implementation
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With the successful implementation of leasing berths to private parties, KoPT found the
model to create competition and be profitable, thereby giving rise to higher productivity.
Creation of infrastructure through PPP came high on the priority list, with central
government instructing that construction of any new berth should be only through PPP
mode, even if the port had its own funds. However, no berths were leased out after 2002 to
private parties in KoPT.
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Hinterland Connectivity
As the roads to KDS traversed through the city area which had traffic restrictions during the
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day, there was a bottleneck of movement of containerized cargo. These roads were crowded
and narrow with major congestion and traffic jams. The modal split of KD KDS had about 75%
of the cargo moving by road. In order to allow growth of port traffic, in particular, container
traffic, development of expressway
expressway connections was required. As a long term measure, the
report on ‘Improvement
Improvement of Container Traffic’ recommended a dedicated connection from
the KPD to the second Hooghly Bridge which would be kept open for 24 hours.
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KDS was pipeline. Rail had a

After road, the second highest component in the modal split of KD
small share of about 6 to 7%. For improving the container throughput at the dock, CONCOR
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introduced a container train service to Tughlakabad in 2006. The KoPT was also rail linked
with ICDss at Assam and Nepal.
HDC was relatively new compared to the KD KDS and the surrounding area was in a
Congestion however was encountered for traffic to the dock. The
development stage. Congesti
approach road to the port passed a congested stretch where it crossed a railway line through
a level crossing. Road improvement works were underway though at a slow speed.
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the rail connection of Haldia was quite efficient. Rail capacity expansion plans
However, the
were drawn up to meet the future requirements.
The potential of Inland Water Transport (IWT) between KoPT and the hinterland through
National Waterways was not explored for a long time. This could have eased cargo
movements substantially, especially for cargo moving to the interiors and Bangladesh.
Realizing this, the central government had planned to set up IWT terminals and the
construction had started by 2007. One terminal each at KDS (NSD dock) and HDC was
under construction. Government had plans to have more such terminals for promotion of
IWT at major ports.
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Future Projects
KoPT had plans to set up port facilities in Diamond Harbour and in Saugor Island under the
PPP model, mainly to take advantage of deeper draft.
Diamond Harbour
Diamond Harbour, located about 50 kms downstream from the Kolkata city, was to be
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developed by KoPT. The port involved construction of four jetties and was to be a dedicated
container terminal. It had a deeper draft of about 9 to 10 m as compared to KoPT docks. The
total capacity of the port was planned at 1.6 mteus annually.
nnually.. The
nnually The port project was spread
over an area of 127 acres of land and was planned to come up by 2010. The report on
‘Improvement of Container Traffic’ (Appendix 3) gave the following recommendations for
Diamond Harbour:
• It should be constructed on priority basis with a minimum quay length of 600 m.

m
• Adequate land area had to be acquired for sufficient yard operations.
• Sufficient hinterland connections
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tions had to be established along with the development of
the terminal including rail, IWT and road.
Saugor Island Port

KoPT had plans to put up a major lighterage
terage port at Saugor Island, so that large ships could
offload their cargo into smaller ships for the transit of the Hooghly to KDS or HDC. In
addition, the
he government of West Bengal wanted KoPT to set up a modern deep sea port, off
I
the coast of West Bengal as part of the national effort to double the port capacity to 1000 mt
by 2012. The draft targeted for the proposed port was 18 m and was planned to
CT
accommodate atleast cape size vessels. Lack of draft

d had been a critical issue at KoPT which
had resulted in many smaller size ships being handled at the port and the cargo getting
transhipped in other foreign
oreign ports on larger ships
ships. The port had plans to have separate
terminals for handling chemical, oil and petrochemicals. The port was also expected to cater
to the proposed chemical hub at Nayachar Island near Haldia.
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Investments
KoPT had investments pl planned
anned based on the 11th Five Year Plan and on the National
Maritime Development Program (NMDP) of National Maritime Policy till the year 2011 2011-12.
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The year wise traffic projection and investments proposed upto 2011
2011-12 are given in Exhibit
8.
The 11th F
Five
ive Year
Year Plan
Plan projected a conservative figure of 13.43 mt at 12.72% CAGR for KDS
and 44.5 mt for HDC at 6.5% CAGR from 2007-08
2007 to 2011-12. Subsequently, the capacity was
also planned to be added to the port for handling this additional cargo. The capacity
planned
plan ned for the year 2011
2011-12 was 31.45 mt for KDS from base year figure of 12.60 mt of 2007-
IN
08 and 63.40 mt for HDC from the base year figure of 42.20
42.2 mt of 2007-08. The plan outlay
for KDS
KDS was ` 2988.0 cr with private investments of ` 2590.0 cr and was ` 826.0 cr at HDC
with private investment of ` 547.0 cr upto 2011-12. Also, ` 421.0 cr was to be invested
through budgetary support of the government for river regulatory measures.
The NMDP had an investment outlay for special projects for all the major ports of the
country. For KDS, 13.60 mt was projected in 2011-12 12 from the base figure of 9.95 mt of 2004-
2004
05 with a conservative CAGR of 4.57%. For HDC, 50.15 mt was projected in 2011-12 12 from the
base figure of 36.26 mt of 2004-05 with a conservative CAGR of 4.74%. %. Correspondingly, the
capacity enhancement planned for KDS was 17.68 mt and for HDC was 65.20 mt for 2011- 2011-12
2011-12
12
PY
from the 2004-05 base year figures of 9.80 mt, and 34.10 mt, respectively. The 2011-
2011-12
2011 -12 NMDP
plan outlay for KDS was ` 5302.2 cr with ` 3663.0 cr of private investment and for HDC was
` 1192.3 cr with a private investment of ` 544.6 cr.
Task before Dr Chanda

In the context of above Dr Chanda was required to develop a road map of the future of
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KoPT and steer its execution.
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Abbreviation
BOT Build Operate Transfer

CFA Carrying and Forwarding Agent
CAGR Compounded Annual Growth Rate
PY
CESC Calcutta Electricity Supply Corporation
CFS Container Freight Station
CONCOR Container Corporation of India
DGLL Director General of Lighthouses and Lightships
DLB Dock Labour Board
DWT Dead Weight Tons
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EDI Electronic Data Interchange
HDC Haldia Dock Complex
HOD Head of Department
HR Human Resource
ICD Inland Container Depot
IPA Indian Ports Association
IT Information Technology
IWAI Inland Waterways Authority of India
IWT
JNPT
Inland Water Transport
ON
Jawaharlal Nehru Port Trust
KDC Kolkata Dock Complex
KDS Kolkata Dock System
KoPT Kolkata Port Trust
KPD Kidderpore Dock
L&T Larsen and Toubro Limited
MHC Mobile Harbour Crane
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MoD Ministry of Defence
Defence
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MoSRTH Ministry of Shipping, Road Transport and Highways

mt Million Tons
mtpa Million Tons Per Annum
NMDP National Maritime Development Program
NSD Netaji Subhash Dock
PBD Pre Berth Detention
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PCS Port Community System

PHA Port Health Authorit
Authority
POL Petroleum
Petrol eum Oil and Lubricants
PPP Public Private Partnership
SP
PPPAC Public Private Partnership Appraisal Committee

RMGC Rail Mounted Gantry Crane
RMQC Rail Mounted Quay Crane
RTGC Rubber Tyred Gantry Crane
SEZ Special Economic Zone
TAMP Tariff Authority for Major Ports
IN
TERI The Energy and Research Institute

teu Twenty Foot Equivalent Unit
THC Terminal Handling Charges
VTMS Vessel Traffic Management System
WBIDC West Bengal Industrial Development Corporation
Glossary
1. Anchorage
A designated place for vessels to anchor in the port.
2. Barge
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Flat bottomed boat for carrying cargo on protected waterways, usually without engines or crew
accommodations.
3. Berth
A space for a ship to dock or anchor.
4. Break bulk
Break bulk cargo forms part of the general cargo handled by a part, which comprises of small
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parcel sizes of various bulk and other minor commodities, which are carried in the general cargo
holds in a ship.
5. Bulk
Cargo shipped in loose condition and of a homogeneous nature. Cargo that is shipped
unpackaged either dry, such as grain and ore, or liquid, such as petroleum products.
6. Bulk carriers
Ships specifically designed to transport bulk cargo.
7. Cape size vessel
Vessels
ON
essels with deadweight in excess of 1,00,000 DWT and area used primarily in the carriage of
iron ore and coal cargo. The name signifies the Cape of Good Hope route that these vessels
have to take in place of the shorter Suez Canal route.
8. Dead weight tons
A measure of the cargo carrying capacity of a ship and refers to that total weight of the cargo that
a ship can carry when loaded down to its marks, including the weight of fuel, stores, water
ballast, fresh water, crew passenger and other baggage.
I
9. Demurrage
The
he penalty imposed by port authority on the receivers of cargo for not clearing cargo from the
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port premises within the stipulated time.

10. Draft
The depth of a ship in the water. The vertical distance between the waterline and the keel.
11. Dredging
channels,
An act of scooping or sucking up mud, sand, rocks, etc to deepen or clear the channels
harbours, etc.
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12. Dry dock

An enclosed basin in which a ship is taken for underwater cleaning and repairing.
13. Feeder ship
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trans-shipped
Ships that handle trans-
trans -shipped
shipped cargo from one port to another.
14. Jetty
A structure, such as a pier, that projects into a body of water to influence the current or tide or to
protect a harbour or shoreline from storms or erosion.
15. Lock gate restriction
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An enclosure in a water body with gates at each end to raise or lower water vessels as they pass
from one level to another.
Lighterage
16. Li
Ligh
ghterage
terage
The act of using a smaller vessel or barge for moving the goods ashore (in a case of a ship not
The
being able to tie up to a quay due to its draft).
17. Output per ship day
The ratio of the aggregate cargo handled to the total number of berth days.
18. Panamax
These are vessels with deadweight in the range of 60,000 DWT to 1,00,000 DWT are used
primarily in the carriage of iron ore, coal and grain cargo. Panamax vessels are the largest
PY
vessels that can pass through the Panama Canal.
19. Pilotage
The act carried out by a pilot of assisting the master of a ship in navigation when entering or
leaving a port.
20. Pre berthing detention
The
he time taken by a ship from its arrival at the anchorage till it starts its movement to the working
berth.
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21. Quay
A structure of solid construction along a shore or bank that provides berthing and generally
provides cargo handling facilities.
22. Reach stacker
A mobile crane, usually used to handle containers.
23. Shipper
Individuals or businesses who tender goods or cargo for transportation. Usually the cargo owners
transportation. U
or their representatives.
24. Stevedore
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A stevedore manages the operation of loading or unloading of ships. A stevedore typically owns
equipment used in the loading or discharge operation and hires men who load and unload cargo
under supervision.
25. Suezmax
Largest ships capable of transiting the Suez Canal fully loaded, and are almost exclusively used
in reference to tankers. They have a capacity ranging from 1,20,00 DWT to 2,00,000 DWT.
I
26. Tractor trailer
A truck consists of a tractor (the motive power unit consisting of a cab and a driver) and a trailer
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(cargo carrying unit). The tractor and the trailer can be separated, if required.
required..
27. Transhipment
A shipment that has been moved through, imported, transferred, or unloaded
unl in one or more
prior to importation into the final
intermediary countries (other than their originating country) pri
destination country.
28. Trans loaders
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A rubber tired, self propelled machine for loading, transporting, and dumping from truck to rail,
from container to warehouse with telescopic forks.
29. Turnaround time of vessel
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It refers to ‘the time the vessel reports at the anchorage to the time it sails out of the berth’.
30. Tug
A small vessel designed to tow or push large ships or barges. Tugs have powerful diesel engines
and are essential for maneuvering large ships around the port.
Source:
Sou rce: www.wikipedia.org
www.wikipedia.org, accessed on July 21, 2009 and ‘Indian Maritime Report 2009’, Imaritime
IN
Consultancy, 2009.
2009
References
1. CES (2007). ‘Proposed Port Facility at Diamond Harbour’, Consulting Engineering Services, New
Delhi.
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2. Doond – Port News (May 8, 2007). ‘Superb Show by KoPT.’
3. Google Earth, Map of Location of KoPT,accessed on June 3, 2009
4. IPA (various years). ‘Major Ports of India,’ Indian Ports Association, New Delhi.
5. Kolkata Port Trust (various years). ‘Administration Reports,’ Kolkata.
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6. MoSRTH (2006). ‘National Maritime Development Program,’
,’ Department of Shipping, New Delhi.
7. MoSRTH (November 2007). ‘Improvement of Container Traffic at Kolkata Dock Complex,’ Report
of the High Powered Committee, New Delhi.

th
8. Planning Commission (2007). ‘11 Five Year Plan (2007-2012),’
2012),’ Government of India, New Delhi.
9. Development of a Business Plan for Kolkata Por

Royal Haskoning (April, 2007). ‘Development ON Port,’ (in association
with CRISIL).
10. The Hindu Business Line (September 18, 2006). ‘Rationalisation of Tariffs’ Put Wind in KoPT
Sails.’
11. The Hindu Business Line (June 29, 2006). ‘Drop in Haldia’s Rail Movement
M of Containers.’
12. The Economic Times (May 28, 2007). ‘Panel Set up to Look at Augmenting Box Trade at Kolkata
I
Port.’
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13. The Financial Express (June 21, 2003). ‘Kolkata Port Trust: Rising Above the Water.’
14. www.kolkataporttrust.gov.in,
trust.gov.in,, accessed on July 21, 2009.
trust.gov.in
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SP
IN
Exhibits and Appendices
Exhibit 1 Location
Exhibit 2 Physical Structure and Facilities
Exhibit 3 Hinterland
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Exhibit 4 Organizational Structure
Exhibit 5 Traffic Trends
Exhibit 6 Operational Performance
Exhibit 7 Financial Performance
th
Exhibit 8 11 Five Year Plan and National Maritime Development Program
Appendix 1 Kolkata Port Developments in News: June 2003 to May 2007
Appendix 2 Excerpts from ‘Development of a Business Plan for Kolkata Port’
Appendix 3 Recommendations from the Report on the ‘Improvement of Container Traffic at
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Kolkata Port’
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Exhibit 1: Location
KoPT has two locations, KDS and HDC, on the Hooghly River in the state of West Bengal in India.
KDS is located on the left bank whereas the HDC is located on the right bank and further downstream
on the river. KoPT is the only riverine major port of India.
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Kolkata Port
Haldia Port
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Port Location Entrance Channel Turning Circle
Distance
from Minimum Minimum Diameter
Latitude Longitude Number
Harbour Depth Width
(km) (m) (m) (m)
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o o
KDS 22 33’N 88 19’E 232 3.0 45 1 190/288
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o o
HDC 22 02’N 88 06’E 115 6.7 467 1 549
Source: ‘Location and Topography: Major Ports’, IPA, 2006
2006-07
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SP
IN
[Source: Google Earth, accessed on July 30, 2009]

KDS
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ON
[Source: Google Earth, accessed on July 30,, 2009]
2009]
HDC
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Hooghly
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River
IN
[[Source:
Source: Google Earth, accessed on Ju
July 30, 2009]
Exhibit 2: Physical Structure and Facilities
KDS consisted of Kidderpore Dock (KPD) including KPD I and KPD II, separated by a Bascule Bridge,
Netaji Subhas Dock (NSD), oil wharves at Budge Budge, anchorage at Diamond Harbour, Saugor,
PY
Sandheads and virtual jetty at Saugor Island. The anchorage was used as lighterage points for cargo,
before the ship proceeded to KDS or HDC. It was a multi drafted port with 7.5 meters draft at KDS
during high tide, and increasing drafts downstream up to 50 m draft at Sandheads. KPD I had ten
berths,
hs, KPD II eight berths, NSD ten berths (including one for POL/liquid cargo and four for
containers) and Budge Budge six POL jetties.
HDC had 15 berths including two for containers and three for POL. It also had two barge jetties.
Source: Kolkata Port Trust, 2007
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st
Commoditywise Berths (31 March 2007) (Nos)
POL and Other Iron Coal Fertilizer Container Gen/Break Total
Liquid Ore Bulk
KDS 7 - - - 4 23 34
HDC 3 (+2 Barge 1 2 - 2 7 15 (+2 Barge
Jetty) Jetty)
Source: ‘Number of Berths Available’, IPA, 2006-07
Cargo Handling Equipments (31 March 2007)

st
ON
(Nos)
Crane Forklift Tractors Trailers Shovel Locos
Mobile Wharf Container Truck, Dozer,
Toplift Pay
Quay Yard
Truck, Loader,
Reach Excavator
I
Stacker etc
CT
KDS 14 12 - 4 23 34 67 - 4
HDC 2 - - 1 7 1 5 12 11
Source: ‘Census of Cargo Handling Equipment’, IPA, 2006
2006-07
st
Cargo Storage Infrastructure (31 March 2007)
(Sqm)
Private and User
Sr No Type of Storage Port Total
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Agencies
1 Kolkata
Covered area
a. TTransit
ransit shed 134722 - 134722
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b. Warehouse 10794 - 10794

c. CFS 9000 - 9000
2 Open area 174465 - 174465
3 Liquid cargo (Tank farms etc) - 654078 KL 654078 KL
328981 +
Total 328981 654078 KL
654078 KL
1 Haldia
IN
Covered area
a. Transit shed 25040 - 25040
b. Warehouse - - -
2 Open area 892840 - 892840
3 Liquid cargo (Tank farms etc) - - -
Total 917880 - 917880
Source: ‘Storage Facilities’, IPA, 2006-07
Exhibit 3: Hinterland
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CO
ON
The hinterland of KoPT comprised mainly West Bengal,
Bengal, north
north eastern States, Jharkhand and Bihar.
KoPT is also an important gateway port for the neighbouring countries of Nepal and Bhutan. Other
Indian states which contributed to the KoPT traffic were Uttar Pradesh, Uttarakhand, parts of Haryana,
Punjab, Madhya Pradesh and Orissa. Being the gateway port in the east and catering to the rising
I
trade of India with eastern and far eastern countries, it cater
catered to a very large hinterland.
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Source: ‘Proposed Port Facility at Diamond Harbour’, CES, 2007

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Exhibit 4: Organizational Structure
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CO
I ON
CT
The Chairman was the executive head of the Port Trust and also the Chairman of the Board of
Trustees. He was responsible for the total administration of the port including KDS and HDC. Deputy
Chairmen of KDS and HDC were responsible for the day to day management of the affairs of KDS
and HDC, respectively. There were 14 departments in KDS functioning under the respective HODs
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and 10 divisions in HDC functioning under two General Managers.
Some of the officers had responsibilities for both KDS and HDC: (a) Director, Planning
Planning; (b) Director,
Officer and (d) Chief Hydraulic Engineer.
Marine; (c) Financial Advisor and Chief Accounts Officer;
SP

IN
Exhibit 5: Traffic Trends

Overall Traffic Trend
The traffic trend for the six year period 1995-96 to 2001-02 and the five year period 2001-02
02 to 2006-
2006
07 is given below. The CAGR for the first period was 5.9%, while for the second period it was 11.6%.
PY
(mt)
Year KDS HDC KoPT
1995 - 96 6.12 15.39 21.51
1996 - 97 6.02 17.10 23.12
1997 - 98 7.95 20.21 28.16
1998 - 99 9.16 20.22 29.38
1999 - 00 10.31 20.71 31.02
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2000 - 01 7.16 22.84 30.00
2001 - 02 5.37 25.03 30.40
2002 - 03 7.20 28.60 35.80
2003 - 04 8.69 32.57 41.26
2004 - 05 9.95 36.26 46.21
46
2005 - 06 10.81 42.34 53.15
2006 - 07 12.60
ON 42.45 55.05
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E CT
The
he contribution of KDS to total KoPT traffic declined from 28% in 1995
1995-96 to 18% in 2001-02. At
KDS, the traffic profile increased in favour of liquid bulk, and reduced for break bulk. At HDC, it
increased in favour of containers and reduced for liquid bulk.
SP
The contribution of KDS to total KoPT traffic improved from 18% in 2001 2001-02 to 24% in 2006-07. At
KDS, the traffic profile increased in favour of containers and conventional dry bulk, and reduced for
liquid bulk over these years. At HDC, it increased in favour of dry bulk and reduced for liquid bulk.
IN
Container Traffic Trend

(teus)
Year KDS HDC KoPT

1995-96 121,000 4,000 125,000
PY
1996-97 132,695 8,881 141,576
1997-98 140,880 28,212 169,092
1998-99 132,291 27,951 160,242
1999-00 147,000 28,000 175,000
2000-01 138,000 51,000 189,000
2001-02 97,985 93,010 190,995
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2002-03 105,885 117,138 223,023
2003-04 122,419 136,657 259,076
2004-05 159,242 128,513 287,755
2005-06
06 203,481 110,319 313,800
2006-07 239,431 109,638 349,069
I ON
CT
At KDS, the container traffic increased from 121,000 teus to 147,000 teus during 1995
1995-96 to 1999-00
and then it reduced to 97,985 teus in 2001 2001-02. This was a consequence of reduction in
containerisable traffic at KDS between 1999
1999-00 to 2001-02. At HDC, the container traffic increased
E
from 4,000 teus in 1995-

1995 -96
1995-9696 to 93,010 teus in 2001
2001-02.
During 2001-0202 to 2006-07,

2006-07,
2006- 07, at KDS the container traffic increased from 97,985 teus to 239,431 teus.
At HDC, it increased from 93,010 teus to 128,513 teus in 20042004-05 and then reduced to 109,638 teus
SP
in 2006-07.
07. The contribution of KDS to total KoPT container traffic reduced from 97% in 1995
1995-96 to
51% in 2001-
2001 -02
2001-0202 and increased to 69% in 2006
2006-07.
2
According to some reports , this was due to a deliberate policy of KoPT. The authority had felt that
Haldia being a bulk handling port should concentrate on bulk items and its berths should not remain
pre
occupied by smaller container vessels to force much larger bulk carriers into pre-berthing detention.
Instead, the Kolkata dock, where bigger vessels could not come because of the draft restriction,
should concentrate on containers. Both Birganj ICD in Nepal and Amingaon ICD in Guwahati,
IN
therefore, had been delinked from Haldia and linked to the CONCOR’s terminal at KDS.
2
‘Drop in Haldia’s rail movement of containers’, The Hindu Business Line, June 29, 2006
Number of Ships
Year KDS HDC KoPT
1995-96 812 836 1,648
1996-97 877 946 1,823
1997-98 1,010 1,275 2,285
PY
1998-99 1,042 1,321 2,363
1999-00 937 1,285 2,222
2000-01 728 1,443 2,171
2001-02 669 1,573 2,242
2002-03 719 1,672 2,391
2003-04 765 1,840 2,605
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2004-05 767 2,086 2,853
2005-06 777 2,348 3,125
2006-07 904 2,300 3,204
I ON
CT
At KDS, the number of ships increased from 812 in 1995

1995-96 to 1,042 in 1998-99 and then reduced to
02, while at HDC it increased from 836 in 1995
669 in 2001-02, 1995-96 to 1,573 in 2001-02.
2001
At KDS, the number of ships increased from 669 in 2001-02 to 904 in 2006-07, while at HDC it
increased from 1,573 to 2,300.
E
The contribution of KDS to the total number of ships handled at KoPT reduced from 49% in 1995-96
--02
to 30% in 2001-02 02 and further reduced to 28% in 2006
2006-07. At 3,204 ships, KoPT had handled the
SP
largest number of ships in 2006

2006-07 among all major ports of India.
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Traffic Characteristics of KDS and HDC, and Major Ports

Port Units 1995-96 2001-02 2006-07
Kolkata Dock System
Total cargo (mt) 6.1 5.4 12.6
Containers (‘000 teus) 121 138 240
PY
No of ships (Nos) 812 669 904
Haldia Dock Complex
Total cargo (mt) 15.4 15.1 42.5
No of ships (Nos) 836 1573 2300
Paradip Port
Total cargo (mt) 11.3 21.1 38.5
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Visakhapatnam Port
Total cargo (mt) 32.8 44.3 56.4
No of ships (Nos) 1390 1634 2099
Ennore Port
Containers (‘000 Teus) 0 0 0
Chennai Port
ON
Total cargo (mt) 30.7 36.1 53.4
No of ships (Nos) 1664 1606 2059
Tuticorin Port
No of ships (Nos) 939 1421 1533
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Cochin Port
CT
Total cargo (mt) 11.5 12.0 15.3

No of Ships (Nos) 924 1190 1176
New Mangalore Port
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Mormugao Port
Total cargo (mt) 18.1 22.9 34.2
SP
Mumbai Port
Total cargo (mt) 34.1 26.4 52.4
No of ships (Nos) 2563 1796 2236
JNPT Port
Containers (‘000 teus) 339 1573 3299
IN
No of ships (Nos) 543 1265 2775

Kandla Port
Total cargo (mt) 30.3 37.7 52.9
No of ships (Nos) 1469 1672 2318
Source: Major Ports of India – A Profile, IPA, Various Years, 2007

Exhibit 6: Operational Performance

Average Pre Berthing Detention
(days)
Year KDS HDC KoPT
PY
1995-96 0.53 1.49 1.01
1996-97 0.15 0.69 0.43
1997-98 1.10 2.00 1.60
1998-99 1.00 1.30 1.17
1999-00 1.03 1.61 1.37
2000-01 0.61 0.91 0.80
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2001-02 0.58 0.91 0.81
2002-03 0.52 0.87 0.76
2003-04 0.51 0.97 0.83
2004-05 0.40 1.36 1.10
2005-06 0.40 2.16 1.72
2006-07 0.39 1.98 1.53
I ON
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At KDS, the pre berthing detention reduced from 0.53 days in 1995
1995-96 to 0.15 days in 1996-97 and
199
then it increased to 1.03 days in 1999-00, which reduced to 0.58 days in 2001-02. At HDC, it reduced
from 1.49 days in 1995-
1995 -96 to 0.69 days in 1996-97
1995-96 1996 and then increased to 2.00 days in 1997-98 and
2001
again reduced to 0.91 days in 2001-02.
SP
At KDS, the pre berthing detention reduced from 0.58 daysda in 2001-02 to 0.39 days in 2006-07. At
HDC, it reduced from 0.91 days in 2001-02
2001 to 0.87 days in 2002-03 and then increased to 2.16 days
--06
06 and then it reduced to 1.98 days in 2006-07.
in 2005-06 2006
IN
Average Turnaround Time of Ships

(days)
Year KDS HDC KoPT
1995-96 5.23 4.54 4.88
PY
1996-97 4.50 3.30 3.88
1997-98 7.40 5.30 6.22
1998-99 6.70 4.70 5.58
1999-00 6.59 5.21 5.79
2000-01 5.50 3.96 4.48
2001-02 4.71 4.01 4.21
2002-03 4.47 3.02 3.46
CO
2003-04 4.29 2.87 3.29
2004-05 4.17 3.00 3.31
2005-06 4.12 4.00 4.03
2006-07 3.89 3.97 3.95
I ON
CT
At KDS, average turnaround time of ships increased from 5.23 days in 1995
1995-96 to 7.40 days in 1997-
98, and then it reduced to 4.71 days in 2001
2001-02. At HDC, it increased from 4.54 days in 1995-96 to
5.30 days in 1997-98 and then it reduced to 4.01 days in 2001
2001-02.
E
2001-02 to 3.89 days in 2006-

At KDS, average turnaround time of ships reduced from 4.71 days in 2001
2003-04 and then increased to 3.97 days in
07. At HDC, it reduced from 4.01 days to 2.87 days in 2003
2006-07.
SP
In terms of pre berthing detention and turnaround time of ships, there was an improvement in
performance in 1999-
1999 -00
00 and 2001-02,
1999-00 2001 attributable to a reduction in traffic. The performance continued
improving at KDS until 2006
2006-07, though at HDC, it worsened in the couple of years preceding 2005-06
due to increased traffic and consequent congestion. The average output per ship day has being
consistently improving both at KDS and HDC from 1997-98
1997 until 2006-07.
IN
Average Output per Ship Day

(tons)
Year KDS HDC
1995-96 1164 5842
1996-97 1168 6007
PY
1997-98 1325 5590
1998-99 1697 5282
1999-00 2157 5599
2000-01 2305 6384
2001-02 2215 6207
2002-03 2889 7531
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2003-04 3384 8388
2004-05 3771 8395
2005-06 3984 8755
2006-07 4490 8770
I ON
CT
At KDS, average output per ship day increased from 1164 tons in 1995
1995-96 to 2215 tons in 2001-02. At
HDC, it increased from 5842 tons in 1995
1995-96 to 6007 tons in 1996-97 and then it reduced to 5599
00 and then again increased to 6207 tons in 2001
tons in 1999-00 2001-02.
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At KDS, average output per ship day increased from 2215 tons in 2001
2001-02 to 4490 tons in 2006-07. At
2001-02 to 8770 tons in 2006-07.
HDC, it increased from 6207 tons in 2001
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Exhibit 7: Financial Performance

(Rs cr)
Year Total Income Total Expenditure Net Surplus
1995-96 488.54 403.89 84.65
1996-97 593.15 449.89 143.26
PY
1997-98 740.81 567.34 173.47
1998-99 961.85 865.83 96.02
1999-00 874.44 830.80 43.64
2000-01 1027.97 1035.50 -7.53
7.53
2001-02 1066.00 945.63 120.37
120 .37
2002-03 927.20 831.81 95.39
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2003-04 1010.39 897.11 113.28
2004-05 1062.36 877.10 185.26
2005-06 1210.00 939.00 270.00
2006-07 1396.85 931.74 465.11
I ON
CT
From 1995-96,
96, the total income was increasing but at the same time, the total expenditure was aalso
increasing. The total expenditure outpaced the total income in 2000
2000-01 and that’s when the port
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observed a loss of Rs 7.5 cr. After 2000

2000-01, the port performance improved significantly and reached
a net surplus of Rs 465.1 cr in 2006
2006-07. This was due to an increasing income, with expenditure
remaining nearly constant.
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Operating Income
(Rs cr)
Major heads 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
2006
Cargo handling and
334.2 382.8 397.4 410.3 462.2 485.2
storage charges
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Port and dock charges 706.3 375.2 435.2 445.3 462.9 592.5
Railway earnings 36.9 43.7 47.8 48.3 55.1 55.1
Estate rentals 69.3 73.5 76.5 102.9 137.9 139.2
Total 1146.7 875.2 956.9 1006.8 1118.1 1272.0
1
1272
272
As can be observed from the above table, the cargo earnings increased from 2001-2001-02
2001 -02
02 to 2006
2006-07.
The port and dock charges saw a major downfall from 2001-02 to 2002-03. 03. These charges included
pilotage fees, dry dock charges, berth hire charges and reimbursement of central government for
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dredging and maintenance of the river. The central government reimbursement did not come through
due to deviation in the norms for dredging works. There was an increase in the railway earnings from
2001-02 to 2006-07. The earnings from estate rentals nearly doubled during this period.
th
Exhibit 8: 11 Five Year Plan and National Maritime Development Program
KoPT port had investments planned from the 11 Five Year Plan (2007
ON th
(2007-08 to 2011-12) and
subsequently from the NMDP of National Maritime Policy for selected projects of the port.
th
11 Five Year Plan
Traffic Projections
(mt)
2007-08 2008-09
2008-
2008-09
09 2009-10
2009 2010-11 2011-12
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KDS 8.32 9.15 10.10 11.10 13.43
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HDC 34.60 36.80 39.15 41.35 44.50
Capacity Enhancement Proposed

(mt)
Existing Capacity Proposed Capacity
(2006-07)
--07)
07) (2011-12)
(2011
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KDS 12.60 31.45
HDC 42.20 63.40

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Outlay
(Rs cr)
th General Extra Budgetary
11 Plan Internal
Budgetary Resources Private Total
Outlay Resource
Support and Others
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KDS 397.63 260.13 130.00 7.50 2590.70 2988.33

HDC 279.40 279.40 - - 547.37 826.77
RR schemes 421.00 - 421.00 - - 421.00
Source: 11th Five Year Plan, Planning Commission, 2007

National Maritime Development Program
Kolkata Port had proposed its investment plan, separately for Kolkata Dock System and Haldia Dock
Complex. The summarized details for the horizon year of 2011-12 are given as under:
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Traffic Projections
(mt)
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
2010-11
2010- 11 2011-12
2011-
2011-12
12
KDS 9.96 10.40 10.88 11.38 11.90 12.44 13.01 13.60
13.60
HDC 36.26 37.98 39.78 41.67 43.64 45.71 47.88 50.15
Capacity Enhancement Proposed
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(mt)
Existing Capacity Proposed Capacity
(31-03-2005) (2011-12)
KDS 9.80 17.68
HDC 34.10 65.20
Investments Planned
(Rs cr)
Project Head
(Nos)
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Projects Budgetary
getary Internal Private
Support Resources Investment
Others Total
Deepening of KDS 1 385 0 0 0 385

channels/berths, etc HDC 0 0 0 0 0 0
Construction/ KDS 6 550 247 2290 0 3087
reconstruction of
berths/jetties, etc HDC 5 0 77 235 0 311
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Procurement of KDS 4 0 155 46 130 331
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equipments, etc HDC 5 0 96 150 0 246
Rail and road KDS 0 0 0 0 0 0

connectivity works HDC 0 0 0 0 0 0
KDS 14 0 172 1327 0 1499
Others
HDC 5 225 250 160 0 635
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KDS 25 935 574 3663 130 5327

Total
HDC 15 225 423 545 0 1208
Total KoPT 40 1160 997 4208 130 6535
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Source: National Maritime Development Program, Department of Shipping, MoSRTH, 2006

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Appendix 1: Kolkata Port Developments in News: June 2003 to May 2007
1. Kolkata Port Trust: Rising Above The Water
The Financial Express, June 21, 2003
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Till just a few years back, Kolkata Port Trust (KoPT) was neck deep under water. The situation
declined to such a level that KoPT had to close down the Kidderpore-II II dock of the Kolkata Dock
System (KDS) in February 2002 due to lack of shipping activities. There were a number of reasons for
the declining performance. The port charges were high. The turn-round
round time for visiting ships both at
its Haldia Dock Complex (HDC) and KDS was more than many other ports. It was not only because
that
hat KDS on the River Hooghly was 232 km away from the sea and HDC on the River Haldi 115 km
away. The low level of mechanisation and productivity, particularly at KDS, also contributed to higher
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turn-round “not-so-user-friendly”
round time and port charges. The port users also often complained about “not-
“not -so
so--user
user
behaviour of a section of KoPT officials.
All this was crippling the Trust in taking any major investment decision for mechanisation of its
existing berths. Huge workforce, particularly in KDS, also hindered the process
process of mechanisation.
They opposed any major mechanisation drive fearing job cut. Even then, KoPT management could
reduce the manpower at KDS considerably over the years - from 40,000 in 1976 1976-77 to 8,148 as on
March 31, 2003. However, being a newer port, the situation at HDC was never that bad. “We have
very clearly identified the weaknesses and the strengths. To us, the management and the employees
of KoPT, the issues are how to change the situation, how to convert the difficulties into opportunities
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and utilise our strengths to become competitive,” said KoPT chairman Anup K Chanda.
Identifying Priorities
“Being a service provider, we made it clear to ourselves that KoPT cannot afford to ignore the
multi-
problems of port users. After all, they are our ‘Laxmi’ (the goddess of wealth). So, as part of our multi
pronged strategy, we took measures to address their grievances and reduce port charges,” Dr
Chanda added.
Hence, the port had formed four groups. The marketing group and the trade relations group were set
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up for direct interaction with port users with an aim to bring back old customers and attract more
traffic. The business development group was set up to identify potential revenue genera generation area
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while the customer relations cell is entrusted to act as a single window agency for the port users who
for their export-import
import activities need to obtain lot of clearances from various agencies.
The trust has cut the container rate up to 60% at inland container depot (ICD). The Calcutta Dock
Labour Board also reduced handling charges from Rs 1,525 to Rs 500 per container to attract ICD
traffic. KoPT offered special packages for pulses and log traffic. KDS rationalised tariff to enhance its
carrying waste paper, newsprint,
competitive edge. They included reduction in box rate for container carry
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vegetable oil, iron and steel, tin plate, jute and jute products and tea, and reduction in wharfage of
wheat, rice, rock phosphate, sulphur, fertiliser etc.
Sowing Dividends
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“All these steps taken by us paid dividend. We got back many of our old users. The traffic both at KDS
and HDC had increased considerably during the last fiscal resulting in a higher net surplus,” claimed
2002-03,
Dr Chanda. In 2002-
2002 -03,
03, KoPT ranked third among the major ports by handling 35.75 million tonne
(mt) of cargo, an all-
all-time
all-time
time record and 5.35 mt more than the previous fiscal. The share of KoPT in total
2001-02. Its net surplus increased by
tariff of Indian major ports increased 11.41% from 10.57% in 2001
59% from Rs 120.30 cr in 20012001-02 to Rs 191.30 cr.
On the other hand, KoPT revamped or reopened some of its existing infrastructure last fiscal. For
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dock-II was reopened in January this year. This helped KDS to handle food
example, the Kidderpore dock
grain export to Bangladesh for the first time in its history.
To improve
improve the rail connectivity to three transit sheds of this dock, KoPT upgraded the railway tracks
railway-borne Nepal cargo, which stopped
with the support of the railways. Similarly, the movement of railway
in 1998, had been resumed by March, 2003. KDS expects to handle over 2.5 lakh tonnes of food
grains to Bangladesh and 1.25 lakh tonne rail-borne Nepal cargo every year.
The average pre-berthing detention (PBD) time of vessels at KDS was reduced to 0.003 days, the
lowest in the country. “The turn-round
round time both at HDC and KDS will reduce substantially if exports
up,” said Dr Chanda. The West Bengal government has announced that the state’s share in national
export would go up to 9% by 2007. If a large chunk of this possible export grows in non- non-IT
non-IT
IT
(Information Technology) area, the waiting time of the vessels for export items is bound to decline,
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provided there is no congestion.
New Plans
During 2003-04,
04, KoPT plans to procure two mobile harbour cranes and two reach stakers on “own,
operate and maintain” basis for augmenting container handling at KDS. This would enable 20 20-hrs
operations compared to 6-7 turn-round
7 hrs in case of vessel cranes used now, thus reducing the turn-
turn-round
round time
of the vessels and the handling cost. KoPT has already announced special packages for Anda Andaman
bound vessels, which provides 40% concession in container, 50% for sand and 10% for general cargo
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to make use of the growing construction activities in these islands on the Bay of Bengal.
As for the long term plans, KoPT is exploring new possibilities all-weather
s for all-
all weather lighterage facility at
-weather
Sandheads with the support of Indian Oil Corp (IOC). At Sandheads, even ultra large crude carriers
(ULCCs) with a capacity of 500,000 DWT, can call in. The ULCCs cannot visit in any other port on the
eastern cost as the required draft for them is not available there. At present, the lighterage is done
using “alongside mode” in which low capacity vessels are placed on the side of the large vessels. This
mode cannot be utilised in stormy weathers as the possibility of clashes between the large and the
small vessels are very high. Hence, in line with the method practiced at the North Sea ports, where
weather is similar to that of at Sandheads, IOC has proposed to experiment with the “tandem mode”.
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In this mode, smaller vessels are placed behind the VLCC. It reduces the possibility of two vessels
clashing in the stormy weather and, hence, can be used throughout the year.
“If this experiment succeeds, Sandheads would become the nodal point for crude transhipment even
for other east cost ports and the transportation cost for crude petroleum would reduce considerably,”
said Dr Chanda.
For carrying crude ocean freight constitutes 95% of the transportation cost while port charges
constitute only 5%. Since VLCCs would provide economy of scale in transportation the cost would go
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down, which would benefit the crude importers like IOC. However, if the experiment fails, there is
1100-cr
every possibility that IOC would go for Rs 1100-
1100 cr Paradip-Rourkela
-cr Paradip pipe line project. In such case,
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the
e oil jetties developed by KoPT for importing crude would become idle, KoPT insiders apprehend.
KoPT also intends to play a big role in coastal shipping and also to make KDS a hub for inland
waterway transportation. The work of the virtual jetty at Saugor, which is closer to the sea than KDS
and HDC, will be commissioned by March 2004.
The KoPT chairman said the talks are on with Concor for setting up a container terminal of
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international standard.
2. Drop in Haldia's Rail Movement of Containers

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The Hindu Business Line, June 29, 2006
Declining throughput, transportation thru roads cited as major causes
Kolkata, June 28
Rail movement of containers to and from Haldia has dropped for several reasons. First, the container
throughput of Haldia dock is showing a declining trend. In 2005-06,
2005 the throughput was about 110,000
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teus as compared to about 128,000 teus in 2004-05.

2004 In April-June this year, the throughput was
around 16,000 teus as compared to more than 18,000 teus in the same period last year.
This could not have happened without the deliberate policy of the Kolkata Port Trust authorities. The
authorities feel that Haldia being a bulk handling port should concentrate on bulk items and its berths
should not remain occupied by smaller container vessels to force much larger bulk carriers into pre
berthing detention. Instead, the Kolkata Dock System (KDS), where big vessels cannot come
because of the draft problem, should concentrate on containers. Both Birganj ICD in Nepal and the
Amingaon ICD in Guwahati, therefore, have been delinked from Haldia. These ICDs are now linked to
the Container Corporation of India's terminal at the KDS.
Earlier, Haldia dock used to handle entire tea shipments routed through Amingaon ICD, but not any
more.
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Second, road transportation is preferred to rail transportation for evacuation of boxes out of the dock.
For example, the Nepal cargo. Even now, the dock handles on an average 400 import containers for
Nepal every month. However, these boxes are transported to Nepal by road. This is because Concor
insists on full rake formation and at least 60 containers are needed to form a full rake. However, the
400 boxes arrive in small dribble insufficient to form a full rake. "We place the rake whenever there
are enough containers to form a rake," say container sources, pointing out that one rake was placed
every month for the past two months.
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Third, even the number of containers handled by Concor for domestic movement has dropped
sharply. The Japanese firm, which earlier used to utilise Concor's services for transportation of its
products from Haldia to Nagpur and Hyderabad no longer uses the services. The shipments to
Nagpur are undertaken by road, while those to Hyderabad are entirely by road from Haldia to
Shalimar and from there by rail.
3. Rationalisation of Tariffs' Put Wind in KoPT Sails
The Hindu Business Line, Sept 18, 2006

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We offered massive tariff concessions for items with negligible throughput. This sent the message that
the port meant business and a lot of interest was generated in the trade. Dr A K Chanda, Chairman.
Kolkata Port Trust
I
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Dr A K Chanda, a 1976 batch IAS officer belonging to the West Bengal cadre, joined the Kolkata Port
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Trust as its Chairman in June 2002. In an interview to Business Line recently, Dr Chanda discussed at
length various issues facing the country's oldest port.
How would you describe your experience the past four years?
SP
You may call it a period of relentless effort to turn around a much maligned port and the effort is still
on.
Could you explain a little?

When I joined, the Kolkata Dock System (KDS), one of the two dock systems of the Kolkata port —
the other being Haldia dock — had been written off. In fact, Kidderpore Dock II under KDS was
officially closed and Kidderpore Dock I virtually abandoned. Then there was a host of problems such
as huge arrears on pension and wage accounts, and therefore, an unhappy workforce; low
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productivity; obsolete equipment; poor navigability of the Hooghly river; and as a cumulative effect of
all this a high transaction cost. The list can be fairly long.
How did you handle all these?

Top priority was accorded to increasing revenues. But, then, it was a Hobson's choice. If you revised
the tariffs upwards to earn more revenues, the KDS, already an expensive dock system would
become even more costly. If the tariffs were lowered, the trade would be happy but the port's income
would suffer, at least for some time. So, we started with rationalization of tariffs.
We looked at the various types of commodities and the volumes handled at the KDS and offered
massive tariff concessions for those items for which throughputs were either negligible or nil. We
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achieved two objectives: First, the revenue loss was almost nil but, more important, we sent the
message across that the port authorities meant business and a lot of interest was generated among
the trade.
You announced massive rate concessions for container traffic at the KDS, didn't you?
In respect of container traffic, the KDS has a unique system. Unlike other ports where box rates are
charged, here we've commodity specific rates. We found there were 70 types of commodities handled
in containers with as many rates. We rationalised the rates of 55. We constituted several groups of
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port officers, such as trade relations group, marketing group, customer relations group and the
business development group. While the first three teams concentrated on how to step up revenue
earning through our existing operations, the last was asked to explore new non cargo relat related
opportunities.
Any success...
With some success.
How?
You know that Kolkata, like Mumbai, is an old port with huge land area. However, our earning from
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real estate was negligible compared to the size of property we have. A special drive pushed up our
earnings from Rs 18 crore to about Rs 120 crore annually and it will increase further.
Also, the KDS has five dry docks — three at Kidderpore and two at the Netaji Subhas dock. We've
revamped their operation and rationalised the rates in such a way that outside vessels (that is, not
belonging to the port) queue up for repairs. The experiment has been a success. We've completely
renovated our hospital. We have appointed eminent medical practitioners on contract, the facilities
have been augmented and upgraded and we're planning to throw the hospital open to general public
on payment. The port employees, of course, will continue to get their treatment free of cost. We've
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plans to start training programmes for nurses and paramedical staff.
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Our hydraulic study department has started undertaking consultancy work for various government
agencies. We want the marine and port engineering departments too to undertake similar consultancy
services.
There have been reports that the KoPT is planning to promote cruise in the Hooghly river as
also along the coast. Is it so?
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Absolutely, and why not? After all, the Hooghly river, as also the east coast, holds the promise of
cruise tourism. We've invited global bids. We've allotted a plot of land on the waterfront in the KDS to
a private river transport company to set up a terminal for small cruise boats.
SP
What about your rail operations? Earlier, there were plans to give it up altogether...
I will not comment on the earlier plan to close down the rail operation by the port. But we've now
reversed the decision and perhaps rightly so. In a mega polis like Kolkata, there are limits to the road
network. Only six per cent of the city area has arterial roads. In such a situation, relying on road to
promote traffic for the port certainly cannot not be a step in the right direction. Besides, rail movement
is any day cheaper than by road. But, then, the job of revamping the rail system has not been easy.
Over long stretches, there were no lines; also the locomotives were in a bad shape. I got a lot of help
from the Eastern Railway to revamp the system.
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What about Haldia, your other dock system?

Haldia is the most vibrant dock of the Kolkata port; it is our mainstay, accounting for the bulk of the
total volume of traffic handled by the port and, therefore, the large chunk of the revenue. The
challenge there is to maintain the day to day operation in the most efficient manner. But, then, Haldia
too has a problem.
What is that?
The problem of capacity constraint. The present berths are not enough to handle the projected growth
of traffic at Haldia. We are, therefore, constructing two berths inside the dock and two outside, on the
river front. With the commissioning of Paradip-Haldia
Haldia crude pipeline Haldia will stand to lose a chunk
of the crude traffic. We must attract new cargo to compensate the loss.
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Are you happy with the level of productivity?
I am not unhappy at the level of improvement achieved in the past few years. There is no point
blaming the workers for poor productivity. The labour must be aided with capital. The advantage of
technology must be taken to improve their productivity. That is exactly what we are doing. We're
installing new cranes, new handling equipment to improve productivity of our workers. All these
these would
not have been possible without the excellent cooperation I have received from all sections of
employees, particularly the unions.
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What is your biggest issue?
I'll prefer to call it priority. The poor navigability of the Hooghly continues to be the major concern to
the port authorities. Therefore, we've to move both southward and northward along the Hooghly river
— southward for some deeper draught location closer to the sea and northward to exploit the
opportunities for the IWT traffic. There is no dearth of business.
4. Superb Show by KoPT
Doond – Port News, May 8, 2007

ON
Joining the select 50 mt port Club, the Kolkata Port has handled an all time high 55.05 mt of cargo in
2006-07. During 2006-07,
07, the 136 years old facility achieved a number of performance landmarks.
The Port also continued to rank second in terms of cargo throughput among the Major Ports for the
third consecutive year, coming in just behind Visakhapatnam Port (56.386 mt).
The Kolkata Dock System (KDS), which comes under Kolkata Port Trust (KoPT), handled an all time
record throughput of 12.596 mt in 2006-07, 1964-65
07, surpassing the previous record of 11.063 mt in 1964
[before commissioning of the Haldia Dock Complex (HDC)]. The growth registered by KDS was as
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high as 16.56%.
CT
Even after commissioning of the HDC, the combined traffic of Kolkata Port was less than 12.596 mt
up to 1986-87. 2001-02 to 2006-07, Kolkata Port registered an
87. During the five year period from 2001
increase of 24.65 mt of cargo. This was the second highest absolute growth of traffic among the Major
Ports. Inland water traffic at KDS increased to 8.63 lakh tons in 2006-07
2006 from 5.43 lakh tons in 2005-
06, a whopping 59% growth.
Surge in Container Traffic

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Kolkata Port handled 349,072 teus in 2006-07,

2006 as against 313,800 teus in 2005-06, registering a
growth of 11.24%. It was ranked third amongst the Major Ports in terms of containerized tonnage
handled. Of the 349,072 teus, KDS alone contributed 239,431 teus in 2006 2006-07, as against 203,481
teus in the previous fiscal, which translated
t into a 17.7% increase.
SP
In 2006-07,
07, the Port handled the highest number of ships among the Major Ports - 3,204. The 2005-
06 figure was 3,125.
Spending on Plan Schemes

With regard to expenditure on plan schemes, the Port (both KDS and HDC) surpassed the approved
Plan outlay. The Plan expenditure was Rs 71.99 cr (approx.), as against an outlay of Rs 50.04 cr. The
overall Plan fund utilisation of KoPT was 143.86%, the second highest among major ports.
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The plan expenditure of KDS was Rs 15.52 cr, as against an outlay of Rs 5.03 cr (308.5% utilisation).
For HDC, the plan expenditure was Rs 56.47 cr, as against an outlay of Rs 45 cr (125.5% utilisation).
Robust Finances
2006-07, as given below:
The financial position of Kolkata Port improved significantly during 2006
• KoPT registered a net surplus of Rs 426.89 cr, a significant 57.73% rise over the Rs 270.65 cr
in 2005-06.
• Operating income increased to Rs 1,249.64 cr from Rs 1,118.28 cr in 2005-06.

• KoPT recorded a 53.83% rise in operating surplus to Rs 516.73 cr from Rs 335.92 cr in 2005
2005-
06.
• At KDS, the operating surplus for 2006-07
07 was Rs 86.55 cr (19.2% higher than the previous
2005-06).
year), while at HDC it was Rs 430.18 cr during the year (63.37% higher than 2005-
2005-06).
06).
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Performance Parameters
According to a KoPT release, the Port’s 2006-07
07 performance was due to the growth of diverse cargo,
improved quality of service, cost effective and customer friendly measures taken by the Port
management and cooperation and hard work of all sections of workers, employees and the different
agencies associated with the Port.
During the year, not only did the Port record a significant increase in the tonnage handled, it also
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pre
excelled in all efficiency parameters, such as reduction in turnaround time of vessels, reduction in pr
berthing detention, improvement in average ship day output, etc. In fact, productivity (measured in
average output per shipday) improved by 12.4 per cent at KDS and 0.14 per cent at HDC when
compared to 2005-06.
Modernisation Plans
An ambitious investment programme of Rs 968.67 cr (KDS Rs 268.69 cr, HDC Rs 278.93 cr, RR Rs
421.05 cr) for modernisation, renovation and replacement is currently being implemented.
This encompasses, inter alia, construction of multipurpose berths with improvement in backend
facilities; integrated development of infrastructure facilities, including road/rail connectivity; induction
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of state of the art equipment such as mobile harbour cranes, rail mounted quay cranes, reach
stackers, rubber tyred gantry cranes, tractor trailers, etc.; upgradation of VTMS; procurement of
survey cum pilotage craft; river regulatory measures for improvement of draught in the Hooghly
estuary, etc.
KoPT also has plans to develop two state of the art inland water transport terminals—one
terminals each at
Kolkata and Haldia—jointly with the IWAI.
The major projects during the 11th five year Plan include:
I
CT
Kolkata Dock System

• Construction of three cargo handling jetties at Diamond Harbour at an estimated cost of Rs 360
cr.
• Transloading of dry bulk cargo at Sandheads and Konica Sand.
• Development of infrastructure in and around docks and procurement of various cargo/container
cargo/
handling equipment.
Haldia Dock Complex

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• Construction of 2 berths inside the docks (continuing scheme).

• Construction of 2 riverine jetties.
jetties.
• Construction of lay up berths.
• Procurement of 3 locomotives.
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• Construction of second lock gate.

• Move towards deeper draught
To address the problem of draught limitations at the existing cargo handling locations of the Port, viz.,
Kidderpore, Budge Budge, Haldia, and particularly keeping in view the changing scenario in ship
technology, both in terms of size and structural pattern, KoPT has been vigorously exploring utilisation
of its deep draughted areas southwards at Diamond Harbour, Saugor and Sandheads to cater to the
demands of the port and shipping trade.
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The plans of the port, therefore, also envisage setting up of cargo handling facilities at deep
draughted locations such as Diamond Harbour, Saugor and Sandheads in order to facilitate the
expansion
expansion and rejuvenation of the Port, the release emphasises.
5. Panel Set up to Look at Augmenting Box Trade at Kolkata Port
The Economic Times, May 28, 2007
MUMBAI: Ministry of shipping has constituted a high powered five-member

member committee, under the
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chairmanship
airmanship of Capt PVK Mohan, the senior most member of National Shipping Board, to go into the
developmental aspects of containerization in Haldia and Kolkata Port. The panel, which was
constituted early last week, has been asked to explore ways and means to harness the tremendous
growth that is happening in and around Kolkata and the eastern sector.
The panel has been asked to recommend both short term and long term developmental plans for both
Haldia and Kolkata Port. It will have to look at Kolkata and Haldia as a whole, in all aspects of cargo.
“The main focus is to eventually make sure that container trade does not suffer and really pick up,” he
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said.
Besides Capt Mohan, the five member panel consists of S Hajara, CMD of (SCI), joint director gengeneral
of shipping, regional general manager of SCI, Kolkata,, principal officer of MMD, Kolkata. Kolkata
Port chairman is an ex officio member of the committee. The panel needs to explore areas to increase
container traffic at Haldia and Kolkata, to identify problems and bottlenecks at Kolkata. More
importantly, it has also been asked to study the prospects of setting up a dedicated container terminal
at Diamond Harbour.
“We can co opt anybody from railways or state government as required to come out with a
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comprehensive developmental policy. We hope to finish the exercise in three months,” Capt Mohan
said.
“If you take Haldia dock system and kalkota port separately, in Haldia, you will find that container
volumes are actually coming down, whereas in rest of the world it is growing up. We have to study
why this is happening, and what can be done to meet up new demands due to industries that are
coming up not only in east coast but also in north east,” said capt Mohan.
It is understood that port department in the shipping ministry is seized of the matter that Kolkata Port
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has become the No 2 port in the country, which shows that there is phenomenon growth even in
containers.
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As such the ministry is working very seriously on inland waterways transport (IWT) programme,
including National Waterways No 1 and No 2.
According to sources close to the ministry, the minister has a proactive policy towards IWT, which has
Kolkata,
been neglected for so many years. Once that picks up there will be tremendous pressure on Kolka
which the gateway port. If we don’t take note of that now, then the Kolkata system will collapse. “We
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do not want that to happen. The minister wants the region to develop well in time so as to take
advantage of the surge in cargo,” he said.
According to Capt Mohan, shipping ministry is keen to look at green field projects like having a
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container terminal at Diamond Harbour, deep water port near Sagar or Kulpi. It is willing to look at any
project. “Once you release some cargo from say Haldia, you will have more infrastructures to service
the surging trade,” he said.
Capt Mohan, who has completed a decade of association with the Shipping Board, is managing
director of Seaways Shipping, Maxicon Shipping Agencies and Seaways
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Appendix 2: Excerpts from ‘Development of a Business Plan for Kolkata Port’
The draft business plan of KoPT, prepared by Royal Haskoning and Crisil in April 2007, takes a
comprehensive stock of current relevant aspects: infrastructure, potential opportunities, competitive
position, capacity and bottleneck analysis. These elements have been exhaustively analyzed for their
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potential to attract investments in today’s buoyant economic scenario… The plan is well substantiated
by a viable financial model which generates and reflects the combined effect of required development
initiatives, existing financials of the port and relative performance of other major ports.
Based on a SWOT analysis carried out by consultants along with the management of KoPT, the
following mission statement has been adopted to guide the future development of the port.
‘Kolkata Port will develop as a customer friendly self sustaining port providing integrated quality
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services to its customers while retaining its position as a major sea-river
river gateway for the Eastern
region of India and neighbouring land locked countries.’
A number of strategic objectives have been drawn up that are in keeping with the mission statement.
These are:
1. To exceed a traffic level of 67 mtpa by 2013-1414 and 166 mtpa by 2025-26.

2025-26.
2025- 26.
2. To be amongst the top three major ports of the country in terms of profitability starting by 2010.
3. To offer integrated services with other private players so as to develop KoPT as one of the top
ports in the country providing added customer value.
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4. The port will try to maximize the use of lighterage and floating storage terminals in short term and
deepwater port southwards in conjunction with inland waterway transport to maintain its position
as a major gateway for the eastern states and Nepal and Bhutan.
5. To provide operating conditions of the highest quality with high levels of productivity, comparable
to any other major port in the country, both at the port level as well at the employee level.
Following measures have been recommended for consideration:
1. Reducing draft limitation so that larger draft vessels can visit the ports of Haldia and Kolkata. This
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would enable the Shippers to benefit from the lower shipment costs. The draft limitations can be
removed by:
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a. Implementation of capital dredging scheme integrated with holistic river training measures
including possibilities of discharge improvement.
b. Setting up of floating storage terminals / trans
trans-loaders at Sandheads
c. Integrating IWT barges with additional riverside jetties to supplement the traffic growth.
d. Setting up of a deep draft port.
2. Faster turnaround of vessels by:

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a. Implementation of productivity improvement

b. Reduction in pre berthing delays
c. Improved pilotage services
d. Removal of night navigation constraints
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e. Reduced waiting periods at the entrance to locks

f. faster handling and transfer in the yard area:
• Improvements in the shore side transfer and storage
• Efficient truck parking and container yard
• Efficient railway siding areas.
• Integrated IWT terminals
3. Decrease in port costs:

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structure
a. Rationalization of the organizational str
b. Decrease in dredging costs
c. Higher throughput levels
d. Reduction in hinterland transport costs
The demand supply gap has been also worked out on the basis of the traffic projections and the
existing capacity available at different locations within the KoPT. These figures have been
summarized below:
Traffic Capacity
Existing Future Existing Additional Required
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Commodity I/E 2005-06 2013-14 Difference 2005-06 2013-14
2013--14
2013 14
Type (+/-)
A Liquid Bulk HDC KDS Total HDC KDS Total HDC KDS Total HDC KDS
KDS Total
Crude I 12.52 4.02 16.54 3.98 0.00 3.98 -12.56 15.72 4.80 20.52 - - -
11.74 4.80 16.54
POL I/E 5.17 0.92 6.09 7.98 1.41 9.39 3.30 4.04 3.30 7.34 3.94 - 2.05
1.89
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Others I/E 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.50 0.00 0.50 -0.50
-0.50 0.00 -0.50
Sub-Total 17.69 4.94 22.63 11.96 1.41 13.37 -9.26 20.26 8.10 28.36 -8.30 - -
6.69 14.99
B Dry bulk
Iron ore E 7.94 0.15 8.09 4.57 0.08 4.65 -3.44 8.00 1.44 9.44 -3.43 - -4.79
1.36
Coal I/E 4.48 0.03 4.51 10.16 0.08 10.24 5.73 5.00 1.44 6.44 5.16 - 3.80
(Thermal) 1.36
Coke I 5.37 0.00 5.37 12.52 0.00 12.52 7.15 6.00 0.00 6.00 6.52 0.00 6.52
Sub-Total 17.79 0.18 17.97 27.25
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0.16 27.41 9.44 19.00 2.88 21.88 8.25 -
2.72
5.53
C Containers 1.91 3.23 5.14 5.44 9.39 14.83 9.69 3.00 4.80 7.80 2.44 4.59 7.03
(TEU) 0.11 0.20 0.31 0.45 0.78 1.23 0.92 0.20 0.32 0.52 0.25 0.46 0.71
D General 4.95 2.46 7.41 7.89 3.92 11.81 4.40 0.00 4.32 4.32 7.89 - 7.49
Cargo* 0.40
42.34 10.81 53.15 52.54 14.88 67.42 14.27 42.26 20.10 62.36 10.28 - 5.06
5.22
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*General
al Cargo at HDC comprises of 70% dry bulk commodities like limestone, manganese ore, rock phosphate, fertilizer, sulphur, soda
sod
ash and salt.
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The gap for the total handling capacity at HDC by 20132013-14 would be (10.28 +8.3=) 18.58 mtpa. The
deficit would be seen in the areas of dry bulk, to the tune of 8.25 mtpa, followed by containers of 2.44
mtpa and general cargo of 7.89 mtpa. Of the general cargo, about 70% is again dry bulk. Thus major
capacity enhancement to the tune of 13.73 mtpa would be needed for dry bulk. Various measures
were proposed by the consultants to address the above capacity requirements.
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The business plan also suggested some other areas of improvement, which could lead to additional
revenue generation and streamlining of processes at the port. They were:
1. Land Use Plan

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The greatest strength of the port is its physical setting. While it acted as a catalyst in the development
of Kolkata as an industrial hub over the past 100 years, it now presents another opportunity of
developing itself as a prime contributor to an integrated development through product/commodity
specific organized development. It would therefore be appropriate to consider this as a prime source
of fund infusion to meet the needs for the expansion of the port facilities downstream of Haldia at the
proposed deep water port.
Based on existing stakeholders/prospective clients and prioritized growth sectors, land parcels are
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identified for modified land use for Tea Processing Park, Food Processing Industry, Apparel Park,
Integrated
Integrated Commercial Development at Strand Road, Barge Construction and Repairing Industry, and
River and Coastal Cruise Tourism.
2. IT Initiatives
3. Since 2004, the Indian Ports Association has been working actively on the establishment of a
centralized web based Electronic Data Interchange (EDI) called Port Community System (PCS)
for all the major ports of India. The objectives of the PCS are to:
• Develop a centralized and intelligent electronic message switching facility to and from the
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community members including Ports, Shipping Lines, Shipping Agents, Terminal Operators,
Customs House Agents, Importers/Exporters, Stevedores, CFS, CONCOR, Surveyors, Road
Transport Operators, Banks, Insurance, Customs, PHA, Immigration etc.
• Maintain a centralized database to improve mprove track and trace efficiency and shipment/service
visibility.
• Use the centralized database as a repository for research and analysis.
A large amount of hardware is available with the KoPT. Connectivity is being expanded in both the
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primary locations. Application software, though generally two tier (three tier for HDC), is functional for
regular operational requirements. The following steps are deemed necessary for assuming a position
of strategic importance and to achieve operational excellence.
• Formulation of a clearly articulated IT policy
• Creation of an IT division with provision for staffing with personnel having hardcore IT skills
• Enabling eGovernance through Executive Information System and EDI
• Planning for convergence of applications and technology up-gradations
gradations with adequate budgeting
• Creating a data warehouse so as to be able to build a decision support system
• Capacity building at all levels to increase awareness and skill levels
• Providing an interface to all stakeholders with proper workflow and escalations so as to provide
for quick response and service
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Source: Royal Haskoning (April, 2007). ‘Development
Development of a Business Plan for Kolkata Port,’ (in association with
CRISIL).
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Appendix 3: Recommendations from the Report on the

‘Improvement of Container Traffic at Kolkata Port’
MoSRTH was concerned about the slow growth rate of containerized cargo at KDS and HDC. The
concerns were also more because KoPT was the only gateway to the eastern states, especially to the
North Eastern Region. With focus of Government of India on accelerating the development of North
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Eastern Region, the container traffic and its related problems were the area of concern. The other
worrisome aspect was also the north India traffic increasingly using western corridor and thereby
creating congestion. Earlier, the north bound cargo, destined for South East Asia and Far East was
expected to move from KoPT and to some extent from other ports of east coast, but this did not
materialize.
The cargo movement, especially the containerized cargo, had become too polarized in the western
region giving rise to unequal development. Containers from the east part of India were moving all the
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way to west coast, upto JNPT or Mundra. This had put a lot of pressure on the ministry with respect to
infrastructure facilities by the stake holders using the port for its export import trade.
The non development of eastern ports, especially KoPT and consequently the increased cost of
operation led to higher tariff being charged by the shipping lines. It was a serious matter of concern
that the cost of moving a container from Kolkata to Singapore was almost double than the cost of
moving a container from Mumbai to Singapore. Considering the growth of industry in the eastern
region, government’s ‘Look East Policy,’ and opening up of passages like ‘Nathula Pass’ for trade
between India and China by road, KoPT was expected to cater to increasing container cargo and
consequently the infrastructure upgradation was required. Operationally also the port was facing
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serious bottlenecks like high vessel turnaround time and pre berthing detention.
th
A high powered committee was constituted on 18 May 2007 by the MoSRTH to study various
aspects of containerization at KDS and HDC and give recommendations, both short term and long
term, to improve the container traffic. The Committee submitted its report in November 2007.
The committee was chaired by Capt PVK Mohan, Member (and subsequently Chairman), National
Shipping Board. Other members were Mr S S Hajara, Chairman and Managing Director, Shipping
Corporation of India, Mumbai, Mr Lukose Vallatharai, Joint Director General of Shipping, Directorate
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General of Shipping, Capt L K Panda, Principal Officer, Mercantile Marine Department, and Mr S G
Thawani, Regional General Manager, Shipping Corporation of India, Kolkata.
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The scope of the study was:
a. Examine reasons for drop in container volumes at Haldia

b. Explore areas of improvement to increase container traffic at Haldia
c. Study infrastructure facilities of handling containers at Kolkata
d. Identify bottlenecks and problems at Kolkata
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e. Recommend areas of improvement to enhance growth of container traffic at Kolkata

f. Study prospects of setting up dedicated container terminal at Diamond Harbour
Recommendations for KDS

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Withh respect to the KDS (NSD and KPD) in order to meet the immediate need on a short term basis
following measures may be adopted:
1. Port to induct more MHCs in Berth no 2, 3, and 5 NSD (preferably one/berth plus a spare)
2. Port to augment RTGCs, RMGCs and trailers as required for the container berths in accordance
with the prescribed scale.
3. Port to acquire modern tugs for efficient ship handling to reduce berthing/un
berthing/un-berthing time as
positioning of tugs is a major constraint. This should be addressed immediately by outsourcing
the services to start with and at a later stage it should have the services of three modern tugs with
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adequate bollard pull to meet the needs.

4. Berths and locks to have fenders for protection of locks and ship sides, which is a major source o of
damage to tugs and ships.
5. Uniform tariff structure for all container berths to be adopted for harmonization and reducing cost
for the trade.
6. NSD container terminal to have six gates for speedy evacuation of container traffic, and to avoid
congestion in the yard.
7. Trailer parking yard to be commissioned immediately and additional area to be earmarked for
expansion. Apart from that, inside the container terminal, the additional land available on the
southern side should be paved and developed for this purpose.
8. The mandatory requirements of 0.3 metres trim for all vessels to be abolished.
9. Two shift system for customs work in port to be introduced and eventually leading to 24 x 7 work
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schedule so as to avoid congestion.
10. Night navigation to be introduced.
11. In case of breakdown of MHCs or such similar shore facilities, vessels should be allowed to work
with their own gear, with no restriction, to expedite turnaround time.
12. Intra port shifting on account of port’s requirement should not be charged to the vessels and such
shifting should be kept to minimum.
13. The area constituting the Lybian warehouse and unused residential quarters to be cleared to
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create yard space by demolishing the warehouse and all the buildings in the vicinity.
14. The warehouse at No 2 and No 3 NSD to be demolished to create more yard space for KDS.
15. The entire back up areas for the container terminals and all available areas should be paved on a
priority basis for further stacking of containers.
16. Container yard management to be made IT/Enterprise Resource Planning based immediately for
better productivity and yard management.
17. Port should expedite strengthening of berth no 7 for installation of MHC at the berth. Necessary
civil work must be completed within a time frame of six months.
18. Port to nominate additional two berths for containers, within a time frame of six months.
19. At least three additional CFS are urgently required to meet the present requirements of the trade.
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The land policy for the Kolkata port may be suitably amended by the ministry to facilitate setting
up of such CFS.
20. Special concessions may have to be given to actual port users and providers of support services
to quickly create the much needed infrastructure to handle the growing container volumes.
21. Port to evolve a suitable mechanism for early disposal of cargoes of abandoned containers within
TAMP stipulated time frame of 75 days. If needed, matter to be taken up with the finance ministry,
since port needs custom approval for auction of the goods for such abandoned containers. This
process will release much needed space in the docks.
22. Port to have a system of one window clearance for the trade, for various permissions/payments.
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Port and custom related as well as port railway, so that customers do not have to run around to
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get various permissions and payments.

23. Kidderpore docks to be used to the maximum.
Recommendations for HDC on a Short Term Basis

1. The present system of lock gate operation needs to be attended to immediately so as to facilitate
about eight movements per tide and thereby reduce the waiting period.
2. The port authority to take up the entire container handling operations on their own to obviate the
need of private operations and thereby to reduce the THC.
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3. Container ships to have priority to avoid undue delays.

4. Additional tugs to be deployed so that the ship’s berthing and un
un-berthing are not affected inside
the HDC. If required outsourcing may be the short term solution.
5. Two berths to be earmarked for container ships and should always be available with a minimum
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berth length of 300 metres totally.
Long Term Recommendations for Diamond Harbour Port

1. As a long term solution for the entire Kolkata port with respect to container handling and to cater
to the increasing demands of the trade, the committee strongly recommends development of a
green field container terminal on a priority basis with a minimum quay length of 600 metres at
Diamond Harbour.
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2. In order to support the berths, necessary yard facilities are essential and therefore the connecting
land belonging to Ministry of Defence (MoD)/DGLL/State government may have to be
acquired/bartered so as to have adequate stack yard area thereby lessening the congestion.
3. For the purpose of evacuation of containers the transport modes of rail/barges are envisaged to
start with, for further rail connectivity to the destinations.
4. Additional railway tracks, approximately 2 km, needs to be laid for connecting to the Diamond
Harbour station and thereafter onward connectivity to meet the need ‘as stated in 2 above’.
5. Similarly, IWT/IWAI/Private operators and other such interested bodies will have to be
encouraged to facilitate with dedicated barges for evacuation of containers by the riverine
passage.
6. An ‘Eastern Express’ project providing connectivity by road is already on the anvil and therefore
an early implementation of the project assumes importance.
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7. The long outstanding river conservation project needs to be initiated since the draft in the river will
ultimately determine the tonnage and type of ships.
Keeping the above frame-workwork the ministry may appoint consultants to prepare a detailed project
report which will form the basis for the global tender to set up a dedicated container terminal on BOT
basis. The government shall take all necessary measures to ensure that all the support systems of the
government
overnment are in place for the container terminals at Diamond Harbour and the end use of the
Diamond Harbour project should only be for the purpose of container. All the three berths are to be
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used exclusively for container ships and should form the basis for a stand alone dedicated container
terminal.
Long Term Recommendations for HDC

1. The present system of one lock is allowing only five to six moves per tide. Taking note of the
vessels inside the
turnaround time and to increase the total number of entries and exits of vesse
impounded dock system, it is essential that the second lock gate be in place to meet such
required turnaround time and therefore the committee strongly recommends a second lock gate
for the HDC. ON
The above recommendation assumes greater importance because of the fact that there are several
operational constraints in the existing system.
2. There are also proposals for developing riverside jetties at Haldia. It is understood that the same
is presently being considered for bulk cargo. Since the turnaround time of a container vessel is
much faster vis-à-vis
vis a bulk vessel, it makes economic and logical sense to consider development
of container terminals at the river jetty to obviate the problem of navigating the lock gate
altogether, therefore the committee recommends at least one riverside jetty of 200 metre length
dedicated to container traffic.
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3. The biggest problem for Haldia is the draft and the shoaling of the Ballari bar is actually
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threatening the very existence of HDC. A proposal for capital dredging is pending with the ministry
for a very long time and a very urgent action is needed in this regard. The committee
recommends expediting the pending proposal.
Long Term Solutions for Kolkata Port

The evacuation of containers by road movement at Kolkata appears to be one of the major
bottlenecks. 24 hours movement between the second Hooghly bridge and Kolkata dock will ease this
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problem to a great extent and this would not hamper the normal traffic since only one kilometre near
the Kidderpore tram depot is common between the port traffic and normal traffic. Therefore the
committee recommends that a dedicated alternate route be planned from the Kidderpore docks
connecting the second H Hooghly
ooghly bridge and the same be open for 24 hours. The Ministry may take up
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the issue with the state government and MoD (since part of the land belongs to MoD) and bear the
expenses for the same.
Source: MoSRTH (November 2007). ‘Improvement of Container Traffic at Kolkata Dock Complex,’ Report of the
High Powered Committee,
Committee, New Delhi.
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Ahmedabad IIMA/CFR0004
Tangy – Launching A Snack Food
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Disconnecting the call, Mahesh, a budding entrepreneur,, returned his attention to the
drawing board. He was mulling over the decision to launch Tangy, a non -vegetarian food
non-vegetarian
brand, within six months before his contract with the current employer ended in May 2009. 2009
Mahesh belonged to a middle class family and did not have a business background. He was
also short on funds, and without proving his ideas on the ground, it would be difficult to
garner financial resources for his project. He was looking for a concept which would be of
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low risk but high growth potential. The Indian food processing industry was a rapidly
expanding sector promising a steady long term growth. Looking around, around, he could see a
number of options ranging from m starting a niche restaurant chain to contract manufacturing
and reselling of food products. Retail was another sector booming in India. Mahesh decided
to follow his passion in foods to launch an entrepreneurial venture in retail space. He carried
out a study of the non-vegetarian
-vegetarian market, food processing space, and retail sector, in India.
THE INDIAN FOOD PROCESSING INDUSTRY 1

According to a study by McKinsey & Company, the Indian food market was poised to grow
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two-fold by 2025 from US$ 155 billion in 2005, to US$ 344 billion, at a compound annual
growth rate of 4.1 per cent. The steady growth of the Indian economy and the improving
lifestyle of Indians were instrumental in this growth. The consistently increasing agricultural
output led to the growth of thee food industry in India.
India. With the second largest arable land
area in the world, India wass one of the key food-
food-producing
food-producing
producing countries in the world, second
only to China.
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Currently, India ranks second in fruit production and third in vegetable production in th the
world. In 2007-08, food grain production in India had registered a 4.6 per cent growth with
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2006-07, according to estimates by

227.32 million tonnes as against 217.28 million tonnes in 2006
the agriculture ministry. Similar growth has been observed with cereals, oilseeds, pulses, etc.
demand, and a strong domestic market;

Sustained by high agricultural output, international demand
the Indian food industry offers ample scope for large investments in processing
refrigeration of frozen food, and thermo
technologies, skills and equipment, packaging, refrigerati
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processing. Currently, six per cent of the country's fruit and vegetable produce is processed
and India's share of the global market stands close to 0.03 per cent. Recognizing this, the
ed at raising the share of pr
country aimed processed food to 20 per cent in comparison to total
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agri-produce, years. The domestic food market, according to the 'India Food
produce, in the next few years
Based
1 ed on extracts from IBEF Report on Food Industry
Industry. Data retrieved on December, 12, 2008 from
www.ibef.org/industry/foodindustry.aspx
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Prepared by Professor Piyush Kumar Sinha and Amit Sehgal, Student of the PostPost-Graduate
Programme in Management for Execut
Executives Batch 2008 – 09, Indian Institute of Management,
Ahmedabad.
© 2009 by Indian Institute of Management, Ahmedabad.
2 of 20 IIMA/CFR0004
Report 2008,' was estimated at over US$ 182 billion, accounting for about two-third of the
total Indian retail market.
Some key opportunity areas identified by Mahesh were:
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Marine Food
India with its considerably long coastal lines had a natural advantage in the marine food
sector. According to the estimates by Marine Products Export Development Authority
(MPEDA), Indian seafood exports rose to US$ 1.55 billion during 2007- 2007 -08.
08. Frozen shrimp
2007-08.
accounted for 52 per cent of total marine exports at US$ 980 million,, followed by frozen fish
at US$ 326 million. On similar lines, marine food product based snacks present presented an
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excellent export opportunity.
Poultry and Processed Meat

The country's poultry market wass expected to grow at 12-12-15
12 -15
15 per cent per annum. At the
same time, fuelled by a booming retail sector, the market for processed meat was also
growing at an estimated 15-2020 per cent per annum. Favourable conditions such as rising
incomes and a young and urban population fuelled increasing domestic demand. The
rapidly growing sector offered investment opportunities for foreign players in activities
such as breeding, animal health, feed, equipment, processing, and retail distribution.
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Retail Landscape: Food Chains and Restaurants
The food and grocery market in India wass presently valued at US$ 236 billion and was the
contributed
bute to 70 per cent of the total retail
sixth largest in the world. Food and grocery retail contribute
contri
sales. According to industry estimates, the segment was wa growing at a rate of 104 per cent
and wass expected to grow to US$ 482 billion by 2020. Ninety nine per cent of this segment
was unorganized, ed, and therefore, there
there wa organized
wass immense scope for growth for the organi
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sector. The organized ed food retail sector wa
wass largely dominated by restaurants, fast food
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outlets, coffee joints, and the like.
INVESTMENT AND GROWTH

One industry was private investment. The
ne of the key drivers for growth of the Indian food indu
India Food Report 2008 reveal
revealed
ed that the total amount of investments in the food processing
sector in the pipeline for the coming three years was about US$ 23 billion. According to the
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estimates of the Ministry of Food Proc Processing Industry, the food processing sector
contributed nine per cent of the GDP and there was immense scope for further growth. In a
bid to give a boost to the sector, the government was considering a proposal to allow foreign
the food retail sector. While 100 per cent FDI was already allowed
direct investment (FDI) in the
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single-brand food retailing, the next step would be

in food processing and 51 per cent FDI in single
to allow FDI in select food items, fresh and processed fruit and vegetables, which may
include rretailing
etailing of farm and dairy produce, marine and poultry products. The initiative
would underline inclusive growth in the food sector through marketingmarketing-driven farming,
procurement from farms, state of the art processing, and organized retailing.
disciplined procurement
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The government hahad also planned to establish 30 mega food-parks in different parts of the
public-private partnership (PPP) route. In the PPP mode, the
country through the public
park, while
government would give US$ 10.2 million per project as grant for establishing the park
the rest would be contributed by private partners. The government would also set up
dairies, and give a grant of US$ 3.1 million per abattoir and US$ 2.08 million
abattoirs and dairies
per dairy. Some of the other policy initiatives included2 (a) allowing full repatriation of
profits and capital, (b) automatic approvals for foreign investments of up to 100 per cent,
except in few cases, and also technology transfer, (c) zero
ero duty import of capital goods and
raw material for 100 per cent export-oriented units, (d) allowing
llowing sales of up to 50 per cent in
domestic tariff area for agro-based, 100 per cent export-oriented units, (e) government
overnment grants
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for setting up common facilities in Agro Food Park, and (f) full ull duty exemption on all
imports for units in export processing zones.
THE NON-VEGETARIAN MARKET3

India is perceived to be a predominantly vegetarian country. However, results of a survey
by IBN 4-Hindu5, proved otherwise. The survey revealed,, while just two per cent of Kerala
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residents were vegetarian, less than four per cent survived on greens in Andhra Pradesh,
Pradesh
and eight per cent in Orissa and Tamil Nadu. The percentage of vegetarian families were
vegetarians; Haryana, 62
higher in northern India, with Rajasthan accounting for 63 per cent vegetarian
per cent; Punjab, 48 per cent; Gujarat, 45 per cent; Madhya Pradesh,
Pradesh, 35 per cent,
cent and Uttar
Pradesh, 33 per cent. Besides this, nine per cent were
re vegetarians but ate eggs. Overall, only
31 per cent individuals preferred vegetarian food while 60 per cent showed show a definite
preference for non-vegetarian food. In the overall count, 21 per cent Indian families were
pure vegetarians while 44 per cent families preferred non-vegetarian
red non
non-
-vegetarian food, and 32 per cent
vegetarian food
families had people who ate both vegetarian as well as non-non-vegetarian
non -vegetarian foods. The survey
vegetarian foods
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also indicated that the food habits varied on the basis of region and religion, with region
playing a dominant role.
Meat wass marketed in the country in various forms and conveniences to suit the consumer’s
choice. Consumers were no longer satisfied Rather, they
tisfied with the traditional meat products. Rather
preferred more nutrients and convenient, ready-to-eat
convenient, ready
ready-to-
-to- meat products. These convenient
items had to be economical and cost- cost-effective
cost -effective as well as have interesting changes of menu
effective as
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besides being better in shelf-life
life quality and acceptability than traditional products. During
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the start of the 21st century, demand for meat ha had grown strongly. This was visible
especially
pecially in developing countries of Asia where there was heavy industrialization and
globalization, which stimulated growth of per capita income and up up-gradation of living
standards. This widened the demand for the more convenient meat products products, which was
amplified by population growth in developing countries. Mobilization of supplies to
consumers in distant areas wass the major concern in the meat industry. During 2004 -2005,
areas wa
only two per cent meat was utilized by the processed meat industry, and per capita
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consumption of meat (chicken) was 1.5 kg and 44 eggs per annum against the world average
of 10 kg Thus, there was scope of development of the processed meat
g chicken and 102 eggs. Thus
industry, especially
specially value added 6 meat products, in order to cater the need of urban
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population whose consumption

consumption was 70 to 75 per cent of all meat products. Value could be
added by packaging of meat product in an appealing material. This packaging material
helped to extend the shelf life.
life Later the demand was for more convenient, ready-to-cook,
and ready-to-
ready
ready-to-eat
-to-eat
eat variety of meat products.
2 KPMG Report
Report for IBEF, Food Processing, Jan 2006
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3 www.veterinaryworld.org/Vol.1,%20No.3%20Full%20Text/Value%20Added%20Meat%20Products.htm
www.veterinaryworld.org/Vol.1,%20No.3%20Full%20Text/Value%20Added%20M
4 ibnlive.in.com/news/poll
ibnlive.in.com/news/poll-nonveg-buzz-in-indian-kitchens/18443-3-single.html
5 www.hindu.com/2006/08/14/stories/2006081403771200.htm
6 The United States Department of Agriculture defines value added products as (1

(1) a change in the physical state
or form of the products and production of a product in a manner that enhances its value as
demonstrated through business plan and (2) The physical segregation of commodity or product in a manner
that result in the enhancement of the value of that commodity or product
INDIAN RETAIL SECTOR

Some research reports state that by 2025 India's middle class would swell to 583 million
people -more than ten times from its current size of 50 million. And over 23 million Indians
- more than the present population of Australia today - would be counted as billionaires. By
that time India would also become the fifth largest consumer market, surpassing Germany
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and moving up from the 12th position it occupied in 2007. The Boston Consulting Group
(BCG) predicted that the Indian household spend wass going to reach nearly US$ 325 325 billion
by 2015 compared to US$ 150 billion in 2007. Per capita income in India increased from US$
460 in 2000-01, to US$ 797 almost double by the end of 2006-07. 2007-08,
07. In 2007-
2007 08, India's per capita
-08,
income was estimated to be around US$ 740. Further, India's per capita income was
expected to increase to US$ 2,000 by 2016-17, and US$ 4,000 by 2025. This growth rate
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would, consequently, propel India into the middle-income
income category. According to the t World
Fact Book, India was among the world's youngest nations with ith a median age of 25 years as
compared to 43 years in Japan and 36 years in USA. Of the BRIC—Brazil,
BRIC—Brazil,
BRIC— Brazil, Russia, India,
India and
China—countries, India wass projected to stay the youngest with its working-age
working population
estimated to rise to 70 per cent of the totall demographic by 2030 - the largest in the world.
India would see 70 million new entrants into to its workforce over the next five years. In the
seventh annual Global Retail Development Index (GRDI) conducted in 2008, India stood
second as the most attractive destination for retail investment. It was estimated that the
Indian retail market would increase from US$ 330 billion in 2007,
2007 to US$ 427 billion by 2010,
and US$ 637 billion by 2015. Organizeded retailing comprised
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comprised just 4.6 per cent of the estimated
Indian retail market. However, this segment grew nearly 40 per cent in 2007 and was
estimated to increase to 22 per cent by 2010.
THE PRODUCT
While surveying the market, Mahesh felt a need for a special non-vegetarian
non food that
would be dramatically different fromom what was available in the market. He realized that one
I
of his self-invented
invented unique chicken servings
servings which he called Tangy, and which was very
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popular among his friends and acquaintances, was actually distinct.

distinct Tangy, due to its
unique taste, could be eaten at any time of the day and once cooked, did not require any
more processing. Besides, due to its method of cooking, it could easily be preserved for at
least a month.. Mahesh could not find any comparative dish to Tangy and decided to make
it commercial. As it was accepted as an anytime, ready-to-eat consumable, the main selling
point would be convenience with taste. Quality was a given. Economy was another factor,
especially for daily non-vegetarian
non-vegetarian consumers. Each non-vegetarian order was expected to
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cost an average `100.

100.. Even if Tangy was similarly priced, it could be consumed over a
`100
`
period of time,, (as against immediate consumption required with regular non-vegetarian
products) thus,
thus, leading to a lower ‘per meal’ cost.
cost This led to the thought that main
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consumers could be SEC A and B citizens (Socio-Economic Class – Refer Appendix 1 for
details); primarily,
primarily, bachelors and double income families,
families where time was a premium.
Mahesh carried out an a exploratory study to better his market and consumer profile
understanding. He did qualitative research on a group of people that resembled his
expected consumer group. The objective was to understand how people would perceive and
accept Tangy; what the common ways of consumption
consumpti in a normal household were; and to
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find
find out any issues in its storage and usage. He believed that this could also give insights
into possible positioning of Tangy. Samples of Tangy were distributed to a select group of
people,
people, encouraging them to taste and experiment with it over a period of one week. The
study group comprised of eight bachelors and seven families (3 double income i.e. both
husband & wife working; 4 single income). The target group was a mix of Mahesh’s direct
acquaintances, as well as referred contacts with which he had had no previous interaction.
The group was spread over three geographic locations. After one week, the study group was
interviewed individually (either in-person or over telephone) based on a set of open-
open-ended
open-ended
ended
questions to gain insights into the consumption pattern of Tangy. (Refer Appendix 2 for the
field study and responses). Each interview lasted 30-45 45 minutes and the discussion was
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recorded on paper, verbatim as far as possible. The communication was directed towards
ascertaining a frank opinion of Tangy, its possible consumption pattern, and willingness of
the consumer to purchase and stock it.
Mahesh also sought opinion regarding the utility of Tangy from a group of his close friends
who had tasted it earlier (but were not a part of the study group).. This was to assess whether
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they still remembered and appreciated Tangy vis-à-vis non-vegetarian
vis variety of non-
non -vegetarian food they
vegetarian
had since consumed. Thereafter, Mahesh discussed the concept of Tangy with some of his
colleagues, without actually showcasing it.. This was to get a general idea of acceptance of
pre-cooked non-vegetarian food, and to get an opinion on possible issues and biases.
The study brought out that people

eople found the product appealing as it had a novelty factor
attached to it. They indicated a positive interest
rest and were willing to try out the product.
product
There were, however, biases against consuming non-vegetarian
non-vegetarian at home. Some people
consumed non-vegetarian only outside their home. home. They were also concerned about
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stocking non-vegetarian foods.. Freshness of the product was essential to encourage
consumption. Convenience factor, though emphasized, did not play a major role in
consumption pattern. Most people would consume it as a side dish along with regular
meals. People were willing to try alternate ways of consumption
consumption e.g. as a sandwich filling,
when told about it. Tangy had a good recall value and people did remember its taste even
long after its consumption. The product
roduct generated curiosity amongst those who were
verbally informed about it, but were not provided
provided a sample.
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Possible Product Positioning

Mahesh felt thehe key proposition of Tangy was taste with convenience. The target segment
would be individuals and families pressed for time. Consequently,
Consequently Tangy could be
positioned as an anytime consumable,
consumable, and as an alternative (to regular side dishes)
accompaniment to traditional Indian breads such as roti, naan, etc. It could be eaten on the
go. Since
ince it did not require any preparations,
preparations it could become a key ingredient in the daily
afternoon tiffin
iffin that working families
families typically prepared in the morning and carried with
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them to work. “Certain

“Certain level of education and awareness was necessary to popularize it in
its many consumable avatars,”
avatars,” said Mahesh.
Mahesh
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The average production time for Tangy was 4-5 4 hours. The idea was to make Tangy
available on a regular basis and yet maintain the concept of ‘freshly-
‘freshly prepared’. The
challenge was to ensure the frequency of refill in a manner that optimized
optimize operational
expense against the ‘freshness’ concept.
Markets to Enter
Mahesh had
had multiple options in terms of markets
market to enter. He wished to target consumers
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through own branded outlets as well as retail chains, restaurants, pubs, and other places of
high non-vegetarian
non-veg
non- veg consumption. Regular orders would help offset the uncertainty and
fluctuations of the retail market. He envisaged starting operations in a particular geographic
area and then slowly expanding the footprint (Appendix 3). Mahesh could start operations
in metro cities of Delhi or Mumbai, which would provide a big market due to their large
population. He could also setup shop in cities such as Pune or Bangalore which, due to the
IT industry, offered a large segment of young bachelors and double income families. The
ncome families
third option was towns like Chandigarh where non-vegetarian food was a regular affair and
hence easier to set up base. Some of the major challenges he faced in n finalizing the location
were comfort factors – Mahesh hailed from North India and had a comfort factor in terms of
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acquaintances and friends; spread of the market – although lthough big cities provided large
markets,, they also posed the problem of fragmentation and distribution, due to the cultural
variety and geographic spread of the target market; regional preferences – eating
eating habits and
taste was region dependent. In addition to these,, religious preference (e.g. Halal
Halal meat) posed
a different challenge. Also Mahesh wondered which region would allow him to expand
smoothly in the initial phase.
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Based on the above parameters, Mahesh decided to explore Chandigarh. The city was easy
to service on a daily basis. The distribution costs would be low and the supply, fresh
(Appendix 4). It could also serve as a good experimental ground for future expansion due to
its contiguity to Delhi. It had the highest 7 per capita income in India (Appendix
((Appen
Appen 5) and a
sizeable non-vegetarian consuming population.. By very conservative estimates, there were
about 25,000 households that could be targeted (Appendix 6). 6 Chandigarh was considered
an education hub and attracted large number of students
students from the neighbouring
neighbo states. 8
There were more than 250 restaurants 9 in and around the city.
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Competition
‘‘Tangy’.
There were several sources of competition to ‘T angy’. The prime ones were:
Tangy’.
(i) Home-cooked chicken: The survey non-vegetarian consumers were
urvey had revealed that non
very conscious of the hygiene of the product. Thus
Thus, most families preferred to
consum
prepare non-vegetarian food at home and avoided consuming it from outside.
I
(ii) Local restaurants: These served a variety of chicken dishes to be consumed either
along with bread or without it, as an individual item. Most of these also provided
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home delivery option, making it convenient for the consumer

consumer.
(iii)Ready-to-eat: Several ready-to-
ready -to-eat
eat options were available in the market. Precooked
ready-to-eat
dishes only needed to be heated before consumption
non-vegetarian dishes consumption.
(iv) Snack chains – Chains such as KFC were prime places of non-vegetarian
non
consumption.
Promotion
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Business-to-Consumer (B2C)
For the Business-to-Consumer ((B2C
B2C market, Mahesh had considered a number of means for
promotion options.
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Provid
(i) Product Testing – Providing free samples for immediate consumption at stores that
stock and we
were
re recognized for non
non-vegetarian content. Customers flocking the store
purchase
would be offered a sample and an option to purchase.
(ii) Provid
Providing
ing packages to retail at a higher margin as an incentive to push the product.
Novelty factor would further help the sales.
IN
7 timesofindia.indiatimes.com/Chandigarhs_per_capita_income_highest_in_India/articleshow/3487128.cms
timesofindia.indiatimes.com/Chandiga
8 www.chandigarhpulse.com/Education/ ;
www.worldcolleges.info/chandigarh/ChandigarhColleges.php;
www.worldcolleges.info/chandigarh/ChandigarhColleges.php
www.indiaedu.com/chandiga/college/index.html
9
www.webindia123.com/city/chandigarh/yp_list.asp?state=Chandigarh&city=Chandigarh&cat_main=Restaura
nts
(iii)Releasing advertisement in local newspapers and cable television.
OPTIONS TO CHOOSE FROM

There were multiple options that Mahesh was considering.
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Option - I
Concept: Mainly a Business-to-Business (B2B) operation, supplying to retail stores,
restaurants, and other institutions.
Supply Chain: A centralized manufacturing facility that would serve as a preparation and
distribution hub. The facility would also house the quality testing and sampling lab,
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packaging and sealing facilities, and the administration office. The setup would require
distribution vehicles that could be rented, at least initially. Mahesh planned
planned to have an
expiry date of two weeks
eeks on the retail outlet pack, though lab tests proved that Tangy
could easily have
ave a life of more than a month. Unsold packages would need to be
replaced with fresh ones and some means of disposing the collected packages had to be
developed.
Packaging: Packaging would be in vacuum sealed plastic trays us using special machines
(Appendix 7).. The flap on top could be secured back after partial consumption. The
product would be available in packages of 500 gm gmss and one kg. A 500 gm pack was
expected to provide 2-3 offerings. Small packs
ON consumption and
packs would ensure faster consu
non-vegetarian
would address the perception of stored non-
non -vegetarian foods going bad quickly.
vegetarian
Investment: This setup would involve an investment to the tune of `140,000 (Appendix
8).
non-vegetarian
Pricing: A typical one time consumption of non-
non -veg
veg food (for one person) would
cost ` 50-60.
60. Mahesh had planned to price his 500 gm pack at ` 95 and one kg pack at
volume, delivery terms,
`175. Rates for institutional sales would be negotiated based on volume
I
credit, and sales return. He, however, did not want the prices to be very low.
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Pros and Cons:

(a) Efficient control of quality and operations
(b) Proper packaging and retail operation will help build brand
(c) Easy to expand. Supply to other areas / more stores could start almost
immediately
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(d) No direct contact with customer, long feedback loop

(e) Demand assessment a challenge, especially with the concept of ‘freshly
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prepared’
(f) Involves ccapex which would increase the price of Tangy, besides initial
investments.
Option - II
Concept:: Branded outlet that also housed manufacturing facility and limited supplying
Concept
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ability to consumption points in close proximity. Testing, sample preservation, etc. could
be centralized.
Supply Chain: Since Tangy was best consumed fresh, the manufacturing setup could be
replicated,
replicate at a much smaller level, to keep the catchment area to a manageable size
(complete area serviceable within 1-2 hour’s timeframe using any available mode of
conveyance such as an auto). For example, small outlets could become points of supply
for both directly to consumers as well as B2B outlets. Initially start with one or two outlets
(For ward-wise map and population data, refer to Appendix 9)
Packaging: Generic packaging such as disposable plastic containers could be used (Refer
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Appendix 10 for image).
Investment: Low capex investment of `16,000/- per outlet (only cooking utensils, gas
stove, etc at each outlet). Operations would essentially involve only working capital. Each
outlet could be independently given revenue targets and made responsible for
developing market (Refer Appendix 11 for breakup).
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Pricing: Since this involved direct selling to consumers, a part of the retailer margins
could be passed on to consumers. Thus, the 500gm pack could be priced at `75 and one
kg pack at `150. Retail supply price would remain the same as for B2B.
B2B.
Supervision, Record keeping & Reporting: Ensuring correct maintenance and reporting of
sales,, especially in the absence of direct supervision, wa
wass one of the main challenges here.
The ethical quality of manpower was pre-requisite; addition, proper mechanisms such
requisite; in addition
as spot inspection, periodic audits, and control of prepared TangyTangy through raw material
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supplied, would need to be established. This would also include developing
miscellaneous calculations such as general wastage in preparation and other ssimilar
losses.
Quality: Since the outlet would essentially be part of a chain, it would be imperative that
consistency in quality wass maintained at all outlets. Thus
Thus, a process would need to be
developed for preparation which even a layman could follow, given the basic ingredients.
I
Also, it would have to be ensured that the process was strictly adhered to under all
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conditions. Necessary training would be imparted to drill the process as well as to

sensitize the employees to quality aspects and brand name imimplications of their job.
Pros and Cons:

(a) Direct contact with customers
(b) Easy to match supply to demand
(c) Low initial investment.
E
(d) Difficult to regulate quality

(e) Difficult to control operations of the outlets. Regular monitoring a challenge
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(f) Would need a larger number of employees (1 (1-2 per outlet)

(g) Slow to expand as each new outlet would involve site analysis and development,
training, etc
employee training
Option - III
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operations. This would

Develop business on the lines of leasing out the recipe and operations
involve investments mainly in legal issues, administration, and promotion. However, the
challenge was to develop a franchisee based only on recipe and no brand name. There
would also be the risk of the franchisee starting off operations under its own brand name
after acquiring the recipe, and posing immediate competition. Mechanisms, besides legal
methods, needed to be developed to prevent this. A common method wass to ensure that
a part of the raw material (generally the pre-mixed ingredients) wass supplied by the
franchiser and not disclosed to the franchisee. In this option again, the main challenge
would be to build a suitable model which could be monitored and tracked for correct
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royalty calculations and could ensure consistent quality.
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APPENDIX 1
SEC – Urban Classification
Socio-Economic Class (SEC) - Urban
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School
SSC/ Graduate/ Graduate/
upto 4 Some
years/ School 5-9 College
Occupation Illiterate HSC Post- Post-
literate but years but not
Graduate
no formal Graduate Graduate
(Profession
schooling (General)
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al)
Unskilled
E2 E2 E1 D D D D
Workers
Skilled
E2 E1 D C C B2 B2
Workers
Petty Traders E2 D D C C B2 B2
Shop Owners D D C B2 B1 A2 A2
Bus.
Men/Industls.
with number of D C
ON B2 B1 A2 A2 A1
Employees :
None
1-10 C B2 B2 B1 A2 A1 A1
10+ B1 B1 A2 A2 A1 A1 A1
Self-employed
D D D B2 B1 A2 A1
Professionals
I
Clerical/Salesm
D D D C B2 B1 B1
an
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Supervisory
D D C C B2 B1 A2
Level
Officers/Execut
C C C B2 B1 A2 A2
ives Junior
Officers/Execut
ives - B1 B1 B1 B1 A2 A1 A1
E
Middle/Senior
Source: www.indiastat.com
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APPENDIX – 2
Sample Results of the Field Study
Respondent 1
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years; Have sampled
General: Both husband and wife working; 2 children; Lived in London for seven years; sampled
good variety of non-vegetarian food
How many members in your family are non-vegetarian? Family of 4, all eat
How often do you eat non-vegetarian? Once in fortnight
At home / outside: Eat out as well as cook at home
resh consumption preferred, bias against
Any issues in bringing it / storing at home: Fresh
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storing for issues of it going stale
? Chicken;
What kind of non-vegetarian food do you consume most often? Chicken; we like
like mutton but wary
of red meat; eat fish also, but do not cook at home.
What non-vegetarian items do you prefer? Curry, Roast,
oast, KFC (love it)
What did you like about this non-vegetarian sample? Novelty
What did you not like? Less Consumption; Pickling
How did you consume it? As a side dish
Did you tell anyone about it? No. because it’s a new concept, skeptical
Storage: In the refrigerator
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How often would you like to have it? Not sure
What would you name it? Not sure
Packing advice? Small
mall portions as it would be consumed in small quantity
consumed
Best non-vegetarian item that you have ever eaten: Tikkas
Tikkas
How do these compare with it? This
his was good, very good, but tastes are different, so difficult to
compare.
I
Anything else that you would like to share:
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• Tasted good
• Indians prefer hot food, but this is different, may like it
• Pungent smell, gives doubt about freshness, though tastes good
• Concerns for quality / ingredients as have never seen such a product
Respondent 2
General: Bachelor,, working in an IT company, stays alone. Regularly eats outside. Consumes variety
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of non-vegetarian
etarian food.
food.
How many members in your family are non-vegetarian? single
How often do you eat non-vegetarian?
non-vegetarian 3-4 times in a week
non-
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home
At home / outside: Generally order for home-delivery
Any issues in bringing it / storing at home: None. But have to consume fully or throw away
as I do not have a fridge
non-veg
non- vegetarian
etarian food do you consume most often? Chicken, Mutton
What kind of non-vegetarian
What non-vegetarian
non-vegetarian
non- vegetarian items do you prefer? Prefer roasted, but generally order curry during meals
non
What did you like about this non-vegetarian sample? Taste; can store and consume at ease
IN
What did you not like: Nothing

How did
did you consume it?
it With ‘roti’, ‘parotha’ and bread; and as it is
Did you tell anyone about it
it? Told my colleagues at office; shared with them; they liked the taste
Storage: In open non-refrigerated atmosphere
How often would you like to have it? No particular time; as and when.
What would you name it: Chicken Anytime

Packing advice: Container should be easy to store and keep the balance portion clean
Best non-vegetarian food that you have ever eaten: Butter Chicken curry in home town
How do these compare with it? 8 if the above Butter Chicken is 10
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Anything else that you would like to share:
• Unique stuff
• It was handy, can eat any time. Enjoyed eating it
• Can eat it as a general snack also whenever one is feeling hungry
• Don’t mind paying a little extra
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Source: Authors’ Records.
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APPENDIX – 3
Chicken Consumption Pattern
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Cities with more than one Million Population in India (Census 2001)
Non-Veg
Total Population Consuming
City Population
(20% Males + 15%
Persons Male Female
females)
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Agra 1,259,979 674,902 585,077 222,742
Ahmadabad 3,515,361 1,863,886 1,651,475 620,498
Bangalore 4,292,223 2,240,956 2,051,267 755,881
Bhopal 1,433,875 755,685 678,190 252,866
Chandigarh 900,914 508,224 392,690 160,548
Chennai 4,216,268 2,161,605 2,054,663 740,520
Delhi 9,817,439 5,378,658 4,438,781 1,741,549
Faridabad 1,054,981 580,548 474,433 187,275
Greater Mumbai 11,914,398 6,577,902 5,336,496 2,116,055
Haora 1,008,704 547,969
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460,735 178,704
Hyderabad 3,449,878 1,773,899 1,675,979 606,177
Indore 1,597,441 839,843 757,598 281,608
Jaipur 2,324,319 1,239,711 1,084,608 410,633
Kalyan-Dombivli 1,193,266 633,395 559,871 210,660
Kanpur 2,532,138 1,354,581 1,177,557 447,550
Kolkata 4,580,544 2,506,029 2,074,515 812,383
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Lucknow 2,207,340 1,165,932 1,041,408 389,398
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Ludhiana 1,395,053 789,868 605,185 248,751

Meerut 1,074,229 571,074 503,155 189,688
Nagpur 2,051,320 1,058,692 992,628 360,633
Nashik 1,076,967 579,638 497,329 190,527
Patna 1,376,950 749,868 627,082 244,036
Pimprichinchwad 1,006,417 543,436 462,981 178,134
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Pune 2,540,069 1,325,694 1,214,375 447,295

Surat 2,433,787 1,372,307 1,061,480 433,683
Thane 1,261,517 674,660 586,857 222,961
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Vadodara 1,306,035 684,130 621,905 230,112
Source: w
www.indiastat.com
ww.indiastat.com
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APPENDIX – 4
Brief Profile of Chandigarh
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Status Union Territory
Area 114 sq kms (34.66 Rural, 79.34 Urban)
Longitude 760 47' 14E
Latitude 300 44' 14N
Altitude 304-365 metres above MSL with 1% drainage
gradient
Annual Rainfall (average) 1110.7 mm
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Monsoon July-September
Temperature Winter Min. (Nov.-Jan,
Jan, 2006) 10 C-C
C-160
-160
160 C
(April-July,
Summer Max. (April-
(April-July, 270C-440C
July, 2004) 270C
Prevalent Winds From the North West to South East in Winter and
reverse in Summer
Total Population (2001 census) 9,00,635
(Rural population
population-92120
92120 (10.2%)
(Urban population
population-808515
808515 (89.8%)
Density of population/sq. km.

ON 7,900
Sex Ratio (females per 1000 males) 777
Decennial Population Growth 40.33%
Literacy Rate 81.9%
Source: http://chandigarh.nic.in/knowchd_general.htm
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APPENDIX – 5
Growth in Per Capita
Per Capita Income in Chandigarh
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SP
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Source: http://chandigarh.nic.in/stat07/Abstract2007/AB07_Nutshell.pdf
APPENDIX – 6
Percentage Distribution of Population by Sex and Quinquennial Age Group in India
Age 1971 1981 1991 2001
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Group Male Female Male Female Male
e Female Male Female
0-4 15.94 16.42 13.99 14.36 12.58 13.03 10.73 10.74
4-10 14.03 14.16 13.39 13.52 13.2 13.28 12.54 12.4
11-14 11.9 11.83 12.22 11.93 11.95 11.48 12.33 11.93
15-19 9.77 9.86 10.24 10.03 9.9 9.51 10.14 9.32
20-24 8.28 8.55 8.49 8.61 8.6 8.98 8.7 8.75
25-29 7.27 7.58 7.31 7.58 7.79 8.45 7.81 8.43
30-34 6.47 6.64 6.38 6.57 6.96 7.2 7.02 7.44
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35-39 5.77 5.68 5.69 5.73 6.19 6.01 6.77 6.96
40-44 5.02 4.71 5.1 4.97 5.25 4.97 5.61 5.21
45-49 4.24 3.86 4.47 4.22 4.43 4.19 4.67 4.54
50-54 3.42 3.1 3.66 3.42 3.63 3.42 3.73 3.37
55-59 2.69 2.51 2.91 2.78 2.85 2.8 2.55 2.83
60-64 2.03 1.95 2.26 2.26 2.39 2.41 2.55 2.81
65-69 1.38 1.34 1.67 1.7 1.75 1.76 1.78 2.08
70+ 1.79 1.81 2.22 2.32 2.53 2.49 3.06 3.19
All Ages 100 100 100 100 100 100 100 100
Source: http://www.indiastat.com/india/ShowData.asp?secid=280784&ptid=12977&level=3
ON
APPENDIX – 7
Vacuum-Based Form and S
Seal
eal M
Machine
achine for Packaging Food
I
E CT
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IN
APPENDIX – 8
Investment for B2B Based Option
Capex:
PY
Item Cost / Year (`)
Sealing machine 2 X 30,000 = 60,000
Office & basic setup 30,000
Production Setup (manufacturing equipment etc) 2 X 10,000 = 20,000
Sampling and Quality Test Equipment 15,000
CO
Miscellaneous 15,000
Opex (Monthly):
Item Expense (`)

Manufacturing Complex rent 20,000
#
Salary (8 employees ) 50,000
@
Transportation 15,000
Admin & Other misc overheads 10,000
Manufacturing expenses (oil, gas etc)* 15,000
Cost of Capital
ON
3,000
000
Cost of consumables (per kg) 100
Margin 40% (per kg) 40
Retailer Margin 25% approx (per kg) 35
# Employees include: 1 supervisor; 1 office clerk;
clerk; 2 cooks (semi-skilled); 1 helper (unskilled); 3
packaging / delivery boys (semi-skilled).
@ ` 500 / day including rental & diesel; expected travel 50-60
50 km/day.
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* Even though this expense would be a variable expense, it is difficult to quantify on per kg basis
basis;
CT
hence has been treated as a fixed expense here
Source: Company Record

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IN
APPENDIX – 9a
opulation
Map of Chandigarh with Ward Boundaries Highlighted (in green) and Ward-wise Population
Distribution
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I ON
Source:
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http://app.mapmyindia.com/onebillionvotes/searchCity.do?resistate=Chandigarh&resicity=Chandigarh&resiadd=
Chandigarh&q=result#
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APPENDIX – 9b
Ward-wise Population of Chandigarh (2001 Census)
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Ward No. Population Sex Ratio Literate Literate Rate
Persons Male Female Person Male Female
1 30,481 17,276 13,205 764 25,805 14,951 10,
10
10,854
,854
854 91.86
91.86
2 27,739 15,140 12,599 832 24,156 13,469 10,
10
10,687
,687
687 93.37
3 23,864 13,210 10,654 807 20,383 11,364
364 9,019
9,019 92.82
4 23,625 12,631 10,994 870 19,551 10,896
896 8,655
8,655 90.74
CO
5 57,960 31,581 26,379 835 35,416 21,
21
21,563
,563
563 13,
13
13,853
,853
853 72.57
6 43,303 22,882 20,421 892 35,233 19,
19
19,123
,123
123 16,
16
16,110
,110
110 91.18
7 70,302 38,751 31,551 814 49,389
389 28,
28
28,905
,905
905 20,
20
20,484
,484
484 81.15
8 58,436 32,600 25,836 793 42,374
374 24,
24
24,238
,238
238 18
18,136 81.76
9 34,330 18,083 16,247 898 29
29,814 15,
15
15,838
,83
838
8 13,976 94.41
10 69,932 42,048 27,884 663 43,
43
43,893
,893
893 28,529
529 15,364 73.61
11 29,090 15,604 13,486 864 24,
24
24,740
,740
740 13
13,588 11,152 92.98
12 29,124 15,356 13,768
ON 897 24,
24
24,914
,914
914 13
13,315 11,599 93
13 23,443 12,634 10,809 856 19,
19
19,700
,700
700 10,937 8,763 92.98
14 33,788 19,531 14,257 730 19,
19
19,626
,626
626 12,688 6,938 69.11
15 35,957 21,123 14,834
834 702 22
22,569 14,636 7,933 72.94
16 49,491 26,827 22,664
664 845 38,312 21,641 16,671 87.56
17 24,207 12,940 11,
11
11,267
,267
267 871 19,421 10,592 8,829 91.02
I
18 31,183 17,946 13,
13
13,237
,237
237 738 20,124 13,108 7,016 75.36
CT
19 53,025 30,440
440 22,
22
22,585
,585
585 742 31,606 19,610 11,996 66.14
20 51,992 29,331
331 22,
22
22,661
,661
661 773 34,072 20,400 13,672 76.69
Reserve Area 7,524 5,453
5,453 2,071
2,071 380 6,563 4,994 1,569 96.28
Total 808,796
796 451
451,
451,387
,387
387 357
357,409
409 792 587,661 344,385 243,276 82.36
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Source: http://www.indiastat.com/india/showtable.asp?secid=95417&ptid=7&level=3
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APPENDIX – 10
Disposable Food Packing Containers
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APPENDIX – 11
Investment Option for B2C Oriented Operations
Capex (for Centralized Facility):
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Item Cost / Year`
Office & basic setup 20,000
Miscellaneous 10,000
Capex (Per outlet):
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Item Cost / Year`
Production Setup (manufacturing equipment etc) 10,000
Miscellaneous 3,500
Opex (monthly per outlet):

Item expense`
Expected expense`
Manufacturing Complex rent 10,000*
10
#
Salary (2 employees ) 12,000
12,
12,000
000
Transportation
ON 5,000
5,
5,000
000
Admin & Misc expenses 3,000
3
Head office overhead (e,g. overall supervisor, etc) 4,000
Manufacturing expenses (oil, gas, etc) 4,000
Cost of Capital 1,000
@
Cost of consumables (per kg) 100
Margin 40% (if sold through retailer) 40
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Margin 50% (if sold through outlet) 50
Retailer margin (per kg) 30% 35**
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# Semi-skilled labour,
r, basic training provided, need to follow the process for manufacturing, servicing
customers, etc. These employees will be responsible for all aspects including cooking, servicing
visiting customers, delivery, etc.
*Since outlet will be at a commercial space, expected to be expensive, standalone manufacturing unit
can be at a remote location also.
** Since it is expected that most of the chicken will be sold through the outlet and only marginal
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gh dealer outlet,
through outlet, over all margins are expected to be better.
@Although these are variable expenses, it is difficult to account consumption of these items on per kg
basis. Hence this expense is included under fixed expense
expense.
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Source: Authors’ Estimates

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PROD0291(A)
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Western Oil Limited (A)
The following letter was received by Professor Prashanth in October 2007. Please help him in
the proposed study.
CO
4th October 2007
Mr. K Sitaram
Head – Shipping Operations, and Member, Investment Committee
ommittee
Western Oil Limited
Makers house,
Mumbai - 400020
Prof. R. Prashanth
Well-known Institute of Management in Western India (WIMWI)
Karnavati
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Dear Prof. Prashanth,
I hope you recall me as a participant in the Strategic Port Management Programme held at
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WIMWI in May 2006.
As you are probably aware, our company has sailed through troubled waters right from its
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inception, but now, that should be a thing of the past. When speaking of the Western Oil
Limited (WOL) in its ‘new‘‘new-avatar’,
-avatar’,, we are thinking of a truly world cclass refinery and
new-avatar’
equally good infrastructural
infrastructural faciliti es to support it in its current and expanded capacity. But
facilities
we have to take into account the diverse and changing product product-process-market
characteristics.
In particular, WOL’s management is reviewing th the jetty capacity requirements, and alternate
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methods of providing additional capacity to match the three fold expansion (due in the next
couple of years) in its Sikkanar refinery output.
Written by Chetan Soman and G. Raghuram, Indian Institute of Manag

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Help rendered by Shivani Shukla is gratefully acknowledged.

incorrect handling of
discussion. Cases are not designed to present illustrations of either correct or incor
Knowing your interest and expertise in this area, we would like you to develop a model
based on operations management/research tools or such other tools as you may deem fit to
use and advise us on jetty capacity requirements at various refinery throughput levels. You
can assume that there are sufficient number of product tanks available. You may also want
PY
to suggest some suitable software to enable us to examine such decisions in future.
I am enclosing a few pages introducing our company, projected marine movements,

movements, jetty
jetty
operations and relevant cost estimates.
Thanking you
CO
(sd) Sitaram
Introduction
Western Oil Limited (WOL) is a part of a large corporate

corporate house – Western, which has
presence in various sectors: Telecommunications,, Textiles,
Textiles,, Steel, BPO, Oil and Gas etc. The
Textiles
Oil and Gas Group is further organised
link in the petroleum value chain:
1) Exploration and Production

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ed into three separate divisions, each focusing on one
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Western Oil and Gas was one of the first private companies to bid for exploration blocks
in the early 1990s, under the New Exploration Licensing Policy of Government of India,
along with other major private players (Reliance and Essar). It has acquired rights for oil
and gas exploration blocks in Assam and Gujarat in India.
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2) Refinery (WOL)
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WOL’s’s oil refinery is located on India's

India west coast in close proximity to the crude rich
Gulf States. Sikkanar is an all weather,
weather deep draft natural port. More than 60% of India's
crude imports land in and around this region. Besides, the refinery's location enables
access to the fast growing markets in the northern
north and western regions of India through
product pipelines. The eastern and southern parts of India are generally serviced
through the coastal route circling the country.
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WOL's refinery
refinery has a capacity of 7.5 million tons per annum (mtpa) with an investment
of close to Rs 10 billion.
10 b illion. The refinery
re was built with state of the art technology, with
technical and project assistance from the world's leading consultants and equipment
suppliers in the field. It is designed to handle a diverse range of crude mixes. The
refinery is configured to produce Euro II and Euro III grades of petrol (MS - motor spirit)
and d iesel (HSD - high speed diesel). With mid-stream upgradation of processes and
diesel
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technologies, the refinery has the capability to process even the most sour, acidic and
heavy crude.
The refinery is fully integrated with its own dedicated 1120 mega watt co-generation
power plant, port and terminal facilities. It includes a single point mooring (SPM)
capable of handling vessels of up to 350,000 deadweight tons (DWT) capacity, marine

product dispatch capacity of 14 mtpa, and railcar and truck loading facilities.
The refinery has built-in

in environment friendly technologies for pollution management
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and has also planted over one million trees to ensure a green corridor around the entire
refinery complex.
The refinery is set for an expansion in the next couple of years. Exhibit
Exhibit 1 shows the
planned refinery throughput milestones. The key idea behind the expansion is to
produce
uce higher value added products and to have economies of scale. Exhibit 2 gives the
national production, import and refining capacity of crude, and production, import and
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export of products.
3) Marketing
WOL took rapid marketing strides by setting up its retail network all across India. The
company has set up more than 800 retail outlets. ((With With effect from 1st April 2002, the
marketing
ting of transportation fuel, including MS and HSD was deregulated and all
companies meeting the eligibility criteria laid down by the Ministry of Petroleum &
up a retail network after receiving formal authorisauthorisation

authori
addition to this, there are another 900 retail outlets
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Natural Gas, Government of India, were permitted to market these products and also set
ation from the Government). In
sation
construction,
outlets under various stages of construction
and 1100 franchisees and sites identified. Currently, the company has 17 depots to
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ensure timely supplies to all its retail
etail outlets. In addition to the above, more such depots
outlets.
have been identified.
Following the industry trend, a host of other productproducts and services are planned to
complement MS and HSD at the retail outlets outlets. Some of these are restaurants, dhabas,
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truckers’ stops, car wash, service

ervice stations, ATMs, convenience stores, cafés, etc. Some of
stations, ATM
associations for the supply of other products and
the companies with which WOL has association
services are Castrol (for lubricants), Pepsi, Coca Cola, Frito-Lay, and State Bank of India.
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The company had planned to set up over 5000 retail outlets across the country by 2008.
However, given the higher crude prices in the recent years and the government not
hiking the fuel prices does not make economic sense for
prices fearing a political backlash, it d
private players to sell products in India. Hence, WOL has decided to focus more on
exports.
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Projected Marine Movements
markets, it is but natural to have more marine movements.

Given the new focus on export markets
shows
Exhibit 3 sho
showwss the projected marine movements and various expected parcel sizes to be
sold for various products. This is provided for various throughput levels. It is evident that
WOL expects larger parcel sizes for larger marine movements. This brings in economies of
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scale in jetty operations aand transportation.
Jetty Operations
The jetty located at Sikkanar is owned and operated by WOL itself. Currently, WOL has to
get pilots on board from the Kandla port, but soon this dependence is likely to vanish. There
is only one berth at the moment. The depth of water alongside the berth is about 20 metres.
The length of the berth is 310 metres. It can accommodate vessels
essels ranging from 10,000
10,000
10, 000 to
100,000 DWT.
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The petroleum product tankers arrive and anchor at the anchorage and await their turn for
berthing alongside the jetty for high waters. Although the WOL jetty is located in a non-tidal
non-tidal
non- tidal
port, for ease of navigation, the current practice is to berth and de-berth
berth only when the tide
tide
is moving from low to high. Exhibit 4 gives the tide calendar as a sample for the month of
September 2007. Exhibit 5 brings out the implication of the current practice due to tide
variations on the waiting time of the ships.
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At the jetty, WOL has two dedicated pipelines of 16” each for loading white white
wh oil, and one
ite oil
dedicated pipeline of 12” for loading black oil. Typically, these ships are designed to load
the petroleum products as per flow rate depending on their DWT and certain ship board
conditions like ballast discharge rate. From the shore side, the company can pump the
petroleum products into the ships at the maximum rate of 2000 m3/h /hrr per
per pipeline for white
oil. The pumping rate for black oil is a maximum of 1400 m /h 3/hr.
r. However, historical data
suggests that, generally, only 85% of the above flow rates are achievable. Exhibit 6 shows the
schematic representation of the pipelines present.
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Currently, only one of the pipelines is used for pipeline loading. This is because, in the case
of multiple products loading, waste called ‘slop’ is generated as we transition from one
product to another. This slop is pumped back to the refinery using the second pipeline. Very
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soon, it is planned to set up a slop tank near the jetty, from where the slop would be
transported by road. This would allow double line loading of white oil at a rate of up to 4000
m3/hr. The slop is generated even though a required operation called ‘pigging’ is done
between the two different products. This takes up to three hours. In future, WOL plans to
have dedicated product pipelines. W With
ith dedicated pipelines, the pigging time loss won’t
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happen. This will also reduce the need for slop tanks. Instead, warping (alignment of the
ship) will have to be done
pipelines’ loading arm with the ship) done, which takes up to two hours.
Around 10% of the shipss will have loading of multiple products
products.
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In addition, there could be delays because of pump and/or tankage problems at the jetty.
Last year, 2% of the vessels were delayed by two to three hours on account of this. Upon
completion of loading operations, the product tankers are de-berthed during high waters
after inspection, documentation, etc.
etc
Presently, there are restrictions in terms of non availability of night navigation. It means that
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the ships can neither be berthed nor de-berthed after daylight hours. However, with work
underway, it is expected that this restriction of non availability of night navigation will be
overcome latest by the end of 2007.
2007
Exhibit 7 shows ship arrival times and the quantity loaded during the period December 2006
to July 2007.
2007. It is suspected that although most arrivals were scheduled or based on the
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product stock levels

levels, the actual arrival times were random. (As is usual in such arrival
patterns, the inter arrival times are expected to follow a negative exponential distrib
distribution).
Relevant Costs
Due to the various operating conditions governing berthing and loading, delays could occur
lay
to the ships. A demurrage is payable if the actual operation time exceeds agreed laytime
laytime,
time,,
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which is typically 36 hours for loading and documentation. The clock for the actual
operation time starts six hours after the first available favourable daylight tide or actual
berthing time, whichever is earlier. The clock stops
tops when all documentation is on board.
There are agreed deductions available onn the actual operation time for documentation and
shifting of the vessel. Delays on account of vessel and/or weather
ther would not be part of
actual operation time.
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Once night navigation is in place, the first available favourable tide will no longer be
restricted to the daylight hours for short vessels i.e. up to 40,000 DWT. For very large
vessels, the 36 hours are typically extended to 48 or 60 hours. If the ship does not arrive
during the agreed laycan (arrival period),, then the actual operation time clock starts only
after berthing, which can now happen at the jetty’s convenience.
The demurrage day. One would

emurrage rates are typically in the range of USD 20,000 to 30,000 per day
expect larger rates for the larger vessels but this need not be the case
case. The rates are often
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supply and demand driven. Exhibits 8a, 8b and 8c show typical ‘Statement of Facts’ for the
vessels and the demurrage calculations. These statements capture, in detail, the vessel
movement, related activities and their duration. Exhibit 8a relates to a vessel which arrived
in the night with the first available favourable tide being at 6.00 am. Exhibit 8b relates to a
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vessel whose first available daylight tide was available on arrival, with berthing done right
away. Exhibit 8c relates to a vessel which just missed the tide. This vessel also had two
product loadings involving pigging operation.
Acknowledging the high demurrage rates, the general industry philosophy is that “a berth
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management feels that

should wait for the vessels and not the other way around”. The WOL manag
they should not have more than 65% berth occupancy. The cost of constructing a new jetty,
that can accommodate practically all the vessel sizes, is about Rs 100 crores (approximately
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USD 25 million). The jetty operating expenses are about USD 0.25 million per year.
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Exhibit 1
Refinery Throughput Milestones
Time Capacity Remarks
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As of now 7.5 mtpa
December, 2007 10.5 mtpa Integration of secondary process including cracker,
hydrotreatment, sulphur production
roduction and value added products.
September, 2009 16 mtpa Addition of coker, fuel oil handling and heavy
eavy crude oil diesel
production.
December, 2009 32 mtpa Duplication of 16 mtpa facilities.
CO
Exhibit 2
National Petroleum Imports, Production and Exports
(000' t)
Crude Products
Products
Refining
Production Import Capacity Production Import Export
*
2002-03
2003-04
2004-05
2005-06
33044
33373
33981
32190
81989
90434
95861
99409
116968
127368
127368
132468
N 104140
113463
118579
118579
119750
7228
8001
8828
11677
10289
14620
18211
21507
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2006-07 33988 110858 148968 135260 16966 32394
Base Upper Base Upper

** case case case case
2007-08 41230 107270 158700 4070 4110 30950 29870
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2008-09 42330 120370 194700

1947 00 3320 3400 40640 37860
2009-10 42490 150510 210210 4280 4400 67880 62200
2010-11 41190 170410 225880 5490 6600 79560 71060
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2011-12 39510 195490 240960 6130 7460 92680 83980
Base case:: Low Demand projections

Upper case:: High Demand projections
projections
Source: * http://petroleum.nic.in/petstat.pdf
** http://planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_petro.pdf
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Exhibit 3
Projected Marine Movements and Parcel Sizes
Products Density Grade 10.5 mtpa 16 mtpa 32 mtpa
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Total Parcel Total Parcel Total Parcel
marine size marine size marine size
movement movement movement
3
ton/m (kt/year) (kt) (kt/year) (kt) ((kt
(kt/year)
kt/year)
/year) ((kt)
LPG 0.53 Domestic 858 13 1661 13
1
Gasoline 0.74 Grade 1 2386 60 990 30
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0.74 Grade 2 2336 40 627 40 4924 60
0.74 Grade 3 4115 90
1
ATF 0.79 Jet export 950 29 2419 60 3441 60
1
HSD 0.84 Grade 1 3600 90 1485 40
0.84 Grade 2 3689 60 1485 60 2696 80
0.84 Grade 3 5629 100
1
PCN 0.66 Domestic 122 20 1198 50 713 80
SKO
VGO
1
2
0.79 Domestic
0.86 Domestic/
Export
N 584 60
396 30
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2
FO 0.87 Domestic 1914 40
Total Marine Movement 9011 13157 26050
(kt/year)
1
white oil
2
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black oil.
3
For LPG, the maximum loading rate is 800 m /hr.
kt = 000 tons
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Exhibit 4
Tide Calendar for Sikkanar for September 2007
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Exhibit 5
Tides and Implications for Ship Movements
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At Sikkanar, currently all the ship movements are only during the low-to-high tide periods. In the above figure, the
ship has arrived at 11:39 PM marked by + (at the center of the figure).
figure) It cannot berth straight away, since the
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tide is not favourable. Further ship movement is possible at around 4AM

4 if night navigation facilities are present,
and only after 6 AM in their absence. Before
Before the movement
movement, the ship also has to get customs clearance, medical
clearance, shore readiness signal, and the pilot on board. Also, a maximum of three shipping movements are
possible through the channel during any favourable
favourable
favou rable tide.
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Exhibit 6
Pipeline Layout
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To Jetty
White oil White oil B
Black
lack oil
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Product Tank Farm
Refinery PCN Pumps

ps
MS
SKO
HSD
VGO/FO
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Refinery to Product Tank Farm: 2 kms
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Product Tank Farm to Jetty: 22 kms

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Exhibit 7
Ship Arrival Times and Quantity Loaded for Different Products
HSD Naphtha
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ATF VGO
70000
60000
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50000
Quantity loaded (tonnes)
40000
30000
20000
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10000
0
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0 30 60 90 120 150 180 210 240 270 300

Day of the year (6 dec'06 to 27 sep'07)
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Exhibit 8A
I. Statement of Facts
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Vessel: Ship 20 Cargo: HSD
Laytime allowed:
Minimum of (First available daylight tide + 6 hrs, Berthed and all-fast
fast time) + 36 Hrs.
Delays because of weather, problems on vessel side not to be counted.
Shifting time from anchorage to berth should not be counted.
Demurrage rate: $25000/day
Last port: Fujairah Next Port: West Africa
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Activity From To
Date Time Date Time
End of sea passage 02.03.07 2130 - -
NOR Tendered 02.03.07 2200 - -
Anchored 02.03.07 2225 - -
Custom on Board 02.03.07 2300 - -
Free Pratique 02.03.07 2325 - -
Custom clearance granted
Anchor aweigh
Pilot on board
Berthing tug used
N 03.03.07
06.03.07
06.03.07
06.03.07
0125
1054
1127
1130
-
-
06.03.07
06.03.07
-
-
1350
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Mooring 06.03.07 1236 06.03.07 1335
NOR Received 06.03.07 1350 - -
Gangway down 06.03.07 1350 - -
Pre Operation meeting 06.03.07 1350 06.03.07 1410
Tank inspection 06.03.07 1410 06.0.07 1510
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L/A connection 06.03.07 1445 06.03.07 1500

Safety check list 06.03.07 1440 06.03.07 1515
Ship Line up 06.03.07 1515 06.03.07 1525
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Shore Line up 06.03.07 1525 06.03.07 1954

Loading HSD 06.03.07 1954 08.03.07 0900
Stoppage by shore 08.03.07 0400 08.03.07 0530
Re-ullaging/Cargo
ullaging/Cargo calculation 08.03.07 1100 08.03.07 1200
Anchored awaiting cargo documents 08.03.07 1348 - -
Tank inspection/Ullaging 08.03.07 0900 08.03.07 1000
Cargo Calculations 08.03.07 1000 08.03.07 1030
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Draining/Disconnection of L/A 08.03.07 0930 08.03.07 1048

Documents on board 08.03.07 1630 - -
Documentation completed 08.03.07 1645 - -
POB for unmooring 08.03.07 1120 08.03.07 1310
Unberthing tug
tug used 08.03.07 1230 08.03.07 1300
Unmooring 08.03.07 1230 08.03.07 1248
Vessel sailed 08.03.07 1730 - -
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Quantity loaded (tons) 59,560

II. Demurrage Calculation for Ship 20
Activities Date Time

Vessel anchored 02.03.07 222
2225
5
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NOR tendered 02.03.07 2200
Time to count as of 03.03.07 1200
Anchor aweigh 06.03.07 1054
Berthed 06.03.07 1335
1335
Hose connected 06.03.07 1500
Commenced loading 06.03.07 1954
Completed loading 08.03.07 0900
Hoses off 08.03.07 1048
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Documents on board 08.03.07 1630
Time to count till 08.03.07 1630
Gross time taken 124:30:00
Time allowed for documentation 4:00:00
Shifting 2:30:00
Net time at loadport 118:00:00

Time allowed as per charterparty 36:00:00
Time on demurrage
Demurrage rate (per day)
Amount payable
Amount paid
N 82:00:00
$25,000
$85,417
$85,347
T IO
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Exhibit 8B
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Vessel: Ship 42 Cargo: Naphtha
Laytime allowed:
Minimum of (First available daylight tide + 6 hrs, Berthed and all-fast time) + 36 Hrs.
Last port: Fujairah Next Port: Fujairah
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Activity From To
Date Time Date
Da Time
NOR Tendered 12.05.07 1605 - -
Anchored 12.05.07 1605 - -
Free Pratique 12.05.07 1620 - -
Custom clearance granted 12.05.07 1730 - -
Anchor aweigh
Pilot on board
Berthing tug used
Mooring
N 12.05.07
12.05.07
12.05.07
12.05.07
1730
1605
1620
1730
-
12.05.07
12.05.07
12.05.07
1800
1810
1815
-
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NOR Received 12.05.07 1845 - -
Gangway down 12.05.07 1845 - -
Tank inspection 12.05.07 1900 12.05.07 2015
L/A connection 12.05.07 1900 12.05.07 1915
T

Ship/Shore Line up 12.05.07 2015 12.05.07 2036
Loading Naphtha 12.05.07 2036 14.05.07 0135
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Stoppage by ship 13.05.07 1435 13.05.07 1615
Tank inspection/Ullaging 14.05.07 0135 14.05.07 0235
Cargo Calculations 14.05.07 0235 14.05.07 0305
Draining/Disconnection of L/A 14.05.07 0215 14.05.07 0236
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POB for unmooring 14.05.07 0538 - -
Unberthing tug used 14.05.07 0540 - -
Unmooring 14.05.07 0600 - -
Vessel sailed 14.05.07 0700 - -

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1600
1600
Berthed 12.05.07 1830
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Hoses off 14.05.07 0200
Shifting
Net time at loadport

Time allowed as per charterparty
N 1:00:00
30:30:00
36:00:00
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Time on demurrage 00:00:00
Demurrage rate (per day) $27,000
Amount payable $0
Amount paid $0
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EC
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Exhibit 8C
Vessel: Ship 58 Cargo: HSD and ATF
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Laytime allowed:
Minimum of (First available daylight tide + 6 hrs, Berthed and all-fast
fast time) + 36 Hrs.
Last port: Singapore Next Port: Djibouti
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Activity From To
Date Time Date Time
NOR Tendered 18.06.07 1300 - -
Anchored 18.06.07 1415 - -
Free Pratique 18.06.07 1520 -
Custom clearance granted 18.06.07 1630 - -
Anchor aweigh 20.06.07 1125 -
Pilot on board 20.06.07 1130 - -
Berthing tug used
Mooring
Gangway down
NOR received
N -
20.06.07
20.06.07
20.06.07
-
1255
1442
1442
-
20.06.07
-
-
-
1400
-
-
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L/A connection for ATF loading 20.06.07 1442 20.06.07 1450
Tank inspection 20.06.07 1500 20.06.07 1536
Ship/Shore line up 20.06.07 1600 20.06.07 1612
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Loading ATF 20.06.07 1612 21.06.07 1154

Rate reached to max 2100 cu.m 20.06.07 1625 - -
Stoppage by shore
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(for pig launching) 21.06.07 0730 21.06.07 0842

Resume Loading ATF 21.06.07 0842 - -
Ref. ullaging for ATF 21.06.07 1154 21.06.07 1254
L/A disconnection ATF 21.06.07 1214 21.06.07 1218
L/A connection for HSD loading 21.06.07 1218 21.06.07 1224
Ship/Shore line up 21.06.07 1254 21.06.07 1754
Loading HSD 21.06.07 1754 21.06.07 2218
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Rate reached to max 1600 cu.m 21.06.07 1810 - -

L/A disconnection HSD 21.06.07 2324 21.06.07 2330
Ullaging & calculation for ATF & HSD 21.06.07 2218 21.06.07 2324
POB for unmooring 22.06.07 0130 22.06.07
Unberthing 22.06.07 0130 22.06.07 0205
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Vessel sailed 22.06.07 0330 - -
ATF: Quantity
HSD: Quantity loaded (tons) 5048

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Berthed 20.06.07 1400
Hoses off 21.06.07 2330
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Shifting 2:30:00
Net time at loadport 50:00:00

Time allowed as per charterparty 36:00:00
Time on demurrage
Demurrage rate (per day)
Amount payable
Amount paid
N 14:00:00
$26,000
$15,167
$14,722
T IO
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SP
IN
Glossary of Terms
(Compiled from various sources)
Term Definition
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Anchor A device which is attached to anchor chain at one end and lowered into the
sea bed to hold a ship in position; it is designed to grip the bottom when it is
dragged by the ship trying to float away under the influence of wind and
current; usually made of heavy casting or casting
Anchorage A place suitable for ships to anchor
Arrived Ship A ship is considered arrived and the laytime can commence when certain
conditions specified in the charterparty are fulfilled, e.g. reach the designated
position for loading or discharging, vessel is ready in all respects for cargo
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operation and notice of readiness is properly given
Aweigh Describes
escribes an anchor which has been lifted off the sea bottom and has its
weight fully taken by the anchor chains
Berth 1. Cabin or place to sleep in a ship
2. Place
lace for mooring a ship in port or anchoring
Cargo Goods carried in a ship
Charterer A person or firm who enters into a contract with a ship
ship-owner
ship- owner for the
-owner
transportation
portation of cargo or passengers for a stipulated period of time, i.e. a ship
owner’s customer
Charterparty A written contract between ship-owner
owner and charterer whereby a ship is hired;
Deadweight Tons
(DWT)
Total N
all terms, conditions and exceptions are stated in the contract
otal weight of cargo, stores, fuel and water needed to submerge a ship from
her light draught to her maximum permitted draught; it is given by the
difference between the load displacement and light displacement (also known
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as lightweight)
Demurrage Fee
ee paid by the charterer to the ship
ship-owner
ship--owner
owner when the latter's ship is detained
beyond the specified date agreed in the charterparty
Draught The
he vertical distance measured from the lowest point of a ship's hull to the
waterline or the water surface
surface
Free Pratique Official
fficial permission from the port health authorities that the ship is without
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infectious disease or plague and the crew is allowed to make physical contact
with shore; otherwise the ship may be required to wait at quarantine
anchorage for for clearance
Laytime Time
ime allowed by the shipship-owner to the voyage charterer to carry out the cargo
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loading and/or discharging operations; laytime may be expressed as a certain

number of days or number of tons of cargo loaded/unloaded per day
Mooring Securing
ecuring
ecu ring a vessel to a buoy or strong point ashore e.g. bitt by ropes; at
anchorage, by dropping anchor
Notice Of Notice
N otice presented to shipper or his agent by masters or ships' agent stating the
Readiness (NOR) readiness of the arrived ship to load; it determines when the time starts to
count
Pigging Passing
P assing a solid plug through a pipeline. The plug is small enough to pass
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through the pipeline but large enough to touch the inside wall. They have
many uses - separating products, cleaning the pipeline, measuring the
pipeline's wall thickness, etc.
Pilot A qualified person having local knowledge of navigation hazards, is authorised
to guide ships in and out of a port or channel
Ullage
llage 1. Quantity represented by the unoccupied space in a tank or compartment
2. Depth of space from the tank top to the free surface of the liquid
3. Natural loss in weight or quantity e.g. due to evaporation
IN
Abbreviations
ATF Aviation Turbine Fuel

ATM Automatic Teller Machine
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BPO Business Process Outsourcing
DWT Deadweight Tons
EOSP End Of Sea Passage
FO Fuel Oil
HSD High Speed Diesel
KT Kiloton
LPG Liquified Petroleum Gas
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L/A Loading Arm
MTPA Million Ton Per Annum
MS Motor Spirit
NOR Notice Of Readiness
PCN Polychlorinated Naptha
POB Pilot On Board
SKO Superior Kerosene Oil
SPM Single Point Mooring
VGO Vacuum Gas Oil
Discussion Questions:
N
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1. What are the criteria that should be considered during the determination of jetty capacity?
2. What is the number of berths required to take care of marine movements at various throughput
levels? Do the sensitivity analysis for your recommendation.
3. Do you agree with WOL’s idea of not having more than 65% berth occupancy?
4. What kind of software is required to analyse the situation described in the case? What would be
the functionality of such software?
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Suggest an approach, if the number of product tanks is also a decision variable.

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SP
IN

MAR0394
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Woolworths Limited, Australia
It was December 2001. The Supply Chain Executive Team (SCET) of Woolworths Limited
was called for an important meeting. This meeting was headed by the General Manager,
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Supply Chain, Michael Luscombe. The main focus was on Project Refresh, which had
commenced in August 1999 and was being driven by this team. This project was a plan to
‘renew and reinvigorate’ the company, leveraging initiatives in the supply chain. Since the
commencement of Project Refresh, sales had improved by $2 billion and stripped $0.5 billion
from Woolworth’s costs. Luscombe and his team members were pleased with these
numbers. Most of the benefits were expected to come from the Supermarkets Division,
which accounted for about 85% of the revenues.
The SCET reported to the Supermarkets Executive Team and also the Corporate Support
i
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Group. It also had to coordinate with the Supermarket Buying and Marketing Team. Exhibit
1 gives the composition of these groups and teams. It also provides an insight into the
different roles held by the Senior Management Team (related to supermarkets) over the
recent five years.
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A brief description of Project Refresh is given in Exhibit 2, with excerpts from the company’s
annual reports of 1999, 2000 and 2001. The project was envisaged as a three level initiative,
with increasing sophistication, to yield an expected savings of over $9 billion over 9 years,
starting 1999. The initial success of Project Refresh made Luscombe and his team optimistic
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about advancing to levelel 2 initiative. They also decided to rechristen this initiative as Project
Mercury, with an increased focus on the end-to-end end supply chain and information
technology (IT). The team was keen on identifying business process outsourcing (BPO)
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partners for this initiative. Annexure I gives an overview and significant details of the
project, as would be relevant for a BPO partner to work with the company.
One of the most important decisions being considered by SCET was the restructuring of the
Distribution Centre
ntre
nt re (DC) network. Woolworths was operating 31 DCs to cater to the supply
needs of its Supermarkets Division. The retail outlets were receiving stock from multiple
DCs, and did not leverage synergy in supply. The replenishment at the DC level was based
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on manual processes. Luscombe and his team had to take several decisions. First, whether to
consolidate the 31 DCs to a smaller number, by having multiple product categories (ambient
and chilled) supplied from the same DC. If this happened, they would then need to identify
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Prepared by Professor G Raghuram, Indian Institute of Management, Ahmedabad, and G Kuberkar.

All data, except those mentioned as 'company data,’ has been sourced from the Internet. Support rendered by TCS is
gratefully acknowledged.
Cases
ases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class discussion. Cases are
not designed to present illustrations of either correct or incorrect handling of administrative problems
Copyright © 2008 by the Indian Institute of Management, Ahmedabad.
the number of DCs and their locations. This would also imply that third party managed DCs
would now be managed by the company. Initiatives to improve DC operations, including IT
would become critical.
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Company Overview
Woolworthsrths was one of the largest retail chains in Australia, retailing food, groceries, liquor,
petrol, and general merchandizee including consumer electronics. It had also entered into the
wholesale business. By the end of 2001, it was operating 1359 stores in Australia and 33 in
New Zealand. It was headquartered near Sydney in Bella Vista, New South Wales,
Australia. Exhibit 3 gives some major events in the growth of Woolworths since the opening
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of the first store in 1924 in Sydney.
The first store was called Woolworths Stupendous Bargain Basement. Nominal capital was
25,000 pounds and attracted just 34 shareholders. The original concept was to establish a
store that sold everyday needs of general merchandiz
merchandi
merchandizezee at low prices. Woolworths
successfully focused on itss low price approach to general merchandiz
merchandi zee right through until
merchandize
the late 1950s when it diversified into food retailing through the supermarkets format. By
1960, Woolworths was the first Australian retailer to operate in all Australian states and
s. The 1960s and 70s saw further diversification with the acquisition of the
territories.
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Rockmans women’s clothing chain and the establishment of the BIG W discount department
store chain. In the early 1980s, Woolworths acquired the Dick Smith Electronics chain. Then
in 1985, Woolworths bought the Australian Safeway store group from Safeway of the US to
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become the largest food retailer in Australia.
At the end of the 1980s, Woolworths became the subject of a takeover bid from Industrial
Equity Limited (IEL) that was successfully completed in 1989. Woolworths remained a
owned subsidiary of IEL until 1993 when it was re
wholly-owned re-floated on the Australian stock
exchange at $2.45 a share. Woolworths diversified into petrol retailing in 1996
1996, giving
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discounts to attract customers. The Internet HomeShop service was introduced in 1998 and
Ezy Banking followed in 1999. The same year, Woolworths launched Project Refresh with
the task of reorganizing many parts of the business.
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Chisholm Manufacturing, a processed foods and small goods manufacturer and Rockmans,
the women's clothing chain, were disposed off in 2000, as Woolworths sought to focus on its
merchandi
core businesses of supermarkets and general merchandize. This process continued in 2001
acquis
with the sale of Crazy Prices and the acquisition of Tandy Electronics, and 67 Franklins
supermarkets.
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[http://en.wikipedia.org/wiki/Woolworths_Limited
http://en.wikipedia.org/wiki/Woolworths_Limited accessed on Dec 7, 2007]
[http://www.answers.com/topic/woolworths-limited?cat=biz-fin
http://www.answers.com/topic/woolworths accessed on Dec 7, 2007]
[http://www.ybmarkets.co.uk/downloads/public/11287_0.pdf
http://www.ybmarkets.co.uk/downloads/public/11287_0.pdf accessed on Dec 8, 2007]
Woolworths Retail Activities
Woolworths Limited was made up of a number of businesses, all providing the customers
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with quality, value and everyday low prices. The company was operating in Australia
through several retail banners. Exhibit 4 lists the various retail brands under the
Woolworths umbrella. The brands w were operated under three divisions: Supermarkets,
Merchandize and Wholesale. The numbers of brandwise outlets are given in Exhibit
General Merchandi
5. Not all the outlets carried liquor or had a petrol pump.
Supermarkets
• Woolworths: The company’s premier supermarkets kets chain operated in every Australian
state and territory except Victoria
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• Safeway: In Victoria, Woolworths was named Safeway
• Food For Less: Woolworths also operated a number of smaller supermarkets under this
brand in some areas
• Flemings: Group of four supermarkets
upermarkets located in Sydney (the remnants of a chain
purchased in the 1960s)
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At the end of the financial year 2001, Woolworths had 604 supermarkets distributed right
around Australia. The distribution of supermarkets was closely aligned with that of the
population.
Chisholm Manufacturing was another wholly owned business of Woolworths in

Supermarkets Division. All the bulk ham, bacon, sausages and small goods sold in all the
supermarkets were packed and supplied through Chisholm Manufacturing.
Plus Petrol
N
In 1996, Woolworths entered the petrol market, with wholly owned Plus Petrol outlets in
Dubbo, NSW. With canopies adjacent to Woolworths supermarkets, it allowed Woolworths
to meet more of its customer needs in one location and also helped to increa
increase store sales.
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The petrol business returned a profit of $4.6 million in fiscal 2001. At the end of fiscal 2001,
Woolworths had 166 petrol outlets.
Liquor
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The total liquor business was organized under four brands:

• Woolworths Liquor: Liquor stores, eithe either attached or located within Woolworths
supermarkets (known as Safeway Liquor in Victoria)
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• BWS: Liquor stores located away from the company’s supermarkets

• Dan Murphy's: Known as ‘liquor supermarkets’ and one of the company's best growth
performers
tate: Fine wine stores
• First Estate:
Woolworths’ share of
The total business generated sales of more than $1 billion per annum. Woolworths
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the national liquor market was around 10% compared with Coles Myer’s estimated market
share of 13%.
Ezy Banking
Ezy Banking, Woolworths

Woolworths’ banking joint venture with the Commonwealth Bank in 1999,
was viewed as a separate business from the supermarkets group but was implemented to
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drive traffic through the stores and thus generated incremental sales. It was another example
customers’ everyday needs in one location and it also provided Woolworths with
of meeting customers
an opportunity to learn more about its customers. In just two years, in 2001, 610,000 accounts
were opened exceeding the five year target of 500,000 accounts.
General Merchandize
The General Merchandizee division was much smaller than the Supermarkets Division,
Division,
accounting for only 13% of sales. The division comprised:
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BIG W
This discount department store chain sold a wide range of general merchandiz
merchandi
merchandize.
ze.
e. Its direct
competitors were Targett and Kmart, both members of the Coles Myer Group. Through the
implementation of Every Day Low Prices (EDLP), improved supply chain management, and
other benefits coming out of Project Refresh, Woolworths was able to drive impressive
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performance improvements from BIG W.
Consumer Electronics
• Dick Smith Electronics: Sold hobby electronic products as well as computer products
• Dick Smith Powerhouse: Innovative and interactive store which sold consumer
entertainment products
• Tandy Electronics: Sold computers, communications and electronic goods
Woolworth's Metro
These were inner-urban

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urban convenience stores located in Sydney and Brisbane, selling a range
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of pre-prepared
prepared meals for the 'time poor' customer.
Wholesale
The Wholesale Division

ivision covered Australian Independent Wholesalers (AIW), who traded in
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Victoria, New South Wales and Queensland, and Statewide Independent Wholesalers (SIW),
which traded in Tasmania. The latter was only 60% owned by Woolworths. This division,
division
which was the smallest amongst other divisions, contributed only 3% sales of Woolworths.
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[http://www.ybmarkets.co.uk/downloads/public/11287_0.pdf
http://www.ybmarkets.co.uk/downloads/public/11287_0.pdf accessed on Dec 17, 2007]
http://en.wikipedia.org/wiki/Woolworths_Limited accessed on Dec 20, 2007]
Australian Retail Industry
The Australian retail environment was dynamic and constantly evolving. There were 70,000
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2000-01 they transacted $197 billion of business,

employing retail businesses in Australia. In 2000
growing at 2 to 3% per annum (Exhibit 6). The industry was the largest employer in
Australia, employing 920,000 people (about 12% of the workforce). Over the period 19931993-00,
employment grew by over 20%. Australia’s biggest retailers in terms of sales, market share
and impact on the retail industry were Coles Myer, Woolworths, Foodland, Harvey
Norman, Bunnings, and David Jones. Annexure 2 provides an insight into the Supermarket
Division’s competitive environment.
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The state-
state-wise
state-wise
wise population and retail income distribution is given in Exhibit 7. The major
supermarket retailers' outlet across the state, as of 1998, is given in Exhibit 8.
According to Australian Food Statistics 2001 published by the Department of Agriculture,

Fisheries and Forestry, supermarkets and grocery stores accounted for around 66% of total
food sales (excluding liquor) of almost $64 billion, in 1999-2000. This result showed a 2.6%
increase in sales over the year 1998.
[http://www.myfuture.edu.au/services/default.asp?FunctionID=5104&IndustryGroupID=240 accessed on Dec
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20, 2007]
Supermarkets Division
Australia, as a country, was divided into eight administrative states and territories. Exhibit 9
gives a map of Australia, along with its important cities. The state-wisewise distribution of the
604 Woolworths supermarkets is given in Exhibit 10.. The supermarkets were organized into
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ten regions, as seen in Exhibit 11.. Large areas of Australia still did not have an outlet due to
a very low density of population.
The main product categories of the supermarkets are given in Exhibit 12.
12. The supermarkets
business was viewed as consisting of food, groceries, liquor and petrol. In terms of supplies,
the DCs handled chilled and ambient separately. Produce and liquor, to a significant extent,
was handled independently through dedicated DCs. For the financial year ended 24 June
2001, the Supermarkets Division had revenue of $17.5 billion, as seen in Exhibit 13. The
earnings before interest and tax (EBIT) were $600 million. Exhibit 141 provides a five year
analysis of the financial results of Woolworths. N
Woolworths’ sales turnover totaled almost $21 billion and EBIT came in at just over $700
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million. The company recorded a net profit of $428 million. The market capitalization was
recorded at $11.6 billion. The market share was in the range of 28% to 40%. Woolworths was
the second largest employer in Australia with a staff of over 140,000 people.
Project Refresh
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In 1999, Woolworths achieved an operating profit of $312 million, at 4% over the year 1998,
and also a 9.6% growth in sales. Though this performance was very good by Australian
standards, and placed the company
company in the top half of Australian listed companies, there was
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a need to grow shareholder value faster. The management team was determined to have a
more dynamic and outward-looking
outward-looking
outward- looking approach, and so, in August 1999, launched ‘Project
Refresh’. This was an exciting programme which identified the developing
exciting and important program
trends in the retail environment and the need for changes designed to deliver increased
customer focus and shareholder wealth.
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The major objectives of Project Refresh were:
• Focus on customer needs

• Cost control, cost measurement and tracking
• Create greater shareholder value through strategic capital management
• Create a new management structure that would allow decisions to be made faster and by
person, whether at store, regional or national level and would also
the most appropriate person
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reduce the costs of unnecessary duplication

• Focus on supply chain, inventory management, buying and marketing, IT, human
resources, organizational redesign and cost of doing business
• Provide better supplier relations
relationships
• Refocus on core businesses of supermarkets and general merchandize retailing
• Seek buyers for Rockmans and Chisholm Manufacturing businesses

In short, Project Refresh initiative covered all aspects of business with a view to saving costs,
increasing sales and improving effectiveness.
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Project Refresh, since its inception in 1999, concentrated on a number of initiatives, including
a significant business restructuring programme as well as numerous cost reduction
programmes. s. These initiatives were collectively known as Refresh Level I initiatives.
While the benefits of Refresh Level I continued to flow, the company shifted its major focus
end-to-end
to Refresh Level II. This was called Project Mercury, an integrated, end
end-to- end supply chain
-to-end
improvement programme spanning over five years in both logistics and enabling
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technology.
[http://www.woolworthslimited.com.au/resources/files/1999financialreport.pdf
http://www.woolworthslimited.com.au/resources/files/1999financialreport.pdf accessed on Dec 25, 200
2007]
http://www.woolworthslimited.com.au/resources/files/2000financialreport.pdf accessed on Dec 25, 2007]
http://www.woolworthslimited.com.au/resources/files/2001financialreport.pdf accessed on Dec 26, 2007]
[http://www.woolworthslimited.com.au/resources/files/2001financialreport.pdf 200
Project Mercury
This project, started in October 2001, was considered the most important initiative driving
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change in Woolworths history, and $1 billion would be spent on the upgrade of supply
programme was initiated with a
chain and associated IT. This supply chain redesign program
business objective of improving the process of delivering products to the customers. In
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achieving this, the programme aimed to generate a competitive advantage for its
supermarkets. It would impact logistics, buying and marketing, supermarket operations,
and IT functions.
Supply chain strategy was developed after evaluating systems and logistics features of
leading global retailers following which the company determined an appropriate and
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optimum solution for Woolworths. This solution would address the following key design
considerations:
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• Common integrated systems required to support supply chain operations

• Store supply chain costs (from the supermarkets’ back dock to the shelf)
• DC location and numbers
• DC function (cross-
(cross-docking
(cross-docking
docking and flow
flow-through)
• Composite supply chain (integrating cold and ambient)
• Transport management (primary and secondary freight)
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• Process improvement
improvement across the network
• Improve buying and supply chain systems to help make cost savings in these areas
• Make distribution process easier and much efficient for the stores
The Mercury Programme

Program would be the umbrella term for all projects across the business
that impacted the way in which products were supplied from vendors to customers. It
would be the consolidation of many projects already underway within supply chain, buying
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& marketing, and supermarket operations, with the support of IT and human resources.
resourc
One of the important decisions was about consolidating the 31 DC network into a more
responsive and cost efficient supply system. Exhibit 115 gives the current DC network.
Exhibit 16 gives the specific locations of the DCs and product types being supplied. The
proposed DC network and locations are given in Exhibit 17. This network would consist of
nine regional DCs (RDCs) and two national DCs (NDCs). Exhibit 18 gives the before and
after structure of flows between DCs and outlets. The rationale for this proposal is given in
Annexure 1.
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The NDCs would distribute to over 700 stores nationally. The most significant change and
challenge for NDC was to convert its operations from servicing just over 238 NSW stores to
servicing nine RDCs and over 700 stores nationally.
For example, the Sydney NDC was one of the two NDCs in Australia. The other was
Mulgrave Grocery in Melbourne. Sydney NDC would range ambient products such as slow
moving grocery and general merchandize lines. It would service Sydney and MelbourneMelbou
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Metro stores directly from the NDC and service all other stores via their respective RDCs.
Delivery frequencies would change from daily store deliveries to once or twice a week. For
example, Yennora DC would move 700,000 cartons in a seven day operation.
operation. Sydney NDC
would move 1.3 million cartons, previously a six day operation.
The RDCs, such as Sydney and Wyong RDCs, would service supermarkets with fast moving
lines. They would be a composite facility, providing fast moving grocery, general
merchandize,
third of the goods supplied would be from Sydney or Melbourne NDCs. Reducing the 31
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e, frozen, locally manufactured and all chilled and fresh products to stores. Two
DCs into 11 multi-temperature sites would reduce DC operating costs by $14m in FY08.
Two-
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Supply Chain
Project Mercury's mission was to implement the world's best practices in supply chain
management to provide a better shopping experience for the customers each and every time.
The supply
upply chain strategy would not be just about
abou DCs and transport, but would involve
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every part of the supermarket’s

supermarket’ss business. This would identify different areas for
supermarket’
improvement such as:
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• The ‘flow through’ of products from suppliers to stores with less handling and lower
cost along the way (Exhibit 19)
• Product movement nt through the supply chain ‘ready to fill’ directly onto store shelves
• The right amount of stock arrivals at the store when the stores need it
• Inventory management in the supply chain and forecasting stock requirements at DCs
and stores
• The efficiency and effectiveness of the transport network (Exhibits 20 and 21)
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The SCET, in partnership with the buying and marketing team, were working with the
suppliers to achieve these improvements.
Systems to Support Supply Chain Strategy
The SCET identified possible benefits of implementing IT systems throughout the supply
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chain. Hence the team was in a process of considering inclusion of following systems to
support supply chain strategy as a part of Mercury Project.
IT
IT systems would play a major part in implementing supply chain strategy. The aim was to
ensure the maximum service level to the customer with minimum inventory levels and
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operating costs. All components of the supply chain (including suppliers) would be linked
electronically with much greater coordination
ordination between their operations. Annexure 1
provides a description of the IT systems.
IT would deliver maximum benefit to the business from the use of technology for the lowest
cost. The systems associated with IT were Warehouse Management System (WMS), (WM
Transport Management System (TMS) and Replenishment System. These were already in
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use for different operations in DCs and stores. A revamped form of these systems would be
executed as a part of Project Mercury. Broadly, following programmes
programme
program under IT
mess would be un
systems:
• Automatic store replenishment with AutoStockR

• DC replenishment with StockSMART
• Computer-based
based ordering and receiving for direct store deliveries (DSD)
• Tracking stores stock on hand with Perpetual Inventory
•
•
Better managing the flow of products
Operations of DCs through WMS
cts into and out of DCs with enhanced TMS
In short, the following programmes in revised form would be executed as part of the
N
IO
Mercury Project.
• WMS
• TMS
• Replenishment System
T
WMS
EC
WMS, a database-driven
driven computer programme,
program would be an integral part of Project
Mercury which controls the movement of stock, people, forklifts
forklifts, etc. within the DCs. This
was also responsible for running the DCs operating processes and information flows such as
receiving stock from vendors, picking store orders and dispatching these orders to stores.
WMS would provide significant benefits to DCs in terms of speeding up picking times and
pick accuracy.
SP
A typical warehouse of Woolworths supermarkets would receive products such as groceries,

perishables/frozen
perishables/ frozen food, bakery, deli, fresh produce, meat and liquor with more than
100,000 lines. The number of cartons received per year would be 680 million and the number
of pallets received per year would be 8.5 million.
Woolworths supermarkets were facing the following operational issues which led to
implementation of WMS under Project Mercury:
implementation
IN
Receiving
• Full screen receiving with invoices from the drivers

• No handheld receiving at the docks
• No advanced shipment notice receiving

• No Express Receiving - Lower Productivity
Picking
PY
• Picking with labels
• No Hands free picking
• Less accurate and productive especially Non CLS picking
Replenishment of pick slots
CO
• Triggering of replenishments not based on real-time
time balance on hand
Loading
• Manual paper based loading

• Consolidation without using the system
• No visibility of loading status
Miscellaneous
•
•
Insufficient pick slots for the products
Inefficient management of despatch lanes
N
IO
• No updating of put-away priorities
• No optimization
ation of secondary freight
• No concept of umbrella
mbrella warehousing
• No proper management of warehouse mark- mark-outs
mark -outs
outs
• Produce warehousing managed by different system
T
• Limited cross-docking
docking and flow-
flow
flow-through
-through
through — mostly manual
• Paper based picking for interstate stores and warehouse transfers
• No capability of rejecting stock before put
put-away was performed
EC
• No advance shipment notice from vendors — no EDI documents to and from the
warehouses
This system would be one of the components of end-to-end

end supply chain strategy which
considerati
supported RDCs and NDCs. The key considerations for redesigning WMS would be safety,
accuracy and cost. The new features of WMS would be:
SP
• All product categories in composite multi

multi-temperature DC
• Voice-enabled
--enabled
enabled processes (picking, forklift drivers)
• Cross-dock
Cross-
Cross -dock
dock processes (NDC and vendor)
• Dynamic pick locations
locations (multiple slots, rotating slots)
• RF loading across multiple temperature zones
• Random weight processes
IN
WMS strategy would also be set up for pilot site selection and rollout.
Following would be the business benefits of implementing WMS:
• A singlee integrated WMS would be implemented to support the future network of multi-
multi
temperature distribution centres (RDCs)
PY
• QA management would allow quality assurance of pallets received at the DC and
rejection of low quality produce products
• Products would be maintained
aintained with quality suffix and inter item transfers would be
performed
• Increased picking accuracy
• Increased labour productivity
Reduced cost of printing and distributing picking documents
CO
•
• Reduced cost of re-keying confirmations
keying order amendments, picking confirmations
• Hands free and eyes free – makes picking easier (helpful for items like frozen foods
which were handled through gloves)
• Real time stock updates
• Would enable
nable business to inquire and maintain the cross dock information by transport
order, thus enhancing the visibility of the incoming cross dock Unit Load DevicesDevice
(ULDs) from NDC and the cross dock ULDs that had arrived in RDC but were not yet
loaded, thus giving the RDC a better planning capability
•
•
•
Reduced manual intervention required to manage cross dock
ambient component of the facility

Would satisfy
N
dock ULDs in the warehouse
Automation of pallet handling (put away, replenishment, empty pallet handling) in
atisfy a 2011 design year OM throughput of approximately 225 million cartons

IO
per year across all categories
DCs would also consider ‘voice picking – hands and eyes free
free’ technology that eliminates
need for paper during the order picking process. It would be the best method for improving
picking in DCs. It was expected that accuracy of picking would increase substantially. This
T
would be a step towards store friendly principles.
Company data
EC
TMS
Primary Transport
Primary transport means movement of product from vendors:

• to the NDC/RDC network
SP
• into an interstate DC for full truck load (FTL) deliveries from vend
vendors
• DSD
Shuttle Transport
This was a movement of product between DCs (local, intrastate and interstate DCs).
IN
Secondary Transport
This was a movement of product from the RDCs or NDCs to the stores and the return of
ULDs, i.e. roll cages, dollies, crates, etc.
PY
TMS, a web-based software would help manage primary freight (movement of goods from
vendors to DCs). It would keep track of the shipments in the transportation process. This
would enable the operators to plan accurately and direct the movement of trucks to get the
stock arriving in the DCs at the right time for the lowest cost. This system was used by
Walmart, Tesco and other large retailers overseas.
CO
TMS would be introduced in Project Mercury's supply chain strategy after identifying the
following benefits:
• Improved delivery to DCs

• Utilization of Woolworths’’ volumes to consolidate shipments
• Greater control over flow-through and cross-docking
docking
• Improved visibility of product movement in the supply chain
• Lower inventory
ansport of stock across the supply chain, from vendors to

The SCET would manage the transport
N
DCs and to stores. The transport operations, serving 700 supermarkets would be one of the
largest in Australia.
IO
CAPs, a Vehicle Scheduling and Routing System would help plan the transport to store stores in
case of access restrictions to stores due to curfews or physical restrictions. The system would
map out the best possible routes and sequences for trucks to take.
T
Replenishment System
Various replenishment programme

programmes
program mess would be initiated as part of the Mercury initiative:
EC
• Automation of the existing replenishment system

• Fresh Food, Produce and DSD integration into automated replenishment system
• Integration of DC forecasting process and store replenishment process
Following would be the major replenishment systems considered for implementation:

SP
• StockSMART – Improved DC level forecasting including promotions

• AutoStockR – Store forecasting and replenishment
• WOWLink – Improved information to vendors
• DSD Conversion Project
• Self Ready Trays
• Roll Cages
IN
A major
major task would be to build the link between store and DC replenishment to support an
integrated solution.
Following would be the future considerations of replenishment system:
• Store level promotional forecasting/replenishment

• Mix of aggregated store forecasts (fast movers) and DC-level
level forecasts (slow movers) for
PY
DC replenishment
• Introduction of system forecasting and replenishment into fresh food categories
• Closer relationships with key vendors to support flow-through
StockSMART (DC Forecast Based Replenishment)
StockSMART would be an automated forecasting and replenishment system for stock in
CO
DCs. It would be implemented in all DCs for grocery and general merchandize
merchandi items.
Service levels would be expected to improve by over 2% while 3 days worth of inventory
would be removed from the DCs.
AutoStockR (Store Forecast Based Replenishment)
AutostockR or Automated Stock Replenishment would be a computer assisted ordering

system that would order stocks for departments in supermarkets, including liquor. This
system would be a key foundation of the Mercury Project. AutostockR would provide a
N
forecast for each item in every supermarket across the country. This forecast would enable
service levels and
supply chain to gain greater vision of store requirements, improving DC serv
the way in which stock would deliver to supermarkets. AutostockR would be running in
IO
over 100 supermarkets. The potential benefits of this system would be improved
productivity, reduction in store out of stocks, unnecessary inventory in stores, and double
handling in stores.
WOW Link
T
WOW Link would be an electronic resource, via internet to monitor Woolworths

information from across the buying and supply chain areas. This would provide
EC
Woolworths and its trading partners access to:
• Forecastt Replenishment plans

• DCs inventories
• Details of vendor's purchase orders
• Upcoming promotions
• Service level information
SP
• Allocation details and Woolworths

Woolworths’ product records
• A vendor's logistics performance (via scorecards and alert messages)
Developed in collaboration
collaboration with a pilot team of 8 trading partners, WOW Link would be a
three phased system. The initial phase would provide a basic one way flow of information
between Woolworths and its trading partners. The second phase would enable some
IN
between the two in terms of exchanging a range of information. The third phase
interaction between
would provide full interaction and collaboration between Woolworths and its trading
partners.
DSD Conversion Project
Woolworths' 15% of volume was supplied direct to stores from rom the vendors. Another
valuable component of the Mercury Programme would be the DSD Conversion Project. This
PY
project was aimed at converting 50% of DSD vendors over to warehouse supply through
Woolworths’ DCs. Benefits would be experienced not only for Woolworths
oolworths but also for the
vendors. There would be an increase in delivery frequency to the stores, the removal of
congestion at stores’ back docks and reduction in the number of invoices to be processed.
Shelf Ready Trays
CO
Shelf Ready Trays were packed trays wrapped with film or a cardboard sleeve that could
directly be fitted on the shelf for display. These would be identified as efficient shelf
replenishment methods which would improve productivity as well as occupational health
and safety at store level and reduce the end-to-end
-to-end supply chain costs.
Roll Cages
Roll Cages were ULDs for transporting productss from the DCs to the stores, rather than
N
using a pallet. Roll Cages reduced the number of times stock was touched at the store and
thus reduced the handling
andling costs. Roll Cages would be introduced in Woolworths DCs and
stores in Perth and WA. The SCET would proceed with the next stage of the Roll Cage
implementation to other parts of the country.
IO
The rationalization of DCs, combined with new cross-dock
cross and flow-through processes,
supported by the new WMS, would utilize the site advantages and further reduce both cost
and stock levels, and the cost of transport from DCs to stores. Reducing the volume of DSD
and introducing electronic store delivery would reduce costs by utilizing DC’s
T
infrastructures as well as eliminating administration costs. For stores, the introduction of

phased replenishment store restocking capabilities, along with store ready ULDs (eg. shelf
ready trays and roll cages) would reduce overall costs.
EC
[http://www.myfuture.edu.au/services/default.asp?FunctionID=5104&IndustryGroupID=240]
http://www.myfuture.edu.au/services/default.asp?FunctionID=5104&IndustryGroupID=240
Looking Forward
Michael Luscombe was looking for a BPO service provider for his company. He expected
that the BPO partner should not only see from the IT perspective but should also have a
SP
strategic insight for analyzing the financials of the company. The BPO service provider
should be able to visualize the implications of restructuring the distribution network along
with implementation of various IT systems. Most important was the position of the
company in the competitive world of other retail companies
compan in terms of service and cost.
IN
Exhibit 1
Management
I. Corporate Support Group (2001)
PY
Name Designation
1 Bradley, Steve General Manager, Corporate IT
2 Brookes, Bernie Chief General Manager, Supermarket Buying and Marketing
3 Corbett, Roger Group Managing Director/Chief Executive Officer
4 Howard, Judy General Manager, Human Resources
CO
5 Jeff, Rohan General Manager, Corporate Services
6 Luscombe, Michael General Manager,
ger, Supply Chain
7 Mcmorron, Dick Merchandize
Merchandi
Chief General Manager, General Merchandizze
e
8 Onikul, Naum Chief General Manager, Supermarkets Operations
9 Reid, Gary General Manager, Business Development
10 Wavish, Bill Finance Director
N
II. Supermarkets Executive Team (2001)
IO
Name Designation
1 Flood, Tom General Manager, Supermarkets Operations
2 Foran, Greg General Manager, Merchand

Merchandizing Logistics,
General Merchandi
Merchandize and Private Label
T
3 McFadzean, Tony General Manager, Liquor

4 Pokorny, Peter General Manager, Fresh Foods
EC
5 Sidler, Hans General Manager, Petrol

6 Winn, Penny General Manager, Supermarkets Retail Support
III.. Sup
III Supply
ply Chain Executive Team (2001)
Name Designation
SP
1 Hill, Paul National Supply Chain Performance Manager

2 Hope-Johnstone,
Hope-
Hope-Johnstone,
Johnstone, Craig National Supply Chain Operations Manager
3 Kochanowicz, Daniel National Supply Chain Strategy Manager
4 Luscombe, Mich
Michael General Manager, Supply Chain
5 McLaughlin, Charles National Transport Manager
IN
6 Ramsay, Peter Divisional Programme Office Manager
http://www.woolworthslimited.com.au/resources/files/2001financialreport.pdf accessed on Jan 7, 2008]

[[http://www.woolworthslimited.com.au/resources/files/2001financialreport.pdf
IV. Supermarket Buying and Marketing Team (2000)
Name Designation
1 Aylen James Senior Business Manager, Grocery 2
PY
2 Brookes, Bernie Chief General Manager, Supermarket Buying and Marketing
3 Custance, Gavin Senior Business Manager, Inventory
4 Dhnaram, Greg Senior Business Manager, State Liaison
5 Dunn, Ian Senior Business Manager, Trade Development and Relations
6 Hillen, Bevan Senior Business Manager, Deli/Bakery
CO
7 Hunt, David Senior Business Manager, Merchandizing
ing Support
8 Johnston, Murray Senior Business Manager, Grocery
9 MacDonald, Ian Senior Business Manager, Perishables
10 McAtamney, Jon Senior Business Manager, Produce
11 McEntee, Pat Senior Business Manager, Meat
12 Mintzis, Liz Senior Business Manager, General Merchandi
Merchandize and Cleansing
13 Nahmani, Avner Senior Business Manager, Liquor and Tobacco
14
15
O’Brien, Grant
Pokorny, Peter
N
Senior Business Manager, Marketing
General Manager, Fresh Foods
IO
T
EC
SP
IN
PY
V. Career Progression of Woolworths’ Senior Management Team
(Related to Supermarkets)
Name 1997 1998 1999 2000 2001

Bradley, Steve Corporate Manager Corporate Manager Corporate Manager
Information Technology Information Technology Information Technology
CO
Brookes, Bernie General Manager General Manager Chief General Manager Chief General Manager Chief General Manager
QLD Supermarkets QLD Supermarkets Supermarkets Buying Supermarkets Buying Supermarkets Buying
and Marketing and Marketing and Marketing
Clark, Grant Supermarkets Manager
Region 6 (NSW, ACT)
Corbett, Roger Managing Director Chief Operating Officer Group Managing Director Group Managing Group Managing Director
Retail Chief Executive Officer Director Chief Executive Officer
ON
Cornell, Ian Chief General Manager Chief General Manager
Supermarkets Supermarkets
Flood, Tom General Manager General Manager General Manager General Manager General Manager
WA Supermarkets WA Supermarkets VIC Supermarkets VIC Supermarkets Supermarkets Operation
Luscombe, Michael General Manager General Manager General Manager
Supply Chain Supply Chain Supply Chain
Onikul, Naum General Manager General Manager General Manager Chief General Manager Chief General Manager
TI
VIC Supermarkets VIC Supermarkets Supermarkets OOperation Supermarkets Operation Supermarkets Operation
Roberts, Trevor General Manager General Manager General Manager
Distribution Distribution Distribution
Wavish, Bill EC Chief Financial Officer Finance Director Finance Director
Winn, Penny Store Operations National Manager National Manager General Manager
Manager Ezy Banking Ezy Banking Supermarkets Retail Support
Big W
http://www.woolworthslimited.com.au/shareholdercentre/financialinformation/annualreports.asp (1997-2001) accessed on Jan 8, 2008]

[http://www.woolworthslimited.com.au/shareholdercentre/financialinformation/annualreports.asp
SP
IN
Exhibit 2
Project Refresh
In the 1999 Annual Report (published in October 1999), Chairman, John Dahlsen wrote:
PY
In August 1999, we announced Project Refresh, an exciting and important programme programme which
identified the developing trends in the retail environment and the need for changes designed to deliver
increased customer focus and shareholder wealth.
Project Refresh will give management the opportunity to build on the organization's market position,
by a rigorous focus on customer needs, a more responsive management team, better supplier
relationships and best practices in cost control, cost measurement and tracking.
CO
Critically, Project Refresh will see the divestment of non-core
core assets and the focusing of attention and
funds on the core businesses. It will result in important structural changes and the need to continue
the process of review and re-invigoration
invigoration of the organizations’ core value proposition – a Customer
Centric Business.
The 2000 Annual Report stated the following:
In August last year, we announced the implementation of Project Refresh. It is a significant and far
reaching initiative which covers all aspects of our business as we re-examine
re-examine
re- examine everything we do.
N
Whilst the supermarkets’ central Shared Service Buying function is the most recognizable change for
our suppliers, Project Refresh also covers supply chain, IT, human resources, organizational redesign
and cost of doing business programmes.
IO
The initial benefits will be extended to all areas of our businesses and will become part of our
operational and corporate culture. Every effort is being made to achieve our gains without
redundancies,
edundancies, by retraining and redeployment. The members of the teams working on Project Refresh
are drawn from every state
tate in Australia with around 30 people working on the various initiatives at any
one time.
T
Supermarkets Shared Services
The change to central shared service

service buying
buying and marketing was the result of a restructure of the
business from a state based buying and marketing structure to a single functionally based business.
EC
Some of the main building blocks for the new structure – which we have called ‘Shared Services’ –
were developed by examining best practices in supermarkets operations from around Australia and
the world.
The new structure replaces a system of six state buying and marketing operations and enables us to
buy most products centrally, while still maintaining state buying in some fresh foods categories. It has
the capacity to considerably increase efficiency, eliminate duplication, improve supplier relations and
drive supply chain economies.
SP
The new shared services function allows us to buy more effectively, to offer more consistent quality
fresh food and increase value through better buying and reduced pricing. Our decisions will also be
better informed because of the establishment of cross-functional
cross teams, made up of people with
experience in buying, marketing, stock control and store management. The new structure will further
encourage a strong service culture, enabling business managers to provide quicker service and better
support to store managers and their teams.
IN
Supply Chain
Chain
As the year progressed, the considerable strategic advantages of our major new warehousing and
distribution facilities became more apparent. We saw improved in-stock
in positions, particularly at the
Christmas and Easter peak trading periods. Following a comprehensive review of our supply chain
management, we have formed a single supply chain structure which applies both technology and
logistics as one function for the total company. It is expected that this will bring significant advantages
to the company, in stock flow, stock turns and in-stocks. Much more remains to be done in this area
and the financial rewards we will generate from a total supply chain management strategy are
considerable.
The 2001 Annual Report stated the following:
PY
This far reaching initiative covers all aspects of our business as we examine everything we do with a
view to saving costs, increasing sales and improving effectiveness. In particular, the areas of cost
savings cover:
• Examination of all line item expenses

• Improvements to the total supply chain and its over-arching IT
CO
• in-
Functional reorganization to a national or shared service basis whilst increasing regional and in
store empowerment.
Earlier this year we announced that we expect annual savings as a result of this initiative to reach
$185 million, of which $50 million had been realized. In the global environment which influences all
aspects of our business and against which we continuously benchmark ourselves, change and cost
saving are perpetual. Initially, as a result of Project Refresh and increasingly as a consequence of
continuous change, we now expect annual savings over the next five years to increase to
approximately 1% of sales. That is further savings exceeding $200 million per annum.
Supermarkets Buying and Marketing

N
The Project Refresh changes began in August 1999 with a review of how we conduct our
supermarkets buying and operations. This resulted in a decision to change our organizational
structure from a divisionally based group of businesses in each state to a single, functionally based
IO
business. The first concrete realization of this structural change was effected in June 2000, when
supermarkets moved to a national shared service environment for buying and marketing.
In line with our objectives of improving the ranging, layout, competitive pricing and promotional offer to
our customers, this was the first major approach to a centralized management environment in
supermarkets. It laid the foundation for a streamlined management structure in finance, human huma
T
resources, operations and supply chain.
In its first full year of operations, supermarkets buying and marketing put in place new measures to
improve communication throughout stores, including the in-house
in television programme – WOW TV,
EC
and Merchant of the Year competitions to encourage competition between store teams to build the
best store displays and gain the best incremental sales.
Supplier Relations
The quality of our relationship with our supplier partners is an important ingredient in providing a
continually improving offer to our customers.
SP
Our supplier focus groups that have been run each quarter demonstrate an improving supplier
relationship and a genuine focus on sales with our suppliers. Suppliers have been pleased with the
consistency and uniformity of our interaction. Feedback shows improving supplier relationships with a
genuine mutual focus on increasing sales.
Later in the year, we will be hosting a dinner to thank our suppliers and present the Suppliers of the
Year Awards. These awards provide us with a great opportunity to recognize the outstanding
IN
teamwork between Woolworths and its many suppliers.
Supply Chain
end linkage of the activities of buying and marketing and

Our supply chain is defined as the `end to end’
store operations. In simple terms, the supply chain strategy focus is on being store friendly. This will
ensure that the appropriate products get on the shelf faster and cheaper whilst using less inventory.
A high level strategy for the Woolworths supply chain has been based upon Woolworths’ strong
existing supply chain network, and on world’s best practice, developed during study tours of major
retailers in Europe and the USA. Implementation plans for the strategy are being developed, and will
be phased in over the next five years.
PY
A significant amount of supply chain work in the financial year revolved around the development of IT
systems to support inventory management in the Supermarkets Division. Four major projects
underway are IT systems to support:
• Ordering or merchandize into our DCs

• Ordering of merchandize into our stores
• Better visibility of stock holding across the company
CO
• Better management of stock delivered directly to our stores from suppliers
Other projects undertaken in the year under review include:
• Development,
lopment, and implementation of supply chain integration plans for the converted former
Franklins stores
• Rationalization of the Victorian distribution facilities, including closure of one site and a major
upgrade to the Mulgrave Distribution Centre
• Centralization
zation of the Dick Smith Electronics (DSE) distribution facilities from a multi-site
multi to a one-
site operation, based at Chullora in Sydney
• Development of integration plans for the Tandy Electronics supply chain into the DSE business
•
•
Extension of the BIG W Warwick,
this business expands
N
arwick, Queensland distribution facility to handle increased volumes as
Brismeat operation – design, tender and commencement of works to refurbish and extend the
Ipswich Meat Facility.
IO
Merchandize Logistics
During the financial year, the Woolworths supply chain merchandize

merchandi logistics department was formed,
merchandi through the supply
with the aim of working with our suppliers to improve the flow of their merchandize
his is an area with potential to remove substantial costs, for both suppliers and for
chain. This
T
Woolworths.
Woolworths Transport
EC
The Woolworths National Transport Department was formed as part of the new supply chain
structure. This group has identified a number of strategic initiatives that will be positive for the
Woolworths group and work has commenced on implementation of these initiatives. The National
Transport Department has also provided a national approach to transport contract management, with
performance based service level agreements, which are providing immediate benefits benefi to the
company.
IT
SP
Supply chain system improvement was the main focus of IT. We have a major development
programmeme underway over the next three years, that enables and supports our overall supply chain
strategy. The main achievements in the last year were:
• The implementation of a new warehouse replenishment system (StockSMART) to better control

the inventory levels of our everyday stock
•
IN
The pilot of a promotional warehouse replenishment system

• The pilot of an AutoStockR
• The development of more sophisticated systems to control the ordering and delivery of DSD
We are confident that in the next year, as we roll out the pilot systems, we will gain significant
in
improvements in our in-stock positions, as well as a reduction in our overall stock levels.
We have rolled out new stores back-office infrastructure to over 600 supermarkets. This provides a
in-
standard, Microsoft Windows Platform, in every supermarket which will be the basis for many new in
store IT applications in the coming years.
PY
Cumulative savings $9.3 billion over 9 years
Level III - Development

Level II – Logistics
Level I – Reorganization / Line items
CO
99 00 01 02 03 04 05 06 07 08
09
2500
Cumulative savings to date = $0.5b 2073
2000 1858
N 1663
Annual savings $m
1500
1197
IO
1000 796
632
517
500 382
163
0
T
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

EC

SP
IN
Exhibit 3
Major Events
Year Events Location
PY
1924 (December First store opened: Woolworths Stupendous Old Imperial Arcade,
5) Bargain Basement Pitt Street, Sydney
1933 Expanded to 23 stores
1936 (April 1) Bought eight stores from Edments Ltd

th
1955 200 store was opened Civic Center, Canberra
CO
First supermarket was opened Beverly Hills, Sydney
1960 Acquired Rockmans chain of women’s clothing Sydney
stores
Acquired Flemings supermarket
1970 First discount department store, Big W was
opened
1981 Acquired Dick Smith Electronics consumer
electronics chain
1985 Acquired the Australian stores of the American Eastern Australia
1987
1989
company, Safeway Inc (126 stores
stores))
Woolworths and Safeway supermarket launched
“The Fresh Food People” campaign
Acquired by Industrial Equity Limited (IEL)
N
IO
1993 Woolworths Limited floated on the Australian
Stock Exchange at $2.45 a share
1996 First Plus Petrol outlet was opened Dubbo, NSW
1997 First convenience store, Metro was opened Sydney
1998 Internet HomeShop service began Sydney
T
1999 (August 11) First Ezy Banking service to customers was Queensland
launched
1999 (August 31) Launched Project Refresh
Refresh to reorganize the
business
EC
2000 Sold Rockmans chain of women’s clothing

stores
2000 (December Acquired Internet grocery retailer
11) GreenGrocer.com.au
2001 (April 10) Acquired 224 Tandy Electronics stores from
Canada based InterTan Inc
2001 (June 4) Purchased 67 of Franklins' 282 supermarket
SP
stores from the Hong Kong

Kong-based Dairy Farm
Group
http://en.wikipedia.org/wiki/Woolworths_Limited accessed on Jan 19, 2008]

http://www.answers.com/topic/woolworths
[http://www.answers.com/topic/woolworths-limited?cat=biz-fin accessed on Jan 19, 2008]
http://www.woolworthslimited.com.au/news/mediareleases/asx_archive.asp accessed on Jan 19, 2008]
[http://www.woolworthslimited.com.au/news/mediareleases/asx_archive.asp
IN
Exhibit 4
Retail Brands
Supermarkets General Merchandize Wholesale
PY
Food and Liquor Petrol Discount Stores Convenience Consumer
nsumer
Groceries Stores Electronics
Woolworths Woolworths Plus Petrol Big W Metro Dick Smith Australian

Liquor (in Woolworths, Electronics Independent
Safeway and Wholesaler
Big W) (AIW)
CO
Safeway Safeway *Rockmans Dick Smith
Liquor Powerhouse
Food For Dan Murphy's **Crazy Prices Tandy
Less Electronics
Flemings First Estate **Woolworths
Variety
Franklins Mac's Liquor
BWS
[http://en.wikipedia.org/wiki/Woolworths_Limited accessed on Jan 22, 2008]

N
Bold italicized brands are served by the DCs under examination. *Sold in 2000. **Sold in 2001.
fin accessed on Jan 22, 2008]

[http://www.answers.com/topic/woolworths-limited?cat=biz-fin
T IO
EC
SP
IN
Exhibit 5
Brandwise Outlets
Retail Brand 1996 1997 1998 1999 2000 2001
PY
June 23 June 29 June 28 June 27 June 25 June 24
Supermarkets (Food and 505 518 542 559 585 604
Groceries)
Woolworths Liquor - 38 38 42 41 130
Safeway Liquor*
Dan Murphy's*
CO
First Estate*
Mac’s Liquor
BWS*
Plus Petrol - 12 49 98 137 166
Big W 71 78 82 85 87 90
Rockmans 246 252 257 258 - -
Crazy Prices 74 85 100 116 134 -
Woolworths Variety
Metro*
1 1 N 1 1 1 -
IO
Dick Smith Electronics 107 113 115 119 123 138
Dick Smith Powerhouse - 1 2 4 6 9
Tandy Electronics - - - - - 222
Australian Independent
Wholesaler*
T
*Data not available.
http://www.woolworthslimited.com.au/shareholdercentre/financialinformation/annualreports.asp (1997-2001) accessed on Feb

EC
4, 2008]
SP
IN
Exhibit 6
Retail Industry Turnover in Australia
Year Turnover Growth
PY
($b) (%)
1998 181.0 N/A
1999 185.1 2.3
2000 192.9 4.2
2001 196.6 2.0
Forecasts
CO
2002 202.5 3.0
2003 207.6 2.5
2004 211.9 2.0
2005 217.3 2.5
2006 223.4 2.8
2007 229.8 2.9
2008 235.8 2.6
IBIS Industry Division Report

N
http://invest.vic.gov.au/NR/rdonlyres/ey7ysvb3esmeunmd2eur7kilsdr74u35dln3hgqve5cbmq5x4orn3azcf2hplzdbanc6xruwz5q
[http://invest.vic.gov.au/NR/rdonlyres/ey7ysvb3esmeunmd2eur7kilsdr74u35dln3hgqve5cbmq5x4orn3azcf2hplzdbanc6xruwz5qr
7b/OverviewofVICRetailind8.pdf accessed on Feb 18, 2008]
IO
Exhibit 7
State-wise
wise Population and Retail Income Distribution
T
States Capital Area Population Population Retail

(sq km) (‘000) (%) Income (%)
EC
New South Wales (NSW) Sydney 801,352 6371.7 33.6 34.2

Victoria (VIC) Melbourne 227,590 4645.0 24.5 23.8
Queensland (QLD) Brisbane 1,734,190 3655.1 19.3 19.2
Western Australia (WA) Perth 2,532,422 1851.3 9.8 9.8
South Australia (SA) Adelaide 985,324 1467.3 7.7 7.6
Tasmania (TAS) Hobart 67,914 456.7 2.4 2.2
Australian Capital Territory Canberra 2,349 311.9 1.6 2.2
(ACT)
SP
Northern Territory (NT) Darwin 1,352,212 210.7 1.1 1.0

Total 7,703,353 18969.6 100 100
[http://www.citypopulation.de/Australia-UC.html
http://www.citypopulation.de/Australia accessed on Feb 20, 2008]
IN
Exhibit 8
Major Retailers’ Supermarkets in Australia (1998)
PY
CO
Franklins, Submission, pp 1.2-1.3 N
http://www.aph.gov.au/senate/committee/retail_ctte/report/c02.htm accessed on Feb 26, 2008]
[http://www.aph.gov.au/senate/committee/retail_ctte/report/c02.htm
IO
Exhibit 9
Map of Australia
T
EC
SP
IN
[http://www.lonelyplanet.com/mapshells/australasia/
http://www.lonelyplanet.com/mapshells/australasia/ australasia/australasia.htm
australasia/austra accessed on Feb 28, 2008]
Exhibit 10
State-wise Distribution of Supermarkets
PY
States 1997 1998 1999 2000 2001
June 29 June 28 June 27 June 25 June 24
New South Wales (NSW) and Australian 162 174 178 192 199
199
Capital Territory (ACT)
Queensland (QLD) 106 111 111 112 115
CO
Victoria (VIC) 130 133 145 149 151
South Australia (SA) and New Territories 43 45 45 51 53
(NT)
Western Australia (WA) 48 50 52 52 57
Tasmania (TAS) 29 29 28 29 29
Total 518 542 559 585 604
http://www.woolworthslimited.com.au/resouces/files/2001financialreport.pdf accessed on Mar 3, 2008]

[http://www.woolworthslimited.com.au/resouces/files/2001financialreport.pdf
Exhibit 11
N
Regional Distribution of Supermarkets
T IO
EC
SP
IN
Region 1: WA Region 2: SA, VIC, NSW, NT, WA Region 3: VIC Region 4: VIC, TAS
Region 5: VIC, NSW Region 6: NSW, ACT Region 7: NSW Region 8: NSW
Region 9: QLD, NSW Region 10: QLD
[http://www.woolworths.com.au/Vendors/contact/regions.asp accessed on Mar 6, 2008]

Exhibit 12
Supermarkets Product Categories
PY
Food
Perishable
Produce Other
Meat (Other than Deli/Bakery Non Food
(F&V) Food
meat) Liquor Petrol
Chilled/Frozen Ambient
CO
oolworthslimited.com.au/shareholdercentre/financialinformation/annualreports.asp accessed on Mar 13, 2008]
Purchase within Australia Share of Australian

Produce
$m % %
F&V 1280 97.5 25.0
Meat 1140 100.0 14.3
Beef 480
Lamb
Pork
Chicken
Small goods
200
95
185
177
N
IO
Dairy & Eggs 627 94.0 9.2
http://www.woolworthslimited.com.au/resources/woolies+august+2001.pdf accessed on Mar 13, 2008]
[http://www.woolworthslimited.com.au/resources/woolies+august+2001.pdf
Exhibit 1
13
T
Financial Summary of Supermarkets
$m
EC
1997 1998 1999 2000 2001

June 29 June 28 June 27 June 25 June 24
(53 (52 (52 (52 (52
weeks) weeks) weeks) weeks) weeks)
Food, Liquor and 12,583.8 13,374.5 14,247.0 15,251.3 16.772.3
Sales ($m) Petrol - - 316.4 472.5 747.1
Total Supermarkets 12,583.8 13,374.5 14,563.4 15,723.8 17,519.4
Cost of doing business (%) - - 21.8 21.9 21.4
SP
EBIT to sales (%) 3.1 3.3 3.0 3.3 3.5

Food, Liquor and 397.6 453.2 451.5 534.0 614.0
EBIT ($m) Petrol - (3.9) (2.9) (1.0) 4.6
Total Supermarkets 397.6 449.3 448.6 533.0 618.0
http://www.woolworthslimited.com.au/resources/files/2001financialreport.pdf accessed on Mar 16, 2008]

IN
Exhibit 14
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
http://www.woolworthslimited.com.au/resources/files/2001financialreport.pdf accessed on Mar 27, 2008]

[[http://www.woolworthslimited.com.au/resources/files/2001financialreport.pdf
IN
Exhibit 15
DC Network
PY
Central West Zone - WA Northern Zone
DC 5 DC 5
CO
Eastern Zone
DC 8
Central West Zone - SA/NT

DC 4
N Southern Zone - Victoria
DC 5
IO
Southern Zone - Tasmania
DC 4
T
[Company data]
Location Zone Type Total

EC
Ambient Produce Chilled/Frozen

Perth (WA) Central West 3 1 1 5
Adelaide (SA) Central West 1 1 2 4
Melbourne (VIC) South 3 1 1 5
Devonport (TAS) South 2 1 1 4
Sydney (NSW) East 5 2 1 8
Brisbane (QLD) North 3 (1)* 1 5
SP
Townsville (QLD) North 1 1

Total 17 7 (8) 7 31 (32)
*Under consideration
[Company data]
Company data]
IN
Exhibit 16
DC Locations
DC State Name Location Type
PY
1899 NSW Moorebank DC Moorebank Produce
1904 NSW Helles Avenue DC Moorebank Ambient
1944 NSW Yennora Yennora Ambient
1979 NSW Sydney RDC - Ambient Minchinbury Ambient
1905 NSW Hume AIW - Liquor Alexandria Ambient
1911 NSW Aiw Warwick Farm Warwick Farm Ambient
1947 NSW Sydney RDC - Fresh Minchinbury Produce
CO
1910 NSW Versacold Arndell Prk Sfd DC Arndell Park 3rd Party
2899 QLD Everton Park DC Everton Park Ambient
2920 QLD Acacia Ridge DC Acacia Ridge Ambient
2908 QLD Beenleigh Road DC Acacia Ridge Ambient
2953 QLD Versacold Satellite Warehouse Murarrie 3rd Party
2919 QLD Townsville Produce DC Bohle Townsville Produce
3902 VIC Hume DC Broadmeadows Ambient
3919 VIC Mulgrave Produce DC Mulgrave Produce
3989 VIC Clayton DC Clayton Ambient
3911
3908
5903
5910
VIC
VIC
SA
SA
Melbourne NDC
Versacold Laverton DC
Gepps Cross Produce DC
Adelaide RDC - Ambient
N Noble P
Park
Laverton North
Epps Cross
Gepps Cross
Ambient
3rd Party
Produce
Ambient
IO
5911 SA Adelaide RDC - Liquor Gepps Cross Ambient
5918 SA Croydon DC Ridleyton Chilled
4899 WA Miles Road DC Kewdale Ambient
4901 WA Miles Road DC Kewdale Ambient
4905 WA Perth Produce DC Perth Airport Produce
T
4916 WA Bunbury DC Boyanup Road Ambient

4903 WA Versacold Spearwood RDC - Freezer Spearwood 3rd Party
7180 TAS Derwent Park
Park DC Derwent Park Chilled
EC
7380 TAS Breadalbane DC - SIW Breadalbane Ambient

7385 TAS Prospect DC - SIW Prospect Ambient
7191 TAS Devonport Produce DC East Devonport Produce
All 3rd Party were for chilled.

[Company data]
SP
IN
Exhibit 17
Proposed DC Network
PY
CO
N
IO
[Company data]
T
Location of Proposed DCs

States Cities NDC/RDC
EC
Queensland Brisbane RDC

Townsville RDC
New South Whales Sydney NDC/RDC

Wyong RDC
Victoria Melbourne NDC/RDC
Wodonga RDC
SP
Tasmania Devonport RDC
South Australia Adelaide RDC

Western
Western Australia Perth RDC
NDC: National Distribution Centr

Centre, RDC: Regional Distribution Centre
[[Company
Company data]
data]
IN
Exhibit 18
NDC and RDC Structure
Before Suppliers
PY
CO
RDCs
After Suppliers
RDCs
N
IO
Company data
T
Exhibit 1
19
Flow Through
Throu
EC
SP
IN
[[Company
Company data]
data]
Exhibit 20
Supply Chain Transport
PY
CO
N
T IO
EC
SP
IN
[http://www.woolworthslimited.com.au/resources/woolies+august+2001.pdf accessed on April 1, 2008]

Exhibit 21
Transport Network
PY
CO
N
T IO
EC
[Company data]
SP
IN
Annexure I
Mercury Programme
PY
The Mercury Programme would be considered as a business transformation for Woolworths
supermarkets.
Following were some of the objectives of Mercury Programme:
• Changes to business to support the Supply Chain Development Programme Programme (SCDP) are wider
than just “Supply Chain” Operations
CO
• Significant changes required across supply chain, buying & marketing, IT, stores, vendors
• Co-ordinate cross-divisional
divisional activities and make it a total business strategy
• Currently stores receive stock from multiple DCs
• A Regional Distribution Centre consolidates these sites into a single point of supply for a group of
stores
• These new Distribution Centres process all merchandiz merchandize
merchandi ze
e categories, requiring multi
multiple
temperature environments
• $14M result from fractionalizing DC labour cost
• Together with composite transport, these facilities provide improved service to stores by enabling
multiple deliveries for all product categories
• 100% control of DC network
• Transport
ort benefits result from reduced number of distribution nodes N
As a part of Mercury programme WMS, TMS and Replenishment systems would be implemented.
The respective objectives were:
IO
WMS Project Objectives
Develop WMS Business Requirements required to support NDCs and RDCs of the future - for all
categories
• New Processes: Cross Dock, Carton Flow Through, Voice Picking, optimi optimized system directed
T
work sequencing, etc

• User requirements as defined by current WMS business users
• Requirements to support existing processes (interface and integration)
EC
Develop WMS strategy for existing DCs

• What should be done with existing
existing DCs from a WMS perspective
• Pilot Site selection
TMS Project Objectives
• Execution: Support the management and execution of all freight within the organization
• Visibility: Provide visibility of freight movement to buyers, vendors, carriers, DC's, stores and
SP
transport operations
• Optimization: Optimize freight movement for both inbound (from vendors) and outbound (to
stores)
• Automation: Remove much of the administrative overhead currently associated with managing
transport
• Reporting and Monitoring Decision Support: Provide comprehensive reporting and monitoring
capability for tracking operational performance and cost.
•
IN
Make decisions regarding product flows to support the new NDC/RDC flow through network
Replenishment Project Objectives
Key business requirements to be fulfilled by the future replenishment capability:

• Support store service level requirements while reducing store inventory and out-of-stocks
• Support delivery flexibility and one touch initiatives to minimize store labour
• Standardize processes/systems for store and DC replenishment across all categories
• Warehouse demand forecasting based on aggregated store demand

• Responsive to merchandizing strategies such as promotions, events, allocations, seasonality
• Key input for transport planning
• Support of flow through (Cross Dock/Reverse Pick) processes
• Provide tool to centrally manage service levels and presentation level policies
PY
• Support alternate source of supply to provide disaster contingency
• Providing medium and long range forecasts to vendors
• Provide visibility and measurement of replenishment activities
Network Model Project
Leading retailer
etailer of Australia executed network optimization project and came to a conclusion on the
CO
number of DCs to be operated.
Project Brief:
• Determine the location and number of RDC and NDC facilities.
• Capital costing of proposed DCs infrastructure.
• Determine the optimal range configuration and capacity in each facility.
• Determine the annual throughput levels guidelines on range in facilities (taking into account flow
through/XD).
• Be available for iterative use in the event that input data becomes more accurate or identified
constraint conditions deem it appropriate.
• The model is required to provide multi period outputs, to be utili
utilized as an ongoing tool as
required.
The Network Modelling Project delivered:

The expected number, location and size of the RDCs and NDCs:
N
IO
• The estimated cost of the network
• Insights
s into 2008 DC network and flows
• A network data set
• Issues for other project teams
• Next steps for network modelling process
T
Key Assumptions:
• Five product categories: Ambient, Chilled, Frozen, Meat and fish, Produce
• Management of peaks and range changeovers incorporated into network flows and DC design
projects
EC
• All produce, chilled, and meat and fish ranged in RDCs

• All national frozen lines ranged in NDCs
• All local SKUs (including frozen) ranged in RDCs
• Each market area serviced by only one RDC
• RDCs are allocated
ocated the fastest XX Ambient SKUs
• Some of which will be ranged and some of which will flow
flow-through
Analysis to date:
SP
• 500, 2000, 3500 and 5000 fastest ambient SKU

SKUs allocated to RDCs
• RDCs at Sydney, Melbourne, Adelaide, Perth, Brisbane, Devonport, Townsville, “Yass”,
“Newcastle”, “Tamworth”, “Seymour”, “Albury”
• NDCs at Sydney, Melbourne, Brisbane, “Albury”, “Tamworth”
• Other sites (Darwin, Overseas, Perth NDC) were considered, but low volumes did not warrant a
full analysis
NOTE - Town name only to be taken as approximate location
•
IN
Costs included: DC operating (picking, flow

flow-through, cross-dock), transport (primary, secondary),
capital costs
• Costs excluded (for now): Inventory, capital costs of XD, capital cost of FT automation,
DC fixed costs
Suggested Optimal Solution Post 2008

Suggested optimal network post 2008
Regional
PY
DC
Post 2008, we will require additional capacity in Melbourne, Sydney and

Brisbane. Therefore the long term view is the
“Albury/Tamworth” RDC option.
NDCs in Sydney and Melbourne are required. However, Brisbane

could play a role as an additional transport hub in later years.
CO
The final network decision should also be based on:
more accurate forecasts of supplier location
regional demand growth
feedback from other project teams
2008 and Later Projections

N
IO
2008 and later projections
This model offers flexibility to cater to at least 20% more volume than FY08
T
EC
SP
Factors Involved in Developing an Optimal Network

IN
• Where are the suppliers?

• Where is the de
demand?
Suppliers
Two-thirds of all goods are supplied/made out of Sydney or Melbourne.
PY
300 40%
35%
250
30%
200
25%
OM million
CO
150 20%
15%
100
10%
50
5%
0 0%
Tasmania
Melbourne
North NSW
Brisbane
Queensland
Queensland
Adelaide
Sydney
South NSW
West NSW
Perth
Country Victoria
North
West
DD
N
IO
Based on vendor survey of top 50% of each category
Demand
T
A third of all demand comes from stores in Sydney and Melbourne

Where is the demand?
EC
160 20.0%
18.0%
140
16.0%
120
14.0%
100
12.0%
80 10.0%
SP
8.0%
60
6.0%
40
4.0%
20
2.0%
0 0.0%
Darwin (5)
Sydney (124)
Newcastle (21)
Capricorn (9)
Country SA (15)
Country NT (4)
Hobart (13)
ACT (18)
Brisbane (62)
Gold Coast (25)

Melbourne (128)
Geelong (10)
Perth (38)
Adelaide (33)
North East Victoria (12)
Launceston (16)
North Queensland (29)
Sunshine Coast (13)
South East Victoria (9)

Wollongong (15)
Country WA (20)
North Coast NSW (9)
North West Victoria (6)

South Coast NSW (6)
South West Victoria (12

West NSW (8)
North West NSW (8)
South West NSW (8)

IN
Initial Base Case Network
Initial analysis - base case network
PY
Regional DC
National DC Without Townsville

operating costs are
$40 M higher
FY08 800 Million OMs
(Excluding DSD – 6%)
CO
RDCs in each state capital
(Devonport for Tasmania) and Townsville.
NDCs in Melbourne and Sydney
N
IO
Total costs do not vary greatly as RDC size varies
We are viewing the entire supply chain from factory to store

T
1800
1600
EC
1400
1200 Transport - DC to Store

Transport - DC to DC
$ Million
1000 Transport - Supplier to DC

Fixed costs
800 Capital costs
DC C/D & F/T
SP
600 DC picking
400
200
0
500 2000 3500 5000
IN
National Ambient SKU in RDC

Effect of changing SKU allocation on throughout
PY
CO
We are viewing the entire supply chain from factory to store
N
IO
Initial optimal network
T
Regional
DC
EC
SP
Based on:
Current data and costs
Current assumptions
assumptions
IN
Organizational Structure
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
[Company data]
SP
IN
Annexure 2
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
PY
CO
N
T IO
EC
SP
IN
http://www.ybmarkets.co.uk/downloads/public/11287_0.pdf accessed on April 5, 2008]

[[http://www.ybmarkets.co.uk/downloads/public/11287_0.pdf
References
1. http://www.answers.com/topic/woolworths-limited?cat=biz-fin
2. http://www.aph.gov.au/senate/committee/retail_ctte/report/c02.htm
3. http://www.citypopulation.de/Australia-UC.html
PY
4. http://en.wikipedia.org/wiki/Woolworths_Limited
5. http://invest.vic.gov.au/NR/rdonlyres/ey7ysvb3esmeunmd2eur7kilsdr74u35dln3hgqve5cbmq5
x4orn3azcf2hplzdbanc6xruwz5qr7b/OverviewofVICRetailind8.pdf
6. lanet.com/mapshells/australasia/ australasia/australasia.htm
http://www.lonelyplanet.com/mapshells/australasia/
7. http://www.myfuture.edu.au/services/default.asp?FunctionID=5104&IndustryGroupID=240
8. http://www.woolworthslimited.com.au/shareholdercentre/financialinformation/annualreports
.asp(1997-2001)
CO
9. http://www.woolworthslimited.com.au/shareholdercentre/financialinformation/annualreports
.asp(1999-2001)
10. http://www.woolworthslimited.com.au/resources/files/2000financialreport.pdf
11. http://www.woolworthslimited.com.au/resources/files/2001financialreport.pdf
12. lworthslimited.com/au/resources/full+year+profit+announcement.pdf
http://www.woolworthslimited.com/au/resources/full+year+profit+announcement.pdf
13. http://www.woolworthslimited.com.au/news/mediareleases/asx_archive.asp
14. http://www.woolworths.com.au/Vendors/contact/regions.asp
15. http://www.ybmarkets.co.uk/downloads/public/11287_0.pdf
16. http://www.woolworthslimited.com.au/resources/woolies+august+2001.pdf
N
T IO
EC
SP
IN

IIMA/MAR
IIMA/MAR0383
IIMA/MAR00383
383
Ahmedabad
Revised 2005
PY
Auto Care Centre: Shivranjini
Sanjay Mathur, Executive Sales Officer, Retail SBU, Ahmedabad region, Hindustan
Petroleum Corporation Ltd. (HPCL), was reviewing the performance of Auto Care Centre,
CO
Shivranjini (ACCS), on July 1, 2004. He was particularly examining the scope for training,
innovation, and experimentation initiatives that could be implemented to provide a
market/customer oriented focus for the Ahmedabad regional office.
Sanjay had taken over as in-charge of ACCS about two o years ago.
ago. Before that, he had
worked in manufacturing in Mumbai for a year and in depotepot operations
operations in Vadodara
Va and
Mumbai for 10 years. Sanjay had recently attended a programme on marketing
m management
for the sales officers of Retail SBU to develop customer oriented focus for achieving the
vision and the objectives of Retail SBU of HPCL.
INDIAN PETROLEUM INDUSTRY
The Indian petroleum sector was created in the mid-70s

N
mid-70s with the nationalization of
IO
multinational petroleum companies like Burmah
Burmah Shell, Caltex,
Calt and ESSO, and the promotion
of Indian companies in the public sector. There were controls on several aspects of
manufacturing and marketing in the beginning. The liberalization of the economy, starting
in the early 90s, gave freedom on distribution and pricing of fuels to the oil companies. By
the end of 2003-04, there were five oil marketing companies – three in the public sector and
T
two in the private sector. Indian Oil Corporation (IOC) was the largest public sector
company followed by Bharat Petroleum
Petroleum Corporation Limited (BPCL) and Hindustan
Petroleum (HPCL) and, Reliance Industries and Essar were the two
etroleum Corporation Limited (HPCL)
EC
private sector companies. Another PSU, Oil and Natural Gas Corporation, was in the
process of integrating forward by setting up its retailing infrastructure. The government had
also allowed some international companies like Shell to open retail outlets in India.
During 2003-04,
4, the number of oil retail outlets stood at 22,937. The government also granted
permission to set up 11,000 new outlets. The first attempt at branding (outlets) was made by
BPCL through its campaign “Pure for Sure” in 2000. This was followed by branding petrol
SP
as ‘Speed’.
Prepared by Professors Abhinandan K. Jain, Mukund Dixit, Ramesh Bhat, and Sunil Maheshwari.
IN
Research assistance was provided by Ms. Payal Shah. Data and information are based on discussion
Research
with Mr. Sanjay Mathur, Executive Sales Officer, HPCL. The authors acknowledge the help of senior
managers of Retail SBU and Corporate Training, HPCL, and Mr. San Sanjay Mathur in preparing this
case.

IIMA/MAR0383
2 of 14
HPCL later launched its retail brand Club HP followed by branding of its premium fuels as
Power (Petrol) and Turbo (Diesel). IBP, another PSU though smaller, also joined the fray
through its campaign “Pure Bhi Pura Bhi” 1.
PY
Recent entrants to the industry from the private sector projected the image of being more
technology savvy. Their transactions
sactions were computerized. They were able to borrow concepts
in retailing fuel from leading multinationals in developed countries and adapt them to
Indian conditions. They were seen as more innovative in offering services to the customer,
especially support facilities like restrooms, clean water, and assurance of safe parking on the
highways. The quantity and quality promise was seen as a necessary condition for carrying
outlets on
on the business. One of the companies, very active in building a network of retail out
CO
the highways, was able to build relationships with customers, especially long distance truck
and bus drivers, by giving take-home gifts.
HINDUSTAN PETROLEUM CORPORATION LIMITED
Hindustan Petroleum Corporation Limited (HPCL) HPCL

HPCL)) was set up in 1974 wit with the
nationalization of ESSO and Caltex. It commanded about 20 per cent market share in 2003-
04. Sales and profits during the year 2003-04 were ` 515 billion and ` 19 billion respectively.
Its share in fuel retailing was about 22.5 per cent in 2003-04. HPCL had 5502 fuel retailing
2003-04. HP
N
outlets. Most of them were managed by private dealers under the overall supervision of
HPCL.
IO
HPCL realized in the mid 90s that the opening up of petroleum retailing to private domestic
and international companies would require very significant changes in marketing strategies.
To create its own retail identity, HPCL launched its retail brand Club HP on March 26, 2002.
This initiative sought to reshape the way fuel retailing was carried out in India. A few
months later, this was followed
ollowed by launching two fuel brands: “Power” in the category of
T
petrol and “Turbo” in the category of diesel.

diesel. The key differentiator for positioning HPCL
retail outlets was to be the promise:
promise: “Take care of all your fuel needs and provide complete
driver and vehicle care for you and your vehicle”.
vehicle A total of 1280 ClubHP outlets were set
EC
up by April 2004. To help roll out the Club HP programme, the company started with some
model outlets where the Club HP initiatives were tested.
HPCL also initiated the concept

concept of Auto Care Centres (ACCs) owned and managed by
HPCL itself.. ACCs were to act as training and experimentation centres
centr for all the retail
initiatives. These were also to act as model for other dealers.
dealers Usually, the successful
experiments at ACCs were replicated in dealer outlets.
SP
Ahmedabad Region
Like other PSUs, marketing of auto fuels was organized as a separate Strategic s Business
Unit Retail (SBUR).
(SBUR). The head of SBUR was assisted by four zonal managers looking after
four zones of the country. The zonal managers managed 41 regions. Each region was headed
by a rregional
egional manager and, on an average, had 3 to 4 sales officers for managing dealers and
manager
IN
developing and supporting new ones. The regional office also provided supply, account,
functions to support the sales and marketing plans.
and HR functio
1 Means “Pure as well as complete”

IIMA/MAR0383
3 of 14
The Ahmedabad Regional Office (RO) had four sales officers. Sanjay Mathur being one of
them was incharge of all three ACCs in Ahmedabad. These outlets were:
Oulets Date of commencement
PY
Auto Care Centre, Shivranjini September, 2002
Auto Care Centre, Bodakdev April, 2003
Auto Care Centre, Vastrapur September, 2003
ACCs were to improve the presence and image of HPCL in Ahmedabad regionregion,, besides
acting as model outlets for other dealers. Shivranjini outlet was
was also a training
training and
CO
experimentation station (T&E).
AUTO CARE CENTRE, SHIVRANJINI
The Auto Care Centre at Shivranjini cross roads was set up in September 2002 as a model
Club HP petrol station. The site was located on a 1200 sq.ft. ft.. plot on the 132’ Ring Road
ft
connecting Ashram Road with the Police Commissioner’s
Commissioner s Office and leading to the airport.
The location was just before the crossing of Satellite Road and 132’ Ring Road. The crossing
was known as Shivranjini Char Rasta (four road crossing) and hence the name ACC
Shivranjini (see Exhibit 1 for a layout of the area).
area). HPCL invested N
invested ` 2.50 crore in this outlet:
1.25 crore as lease charges for 99 years for the land and the rest in infrastructure. It took nine
months to complete its construction. Even after the service started, HPCL made several
additions and deletions to the pathway, signboards,
signboards, and the canopy. The manager’s cabin
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was housed in a two-storied building (see ee Exhibit 2 for the layout and pictures of Shivranjini
Auto Care Centre).
Facilities and Infrastructure

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The outlet had a frontage of 36 metres

metres and had a total of five storage tanks: three of 22 kl
capacity each and two of 9 kl capacity each. each. Eight
E dispensing units (3 of one and 4 of MPD
(Multi Product Delivery) type and 1 of 2T pre-mix type) for dispensing fuel. The pumps
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could dispense fuel from both sides. The station dispensed regular fuel and branded ones:
Power (Petrol) and Turbo (Diesel).
((Diesel ). HP lubricants, in various sizes, were displayed in the
Diesel).
manager’s cabin as well as at the sales room and on the driveway. As part of allied retail
business activity, an ATM of State Bank of India functioned on the ground floor. A total of
8,150 sq ft constructed a rea was still available for other allied retail business activities. Of
area
this, 1575 sq ftt each was on the ground floor and the first floor and 5000 sq ft on the terrace
(see Exhibit 3 for details of facilities).
facilities
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Club HP sign was prominently displayed at ACC. The rate tower displayed the prices of
petrol and diesel. The red and blue colours of HPCL were visible everywhere. ACCS sported
a canopy and a glass cabin for the manager.
Neighbourhood
Neighbou
Neighbourhood
rhood
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The neighborhood was mostly residential but was emerging as an active shopping area with
three shopping complexes under construction. It was anticipated that these
the would host high-
end shops for selling jewellery,
jew sarees and dress materials, etc. On the left side of the outlet
(and the corner of the cross road) was a complex that housed a 24-hour clinic and a
pharmacy. The Satellite Road leading to entertainment centres like Fun Republic did not
IIMA/MAR0383
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have any fuel outlets. Similarly, the 132 ft. Ring Road leading to the Blind Persons
Association and the airport did not have an outlet for att least two kilometers beyond ACCS.
ACC
However, just before reaching ACCS, there was an Indian Oil outlet.
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Manpower
The deliverymen were employees of the labour contractor engaged by HPCL’s regional
regional
office. The contractor had worked with HPCL on another outlet. Sanjay had used his
contacts to get experienced deliverymen for the contractor. The deliverymen wore the
uniforms supplied by HPCL. As ACCS was Club HP outlet, it had a forecourt manager and
an accountant to supervise the deliverymen.
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ACCS operated on two shift basis till August 2003 and on three shifts since then.
then Skilled and
unskilled deliverymen in the beginning numbered 20 and increased to 30 by March 2004.
Out of these deliverymen, 4 to 5 were skilled and the rest we re unskilled. The skilled
were
category included the forecourt manager and the cashier. All the deliver
deliverymen were paid
assured minimum wages (fixed by government).
Among the deliverymen, some had been working for more than three years. On the other oth
side, there were those who left the job within two months. Those who stayed back liked the
22-3
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working environment. The deliverymen were trained once in six months. Sanjay organized a
meeting of deliverymen of all the ACCs every 2- months. The meetings provided
-33 months
opportunities to discuss the issues and problems faced by them and brush up knowledge of
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concepts like Club HP, Power, Turbo, etc.
Company policy provided Sanjay authority to give incentive of two spot cash rewards of `
500 in a month to operators from every outlet. He used this provision to motivate the
deliverymen.
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Customer Profile
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According to Sanjay, customers of the Shivranjini outlet were quality and quantity
conscious.. Table 1 shows the vehicle
vehicle mix
mix at the outlet.
Table 1
1: Vehicle Population Mix
Type of Vehicle (%)

Four wheelers 60
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Two wheelers 35
Three wheelers 05
Sixty per cent of four-wheeler

four customers were repeat customers. ACCS had succeeded in
getting them to buy fuel through a co-branded card (ICICI). They visited the centre in the
morning or late evening. Their profile was known to the deliverymen. Sanjay remarked that
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the deliverymen could spot their cars from a distance. The afternoon traffic was primarily of
two and three wheelers which resulted in formation of queue at the outlet. They came in,
activities and drove away. Their profile was not
filled enough petrol to last for the day’s activities,
known to either the deliverymen or Sanjay.
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Competition
According to Sanjay, the nearby Indian Oil outlet, was the competitor. The outlet was
located at a crossing about half a kilometre before the ACCS on the same side of the 132 ft
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Ring Road. The Indian Oil outlet did not have facilities like ATM, US Pizza, VCC (Vehicle
Care Centre), etc. Earlier, sales at the Indian Oil outlet were significantly higher.
higher. Sanjay
thought that this was because of better approach and availability of gaseous fuel at the the
outlet.
Monthly sales figures of the Indian Oil outlet were as follows:
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Fuel Sales (kl)
Motor spirit 350 kl
Diesel 120 kl
LPG 250 kl
However, over the period, the Shivranjini outlet had improved its performance and the gap
between sales of IOC and ACCS had narrowed.
Performance
At the time of setting up, the ACCS was projected to achieve monthly
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month volumes of 300 kl of
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(provided in Table 22) did not come up to
petrol and 50 kl of diesel. The performance (provided
June 20
expectations even by the quarter April-June 2004
04..
2004.
Table 2: Quarterly Sales

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Month MS Power Total Petrol HSD Turbo Jet Total Diesel

(kl) (kl)
((kl
kl)) (kl) (kl) (kl) (kl)
Oct – Dec 2002 661 77 738 166 – 166
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Jan – Mar 2003 429 203 632 142 – 142

Apr – June 2003 432 135 567 126 – 126
July – Sep 2003 348 113 461 84 – 84
Oct – Dec 2003 358 125 483 92 11 103
Jan – Mar 2004 408 136 544 95 53 148
Apr – June 2004
04 381 149 530 98 89 187
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The prevailing fuel prices are given in Table 3.
Table 3: Prices of Fuels
Fuel Price
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Petrol ` 39.00 /litre

Power ` 40.30 /litre
Diesel ` 26.36 /litre
Turbo ` 26.73 /litre
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Sanjay also looked at the profit performance of the outlet. He found that profits were about `
14 lakh in 2002-03 and ` 10 lakh in 2003-04.
4. These calculations were based on the standard
margins used by HPCL for different types of fuels. These were ` 1220/kl for MS, ` 880/ 880/kl
kl
for diesel, and ` 25000/kl for lube. The margins on branded fuels were an additional amount
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of about 50 per cent of the premium charged on the price of regular fuels. The monthlymonthly
expenditure of ACCS is given in Table 4.
Table 4: Monthly Expenditure
Description (`)
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Wages paid to contractor which included PF, minimum wages, etc. 1,50,000
Electricity (including ` 20,000 from State Bank of India for ATM) 1,02,000
Telephone Bill 14,500
Losses 75,000
Marketing expenses / petty cash expenses 20,000
Lease 100
Review of Initiatives and Experiments
Besides being the venue for organizing dealermen trainings, several expe
carried out at ACCS. Sanjay classified the initiatives
categories: operations related, service
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experiments were
initiatives and experiments done into three
ervice related and customer related. A brief overview of
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them is given below:
Operations Related Experiments
 2T pre-mix dispenser for two wheelers introduced in mid 2004.

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 Putting up the airtower next to the fuel dispensing unit to cut the time spent by
vehicle at the outlet.
outlet.
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Vapourr recovery system-

system- Sanjay had installed a vapour recovery system at Shivranjini.
When petrol was offloaded from the tanker to the tank, air carried significant amounts of
petrol Sanjay, with
petrol, particularly in summer, with it. That was absolute loss of saleable petrol.
the help of a local fabricator, had
had developed a system through which outgoing vapour and
air mixture could be cooled and significant amount of petrol
petro could be recovered. Through
this system, about 15 litr es of petrol per tanker could be recovered. Sanjay pointed out that
litres
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approximately 25 tankers offloaded fuel at Shivranjini in a month. The savings would easily
be able to quickly recover the cost of tthe system, which was ` 18,000. Sanjay actually had no
specific budget for conducting such experiments. He u used the petty cash facility ( `5000 per
item/month) to fund the experiment.
Service
ervi ce Related
R el ated E
Experiments
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 Windscreen cleaning was introduced from the beginning. Sanjay had seen this done
in Mumbai.
 Concept of forecourt
fo manager was introduced at the outlet in 2002.
IIMA/MAR0383
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Customer Related Experiments
 Soliciting customers to check quality and quantity was a big hassle. The quality and
quantity campaign designed by the company was introduced at Shivranjini before
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being launched at other outlets in the region. In the campaign, customers were asked
to check the quality and quantity of the fuel and they were given a mementomemento
(keychain) to attract them.
 To increase interaction with customers, banners wishing specific groups of customers

were displayed at the outlet. The occasions used for this purpose were mother’s day,
doctor’s day, teacher’s day, etc.
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 monthly,, and mega lucky
eekly, monthly,
Coupons were given on purchases at the outlet and weekly, monthly
draws were held at all Club HP outlets. This was initiated by the Shivranjini outlet and
was followed by others.
 Auto drivers werere given smart cards. The Club HP smart card was wa a prepaid card with
a rewards programme. It gave the customer a value of up to 5 per cent of the purchase
of petrol/diesel, lubricants, car servicing, and at HP Speedmart Stores. One could load
Thereafter, it could
the card for a minimum amount of ` 250. Thereafter, could be loaded in multiples of
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` 50. Customers got three points on purchase of fuel worth ` 100 and 50 points on
purchase of lube worth ` 100.
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 were given for cars.
During the rainy season paper mats were
REFLECTIONS AND CHALLENGES FACING SANJAY
Sanjay reflected on the major events at the outlet (Exhibit 4). He was quite happy with the
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created. Also he was happy that the dealers of the

outlet and the image that it had created.
show
Ahmedabad region saw Shivranjini as a showpiece of HPCL. They in fact complained that
everything was being first provided at Shivranjini before being passed on to them.
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However, he was worried because ACCS was operating below expected volumes. It was
also not earning profits. There were several reasons for below par performance, in terms of
volumes.
1. One, there was a divider on the road on which the outlet out was situated. It was on the
right side of vehicles proceeding from IIM Ahmedabad / Blind Peoples Association
towards Vishala (a very popular elite restaurant). They would have to travel a distance
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of about half a kilometre and take a U-turn to reach the outlet.

2. The second reason was the presence of the Indian Oil outlet on the same side of the
U-turn
U- turn itself.
road at the U-turn itself This also facilitated vehicles from the other side of the road to
fill up before they reached the Shivranjini outlet.
3. reas was the traffic signal near the outlet. The vehicle drivers would not
The third reason
like to fill fuel and then wait at the signal.
4. Lastly, the competing Indian Oil outlet was bigger and sold gaseous fuel as well.
Lastly,
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Sanjay was also wondering how to utilize the vacant space available on first floor and
terrace through allied retail business activities. Setting up of a US Pizza outlet on the first
floor was under consideration. Sanjay was not sure whether this activity also would help
improve the fuel and oil business. He was not sure if there was a link between the traffic
IIMA/MAR0383
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using ATM, the current activity available at ACCS, and sales at the outlet. In his opinion,
vehicle owners preferred to draw cash and move away. He thought that setting up US Pizza
would provide some net revenue but he was not sure whether that would improve the fuel
and lubricant business of the outlet.
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For improvement of fuel business, Sanjay also looked at the experiences of two mystery
shoppers (see Appendix 1) at ACCS. These indicated general difficulties
ifficulties (see Appendix 2 for
services to be provided at ClubHP outlets) faced by customers. He was preparing to address
the issues arising out of the experiences of the customers and improve the performance of
the outlet.
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Sanjay was trying to find wayss to improve the performance of ACCS on the basis of
solutions to the problems faced by customers, use of vacant spaces, and any other actions.
He was also thinking of the approaches to rollout the successful experiments to other outlets
in Ahmedabad region.
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IIMA/MAR0383
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Exhibit 1: Layout
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Exhibit 2.1: Close-up
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Exhibit 2.2: View from the Opposite Side of Road
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Exhibit 3: Facilities and Infrastructure at Shivranjini Auto Care Centre
Facilities and Infrastructure Description

Area 1200 sq. m.
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Frontage 36 m
MS tankage 1 tank of 22 kl
Power tankage 1 tank of 22 kl
HSD tankage 1 tank of 22 kl
Turbo tankage 1 tank of 9 kl
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Air tower 2
Air compressor 1 (3.75 BHP)
Tubewell 1 (7.5 BHP motor)
ARB Activity Area 1 ATM functional
GF - 1575 sq ft
FF - 1575 sq ft
Terrace – 5000 sq ft
Dispensing Unit 3 of non-
non-space
non-space
space
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4 of MDP
1 2T - Pr
Pre
Premix
emix
mix
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Exhibit 4: Major Events a
att Shivranjini Auto Care Centre
September 2002 Shivranjini outlet commissioned

November 2002 Indiann Oil outlet commissioned
December 2002 Power introduced
January 2003 Shivranjini outlet declared Club HP
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April 2003 Construction started. Bodakdev outlet commissioned

July 2003 Ind
Indian
Indi
ian
an Oil outlet complete in all aspects
August 2003 RCC canopy casted
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October 2003 driveway; Vastrapur outlet commissioned

RCC driveway
January 2004 Construction completed
February 2004 SBI ATM started
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Appendix 1
Mystery Shoppers Experiences
Mystery Shopper 1
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A mystery shopper, having knowledge about the Club HP practices, visited the Shivranjini outlet in
January 2004. He filled ` 200 worth of petrol, got the PUC check done, checked air pressure,
pressure, and
drove away. His experience was as follows.
He was in the opposite side of the HPCL outlet. He drove down, and took a U-turn turn to reach the outlet
outlet.
The Indian Oil outlet was at the mouth of the U-turn turn itself. The outlet appeared to be spacious and
inviting. He resisted the temptation to stop there and drove to the Shivranjini outlet. stopped,
outlet. As he stopped
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three operators came near the vehicle and asked whether he needed Power fuel or ordinary fuel. The
customer asked what the difference between the two was and added that they were the gimmicks of
the management. “As there is no difference fill ordinary fuel for ` 200,” ,” he said. The dealerman asked
the customer to check the indicator that it was set to zero. As the customer got out of the car, he was
approached by an ICICI card vendor. The customer told the vendor that he had two cards and he did
not need another. He had difficulty in telling the vendor that he should look elsewhere to sell the card.
The customer’s windscreen was dirty. Nobody came to wipe itit..
The customer got the PUC checked. He asked the operator whether it was necessary to get it done.
The operator replied that he did not know but said his task was to carry out the test and report
whenever asked. N
The customer looked for signs indicating where toilets were. He didn’t find any signs. The toilets were
at the back.
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He went to the air tower to get air pressure checked. While this was being done, he asked the
operator what Club
lub HP meant. The operator did not know. The customer pointed towards the rate
tower and asked what was written there.
re
re.. The operator showed ignorance. The customer tipped the
operator and drove away.
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Mystery Shopper 2
This was my third visit to the Shivranjini outlet in June 2004. When I entered the outlet, I was
welcomed by the staff standing there. They were nice and well dressed. I got down from my vehicle
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and asked the attendant to fill the tank. He asked me which petrol I wanted to buy. I asked what the
difference between the two types of petrol was. He mentioned that the difference was in price. I asked
whether it was only price or something else. He was not in a position to elaborate on the quality
difference, if any, and just indicated that the mileage of my car would improve. I insisted on his
difference, but he only smiled. After this discussion, I told him that I would go for the
elaborating the difference,
costly option.
While the tank was getting filled, a person came and started cleaning the windscreen. I asked him
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whether he was supposed to clean the front screen only or the back screen also. Only on my pointing
out did he start cleaning the back screen. A person at the same time was also busy in filling air in the
tyres. While he was filling air, he heard the conversation but did not comment. He told me that the
front tyre was having very less air and he had filled air to the correct level.
used in cleaning the windscreen. The person told that the material was
I enquired about the material us
supplied by the company. He really did not know what the cleaning material was. I thought the overall
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experience was good. My wife was with me and really appreciated the effort of cleaning and getting all
tasks
task s done at one place. Earlier we used to visit three different places for checking air in tyres, filling
petrol,
petrol, and cleaning the screen. Now at one place, all these could be done.
IIMA/MAR0383
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Appendix 2
Club HP: Driveway Service- Perfect Twelve Booklet
Letter from Chief Manager, Training and Promotion (Retail)

Hindustan Bhavan
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This booklet is brought out with the objective of ensuring performance through the Perfect Twelve
service process at the pump island. Perfect Twelve is a series of actions which every island
salesman has to practise while attending to a customer. The process has been tested at several
outlets for its applicability and ease. The service process has been made a part of the dealermen
training programme.
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The process explained pictorially in this booklet is practised at all Club HP rretail
etail outlets and is found
extremely effective in providing a pleasant retail filling experience to the customer.
Needless to mention, the Perfect Twelve process has to be concurrently supplemented by cleaning
the windshield of every vehicle while the customer waits in our island.
List of Activities: Perfect Twelve
1. Greet the customer with “Namaste”

2. With a smile, ask for the keys politely: “Key please, Sir (Madam)” (maintaining eye contact).
3.
4.
5.
Ask the customer: “Petrol or Diesel, Sir (Madam)” (not for 2/3 wheelers)
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Ask the customer if he would like to have a tank full of fuel: “Tank full, Sir (Madam)” (For 2/3
wheeler customers ask the quantity).
Ask the customer to check zero before starting to fill: “Please check the zero on the meter, Sir
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(Madam)”
6. Request the customer for 2 minutes and fill fuel attentively: “2 minutes, Sir (Madam)”
7. Return the keys and tell the customer the amount for the fuel: “` “ 280, Sir (Madam)”.
8. Collect cash and count in his presence. State the amount received: “You have given me `300,
Sir (Madam)” (If the customer hands over credit card, accept it)
9. Ask the customer if he wants a bill: “Sir (Madam) can I get a bill for you?”
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10. Hand over the bill and the balance amount. State the balance amount returned. “Sir ((Madam),
this is ` 20.” (If the credit card is given please submit the charge slip for signature using a pad.)
11. Take initiative to promote one service to the customer: “Would you like to have the tyre
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pressure checked Sir (Madam)?”

12. Thank the customer and ask him to visit again. “Sir (Madam), thank you, please come again.”
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Indian Institute of Management, Ahmedabad
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IIMA/PROD
IIMA/PROD0287(B)
IIMA/PROD0028
287(B)
7(B)
International University of Japan Business School
Hakkai Creates China (B)
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Mr Akihiko
ihiko Seki, President of Hakkai Creates (HC), was driving on the highway stretching
over the vast rice paddy fields in Niigata Prefecture in Japan. His mobile phone rang; it was
a call from Omni Industries, China. The President of Omni mentioned
mentioned that LG wanted to
have a JV with it and that it (i.e. Omni) would like to have HC also join the JV. LG was
aiming to become the No. o. 3 mobile handset maker in the world. HC was the world’s largest
producer of hinges that were used in mobiles and had a share of 50 per cent of the global
market.
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Hakkai Creates had entered into a manufacturing alliance in 2002 with Omni Electronics in
China in order to meet the requirements of one of its largest customers, Sony. Sony had
moved its manufacturing operations for Play Station 2 (PS2) to China and had required HC
to supply parts there. Sony had trouble selling Japanese manufactured PS2 in China because
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of the local content requirement (PS2 could be, however, exported from China without any
constraints and the Chinese encouraged it). Sony had shifted the manufacturing of PS2 to
China and had been asking their vendors to move to China as well.
wel HC had entered into a
special arrangement with Omni Industries, China,
China to meet this requirement of Sony – HC
would supply its molds to Omni which, in turn, would use its own facilities to manufacture
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parts under the HC brand name for Hakkai’s customers

customer in China. Returns for sales to Sony
were used to pay for renting Omni’s facilities and related manufacturing costs. This helped
reduce exchange rate management and the risks of operations in China.
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By 2005, PS2 sales world-wide

world-wide
worldwide had started to slide and the next generation product, PSX,
was not doing well either. HC had to start looking for various options. One was to develop
the relationship with Omni further and look for other customers. The LG option fell in this
category. Another option for HC was to set up a new manufacturing facility in China on its
own, now that it had some experience operating there, and then look for other customers in
China or abroad. This, however, meant taking appropriate risks. HC’s experience in China
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had revealed the following

following about operating in China:
This case was prepared by Professor Pankaj Chandra, Indian Institute of Management, Ahmedabad,
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School.
and Professor Jay Rajasekera, International University of Japan Business Schoo
Cases are not designed to present illustrations of either correct of incorrect handling of administrative
problems.

2 of 3 IIMA/PROD0287(B)
• Building and running a plant in China that is similar in space and capacity as the plant
owned by Omni, i.e. 3000m2 and having 10 injection molding machines, would need the
following:
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- Investment in Machinery: US$3 million (including support machines like mold
making machines)
- Wages:
o 1-2 specialists from Japan (1 million yen per month per person)
o 30 local workers (15000 yen per month per person)
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o 10 engineers (30000 yen per month per person)
- Physical Plant: While one could not own land in China, one could lease the land for
50
0 years and then construct a factory on it; usually, only big companies followed this
route. Smaller companies could lease an already built building. For example, a
building of 2500m2 factory space plus 500m2 office space would cost about Y800,000
per month
- Utilities: Electricity supply is still unreliable in China. On the average, power outage
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leads to no power for about two days in a week. Water is not clean. Water cleaning
system cost US$100,000 as clean water is a must for producing these parts. The
overall utility bill is about 1 million yen per month.
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- Taxes: Firms located in industrial parks etc. (where Omni had its plant) are exempt
from income tax for 2-5 years.. Subsequently, they pay only 30 per cent of 50 per cent
flat income tax.
Raw Material: Most raw materials for Hakkai’s products in China came from Japan
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-
while some were purchased locally. Tax on raw material imports was 10 per cent
which could be offset by export income from products that used imported raw
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material. However, this facility required intervention of local intermediaries at a cost

(i.e., 0.5-1 yen).. Hakkai, on an average, spends about 6 million yen per month
1 million yen)
on RM imports on sales of Y20 million per month.
• parts in Japan and China

Sometime there is a cost differential on production of some part
with the latter being more expensive. For example, sources of cost differential may come
from examples like those shown in the table below:
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CHINA JAPAN
Cost of part: $2.00 Cost of part (including transport from
Japan to China) : $1.80
RM price = 1.5 * (price of RM in Japan)
1 operator per machine 10-15 machines per operator
Maintenance of mold is difficult in China
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– do not use the right chemicals – life of

mold deteriorates more rapidly
Construction of floor not stable and ev
even Built special foundation for the machines
– affects machine performance, its life and to keep them stable – spent additional
quality of product resources to get this advantage
3 of 3 IIMA/PROD0287(B)
• The mold technology of HC was very sophisticated and all of it cannot be copied. About
80 per cent of a mold design can be put on a drawing which could be copied while the
remaining cannot be copied as it can be visualized only by a very skilled mold design
operator. So, at this stage, IP protection was not that difficult.
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• HK’s mould ld technology constituted the very top end of capabilities globally.
• The Chinese government forced firms to increase local content.
• The compensation of a fresh worker (operator) in China was $120 per month.
• Finally, doing business without a partner was difficult in China – there was a need to
know the language and it was difficult even for the Japanese. However, dealing with
local officials was facilitated.
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A third option that Seki-san
san was considering was to look for expansion of its manufacturing
facility in another country where it already had customers. He wanted to develop plastic
parts as HC’s core competence. The Japanese market, however, was limited. Often HC’s
customers had to follow the local content laws in other countries thus warranting an
expansion. In Thailand, one of the customers was Nippon Densen (or NIDEC). NIDEC’s aim
was to be No. 1 in whatever product market it competed. For example, it had 70 per cent of
the world market in motors used in hard drives;
rives; was vibration motors
was the No. 1 supplier of vibrat
for mobile phones (used for silent mode); was No. 1 supplier of shutters used in cameras
cameras, etc.
He had had some preliminary discussions with Nippon Denso NIDEC to set up a new
factory in an industrial area north of Bangkok in Thailand. HC was th
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thinking of buying land
to build this factory. NIDEC had been in Thailand for five years and its CEO Nagamori-san
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wanted to grow further. Senior officials from NIDEC had visited HC in Niigata in 2003.
They had noted that HC was a top-class class company in Japan. NIDEC made parts in “clean“clean-
room” like factories – a facility that HC had. They appreciated Hakkai’s newly built cleanclean-
room factory.
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Seki-san
-san had to draw up his options and look for growth in his business.
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References
1) Omni Industries:
http://www.omni-industries.com/about.shtml#5
2) Celestica (Canadian owned parent of Omni):

http://www.celestica.com./index.asp?id=269
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PROD
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Mumbai Widget Limited: Supply Chain
Efficiency and Improvement Initiatives
The Indian widget industry is becoming increasingly competitive. International
players are showing keen interest in the Indian market. Unregulated imports are
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adversely affecting the demand-supply imbalance. Premium pric pricing
p ing of Widget is
ricing
no more possible. Cost control and rapid introduction of value-added
value-added products
and services are the real sources of advantages. We hold about 45 days of
inventory. There may be scope to reduce ce it substantially. We produce to stock.
We may have to change to produce-to-order.
order. Our vendor components supply
suppl is a
bottleneck in the production planning process.
process. We need to strengthen th the
relationship with our vendors to remain competitive.
Pawan Chandra,, Business Head, Mumbai Widget Limited.
MUMBAI WIDGET LIMITED

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In 1897, a young law graduate gave up his law studies and turned to making widgets in
Mumbai.. He was the first Indian manufacturer to displace the well-entrenched foreign
brands from the Indian
ndian market. The name M Mumbai (MWL), etched into the
umbai Widget Limited (M
metal widget, became a symbol of self-
self-reliance
reliance and a signature of trust in the Indian
self-reliance
industry.
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Over the years, MWL has changed in its form, function and scope of application. The stamp
of reliability and trust has,
has, however,
however, remained constant.
constant MWL is the first Indian widget
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manufacturer to introduce Ultra widget systems. Made with care and precision, MWL
widgets go through a series of performance tests at the manufacturing site to withstan
withstand real-
life exigencies.
The divisional head (Widget division) reported to the group CEO. Exhibit 1 shows the
organization chart of MWL. The Widget division designed, manufactured, traded and
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sold widgets. MWL sold its products in the market as well as to sister divisions, through a
dedicated sales and distribution setup. The division hadha a design and development
department to design new products based on market requirements. Th This department was
also responsible for upgradation (product improvements) of existing products.
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Case prepared by N. Ravichandran and G. Maheswaran (PGP 2005), based on a project report by G.
Maheswaran as part of the Logisti
Logistics Management course offered in 2005, at the Indian Institute of
This case is based on field experience. However, information related to product, process and
performance have been modified to protect the identity of the original organization.
Cases of the Indian Institute of Management, Ahmedabad, are prepared for teaching purposes. They
are not designed to demonstrate either correct or incorrect handling of administrative situations.
© 2005, Indian Institute of Management, Ahmedabad
MWL had four major production facilities at Mumbai, Pune, Gurgaon, and Goa. Mumbai
Widgets turnover and gross margin in the year 2003-04 were Rs. 105.34 crore and 9 per cent
respectively. The financial performance of MWL is presented in Exhibit 2.
MWL marketed more than 450 stock keeping units (SKUs). The products were
were classified
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based on the number of internal components, finish, technology and the intended
applications. MWL was the only player in the Indian market which had
d widgets
widgets in every
every
consumer segment and at several price points.
In 2005, MWL was focused on designing special systems for institutional customers. They
also provided annual service contracts. This was managed on a project-
project-by-project
project -by
by--project
project basis.
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Though small in 2005, this business was projected to grow in a major way in the future
future. It
also posed challenges related to flexibility in the production scheduling. The
The project lead
time is 6-8 weeks. Roughly 10 percent of MWL’s revenue came from the export market.
THE INDIAN WIDGET INDUSTRY
Widgets in India are produced mainly in the small-scale

scale sector. The industry is divided into
the organized and the unorganized sector,, with the latter dominating the market
market. There are
about 6,000 small-scale units and a few organized units mak ing various types of widgets.
making
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The small widget-manufacturing units are located in two clusters: A and B. The annual
turnover of the Indian widget industry in 2005 was crore. The industry provides
was Rs. 250 crore
direct employment to 25,000 people, mostly belonging to the weaker and minority sections
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of the society. Eighty per cent of the small widget manufacturing units are artisan-based,
labour. Hence the cost of widget manufacturing in
employing cheap labour, mainly child labour.
these units is relatively low compared to that for organized manufacturers.
Some units in location A went for or limited mechanization. There was no documentation of
the products and processes. The units had had limited institutional support for technical
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facilities for product and process development and

services. The research and development facilities
training non- existent. In recent years, the
raining facilities for human resource development are also non
widget market has been flooded with goods from China and Taiwan. Due to mass
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manufacturing and virtually no customs duty, these imported widgets of moderate quality
are sold at a very low price.
price.
In India, the widget industry iiss classified as a small-scale industry. This implies that no large
organized player can directly enter the market. Since MWL has been present in the market
has been allowed to continue operations. But a few MNCs have
since many years (1967), it ha
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also started introduc

introducing
ing their products in India through small manufacturing units units, where
the legal owner is Indian, but the management, production and marketing are the
responsibility of the MNC.
The main issues before the widget industry are technology up-gradation, institutional
capacity building for training, product and process development, testing and other technical
services, human resource development and market development. There is a need to induct
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professionalism in management of the units as well.

SUPPLY CHAIN
The supply chain of MWL is very similar to that in the durables industry. MWL’s
MWL’s supply
chain of manufactured (in India) and imported products is shown in Exhibit 3 and Exhibit
Exhibit 4,
respectively. The total logistics expense at MWL is estimated to be 3.2 per cent of the cost of
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goods sold. MWL’s other products are manufactured at the Mumbai facility and and distributed
all over India. The store warehouse is common for all MWL products. Operating cost is i
shared by all divisions according to usage.
From the manufacturing plant (or the central warehouse in case of imported items),
products are states have
re sent to 19 warehouses spread across India. Most states have an independent
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warehouse. Since this is an internal transaction (stock transfer), the 4 per cent central sales
tax (CST) is not required to be paid. Hence, warehouses are re present only in those states
where saving due to CST is more than the expensess associated with a warehouse.
Primary transportation from one of the manufacturing plants (at (at Pune, Goa and Gurgaon)
Gurgaon to
the state warehouse is done by ABC,, a third party logistics provider. Primary transportation
from the Mumbai plant to the state warehouse iss done by a sister concern
concern, Mumbai Logistics
Limited. At the Mumbai plant MWL also producess durables which are transported all over
India by Mumbai Logistics. The advantage
dvantage of using Mumbai Logistics is that the widgets
stock-outs
stock
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are transported at a lower cost as compared to that of a third party logistics provider. The
disadvantage of this arrangement iss that states where appliances sales are not high, have a
very low shipment frequency. This leads to either stockout or a large inventory at these
-out
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places.
Secondary transportation from warehouses to the distributors in the state is done

exclusively by ABC.. Transportation between distributors and wholesalers/retailers is done
by the distributor. Normally, an MWL salesperson at the distributor tries convincing the
retailers to buy a minimum quantity of widgets (by weight) so that transportation expense
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by the distributor iss justified. However, often

often the retailers buy only what they need even if
the quantity is small.
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In the long term the MWL group plan plans to carry out both primary and secondary
transportation through Mumbai Logistics. This may or may not be helpful for MWL as a
group but is definitely not healthy for Mumbai Widget
Widget. Clubbing the transportation of
appliances and widget
widgetss together would lead to lower flexibility in the dispatch of widgets
and a higher inventory levels.
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At MWL, L, widgets a re made to stock. The average inventory levels in the supply chain of
are
MWL iss 45 days (factory 15 days + state warehouse 30 days). Such inventory levels are
to the large SKUs handled. Every warehouse is served twice a week irrespective
attributed to
hence, transportation economics is not the deciding criterion for primary
of quantity and hence
transportation.
ERP software is is used for information flow and management at MWL. All the manufacturing
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plants, purchase departments, warehouses and the head office have full access to data.
Distributors and suppliers ha have access via internet to relevant information like price, and
warehouse. However, most of the distributors do not use
stock availability at the respective warehouse
this facility and therefore, the inventory at the distributor level is not known. Since most
transactions are by cash payment and widgets are made to stock, there is no order
processing at MWL beyond the state warehouse level. Even for orders to warehouses,
dispatch is on demand from warehouse.
The distribution efficiency is measured by the number of stock-outs,

outs, inventory held at
various locations and transportation cost. The standard
tandard benchmark inventory level at MWL
MWL
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is 45 days. A high inventory holding is attributed to unpredictable sales and the desire to
achieve lower stock-outs.
DEMAND FORECASTING
Demand forecasting at MWL is a two-stage process, viz., one on an annual basis and the
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other on a monthly basis.
The annualal business plan is prepared every year in the month of February for the
succeeding year. This aggregate demand forecasting is based on the previous year’s sales,
inputs from market research, MWL’s’s targeted growth and the export market. Every channel
member, namely distributor, wholesaler er and retailer are consulted in this process. This
process requires a reasonable amount of judgment.
Monthly planning is the responsibility of the planning department at the head office,
monthly sales of the current month (L), previous two months (L

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Mumbai. This planning is done in the last week of every month for the succeeding month.
Sales for next month is predicted based on the average monthly sales of last year (LY),
(L-1, L-2) and the institutional
orders on hand. This process does not use any specific formula
formula; it uses judgment based on
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market trends.
The required inventory at the end of next month is decided based on the estimated sales in
the next-to-next
next month (L+2) according to the annual business plan. This estimate is also
used as a rough-cut approximation for raw material procurement. Based on the number of
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days of inventories at the plant and state warehouses

warehouses, and the desired stock at the end of
next month, production quantity of every SKU is estimated. The demand forecasting and
production planning process is shown in Exhibit 5.
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PRODUCTION
Production in MWL is an assembly process with 14 different products assembled in seven

different lines. Exhibit 6 (a and b) provides information on individual assembly line
capacity. Exhibit 7 shows tthe he production planning and dispatch process flow diagram.
Exhibit 8 is the shop floor diagram.
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Incoming raw materials are inspected at Gate 1 and then stored in raw material stores. The
press shop and die casting shop are two parent shops. Once the components are made in
these two shops they are sent for further processing like machining, coating, plating, and
buffing. Low cost automation is used for simulating the widget mechanism to test the
components. After inspection, the components are stored in storage bins and taken to
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assembly operations when required. After the assembly, a sample finished product is taken
from the batch and sent for testing. Testing happens in the research and development lab
where the widget is tested for the product life cycle. Only after the sample passes the test, is
the batch approved for dispatch.
Component Manufacturing: More than 20 components go into a widget assembly. Sixty per
cent of the components are manufactured in-house and the remaining outsourced. this 60
sourced. Of th
per cent,, nearly half the components are sent out to subcontractors for finishing work like
electro-plating or powder coating.
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The setup time for a die casting press is around 2-3 hours. Hence, once a die is mounted, a
minimum of 2,000 units are produced irrespective of the demand estimate. The additional
components are kept as inventory and are taken into account while planning for the next
production cycle. When the demand is higher than the capacity available in the plant, part of
the casting is outsourced.
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The die casting shop is given at least seven days lead time before the particular component
roduction plan in the die casting shop
to be produced is required in the assembly shop. The production
oduction planning manager. Usually, there is
is decided by the shop supervisor and the production
no problem of raw material supply to the die casting shop. But a few cast products are sent
these
these finished components decides
out to contractors for further processing. The delivery of these
the assembly of the product.
ress shop has enough capacity. There are machines which do the cutting, blanking and
The press
two-three hours. The capacity of a machine
trimming operations. The setup time for a tool is two-three
varies from 18,000 units to 61,000
2,000 or 4,000.
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000 units per shift. But the lot size in the press shop is either
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Assembly Line: Production
roduction is a batch process with batch size varying between 200 and 500.
But fast moving products are produced everyday. The assembly configuration iis cell
assembly for every product line with the lead time ranging between 30 seconds and three
minutes.
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Assembly line production decisions depend primarily on the availability of components.

Even if one component required for an urgent order is not available, the assembly has to
wait. In order to avoid stock-outs,
stock-outs, the supervisor of the assembly shop always plans,
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produces,, and stocks the products in the store. An assembly batch consists
produces
sometimes over-produces,
of a minimum of 200 units.
Approximate production planning is done in the last week of every mon month for the
succeeding month. Production is scheduled in three phases. The first phase (P1) is between
the 1st and 15th of each month, the second phase (P2) is between the 16th and 22nd of the
month, and the third phase (P3) is between the 23rd and the last day of the month. The
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destination warehouses are classified into six different categories, namely, Z1, Z2, Z3, Z4, Z5
and Z6, based on their distance from the manufacturing plants, transit time and average
sales. Z1 is the farthest from the manufacturing plants and with large sales and Z6 is the
closest.
following are the production planning procedures:

The following
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• Shortfall at the state warehouses is calculated based on estimated sales and 30 days
planned inventory at the end of the next month at that warehouse.
• The
The shortfall for every SKU is aggregated based on Z category.
• Shortfall in Z1 destination is given first priority in the production planning. If the

demand is well below the batch size, then orders from Z2 destination are combined to
make up for the required batch size.
• Production in Phase P1 is primarily to meet the shortfalls in high priority destinations.
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• Production in Phase P2 is to make up for the desired opening stock in the next month.
• Production in Phase P3 is meant for the adjustment between P1 and P2.
Even when the actual demand falls short of the estimated monthly demand,
demand, the projected
number is manufactured, irrespective of the requirement.
Dispatch Decisions: Dispatch to a state warehouse is decided by the dispatch planning
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manager. He keeps track of the inventory at the state warehouse(s)
warehouse(s) on a daily basis and
receives the demand from them. On receipt of demand, the dispatch is made from the
factory warehouse. Priority of dispatch is determined by the category of destination,
destination for
example, Z1 gets higher priority over Z2 and so on.
MANAGERIAL CHALLENGES IN 2005
The demands of the widget industry are volatile and uncertain. Availability of widgets in
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retail stores is one of the main factors influencing purchase. Hence, it is very important to
stock every possible SKU at the retail outlets. This leads
leads to high inventory in the supply
chain. Moreover, since MWL deals with more than 450 SKUs, it has to maintain a significant
inventory. Exhibits 9, 10, and 11 show the monthly inventory at the warehouses, the plants,
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sales, and estimated and actual production for three representative SKUs between April
2004 and January 2005. The planned production is always different from the actual
production.
The main concern for MWL is the high fluctuating in inventory levels and inaccurate demand
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estimation. With an increasing shift towards project

project-based security solutions, the production
system should be flexible enough to respond to smaller order quantit
quantities at very short notice.
But it is difficult to be so flexible
flexible with the existing mismatch between demand forecasting,
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production planning, execution and dispatch decision. Moreover, with more MNCs entering
the Indian widgets industry, the price premium that MWL enjoys will reduce. Therefore,
every opportunity off cost reduction should be seriously considered. Inventory reduction is a
major improvement area area.. Inventory reduction is possible only with cooperation from
component suppliers and vendors.
Given the constraints of fluctuating demand

demands, it is advisable to track actual sales at the
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distributor level and modify the monthly production plan accordingly to avoid high
inventory build-
build-up
up ((due
build-up due to poor sale
sales) or stock-outs (due to exceptionally high sales). It is
also advisable to use only one logistics provider for primary as well as secondary
transportation. MW MWL L should also come out of its conventional assembly process of
producing a minimum batch size for assembly of a product and be willing to produce small
quantities
quantit ies..
quantities.
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While the high inventory is worrying, it is also important to think if the division should exist
at all
all,, given its small turnover but higher profitability within the MWL group. Even if the
business continues, should the division continue to manufacture widgets or just market the
widgets produced by vendors under the MWL brand?
7of 17 IIMA/PROD0289
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Exhibit 1: Organizational Chart of Mumbai Widgets Limited
Divisional Head
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Manufacturing QA and Design HR and Purchase and Marketing
Maintenance IR Finance
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Technology 1 Automation Technology 2 Die Casting Safety PPC/ Surface
and Press Finish
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Shop
ERP PPC Surface
CT
Finish
Product and Institutional Supply Chain Service Exports

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Assistant
ant GM
GM,, Sales Channel Sales & Mktg. Sys.
Product Channel
Sales Institutional
S
Sales
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Exhibit 2: Financial Performance of Mumbai Widgets Limited
Year 1 Year 2 Year 3 Year 4
Sales (Indexed) 100.00 103.44 104.89 110.35
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(As a percentage of sales)
Gross profit 8.18 8.46 8.88 8.56
Net profit 6.53 5.63 4.24 7.12
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Material 52.00 54.00 58.00 56.00
Freight and octroi 2.36 2.66 2.89 2.57
Inward freight 0.27 0.34 0.23 0.35
Manufacturing 9.99 9.73 9.72 9.26
Administration and marketing 17.00 17.67 17.01 17.32
Total 100 N 100 100 100

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Exhibit 3: Supply Chain at Mumbai Widgets
Manufacturing Locations
Mumbai, Goa, Only from Mumbai
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Gurgaon, Pune
Primary Movement
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19 warehouses spread across
India
Secondary Movement
Distributors / Wholesaler
Dealers N Institutions
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Retailers End Customers
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SP
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Exhibit 4: Supply Chain for Imported Products
Taiwan
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Switzerland China
Thailand @ Spain
Mother Warehouse
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Warehouses across India
Distributors
N Institutions
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Retailers
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End Customer
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@
Bhiwandi
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Exhibit 5: Demand Forecast and Production Planning
Production Planning • Last two years’ sales
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and Control • Last three months sales
Department
Expected inventory level Sales forecasting Present inventory

inventory level
(End of next month) (For next month)
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Estimated total production
on for the month
• Demand at different
location
• Distance of
locations from
factories
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Dispatch decisions
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Production schedule for next
month in three phases:
st th
a. 1 to 15 of month
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th nd
b. 16 to 22 of month
rd
c. 23 to end of month
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In-house
In-
In -house
house production of
components
Actual
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production
Raw
w material supply (assembly)
Outsourced production of
components
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Dispatch to
warehouses
Exhibit 6(a): Assembly Line Capacity
Sr. No. Product No. of Operators Output/Shift
PY
1 SKU 1 2 650
2 SKU 2 3 2,000
Model 1 3 2,000
Model 2 3 1,500
500
3 SKU 3 1 8
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SKU 4 1 2
4 SKU 5 1 60
60
SKU 6 1 32
SKU 7 1 24
5 SKU 8 2 530
SKU 9 2 860
6 SKU 10
SKU 11
N 2
2
860
760
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7 SKU 12 2 400
8 SKU 13 1 90
SKU 14 1 10
SKU 15 1 300
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Exhibit 6
6(b):
(b): Cast Shop Capacity
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Machine c capacity
apacity Available in Shots per machine
(tonnes)
tton
onne
nes)
s) number per shift
5 2 2500
60 2 900
120 1 1000
200 1 1000
250 5 500-700
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Exhibit 7: Production Process Flow Diagram
Planning Department
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Demand forecasting for next month
Production Planning and Control Department
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Production schedule for the month
Press Shop Die Casting Shop N Vendors: Component

manufacturers
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Assembly Shop and Inspection
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Warehouse at the Factory

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State Warehouse
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IIMA/PROD0289
14 of 17
Exhibit 8: Shop Floor Plan
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EXCISE FINISHED GOODS
STORES
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DIE-CASTING
GATE 2
TECHNOLOGY TECHNOLOGY 1 BONDED T.O.
N
2 STORES
HRD
GATE 1
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TECHNOLOGY 2 TECHNOLOGY 1
PRESS SHOP
CT
MAINTAINENCE
TECHNOLOGY 1
REPAIR
AREA
TECHNOLOGY 2
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LAB
OFFICE
AUTOMATION
MANUAL POLISHING & BUFFING BUILDING
S
R&D
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SURFACE FINISH
IIMA/PROD0289
15 of 17
Exhibit 9: Fast Moving SKU
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20000
CO
18000
16000
14000
N
12000
Sales
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Branch Stock
10000 Factory Stock
Estimated Production
Production
CT
8000
6000
PE
4000
2000
S
0
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04 05 06 07 08 09 10 11 12 01
IIMA/PROD0289
16 of 17
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Exhibit 10: Intermediate SKU
2500
CO
2000
N
1500
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Sales
Branch Stock
Factory Stock
CT
Production
1000
PE
500
S
0
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04 05 06 07 08 09 10 11 12 01
IIMA/PROD0289
17 of 17
Exhibit 11: Slow-Moving SKU
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2000
CO
1800
1600
1400
N
1200
Sales
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Branch Stock
1000 Factory Stock
Production
CT
800
600
PE
400
200
S
0
04 05 06 07 08 09 10 11 12 01
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Ahmedabad IIMA/CISG0087EX
CISG00
CISG0087
87
Revised 2005
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Shiva Financial Services
Shiva Financial Services (SFS)) is a small financial services company located in Hyderabad
Hyderabad,
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employed by a reputed cell phone service provider, Progressive Communications Ltd. ((PCL),
in Hyderabad to collect the bills (totalling around Rs. 50 lakh a month) due to it from its
customers for the use of cell
phone services.
To facilitate the collection process, PCL initially provided an electronic copy (entered on
spreadsheet) of the master list (Exhibit 1) of all
ll its customers (over 5000) to SFS. Subsequently,
for every processing cycle (one week), PCL sent electronic versions ((worksheets) of customer
bill details to SFS along with pending amounts (Exhibit 2) and lists of new customers to be
included (Exhibit 3) and dropped out (Exhibit 4)..
SFS had organized its collection process and related information as follows:
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SFS assigned the PCL’s bill collection task to its collection executives. Each executive was
made responsible for recoveries from a set of customers
customers (Exhibit 5).
At the beginning of each week, the worksheets sent by PCL on customers to be included,
customers to be dropped, and the current period bills were used to obtain an updated list of
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customers and an outstanding amounts statement. Subsequently, the SFS executives were
provided with details of amounts be collected from the customers assigned to them (Extracts
of OSAmounts worksheet)..
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During the week, the SFS executives contacted PCL customers to collect the dues. They
recorded details of their collection effort in four separate statements, one for each mode of
card, and cash;
collection: cheque, credit card, cash and one for nil collection.
At end of each week, the executives submitsubmited their collection statements for consolidation.
The individual statements we were consolidated into three worksheets: one for cheque collections
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), one for credit card collections (Exhibit 7) and the third for cash collections (Exhibit
(Exhibit 6),
8). A worksheet was was also prepared on nil collections (Exhibit 9). SFS processes these
sheets to obtain the consolidated picture of collections (Exhibits 10 and 11) to be
worksheets
submitted to PCL as well as to help monitor its own collection process.
SFS designed a spreadsheet based system for its collection information. It included several
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manual editing steps such as cut, copy, and paste operations, data sorting functions, and some
formulae.. The ttable below describes the operations and associated steps.
formulae
Written by Professor T.P. Rama Rao, Indian Institute of Management, Ahmedabad.

2 of 10 IIMA/CISG0087EX
Operation Spreadsheet Steps

1. Processing new customers Copy the data in all rows of custno .. pincode columns of the
Include worksheet sent by PCL.
Paste it after the last row of the basedata worksheet.
Fill in the executive’s code for each new customer (after assigning
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one)
2. Processing dropped out Copy the data in all rows of custno .. custname columns of the drop
drop
customers worksheet sent by PCL.
Paste it immediately below the last row of the basedata worksheet.
Sort the combined table in the ascending order of custno.
Delete the rows with duplicate custno (both original and the pasted
rows) from the worksheet through visual inspection.
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3. Process bills of the current Create a new OSAmounts worksheet with all the columns, but with
period. blank data.
Copy the data in custno to PCLtot columns of the TMbills worksheet
and Paste it on to the newly created OSAmounts worksheet
worksheet.
Copy data in deposit column of the basedata worksheet and Paste it
on the deposit column of the OSAmounts worksheet.
Enter a formula in the first row of risklvl column of OSAmounts
worksheet to compute the risk level as the difference of the total
outstanding amount (current, days30, d60, d90) and the deposit.
Copy it to all other rows.
4. Process collections:
Cheques, Credit cards,
Cash, and Nil.
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a. Copy the data in all rows of custno
of the cheques worksheet.
worksheet.
custno, amount and remarks columns
Paste it immediately below the last row of the OSAmounts

worksheet.
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b. Copy the data in all rows of custno, amount and remarks columns
of the creditcards worksheet.
worksheet.
c. Copy the data in all rows of custno, amount and remarks columns
of the Cash worksheet.
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worksheet.
d. Sort the combined table in the ascending order of the custno.
e. Copy a and
nd Paste the data in amount and remarks columns of
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duplicate rows to the appropriate columns of the OSAmounts

rows.
f. Delete the second row (the pasted row) of the rows with duplicate
custno from the worksheet.
5. Age wise and bucket wise Sort the OSAmounts worksheet on current, days30, d60, and d90
summaries of receivables columns independently to prepare summaries for each age group.
Use each sorted table to get sub totals for each amount category.
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Initially, SFS was happy that it could use persona

personal computers to manage the collection
servicing functions of PCL without any programming effort, using just the spreadsheet
software. It found the spreadsheet software to be a very convenient tool to perform various
data manipulation operations and computations to generate summary reports.
Ass time advanced, SFS observed that the processing steps were becoming too cumbersome
A
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and error prone. At times it had to painfully re-process some steps owing to mistakes
committed in some of the cutcut/copy paste and edit operations which were performed
manually..
manually
SFS wass seriously looking for an improved solution to the processing of information on the
collection activity.
Questions
1. Suggest improvements possible in the above application to minimize the cut-

cut-and-paste
cut-and
and--paste
paste
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and manual editing operations in spreadsheet processing.
2. Discuss
iscuss the limitations of spreadsheet software for applications like the collection system
of SFS.
3. Can SFS use any other PC based software package for smooth and error-free
error-free
error- free processing of
its data, effective data control, and generation of useful management information? Discuss
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how such software would offer superior processing environment compared to spreadsheet
software.
4. Some examples of useful management information reports are:

are:
1) Statement of non-cash collections:
Bank-branch / Credit card Agency code, name, total amount collected
2) Executive wise collections: N

Executive code, Executive Name, Number of customers assigned, Amount expected
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to collect, Total amount collected through
through cheques, credit cards and cash, number of
nil-collections,
collections, amount involved in nil-collections.,
nil-collections.,
nil-collections., percentages of these to total
amount.
3) Age-wise
wise analysis of outstandings:
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Age-range (0-30, 31-60,

60, 61-
61
61-90,
-90,
90, and >90 days), Number of customers in the range,
Total amount in the range, percentage to total
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4) Customer Ratings:
Customer code, Customer name, total amount billed so far, percentage to total, ttotal
paid bouncings, amount involved in the bounced cheques,
aid so far, number of cheque bouncings
percentage tto
o total billed so far
far.
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Discuss how such reports can be generated.

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Exhibit 1: Customer Master Data (Worksheet: Base Data)
ata))
ata
Custno name msisdn deposit custtype address pin executive

1480 PURUSHOTHAM M PATEL 9725066771 9000 IND GOSHAMAHAL 500012 SK
9030 SRINIVASA FROZEN FOODS 9227955667 3000 CORP ESAMIAH BAZAR 500027 RO
20035 M/S.RAIN CALCINING LTD 9725066782 0 CORP SOMAJIGUDA 500082 RV
CO
22982 Y.V.KRISHNA RAO 9725066873 0 IND R P ROAD 500003 KK
24139 JAI MAKALI POULTRY PRODUCTS P LT 9725067777 6000 CORP VANASTHALIPURAM 500070 SR
24359 P.ASHOK KUMAR 9825066771 3000 IND KACHIGUDA 500027 MA
24362 NARESH SHARMA 9725066773 0 IND SECUNDERABAD 500026 RO
24363 M/S.ARORA POULTRY PRODUCTS LTD 9725066775 0 CORP VIJAYAWADA ROAD 500074 MA
24365 VIJAYA LAKSHMI 9725066780 0 IND HYDERABAD 500038 SK
24367 PUSHPA LALLA 9825066902 3000 IND BANJARA HILLS 500034 SK
24370 M/S.CEEPEES RUBBER PRODUCTS 9725068774 0 CORP FEROZGUDA 500011 VB
N
24372 PARAMJEET KAUR 9725066772 0 IND MALAKPET 500195 AN
24373 M.DAMODAR REDDY 9727566771 6000 IND KUKATPALLY 500018 RJ
24374 G.S.PRASANNA 9727666771 0 IND AMEERPET 500016 SR
IO
24375 M.ARJUN RAO 9725066799 0 IND SAROORNAGAR 500035 CH
24378 M/S BOMMANA SAREE MANDIR P LTD 9725066882 0 CORP SECUNDERABAD 500003 AN
24381 C.SRINIVASULU 9725065571 3000 IND DILSUKHNAGAR 500036 CH
24383 DR JAGAN MOHAN REDDY 9725065572 3000 IND JUBILEE HILLS 500033 SK
24388 GURVINDER SINGH DHANI 9725044735 3000 IND HYDERABAD 500038 CH
CT
24396 B.MADHAVA REDDY 9725044736 3000 IND HIMAYAT NAGAR 500029 MA
24397 M/S.L T SYNTEX P LTD 9725044737 4260 CORP BALKAMPET 500016 SR
24398 HEMANT KOTAK 9725044738 3000 IND PUTLIBOWLI 500095 RV
24401 RATAN KUMAR ROY 9725044739 3000 IND HYDERABAD 500012 VB
24402 B.KISHORE KUMAR 9725044740
972 5044740 1000 IND P G ROAD 500003 AN
24403 M/S.HYDERABAD CASTING LTD 9725044741 3000 CORP RANIGUNJ 500003 AN
PE
24422 J.JAYA PRAKASH 9725044742 1000 IND DILSUKHNAGAR 500036 CH
24423 G.J.NEHRU 9725044743 3000 IND HYDERABAD 500029 AN
24424 M/S.ANNAPURNA TIMBER TRADERS 9725044744 3000 CORP KUKATPALLY 500018 RJ
24428 DR.K.B.V.R.APPA RAO 9725044745 3000 IND HYDERABAD 500044 CH
24430 C.KAMLESH REDDY 9725044746 1000 IND HYDERGUDA 500001 KK
S
24431 P.RAMI REDDY 9725044747 3000 IND JUBILEE HILLS 500034 SK

24437 M/S.VOLTAS LIMITED 9725044748 0 CORP HYDERABAD 500018 RK
24440 J.SRI RAM 9725069872 6000 IND ANAND COLONY 500004 AN
IN
24442 CH.V.CHOWDARY 9725086560 1000 IND HYDERABAD 500463 RK

24444 M/S.CHARMINAR BLUE FLAMES P LTD 9725086552 1000 CORP S P ROAD 500003 RK
Exhibit 2: Customer Bills and Pending Amounts

(Worksheet: TMBills)
PY
Current Period Bills:
SN custno current days30 d60 d90 unallot PCLtot
1 1480 4085 0 0 0 0 4085
2 9030 1022 7 0 0 -7 1022
3 20035 3922 0 0 0 0 3922
4 22982 562 29 0 0 0 591
5 24139 15249 0 0 0 0 15249
CO
6 24359 1127 0 0 0 0 1127
7 24362 5273 12 0 0 --12
12 5273
8 24363 1010 0 0 0 0 1010
9 24365 1336 1074 0 0 0 2410
10 24367 7437 0 0 0 0 7437
11 24370 587 0 0 0 0 587
12 24372 254 0 0 0 0 254
13 24373 602 0 0 0 0 602
14 24374 2004 0 0 0 0 2004
15 24375
16 24378
17 24381
18 24383
1209
4684
777
22673
0
0
3862
0
N 0
0
5815
0
0
0
1217
0
-1260
0
0
0
1209
4684
10411
22673
IO
19 24388 973 2900 4753 1258 -1260 8624
20 24396 1085 1774 11465 1260 -1260 14324
21 24397 857 857 855 835 -835 2569
22 24398 3957 5336 1239 0 -1260 9272
23 24401 1552 4628 1904 0 0 8084
T
24 24402 9085 1 0 0 0 9086

25 24403 1010 3844 5667 0 0 10521
26 24422 1033 7430 3222 0 0 11685
EC
27 24423 9250 13008 0 0 -3000 19258

28 24424 11599 4375 0 0 0 15974
29 24428 4234 5175 0 0 0 9409
30 24430 729 10257 0 0 -3000 7986
31 24431 1050 9922 2849 0 -1260 12561
32 24437 14462 683 0 0 0 15145
33 24440 9442 9539 0 0 -1260 17721
SP
34 24442 6145 8607 0 0 0 14752

35 24444 7508 5102 0 0 -1260 11350
Current: Current period's bill amount

days30: Outstanding since 31-60 days
IN
d60: Outstanding since 61-90 days

d90: Outstanding since 91 and above days
unallot: Not to be collected by Shiva
PCLtot: Total Amount to be collected by Shiva
Exhibit 3: Details of New Customers

(Worksheet: Include)
Customers to be Included March

SN custno Name msisdn deposit custtype address pin
PY
1 24445 DR. SITA LAKSHMI 9875022705 5000 IND HYDERABAD 500003
2 24446 M/S.RK BAKERY 9885022709 10000 CORP VANASTHALIPURAM 500070

3 24447 KRISHNA MURTY 9875022708 5000 IND KACHIGUDA 500027
4 24448 G.J. SINGH 9875022845 5000 IND SECUNDERABAD 500026
M/S A.P. DAIRY VIJAYAWADA
5 24449 PRODUCTS 9775022702 10000 CORP ROAD 500074
6 24450 P.S. VINOD KUMAR 9825024605 5000 IND HYDERABAD 500038
CO
7 24451 M. SURYA RAO 9875022680 5000 IND BANJARA HILLS 500034
M/S KAMAL
8 24452 STATIONERIES 9865055702 10000 CORP FEROZGUDA 500011
Exhibit 4:: Details of Customers to be Dropped

(Worksheet: Drop)
Shiva Financial Services

Customers to be Dropped: 13 Mar
SN. custno
1
2
3
24381 C.SRINIVASULU
Cust Name
24388 GURVINDER SINGH DHANI

24398 HEMANT KOTAK
N
IO
4 24401 RATAN KUMAR ROY
5 24403 M/S.HYDERABAD CASTING LTD
6 24422 J.JAYA PRAKASH
7 24424 M/S.ANNAPURNA TIMBER TR TRADERS
8 24430 C.KAMLESH REDDY
T
9 24431 P.RAMI REDDY

10 24440 J.SRI RAM
EC
Exhibit 5
5:: Details of SFS Executives
(Worksheet: SFS Executives)
SN executive Name Assigned

1 AN A. Nageswara Rao 6
2 CH C. Hanumantha Rao 5
3 KK K. Kishan Rao 2
SP
4 MA M. Ananth 3
5 RJ R. Jagdish 2
6 RK R. Kamath 3
7 RO R. Obul Reddy 2
8 RV R. Venkatesh 2
9 SK S. Krishna 5
IN
10 SR S. Raghav 3
11 VB V. Balaji 2
Total 35
PY
Exhibit 6: Details of Cheque Collections
(Worksheet: Cheques)
Date: 13/03
CHEQUE REMITTANCE STATEMENT
SN CUSTNO AMOUNT BANK BRANCH CHQNO CHQDT RCT NO EXE Remarks
1 1480 4085 DENA M G ROAD 408926 6-Mar-99
CO
99 12092 SK COLLECTED CHQ 6/3 BAL NIL
2 24139 15249 SBI ABIDS 599900 11-Mar-99
--99
99 12785 SR COLLECTED CHQ 11/3 BAL NIL
3 24374 2004 SYNDICATE BASHEERBAGH 765120 13-Mar-99
Mar--99
Mar 99 12788 SR COLLECTED 13/3 BAL NIL
COLLECTED CHQ 1000/- 13/3
4 24402 1000 CORPORATION HYDERGUDA 33293 11-Mar-99
Mar--99
Mar 99 12649 AN BAL 8086/-
5 24423 10010 CORPORATION HYDERABAD 52198 3-Mar-99
3-
3-Mar
Mar 13130 AN BAL 9248/-
N
6 24437 2000 SBI ABIDS 81736 11-Mar-99
11-
11-Mar
Mar--99
99 13262 RK BAL 13145/-
7 24442 14752 SBI ABIDS 81736 11-Mar-99
11-
11-Mar
Mar 13262 RK BAL NIL
IO
Total 49100
Exhibit 7:: Details of Credit Card Collect

Collections
(Worksheet: CreditCards)
CT
Date: 13/03
CREDIT CARD REMITTANCE STATEMENT
SN CUSTNO AMOUNT CARD NO TYPE EXP_DT RCT NO BANK EXE Remarks

PE
1 24359 1127 5115000013348044 VISA 09/01 11398 ANDH MA COLLECTED CC 13/3 BAL NIL
2 24367 7437 4318610068566485 MAST 06/01 12079 ANZ SK COLLECTED CC 13/3 BAL NIL
3 24370 587 5399260041514354 VISA 08/01 12347 AB VB COLLECTED CC 13/3 BAL NIL
4 24397 2569 769103092610023 AMES 05/01 11784 AMEX SR COLLECTED CC 13/3 BAL NIL
5 24444 6350 5703672507455804 VISA 11/01 11894 STAN KK COLLECTED CC 6350/- 13/3 BAL 5000/-
S
6 22982 591 5703672507884324 VISA 01/01 13603 STAN KK COLLECTED CC 13/3 BAL NIL
7 24363 1010 9407775002973104 VISA 12/01 13305 VIJAYA MA COLLECTED CC 13/3 BAL NIL
Total 19671
IN
Exhibit 8: Details of Cash Collections

(Worksheet: Cash)
as on 13/3
CASH REMITTANCE STATEMENT
PY
S.NO CUSTNO AMOUNT RCT NO EXE Remarks
1 9030 1022 13180 RO PD 9/3 BAL NIL
2 20035 3922 13259 RV PD 5/3 BAL NIL
PD 10/3 CHQ BNC + PD
3 24362 5273 13032 RO 5273/- 13/3
4 24365 2410 12086 SK PD 13/3 BAL NIL
5 24372 254 13131 AN PD 13/3 BAL NIL
CO
6 24373 602 10536 RJ PD 10/3 BAL NIL
7 24375 1209 12439 CH PD 12/3 BAL NIL
8 24378 4684 12646 AN PD 11/3 BAL NIL
Total 19376
Exhibit 9:: Details of Nil Collections

(Worksheet: Nil-collection)
collection)
NIL COLLECTION STATEMENT

custno
24381
tocollect
10411 X
As on 13/3
N
remarks collected
0
CE
CH
IO
COLLECTED 12000/
12000/-12/3 CHQ
24383 22673 BNC 0 SK
24388 8624 X 0 CH
COLLECTED 1 13239/- 13/3 CHQ
24396 14324 BNC 0 MA
24398 9272 X 0 RV
T
24401 8084 X 0 VB
24403 10521 X 0 AN
24422 11685 X 0 CH
EC
24424 15974 X 0 RJ
COLLECTED CHQ BNC 12/3
24428 9409 BAL 9409/- 0 CH
24430 7986 X 0 KK
24431 12561 X 0 SK
24440 17721 X 0 AN
SP
IN
PY
Exhibit 10: Customer wise Consolidation of Dues and Collections - Worksheet: OSAmounts
custno current days30 d60 d90 unallot PCLtot deposit risklvl allotcoll remarks collected tocollect
1480 4085 0 0 0 0 4085 -9000 0 4085 COLLECTED CHQ 6/3 BAL NIL 4085 0
9030 1022 7 0 0 -7 1022 -3000 0 1022 PD 9/3 BAL NIL 1022 0
20035 3922 0 0 0 0 3922 0 3922 3922 PD 5/3 BAL NIL 3922 0
CO
22982 562 29 0 0 0 591 0 591 591 COLLECTED CC 13/3 BAL NIL 591 0
24139 15249 0 0 0 0 15249 -6000 9249 15249 COLLECTED CHQ 11/3 BAL NIL 15249 0
24359 1127 0 0 0 0 1127 -3000 0 1127 COLLECTED CC 13/3 BAL NIL 1127 0
24362 5273 12 0 0 -12 5273 0 5273 5273 PD 10/3 CHQ BNC + PD 5273/
5273/- 13/3 5273 0
24365 1336 1074 0 0 0 2410 0 2410 2410 PD
PD 13/3 BAL NIL 2410 0
24367 7437 0 0 0 0 7437 -3000 4437 7437 COLLECTED CC 13/3 BAL NIL 7437 0
24372 254 0 0 0 0 254 0 254 254 PD 13/3 BAL NIL 254 0
N
24373 602 0 0 0 0 602 -6000 0 602 PD 10/3 BAL NIL 602 0
24374 2004 0 0 0 0 2004 0 2004 2004 COLLECTED 13/3 BAL NIL 2004 0
24375 1209 0 0 0 0 1209 0 1209 1209 PD 12/3 BAL NIL 1209 0
IO
24378 4684 0 0 0 0 4684 0 4684 4684 PD 11/3 BAL NIL 4684 0
24381 777 3862 5815 1217 -1260 10411 -3000 7411 10411
10 X 0 10411
24383 22673 0 0 0 0 22673 -3000 3000 19673 22673 COLLECTED 12000/-12/3 CHQ BNC 0 22673
24388 973 2900 4753 1258 -1260 8624 -3000 3000 5624 8624 X 0 8624
24396 1085 1774 11465 1260 -1260 14324 -3000 3000 11324 14324 COLLECTED 13239/- 13/3 CHQ BNC 0 14324
CT
24397 857 857 855 835 -835 2569 --4260 4260 0 2569 COLLECTED CC 13/3 BAL NIL 2569 0
24398 3957 5336 1239 0 -1260 9272 --3000 3000 6272 9272 X 0 9272
24401 1552 4628 1904 0 0 8084 --3000 3000 5084 8084 X 0 8084
24402 9085 1 0 0 0 9086 --10001000 8086 9086 COLLECTED CHQ 1000/- 13/3 BAL 8086/- 1000 9086
24403 1010 3844 5667 0 0 10521 --3000
3000 7521 10521 X 0 10521
24422 1033 7430 3222 0 0 11685 --1000
1000 10685 11685 X 0 11685
PE
24423 9250 13008 0 0 -3000 19258 --3000
3000 16258 19258 COLLECTED CHQ 10010/- 3/3 BAL 9248/- 10010 9248
24424 11599 4375 0 0 0 15974 --3000
3000 12974 15974 X 0 15974
24428 4234 5175 0 0 0 9409 -3000 6409 9409 COLLECTED CHQ BNC 12/3 BAL 9409/- 0 9409
24430 729 10257 0 0 -3000
3000 7986 -1000 6986 7986 X 0 7986
24431 1050 9922 2849 0 -1260
1260 12561 -3000 9561 12561 X 0 12561
24437 14462 683 0 0 0 15145 0 15145 15145 COLLECTED CHQ 2000/- 10/3 BAL 13145/- 2000 13145
24440 9442 9539 0 0 --1260
1260 17721 -6000 11721 17721 X 0 17721
S
24442 6145 8607 0 0 0 14752 -1000 13752 14752 COLLECTED CHQ 14752/- 4/3 BAL NIL 14752 0
24444 7508 5102 0 0 --1260
1260 11350 -1000 10350 11350 COLLECTED CC 6350/- 13/3 BAL 5000/- 6350 5000
IN
PY
Exhibit 11:: Dues and Collections: Summary Statements
61-90 days
Current Collections
Bucket Nos. Amount Bucket Nos. Amount Bucket Nos. Amount
CO
0000-0600 3 1403 0000-0600 26 0 0000-0600
0000 16 1432
0601-1000 5 3938 0601-1000 1 855 0601-1000
0601 2 1602
1001-2000 10 11434 1001-2000 2 3143 1001-2000 5 6368
2001-3000 1 2004 2001-3000 1 2849 2001-3000 3 6983
3001-5000 5 20882 3001-5000 2 7975 3001-5000 3 12691
5001-7000 2 11418 5001-7000 2 11482 5001-7000 2 11623
7001- 10000 7001-
10000 5 42722 Above 1 11465 10000 1 7437
N
10000 Grand 10000
Above 4 63983 Total 35 37769 Above 3 40011
Grand Grand
IO
Total 35 157784 Total 35 88147
31-60 days
Above 90 days
Bucket Nos. Amount Bucket Nos. Amount
CT
0000-0600 17 49 0000-0600
0000-
0000 -0600
0600 31 0
0601-1000 2 1540 0601-1000
0601-
0601 -1000 1 835
1001-2000 2 2848 1001-2000
1001-
1001 -2000
2000 3 3735
Grand
2001-3000 1 2900 Total 35 4570
PE
3001-5000 4 16709
5001-7000 3 15613
7001-
10000 4 35498
10000
Above 2 23265
S
Grand
Total 35 98422
IN

IIMA/PROD0260(C)
0260(C)
Ahmedabad
PY
Optimizing Route Planning in Shree Cements
Limited: Towards an Operational Solution (C)
CO
The route planning decision is a tactical decision. This solution and procedure
need to be revised periodically in response to the changes in the operational
parameters like freight rates and quantity shipped. Also, the ease of use by the
departmental staff concerned would ensure the implementation of such
procedures. We need to make a clear trade-off
off between an optimal solution (which
near-optimal
requires sophisticated support systems) and a near-
near optimal solution which is easy
-optimal
to implement.
N
Step 1: Obtain Unconstrained Solution with discount for broad gauge and meter gauge.
Logistics Team at SCL
IO
Step 2: Set the discount percentage to zero for dumps not having qualifying
quali quantity in
Lower Bound solution and re-solve
solve the problem using earlier procedure. Classify the dumps
into three groups: Viable, Unviable and Undetermined (Group C). For example, in this
Ghaziabad, and Rishikesh.
problem set, the undetermined dumps (in Group C) are Delhi, Gha
T
Step 3: Estimate potential saving for all dumps in Group C (in any order) by computing the
following:
EC
Let,
Rj: Qualifying amount for concession for dump 'j'
Qj: Quantity in Upper Bound solution for dump 'j'
DSj: Saving on discount
discount based on shipment of Qj through dump 'j'
PCj: Minimum penalty cost to divert (Rj – Qj) through dump ‘j’ by BG
PSj: Potential saving by diversion (DSj – PCj)
SP
Based on a report authored by Professors N.Ravichandran and Devanath Tirupati

Tirupati, Indian Institute of
Management, Ahmedabad for Shree Cements Limited in 2002. The research support by Mr. Satyendra
Kumar, FPM student is gratefully acknowledged.
IN
problems.
 2004 by the Indian Institute of Management, Ahmedabad.
2 of 10 IIMA/PROD0260(C)
Minimum penalty cost of dump ‘j’ (PCj) can be calculated as below:

 List the depot-demand type
 Find the present best mode choice and transportation cost (per MT) for each
depot-demand type.
PY
 Calculate BG transportation cost with concession (per MT) through dump ‘j’
 Calculate the penalty cost of diversion per MT (BG cost per MT with concession -
Present best mode cost per MT) and rank the depot-demand demand type based on
increasing penalties.
 Determine diversion amounts (MT) for each depot-demand demand type (quantities
presently served by MG or viable BG dumps are not considered for diversion)
CO
 Calculate cumulative diversion quantity and cumulative penalty cost by
proceeding in accordance with the increasing penalty ranks till the cumulative
diversion quantity reaches (Rj - Qj)
 The cumulative penalty when cumulative diversion quantity reaches (Rj - Qj) is
the minimum penalty, i.e., PCj to divert (Rj – Qj)
Step 4: Rank the dumps in a decreasing potential saving (positive value only) order.
Step 5: Perform the diversion analysis for first dump.



quantity through the dump (as described in Step 3)
N
Calculate the PCj for the dump, i.e., minimum penalty cost to divert (Rj - Qj)
If minimum penalty cost for diverting (Rj - Qj) quantity, i.e., PCj is less than
IO
depot-demand type quantity
discount saving of the dump, i.e., DSj, divert the depot
through this dump (BG with concession). Thus, this dump becomes a “Viable”
dump for availing Broad Gauge concession. Otherwise no change has to be made
and the dump becomes an “Unviable” dump for availing Broad Gauge
concession.
T
Step 6: Repeat Step 5 for all the dumps as per the dump ranking in Step 4. It may be noted
that at each iteration the plan is modified due to amounts diverted via dump. As a result,
savings realized are likely to be different from the potential savings computed in Step 3.
EC
Example
Step 1: The BG and MG shipment quantity to dump locations (Unrestricted Solution) is

provided in Table 1.
Step 2: The BG and MG shipment quantity to dump locations is provided in Table 2. The
SP
Rishikesh.
“Undetermined” dumps in this solution are Delhi, Ghaziabad, and Ri
Step 3:: The penalty cost calculation of Ghaziabad dump is explained in the Table 3.
Similarly the penalty cost and potential saving of all "Undetermined" dumps are calculated
and summarized below:
IN
Dump Rj Qj Rj – Q j DSj PCj PSj = DSj - PCj

(MT) (MT) (MT) (Rs) (Rs) (Rs)
Delhi 6600 11000 4400 342540 128000 214540
Ghaziabad 2500 12000 9500 136680 -97834 234514
Rishikesh 1150 2350 1200 93164 26897554 -26804390
Step 4: Only two dumps, viz., Delhi and Ghaziabad have positive potential savings and are
ranked in that order.
Step 5: Diversion analysis for Delhi dump:
PY
(i) trade demand at Delhi with a minimum penalty cost of diversion per MT
Non-trade
(Rs.25.6) is ranked first among alternatives for diversion.
(ii) The quantity available for diversion is 5,000 MT. Hence penalty cost for diversion is
Rs. 128,000.
(iii) Since the quantity available for diversion is more than required quantity (4,400 MT),
no additional diversion is necessary.
CO
(iv) DSj for Delhi dump is Rs. 342,540.
(v) Since penalty cost amount is smaller than an DSj, the diversion is worthwhile and the
corresponding changes are made in the distribution/shipment plan. Delhi dump
becomes viable for BG concession and the net saving is approximately Rs. 215,000.
Step 6: Similar diversion analysis is done for Ghaziabad with the updated depot-
depot-demand
type. The details are presented in Table 4. It may be noted that diversion results in a net
benefit of Rs. 234,514 and hence Ghaziabad dump becomes "viable".
N
T IO
EC
SP
IN
PY
Table 1: Unrestricted Solution -- Rail (Mode) Summary
Unrestricted Solution Broad Gauge (MT/Month) Meter Guage (MT/Month)

Destination State Direct Via Dump Total Res. Qty Viability Direct Via Dump Total
Delhi Delhi 6600 0 6600 11000 Undetermined 8400 22000 30400
CO
Ambala Haryana 0 0 0 2360 Unviable 0 0 0
Ballabhgarh Haryana 0 0 0 0 0 0 0
Gurgaon Haryana 0 0 0 0 4300 0 4300
Narnaul Haryana 0 0 0 0 0 11500 11500
Rewari Haryana 0 0 0 2700 Unviable 0 0 0
Yamunanagar Haryana 3300 0 3300 0 Apply Discount 0 0 0
Jammu Tavi J&K 2300 0 2300 2000 Viable 0 0 0
ON
Bhatinda Punjab 1550 0 1550 5370 Undetermined 0 0 0
Chandigarh Punjab 1200 200 1400 1370 Viable 0 0 0
Jallandhar Punjab 0 0 0 2170 Unviable 0 0 0
Khanna Punjab 2600 0 2600 0 Apply Discount 0 0 0
Ludhiana Punjab 7600 2200 9800
98 00 7800 Viable 0 0 0
Rajpura Punjab 0 2400 2400 8950 Undetermined 0 0 0
TI
Jaipur Rajasthan 0 0 0 6850 Unviable 0 0 0
Agra U.P. 0 0 0 5125 Unviable 0 0 0
Bareilly U.P. 0 0 0 0 0 0 0
Ghaziabad
Mathura
U.P.
U.P.
7000
800
EC 3700
850
10700
1650
12000
2300
Undetermined
Undetermined
0
0
0
0
0
0
Meerut U.P. 3100 0 3100 2200 Viable 0 0 0
Moradabad U.P. 100 0 100 2100 Undetermined 0 0 0
Muzzafarnagar U.P. 2100 0 2100 3550 Undetermined 0 0 0
Saharanpur U.P. 2100 0 2100 1750 Viable 0 0 0
SP
Rishikesh Uttaranchal 1150 0 1150 2350 Undetermined 0 0 0

Roorkee Uttaranchal 100 4500 4600 0 Apply Discount 0 0 0
41600 13850 55450 12700 33500 46200
IN
PY
Table 2: Feasible Solution -- Rail (Mode) Summary
Planning Solution Broad Gauge Qty. MT/Month Meter Gauge Qty. MT/Month
Delhi Delhi 6600 0 6600 11000 Undetermined 8400 22000 30400
CO
Narnaul Haryana 0 0 0 0 0 11500 11500
ON
Bhatinda Punjab 0 0 0 5370 Unviable 0 0 0
Ludhiana Punjab 7600 2200 9800 7800 Viable 0 0 0
Rajpura Punjab 0 0 0 8950 Unviable 0 0 0
TI
Bareilly U.P. 0 0 0 0 0 0 0
Ghaziabad
Mathura
U.P.
U.P.
2500
0
EC 0
0
2500
0
12000
2300
Undetermined
Unviable
0
0
0
0
0
0
Meerut U.P. 3100 2300 5400 2200 Viable 0 0 0
Moradabad U.P. 0 0 0 2100 Unviable 0 0 0
Muzzafarnagar U.P. 0 0 0 3550 Unviable 0 0 0
SP
Rishikesh Uttaranchal 1150 0 1150 2350 Undetermined 0 0 0
Roorkee Uttaranchal 100 4500 4600 0 Apply Discount 0 0 0
32550 9200 41750 12700 33500 46200
IN
PY
Table 3: Penalty Cost Calculation for Ghaziabad Dump
Minimum Available Cumulative

Minimum Diversion Penalty Penalty Cumulative
Demand Shipment Shipment Diversion Diversion
Depot Cost Mode Cost Cost Cost Penalty Cost
Type Cost Mode Quantity Quantity
Choice (Rs / MT) (Rs./MT) (Rs.) (Rs.)
(Rs. / MT) (MT) (MT)
CO
Bulandsahar Non-Trade 600.6 Ghaziabad BG 545.9 -54.67
54.67 0 0 0 0
Ghaziabad Non-Trade (D) 550.6 BG BG 495.9 --54.67
54.67 0 0 0 0
Bulandsahar Trade 593.2 Ghaziabad Road 547.6 --45.57
45.57 200 200 -9114 -9114
Ghaziabad Trade 548.6 Ghaziabad Road 503.0 --45.57
45.57 4500 4700 -205074 -214188
Bagpat Trade 572.6 Meerut BG 543.2 --29.42
29.42 0 0 0 -214188
Bagpat Non-Trade 569.8 Meerut BG 540.9 -28.88
28.88 0 0 0 -214188
Noida Trade 540.7 Direct Road 516.4 -24.32 3000 7700 -72966 -287154
Ghaziabad Non-Trade 470.0 Direct Road 495.9 25.93 500 8200 12964 -274190
ON
Meerut Trade 519.0 Meerut BG 547.6 28.62 0 0 0 -274190
Noida Non-Trade 480.0 Road Road 510.9 30.93 500 8700 15464 -258726
Meerut Non-Trade 490.0 Direct Road 545.9 55.93 100 8800 5593 -253133
Moradabad Trade 620.7 Moradabad Road 699.4 78.71 100 8900 7871 -245262
Moradabad Non-Trade 560.0 Direct Road 715.9 155.93 0 0 0 -245262
Bijnore Trade 520.7 Direct Road 717.3 196.57 750 9650 147428 -97834
TI
EC
SP
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Table 4: Heuristic Solution -- Cost Summary
Quantity Primary Cost Secondary Total Cost

Heuristic Solution (MT) (Rs.) Costs (Rs.) (Rs.) Mode Quantity
Trade Road 73600 24102929 0 24102929 MG 46200
MG 2500 1087798 0 1087798
108779 8 BG 56400
CO
BG 16900 10058068 0 10058068 Total 223250
Dump 54600 5347353 23555429 28902782
Dump (Road) 3550
Dump (MG) 33500
Dump (BG) 17550
Total 147600 40596148 23555429 64151578
Non Trade (Dir) Road 36100 12369750 0 12369750
MG 0 0 0 0
BG 15350 8409780 0 8409780
ON
Dump 1300 88500 593810 682310
Dump (Road) 0
Dump (MG) 0
Dump (BG) 1300
Total 52750 20868030 593810 21461840
Non-Trade (Depot) Road 7400 4678500 0 4678500
MG 10200 4622187 0 4622187
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BG 5300 2998006 0 2998006
Total 22900 12298693 0 12298693
Total Road 117100 41151179 0 41151179
MG EC 12700 5709985 0 5709985
BG 37550 21465854 0 21465854
Dump 55900 5435853 24149240 29585092
Dump (Road) 3550
Dump (MG) 33500
Dump (BG) 18850
Total 223250 73762871 24149240 97912110
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Table 5: Heuristic Solution -- Rail (Mode) Summary
Heuristic Solution Broad Gauge Qty. MT/Month Meter Guage Qty. MT/Month
Delhi Delhi 11600 0 11600 11000 Viable 8400 22000 30400
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Narnaul Haryana 0 0 0 0 0 11500 11500
ON
Bhatinda Punjab 0 0 0 5370 Unviable 0 0 0
Ludhiana Punjab 7600 2200 9800 7800 Viable 0 0 0
Rajpura Punjab 0 0 0 8950 Unviable 0 0 0
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Bareilly U.P. 0 0 0 0 0 0 0
Ghaziabad
Mathura
U.P.
U.P.
2500
0
EC 10150
0
12650
0
12000
2300
Viable
Unviable
0
0
0
0
0
0
Meerut U.P. 3100 1800 4900 2200 Viable 0 0 0
Moradabad U.P. 0 0 0 2100 Unviable 0 0 0
Muzzafarnagar U.P. 0 0 0 3550 Unviable 0 0 0
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Uttarancha
Rishikesh l 1150 0 1150 2350 Undetermined 0 0 0
Uttarancha
Roorkee l 100 4500 4600 0 Apply Discount 0 0 0
37550 18850 56400 12700 33500 46200
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Exhibit 1: Flowchart for Heuristic solution
Allocate best mode choice for all destination-demand

demand combination to obtain Unrestricted Solution
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Change the discount rate to 0% where the quantity restrictions are not met to obtain Feasible Solution
For each Dump
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Qj = 0 0 < Qj < Rj Qj > Rj
Unviable Dump Undetermined Dump Viable Dump
Stop
Calculate the potential
potential
saving of dumps. N Stop
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Rank the dumps as per decreasing
positive potential saving
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Is any dump left for No

Solution
diversion analysis?
EC
Yes
No Diversion No Is potential Yes Divert & Update

saving > 0 the Depot mode
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Dump is Unviable Dump is Viable
Stop Stop
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Qj: Shipment quantity in feasible solution for Dump 'j' by BG

Rj: Qualifying quantity for BG discount for Dump 'j'
Exhibit 1: Flowchart for Heuristic Solution (Contd.)
Initialize
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Rj: Qualifying amount for concession for dump 'j'
Qj: Quantity in Feasible solution for dump 'j'
DSj: Saving on discount based on shipment
ment Qj through dump 'j'
PCj: Minimum penalty cost to divert (Rj – Qj) through dump ‘j’ by BG
PSj: Potential saving by diversion (DSj – PCj)
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For any Dump 'j'
List the Depot-Demand

emand type
N
Find the present best mode choice and transportation cost (per MT) for each depot
depot-demand type.
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Calculate the concessional BG transportation cost (per MT) through dump ‘j’
Calculate the penalty cost of diversion per MT (Concessional BG cost per MT - Present best mode
cost per MT) and rank the Depot-Demand
Depot-Demand
Depot- Demand type based on increasing penal
penalties
T
Determine diversion amounts (MT) for each depot

depot-demand type (quantities presently served by MG or
EC
viable BG dumps are not considered for diversion)
Calculate cumulative diversion quantity and cumulative penalty cost by proceeding in accordance wit
with
the increasing penalty ranks till the cumulative diversion quantity reaches (Rj - Qj)
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The cumulative penalty when cumulative diversion quantity reaches (Rj - Qj) is the minimum penalty
i.e. PCj to divert (Rj – Qj)
Return the value of PCj and PSj

IN

Rajashree Cement: Engine on Load
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In January 2004, Mr Rawat, General Manager, Malkhaid Plant; Mr Mehta, Vice President –
Logistics, Grasim Industries Limited (GIL); and Mr. Chaddha, Logistics Manager, Malkhaid
Plant, of Rajashree Cement (RC) and, Mr Gupta, Chief Operations Manager; and Mr Murthy,
Divisional Railway Manager, Secunderabad (SC) Division of South Central Railway (SCR) of
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the Indian Railways (IR) were discussing (i) whether to continue with the Engine on Load
(EOL) system or not and (ii) if to continue, what should be the terms of the contract between
RC and SCR. They felt that the recommendations would have wider implications and
should be considered by the Railway Board of the IR.
Background
Indian Railways
IR was a critical transport provider to the Indian economy, carrying about 40% freight ton
N
kilometers and 20% of the country’s passenger kilometers. Over two thirds of the revenue
came from freight operations. While freight was crucial to IR, and has been growing in an
absolute sense, it had
ad steadily been losing market share to the road sector and more recently
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to coastal transportation. The service offer from the IR had traditionally been station to
station transportation, and even in that, with a more explicit focus on the originating sta
station.
In an attempt to arrest the sliding market share, the IR wished to focus more on customer
service by expanding the scope of its offer to a third party logistics service provider. Cement
was considered as one of the focus areas for this.
T
Significance of Cement to IR
In 2001-02,
02, seven commodities accounted for over 90% of the freight revenue. Coal was the
EC
dominant commodity, followed by food grains, iron and steel, iron ore, cement, petroleum,
oil and lubricants, and fertilizers [Indian Railways, 2003]. Salient aspects of cement
transportation by rail were (i) the market share for cement transportation by rail had
1991-92
declined from 59% in 1991-
1991 -92 2002-03, (ii) the client system was in the private
92 to 40% in 2002
sector (unlike the other major commodities carried by IR) and hence was more demanding
and representative of the future orientation of industrial activity in India and (iii) cement
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had to reach the retail customer, due to which the distribution side had reasonable scope for
provider.
a third party logistics service p
2002-03,
In 2002-
2002 -03,
03, cement accounted for about 9% (46 million tons (mt)) of the originating traffic of
IR. Nearly 24% (11 mt) of IR’s cement was loaded in SCR, 75% (8 mt) of which was in the SC
Prepared by Professor
Prepared Professor G Raghuram, R Jain, Indian Institute of Management, Ahmedabad, India, D
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Kumar and RN Prasad, (Railway Staff College, Vadodara, India, 390004).

We acknowledge the research assistance by Ameesh Dave. We are thankful to Grasim Industries a and
South Central Railway for the data and discussion support, and to the Indian Railways for financial
support.
Teaching material of the Indian Institute of Management, Ahmedabad, is prepared as a basis for class
division. Cement accounted for 18% of freight loading in SCR and 25% in the SC division.
Exhibit 1 gives the cement and total freight loading statistics for SC division, SCR and IR.
Some of the concerns raised by the cement industry were non availability of appropriate
wagons, lack of proper loading and unloading systems,
stems, seamless intermodal connectivity for
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further movement in the supply chain, non uniform methods across railway zones in
indents and claims processing, and the inflexibility of IR to deal with smaller parcel sizes
and insufficient information on wagon availabilities and movements.
Structure of the Cement Industry
The installed capacity in large plants (above 0.2 mt per annum) was 140 mt, spread across
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125 plants and 54 companies. Out of the 54 companies, the top 11 accounted for nearly 64%
of the production in 2002-03.
03. There were four companies having a market share of over 10%
each. These were ACC, GACL, GIL, and L&T. The industry structure had been undergoing a
change in terms of consolidation, and fewer players were expected to control a larger share
of the market. The most recent acquisition had been that of L&T by GIL towards the end of
2003. This would make the merged entity the largest cement player in the country with a
market share of more than 20%. ACC and GACL had started working as an allianc alliance and
were expected to merge soon.
N
There had been changes in the production structure of cement in a variety of ways. One of
them involved making cement in two stages, first as clinker as an intermediate product close
to the raw material source and then transporting
ansporting it to grinding plants where it was ground,
IO
blended and bagged into value added cement for further distribution to the market. Another
change was to transport cement in bulk form for bagging near market centers. The bulk
cement could also be processed
essed to a value added product as ready mix concrete for the
customer. The product variety was also increasing with the manufacture of blended
cements.
T
Bulk movement of cement required special loading, unloading, and handling relative to
bagged cement, while le offering advantages of lower transportation costs. The cement
EC
industry was keen to look at integrated solutions for distribution logistics wherein a single
player could offer all the services for distribution from the plant to the customer.
Grasim Industries
ustries and Rajashree Cement
GIL was a flagship company of the Aditya Birla Group. It ranked among India's largest
private sector companies, with a gross sales of Rs 54.12 billion in 2002 2002-03. Starting as a
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textiles manufacturer in 1948, GIL's businesses comprised Viscose Staple Fiber, cement,
sponge iron, chemicals and textiles in 2004. The company held a dominant position in
several of its businesses. GIL was the world's eighth largest cement producer, and the largest
in a single location. Exhibit 2 provides
prov the locations and capacities of the GIL cement units.
RC, established in 1983, was the largest, single location grey cement manufacturer in the
Grasim Cement Division under GIL. It had a capacity of 4.2 metric tons per annum
IN
manpower of 844. The RC plant was located at Malkhaid, Karnataka.

production with a total m
Exhibit 3 provides the details on the expansion in capacity from 1984 to 2003 at RC.
Cement Clusters
Cement was manufactured in India in regional clusters due to the availability of limestone,
which constituted over 80% of the raw material by weight. Limestone, however, constituted
about 5-7%
7% of the cost of sales. The RC plant was located in the Gulbarga cluster of
limestone mines.
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The Gulbarga cluster spanned the states of Andhra Pradesh and Karnataka. Exhibit 4
provides the cluster-wise
wise map showing the large plants, the state wise installed capacities
and plants in the Gulbarga cluster. As of June 2003, the total installed capacity was 13 mt,
forming over 8% of the national installed capacity.
y. ACC and RC were the major plants in the
cluster. RC had a 1.4 mt grinding unit at Hotgi in Maharashtra, about 150 kms from its plant
at Malkhaid. ACC had a grinding unit near Mumbai. Exhibit 5 provides the details of rail
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connectivity for the Gulbarga cluster.
Logistics and Distribution
RC served the Maharashtra dealers from their grinding unit at Hotgi. It served Karnataka
dealers from Malkhaid, both in bagged and bulk forms. About 0.6 mt (52,000 tons per
month) was sent in bulk by rail to service the Bangalore
angalore market to a bagging plant at
Dodballapur, near Bangalore. For Andhra Pradesh, it had four depots spread across the state
for stock transfer and secondary distribution to the dealers. Some bulk cement was also sent
by road for further value addition
n to a ready mix concrete plant near Hyderabad.
N
For the bulk movement, since specialized handling was a requirement, special purpose
wagons were necessary. IR encouraged customers having such requirements to invest in
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their own wagons and offered a 22.5% freight subsidy under the Own Your Wagon (OYW)
scheme. Depending on the utilization, the returns on investment could be attractive to
customers like RC. RC had invested Rs 600 million on the wagons (amounting to three rakes
(a rake is a set of wagons constituting a train.) and five wagons) and the loading and
unloading facilities. The freight subsidy for the current level of cement movement was Rs 73
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million, providing a return of about 12%. Exhibit 6 provides the details of economics of the
OYW scheme.
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Bulk
lk Cement Closed Circuit Movement
For supplying bulk cement to Dodballapur, there was a closed circuit movement of rakes
from Malkhaid to Dodballapur and back. The three rakes, averaging a turnaround of 100
hours, led to about seven trips per month per rake. This resulted in a total of over 21 trips
per month. Since each rake could carry 2400 tons, the supply at Dodballapur was as
required. A graphical view of the closed circuit movement, layout at Malkhaid and
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Dodballapur, and operating details of the crew change, fuelling, engine change and wagon
maintenance are given in Exhibit 7.
Since IR viewed the engine as a critical resource, after the engine pulled in the rake at RC’s
premises, it was allocated to other tasks, while the incoming rake was loaded at R RC.
Consequently, there was a wait for engine after the loading was completed at RC, since the
SC division had to organize for it. Exhibit 8 gives the waiting time for engine at Malkhaid.
IN
Growing Market
The market for bulk cement in and around Bangalore w was growing. RC felt that there was an
opportunity to meet this demand. RC wanted to improve the supply to Dodballapur to
70,000 tons per month. In consultation with SCR, the following alternatives were considered:
• Increase throughput with the same number of trips by increasing load per
wagon and/or wagons per rake. Both these would require redesign of the
wagon (due to the topology over which the journey had to be made) and
acquisition of fresh stock.
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• Increase the number of trips with additional rakes. Thiss would require
acquisition of fresh stock, for which one possibility was modifying and using oil
tankers that had been rendered surplus due to increased pipeline transportation)
• Increase the number of trips with the same rakes by improving the turnaround
time.
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The first two alternatives required additional investments by RC. Recognising the rather
significant waiting time for engine at Malkhaid, RC proposed that the third alternative be
considered. SCR agreed to take this up.
Engine on Load Experiment
IR had
ad introduced an Engine on Load (EOL) scheme, wherein the engine would be kept
attached with a rake during loading and unloading operations, thus minimizing the delays
caused due to loaded/unloaded rakes waiting for it. Such delays led to loss of throughput
throughpu
N
and consequent loss of revenues to IR. The relevant Railway Board Circular is given in
Exhibit 9.
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RC and SCR decided to experiment with improving the turnaround time by adopting the
EOL scheme. The economics of the EOL for the closed circuit movement, as perceived by
RC, are given in Exhibit 10. The approval by SCR for this scheme is given in Exhibit 11. The
EOL was inaugurated on 15th September, 2003 (Exhibit 12).
T
For the EOL, it had been mutually agreed that three hours would be the total time in which
RC would complete the loading of the incoming rake. (The three hours was the lower bound
of the time taken for an engine to pick up a task subsequent to the one just completed,
EC
during the normal assignment process). An hourly penalty of Rs 3800 would accr accrue if this
was exceeded. This can be viewed in the context of the two types of engines that were used.
The indigenous engines in a twin set cost Rs 80 million and a recent import cost Rs 140
million. At a 10 per cent cost of capital, the engine cost per hour was about Rs 900 and Rs
1600 respectively.
In December 2003, RC and SCR wanted to review the EOL experiment. When a team from
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the Indian Institute of Management, Ahmedabad and Railway Staff College, Vadodara
visited RC as part of the study on the role of IR as a third party logistics service provider for
the cement industry, RC proposed that the team be involved in the review. The team
members agreed and gathered data on the closed circuit movement performance till the end
of December, 2003. 78 trips had been undertaken from Malkhaid after the introduction of
EOL, of which only 45 actually availed of EOL. Exhibits 13 and 14 give the rakewise
detention details gathered by the team at Malkhaid and Dodballapur respectively. It was
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now essential to calculate and analyse the components of the closed circuit movement, both
for the rakes which availed EOL and those that did not, to facilitate the review. The
components of the turnaround time before the EOL introduction is given in Exhibit 15.
Based on the experience of the EOL scheme, the team suggested that RC and SCR consider
the following issues:
• Should RC and SCR have the option of declaring a trip as not for EOL? Can this be
unilaterally decided or should it be a joint decision? What should be the required
advance notice?
From the time the rake reaches the terminal, what should be the guaranteed time for
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•
engine availability? What should the penalty be on RC if load is not available? What
should the penalty be on SCR if engine is not available? (Currently there
ere was no penalty
on SCR).
• What steps should RC take to ensure timely loading at the terminal?
What steps should SCR take to ensure EOL, and by implication powering the incoming
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•
train with an appropriate engine?
• Is the issue EOL or timely availability of engine (incoming and outgoing engines need
not be the same, should SCR want the flexibility)?
• To improve customer service towards becoming a third party logistics service provider,
should not SCR (and thus, IR) focus on guaranteed total (a) delivery time ffrom
Malkhaid (origin) to Dodballapur (destination) and (b) turnaround time for the whole
circuit?
N
T IO
EC
SP
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CO
N
T IO
EC
SP
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Exhibit 1
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Cement and Total Originating Loading Statistics
Secunderabad Division South Central Railway Indian Railways

% Variation Over
Year Cement Total Cement Total Cement Total
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Previous Year
mt Average mt Average mt Average Average Average
mt mt mt mt
per Wagons per Wagons per Wagons Wagons Wagons
per annum per annum per annum per annum
annum per day annum per day annum per day per day Per day
1990-91 5.76 703 17.32 2175 4.4 4.9 8.19 912 31.78 3503
1991-92 5.38 661 18.88 2325 9.0 6.9 8.60 929 34.78 3723
1992-93 5.92 723 20.67 2593 9.5 11.5 8.63 931 35.83 3937
ON
1993-94 6.78 801 24.23 3073 17.2 18.5 9.60 1027 40.30 4570
1994-95 5.55 786 20.51 2970 -15.3 --3.4
3.4 8.18 1042 35.73 4766
1995-96 6.28 757 21.51 2521 4.9 --15.1
15.1 9.33 1059 36.68 4267
1996-97 7.00 767 24.09 2849 12.0 13.0 9.89 1069 40.30 4581
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1997-98 7.90 772 26.17 3056 8.6 7.3 10.42 1053 44.11 5021 37.36 429.38
1998-99 6.70 664 24.25 2824 --7.3
7.3 -7.6 9.65 989 42.45 4920 36.75 420.92
1999-00
2000-01
7.22
7.05
705
827
28.73
30.41
EC 3298
3517
18.5
5.8
16.8
6.6
11.37
10.76
1184
1093
51.25
56.84
5917
6604
43.62
42.90
456.42
473.50
2001-02 6.56 770 31.31 3619 3.0 2.9 9.70 1137 60.41 7010 44.04 492.50
2002-03 8.34 975 33.41 3843 6.7 6.2 11.18 1305 62.29 7222 46.25 518.74
SP
Source:: [South Central Railway, 2004 and Indian Railways, 2003a]

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Exhibit 2
Grasim Industries (AV Birla Group): Cement Units
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Plant Location State Capacity (mt)
Rajashree Cement Malkhaid Karnataka 4.20
Birla Super Grinding Unit Hotgi Maharashtra 1.40
Aditya Cement Shambupura Rajasthan 1.75
Vikram Cement Khor M.P. 3.00
CO
Grasim Cement Rawan Chhattisgarh 2.06
Grasim Cement South Reddypalayam Tamil Nadu 1.03
Bhatinda Grinding Unit Bhatinda Punjab 1.20
SDCC Sikka Jamnagar 1.08
Source: [RC, 2003]
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Exhibit 3
Rajashree Cement – Malkhaid Plant Capacity
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Plant Year of Capacity Cumulative
Commissionin (mt) Capacity (mt)
g
Unit-I 1984 0.50 0.50
T
Unit-I Expansion 1989 0.30 0.80

Unit-II 1990 1.00 1.80
Unit-III 1995 1.20 3.00
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Unit-II
II Internal Optimization 2000 0.20 3.20
Capacity Enhancement By Debottlenecking June 2003 1.00 4.20
Source: [RC, 2003]

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Exhibit 4
Cluster-wise Cement Map of India (Large Plants)
(as on 31.3.2003)
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CO
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T IO
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SP
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Gulbarga Cluster
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Sl. No. Region/State Location Installed Capacity (mt)
Andhra Pradesh
53. CCI Ltd. Tandur 1.00
58 India Cement-Visaka Tandur 1.12
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2.12
Karnataka
82 ACC Ltd. Wadi 2.1

2.11
1
83 ACC Ltd.- New Wadi 2.60
84 Vasavadatta Cement Sedam 1.20
85
87
Rajashree Cement
CCI Ltd.
Malkhaid
Kurkunta
N 4.20
0.20
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88 HMP Cements Ltd. Shahabad 0.48
10.79
Source: [CMA, 2003]

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EC
SP
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Exhibit 5
Rail Connectivity for the Gulbarga Cluster
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CO
N
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EC
Source: [Indian Railways, 2003b]

SP
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Exhibit 6
Economics of Own Your Wagon Scheme for Rajashree Cement
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Investments
Wagons (40 *3 Rakes plus 5 for Rs 200 million

contingency = 125 Boxes)
Malkhaid (Loading) Silo Rs 10 million
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Dodballapur Unloading Rs 390 million
Total Investment Rs 600 million
Benefits
Freight Subsidy
N
22.5% for 10 years
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(Rs 116 on a total of Rs 516)
7 trips per rake per month @2400 52,000 tons per month = 624,000 tons
mt per rake per annum
Savings 624,000*116 = Rs 73 milli

million
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ROI 73/600 = 12 %
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Alternatives
Net savings: Rs 116 or Rs 150 per − Rail OYW – Rs 460: Rs 400

ton? (Malkhaid to Dodballapur) + Rs 60
(Dodballapur to dealers)
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− Rail regular wagon – Rs 610: Rs 550

(Malkhaid to Bangalore in bags) + Rs
60 (Bangalore handling at goods
shed and then to dealers)
Source:: [RC, 2003 and Author’s Analysis]

Source
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Exhibit 7
RC Bulk Cement Closed Circuit Movement
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Waiting for Idling Prior to
Engine Loaded Transit Unloading
Loading at Unloading at
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Malkhaid Dodballapur
(South Central (South Western
Railway) Railway)
Idling Prior to Empty Transit Waiting for

Loading Engine
N
Periodic
Maintenance at
Gooty
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Malkhaid Layout
T
EC
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Dodballapur Layout
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Malkhaid Chittapur Guntakal Gooty Dharmavaram Dodballapur
10 245 30 110 180
15 Wadi (bypass) 230
75 kms to 50 kms to
Vikarabad Baiyappanahalli
SC Division (SCR)
N GTL Division (SCR)
SBC Division (SWR)
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Total Distance 575
Crew Change: Chittapur, Guntakal, Dharmavaram and Baiyappanahalli
Engine Change: Guntakal and Gooty (for maintenance, if required) and Dharmavaram (for
engine compatibility, if required). Three types of engines were used from
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Malkhaid: WDM2 Multi (about 5000 horse power, 16, 17 and 18 series),
WDG3A Shaktiman (3100 horse power, 13 and 14 series) and WDG4 GM
(4000 horse power, 12 series). The WDG3A had difficulty in managing the
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gradient in a few sections in GTL division. It could stall if it was slowed

own. A banker/double head/multi would be preferred. The WDG3A
down.
required a banker on the ghats in the Dharmavaram – Dodballapur section
for one block section. The WDG4 were not safety certified for the ghat
sections.
Fuelling: Vikarabad, Guntakal, Gooty and Baiyappanahalli, as required. A top up to
5000 litres (for WDM2) and 6000 litres (for WDGs) at Gooty would enable a
trip to either Malkhaid or Dodballapur and back
SP
Wagon Maintenance: Gooty (The maintenance provided a break power certificate for 4000 kkms,
implying that the next maintenance would be required before this distance
was covered. This implied a maintenance once in three trips.)
SCR – SWR Issues: SCR suggested that SWR should conduct trials using WDG3A without a
banker on the ghat section. Alternately, SCR was ready to provide a banker
to operate only in the ghat section, if SWR agreed. This would avoid the
need for engine change at Dharmavaram.
IN
: SWR suggested that if the engine from Dharmavaram came with enough
fuel, the same can be turned around at Dodballapur. However the crew
would need rest during the unloading operations, for which a running room
was being constructed by RC at Dodballapur
Source: [RC, 2003 and Authors’ Analysis]
Exhibit 8
Average Waiting Time for Engine to Pull Out Loaded Rakes

(Hours: Minutes)
Apr'02 - Mar'02
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Month Average Time Taken for Arrival of Engine
Cement Rake Clinker Rake
Bagged Loose
Apr'02 12:45 8:00 5:50
May'02 20:30 13:50 7:50
Jun'02 31:40 13:00 8:50
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Jul'02 17:20 9:20 6:30
Aug'02 7:00 29:30 5:40
Sep'02 10:50 13:30 6:00
Oct'02 21:00 11:00 10:20
Nov'02 13:45 14:10 9:50
Dec'02 24:10 10:50 9:30
Jan'03 19:15 13:30 11:15
Feb'03
Mar'03
Total
18:45
16:06
213:06
N 12:23
9:42
158:46
9:40
8:31
99:46
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Average 02-03 17:45 13:13 8:18
Minimum time 7:00 8:00 5:40
Maximum time 31:40 29:30 11:15
T
Apr'03 - Nov'03
Month Average Time Taken for Arrival of Engine
Cement Rake Clinker Rake
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Bagged Loose
Apr'03 30:38 6:48 11:27
May'03 29:10 9:52 21:41
Jun'03 15:06 12:20 19:03
Jul'03 28:56 12:53 9:15
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Aug'03 23:49 12:38 11:43

Sep'03 14:39 6:24 12:02
Oct'03 17:07 3:06 12:06
Nov'03 15:15 6:00 14:00
Total 174:43 70:04 111:19
IN
Average 03-
03-04
03-04
04 21:50 8:45 13:54
Minimum time 14:39 3:06 9:15
Maximum time 30:38 12:53 21:41
Source: [RC, 2003]

Exhibit 9
Railway Board Circular
GOVERNMENT OF INDIA
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MINISTRY OF RAILWAYS
(RAILWAY BOARD)
I/94/214/9
N0: TC-I/94/214/9 New Delhi, DT 26-6-
26-6-1997
1997
26-6-1997
The General Manager,

All Indian Railways
CO
n of Engine on Load Scheme at selected terminals and sidings.
Sub: Provision
-----
For quite some time the question of reducing the detention caused to the wagons at the
terminals/siding because of their waiting for Power has been engaging the attention of the Board. It
has also been observed that such detentions to wagons caused heavy loss of loading capacity as
also loss of revenue to the Railways.
2.
N
On the basis of extensive review it has been observed that detention to rakes could be
comotive is kept attached with a rake during loading and
minimised substantially if the locomotive
unloading operations. The moment of the loading/unloading is completed, the rake could be
moved out without much loss of time thereby improving the turn round of wagons resulting in
IO
generation of additional carrying capacity. This system, also known as Engine on Load is
already operational on Eastern Railway (Khalari-
(Khalari -Unchahar
Unchahar Circuit), South Eastern Railway
(Khalari-Unchahar
Kottavalasa Line) and Northern Railway (NTPC siding at Dadri). The
(Bacheli Yard on Kirandul-Kottavalasa
studies conducted on operation of existing Engine on Load system, which is based on the
debit/credit hours for calculation of free time have shown remarkable results in that it has led to
substantial reduction in detentions and better turn round of wagons. This scheme however did
not make much headway at other places because the terminal/siding owner did not show much
T
interest in improving the handling facilities, infrastructure as they were not getting any direct
monetary advantage and perceived that this scheme benefited only the Railways.
EC
3. Keeping this in view, the basic features of the scheme are being outlined in a Draft
Memorandum of Understanding, which is under finalisation in Board's office. The proposed
features are enumerated as under:-
under:-
i) This scheme
scheme is open to selected terminals/sidings, handling atleast one rake per day,
who are desirous of making investments for improvement of siding infrastructure and
handling facilities for reduction in time taken for rake loading/unloading operations.
SP
ii) The investments in sidings will precede the grant of monetary incentive i.e. the
installation and commissioning of improved terminal handling facilities and resultant
saving in detention of rakes is a must for payment of these incentives.
iii) The terminal/siding user will submit technical plans with capital cost, method of financing
and period during which the facilities will be installed, to the Railways for vetting and
ascertaining the adequacy of the scheme etc.
IN
iv) The revised free time for loading/unloading would be 4 hours or less depending on the
facilities and the special features of the siding.
v) The monetary incentive will be 50% of the notional earnings accruing to the Railways on
account of reduction in the loading/unloading time of the rake. These notional earnings
would be calculated after deducting the cost of detention of locomotives as a result of the
implementation of the scheme.
vi) The incentive will be paid for a limited period of upto 3 years, commensurate with the
investments made.
vii) After the period of recovery of investment, the rebate would be replaced by a nominal
concession to the extent of the expenses on maintenance of the facilities plus a token
PY
5% thereof as long term incentive, subject to a ceiling of 2-3%
3% of the annual freight
charges.
viii) In case the party defaults and savings do not accrue, then normal demurrage charges on
rakes as also loco detention charges would be recoverable from the party.
ix) Monetary incentive will be paid on half yearly basis.
CO
x) The monetary incentive is towards investments made only for infrastructure
improvements and provision of other facilities in the sidings, leading to reduction in time
taken for loading/ unloading.
xi) The scheme will take effect from a prospective date only.
4. The draft MOU is under finalisation.
5. In the meantime, Zonal Railways may address prospective rail rail-users who can opt for the
scheme and explain the provisions to them so that it is appreciated in the correct perspective.
6. N
Any suggestions from Zonal Railways to further improve and strengthen the scheme, may be
sent
ent alongwith comments of associate Finance.
IO
7. This issue with the concurrence of the Finance Department in the Ministry of Railways.
(Hindi version will follow)

T
(K.K. Sharma)
Jt. Director, Traffic Comml. (Rates) I

EC
Railway Board
Copy to:
SP
1. General Manager (Commercial) and General Manager (Optg.), All Indian Railways
including Konkan Railway.
2. EDTT (M), EDCE (G), EDF(C), DDTC(R), Railway Board.

IN
Exhibit 10
Economics of EOL
Preamble
The following table gives an activity wise breakup of the
he time taken in the turnaround cycle for
PY
bulk rakes (Inclusive of both historical data and Proposed Time for each activity with EOL
system)
Time in Hours
Particulars 2002-03 2003-0404 Proposed
Apr 02-Mar Apr 03-Jul
--Jul
Jul 03 with EOL
03
Loading Time 3.36 3.27 3.3
CO
Placement/Shunting/Formation(*) Time 7.36 3.11 1.3
Total Time for loading and placement 11.12 6.38 5
Time taken for engine arrival to pullout loaded rake 13.14 16.42 2 (***)
Transit time – Malkhaid to Dodballapur 34.42 53.4(**) 34
Unloading time at Dodballapur 9.46 25.54(**) 9
Transit time – Dodballapur to Malkhaid 30.09 29.13(**) 30
Total Bulk Rake turnaround time

Average no. of trips per month
Actual average number of trips
N 99.03
22.11
22
132.07 (**)
16.58
20 -
80
27.38
IO
(*) Also inclusive
clusive of detention of empty rake for want of stock in silos
(**) The high values are due to detention of loaded rakes due to Transport Strike in April and
maintenance at Dodballapur in June
(***) Time taken as 2 hours for any contingency , ideally sho
should be zero
Expected benefits
T
Effective increase in number of trips per month 5

Incremental quantity moved per month (tons) 11900
EC
Incremental quantity moved per annum (tons) 142800

Freight rebate @ 22.5 % (Rs/ton) 105.52
Logistics Gain perr month (Rs million) 1.26
Cost envisaged towards engine detention of two 0.21
hours @ Rs 3900 per hour (Rs million) per month
Net Logistic Gain per month (Rs million) 1.05
SP
Net Annual Logistic Gain (Rs million) 12.5

Gain to Railways
Additional revenue per month due to incremental
Additional 4.33
quantity (Rs million)
Additional revenue annually due to incremental 51.9
quantity (Rs million)
IN
Detention Charges per month (Rs million) 0.21

Detention Charges annually (Rs million) 2.5
Total Gain tto Railways (Rs in million) 54.4
Source: [RC, 2003]

Exhibit 11
Approval by South Central Railway
South Central Railway
PY
Office of the Divisional Railway Manager,
Commercial Branch,
Sanchalan Bhavan – II floor,
Secunderabad.
CO
C/C/490/Shunting Charges/96 18-9-03
Date: 18-9-
18-9-03
03
Vice President,
M/s Rajashree Cements,
May Fair Complex, S.P.Road,
Secunderabad.
Dear Sir,
N
IO
Sub: Your request for detaining engine on load for loading BCCW rake.
Ref: Your Ir No. RC/MQR/CEM/EOL dated 06-8-03

06
Your request for loading BCCW wagons with engine on load, keeping with Railway engine is agreed.
Necessary instructions have been issued to station staff to permit to keep the engine on request for
T
loading BCCW wagons.
It may be noted that detention charges have to be paid at prescribed rate for detention of engine
beyond three hours, from the time of arrival of engine with empty rake into the siding, till the departure
EC
of engine with load from siding.
Yours Sincerely,
For Divisional Railway Manager,
Secunderabad.
SP
Copy to:
CCM for kind information
COM for kind information
Sr. DOM/SC for information and necessary action.

IN
CCI/TDU for necessary action
SM/MQR & Siding clerks for recording and levying engine detention charges beyond three hours as
stated above.
Exhibit 12
Inauguration of EOL (15.09.2003)
PY
CO
N
IO
Source: [RC, 2003]
T
EC
SP
IN
Exhibit 13
PY
Rake-wise Detention Details at Malkhaid
September 2003
Departure from Amoun
Date Stock Arrival at Siding Engine Placement Time Release Time Total FreeRate Time Remarks
Siding t
CO
Rake
S per
Detenti Charg
No Date Time No Date Time Date Time Date Time Time Hour
on ed
Rs
Hrs Hrs Hrs Rs
1 A 15.09.03 40 Bccw 15.09.03 2:00 14615 15.09.03 2:30 15.09.03 7:30 15.09.03 8:00 6:00 3:00 3:00 3870 11610
14630/ Engine withdrawn
2 B 15.09.03 40 Bccw 15.09.03 16:30 15.09.03 17:00 15.09.03 23:00 15.09.03 23:30
14577 no EO L
Cleared with 12019
ON
18513/ Party requested
3 C 15.09.03 40 Bccw 15.09.03 22:30 16.09.03 12:00 16.09.03 17:00 16.09.03 19:30
18897 since no time gap
Engine withdrawn
4 A 17.09.03 40 Bccw 17.09.03 17:00 14559 17.09.03 18:00 17.09.03 23:30 18.09.03 0:00
another power
14818 cleared
Engine withdrawn at
5 B 18.09.03 40 Bccw 18.09.03 20:30 12006 19.09.03 5:00 19.09.03 8:00 19.09.03 12:00
party request
TI
since no material
6 C 19.09.03 40 Bccw 19.09.03 16:00 14678 19.09.03 20:00 19.09.03 23:00 20.09.03 7:00 No EOL
7 A 20.09.03 40 Bccw 20.09.03 8:00 14818 21.09.03 3:00 21.09.03 7:00 21.09.03 11:00 No EOL
8 B 23.09.03 40 Bccw 23.09.03 22:00 12020

EC
23.09.03 22:30 24.09.03 4:30 24.09.03 7:00
Withdrawn engine
cleared with 14693
9 C 24.09.03 40 Bccw 24.09.03 1:00 14639 25.09.03 4:00 25.09.03 8:00 25.09.03 8:30 Cleared with 14819
10 A 25.09.03 40 Bccw 25.09.03 8:15 14819 25.09.03 13:00 25.09.03 17:00 25.09.03 18:00 Cleared with 12030
11 B 26.09.03 40 Bccw 26.09.03 19:30 14639 26.09.03 20:00 27.09.03 1:00 27.09.03 2:00 6:30 3:00 3:30 3870 15480
SP
12 C 27.09.03 40 Bccw 27.09.03 20:00 14819 28.09.03 3:00 28.09.03 7:00 28.09.03 11:00 Cleared with 14678
Cleared with
13 A 28.09.03 40 Bccw 28.09.03 20:00 12039 29.09.03 2:00 29.09.03 7:00 29.09.03 11:00
14917/14938
14 B 30.09.03 40 Bccw 30.09.03 3:00 17110 30.09.03 4:00 30.09.03 9:00 30.09.03 10:00 Cleared with 12029
IN
Total 27090
October 2003
PY
Engin
S Placement Departure from
Date Stock Arrival at Siding e Release Time
Total Time Rate
Rake
N Time Siding
No Detent Free Charg per Amou Remarks
o
Date Time Date Time Date Time Date Time ion Time ed Hour nt
Hrs Hrs Hrs Rs Rs
CO
1 C 30.09.03 40 Bccw 30.09.03 23:30 14678 01.10.03 1:00 01.10.03 4:00 01.10.03 4:3 5:00 3:00 2:00 3870 7740 E O L
2 A 02.10.03 40 Bccw 02.10.03 11:30 12006 02.10.03 12:00 02.10.03 16:00 02.10.03 16:30 5:00 3:00 2:00 3870 7740 E O L
3 B 03.10.03 40 Bccw 03.10.03 19:30 14813 03.10.03 20:00 04.10.03 4:00 04.10.03 4:30 9:00 3:00 6:00 3870 23220 E O L
4 C 04.10.03 40 Bccw 04.10.03 13:30 14678 04.10.03 14:30 04.10.03 18:30 04.10.03 19:30 6:00 3:00 3:00 3870 11610 E O L
E O L Power
Interception
ON
5 A 06.10.03 40 Bccw 06.10.03 1:30 12015 06.10.03 2:00 06.10.03 7:30 06.10.03 8:00 7:00 3:00 4:00 3870 15480
with
18897/16499
6 B 06.10.03 40 Bccw 06.10.03 17:00 14813 06.10.03 17:30 07.10.03 1:30 07.10.03 2:00 9:00 3:00 6:00 3870 23220 E O L
7 C 09.10.03 40 Bccw 09.10.03 8:30 14818 09.10.03 9:00 09.10.03 15:00 09.10.03 15:30 7:00 3:00 4:00 3870 15480 E O L
8 A 10.10.03 40 Bccw 10.10.03 7:30 12025 10.10.03 8:00 10.10.03 12:00 10.10.03 12:30 5:00 3:00 2:00 3870 7740 E O L
TI
Subtotal 53:00 24:00 29:00 3870 112230
12004 with
9 B 11.10.03 40 Bccw 11.10.03 4:30 12004 11.10.03
EC 5:00 11.10.03 10:30 11.10.03 13:00 drawn cleared
with 13039
16696/
10 C 12.10.03 40 Bccw 12.10.03 19:00 12.10.03 19:30 13.10.03 1:30 13.10.03 2:00 7:00 3:00 4:00 3870 15480 E O L
702
16705/703
16705/ with drawn
11 A 15.10.03 40 Bccw 15.10.03 2:30 15.10.03 3:00 15.10.03 7:00 15.10.03 10:10
703 cleared with
SP
13039
12 B 16.10.03 40 Bccw 16.10.03 4:00 12026 16.10.03 4:30 16.10.03 9:30 16.10.03 10:00 6:00 3:00 3:00 3870 11610 E O L
Party's
request since
13 C 16.10.03 40 Bccw 16.10.03 15:00 12026 16.10.03 21:00 17.10.03 0:00 17.10.03 6:45 no time gap
cleared with
IN
14691
Conti…
PY
Total Time Rate
S
Rake
Engine Departure from Detenti Free Charge per Amou
N Date Stock Arrival at Siding Placement Time Release Time Remarks
No Siding on Time d Hour nt
o
Hrs Hrs Hrs Rs Rs
Date Time Date Time Date Time Date Time
CO
14 A 18.10.03 40 Bccw 18.10.03 13:30 14092 18.10.03 14:00 18.10.03 19:00 18.10.03 19:30 6:00 3:00 3:00 3870 11610 E O L
15 B 19.10.03 40 Bccw 19.10.03 7:00 14999 19.10.03 7:30 19.10.03 10:30 19.10.03 11:00 4:00 3:00 1:00 3870 3870 E O L
16 C 19.10.03 40 Bccw 19.10.03 20:30 14660 19.10.03 21:00 20.10.03 2:00 20.10.03 2:30 6:00 3:00 3:00 3870 11610 E O L
Subtotal 29:00 15:00 14:00 3870 54180
17 A 21.10.03 40 Bccw 21.10.03 14:30 13037 21.10.03 15:00 21.10.03 21:00 21.10.03 21:30 7:00 3:00 4:00 3870 15480 E O L
ON
18 B 22.10.03 40 Bccw 22.10.03 20:30 14813 22.10.03 21:00 23.10.03 2:00 23.10.03 2:30 6:00 3:00 3:00 3870 11610 E O L
No E O L
cleared with
14667, Loco
19 C 25.10.03 40 Bccw 25.10.03 1:30 13044 25.10.03 3:00 25.10.03 8:00 25.10.03 13:30
no. 13044 not
permitted due
to loco trouble
TI
17228/
20 A 26.10.03 40 Bccw 26.10.03 5:30 26.10.03 6:00 26.10.03 11:00 26.10.03 11:30 6:00 3:00 3:00 3870 11610 E O L
16474
14589/
21 B 28.10.03 40 Bccw 28.10.03 5:30 28.10.03
EC 6:00 28.10.03 13:00 28.10.03 13:30 8:00 3:00 5:00 3870 19350 E O L
14689
As per T N No.
22 C 29.10.03 40 Bccw 29.10.03 16:00 13037 29.10.03 16:30 29.10.03 23:00 30.10.03 0:50 1/41 with drawn
went for fueling
No E O L
23 A 30.10.03 40 Bccw 30.10.03 18:30 16017 30.10.03 19:00 30.10.03 0:00 31.10.03 1:15 cleared with
SP
14613
24 B 31.10.03 40 Bccw 31.10.03 15:30 12023 31.10.03 16:00 31.10.03 20:00 31.10.03 20:30 5:00 3:00 2:00 3870 7740 E O L
Subtotal 32:00 15:00 17:00 3870 65790
IN
November 2003
PY
Arrival at Siding Placement Time Release Time Departure from Rate
Total Free Time
Rake
S Engine siding Per Amount
Date Stock Detention Time Charged Remarks
No Date Time No Date Time Date Time Hour Rs
Date Time Hrs Hrs Hrs
Rs
1 C 01.11.03 40 Bccw 01.11.03 13:30 13039 01.1103 14:00 01.11.03 18:00 01.11.03 18:30 5:00 3:00 2:00 3870 7740 EOL
2 A 02.11.03 40 Bccw 02.11.03 7:00 14613 02.11.03 7:30 0211.03 11:30 02.11.03 12:00 5:00 3:00 2:00 3870 7740 EOL
CO
3 B 04.11.03 40 Bccw 04.11.03 23:00 14613 04.11.03 23:30 05.11.03 5:30 05.11.03 6:00 7:00 3:00 4:00 3870 15480 EOL
4 C 06.11.03 40 Bccw 06.11.03 12:00 12029 06.11.03 12:30 06.11.03 16:30 06.11.03 17:00 5:00 3:00 2:00 3870 7740 EOL
5 A 07.11.03 40 Bccw 07.11.03 23:00 12030 07.11.03 23:3 08.11.03 3:30 08.11.03 4:00 5:00 3:00 2:00 3870 7740 EOL
6 B 08.11.03 40 Bccw 08.11.03 23:30 12001 09.11.03 0:00 0911.03 4:00 09.11.03 4:30 5:00 3:00 2:00 3870 7740 EOL
14943/
7 C 09.11.03 40 Bccw 09.11.03 23:30 10.11.03 0:00 10.11.03 8:00 10.11.03 8:30 9:00 3:00 6:00 3870 23220 EOL
572
ON
Subtotal 41:00 21:00 20:00 3870 77400
14927
8 A 10.11.03 40 Bccw 10.11.03 23:30 11.11.03 0:00 11.11.03 5:00 11.11.03 5:30 6:00 3:00 3:00 3870 11610 EOL
/13007
On party’s
9 B 12.11.03 40 Bccw 12.11.03 19:00 12024 20.11.03 16:00 20.11.03 20:00 21.11.03 16:05 request No
EOL
Since Mech
break down at
TI
Dodballapur
w/indent
Subtotal 6:00 3:00 3:00 3870 11610
EC On party's
10 C 14.11.03 40 Bccw 14.11.03 7:00 14572/943 21.11.03 8:00 21.11.03 12:00 22.11.03 0:30
request No EOL
Since Mech
break down at
DODBALLAPUR
w/Indent
No EOL cleared
11 A 21.11.03 40 Bccw 21.1103 23:30 22.11.03 9:00 22.11.03 12:00 22.11.03 21:30
with 14902/
SP
17178
No EOL cleared
12 B 24.1103 40 Bccw 24.11.03 18:45 17673 24.11.03 22:00 25.11.03 2:00 25.11.03 5:40
with 14813
16602/ No EOL cleared
13 C 25.11.03 40 Bccw 25.11.03 12:00 25.11.03 19:00 25.11.03 24:00 26.11.03 3:00
17744 with 14816
No EOL cleared
14 A 26.11.03 40 Bccw 26.11.03 1:00
1:0 0 14904 26.11.03 9:00 26.11.03 12:00 26.11.03 18:00
IN
with 14684/697
November 2003 Conti…
PY
15 B 27.11.03 40 Bccw 27.11.03 14:00 14813 2711.03 14:30 27.11.03 19:30 27.11.03 20:00 6:00 3:00 3:00 3870 11610 EOL
16 C 28.11.03 40 Bccw 28.11.03 21 :30 14093 28.11.03 22:00 29.11.03 6:00 29.11.03 6:30 9:00 3:00 6:00 3870 23220 EOL
CO
17 A 30.11.03 40 Bccw 30.11.03 0:00 14891 30.11.03 0:30 30.11.03 4:30 01.12.03 7:30 As per TN no
1/41 power 4891
Withdrawn
cleared with
14588/888
Subtotal 15:00 6:00 9:00 3870 34830
ON
TI
EC
SP
IN
December 2003
PY
Arrival at Siding Placement Time Release Time Departure from Total Time Rate
S Siding Detenti Free Charg per
Rake
Remarks
N Engine on Time ed Hour Amount
o Date Stock Date Time No Date Time Date Time Date Time Hrs Hrs Hrs Rs Rs
B No E O L cleared
CO
1 01.12.03 40 Bccw 01.12.03 8:00 17336 01.12.03 10:00 01.12.03 13:00 01.12.03 19:00
with 12025
C No E O L cleared
2 02.12.03 40 Bccw 02.12.03 16:00 14697 02.12.03 16:30 02.12.03 19:30 03.12.03 11:30
with 12002
A No E O L cleared
3 04.12.03 40 Bccw 04.12.03 6:30 16683 04.12.03 8:00 04.12.03 11:00 04.12.03 21:50
with 13037
ON
B No E O L withdrawn
4 04.12.03 40 Bccw 05.12.03 23:30 14585 05.12.03 0:00 05.12.03 4:00 05.12.03 11:10
for fueling
5 C 05.12.03 38 BCCW 05.12.03 23:30 14660 06.12.03 0:00 06.12.03 3:00 08.11.03 3:30 4:00 3:00 1:00 3870 3870 EOL
6 A 07.12.03 40 Bccw 07.12.03 12:30 14999 07.12.03 13:00 07.12.03 16:00 07.12.03 16:30 4:00 3:00 1:00 3870 3870 EOL
B No E O L cleared
TI
7 07.12.03 40 Bccw 07.12.03 21:30 16705 07.12.03 0:00 08.12.03 4:00 09.12.03 3:00
with 14639
8 C 10.12.03 38 Bccw 10.12.03 2:30 13038 10.12.03 3:00 10.12.03 8:00 10.12.03 8:30 6:00 3:00 3:00 3870 11610 E O L
Subtotal
9 A 11.12.03 40 Bccw 11.12.03 10:30 14613
EC
11.12.03
11.12 .03 11:00 11.12.03 14:00 11.12.03 14:30
14:00
4:00
9:00
3:00
5:00
1:00
3870
3870
19350
3870 E O L
10 B 12.12.03 40 Bccw 12.12.03 16:30 14045/35 12.12.03 17:00 12.12.03 20:00 12.12.03 20:30 4:00 3:00 1:00 3870 3870 EOL
11 C 14.12.03 40 Bccw 14.12.03 11:30 12004 14.12.03 12:00 14.12.03 16:00 14.12.03 16:30 5:00 3:00 2:00 3870 7740 EOL
12 A 15.12.03 40 Bccw 15.12.03 22:30 14613 15.12.03 23:00 16.12.03 4:00 16.12.03 4:30 6:00 3:00 3:00 3870 11610 E O L
SP
13 B 17.12.03 40 Bccw 17.12.03 18:30 12010 17.12.03 19:00 17.12.03 23:00 17.12.03 23:30 5:00 3:00 2:00 3870 7740 EOL
14 C 18.12.03 40 Bccw 18.12.03 21:00 14613 18.12.03 21:30 19.12.03 0:30 19.12.03 1:00 4:00 3:00 1:00 3870 3870 EOL
15 A 19.12.03 40 Bccw 19.12.03 17:00 17744/ 19.12.03 17:30 19.12.03 20:30 19.12.03 21:00 4:00 3:00 1:00 3870 3870 E O L
17462
IN
Subtotal 32:00 21:00 11:00 3870 42570

December 2003 Conti….
PY
16 B 21.12.03 40 Bccw 21.12.03 10:30 12015 21.12.03 11:00 21.12.03 14:00 21.12.03 14:30 4:00 3:00 1:00 3870 3870 EOL
17 C 22.12.03 40 Bccw 22.12.03 8:30 14660 22.12.03 9:00 22.12.03 12:00 22.12.03 12:30 4:00 3:00 1:00 3870 3870 EOL
CO
A No E O L cleared
18 23.12.03 40 Bccw 23.12.03 14:30 14816 23.12.03 15:00 23.12.03 19:00 24.12.03 16:55
with 14779
19 B 25.12.03 40 Bccw 25.12.03 14:30 12045 25.12.03 15:00 25.12.03 19:00 25.12.03 19:30 5:00 3:00 2:00 3870 7740 EOL
20 C 26.12.03 40 Bccw 26.12.03 23:00 14637 26.12.03 23:30 26.12.03 4:30 27.12.03 5:00 6:00 3:00 3:00 3870 11610 E O L
21 A 27.12.03 40 Bccw 27.12.03 20:00 12002 27.12.03 20:30 27.12.03 0:30 28.12.03 1:00 5:00 3:00 2:00 3870 7740 EOL
B No E O L cleared
22 29.12.03 40 Bccw 29.12.03 8:00 14999 29.12.03 9:00 29.12.03 12:00 30.12.03 17:40
ON
with 13049
C No E O L cleared
23 30.12.03 40 Bccw 30.12.03 19:30 14786/87 30.12.03 20:00 30.12.03 23:30 31.12.03 13:55
with 13054
Subtotal 24:00 15:00 9:00 3870 34830
TI
EC
SP
IN
Summary (as per L.NO.C/C/490/SHUNTING CHARGES/96/DT. 18.09.2003)
PY
No of No of Total Free Time Rate per Amount
Period Rakes EOL Detention Time Charged Hour
Loaded Rakes Hrs Hrs Hrs Rs Rs
th th
Ist Period (Sep 15 to 30 ) 14 2 12:30 6:00:00 6:30:00 3870 25155
CO
Total 14 2 12:30 6:00:00 6:30:00 3870 25155
st th
Ist Period (Oct 1 to 10 ) 8 8 53:00 24:00 29:00 3870 112230
th th
Iind Period (Oct 11 to 20 ) 8 5 29:00 15:00 14:00 3870 54180
ON
st st
IIIrd Period (Oct 21 to 31 ) 8 5 32:00 15:00 17:00 3870 65790
Total 24 18 114:00 54:00 60:00 3870 232200
st st th
I Period (Nov 1 to 10 ) 7 7 41:00 21:00 20:00 3870 77400
TI
nd th th
II Period (Nov 11 to 20 ) 2 1 6:00 3:00 3:00 3870 11610
rd
III Period (Nov 21
st
to 30 )
th
8
EC 2 15:00 6:00 9:00 3870 34830
Total 17 10 62:00 30:00 32:00 3870 123840
st th
Ist Period (Dec 1 to 10 ) 8 3 14:00 9:00 5:00 3870 19350
SP
th th
IInd Period (Dec 11 to 20 ) 7 7 32:00 21:00 11:00 3870 42570
st st
IIIrd Period (Dec 21 to 31 ) 8 5 24:00 15:00 9:00 3870 34830
Total 23 15 70:00 45:00 25:00 3870 96750

IN
Source: [RC, 2003]

Exhibit 14
PY
Rake-wise Detention Details at Dodballapur
September 2003
Rake Arrival Unloading Rake Removal Rake Total Time
Rake Releasing
by Rlys. Waiting (Shunting,
Rake
S Time for Time (Shunting+

Starting Completion No of Time for Unloading and
No Date Time Date Unloading Unloading) at
Time Time Wagons Date Time Engine Rake Waiting)
CO
(Hrs) BSBT (Hrs)
(Hrs) (Hrs)
1 02.09.2003 3:25 02.09.2003 3:25 7:44 4:19 40 4:19 02.09.2003 8:40 0:56 5:15
2 03.09.2003 23:15 03.09.2003 23:33 3:40 4:07 40 4:25 04.09.2003 7:15 3:35 8:00
3 04.09.2003 17:45 04.09.2003 17:55 22:00 4:05 40 4:15 05.09.2003 7:40 9:40 13:55
4 05.09.2003 18:00 05.09.2003 18:30 22:37 4:07 40 4:37 05.09.2003 22:50 0:13 4:50
5 07.09.2003 4:30 07.09.2003 4:45 8:49 4:04 40 4:19 07.09.2003 9:45 0:56 5:15
ON
6 09.09.2003 0:05 09.09.2003 0:20 4:26 4:06 40 4:21 09.09.2003 10:15 5:49 10:10
7 09.09.2003 18:05 09.09.2003 18:30 22:37 4:07 40 4:32 10.09.2003 1:05 2:28 7:00
8 11.09.2003 1:15 11.09.2003 1:30 5:45 4:15 40 4:30 11.09.2003 7:00 1:15 5:45
9 12.09.2003 23:00 12.09.2003 23:35 3:41 4:06 40 4:41 13.09.2003 8:20 4:39 9:20
10 14.09.2003 5:00 14.09.2003 5:25 9:38 4:13 40 4:38 14.09.2003 10:30 0:52 5:30
11 14.09.2003 14:30 14.09.2003 15:35 19:40 4:05 40 5:10 14.09.2003 20:30 0:50 6:00
TI
12 A 16.09.2003 15:30 16.09.2003 16:05 20:15 4:10
4:1 0 40 4:45 16.09.2003 20:35 0:20 5:05
13 B 17.09.2003 3:00 17.09.2003 3:25 7:32 4:07 40 4:32 17.09.2003 9:45 2:13 6:45
14 C 18.09.2003 4:35 18.09.2003 5:00 9:25 4:25 40 4:50 18.09.2003 10:00 0:35 5:25
15 A 19.09.2003 2:35 19.09.2003 2:55 EC 7:12 4:17 40 4:37 19.09.2003 8:20 1:08 5:45
16 B 20.09.2003 23:00 20.09.2003 23:25 3:32 4:07 40 4:32 21.09.2003 11:45 8:13 12:45
17 C 21.09.2003 19:00 21.09.2003 19:18 23:24 4:06 40 4:24 22.09.2003 2:15 2:51 7:15
18 A 22.09.2003 16:15 22.09.2003 16:29 20:59 4:30 40 4:44 22.09.2003 21:15 0:16 5:00
19 B 25.09.2003 17:30 25.09.2003 17:50 22:05 4:15 40 4:35 25.09.2003 23:10 1:05 5:40
20 C 26.09.2003 7:40 26.09.2003 8:08 12:14 4:06 40 4:34 26.09.2003 14:15 2:01 6:35
SP
21 A 27.09.2003 9:55 27.09.2003 10:08 14:15 4:07 40 4:20 27.09.2003 15:45 1:30 5:50
22 B 28.09.2003 15:55 28.09.2003 16:10 20:26 4:16 40 4:31 29.09.2003 2:25 5:59 10:30
23 C 29.09.2003 16:20 29.09.2003 16:30 20:35 4:05 40 4:15 29.09.2003 21:05 0:30 4:45
24 A 30.09.2003 19:50 30.09.2003 20:02 0:10 4:08 40 4:20 01.10.2003 2:50 2:40 7:00
Average 4:10 4:31 2:31 7:00
IN
October 2003
PY
Rake Arrival Unloading Rake Rake Removal Total Time
Rake
Releasing by Rlys. (Shunting,
Time Waiting
Rake Time Unloading
Unloading
S Starti for No of (Shunting+ Time
Completion and Remarks
No Date Time. Date ng Unload Wago Unloading) for
Time Date Time Engine Rake
Time ing ns at Waiting)
(Hrs)
CO
(Hrs) BSBT (Hrs) (Hrs)
1 B 01.10.2003 15:30 01.10.2003 16:04 20:07 4:03 40 4:37 02.10.2003 16:45 20:38 25:15
2 C 02.10.2003 22:50 02.10.2003 23:07 3:12 4:05 40 4:22 03.10.2003 10:20 7:08 11:03
3 A 04.10.2003 16:30 04.10.2003 16:50 20:55 4:05 40 4:25 04.10.2003 21:00 0:05 4:30
4 B 05.10.2003 4:45 05.10.2003 5:13 9:26 4:13 40 4:41 05.10.2003 10:55
10:5 1:29 6:10
5 C 06.10.2003 4:20 06.10.2003 15:35 19:40 4:05 40 15:20 08.10.2003 1:00 29:20 44:40 37.15 Hrs-Insufficient silo space
ON
6 A 08.10.2003 2:15 08.10.2003 21:30 1:35 4:05 40 23:20 09.10.2003 2:20 0:45 24:05 19.15 Hrs-Insufficient silo space
7 B 09.10.2003 3:25 09.10.2003 23:40 4:06 4:26 40 24:41 10.10.2003 7:45 3:39 28:20 20.15 Hrs-Insufficient silo space
11 C 14.10.2003 23:35 15.10.2003 0:10 4:16 4:06 40 4:41 15.10.2003 10:15 5:59 10:40
TI
12 A 17.10.2003 1:00 17.10.2003 1:27 5:39 4:12 40 4:39 17.10.2003 11:35 5:56 10:35
13 B 17.10.2003 22:35 17.10.2003 23:08 3:22 4:14 40 4:47 18.10.2003 6:40 3:18 8:05
14 C 18.10.2003 10:20 18.10.2003 11:15 16:26 5:11 40 6:06 18.10.2003 19:00 2:34 8:40
15 A 20.10.2003 3:15 20.10.2003 3:33 7:42 EC 4:09 40 4:27 20.10.2003 10:10 2:28 6:55
16 B 21.10.2003 4:20 21.10.2003 4:55 9:01 4:06 40 4:41 21.10.2003 11:45 2:44 7:25
SP
22 B 30.10.2003 1:20 30.10.2003 1:55 6:05 4:10 40 4:45 30.10.2003 9:55 3:50 8:35
23 C 31.10.2003 6:35 31.10.2003 7:00 11:20 4:20 40 4:45 31.10.2003 14:15 2:55 7:40
Average 4:15 14:29 5:34 20:03
IN
November 2003
PY
Rake Arrival Unloading Rake Total Time Remarks
Rake Removal Rake
Releasing (Shunting,
by Rlys. Waiting
Time Unloading
Rake
S Time
Completi Time for No of (Shunting+ and
No Starting for
Date Time Date on Unloading Wagon Unloading) Rake
Time Date Time Engine
Time (Hrs) s atBSBT Waiting)
(Hrs)
CO
(Hrs) (Hrs)
1 A 01.11.2003 1:55 01.11.2003 2:21 6:25 4:04 40 4:30 01.11.2003 7:20 0:55 5:25
2 B 02.11.2003 4:15 03.11.2003 15:43 19:57 4:14 40 39:42 03.11.2003 20:48
20 :48 0:51 40:33 35:28 Hrs Insufficient silo space
3 C 03.11.2003 22:20 04.11.2003 20:45 0:55 4:10 40 26:35 05.11.2003 5:45 4:50 31:25 22:25 Hrs Insufficient silo space
4 A 05.11.2003 6:35 06.11.2003 2:00 6:07 4:07 40 23:32 06.11.2003 10:00 3:53 27:25 19:25 Hrs Insufficient silo space
5 B 07.11.2003 9:50 07.11.2003 10:10 14:40 4:30 40 4:50 07.11.2003 18:50 4:10 9:00
ON
8 B 09.11.2003 22:35 10.11.2003 3:15 7:16 4:01 40 8:41 11.11.2003 12:15 4:59 13:40 4:40 Hrs Insufficient silo space
TI
11 B 23.11.2003 1:30 23.11.2003 1:55 6:35 4:40 40 5:05 23.11.2003 11:40 5:05 10:10
12 C 24.11.2003 0:10 24.11.2003 0:30 4:35 4:05 40 4:25 24.11.2003 5:40 1:05 5:30
13 A 24.11.2003 10:35 24.11.2003
14 B 26.11.2003 5:10 26.11.2003
10:55
5:30
15:00
10:26
EC 4:05
4:56
40
40
4:25
5:16
24.11.2003
26.11.2003
19:05
10:50
4:05
0:24
8:30
5:40 52 min PLC control voltage prob.
15 C 27.11.2003 5:35 27.11.2003 6:05 10:10 4:05 40 4:35 27.11.2003 13:00 2:50 7:25
16 A 28.11.2003 4:30 28.11.2003 5:05 9:10 4:05 40 4:40 28.11.2003 11:35 2:25 7:05
SP
17 B 29.11.2003 15:30 29.11.2003 15:35 19:38 4:03 40 4:08 29.11.2003 20:10 0:32 4:40
18 C 30.11.2003 13:30 30.11.2003 13:40 17:45 4:05 40 4:15 30.11.2003 19:05 1:20 5:35
Average 4:12 20:18 2:51 23:10
IN
December 2003
PY
Rake Arrival Unloading Rake Rake removal
Releasin by Rlvs.
Rake Total Time
g
Waitin (Shunting,
Time
Time for g Unloading
Rake
S Completio No of (Shuntin
Starting Unloadin Time and Remarks
No Date Time Date n Wagon g+
Time g for Rake
CO
Time s Unloadin Date Time
(Hrs) Engine Waiting)
g) at
(Hrs) (Hrs)
BSBT
(Hrs)
1 A 02.12.2003 18:35 02.12.2003 19:08 23:14 4:06 40 4:39 02.12.2003 23:40 0:26 5:05
2 B 03.12.2003 10:50 03.12.2003 11:04 15:08 4:04 40 4:18 03.12.2003 17:20 2:12 6:30
3 C 04.12.2003 20:15 04.12.2003 20:25 0:25 4:00 38 4:10 05.12.2003 4:15 3:50 8:00
ON
4 A 06.12.2003 4:35 06.12.2003 4:51 8:45 3:54 40 4:10 06.12.2003 11:35 2:50 7:00
5 B 06.12.2003 17:05 06.12.2003 17:25 21:19 3:54 40 4:14 06.12.2003 23:59 2:40 6:54
TI
13
14
A
B
18.12.2003
19.12.2003
1:55
20:05
18.12.2003
19.12.2003
2:08
20:15
5:55
23:59
EC 3:47
3:44
40
40
4:00
3:54
18.12.2003
20.12.2003
10:20
3:00
4:25
3:01
8:25
6:55
01:15 Hrs Boot positioner
15 C 20.12.2003 17:40 20.12.2003 17:58 23:35 5:37 40 5:55 21.12.2003 3:45 4:10 10:05 problem
17 B 23.12.2003 15:20 23.12.2003 15:58 19:55 3:57 40 4:35 24.12.2003 7:20 11:25 16:00
SP
18 C 25.12.2003 5:05 25.12.2003 5:38 9:32 3:54 40 4:27 25.12.2003 12:05 2:33 7:00
21 C 29.12.2003 12:50 29.12.2003 13:12 17:12 4:00 40 4:22 29.12.2003 18:00 0:48 5:10
Average 4:19 11:08 4:30 15:38
IN
Source: [RC, 2003]

Exhibit 15
PY
Statement of Turnaround Time
Time Taken Transit Time

Time
No of Idle Time for Engine Time Taken Total Turn
taken Malkhaid Dodballapur
CO
Turn around status Rakes Prior to Arrival for Unloading Around
For to to
Loaded Loading After Loading At Dodballapur Time
Loading Dodballapur Malkhaid
Completed
Hrs Hrs Hrs Hrs Hrs Hrs Hrs
Turn around status prior to 15.09.03
109 5:14 4:37 12:52 34:23 29:48 10:13 97:10
(01.04.03 to 12.09.03)
Turn around status from 15.09.03 to
31.12.03
ON
Of rakes on which EOL
45
availed
Of rakes on which EOL not
33
availed
Weighted average for the year 03-04 21 (monthly
5:09 4:34 6:18 34:05 29:40 8:13 88:02
(01.04.03 to 31.12.03) average)
TI
22
Weighted average for the year 02-03 (monthly 7:36 3:35 13:13 34:42 30:09 9:46 99:03
average)
Idle time at Dodballapur/Malkhaid in lieu of any extreme disruption is discounted

EC
Source: [RC, 2003]
References:
SP
1. CMA, 2003. Cement Manufacturers’ Association, New Delhi (Downloadable from http://www.cmaindia.org).
2. Indian Railways, 2003a. Year Book 2001-02,
02, Ministry of Railways, New Delhi.
3. nce, Ministry of Railways, New Delhi.
Indian Railways, 2003b. Trains at a Glance,
4. RC, 2003. Various Internal Documents, Rajashree Cement, Malkhaid.
5. South Central Railway, 2004. Internal Document, Secunderabad.
IN

Ahmedabad IIMA/PSG0091
Revised 2006
Vadodara Halol Toll Road
The Toll Review Committee (TRC) of the Vadodara Halol Toll Road project was discussing
for over two hours at its second meeting on October 14, 2002, to arrive at a recommendation
for revised toll rates. The Vadodara Halol Toll Road Company Limited (VHTRL) had
proposed an increase in the multi-axle vehicle (MAV) category. The proposal had been
y
prompted by the fact that the actual revenues as a proportion of the projected revenues had
declined from 63 to 34 per cent over the three financial years of operation. Given the cash
op
flows, VHTRL could run smoothly only until about mid 2003.
TRC consisted of Prof Prashanth (Chairman, and a faculty member at the Indian Institute of
Management, Ahmedabad), Mr R S Unjha (nominee of the government of Gujarat (GoG)),
C
and Mr S Wadhwani (nominee of Infrastructure Leasing and Financial Services (IL&FS)).
Background
It was less than a month before when Professor Prashanth had received a telephonic call
n
from Mr Dusane, CEO of VHTRL, seeking his consent to be the chairman of TRC. This was
followed by a letter, giving the provisions for constituting TRC (Exhibit 1). Being very
io
interested in matters relating to transport development, he readily accepted the role.
Professor Prashanth knew of VHTRL, and had met its executives earlier. VHTRL, a special
ct
purpose vehicle (SPV), was promoted by GoG and IL&FS to strengthen, widen, and operate
and maintain the 31.7 km Vadodara-Halol state highway (SH). This road had gained
importance because of industrialization that was beginning to take place at Halol, and its
e
dependence, on Vadodara, which was the nearest large city. Halol was the border town in
the neighboring Panchmahals district, closest to Vadodara. Panchmahals district had been
notified as a backward area for the purpose of sales tax incentives. GoG, vide its Industrial
sp
Policy of 1990-95 and 1995-2000 had been giving exemption and/or deferment in sales tax to
industries which were set up in backward areas in Gujarat. Consequently, a lot of new
industries were being set up and the existing units went for expansion.
In
The Vadodara-Halol road was also part of a through alternative to the National Highway
(NH) 8, between Vadodara and Shamlaji, using the adjoining Halol-Godhra, and Godhra-
Shamlaji SH segments (Exhibit 2). The SH route not only was shorter by 50 km (200 km
instead of 250 km on NH 8) but also avoided the congested Ahmedabad area of NH.
Prepared by Professor G. Raghuram. Research assistance provided by Swati Gupta is acknowledged.

We thank VHTRL for their input. Names in the case are disguised.
Cases of the Indian Institute of Management, Ahmedabad are prepared as a basis for class discussion.
Cases are not designed to present illustrations of either correct of incorrect handling of administrative
problems.
Copyright © 2003 by the Indian Institute of Management, Ahmedabad.
The project was based on a detailed feasibility report submitted to GoG in November 1997
by Kirloskar Consultants. A concession agreement was signed between SPV and GoG on
October 17, 1998. Construction commenced on March 1, 1999 and was completed on
September 15, 2000, within the approved budget and time. Commercial operations started
from October 24, 2000. The toll-based revenue, however, had not been as per expectations
and hence the need for a toll review.
First TRC Meeting
The first meeting of TRC was held on October 9, 2002. This meeting focused on
understanding the issues and need for any further data. Mr Dusane made a presentation to
the committee regarding the toll road, wherein he gave inputs on the salient features,
y
budgeted and actual project cost, sources of funds, current debt structure, toll structure,
present status of the project, and proposal for toll revision. Exhibit 3 gives summary of the
op
presentation.
Mr Dusane highlighted the contributory factors for the variance between the projected and
the actual revenues as per the perception of the company:
•
there was reduction in traffic on all major roads.
C
Economic recession, leading to lower than projected industrial growth, because of which
n
• Reduction in industrial activities on account of withdrawal of backward area (sales tax)
concessions to Panchmahals district. GoG, vide its their resolution dated November 14,
2000, had withdrawn the sales tax incentives, which were being offered to new industrial
io
units in backward areas with effect from January 1, 2000.
• Computerized RTO check posts and penalty on truck overloading at the Gujarat border,
ct
leading to traffic diversion towards Madhya Pradesh.
• Ongoing construction on the adjoining Halol-Godhra segment, leading to traffic

e
diversion.
sp
• Plying of commercial and through traffic on the service road, which was not tolled and
meant for local traffic between villages along the toll road.
As a consequence, the cash inflows had suffered. As per the projected cash flows of the
company (Exhibit 4), VHTRL may have to shut operations by mid 2003. Hence, a toll review
In
was imperative. Mr Dusane sensitized TRC that as per Section 11 (Exhibit 1) of the
concession agreement, while reviewing the toll, it was expected to consider the
consequences on:
i) Benefit to the users

ii) Reduced traffic flow over the facility
iii) Increase in any cost or expense in relation to the project owing to the occurrence of events
iv) User's willingness to pay
v) Concessionaire's debt service obligations
He also presented the rationale for increasing the toll rates for MAV, keeping in view
savings in vehicle operating costs and MAV toll rates in other toll road segments in the
country (Exhibit 5). In the judgement of VHTRL, the MAV category was being
undercharged, partly because it had not been considered as a significant category even
during the feasibility study. The MAV traffic had constituted an average of 17 per cent of the
earnings (20 per cent during the past six months). Given the prevailing charges for MAVs in
other tolled road segments in the country and their relative captive nature, there was scope
to increase the toll rates for MAVs.
The TRC members expressed concern about the implications of increasing the toll rate for
MAVs and whether it would actually increase total revenue for VHTRL. There was also a
discussion as to whether VHTRL had considered other alternatives for achieving the same
y
ends as the toll review was expected to achieve. TRC wanted to understand the significance
of MAV traffic with respect to the other traffic categories. It also had questions about the
op
origin-destination (OD) profile of MAVs, since that would help understand how captive this
segment was to using the toll road. TRC also wished to know the extent of possible leakage
on the service road. Further, to understand the impact of economic recession in the region, it
was suggested that data on toll collection on any nearby NH segment could be examined.
C
Mr Dusane proposed that data on the Narmada Bridge at Bharuch on NH 8 could be
gathered, since it had a time frame similar to VHTRL.
After considering the above factors, TRC asked the company to furnish additional
n
information in the next meeting. The committee decided to meet on October 14, 2002.
Second TRC Meeting

io
The required information was provided during this meeting:
ct
(1) Break up of toll revenue, vehicle categorywise and with respect to daily sales and
schemes (Exhibit 6)
(2) OD profile of MAVs and trucks (Exhibit 7)
e
(3) Details of category wise users on service road (Exhibit 8)

(4) Details of toll collections made by L&T at the Narmada Bridge at Bharuch on NH 8
sp
(Exhibit 9)
While examining the inputs, TRC whether the basic problem of insufficient toll revenue
would be addressed by increasing the toll rate for MAVs, even on the premise that MAV toll
rates were less than what is affordable. Suggestions were made that a more strategic
In
perspective was essential. Options could be from as straightforward as asking GoG to bail
VHTRL to proactive marketing strategies to attract more traffic and to restructuring the
project with an enlarged scope to offer a toll road service all the way from Vadodara to
Shamlaji via Halol and Godhra. One idea on the marketing front was to have a combined
offer with the pilgrim and tourist centre of nearby Pavagadh, which charged fees both for
entry and a cable car ride up the hill. This could attract more car traffic, which otherwise had
a toll free (though not so good) road alternative between Vadodara and Pavagadh.
TRC also noted that the average cost of borrowing was high at 15.5 per cent. An appropriate
financial restructuring could have significant impact on the company’s finances.
On the MAV OD profile, data were presented based on a one-day survey. TRC was
concerned about the sample size. Under the circumstances and given that no formal
information systems on traffic profile were in place, the VHTRL executives felt that the data
would be representative for analysis. It was clear that the local (internal to internal, as per
the summary in Exhibit 7) traffic had gone down, while the interstate long distance (external
to external) traffic had remained more or less as anticipated. With this profile, and the
proposed toll rate increase, the revenue additionality expected was between Rs 7 million and
10 million per annum. The through traffic leakage on the service road (Exhibit 8) was also
discussed. Concerns were expressed that this data were also based on a one-day survey.
VHTRL executives mentioned that checking systems were being put in place to avoid this
leakage. In terms of the economic recession, it was noted that actual collections on the
Narmada Bridge at Bharuch were 53 per cent of the projected (Exhibit 9).
y
TRC was wondering what to do next.
op
C
n
io
e ct
sp
In
Exhibit 1
Letter from VHTRL to Prof Prashanth
VHTRL
September 30, 2002
Prof Prashanth
Vastrapur, Ahmedabad - 380015
Dear Sir,
Sub: Seeking Consent for appointment as Chairman of Vadodara Halol Toll Road Project Toll Review
y
Committee.
This has reference to our telephonic conversation on 24th September, 2002 regarding seeking your
op
consent to act as Chairman of our Toll Review Committee (TRC). We are giving below a brief
background for the same.
VHTRL has entered into a Concession Agreement with Government of Gujarat (GoG) for
strengthening, widening and operation and maintenance of Vadodara Halol Road (SH-87).
to be formed which will be consisting of the following:
1. One representative appointed by GoG C

As per the Concession Agreement dated 17th October, 1998 between GoG and VHTRL, a TRC has
n
2. One representative appointed by VHTRL
3. Chairman to be appointed by both the above members
io
As per the above provisions, GoG has appointed Mr R S Unjha, Chief Engineer and Additional
Secretary of Roads & Buildings Department and VHTRL has appointed Mr S Wadhwani, Advisor
Infrastructure - IL&FS as their representatives respectively. Both the members of the TRC have
proposed your good self as the Chairman of the TRC.
ct
We are enclosing herewith a copy of the relevant portion of our Concession Agreement regarding the
TRC for your ready reference.
e
We seek your consent in being appointed as Chairman of Vadodara Halol Toll Road Project TRC.
sp
Sincerely,
Dusane
In
Section 11.4: Toll Review
(a) A toll review is warranted:

i. Following an occurrence of an event of Force Majeure;
ii. Following an unexpected increase in the estimated costs of regular maintenance or renewal
or overlay or major maintenance cost which is greater than 25% of the figure for such
expenditure set out in the approved operations budget;
iii. Following any unexpected change in world market conditions, including extraordinary
modifications in the rates of foreign exchange or interest rates, but only to the extent that such
changes affect the debt service obligations and other financing obligations of the
Concessionaire under the financing agreements;
iv. Following any extraordinary inflation in India such that the rate of inflation exceeds 50% in any
quarter.
y
(b) In the event that GoG agrees to the revisions of the toll rates or the formula for calculation of
toll rate, GoG shall within 30 days of its concurrence pass the appropriate notifications for
effecting the revision of the toll rate. Such notification shall specify that the revised rate of tolls
op
shall come into force immediately upon publication of the notification in accordance with the
Bombay Motor Vehicles Tax Act, 1958. In the event of a failure on the part of GoG to notify
the revised toll rate, GoG shall compensate the Concessionaire to the extent of the amount of
loss in revenue incurred due to such delay, as computed by taking the actual number of users
that have utilised the facility as evidenced by the records maintained at the toll plaza. The
C
records maintained at the toll plaza shall be conclusive evidence of the number of users that
have utilised the facility in the absence of manifest or proven error. GoG shall be entitled to
depute its nominee during the period of such delay to verify the number of users of the facility.
(c) In the event GoG does not agree to the revised toll rates or revised formula for calculation of
toll rates submitted by the Concessionaire under subsection (a) above, GoG and the
n
Concessionaire shall submit the revised toll rates or revised formula to the Toll Review
Committee for determination under Section 11.5.
io
Section 11.5: Toll Review Committee
(a) Within 60 days prior to the scheduled operations date, the parties shall establish a Toll
Review Committee (TRC) for the purposes of determining any revision to the toll rates or
revision of the formula for calculation of toll rates submitted by the Concessionaire and GoG
ct
under provision of section 11.4 (c) above. The TRC shall be comprised of a total of three
persons. GoG and the Concessionaire shall each appoint one representative who shall be
duly qualified individuals having adequate experience in the field of management, operation
and maintenance of roads and a third duly qualified eminent person to be appointed by the
e
representatives appointed by GoG and the Concessionaire respectively. In the event of a

disagreement as to the third person, such person shall be appointed by the Independent
sp
Engineer.
(b) The third member shall be the Chairman of the TRC and the TRC shall meet upon 10 days'
notice by the Chairman, at the request of the Concessionaire, or as required by the parties.
The TRC may adjourn its meetings if warranted by compelling circumstances. In the event
that any party is absent from any meeting of the TRC or, in the alternative, determines not to
cast a vote at any such meeting or, in the event of a parity of votes in a meeting, the
In
Chairman shall have a casting vote. The TRC will arrange to deliver its reasoned order to the
parties within a period of 7 days from the date of its decision.
(c) When determining whether a revision to the toll is warranted, the TRC may consider, among
other circumstances, (i) the benefits to the users, (ii) reduced traffic flow over the facility, (iii)
any increase in any cost or expense in relation to the project owing to the occurrence of an
event under section 11.4 (a) above, (iv) willingness to pay of the users and (v) the
Concessionaire's debt service obligations.
(d) The Concessionaire shall provide to the TRC any information that may reasonably be
required for it to appropriately evaluate the toll rates, including any certification by the
Independent Auditor.

Exhibit 2
Sketch Map of Relevant Segments
y
op
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Source: Company Data and Authors’ Drawing

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sp
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Exhibit 3
Summary of the Presentation at the First TRC Meeting
1. Salient Features of Vadodara Halol Toll Road Project:
• Two lane dual carriage way with service road on either side of the main carriage way.
• Toll plaza: Four booths for normal size lanes and one booth for over dimensional lane at either
end. Increase in booths to ensure that the queue length of vehicles does not exceed five.
• Two intermediate toll booths for the major junctions.
• Roughness
Toll Road Service Road

At commissioning 2000 mm/km 2500 mm/km
y
During operations (Max) 3500 mm/km 4000 mm/km
• Over lay at each 100 cumulative million standard axles (MSA) (about five years) and renewal at
op
345 cumulative MSA (about 16 years).
• Concession period of 30 years.
2. Budgeted and Actual Project Cost (as on October 23, 2000):
C
(Rs million)
Budgeted Actual
Particulars
Amount Amount
Cost of Construction – Vadodara Halol Toll Road 1195.30 1195.20
Other Cost of Commissioning
n
• Social and Environment Costs 44.90 45.20
• Preliminary and Preoperative Expenses
(i) Preliminary Expenses 32.70 32.61
io
(ii) Establishment Cost 20.10 21.76
(iii) Cost of Independent Engineer & Auditor 5.70 6.16
(iv) Construction Supervision Charges 13.50 12.06
(v) Insurance Charges 2.40 2.99
ct
• Interest During Construction

121.00 138.00
Period (Net)
• Fees
(i) Project Management Fees 35.00 35.00
e
(ii) Mobilization Charges - Debt/Equity 14.00 15.38

(iii) Other Financial Charges 22.80 27.81
• Sinking Fund 39.90 50.00
sp
• Debt Service Reserve (DSR) 135.10

• Contingency Provision 67.60 26.10
Total Cost of the Project 1750.00 1608.30
Note: DSR has been converted to Rs 150 million line of credit

In
3. Means of Finance:
(Rs million)
Equity and Preferences Debt
Holding Company
GoG Equity 50.0
IL&FS 150.0 Sub Ordinate Loan 100.0
GoG Preference 100.0 Term Loans 658.3
AIG 100.0
Punj Lloyd Ltd 150.0 Deep Discount Bond 300.0
Total 550.0 Total 1058.3
4. Current Debt Structure and Rate of Interest:
Amount of Loan
Financial Institutions / Banks Rate of Interest (%)
(Rs million)
Gujarat Industrial Investment Corporation Ltd. 16.50 59.0
Infrastructure Leasing & Financial Services Ltd. 16.00 100.0
Industrial Development Bank of India 15.68 197.4
State Bank of India 15.00 120.0
Central Bank of India 14.50 100.0
Bank of Baroda 14.50 81.9
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Sub-Total 658.3
Sub Debt (IL&FS)

1 18.50 100.0
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2
(a) 12.75 300.0
Deep Discount Bond 2
(b) 15.50
Total 1058.3
Average Cost of Borrowing 15.52
1
2
Second charge on the assets of the company
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Interest rate 12.75 per cent for take out after eight years and 15.50 per cent for redemption in 16 years
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5. Toll Structure:
Single Trip (Rs)

Base Toll 2000-01 2001-02 2002-03
Rates (Oct Toll Rate Subsidy Toll
Vehicle Type
1997 Price to from Rate to Toll Rate Toll Rate
Level) customer GoG VHTRL
Buses/Trucks
48 50 10 60 65 65
(Two Axle)
Additional Axle 12 15 - 15 20 20
Light Commercial
33.6 30 15 45 45 45
Vehicles (LCV)
y
Cars 20 20 5 25 30 30
Three Wheelers 5 10 - 10 10 10
op
Two Wheelers 2 5 - 5 5 5
Current Schemes for Frequent Users: Vadodara to Halol (Rs)

Bulk Tickets Unlimited Use
Vehicle Type Toll Rates Scheme for Scheme for
C
50 Trips One Month
Buses/Trucks (Two Axle) 65 2275 Nil
MAV (Three Axle) 85 2975 Nil
n
MAV (Four Axle) 105 3675 Nil
LCV 45 1575 900
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Cars 30 500 600
Three Wheelers 10 350 175
ct
Two Wheelers 5 175 100
Current Schemes for Frequent Users: Vadodara to Jarod and Jarod to Halol (Rs)
e
Bulk Tickets Scheme Unlimited Use Scheme

Vehicle Type
for 50 Trips for One Month
Buses/Trucks (Two Axle) 1140 Nil
sp
MAV (Three Axle) 1490 Nil

MAV (Four Axle) 1840 Nil
LCV 790 450
In
Cars 250 300

Three Wheelers 175 90
Two Wheelers 90 50
The toll rates are based on the Consumer Price Index (CPI). There would be an automatic review at
the end of each financial year and the rate changed, if required, in units of five. This happened in 2001-
2 (in certain vehicle categories), though not in 2002-03.
6. Present Status of the Project:
Period 2000-01 (159 days) 2001-02 (365 days) 2002-03 (183 days) Total
Reven Revenu Revenue Revenue

Traffic Traffic Traffic Traffic
ue (Rs e (Rs (Rs (Rs
Volume Volume Volume Volume
million) million) million) million)
Projected 66.87 1,858,392 187.45 4,654,845 115.28 2,546,262 369.60 9,059,499
Actual 42.50 1,023,577 82.09 2,074,265 39.19 1,075,529 167.38 4,173,371
Actual to
Projected 63.56 55.08 43.79 44.56 33.99 42.24 44.31 46.07
y
(%)
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7. Proposal: Increase the Toll Rate for MAVs
Option 1 (Rs)
C
Present Toll Proposed
Category Difference Toll Rate per km
Rate Toll Rate
Three-Axle 85 115 30 3.62

n
Four-Axle 105 165 60 5.20
Five-Axle 125 215 90 6.78

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Option 2 (Rs)
ct
Present Proposed
Category Difference Toll Rate per km
Toll Rate Toll Rate
e
Three-Axle 85 125 40 3.94

sp
Four-Axle 105 185 80 5.83
Five-Axle 125 245 120 7.72

In

Exhibit 4
Projected Cash Flow of VHTRL
(Rs million)
Particulars 2002-03 2003-04
Outflows
Asset Related
Construction Related Payment 66.95 0.00
Capital Assets 0.00 0.00
Sinking Fund Investment 0.00 0.00
Overlay and Renewal Price 1
y
0.00 0.00
Operations Related
op
Toll Operation Price to Contractor 2 30.92 32.79
Routine Maintenance Price to Contractor 3 15.18 19.21
Insurance Premium 2.80 2.80
Jardine Retainership 0.06 0.00
Insurance Consultants 0.02 0.04
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Insurance Reimbursement to Contractor 0.00 0.00
Independent Engineer/Auditor 2.37 2.03
Establishment Costs 4.65 4.00
Fees - Agent, Take Out, Commitment 10.17 10.17
n
Total Budget Expenses 133.12 71.04
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Total Interest 112.72 122.01
Repayment of Principal 10.61 56.97
ct
Total Outflows 256.45 250.02
Inflows
e
Opening Balance 12.29 12.91

Toll Collections 84.87 90.00
sp
Total Revenue 97.16 102.91
Other Receipts 33.70 0.00

In
Total Inflows 130.86 102.91
Net Surplus/(Deficit) before DSR -125.59 -147.11

Amount transferred from DSR Funds 138.50 11.50
Net Surplus/(Deficit) after DSR 12.91 -135.61
Comments:
1
Estimated Overlay Cost is Rs 141.0 million (after 100 MSA) and Renewal Cost is Rs 285.6 million (after
345 MSA). They are linked to the Wholesale Price Index (WPI).
2
Rs 30.9 million/annum for 2002-03 and CPI linked.
3
Rs 16.5 million/annum for 2002-03 and CPI linked.

Exhibit 5
Rationale for Increasing Toll Rates for MAVs
• MAV category avails the maximum benefit of facility
Maximum space occupied on the facility by an MAV due to bigger size

No direct financial impact on owners of MAVs
• Vehicle Operating Cost (VOC) of MAVs depends on

a. Fuel costs
b. Utilization of truck and crew
a. Occurrence of accidents
y
b. Maintenance of spare parts, tyre life, consumption of lubricants etc
(Rs)
op
VOC Savings of MAVs
Fuel Other VOC Total
(because of Better Quality Road of VHTRL)
Feasibility Report (1997) 52.00 138.00 190.00
Current Update (2002) 71.04 156.48 227.52
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While considering the fixing of toll rate for additional axles, normally fuel component can be
charged fully as toll and other VOC savings can be charged at three fourth of the total.
• MAV toll rates being charged by some of the other projects:

Project
Project
n
Sr Name of the Cost MAV Toll Rate Project Details
Length
No Project (Rs
(km) (Rs) (Rs per km)
million)
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1 510-Three 5.36 – Three
Mumbai Pune axle axle Three lane dual carriage
95 15000
Express Way 680 - Other 7.15 - Other way
MAVs MAVs
ct
2 Jaipur Three lane dual carriage

90.3 - 385 4.26
Kishangarh way
3 Moradabad
18 - 72 3.97 Two lane
Bypass
e
4 Additional two lane

Watrak Bridge bridge including
9 420 75 8.33
(Kheda Bypass) approaches and two lane
sp
bypass
5 Coimbatore Two lane dual carriage
28 1050 95 3.39
Bypass way
6 Additional two lane
Mahi Bridge 1 420 75 - bridge including
In
approaches
7 Ankali River
8 - 40 5.00 Two lane bridge
Bridge
8 Nashirabad RoB 5 - 30 6.00 -
9 Sheirnalla River
8 - 40 5.00 -
Bridge
10 Bina-Sirnoj- Two lane with value
144 410 432 3.00
Goona (MP) addition
11 Jabalpur-Patan- Two lane with value
38.4 210 115.2 3.00
Shahpura (MP) addition

Exhibit 6
Categorywise Toll Revenue
(Rs million)
y
No of
Period Two Wheeler Three Wheeler Car LCV Bus Total Collection
Days
op
Schem Sche Sche Sche Sche
Trips Total % Trips Total % Trips Total % Trips Total % Trips Total % Trips Schemes Overall
es mes mes mes mes
Oct 00 to Mar 01 159 0.40 0.01 0.41 0.96 0.11 0.00 0.12 0.27 4.86 1.11 5.97 14.06 3.76 0.98 4.74 11.16 10.44 3.41 13.86 32.60 19.58 5.52 25.10
C
Apr 01 to Mar 02 365 1.39 0.05 1.44 1.75 0.38 0.03 0.40 0.49 10.76 2.09 12.85 15.65 4.99 0.90 5.88 7.17 2.34 3.62 5.96 7.26 19.85 6.68 26.53
Apr 02 to Sept 02 183 0.88 0.03 0.91 2.32 0.22 0.02 0.24 0.60 5.05 1.35 6.41 16.34 2.38 0.48 2.87 7.31 0.95 2.39 3.35 8.54 9.48 4.28 13.77
n
Total 2.66 0.09 2.75 1.68 0.71 0.05 0.75 0.46 20.68 4.55 25.23 15.41 11.13 2.36 13.49 8.24 13.73 9.43 23.16 14.14 48.91 16.48 65.39
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Truck - Two Axle MAV - Three Axle MAV - Four Axle MAV - Five Axle MAV - Six Axle
Oct 00 to Mar 01 159 10.28 1.43 11.71 27.56 4.18 0.05 4.22 9.94 1.42 - 1.42 3.34 0.04 - 0.04 0.09 0.01 - 0.01 0.03 15.92 1.48 17.40
Apr 01 to Mar 02
Apr 02 to Sept 02
365
183
39.35
17.01
1.29
0.49
40.64
17.50
49.51
44.66
10.90
5.84
ct 0.06
0.08
10.96
5.92
13.35
15.10
3.80
1.93
-
-
3.80
1.93
4.62
4.93
0.13
0.05
-
-
0.13
0.05
0.16
0.13
0.04
0.02
-
-
0.04
0.02
0.05
0.06
54.21
24.86
1.35
0.57
55.56
25.42
pe
Total 66.64 3.21 69.85 42.65 20.92 0.19 21.10 12.88 7.15 - 7.15 4.36 0.22 - 0.22 0.13 0.07 - 0.07 0.04 94.99 3.40 98.39
Summary
s
Total Collection Total Collection Total Collection Total Collection

No of No of No of No of
Period Period Period Total Period
Days Days Days Days
Trips Schemes Overall Trips Schemes Overall Trips Schemes Overall Trips Schemes Overall
In
Oct 00 to Mar 01 159 35.50 7.00 42.50 Apr 01 to Mar 02 365 74.06 8.03 82.09 Apr 02 to Sept 02 183 34.34 4.85 39.19 Oct 00 to Sept 02 707 143.90 19.88 163.78

Exhibit 7
Origin-Destination Profile of MAVs and Trucks
• Roadside interview surveys to determine the origin-destination (OD) profile for MAVs and
trucks (two axle) for 24 hours on October 11, 2002.
• The sample coverage was 100 per cent for MAVs and 70 to 75 per cent for trucks. For the
purpose of this survey, the road influence areas were divided into 34 zones, as considered in
the feasibility study conducted by Kirloskar Consultants in 1997. Out of 34 zones, 21 zones
in Gujarat were classified as internal and the rest as external.
• Detail of the OD Profile of MAVs:
y
Share of Traffic
Sr Traffic Cumulative Share
Origin Destination Count to Total MAV
No Count (%)
Traffic (%)
op
1 Delhi Maharashtra Western Half 65 10.98 10.98
2 Maharashtra Western Half Delhi 46 7.77 18.75
3 Southern States Rajasthan 27 4.56 23.31
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4 Rajasthan Southern States 26 4.39 27.70
5 Delhi Southern States 26 4.39 32.09
6 Madhya Pradesh Vadodara City 21 3.55 35.64

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7 Southern States Delhi 18 3.04 38.68
8 Maharashtra Western Half Rajasthan 15 2.53 41.22

io
9 Haryana Maharashtra Western Half 13 2.20 43.41
10 Madhya Pradesh Bharuch District 13 2.20 45.61

ct
11 Rajasthan Maharashtra Western Half 12 2.03 47.64
12 Panchmahal - Halol Vadodara City 12 2.03 49.66
13 Delhi Vadodara City 10 1.69 51.35

e
14 Panchmahal - Halol Maharashtra Western Half 10 1.69 53.04

sp
Total (14 OD pairs) 314 53.04
Others (110 OD pairs) 278 46.96
Overall Total 592

In
• Summary of Category wise MAVs:
Three Axle Four Axle Five axle Six Axle Total

466 122 3 1 592
• Summary of the OD Profile of MAVs:
Internal External Total

Internal
67 (11%) 86 (14%) 153 (25%)
External
150 (26%) 289 (49%) 439 (75%)
Total
217 (37%) 375 (63%) 592 (100%)
• Summary of the OD Profile of Trucks:
y
Internal External Total
Internal : Current 284 (15%) 354 (19%) 638 (34%)
op
: Feasibility 1,771 (48%) 592 (16%) 2,363 (64%)
External : Current 501 (27%) 740 (39%) 1,241 (66%)
: Feasibility 595 (16%) 699 (19%) 1,294 (35%)
Total : Current
785 (42%) 1,094 (58%) 1,879 (100%)
:
2,366 (64%) 1,291 (36%) 3,657 (100%)
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Feasibility

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Exhibit 8
Categorywise Traffic on the Service Road
Two Three Truck – MAV –

Category Car LCV Bus Total
Wheeler Wheeler 2 Axle 3 Axle
Number
2,345 662 692 443 52 370 6 4,572
per Day
% wrt Toll
191 330 43 93 10 26 1 76
Road
Based on a one-day survey.
y
Exhibit 9
op
Toll Collections at L&T Narmada Bridge, Bharuch on NH 8
Average daily Toll

Average Daily Traffic Collection
(Rs)
C
Light Motor
LCV Heavy Total
Vehicles
Projected 4,130 3,894 23,489 31,513 990,500
n
Actual 2,188 1,947 12,567 16,702 525,000
Per cent
io
Actual to 53 50 54 53 53
Projected
From the date of opening, October 14, 2000 to September 30, 2002.
ct

e
sp
In

PROD0
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Fairdeal Traders Limited, Ahmedabad:
Operational Efficiency by Economics of Scope
“Our
Our aim is to become the largest clearing and freight forwarding agency in Gujarat.
We would ensure profitability by increased business volume and efficiency. We have
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a good reputation in the industry. We need to build on this reputation to expand on
business volume. In order to sustain our business results, we need to combine
efficiency in scale of operations and effectiveness in scope.”
Mr. Sharad Jobanputra, Managing

Managing Partner, Fairdeal
BRIEF HISTORY
Fairdeal was founded by two first generation entrepreneurs in 1975 to carry out third party
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distribution and storage activities in Ahmedabad. While in the initial days Fairdeal focused
on trading, the real breakthrough came when Fairdeal secured the distribution
responsibilities of Titan (a joint venture between the Tata group of companies and the Tamil
Nadu government)
overnment) watches. This paved the way for the transformation of a trading oriented
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company to a full-fledged distribution company. Subsequently (in 1987), Fairdeal morphed
into a clearing and freight forwarding agency. During the 1980s volumes grew
tremendously. Adequate infrastructure in terms of warehouse space and delivery vehicles
was added. Exhibit 1 lists the companies that Fairdeal has been servicing since 1987.
T
In recognization of its professionalism, efficiency, and innovative practices, Fairdeal has won
several professional awards including the `Model Warehouse Status' by Hindustan Lever
Limited and `Best
est Run Depot of the Country Trophy' and `Best Customer Service - Lighting
EC
Trophy' by Philips India Limited, and `Best run Warehouse' award by Titan.
Fairdeal had a daily turnover of Rs 10 million in 2003. To support such an activity level
Fairdeal employss 100 staff, and manages warehouse space of about 65,000 sq.ft. in and
around Ahmedabad. Fairdeal deals with about 9000 SKUs (stock keeping units) and handles
20,000 tons of stock per year.
SP
REQUIREMENTS AND OPERATIONAL EFFICIENCY

PRINCIPALS, SERVICE REQUIREMENTS,
By nature the C&F agency business is client specific. Operations, responsibilities, and the
range of services provided vary according to the principals and their customers. The next
few paragraphs summarize the specific details of services provided by Fairdeal to its clients.
IN
Prepared by Professor N. Ravichandran

Ravichandran, Indian Institute of Management, Ahmedabad. Research
support
support provided by Mr. Umang Gandhi.
Cases
ses are not designed to present illustrations of either correct or incorrect handling of administrative
problems.
Amara Raja Batteries Limited
Amara Raja is the largest manufacturer of standby

tandby VRLA (Valve Regulated Lead Acid)
batteries in the Indian Ocean Rim. Their business partner, Johnson Controls Inc., is a Fortune
500 company
ompany and the largest manufacturer of lead acid batteries in North America. In India,
Amara Raja is the largest supplier of standby power systems to core Indian utilities such as
PY
Indian Railways, Bharat Sanchar Nigam Limited, and power generating stations. In
addition, Amara Raja is the market leader in industrial batteries. Major MNCs like ABB,
Alcatel, Erricsson, Fuijtsu, Lucent, Motorola, Nokia, and Siemens are serviced by Amara
Motors, and
Raja. Amara Raja is the most preferred auto battery supplier to Ford, General Motors
Daimler Benz in India.
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Fairdeal handles 15 SKUs of Amara Raja. Four distributors represent Amara Raja in Gujarat.
The distributors send Fairdeal their order along with a demand draft in favour of Amara
Raja. Fairdeal processes the order and dispatches it to the concerned distributor usually
within a day. The software that facilitates stock accounting and stock updating at Fairdeal
has been designed by Amara Raja. At the request of Amara Raja, Fairdeal has dedicated two
individual staff; one for warehouse-- related activities and the other for generating invoices.
Amara Raja's specific requirements include:
•
•
•
Strict adherence to the transit time specified in the contract
Compulsory storage of batteries on pallets (provided by Amara Raja)
Maintenance of pallet account
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• Following the stacking norm of three batteries on each pallet
• Physical stock reconciliation at the end of every month and variance reporting
• Strict adherence to First Manufactured First Out (FMFO) dispatch policy
• Daily reporting on dispatches, stock and sales ((distributor wise, SKU wise, sales
executive wise), pallet stock, space shortages, and cheque status (distributor wise)
T
• Accounting of damaged pallets and periodic dispatch of damaged pallets to Amara Raja
factories
EC
Some of the challenges in dealing with Amara Raja include skewed sales at the end of the
month or planning period resulting in undue pressure on Fairdeal to execute several orders
on the same day or to pile up stocks beyond its warehousing capacity.
Tata Tea Limited
Along with its subsidiary companies Tata Tea Limited (TTL) has a significant presence in 35
countries worldwide.
worldwide. Its activities span the entire value-chain in tea, including research and
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development, tea cultivation, manufacture of black and instant tea, blending, packaging,
branding, marketing, sales
sales and distribution.
sales,
owns 55 tea estates in India (26,500 hectares under cultivation). Annually it produces 60
TTL owns
kg of black tea and 2 million kg of instant tea. It operates 11 modern packaging units
million kg
across the country.
IN
Physical stock keeping is a crucial activity in food products. Because of the high volume of
operation, efficiency in material handling is essential. Accordingly, an individual stock card
is maintained at Fairdeal for each lot received and details related to its dispatch is kept.
TTL has 80 distributors in Gujarat. An advance cheque system is followed. Every distributor
keeps with the C&F agency five pre-signed blank cheques in favour of TTL. As soon as a
cheque is cashed, the distributor sends another pre-signed
signed cheque so that number of cheques
remains five.
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After the order is received from a distributor, Fairdeal has to get a written approval (by e-
mail/fax) from the Mumbai head office ffice of TTL to execute the order. Subsequently the
product is dispatched. Simultaneously, cheque is sent to TTL Mumbai office for collection.
and other for

Fairdeal has assigned two employees, one for warehouse related activities and
invoicing.
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TTL's specific requirements include:
• Stacking product only on Bitumen sheets

• Stacking in honeycomb fashion to ensure equal load bearing by all stock
• (out-dated)
FIFO (First In First Out) dispatch policy. Segregated (out-
(out-dated) sold in the
dated) stock to be sol
bulk market
• Stock reconciliation on monthly, quarterly, and yearly basis, and variance reporting
along with explanation.
•
•
Daily reporting on sales, stock, space utilization, and cheque status
Couriering promptly to the TTL Mumbai office cheques for each order executed
Motor India Company (MICO) Bosch Group

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IO
MICO has developed a specialized procedure to work with C&F agencies. MICO receives
stocks from various company owned factories (treated as stock transfer) and seven
outsourced suppliers. The stock
tock accounting procedure is different for each category.
T
All stock transfers from MICO factories are maintained by the materials accounting system
in the sales office. Purchases from outsourced partners and their material accounting system
are accounted for by the C&F agent.
EC
For every consignment entering the Fairdeal premises, a gate entry document is prepared,
after which stock is unloaded and the number of cartons tallied. A receipt confirmation (RC)
is generated in the case of stock transfers. Outsou
Outsourced stock is acknowledged manually on
the lorry receipt. A single carton may contain several SKUs (stock keeping units). Usually,
all the cartons are opened, checked, and repacked.
SP
Transit damages are claimed from the transporter. Damages exceeding Rs. 5000 are claimed
from the insurers.
Fairdeal handles 27 major product families for MICO. Each family has several sub-items.
Item
tem coding, stock arrangement, stock identification,
identification and accurate material receipt and issue
are essential to ensure perfect tally during physical stock verification.
IN
A sales order or dispatch plan referred to as pick slip is received from the sales office daily
for orders to be executed during the day. The stock is segregated according to the pick slips.
All the segregated stock is checked physically and tallied with pick slips before the final
packing note is generated through the computer system. Subsequently a gate pass is
prepared to make the final dispatches. One copy of the gate pass is sent to the MICO local
(Ahmedabad) sales office.
Colour-coded
coded stickers are applied on each carton for easy identification of the destination
(usually the main distributor).
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Dispatches
ispatches may be sales to the dealer network and/or direct customers in Gujarat or stock
transfers to other C&F agents. There are transporters and couriers approved by the company
to facilitate material movement. Octroi is paid by the distributors. This is subsequently
reimbursed by MICO.
In Gujarat, MICO has six exclusive main distributors for four wheeler auto parts aand three
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main distributors for two wheeler auto parts.
Warranty stock is received from the dealers/showrooms, consolidated in Ahmedabad

Ahmedabad, and
sent to the MICO factory or outsourced partner for replacement. Accounting
Accounting of these items
is maintained by Fairdeal.
Carrier Aircon Limited
Carrier Aircon Limited (CAL) is an Indian subsidiary of Carrier Corporation of USA, world
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leaders in air conditioning. Carrier Corporation is part of United Technologies, a Fortune 500
company. As of 2003, Carrier is the market leader in India in all the segments of air
conditioning industry, viz. window air conditioners, split air conditioners, and air-
conditioning plants.
air
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CAL has implemented SAP to support and manage its distribution and logistics functions.
Accordingly, data a entry activities (for the Gujarat region) are done at the sales office in
Ahmedabad. Consequently, material dispatch at Fairdeal need to be coordinated with data
processing activities at the sales office.
office.
T
Orders are executed by Fairdeal only after a sasale invoice is received from the sales office.
However, in the case of urgent dispatches, a proforma invoice is generated at Fairdeal.
EC
CAL's specific requirements include:
• Dispatch strictly on the basis of the compressor code number mentioned in the sales
invoice
• Maintenance of spare parts inventory by the warehouse and its accounting by the C&F
SP
agent.
Bell Ceramics Limited
One of the leading manufacturers of ceramic floor and wall tiles in India, Bell has sourced
in
technology from Italy. Tile design is developed in-house.
IN
The company has entrusted Fairdeal the responsibility of receiving and executing orders,
and invoicing them. Stock reporting, credit collection, etc. are handled directly by the
company executives located in Ahmedabad.
Ceramic tiles ar
are prone to damage during transit. Therefore monitoring and controlling is
critical.
Two employees, one for warehouse activity and other for invoicing, are assigned to Bell
Ceramics.
Bell's specific requirements include:
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• Strict adherence to FIFO (market for styles and shades of tiles change quickly)
• Extremely careful executing orders (shade and style to accurately match those in the
order)
• Accounting for all damages generated in transit
• Maintenance of sample stock in coordination with the company sales team
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Titan Industries Limited
Titan is a joint venture public limited company between the Tata Group of companies and
the Tamil Nadu government.
overnment. It has emerged as the undisputed leader in the watch industry
during the 1990s and enjoys a formidable reputation in this industry.
Fairdeal holds 22,000 watches in stock at any point of time in 1300 SKUs. Physical stock
keeping in terms of coding and actual stock movement is critical for avoiding errors.
Consignments received from manufacturing units (mainly N

(mainly through couriers) are weighed
and matched with the weight of the consignments mentioned in the invoice. In the case of
any differences in weight, the carton is opened in the presence of the courier. Shortages are
IO
documented. This document is the basis for claim settlement with the courier and insurers.
Titan's specific requirements include:
• Racking type of warehouse to enable separate storage of each SKU

T
• Monthly physical verification and reporting by the C&F agent. Physical stock
verification quarterly
ly and at the end of the financial year by the principal at Fairdeal
warehouse.
EC
• Receiving and forwarding to customers jewellery stock against firm orders.
ISSUES AND CONCERNS
or
Sharad has been quite satisfied with the performance of Fairdeal so far. In order to cope
day
with the tremendous increase in the day-to-day operations he has recently inducted his son
Zankar. He has been contemplating several issues that he may have to resolve in the context
gr
of Fairdeal to ensure its continued success and profitable growth.
SP
C&F agencies are paid a consolidated commission (a certain percentage) on sales value to
cover the expenses incurred. While some expenses are directly proportional to the volume
of business, C&F agencies often incur fixed expenses in maintaining the required
infrastructure. Part of this problem is resolved by a minimum (monthly) retention fee and a
volume based commission.
IN
Fairdeal's most important resource is its warehouse space (in Ahmedabad), owned and
operated by it. The basic decision is related to what the capacity of these facilities should be
especially when the products dealt with are subject to seasonal fluctuations. The much
larger issue is how much of this facility should be outsourced and how much should be
owned by Fairdeal. Allocation of space to various principals based on profitability, need,

and volume has to be optimized.
Fairdeal has slowly realized that it is actually giving a bundle of services to principals. These
include warehouse management, order processing, material receipt and issue, physical
PY
handling of material, transportation, accounts receivables management, warranty support support,,
and market intelligence. The criticality of these services and the effort necessary varied with
the principals. Thus the major operating decision Fairdeal has to take is on how to organize
work. Should it be function based or client-based?
based? What should be the criteria to settle the
issue?
Delivery of material is central to Fairdeal's business. The options include couriers, third
CO
party logistics, service providers, and transport operators. In addition, Fairdeal has the
option of owning a fleet of vehicles and providing transport oriented services directly to
relevant customers.
Being a physical (material handling) activity oriented business, operations at Fairdeal are
manpower intensive. There is a significant emphasis on cost control and cost effectiveness to
realize profitability. Accordingly, the ability of this business to attract quality manpower is
relatively low. Skill levels are moderate. Multiskilling and job rotation are difficult. Again
outsourcing manpower is an option. Getting an appropriate manpower mix and preparing
them for a variety of jobs are important issues too. N
A significant value addition that Fairdeal can make to principals is coordination of activities
IO
among dealers, sales offices, and warehouses. Usually this is implemented as a transaction.
What systems and procedures would be effective is an area of concern.
Principals
rincipals usually insist on using their own procedures, documentation,
document and systems
support to facilitate operations at Fairdeal from their point of view. The burden this puts on
T
Fairdeal is to maintain several different systems with specific software requirements. This in
conjunction with low skilled employees is a challenge
cha to deal with.
EC
Often Fairdeal needs to deal with significant amounts of cash. This leads to some urgency in
banking related operations. How to maintain the existing systems and improve on them
especially in the trading and local distribution business? Security of warehouses, and
transport vehicles need constant vigil and periodic review.
Fairdeal also in a way represents principals.

principal It needs to provide administrative support to
principals for appropriate follow up on law, taxation,
taxation etc. Maintaining cordial relationship
SP
with public agencies is an important activity.
There is a much larger emerging opportunity to Fairdeal. It can provide market intelligence
and consolidated customer profile to principals. Also it can outsource a significant portion
off its activities to several partners like transporters, warehouse providers,
providers etc. In this version
Fairdeal would be the coordinating agency for branches of principals
principal at a lower cost. Of
course, such a transformation would need significant preparation from Sharad and his
IN
partners.
Exhibit 1
Activities of a Carrying and Forwarding Agency
1. Material Handling
♦ Stock clearing and receipt
PY
This includes helping the principal in clearing stock from state borders and octroi limits. Help to
release vehicles blocked due to insufficient documentation and statutory norms, overloading,
overloading, etc.
Receive consignments at the warehouse,

arehouse, unload, count and check quality of received stock,
check with documents and enter the actual stock data in the distribution software.
♦ Safe Warehouse Storage
CO
Ensure that stock and SKU wise segregated stock are arranged and stacked according to the
norms of the principals. Update bin cards (if maintained).
2. Order Processing and Distribution

Once orders are received (either directly from dealers or customers or from sales/regional offices)
execute them. Before executing an order, verify payment terms, credit norms of the customer,
customer cheque balance, etc. Prepare the order consignment and dispatch along with the
required documents (sales invoice, gate challan, lorry receipt, etc.). Make dispatches by courier/
transport service/own vehicle depending on the terms and requirements.
3. Invoicing
individual
N
Generate invoices from the distribution software along with all necessary documents (specified by
dual principals). Maintain accounts of stock receipts, stock issues, returns, damages, and
shortages. Also maintain sales invoice and transfer notes for ssales tax/excise purposes.
IO
4. Stock Accounting
Maintaining physical stock as per norms fixed by principals,
principal and verify with book stock. Report
variances with explanation to clients on a regular basis. This is one of the important service
components of any C&F agent, since it may affect the statutory standards of the principal.
T
5. Banking and Financial Accounting

Accounting
Collect cheques and demand drafts daily from various customers, deposit them in banks,
reconcile payments along with stock removals, keep track of utilization and cheque inventory, and
adhere to credit norms for various customers as defined by the principals.
princi
EC
6. Reporting to Head Office/Sales Office of the Principal

Follow the reporting norms, usually defined by the principal. Monitor reports related to stock on
hand, orders pending, sales (week to date, month to date, customer wise, sales executive wise),
non-moving
payments and collections, non-
non non-available stock, etc.
-moving stock, non
7. Assisting in Fulfilling Statutory Obligations

Helping principals to acquire state sales tax registration (and registration with regulatory agencies
SP
in the case of food items). Fulfil legal and regulatory requirements related to warehouse
operations and activities.
Source: Fairdeal records

IN
Exhibit 2
Growth of Fairdeal since 1987
Year Milestones
1987 ♦ Appointment as C&F agent for Titan
PY
♦ Distributorship of a large number of companies including Brooke Bond,
Lipton and Kisan of HLL, TOMCO, Lakme, Colgate, etc.
1988 - 89 ♦ Decision to concentrate on the C&F agency business and phase out
distribution
1991-94 ♦ Appointment as C&F agent and distributors
istributors for Kellogs, Perfetti India
♦ Appointment as C&F agent for Carrier Aircon on and Hawkins
♦ Appointment as C&F agent for MRF Specialty Coatings
CO
1996 ♦ Creation of 50,000 sq.q. feet of rented warehouse space
♦ Establishment of own warehouse at Sarkhej, Ahmedabad
♦ Decision to get rid of low volume principals like Perfetti India, Hawkins,
Kellogs, etc to further concentrate and improve service levels to the existing
large volume principals
♦ Award of C&F agent contract for Philips India
1998-99 ♦ Purchase of a well-furnished
furnished administrative office in Ahmedabad city
♦ Withdrawal of HLL's account as a consequence of its decision to
consolidate distribution and warehousing operations
♦ Appointment as C&F agent for Motor India Company (MICO).
2000-02 ♦
N
Addition of principals like Amara Raja Batteries, Nokia, Borosil, Tata Te
Schlumberger, Samsonite, etc. to the client list
Source: Interview with Fairdeal partner(s)

Tea,
T IO
EC
SP
IN
Exhibit 3
Fairdeal Organizational Structure in 2003
Managing Partner 1 Managing Partner 2 Managing Partner 3
PY
Sharad Johanputra Zankar Jobanputra Kamalesh
sh Shah
Banking and Corporate Warehouse, Office

Finance Relations, Transport Administration
CO
Funds Public Operations and Day-to-Day
Day-to
Day- to--Day
Day
Management Relations Accounts
Warehouse Manager
Accountants
Transport Managers
Cashiers
N Godown Keepers
Computer Operators
Receptionists,
Peons
IO
T
EC
SP
IN
Exhibit 4
PY
Salient Features of Fairdeal Client Specific Requirements
Warehouse @ *
Client Products Handled Product Handling Norms Turnover Revenue
Space (sq. ft)
CO
Philips India 20,000 Electrical, electronics, and Independent Warehouse,
arehouse, Palletized movement 800 60
Limited consumer non-durables
Bell 4,000 Ceramic products FIFO, damages
amages to be segregated on regular 30 6
Ceramics basis, samples to be accounted for
Carrier 5,000 Air Conditioners, Project Warranty stock to be maintained differently. 400 15
Aircon Capital goods, Spares
MICO 10,000 Comprehensive range of auto Weight to be recorded for each consignment, 500 18
ancillaries and products Repacking required to be done while
ON
redistribution.
redistrib ution.
Nokia 1,000 Mobile phones FMFO (First Manufactured First out) 320 3
Tata Tea 5,000 Various size tea packages Stock to be maintained on bitumen sheets, 50 3
regular
egular checks for outdated stock
stock, and
segregation on daily basis
Titan 2500 Various models of watches, To b
bee handled with care, strictly to be stacked as 800 30
low, medium and high range per coding,
TI
of watches, gold and jewelry
Amara Raja 4,000 Batteries for various retail and Independent warehouse, palletized storage, 100 12
Batteries Industrial applications FIFO, stacking up to three layers
Bharati
Telecom
MRF
2500
2500
Mobiles and SIM cards
Various colours and c

coatings
EC
oatings
Lock and key independent warehouse
Stock to be covered with polyethylene to avoid

50
30
6
5
Speciality dust
Coating
SP
@ Turnover of principal in the Fairdeal service area (Rs. Million) * Rs. Lakh

IN

Ahmedabad IIMA/PSG0088
IIMA/PSG00
China Post
PY
As the year 1998 came to a close, Mr. Liu Liqing, Post Master General of the State Post
Bureau (SPB), China, took a retrospective look at the year gone by and felt that the year bore
special significance in the history of China post.
In March 1998, the 1st session of the Ninth National People’s Congress approved a bill on
CO
restructuring and introducing reforms in governmental agencies under the State Council.
Consequently, the SPB was established. It was authorized to administer the national postal
post
industry and to manage postal enterprises nationwide. In accordance with the general
layout set forth by the Ministry of Information Industry, SPB initiated a drive to separate
post and telecom, and completed the task by end of 1998. Mr. Liqing viewed the t
establishment of SPB as a factor consolidating the position held by post in the national
economy. He felt that SPB could facilitate the streamlining of production, operation and
services with the in keeping with the nature of postal economics.
way to survive the challenges of changing times, and development was the only means
N
Prior to the establishment of the SPB, the China Post had realized that reform was the only
through which this could be achieved. The Post Master General wrote in the 1998 annual
IO
report
port of the SPB, “We must, proceeding from the specific situation in China, grasp the
opportunity, transform our mind, define appropriate policies, address the challenges ahead,
speed up transforming the growth pattern in postal economy to an intensive one, update
with IT advancement, and acquire the deserved position of China Post in the international
arena.”
T
While musing on these issues, Mr Liqing wondered if there was anything to learn from the
activities of India Post, which, though belonging to a developing
devel country, was very well
organised and might serve as a standard for benchmarking the achievements of China Post.
EC
Annexure 1 compares India Post with China Post. During 1998, China Post generated a
revenue of 28.71 billion Yuan (equivalent to 3.59 billion
bill US$ using an exchange of 8 Yuan to
the dollar). India Post generated a revenue of 15.67 billion Rs (equivalent to 0.39 billion US$
using an exchange of 40 rupees to the dollar) during 1997-98.
Development Objectives
SP
The immediate future outlook of the SPB was stated in an internal document as follows:
Thrust on Government Policy
The general thrust of the governmental policy stressed the following objectives:
• Aim at improving service

IN
Prepared by Professor G. Raghuram and Anupama Kothari. The language and style of the inputs
from the original China Post documents have been maintained.
• Focus on business operations

• Raise social and economic benefits
• Further deepen the reform
PY
• Intensify the management
• Improve the human resource quality
• Promote sustainable, rapid and healthy development of the postal service
• Lay a solid foundation for eliminating losses in three years
• Form the capability of self-development in five years
CO
Three Major Goals for the Year 1999
For China Post, 1999 was to be the first year of its independent running. China Post was
looking forward to greeting the 22nd UPU Congress to be held in Beijing in 1999. China post
had defined three major goals
oals to be achieved during 1999. Firstly, it had to achieve an
annual revenue of 36.5 billion Yuan. Secondly, it had to reduce the deficits by over 40 per
cent. And thirdly, it had to increase the overall productivity by more than 28 per cent.
“China post, with high quality service performance will stand out in a new look in 1999,”
hoped Mr. Liqing.
Commitment in Seven Aspects

N
IO
China Post committed itself to development in seven aspects.
• To set up a new image of China Post under the guideline of providing good
services
• To earnestly improve the financial results by intensifying management
T
• To devote great efforts to developing postal service with the focus on

diversifying business operation
EC
• To build and perfect the operational system with the momentum for p
putting
reform forward
• To advance the modernization of postal network on the basis of capability
construction
• To improve the overall quality of postal staff through better personnel
management
SP
• To speed up the pace of postal service development by applying sscience and

technology, with scientific and technological education as the backbone
International Affairs
Besides hosting the 22nd UPU Congress, the World Philatelic Exhibition and the World
Postal Machinery Exhibition in Beijing, China Post was keen on strengthening
str international
IN
cooperation and assimilating the advanced experience of other postal administrations.
China Post in 1998
Staff and Structure

Exhibit 1 gives details regarding the key ‘leaders’ in 1998, and their sphere of activity. One of
the ‘leaders’ looked after the ‘discipline inspection group,’ liasing with the ‘party’.
“The
The SPB was set up during the year to safeguard the interests of the country and of the
customers and to be responsible for the construction and operation of the postal networknetwork
PY
while meeting universal service obligation.” SPB had set up eight functional departments at
the headquarters. Exhibit 2 gives details about the responsibilities of various departments
under the SPB. One of the departments (’general office’) was to look after after general affairs
while the others had line or staff responsibilities. There was also a department of public
service, overseeing service quality. Exhibit 3 informs about various departments under the
SPB and other subordinate offices under the main eightt departments. Post offices were
CO
organized in a hierarchy from the provincial level to the country level. The subordinate
offices also included corporations like National Philately, Postal Airlines, etc.
Exhibit 4 depicts the scale and strength of China Post in the year 1998. The significant
expansion of the operating area in 1998 is also an important feature.
Business Performance
“Despite
Despite adverse circumstances both at home (the flood disaster and sluggish market
N
demand) and abroad (financial crisis), China Post maintained a continuous and stable
growth. The overall turnover in 1998 reached 16.62 billion Yuan, up by 14.5 per cent, and
operating revenue increased by 5.2 per cent to 28.71 billion Yuan while labor productivity
increased to 62,000 Yuan per employee.”
IO
Exhibits 5 to 16 throw light on the performance of various services under China Post in
terms of volume and operating revenue. The operating revenue gained through letters
revenue from parcel
amounted to 3.4 billion Yuan, a decrease of 3.69 per cent. The operating reven
services amounted to 1.35 billion Yuan, an increase of 3.8 per cent, and from newspapers
T
and periodicals 4.04 billion Yuan, an increase of 13.14 per cent. The operating revenue
turned in by the EMS service was worth 3.12 billion Yuan. The volume of postal savings
deposits amounted to 55.7 billion Yuan, an increase of 7.09 over 1997. Operating revenue
EC
given by philately amounted to 7.79 billion Yuan.
Exhibit 7 gives some details about the quality of services offered by China Post. In 1998, pos
post
offices throughout the country launched a standard service campaign under which China
Post realized next day delivery of letters between Beijing, Shanghai and Guangzhou as well
as North China and East China. Customers could subscribe newspapers and perio periodicals by
phone or through the network from different places. The coverage for withdrawing from
SP
different cities was expanded.
During the flood-

flood -fighting
fighting season, China Post ensured that the postal routes were open to
flood-fighting
deliver mail on time, especially the acceptance notices from the universities and colleges.
They issued a set of relief stamps only in 12 days and raised 20 million Yuan for the flood-
flood-hit
victims. The comprehensive customer satisfaction rate reached 82.63 per cent, an increase of
1.22 per cent over the previous year.
IN
“During
“During the year, 82 planned projects were completed in areas of postal science and
technology research, science and development, and formulation of technical standards. As at
the end of 1998, of the total postal staff, 21.7 per cent held a middle level professional
qualification or above, about 11.9% college education or above, about 3.2 per cent
undergraduate education and 0.07 per cent postgraduate education or above.”
Annexure 2 gives an idea of the history and development of China Post over a ten year
period from 1987-1997.
The Future Vision
PY
Conceding to the fact that China Post, standing at the critical point of cross- cross-century
cross -century
century
development, had encountered unprecedented difficulties and pressure, Mr. Liqing
informed that two cross-century
century broad goals were defined. “The first goal was to serve the
society with diversified products of high quality, to satisfy all the needs of the customers
and do best to improve social results, while meeting the universal service obligation with
remarkable
kable service performance. The second goal was to firmly put postal reform and
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development forward, streamline operational systems, intensify business management,
explore service market, be dedicated to the construction of comprehensive capability, being
committed
ommitted to turning loss into gain within three years, build up self-developing
self-developing
self- developing ability in
five years and finally manage an enhancement in economic result.”
The situation of China Post as at the end of 2000 is given in the Box at the end of this paper.
The content in the quotations in the above sections is sourced from www.chinapost.com.cn
www.chinapost.com.cn,
accessed on January 15, 2000
N
T IO
EC
SP
IN
Exhibit 1
PY
Top Management of China Post
Leaders Position
Mr. Liu Liqing Postmaster
master General, State Post Bureau.
Mr. Tan Xiaowei Deputy Postmaster General, SPB.
CO
Mr. Wu Shixiong Deputy Postmaster General, SPB.
Mr. Liu Andong Deputy Postmaster General, SPB.
Mr. Ma Junsheng Deputy Postmaster General, SPB.
Mr. Sheng Minghuan Leader of Discipline Inspection Group, Party
Committee of SPB, China.
Source: Annual Report 1998, China State Post Bureau

N
Exhibit 2
IO
Responsibilities and Organizational Structure
General Office Dealing with general affairs
Department of Postal Sector Managing postal communication and legal affairs

T
Management
Department of Postal Stamps Overseeing postage stamps issuance and philately

EC
Department of Planning and Scheming the national postal developing plans, managing
Finance finance, state
state-owned assets as well as postal science and
technology affairs
Department of Public Service Managing business operation and service quality
Department of Post Routes Controlling and coordinating the operation of post routes
SP
Operation
Department of International Managing international activities and services

Cooperation
Department of Personnel and Managing personnel, labor wages and human resource
Education education
IN

Exhibit 3
Organisational Chart
PY
State Post Bureau Subordinate Offices of State Post Bureau
General Office Postal Savings and Remittance Bureau
Department of Postal Sector Management Information and Technology Bureau

Department of Postage Stamps
CO
Postage Stamp Printing Bureau
Department of Planning and Finance
Newspapers & Periodicals Subscription
Department of Public Service and Distribution Bureau
Department of Post Routes Operation
China Postal Academy
Department of International Cooperation
National Postal Propaganda Center
Department of Personnel and Education
Post offices at provincial, autonomous region,

and municipal level (31)
N P&T Culture and History Center
Shijiazhuang Postal College

IO
China National Philately Corporation
Post offices in capital cities of province and
other big cities China Postal Courier/EMS Corporation
T
China Postal Advertising Corporation Ltd.

Post offices at country level
EC
China Postal Mail Order Corporation Ltd.
China Postal Airlines Corporation Ltd.
Zhongyu Postal Code Information Service

Corporation Ltd.
SP
Beijing P&T Sanatorium
China National Philately Federation

(related unit with SPB)
IN
Exhibit 4
Scale and Strength
Scale and Strength
PY
1
Total pay-roll staff 480,000
Fixed assets in original value 59.9 billion Yuan
Investment Capital 17 billion Yuan
CO
Post Offices 84,134 (4861 newly added in 1998)
Operating area 20.23 million m2 (8.54 million m2 newly expanded in1998)
Post Routes 23272 (length of mail trunk routes: 2.85 million km; 490,000
km newly expanded in 1998)
Length of Air mail Routes 1,480,000 km (self-owned

own ed routes:2)
owned
Water mail Routes 2
1
Post Trucks
N
33233 (3081 newly purchased in 1998)
IO
This figure for total staff is significantly different from the figures reported in the earlier years, when the staff
strength has been over one million. The difference is attributed to the restructuring, due to which the employees
of various subsidiary corporations are not considered.
(1 Yuan = Rs 5 approximately)

T
EC
SP
IN
Exhibit 5
Business Performance of China Post in 1998
As of the end of
Item Unit
PY
1998
Turnover Yuan in hundred millions 166.2
Turnover in international services Yuan in hundred millions 5.3
Turnover in different services
Letter Pieces in ten thousands 660467.4
CO
Domestic letter Pieces in ten thousands 651223.3
Correspondence for international, HK Pieces in ten thousands 9244.1
and Macau
Confidential documents Pieces in ten thousands 2009.2
Parcel Pieces in ten thousands 9746.9
Domestic parcel Pieces in ten thousands 9687.5
Parcel for international, HK, and Macau Pieces in ten thousands 59.4
EMS
Domestic EMS
EMS for international, HK and Macau
N
Pieces in ten thousands
7675.2
7339.2
336.0
IO
Money order Pieces in ten thousand
thousands 23040.9
Accumulated pieces of newspapers Pieces in ten thousands 2007819.1
subscribed and distributed
Accumulated pieces of periodicals Pieces in ten thousands 120618.3
subscribed and distributed
T
Average remaining sum of postal Yuan in hundre

hundred millions 3133.3
savings
EC
Philately Pieces in ten thousands 518377.9

Revenue from renting and others Yuan in ten thousands 87679.4

SP
IN
Exhibit 6
Business Performance of China Post in 1998 in Terms of Operating Revenue
PY
Service Operating Revenue Per
Cent
Letter 3.40 billion Yuan 11.8 %
Parcel 1.35 billion Yuan 4.7 %
Express mail service (EMS) 3.12 billion Yuan 10.9 %
CO
Newspapers and periodicals 4.04 billion Yuan 14.1 %
Confidential service 0.16 billion Yuan 0.6 %
Postal savings 7.09 billion Yuan 24.7 %
Money orders Domestic: Issued: 221.7 million receipt worth 6.1 %
293.9 billion Yuan. Cashed: 220.9 million
receipts worth 291 billion Yuan.
International: No. of Incomi ng receipts:
Incoming
37106 worth US$ 26.956 million. Outgoing
receipts: 863 worth US$ 326,300.
Philately
N
The money order revenue is 1.76 billion
Yuan
7.79 billion Yuan 27.1 %
IO
Total 28.71 100.0 %
Source:: Annual Report 1998, China State Post Bureau

T
EC
SP
IN
Exhibit 7
Service Level and Quality: China Post in 1998
PY
Item Number Unit
Number of computerized post offices 16272 Piece
Number of automated mail sorting machines 106 Set
Number of parcel sorting machines 138 Set
Number of computers 170000 Set
CO
Postal savings computer network (Green Card Project)
Main frames installed in on-line cities 46 Set
Number of cities, prefectures and counties covered 527 Piece
by the network
On-line terminals at counters 5840 Set
Number of ATMs 2009 Set
EMS tracking and tracing system
Number of on-line cities
Number of countries and regions accessible to EMS
items delivery information exchange
N 201
26
Piece
Piece
IO
Service level
Comprehensive on-time delivery rate 100 %
2
Average
erage service area per post office 94 Km
T
Average population served per post office 12200 Person

Percentage of high rise residential buildings having 95 %
postal delivery in urban areas
EC
Source:: Annual Report 1998, China State Post Bureau

SP
IN
Exhibit 8
Turnover and Revenue
Turnover of Increase over the Increase over the

Postal Revenue
PY
Postal Services Previous Year Previous Year
Year
(in billion Yuan)
(in billion Yuan) (in per cent) (in per cent)
1998 16.62 14.50 28.71 5.20
1997 14.51 8.70 27.40 52.73
CO
1996 13.37 18.60 17.89 21.50
1995 11.27 11.50 14.73 29.00

1 5 5
1994 10.80 34.40 11.41 38.47
1993 8.03 24.70 8.24 31.10

2 4
1992 6.44 21.90 6.28 30.60
1991
1990
5.28
4.60
3
N
15.00
NA
4.81
3.55
35.40
28.623
3
IO
3
1989 NA NA 2.76 23.20
3
1988 2.24 28.73
1987 1.74
T
1
Notes: derived with the help of Annual Report 1995
EC
2
derived with the help of Annual Report 1993
3
derived with the help of Annual Report 1991
4
derived with the help of Annual Reports 1991 & 1992
5
derived with the help of Annual Reports 1993 & 1995
SP
The difference between turnover and revenue has not been clearly stated in any of the documents
from China Post. It is hypothesized that operating revenue includes the revenue of services rendered
rende
on behalf of other ministries, like Postal Savings, etc where China Post gets to keep only a smaller
share in terms of commission. The turnover figure would consider only the commissions. There is also
IN
a lack of clarity in such figures over time, possibly due to change in definition of what the figures
consider.
1991
Source: Annual Reports 1991-1993, 1995-1998
Exhibit 9
Letters Handled by China Post
PY
Year Volume Increase over Previous
(in million) Year (in per cent)
1998 6604.70 -4.44
4.44
1997 6911.48 -12.40

2.40
CO
1996 7890.00 -0.90
-0.90
1995 7960.00 3.99
1994 7650.00 11.35
1993 6870.00 20.10
1992 5720.00 9.80
1991 5210.81 -5.04
1990
1989
5487.11
5727.93
N -4.21
-4.18
IO
1988 5977.35 9.09
1987 5478.93 10.50
1983 3521.00 NA
T
1978 2835.00 NA
1973 2635.00 NA
EC
1968 2072.00 NA
1963 2021.00 NA
1958 1734.00 NA
1953 946.00 NA
SP
1949 599.00 NA
Source: Author’s Analysis based on Annual Reports of China Post,

Source:
1987, 1988, 1991-1993,
1991 1995-1998
IN
Exhibit 10
Parcels Handled by China Post
PY
Year Volume Increase over Previous Year
(in million) (in per cent)
1998 97.47 0.35
1997 97.13 -34.90

34.90
1996 150.00 -5.10

5.10
CO
1995 156.40 --1.70
1.70
1994 159.08 14.14
1993 139.65 27.60
1992 109.48 14.10
1991 95.91 -1.10

1.10
1990 96.90 -2.50
1989
1988
99.39
105.46
N -5.80
7.50
IO
1987 98.61 16.10
1983 69.58 -
1978 74.00 -
T
1973 64.51 -
1968 37.62 -
EC
1963 30.20 -
1958 25.66 -
1953 19.96 -
1949 2.77 -
SP

1991-1993, 1995-1998
1987, 1988, 1991
IN
Exhibit 11
Newspapers and Periodicals Handled by China Post
PY
(in billion) (in per cent)
1998 21. 28 33. 75
1 1
1997 15. 91 0.40
1996 21. 08 -0.01

0.01
1995 21. 29 NA
CO
1994 NA NA
1993 21. 44 7. 30
1992 19. 99 10. 10
1991 18. 16 9. 08
1990 16. 65 2. 61
1989 16. 23 -35. 51

25. 16 -4. 01
1988
1987
1983
26. 21
19. 81
N 7. 90
-
IO
1978 14. 58 -
1973 10. 53 -
1968 5. 65 -
1963 3. 70 -
T
1958 5. 54 -
1953 1. 79 -
EC
1950 0. 42 -
1
Notes: There may be inconsistencies in these figures. In the 1996 Annual Report of China Post, it is
informed that 21.08 billion pieces of newspapers and periodicals were distributed. Whereas,
in the 1997 Annual Report of China Post, the China Post announced, “In 1997, keen as the
competition is, newspapers and periodicals subscription and distribution managed a
continuous growth. The volume of newspapers and periodicals subscribed and distributed hit
SP
15. 91 billion pieces, with an increase of 0.4 per cent over 1996.”There is an inconsistency
over how the dip of 1997 was described as 0.4 per cent growth over the previous year.
Source: Author’s Analysis based on Annual Reports of China Post, 1987, 1988, 1991
1991-1993, 1995-
1998
IN
Exhibit 12
Express Mail Service (EMS) Handled by China Post
PY
(in million) (in per cent)
1998 76.75 10.4
1997 69.50 -1.9
CO
1996 70.86 27.5
1995 55.63 38.4
1994 40.19 86.4
1993 21.56 124.8
1992 9.59 69.3
1991 5.67
N 65.1
IO
1990 3.43 39.0
1989 2.47 61.4
1988 1.30 124.6

T
1987 0.68 NA

EC
1987, 1988, 1991-

1991
1991-1993,
-1993,
1993, 1995
1995-1998
SP
IN
Exhibit 13
Postage Savings Handled by China Post
PY
Year Total Volume Increase over Previous Year
(in billion Yuan) (in per cent)
1998 306.50 15.87
1997 264.50 20.40
1996 219.66 36.35
CO
1995 161.10 58.46
1994 101.66 61.90
1993 62.78 32.00
1992 47.55 50.70
1991
1990
31.57
18.11
N 73.20
80.01
IO
1989 10.06 42.70
1988 7.05 88.10
1987 3.75 NA
T
EC
Source: Author’s
uthor’s Analysis based on Annual Reports of China Post,
1987, 1988, 1991-1993,
1991 1995-1998
SP
IN
PY
Exhibit 14
1998)
Money Orders Handled by China Post (1996-1998)
International Money Orders
CO
Domestic Money Orders
Outgoing MO Incoming MO
Year No. of Amount Average No. of Amount Average No. of Amount Average MO
Pieces Issued MO Pieces Issued MO Pieces Issued Amount
Amount Amount (in US$)
(in Yuan) (in Yuan) (in Yuan) (inUS$) (in US$)
1998 221.70 293.90 1325.66 863 326,300 378.09 37106 26.96 705.00
million billion
ON
million
1997 219.35 360.00 1641.21 749 273,700 365.42 30,797 21.27 million 690.51
million billion
1996 239.00 256.50 1073.22 699 275,500 394.13 30,221 22.30 million 737.89
million billion
TI
ed on Annual Reports of China Post, 1996

Source: Author’s Analysis based EC 1996-1998
SP
IN
Exhibit 15
Money Orders Handled by China Post
PY
Volume Increase over Previous
Year (in million Year
sheets/pieces) (in per cent)
1995 239.85 0.52
1994 238.62 NA
CO
1993 NA NA
1992 192.25 12.60
1991 170.78 3.15
1990 165.56 -1.36
1989 167.84 -4.36
1988 175.49
N 3.98
IO
1987 168.77 1.80
1983 139.43
1978 118.52
T
1973 120.29
1968 97.01
EC
1963 85.00
1958 68.37
1953 45.38
SP
1949 4.48
Source: Author’s Analysis based on Annual Reports of China Post, 1987,

1988, 1991-1993,
1991 1995-1998
IN
Exhibit 16
Philately Handled by China Post
PY
Volume Increase over Operating Increase over
Year Previous Year Revenue Previous Year
(in million) (in per cent) (in billion Yuan) (in per cent)
1998 NA NA 7.79 23.5
1997 NA NA 6.31 149/161.9
CO
1996 3.05 26.90 2.41 NA
1995 2.39 1.01 NA NA
1994 2.37 12.30 NA NA
1993 2.11 26.10 NA NA
1992 1.67 35.40 0.95 45.6
1991
1990
0.71
NA
NA
NA
N 0.65
NA
NA
NA
IO
1989 NA NA NA NA
1988 NA NA 0.16 NA
T
1987 NA NA NA NA
EC
Source: Author’s Analysis based on Annual Reports of China Post, 1987, 1988, 1991-1993,
1991 1995-
1998
SP
IN
Annexure 1
India Post versus China Post
PY
India Post in 1998-1999
Keeping in view the growth, development and changes in the economic scenario of India, it was
observed in the Annual Report of India Post - 1998 that the developments in the economy led to
increasing demands on the infrastructure sectors, including communication, during the year. These
demands, they expected, would grow further, and the infrastructure services had to keep pace with
these developments.
CO
1
Organizational Set-up of India Post
“The Postal
ostal Services Board, the apex management body of the Department of Post comprises of the
Chairman and three members. The three members of the Board hold portfolios of Operation,
Development and Personnel. For providing postal services, the whole country is divided into 19 postal
circles. Over and above these 19 circles, there is another postal circle, called the Base Circle, to cater
to the needs of the armed forces. India has the largest number of Post Offices in the world. The Indian
post offices are categorized as Head, Sub and Branch Post Offices. Branch Post Offices are Extra- Extra
Departmental
mental Post Offices (EDBOs) located in rural India. The sub Post Offices, excepting a few, are
departmental offices located in both rural and urban areas. Head Post Offices are graded into five
categories according to their workload and staff strength.”
“The organizational set-up

strength.”
N
up of the Department which remained unchanged for decades, has been
undergoing restructuring in recent times as a response to the challenges faced by the Post in the
IO
communication market due to induction of technology. The restructuring is designed to tackle
transitional problems.” Establishment of the “Business Development Directorate” is an effort in the
direction of designing, monitoring and marketing of various value added premium products of India
Post.
India’s postal network is well spread-out,

spread-out,
spread- out, and the delivery of mail compares favorably with other
T
countries as the mail is delivered at the doorstep. The emphasis of India Post in the rural segment is
to provide basic postal services and network to bring these areas at par with the mainstream of
economic and social life in the country. In the urban segment, the postal system in India emphasizes
on a more efficient responsive communication service to serve the purpose of more specific business/
EC
professional and social sectors - a requirement that has gained greater significance and urgency in
the country.
Comparative Data
At the time of Independence, India had 23,344 Post Offices. Information about the growth in the
number of Post Offices, the area served by each Post Office, the population served by each Post
Office, the growth in the number of employees, the number of employees serving 1,000 persons, area
SP
served by each employee, number of mail vehicles, etc. is given in Table 1
Table 2 gives information regarding the total revenue generation by the postal systems in both China
and India. Table 3 informs about their revenue generation by India Post under various important
categories. Information about revenue generation by various categories under the China Post can be
Exhibits 9-16.
obtained from Exhibits 9 The categories employed by both the postal systems under review to
broadly divide and classify the revenue receipts, however, are not the same. Table 3 also throws light
on total expenditure incurred by India Post. Comparison of Expenditure by China Post and the Indian
IN
Postal Service is difficult, as comparable data are not available. Annual Reports of India Post give
information on expenditure; Annual Reports of China Post, however, do not give this information.
1
The content in quotations in the above sections is sourced from chinapost.com.cn, accessed on
March 23, 2001.
Table 4 details volume and revenue generation under the inland money order category in both India
as well as China. It also provides data regarding the average value per Money Order as well as value
of Money Order per person.
Table 5 compares volume of mail traffic in both the countries. Mail Traffic in China is inclusive of
PY
Letter Mail and Parcel Mail. It does not take into account the traffic of Newspapers and periodicals.
Mail Traffic with reference to India is inclusive of Unregistered Mail (Under P&T Service: Letters, Post
Cards/ Ackd, Packets, Parcels; Under Other than P&T Service: Paid Letters, Unpaid Letters, Post
Cards, Competition Post Cards, Letter Cards, Registered Newspaper, Unregistered Packets,
Unregistered Parcels, Ackd.) and Registered Mail (Under P&T Service: Insured Letters, Insured
Parcels, Registered Letters, Registered Parcels; Under Other than P&T Service: Insured Letters,
Insured Parcels, V.P. Letters, V.P. Parcels, Registered Letters, Registered Parcels). The table also
provides data about the volume of mail traffic per person. Table 6 compares mail traffic in both the
CO
countries. In this table, the volume of mail traffic in China is inclusive of Newspapers and Periodicals,
along with Letters and Parcels. Table 7 gives information regarding revenue generation throu through
Philately activity. Compared to India, China is way ahead in revenue generation through this activity.
Table 8 provides some details about the operating expenses, investment total expenses revenue
receipts etc., in China and India during 1998 and 1998-99
9 respectively.
Table 9 gives the number of mail deliveries per day in the urban areas and number of mail deliveries
per week in rural areas, in both the countries.
N
T IO
EC
SP
IN
Table 1
Postal Networks: India and China
PY
Year China Year India
Post offices 1996 67,733 1996-97 153,021
1997 79,273 1997-98 153,454
5
1998 84,134 1998-99 154,149
1 2
Staff (full time) 1996 NA 1996-97 594,685 286,378
CO
1 2
1997 NA 1997-98 604,257 293,979
6 1 2
1998 480,000 1998-99 602,987 293,072
Population served per 1996 18,363 1996-97 5,518
post office
1997 15,690 1997-98 5,502
1998 14,784 1998
1998-99
1998--99
99 5,477
Average area served per 1996 137.61 1996
1996-97
1996--97
97 21.48
post office
Employee per 1000

1997
1998
1996
117.58
110.78
NA
N 1997-98
1997-
1997-98
98
1998-99
1998-
1998-99
99
1996-97
1996-
1996-97
97
21.42
21.32
0.70
3
0.34
4
IO
population 3 4
1997 NA 1997-98
1997-
1997-98
98 0.72 0.35
3 4
1998 0.38 1998-99
1998 0.71 0.35
3 4
Area serviced by an 1996 NA 1996-97
1996 5.53 11.47
employee (km) 3 4
1997 NA 1997-98 5.44 11.18
T
3 4
1998 19.42 1998-99 5.45 11.20
Mail Cars 1996 24,681 1996-97 Bogie Mail Vans: 337
EC
Mail Vehicles: 1106

Total: 1443
1997 25,200 1997-98 Bogie Mail Vans: 274
(approx)
Mail Vehicles: 1106
Total : 1380
SP
1998 33,233 1998-99 Bogie Mail Vans: 267

Mail Vehicles: 1119
Total: 1386
Notes: (a) Total Popuation of China taken as 1,243,804,000

(b) Total Population of India taken as 844,320,000 (Census Report of India, 1991).
IN
square kilometers
(c) Total Area of China taken as 9,320,760 squa
(d) Total Area of India taken as 3,287,200 square kilometers
India
1
The figures refer to the total number of only Departmental (Gazetted as well as Non-Gazetted)
Gazetted)
Employees.
2
The figures refer to the total number of Departmental (Gazetted as well as Non-Gazetted)
Gazetted) and Extra
PY
Departmental Employees.
3
The figures are derived with the help of total number of employees taken as only Departmental
(Gazetted as well as Non-Gazetted) Employees.
4
The figures are derived with the help of the number of employees taken as Departmental (Gazetted
as well as Non-Gazetted) and Extra- Departmental Employees.
China
CO
5
The figure for number of post offices and the consequential figures for population served per post
office and average area served per post office show significant differences depending on the source.
International sources (including the Ministry of Communications of the Government of India) into
which China Post reports, show a figure of 1,29,455 for the number of post offices in 1998. (Please
refer the introduction to Part 5).
6
This figure for total staff is significantly different from the figures reported in the earlier years, when
the staff strength has been over one million. The difference is attributed to the restructuring, due to
which the employees of various subsidiary corporations are not considered.
Source: Author’s Analysis
Table 2
N
IO
Revenue Generation by India Post and China Post
China Post Indian Post

(in billion Yuan) (in billion Rupees)
1998 28.71
T
1997-98
1997 15.67
1997 27.40
1996-97 12.15
EC
1996 17.89
1995-96 11.50
1995 14.73
1994-95 11.70
1994 11.41
1993-94 11.05
1993 8.24
1992-93 10.74
SP
1992 6.28
1991-92 9.48
1991 4.81
1990-91 8.41
IN

Table 3
PY
Review of Revenue Receipts: India Post
(Rs. in Millions)
The Actuals and Percentage increase over preceding years in the receipt under the important categories for the last five years are as under:
CO
1994-95 1995-96 1996-97 1997-98
1997 1998-99
Percentage Percentage
Percentage Percentage
Increase/ Increase/
Category Increase/ Increase/
Amount Amount Decrease over Amount Amount Amount Decrease over
Decrease over the Decrease over the
the Previous the Previous
Previous Year Previous Year
Year Year
Sale of stamps 6451.6 6505.0 0.8 6575.2 1.1 8727.8 32.7 9469.9 8.5
ON
Postage 3093.5 2912.9 -5.8 2977.9 2.2 4073.2 36.8 4838.6 18.8
realised in
cash
Net receipts 83.2 59.7 -28.3 268.6 349.9 95.3 -64.5 59.0 -38.1
from other
postal
TI
administrations
Receipts on 1621.2 1722.1 6.2 1893.3 9.9 2043.2 7.9 2194.0 7.4
account of
money orders, EC
India postal
orders, etc.
Net receipts - - - - - - - - -
from broadcast
receiver
licences
SP
Net other 454.6 304.5 --33.0

33.0 431.2 41.6 725.7 68.3 665.2 -8.3
receipts
Total grand 11704.1 11504.2 --1.7
1.7 12146.2 5.6 15665.2 29.0 17225.7 10.0
revenue
Expenditure 15222.2 18098.3 19178.8 25599.7 33135.4 29.4
Net deficit 3518. 1 6594. 1 7032. 6 9934.5 15909.7 16.0
IN
Source: Book of Information 1998-99,

99, Department of Posts, Ministry of Communications, India.
Table 4
PY
Volume and Revenue Receipts under Inland MO Category: China and India
China India
Year Volume Value (in Average Value Average Volume Volume Value (in Average Value Average Volume
CO
(in million billion per MO (in per Person (in Year (in million billion per MO (in per Person (in
1 2
Pieces) Yuan Yuan) Yuan) Pieces Rupees) Rupees) Rupees)
1998 221.70 293.90 1325.66 0.18 1998-99 109.10 48.30 442.70 0.13
1997 219.35 360.00 1641.21 0.18 1997-98 110.77 44.65 403.12 0.13
1996 239.00 265.50 1073.22 0.19 1996-97

97 111.61 41.02 367.51 0.13
ON
1995 239.85 NA NA 0.19 1995-
1995
1995-96
-96
96 105.73 37.87 358.20 0.13
1994 238.62 NA NA 0.19 1994-

1994
1994-95
-95
95 101.87 33.56 329.40 0.12
1993 NA NA NA NA 1993-
1993
1993-94
-94
94 98.67 31.83 322.54 0.12
TI
1992 192.25 NA NA 0.15 1992-
1992
1992-93
-93
93 105.32 29.12 276.53 0.12
1991 170.78 NA NA 0.14 1991

1991-92 105.56 25.87 245.08 0.13
Notes:
1
2
Total Population of China taken as 1,243,804,000
EC
Total Population of India taken as 844,320,000 (Census Report of India, 1991)
SP

IN
Table 5
1
Volume of Mail Traffic in China and India
PY
China India
Year Volume (in million Pieces) Volume Year Volume (in Volume per
3
per million Person
Letters Parcels Total 2
Person Pieces)
1998 6604.00 97.47 6701.47 5.39 1998-99 15766.48 18.67
CO
1997 6911.48 97.13 7008.61 5.64 1997-98 15749.30 18.65
1996 7890.00 150.00 8040.00 6.46 1996-97 15096.48 17.88
1995 7960.00 156.40 8116.50 6.53 1995-96
96 13957.44 16.53
1994 7650.00 159.08 7809.08 6.28 1994-95
1994-
1994-95
95 13607.44 16.12
1993 6870.00 139.65 7009.65 5.64 1993-94 13607.79 16.12
1992 5720.00 109.48 5829.48 4.69 1992-93
1992-
1992-93 13051.13 15.46
1991 5210.81 95.91 5306.72 4.27 1991-92
1991-
1991-92
92 13399.74 15.87
1990
1989
5487.11
5727.93
96.90
99.39
5584.01
5827.32
N 4.49
4.49
4.69
1990-91
1990-
1990-91
91
1989-90
1989-
1989-90
90
13711.54
14683.32
16.24
17.39
IO
1
Notes: The Volume of Mail Traffic in China is inclusive of Letter Mail and Parcel Mail. Here, it does
not include mail traffic of Newspapers and Periodicals. This table indicates the traffic of mail
mainly driven by the needs of people of China. Mail Traffic with reference to India is inclusive
of Unregistered Mail (Under P&T Service: Letters, Post Cards/ Ackd, Packets, Parcels; Under
Other than P&T Service: Paid Letters, Unpaid Letters, Post Cards, Competition Post Cards,
T
Letter Cards, Registered Newspaper, Unregistered Packets, Unregistered Parcels, Ackd.)

and Registered Mail (Under P&T Service: Insured Letters, Insured Parcels, Registered
Letters, Registered Parcels; Under Other than P&T Service: Insured Letters, Insured Parcels,
V.P. Letters, V.P. Parcels, Registered Letters, Registered Parcels)
EC
2
Total Population of China taken as 1, 243, 804, 000.
3
Total Population of India taken as 844, 320, 000 (Census Report of IIndia, 1991)

SP
IN
Table 6
1
Volume of Mail Traffic Including Newspapers and Periodicals in China
and India
PY
China India
Volume
Parcel Volume Volume
Letters Newspapers Volume
s (in Total (in per (in
Year (in and Year per
million billion Person million 3
million Periodicals (in 2 Person
Pieces Pieces) Pieces)
Pieces) billion Pieces)
)
CO
1998 6604.00 97.47 21.28 27.98 33.14 1998-99
1998
1998--99
99 15766.48 18.67
1997 6911.48 97.13 15.91 22.92 27.14 1997-98
1997
1997--98
98 15749.30 18.65
1996 7890.00 150.00 21.08 29.12 34.49 1996
1996-97
1996-
-97
97 15096.48 17.88
1995 7960.00 156.40 21.29 29.41 34.83 1995
1995-96
1995-
-96
96 13957.44 16.53
1994 7650.00 159.08 NA NA NA 1994-95
1994
1994--95
95 13607.44 16.12
1993 6870.00 139.65 21.44 28.45 33.70 1993
1993-94 13607.79 16.12
1992
1991
1990
5720.00 109.48
5210.81
5487.11
95.91
96.90
19.99
18.16
16.65
N 25.82
25.8
23.47
22.23
2 30.58 1992
1992-93
27.79 1991-92
26.33 1990-91
13051.13
13399.74
13711.54
15.46
15.87
16.24
IO
1989 5727.93 99.39 16.23 22.06 26.12 1989-90 14683.32 17.39
1
Notes: The Volume of Mail Traffic in China is inclusive of Letter Mail and Parcel Mail as well as mail
traffic of Newspapers and Periodicals. This table indicates the traffic of mail driven not only by
the needs of people of China, but also by certain governmental activities specific to China
T
such as distribution of Newspapers and Periodicals. Mail Traffic with reference to India is
inclusive of Unregistered Mail (Under P&T Service: Letters, Post Cards/ Ackd, Packets,
Parcels; Under Other than P&T Service: Paid Letters, Unpaid Letters, Post Cards,
Competition Post Cards, Letter Cards, Registered Newspaper, Unregistered Packets,
EC
Unregistered Parcels, Ackd.) and Registered Mail (Under P&T Service: Insured Letters,
Insured Parcels, Registered Letters, Registered Parcels; Under Other than P&T Service:
Insured Letters, Insured Parcels, V.P. Letters, V.P. Parcels, Registered Letters, Registered
Parcels)
2
Total Population of China taken as 1, 243, 804, 000.
3
Total Population of India taken as 844, 320, 000 (Census Report of India, 1991).
SP
Source:
e: Author’s analysis
IN
Table 7
PY
Revenue Receipts from Philately: India and China
China India
Revenue from
Revenue from Propor-
CO
Sale of Percentag
Percentag Sale of Stamps Total tion to
Operating Proportion to Stamps at e
e Increase Abroad through Revenue Total
Revenue Total Philatelic Increase
Year over the Year Agents of Depart
Depart- from Revenu
(billion Revenue Bureaux in over the
Previous ment Philately e
Yuan) (Per Cent) India Previous
Year (million Rs) (A+B) (Per
(million Rs) Year
(B) Cent)
(A)
ON
1998 7.79 23.50 27.13 1998-99 166.60 0.92 (approx) 167.51 83.43 1. 06
1997 6.31 161.90 23.03 1997-98 90.45 0.85 91.32 48.22 0. 73
1996 2.41 NA 13.47 1996-97 61.18 0.43 (approx) 61.61 8.91 0. 54
1995 NA NA NA 1995-96
96 56.23 0.34 56.57 -6.51 0. 48
TI
1994 NA NA NA 1994-
1994
1994-95
-95
95 59.99 0.51 60.51 -7.36 0. 55
1993 NA NA NA 1993-
1993
1993-94
-94
94 64.51 0.81 65.32 2.24 0. 60
1992 0.95 45.60

EC15.05 1992-93
1992-
1992-93
93 63.11 0.77 63.88 - 0. 67
1991 0.65 - 13.49 1991-92

1991-
1991-92
92 - - - -
SP
Source: Author’s analysis

IN
Table 8
Financing of Post: 1998 (Figures in million SDR)
Operating Investment Total Receipts OE as % of TE as % of
PY
Expenses Expenses Total Total
Receipts Receipts
China 2966.82 0.00 2966.82 2444.21 121.38 -
India* 737.51 12.49 750.00 467.85 157.64 160.31
CO
* Relates to the Year 1998-99
Source: Postal Statistics, 1998, UPU
Table 9
Country In Urban Areas

N
Number of Deliveries per Day/ Week
In Rural Areas
IO
per Day per Week
China 2.0 6.0
India 2.5 5.0

T
Source: “Tenth Five Year Plan: 2002-

2002-07):
2002-07):
07): An Approach
EC
Paper,” Ministry of Communications, Department of Posts, 2000

SP
IN
Annexure 2
Business Performance of China Post, 1987-1997
PY
Exhibits 8 to 16 of the case provide information on the performance of various services during the
years 1987-1997.
1987-1994
Table 1 summarizes information about the growth of the postal system in China during the period
between 1987 and 1993.
CO
In 1989, since China Post formed a part of China Post and Telecommunication, statistical data of
China Post is given as clubbed with that of telecommunication. The total turnover of P&T. (Post and
Telecommunication) services in 1987 amounted to 3.884 billion Yuan as against 3.286 billion Yuan in
1986.Service revenue in 1987 was 5.856 billion Yuan as against 4.516 in 1986. Service expenditure
in 1987 was 4.179 billion Yuan as against 3.476 billion Yuan in 1986.
The volume of letters carried by post was 5.497 billion pieces, an increase of 10.5 per cent over the
previous year. The volume of parcels was 98.07 million pieces, an increase of 16.1 per cent over
1986.
N
In 1988, the total turnover of the P&T services was 5.4 billion Yuan, an increase of 26 per cent over
the 1987 figure. The operating expenses of the P&T services were worth 5.11 billion Yuan. Data
regarding the corresponding figures for the years 1989 and 1990 are not available.
IO
In 1991, the total postal turnover was 5.275 billion Yuan and postal revenue receipts amounted to
4.81 billion Yuan. In 1992, the total postal turnover was worth 6.44 billion Yuan and revenue receipts
amounted to 6.28 billion Yuan. In 1993, the total postal turnover was worth 8.03 billion Yuan and
revenue receipts amounted to 8.24 billion Yuan. Data regarding the corresponding figures for the year
1994 are not available.
T
1995
The year 1995 was the last year of China’s eighth

eighth five-year
five plan. The growth rate of the total turnover
EC
of P&T industry surpassed that of the GDP for the eleventh consecutive year. The total P&T turnover
was 98.6 billion Yuan of which the total postal turnover was 11.27 billion Yuan, representing a 17.5 1
per cent increase over the previous year. The total revenue of the P&T services was 98.1 billion Yuan,
of which the postal revenue was 14.73 billion Yuan, an increase of 29 per cent over the corresponding
figure for 1994. Exhibit 7 details yearly turnover and revenue of the China Post.
The total investment on the fixed assets of P&T was 98.5 billion Yuan, an increase of 27 per cent over
the previous year, thus raising the total P&T fixed assets to 260 billion Yuan. About 4.59 per cent of
SP
the total investment made during1995 were invested in posts.
During the Eighth Five-Year

Five-Year
Five- Year Plan period (from 1991 to 1995), a total of 241.4 billion Yuan was
invested in fixed assets of the P&T industry. This was 12 times the total investment made in the
Seventh Five-Year
Five-Yea
Five- Yearr Plan period.
During 1995, the total volume of letters carried by China Post was 7.96 billion pieces, an increase of
IN
3.99 per cent over the previous year. The total volume of parcels was 156.411 million, a decrease of
1.7 per cent over the previous year. Postal transportation hit a record high of 219.27 billion parcel
kilometers in 1995. The figure for Express Mail Service (EMS) was 55.627, an increase of 38.4 per
cent over the 1994 figures. The total volume of stamps sold was 2,392.49 million pieces, an increase
of 1.01 per cent over 1994.
Postal savings reached 161.1 billion Yuan, an increase of 62.7 per cent over the previous year. It
represented 5.43 per cent of the national balance of both urban and rural savings and a 0.81
percentage point growth compared with 1994.
Exhibits 8 to 16 depict the growth of these services in terms of volume.
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By the end of 1995, China had established postal links with 141 countries and regions. The total
turnover of international P&T services increased by 19.6 per cent over 1994 to 13.7 billion Yuan of
which, 602.8 million Yuan or 4.4 per cent of the total turnover of the international services was brought
in by the non-telecommunication services.
With two inter-provincial

provincial trunking postal routes, 18 automobile routes for ordinary mail, and 99 intra-
intra
provincial trunking routes newly put into service, the total postal routes extended by 19,000
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kilometers. 250 heavy trucks joined the postal transportation fleet, and another 53,000 square meters
of postal buildings were built for postal operation.
During the Eighth Five-Year

Year Plan, the comprehensive handling capacity of postal service was greatly
improved. The floor space of the postal establishment reached 9 million square meters with an
Five-Year Plan
increase of 3.632 million square meters, a 2.3 times increase over that of the Seventh Five
period. With 84,000 kilometers of routes opened up, which was 1.9 times that of the previous Five Five-
branch offices
Year Plan period, the trunking postal routes totaled to 1.8 million kilometers. 9,294 new branc
were added to the postal network throughout the country.
1996
Five-Year
The Development Programme for the Ninth Five-
Five Year Plan (1996-2000)
-Year (1996
N
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With integrated, unified and advanced communications network in place, China envisaged P&T
services to be able to meet the basic requirements of the national economic and social development
by the year 2000. The Ministry of Posts and Telecommunications expected the total P&T turnover to
amount to 300 billion Yuan with an annual growth rate of 25 per cent, and the service
servic revenue to
reach 240 billion Yuan giving an annual growth rate of 20%.
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Objectives
• Continuation of high development speed.

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• Construction of a rationally distributed, technically developed, fast and well managed

postal network.
• Upgrading of postal services enabling next-day

next delivery of 60 per cent of mails on the
main routes from Beijing to provincial capitals and from provincial capitals to major cities.
The Ministry of P&T expected the number of mails sent per person to rise to 6 pieces.
• Expansion of total space of the postal establishment to 16.67 million square meters.
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• Expansion of postal routes by 290,000 kilometers to 2.21 million.
• Increase in the balance of the postal savings to 300 billion Yuan.
• Enhancement of the postal transportation capabilities with a view to gradually introducing

the mechanization and automation in operation and informatization in service
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management.
• Setting-up
Setting of a market oriented convenient service network
• Renovation and construction of postal offices and construction of as many as 10,000 new
branch offices and 5,000 branch offices capable of electronic operation.
• Construction of 255 central offices by the year 2000.
• Promotion of postal transportation network with a view to gradually improving the

independent postal transportation capability. Focus would be placed on construction of
the express mail trunk network connecting 66 central offices.
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• Development of a computer network and a dedicated information network for postal
transportation, newspaper and periodical circulation.
• eate facilities for money deposit and withdrawal in 10,000 offices in the cities above
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county level covered by the postal finance computer network
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Connection of 500 cities and 3,000 outlets to the EMS tracking and tracing system to
improve the capability of international tracking and tracing.
Developments during the Year
The year 1996 was the first year of the Ninth Five-Year
Year Plan. The total turnover of the postal services
reached to 13.37 billion Yuan, registering an increase of 18.6 per cent over the previous year. The
postal revenue was 17.89 Yuan, increasing by 21.5 per cent as compared with 1995. China Post felt
that the expected target was accomplished successfully during 1996, to make a good beginning for
the realization of the Ninth Five-Year Plan.
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Letters handled during the year were 78.9 billion pieces. Parcels handled were 150 million pieces.
The volume of priority mail reached 440 million pieces. Newspapers and periodicals distributed were
21.08 billion pieces.
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The total balance of the newspapers and periodicals subscription and retail sales amounted to 9.74
billion Yuan, with an increase of 28.8 per cent over 1995. Among them, the subscription fee reached
7.82 billion , up by 27.1 per cent over 1995, and the retail income reached 1.92 billion, an increase of
36.2 per cent over the previous year. Further advance was made in the construction of the
newspapers and periodicals subscription and distribution computer system.
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The postal savings deposits increased by 58.99 billion Yuan. The balance of the postal savings was
219.66 billion Yuan, registering an increase of 36.4 per cent over 1995. The number of post offices
that offered postal savings services rose to 30,548, covering 45.1 per cent of post offices across the
country. The number of domestic money orders issued was 239 million pieces, amounting to 256.5
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billion Yuan, almost the same as the figure of the previous year. Initiated in 1992, the international
money order service of China Post with the USA, Japan and other 11 countries registered 30,221 30
pieces of incoming money orders amounting to 22.3 million US dollars, and 699 pieces of outgoing
money orders amounting to 275.5 thousand US dollars.
The volume of Express Mail Service (EMS) reached 70.856 million pieces, an increase of 27.5 per
cent over the previous year. EMS made great efforts to establish service relations with over 200
countries. In China, 1937 cities offered EMS. The revenue of EMS hit 2.24231 billion Yuan, up by 22.4
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per cent. The service revenue of EMS was 1.241 million Yuan, up by 130.9 per cent over the previous
year.
There was a marked increase in the philately service with 3.05 billion pieces of stamps sold, showing
an increase of 26.9 per cent over the previous year. 31 sets of stamps were issued. The postal
departments developed philatelic stamps with special characteristics and philatelic souvenirs. In 1996,
the annual revenue of the philatelic service reached 2.41 billion Yuan.
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cit
The Postal Savings Computer System Project (Green Card Project) was put in operation in 30 cities.
The postal savings service counters in Beijing, Shanghai, Dalian and other 9 cities were connected by
inter
the computer system. The national data exchange was realized on the inter-provincial computer
network for the newspapers and periodicals subscription and distribution. The service function was
constantly strengthened. The agreement on introducing automatic letter sorting machines to 16 cities
were signed with foreign corporations, and 15 letter sorting machines were installed in 11 cities. The
tracing and tracking computer system for the EMS was established. The total number of computerized
post offices reached 4581, among which 2332 branch offices were newly computerized.
In 1996, postal departments at all levels across the country pushed postal services forward in
accordance with market economy rules, laying stress on the market development, and actively
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promoting the Direct Mail and Audio-video
video products Leasing services. In the Postal Saving service,
China Post focused efforts on the growth of the current deposit and operated as agents to collect the
charges of electricity and gas and to pay salary. They developed new philately products and
increased added value of stamps.
New services such as, International and Domestic Charge-on-Addressee

Addressee EMS, International and
Domestic Oversize EMS Services, Domestic Cash-on-Delivery
Delivery EMS, Tax Payment by EMS, etc. were
initiated in 1996.
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1997
Developments during the Year
1997 was the second year of the Ninth Five-Year Year Plan. During the year, the turnover of postal
services
vices reached 14.51 billion Yuan showing an increase of 8.7 per cent over the previous year and
constituted 101.39 per cent of the annual plan. Postal revenues reached 27.4 billion Yuan, registering
an increase of 52.73 per cent. Details regarding the volume of various services are given in Exhibits
8-16.
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The operating revenue gained through letter amounted to 3.53 billion Yuan, an increase of 69.39 per
cent. The operating revenue from the parcel service amounted to 1.30 billion Yuan, an increase of
9.18 perr cent and that from newspapers and periodicals was 3.57 billion Yuan, an increase of 14.51
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per cent. The volume of postal savings deposits amounted to 49.7 billion Yuan, a decrease of 14.3
per cent over 1997. Operating revenue given by philately amounted to 6.31 billion Yuan , an increase
of 149 per cent over the previous year.
EMS was made accessible to the public in 1985 cities, and the electronic mail service was made
available in 559 cities. The transactions of the International EMS Money Delivery amounted to 4150
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with a value of US $ 4.2 million. The new EMS services introduced in 1996 were further developed.
1997 witnessed stable growth in postal financial services. The postal savings on-line
on system was
opened at the national level. It enabled customers to withdraw money from an ATM and deposit it in
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any of the 3435 on-line

line postal savings branches across the country.
Philatelic enterprises across China achieved remarkable success. The number of philatelists in China
had reached 10 million in 1997 as against 5 million in 1987.Catering to the market demands, China
Post issued commemorative stamps, miniature sheets and gold-folded
gold miniature sheets on the date of
Hong-Kong’s
Kong’s return to China. These turned out to be the best-sellers.
best In 1997, in terms of revenue
yielded in philatelic service, philatelic products occupied 55 per cent of the total.
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In 1997, China Post extended its SAL mail and SAL parcel dispatch relations to some more countries.
(SAL mail and SAL parcel dispatch meant that all surface mail and parcels from China to all European
countries are eligible to air transportation. Also, surface parcels from China to America, and to
Australia, are eligible for the same treatment. Compared with Air parcel system requiring heavy
postage charges and Sea parcel system rendering low efficiency in delivering the goods, the SAL
parcel system turned out to be a new service with less delivery time and low postage charges).
During the year, with a view to bringing forth transformation of the former unitary functions of service
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management, China Post initiated setting up of various corporations for specialized business
operations at ministerial and provincial levels. The corporations were assigned the responsibility to
study the service market, stipulate postal regulations, open up new services, cancel the operating
function of business and strengthen the advisory work in postal services.
The construction of the postal communication network was accelerated. 4 postal truck trunk routes for
Express mail, 12 postal truck trunk routes for ordinary mail and 2 postal-owned air routes were newly
created, increasing the mail routes by 330 thousand kilometers to 2.45 million kilometers. 477
automobiles were newly purchased for mail transportation and 100 train mail bogies were purchased
to replace the aging ones. 30 mail centres were built or rebuilt, and 132.2 thousand square meters of
the facilities were built new. 17 sorting machines were installed in 16 cities. 2000 postal branches
were computerized taking the total number to 75000. Main frames were installed for the project of
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postal savings computer system.
Table 1
Growth of Postal System in China during the Period between 1987 and 1993
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1987 1988 1991 1992 1993
Number of post offices 52,882 52,881 51,004 54,891 57,005
Total staff NA 393,291 422,332 434,261 460,013
Length of mail routes (million km) 1.54 1.56 1.60 1.65 1.76
Number of mail cars NA NA 13,045 14,409 NA
Number of railway mail cars NA NA 591 NA NA
Average population served by each office
Investment in fixed assets (for P&T)
N
NA
3.05
billion
Yuan
NA
3.67
billion
Yuan
21,400
49.70
million
Yuan
16.25
billion Yuan
NA NA
40.41
billion
Yuan
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Countries having postal links with China 124 124 127 127 NA
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Source: Author’s Analysis based on Annual Reports of China Post, 1987, 1988, 1991-1993
1991
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Box
CHINA POST
Background
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China Post (China State Post Bureau) was founded through the separation of postal services from the
Ministry of Posts and Telecom in 1998. While still performing regulatory duties, it provides a wide
range of postal services, including letter and parcel delivery, express mail services (EMS) and postal
savings (Tables 1 and 2). In 2000, total turnover of the postal business reached Rmb23.06 billion, an
increase of 16.4% from 1999. The turnovers of postal savings and EMS have increased by 18.8% and
21.8% respectively and these two businesses are believed to be profitable. China Post as a whole
was still loss-making in 2000, though it cut loss by 50% from the previous year and aims to break
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even by 2003.
Logistics Services
Express Services
EMS, an express mail services provider under China Post, is the first and largest domestic express
player. EMS recorded revenue of Rmb3.58 billion in 1999, accounting for 10% of the total postal
revenue of China Post. Though no accurate numbers are available, EMS is believed to be profitable.
Owing to China Post’s extensive network and legislative protection, EMS has 70% of the domestic
express market.
B2C Delivery
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China Post’s postal network makes EMS the best positioned in B2C delivery. TV sales delivery is the
largest chunk of EMS’s B2C revenue, accounting for about 70%. EMS also provides delivery for e e-
commerce dotcoms, though the market is shrinking.
B2B Distribution
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China Post is also testing the waters of domestic distribution for MNCs. It now provides outbound
distribution and reverse logistics for Nokia Suzhou and distribution for Dell in several provinces. China
Post opened its EMS Logistics Center at the end of 1999 and has been aggressive in developing its
transportation, storage and distribution services.
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Business Strategy
China Post has positioned itself to be a leading logistics provider in China. To develop its logistics
services, it plans to adjust its express business towards high value value-added cargoes, such as
computers and electronics products.
Competitive Edge: Three Networks with Integration Potential

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EMS’s three networks are 1) logistics, which includes parcel and express services and logistics
centers, 2) information, which links all the post offices, and 3) the postal savings network. These put
China Post in an unparalleled position to expand to integrated logistics services. Our assessment is
that China Post could develop into a competitive organization using its advantage of a public service
bureau and extensive local network.
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Managing Funds Flow for Clients
Notably, China Post is the only logistics player in China and one of the few in the world that owns a
savings system. With over Rmb400 billion in deposits in 2000, Postal Savings is the fifth largest
savings system after the Big Four state-owned
state banks. Postal Savings has the advantage of an
extensive network across the country, and it has no NPLs, as its revenues are from small collateral
loans, interest of treasury bonds and the spread between the personal savings rate and its deposit
rate at the central bank. China Post can leverage postal savings to win logistics contracts from clients
by providing short-term
term logistics financing, which is a common practice among international players
such as UPS.
Broadest Domestic Reach
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With more than 66,000 post offices in the country, China Post boasts the most extensive distribution
network, especially in the rural areas which are underrepresented by other logistics
istics companies. Its
rural reach makes it a strong candidate for consumer goods companies targeting the rural market.
Utilizing the extensive network, even the loss-making
making regular mail services have found a niche:
grocery distribution to villages. Guangzhou Post began this service in 1998 and it has grown so
popular, Coca-Cola has became its client.
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Potential Developments
The following are what we believe could be potential developments:
Restructuring from Public Postal Service to Contract Based Logistics
China Post’s services including EMS are still mostly public services, a reason why as a whole China
Post is still loss-making.
making. Restructuring potential could come from the spinning off its profitable
businesses in EMS and Postal Savings and transformation of EMS towards contract-based
contract logistics
services. The regular mail service would then by independently financed by the state rather than by
China Post’s commercialized siblings.
Separation of Administration and Managerial Power

N
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China Post decentralizes its administration and managerial functions to allow more autonomy for EMS
and Postal Savings to operate according to market rules.
Global Alliances
China Post moves to join the current wave of global parcel and express alliances to make a mark on
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the global market.
Funding Strategy
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China Post could list EMS overseas to fund its 3PL expansion, enhance its international reputation
and prepare it for imminent foreign competition.
Table 1
China Post Revenue Breakdown (2000)
EMS 10%
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Philately Business 21%

Postal Savings
Pos 30%
Newspaper and Periodical Distribution 11%
Others 8%
Parcel 5%
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Money Order 4%
Letter 11%
Source: China Post

Table 2
China Post Business Performance
Service Unit 1999 2000 Growth
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%
Turnover RMB in 100 millions 198.40 230.60 16.4
Int'l services RMB in 100 millions 5.40 5.70 6.4
Turnover in Different Services
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Letter pieces in 10,000s 704,432.60 781,912.00 11.1
Domestic pieces in 10,000s 696,139.50 775,030.50 11.5
Int'l HK & Macao pieces in 10,000s 8,293.10 6,881.50 -17.0
Parcel pieces in 10,000s 9,725.90 9,586.90 -1.5
Domestic pieces in 10,000s 9,655.50 9,502.50 -1.7
Int'l HK & Macao pieces in 10,000s 70.30 84.30 20.3
EMS
Domestic
Int'l HK & Macao
pieces in 10,000s
pieces in 10,000s
pieces in 10,000s
N 9,090.80
8,743.30
347.50
11,098.00
10,703.00
394.90
21.8
22.4
13.7
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Money Order pieces in 10,000s 22,935.30 22,555.20 -1.7
Newspaper pieces in 10,000s 1,959,074.60 1,847,234.20 -5.3
Periodicals pieces in 10,000s 124,280.40 124,975.00 1.6
Postal Savings RMB in 100
100 millions 3,535.60 4,200.90 18.8
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Philately Business pieces in 10,000s 521,789.20 452,076.30 -13.4

Others RMB in 10,000s 260,455.80 412,293.40 58.3
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Source: China Post
Source: Morgan Stanley Equity Research Report: Asia Pacific, China Logistics, New York, October
2001
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IIMA/PROD0256
Michiyuki Corporation (A) 1
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Michiyuki Corporation is a leading supplier of magnetic recording heads in the information
technology industry in the world. It forms a part of a chain of manufacturers, located across
high-tech
a few countries, which jointly fabricate and assemble these complex, high-
high -tech
tech products. It
belongs to an industry that is characterized by fast developments in innovation and
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application of new technologies, where products have short life cycles. Newer versions are
frequently introduced to respond to the changing requirements in product functionality.
Besides, customers always look for low cost and high quality products. If a company is
unable to develop products in a timely manner, customers look for solutions from their
competitors. Most importantt of all, Michiyuki had to operate in synergy with the changing
world business environment.
WORLD BUSINESS ENVIRONMENT

N
The world business environment has become highly competitive. The
major forces, which shape the competitiveness, are globalization,
deregulation,
gulation, advances in information technology, limited resources,
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increasing customer demands, and speed of delivery. Essential
requirements to react to these changing market needs - rapidly,
predictably and responsively - lie in building up corporate strengths,
stren
and carving out a niche among the competitors. Whether a company
is a manufacturer or a service provider, it has to keep abreast of
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markets that are constantly evolving. One has to continuously

introduce innovative products, new products or improving current
versions. New products require significant investments and take long
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time from conception to introduction into the market. For this reason,
most manufacturers focus on introduction of new models with
improved features, which requires less time. TheTh complexity of high-
tech products demands collaborative approach for design,
development and production. This can be enhanced with the help of
integrated supply chain concepts. Further, one has to optimize its
activities of flow of materials, information, finances, and speed in the
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supply chain to emerge successful.
1
This case is based on a project work titled "Concurrent Engineering for Product
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Development in a Supply Chain" by Vo Dinh Nhat Quang, under the supervision of Prof. A.
Tripathy at the Asian Institute of Technology, Bangkok, Thailand.
Prepared by Professors A Tripathy and Amiya Kumar Sahu, Indian Institute of Management,
Ahmedabad.
Michiyuki Corporation identified the different aspects of remaining competitive. But, these
were not enough to operate in a fast-changing
changing technology industry where products become
obsolete quickly
ckly due to the technology advancements, increasing customer expectations and
highly demanding requirements. It looked for improving product development 2 (PD)
activities throughout the supply chain.
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No part of this publication may be reproduced, stored in a retrieval system, used in a
spreadsheet, or transmitted in any form or by any means – electronic, mechanical
photocopying, recording or otherwise– without the permission of the copyright holders.
Background
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Michiyuki Corporation, incorporated in California
ia in 1981 and Delaware in 1985, is one of
the world's largest independent suppliers of magnetic recording heads used in computers.
The two basic products, which the company designs, manufactures, and sells are 'Head
Gimbal Assemblies' (HGAs) and 'Head Stack ck Assemblies' (HSAs). The inherent
characteristics of these products are the complexity and preciseness in geometric and
Annexure1. Michiyuki's
functional requirements. Details on these products are given in Annexure1
products are sold primarily for use in hard disk drives (HDDs) used in network and
mainframe applications.
Supply Chain at Michiyuki N

The Michiyuki Corporation forms a part of the supply chain, as depicted in the figure below,
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in the manufacturing process of recording heads. It involves three groups of manufacturers:
(1) Suspension manufacturers: Hutchinson Technology, USA and KR Precision, Thailand; (2)
Disk drive manufacturers: Maxtor in Singapore, Samsung in Korea, Western Digital in
Malaysia, and Quantum in Japan and US; and (3) Recording Head manufacturer: Michiyuki
Corporation itself. It is easy to distinguish that the supply chain components are distributed
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on dispersed locations. Although there are several important components in the HGA and
HSA products, the magnetic heads and the suspensions are the two most critical parts that
ensure the proper functionality of the product.
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Suspension Recording Head Disk Drive

Manufacturers Manufacturer Manufacturers
Figure: Recording head supply chain

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Market and Competitors
Michiyuki is among the three major independent manufacturers and is the only US fifirm that
supply recording heads for the world HDD market. The other two major competitors are
Alps and TDK in Japan. The estimated market shares are 30, 40, and 10 percents respectively
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for Michiyuki, TDK, and Alps.

2
Product Development is a sequence of design processes that converts generally specified
market needs or ideas into detailed information ffor satisfactory manufacturable products,
through the application of scientific, technical and creative principles, acknowledging the
requirements set by succeeding life-cycle processes.
There is also the same number of suppliers in the suspension market. Hutchinson
Technology and KR Precision are the largest ones with nearly all the market share. Other
principal competitors are Magnecomp Corporation (Thailand and China) and Nihon
Hatsujo Kabusikigaisha Co. in Japan.
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The hard disk
sk drive industry market keeps advancing with new and powerful hard drives
replacing the old generation models. The markets of recording heads and suspensions also
change very fast. Fierce competition compels manufacturers to frequently introduce new
products.
cts. Therefore, average life cycles of products in these markets are just six to nine
months, and the fact is that a product of these kinds never lasts longer than one year. In this
industry, qualification of suppliers for a new product program depends on product
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development (PD) time, product quality and costs.
Manufacturing Processes
Michiyuki applies complex manufacturing operations to fabricate and assemble the

components and the final products. Some of the processes used are as follows: (see
Annexure 2 for details)
• Photo-etching
•
•
Stamping
Trace manufacturing
Product Development process at Michiyuki
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The basic approach to product development in Michiyuki is represented in the figure below.
These are the phases; a new HGA or HSA generation undergoes, before reaching the mass
production phase.
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Fabrication / Engineering Design Manufacturing Verification Mass

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Head Build Verification Verification and Pre-Production Production
Figure: Recording head development process
In the engineering verification phase, the process is to make experiments with many
different designs of the product to find alternative (appropriate) designs based on some
initial criteria. The chosen designs are then verified further in the design verification phase
and finalized. The selection is made with other additional criteria. Manufacturing
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verification and pre-

pre-production
pre -production phase is the ramp-up
ramp phase. It is followed by the test for
process capacity before launching mass production. These phases of production are further
broken down into smaller tasks as represented in Annexure 2.
Some basic concepts of product development are represented in Annexure 3.

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To address the complexities

c of manufacturing processes, involved in development of such
high-tech
high--tech
high tech products, new PD practices have been identified. In such practices the concept of
Concurrent Engineering (CE) are utilized to improve their PD processes to remain
competitive.
competitive Also, for individual companies, methods are available that can be used to
facilitate the implementation of CE into their systems. These methods are Readiness
Assessment for CE (RACE 2), Product Development Assessment (PDA) and the like.
However, addressing the inter-organizational issues was found inadequate by application of

these methods thereby limiting their application in a broader scope of PD in supply chains.
Successful application of CE in product development in supply chain needs:
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• A right start (where and how) with CE in individual partners’ systems;
• Continued awareness of individual partners’ situations of PD and that of the

whole supply chain with regard to CE; and
• A guideline for partners to continuously improve their PD performance towards

the continuous improvement of the whole PD process.
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The key challenges in such situations are to investigate the extent to which and how CE can
be implemented in product development of the supply chain. One has to look for where and
how to start with CE and make continuous observation of status of product development
practices to guide the improvement. Also, it is needed to study and analyze PD process and
its supply chain to reveal the need of improving PD and areas to improve.
A brief note on Concurrent Engineering

neering is given in Annexure 4.
4.
Challenges of Product Development at Michiyuki Corporation N

The life cycle of generation of a new recording head at Michiyuki Corporation is just six to
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nine months whereas it may take up to one year for the PD phase. If development
deve time for
suspension 3 is included, the total development time is much longer. A simple comparison
showed that the development time is many times longer than the product life cycle. It
follows 'sequential practice' of dividing activities for supply cchain partners to meet time
deadlines. A 'parallelism approach' would help compress the time required for the whole
process but implementing this throughout the supply chain is a challenging task. Transfer of
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partners is a hindrance to this initiation.

incomplete information from supply chain partner
The objective of focusing on 'Customer Satisfaction' was communicated to all the supply
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chain partners. But cooperating and meeting the interests among partners was an obstacle.
Information sharing was a major problem as there was a probable threat to intellectual
property. Teamwork was another visible gap. Cooperation and partnership among partners
also required a certain level of trust to flourish. Trust, not only among employees,
departments but also among partners in the supply chain was essential. Further, it was not
always possible to derive the required information from different divisions of companies in
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the participating supply chain.
Another difficulty remains in the long and complex process of PD that spans several se
companies located at different geographic locations. To successfully adopt the requirements
into their systems, the companies’ operations lacked the support of principles of Customer
focus, Cooperation, Teamwork, and Trust. Partnering companies needed to define policies
and strategies for these principles.
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Some experience of product development at Mahindra and Mahindra is presented in

Annexure 5.
5
3 The manufacture of suspensions involves more than 100 attributes. The development time
is about six months to one year.
Application of IT was identified to complement the achievement of all these principles. It

makes the information
rmation sharing possible and brings the partners in different locations, closer.
Finally, companies in the supply chain should be well aware of the challenges in their
industry.
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With these backgrounds, Michiyuki Corporation prepared to use the concept of concurrent
engineering to enhance the PD process. It recognized that a streamlined and effective PD
process is vital.
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N
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Annexure 1
Products: HGA and HAS
An HGA consists of an integrated write-read

read head attached to one end of a suspension. A number of
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HGAss can be combined with an actuator, a coil assembly and a flexible circuit assembly to form an
HSA. The functional part of HGAs or HSAs is the integrated write-read read heads, positioned in close
proximity to the spinning magnetized disks by the suspensions. Figures below give brief description of
the product, integral components, and their positions in the hard disk drive.
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Figure1: End Product - Figure 2: End Product -
Head Gimbal Assembly (HGA) Head Stack Assembly (HSA)
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Figure 3: Component -
write head (or slider)
Integrated read-write
Figure 4: Component - Suspension
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Figure 6: A hard disk drive

Figure 5: Sketch of a hard disk drive
two or three-piece stainless steel assembly, is a precise and sophisticated product

The suspension, a two-
made from pieces of stainless steel assembled together. Function of the suspensions is very critical in
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maintaining the flying height of magnetic recording heads over the disks. While the suspension is
critical regarding its mechanical preciseness and functionality, the head is so in both mechanical and
electrical-magnetic
electrical--magnetic characteristics. The two components, though designed and manufactured by
electrical
different manufacturers, require a great synchronization so that the HGA and HSA products can
provide fly, read, and write functions reliably.
Annexure 2
Manufacturing Processes at Michiyuki Corporation
A brief account of the complex manufacturing operations to fabricate and assemble the components
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and the final products at Michiyuki Corporation are as follows:
1. Suspension Fabrication and Assembly
Several precise manufacturing processes are utilized in the fabrication and assembly of suspensions.
They are as follows:
Photoetching:: The precise photoetching process allows the production of thin, intricate suspension
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components with close tolerances that are impossible to duplicate with other production methods.
Stamping:: Precision stamping produces base plates and attachments for suspension assemblies.
Other processes include mechanical and chemical deburring and heat treatment to remove burrs to
achieve the required roughness and geometry of stainless steel components.
Trace Manufacturing:: Plasma etching and plating are two operations in this process of fabricating
copper trace assemblies. Plasma etching removes the unnecessary sections of non-conducting
non
material in the trace assemblies. Nickel-gold
gold or gold plating is used to protect the copper traces from
corrosion.
Assembly:: Assembly process steps include precision forming, laser welding, and adjustment of
critical product parameters to finish a suspension assembly.
2. Recording Head Fabrication and Assembly

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The design and manufacture of integrated heads require leading-edge
leading capabilities in device modeling,
materials science, photolithography, vacuum deposition processes, ion beam etching, reliability
testing, mechanical design, machining, air bearing design, tribology, and other critical skills.
Michiyuki’s manufacturing process for integrated heads is divided into four main steps: wafer
fabrication,
ation, slider fabrication /wafer slicing, HGA assembly and testing, and HSA assembly and
testing.
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Wafer fabrication
Six-inch by six-inch
inch substrates are used to build up the complex multi-layered
multi reading and writing
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devices. About 30,000 integrated heads may be fabricated from a single substrate; subsequent
machining and etching operations (slicing, grinding, polishing, ion milling, reactive ion beam etching)
define the precise geometry of individual head sliders.
Slider fabrication / Wafer slicing
This process is accomplished in five phases. Operations as cutting, lapping, ion etching, and coating
are used to define and shape the air air-bearing and then separate sliders. Individual sliders are tested
after the other operations finish. See Fig. 3 for a slider.
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GA assembly and testing

HGA
The sliders are aligned and bonded to suspensions (which form HGAs), electrical connections for
writing and reading are attached, and these assemblies are then cleaned, inspected and electrically
tested for read / write capacity (for example: signal strength, pulse shape, over
over-write, and error rate)
and the circuit of the magnetic elements. See Fig. 1 for an HGA.
HSA assembly and testing
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One HSA (Fig. 2) can consist up to 30 or more total parts. In HSA assembly process, the HGAs, the
actuator coil, and a flexible printed circuit cable are mounted on the actuator such that the head can
be positioned within the disk drive. The HSA also includes other parts depending on the design of the
customer’s disk.
Annexure 3
Product Development: Basic Concepts
Development of products or new product development is one of the most powerful but difficult
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activities of business but have become a necessity to attain competitive advantage. This is more
relevant in the present day dynamic business environment where new technical concepts create new
opportunities and new threats, when new demands emerge in the market and competitors make new
and unexpected moves, and when new ways of competing emerge.
Product development (PD) process can be defined as a sequence of design processes that converts
generally specified market needs or ideas into detailed information for satisfactory manufacturable
products, through the application of scientific, technical and creative principles, acknowledging the
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requirements set by succeeding life-cycle processes. PD empowers a company to maintain a
continuous flow of products to the market to satisfy changing customer needs.
Product development (PD) and product design tend to vary in meaning according to discipline, context
and interpretation. Consequently, PD is considered synonymous with design and engineering design.
The process of product development involves a sequence of stages starting from the perception of a
need and terminating in a final firm description of a particular design configuration. Each stage is in
itself a design process and is an iterative sequence of steps. It is also a process of converting an idea
or market need into the detailed information from which a product or system can be produced.
Challenges for Product Development

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Product development has been identified as an important business process in many years. This is
mainly due to increasing competition and changes in customer behavior, which has led to increased
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demands for the product, in terms of high functionality, timely introduction, low cost, and high quality.
Furthermore, environmental legislation compels manufacturers to be responsible for the waste that
their products create. Functionality, introduction time, quality, cost, and waste of a product are mainly
determined during PD phase. These five issues are the main drivers behind the improvement of PD
and are briefly illustrated below. Besides, it also takes speed and flexibility into account.
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Product Functionality: Rising product functionality influences the requirements for product
development. Together with the increase of customer demands, products become more and more
complex. Even for large companies, it is virtually impossible and not desirable to do all design
activities themselves. This leads to a definition of core competencies and thus to the necessity of
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cooperating with other companies. Extended enterprises need to be formed to meet the customer
requirements. In an extended enterprise, each party is responsible for a subset of the PD P activities.
This fulfills the discussion on the attention on PD in SCM research and practice in previous section.
Timely Introduction: New products require significant investments in re re-design, re-tooling, re-
testing, and manufacturing costs, which tend to increase proportionately with the overall time taken to
complete the introduction process. For this reason, most manufacturers have focused on shortening
time to successfully introduce new models. Generally, impact of early introduction are that a
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manufacture
facture can charge premium prices for the products, and that product life cycles are longer
leading to longer sales periods, and the advantage of learning curves, etc. However, introducing a
product too early can also lead to lower profits as the market is not prepared for the product yet or as
the introduction does not synchronize with other supply chain partners’ plans.
Low Cost: Cost overrun strongly influences the potential profits from a new product. This is largely
due to the shortening of life cycles of products, which allow for only a limited write-off
write time of the PD
investments. Furthermore, global competition affects PD, as product costs must be little to compete in
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the global markets. Marketing, development and production may thus have to take place at different
sites or countries, and team members from these disciplines have to interact freely to ensure
successful projects. Furthermore, globalization makes it possible for companies to approach cheaper
labor sources for their development and production operations. These push the race for lower cost to
a higher level.
High Quality: Customers expect high quality from new products. The requirements set by the
customer must clearly be met or exceeded; otherwise the product will not be able to compete with
other ones. Manufacturers must guarantee failure-free free products that satisfy customer needs.
Globalization opens many product options to customers. This causes the competition for product
quality among manufacturers to become more critical than ever.
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Limited Waste: Legislation forces manufacturers to dispose of their product after customer use This
may become a burden as costs of discarding worn out products are rising. Reuse of components or
base materials must therefore be addressed during PD.
high-tech,
high
In summary, product development is critical, especially to manufacturers of high- -tech, short-lived
tech, short
products. The companies are facing the necessity of timely introduction of products with higher quality
at lower costs to stay in business. Concurrent engineering has been proved to effectively help
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manufacturers achieve these requirements at the same time. It can be argued that global new product
development cannot be a step-by-step
step process in propounding a system predicated on running
various elements of new product development in parallel. In addition, the joint functioning of
engineering, marketing, market research, R&D and management right, from the essential idea
generation stage of PD.
Exceptional product development is difficult because it cuts across every aspect of the enterprise. It
involves the varied skills of many people who must work effectively together on the details. And these
details must be integrated into a coherent package that customers in an uncertain future will find
compelling. The need to do all these with speed, efficiency, and high quality underscores the
magnitude of the challenge.
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EC
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Annexure 4
Concurrent Engineering (CE)
The concept of concurrent engineering was initially proposed as a mean to minimize PD time. Today,
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CE is much more encompassing. Manufacturers who adopt the concept expect not only a shorter PD
time but higher product quality and more efficient utilization of their supply-chain
chain resources as well.
CE is an approach where efforts are made to do things right the first time or at least as early as
possible. There are many interpretations, but some common definitions of the CE concept are cited as
follows:
CE is a systematic approach to integrated product development that emphasizes

the response to customer expectations. It embodies team values of cooperation,
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trust, and sharing in such a manner that decision making proceeds with large
intervals of parallel working by all life-cycle
cycle perspectives early in the process,
synchronized by comparatively brief exchanges to produce consensus.
consensus.
Concurrent engineering is a systematic approach to the integrated, concurrent

design of products and their related processes, including manufacture and support.
This approach is intended to cause the developers, from the outset, to consider all
the elements of the product life-cycle
cycle from conception through disposal, including
quality, cost, schedule, and user requirements.
Principles of Concurrent Engineering

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There are eight fundamental principles of concurrent engineering, proposed by Prasad, 1996, as follows:
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• Early problem discovery; • Knowledge leveraging;
• Early decision making; • Common understanding;
• Work structuring; • Ownership;
• Teamwork affinity; • Constancy of purpose.
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Where as Ranky (1994) proposed a set of more detailed principles:

• Improve the communication with the current and potential customers and users;
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• Employ multidisciplinary product design teams;
• Design the manufacturing and the required processes simultaneously;
• Involve suppliers and subcontractors at an early stage of the design;
• Create a three-
three-dimensional/solid
dimensional/solid (CAD) model electronically of the design at an early
three-dimensional/solid
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stage;
• Integrate CAD/CAM and analysis tools ;
• Simulate product performance and the manufacturing processes as early as possible in

the design stage in order to avoid production line problems;
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• Use structured techniques to enhance product quality and reliability;
• Use quality techniques such as Taguchi methods;
• Incorporate the lessons learned from previous product in a new design; and
• Eliminate the non-value-added processes in the design process.

Benefits and Pitfalls of Concurrent Engineering
Abdalla (1997), through a large project with the participation of world class companies, identified
seven benefits of implementing CE. The most remarkable benefit was recognized as shorter time to
market. The other recognized benefits are improved communication, improved product quality,
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reduced designed changes, better management, reduced development costs, and increased profits.
Prasad (1996) and De Graaf (1996) have a collection of benefits that many of manufacturers ranging
from airplane industry to electronic industry achieved when utilizing CE. The companies include
Aerojet Ordinance, AT&T, Boeing, Deere & Company, ITT, McDonnell Douglas, Hewlett Packard, and
others. The eight benefits from CE are then identified as follows:
• Shorter development cycle time; • Higher white collar productivity;
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• Less engineering changes; • Higher dollar sales;
• Shorter time-to-market; • Higher return on assets; and
• Higher overall quality; • Higher customer satisfaction.
It is quite clear that these authors are consensus on the recognition of CE benefits. The
disadvantages of Concurrent Engineering must be considered as well. Pitfalls of CE identified by
Prasad (1996) are listed here:
•
•
Degradation of turnaround time;
Spurts not desirable;
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•
Possible increase of iterative costs;
Concurrent chaos; and
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• Risk of wasted efforts; • build-up.
Errors can build
De Graaf (1996) also has pointed out some other pitfalls as:
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• Unobtainable schedules; • Business-as-usual vendoring; and

• Changing product requirements; • Automate everything.
• Ineffective teams;
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Concurrent Engineering Implementation
Evans et al. (1995) proposed an implementation methodology for CE including three stages. The first
stage is preparation, when the basics of concurrent engineering are introduced to senior management
of a company to generate a sufficient degree of comfort with the principles of CE. The second stage is
a pilot implementation, which concentrates on beginning PD activities and launching the CE
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with
implementation wit h a pilot CE project. At the last stage, when the pilot CE project has been finished
and the product has been successfully launched into the marketplace, it should be reviewed, and
lessons carried forward to subsequent projects. CE, at this stage, can be throughout the organization,
and thus the existing system and structure will need to be realigned to accommodate the new way of
working.
Thamhain (1994) provides suggestions to CE implementation derived from the lessons learned from
the best practices. They are:
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Plan the project in detail;
1. Break the project into “natural” phases and subsystems;
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2. Communicate a clear business mission;
3. Assure intra-project involvement;
4. Provide technical expertise;
5. Foster a professionally stimulating work environment;
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6. Ensure effective cross-functional communication;
7. Identify gatekeepers;
8. Provide recognition and visibility; and
9. Assure leadership.
Concurrent Engineering and Supply Chain Management N

According to Anumba et al. (2000) the key issue is the need for trust in individuals external to the
company, if the CE philosophy is to work effectively in the supply chain. The implications of this for the
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socio
design of roles within the CE workgroup, concludes that the principles of socio-technical design are
appropriate for the design of these roles, ensuring that they have the right attributes for
trustworthiness.
It was found that CE has been widely recognized to be able to reduce PD time while enhance product
conce
quality and reduce costs. These are the main benefits of the concept. World-class manufacturers
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have been implementing CE in their processes. The fact is that the implementation has mainly
confined in the organizational boundaries. This conclusion supports the concern of this work to
integrate CE and SCM concepts.
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Annexure 5
Product Development experience at Mahindra & Mahindra
In April 1999, Mahindra & Mahindra (M&M), one of India's premier automobile manufacturer, unveiled
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the Bijlee - the first-ever commercially - viable - electronically operated 3-wheeler. classic
wheeler. It is a classic
project - worked on by a team of 14 members without a deadline, budget, or even an assurance of
success. The project followed, virtually, no rules and it took exactly six months.
For another project, code-named Scorpio, it was a completely different approach at M&M's Industrial
Design and Manufacturing Centre in Mumbai. It involved Rs. 700 crore. Its development was spread
across 5 continents engaging a 120-strong team.
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The starting point of product development process in M&M was customer need need-mapping
mapping with the
need--mapping
fundamental considerations of quality, speed and cost. Some rules were developed in the process as
described below:
Strategy rule of new product development:
• cost-quality-time
Manage product development like any other process, with cost-
cost -quality
quality targets
• Determine the manpower and money up-front

front to ensure that resources are available
•
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Integrate the process with all the other functions instead of running it as a 'black box'
Use gateways along the way to ensure that critical performance parameters are met
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Operation rule of new product development:
• Use cross-functional
functional development teams for simultaneous, instead of serial, processing
• Benchmark against the best on different products and performance parameters

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• real-time collaboration of geographically

Use information technology to facilitate real
dispersed team members
• Check the manufacturability of the product continuously during the development process
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Inventory Management in India Post
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The items used by India Post can be classified into two broad categories: a) security items
and b) non-security
security items. Security items are items that can be easily converted into cash
such as stamps, postal stationery, service stamps, Indian Postal Order, Kisan Vikas Patra,
Indira Vikas Patra and National Savings Certificates. The non-security
security items include
uniforms, seals and stamps, forms and non-postal
postal stationery. While the security items are
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managed by Circle Stamp Depotsepots (CSDs), the non security items are managed by Postal
Stores Depots (PSDs). The focus of this case is on management of security items. The case
uses two products, the Single Post Card (SPC) and the Inland Letter Cover (ILC). The
operation of the CSD at Ahmedabad, Head Office (HO) at Navarangpura (attached to CSD
Ahmedabad) and Sub-Post Post Office (SO) at IIM Ahmedabad (attached to HO Navarangpura)
to discuss the process of managing security items and also to bring out various issues
connected with their management.
Forecasting Annual Requirements
Until 1996-97 N
97 the forecasting for the next year was done after October of the current year.
The forecast for the year was based on the actual demand for the immediately preceding two
years and the first six monthss (April to September) of the current year. The aggregate
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demand for these three periods was divided by 2.5 to arrive at the average annual
consumption, which was used to forecast demand for the next year. The demand forecast
for 1995-96 and 1996-97 using this stated method is presented in Exhibit 1.
The forecasting method has since been changed under instructions from the Directorate.
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The forecast is now done in early January. The stated method (used for 1997-98)
1997 for
forecasting is as follows:
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Forecast = 1.10 * {X + X/3} - {Y - X/3}
where,
X = the actual consumption for the nine months (April to December) for the current year.
Y = the stock on hand at the end of December.

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It is clear that X/3 is the estimated consumption for the last quarter of the current
cu year. The
multiplier 1.10, captures the policy to order 10% more than the requirement for meeting
emergencies. The forecast for various items for 1997-98 using the above method is presented
in Exhibit 2.
Role of the Directorate

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There are 19 CSDs in the country. The Directorate at Delhi oversees the functioning of all the
19 CSDs in the country. It maintains information on monthly requirements and the stock on
Professors S K Barua and G Raghuram, Indian Institute of Management, Ahmedabad.
hand of all the CSDs. Exhibit 3 presents the information on these two aspects for SPC and
ILC at the end of July 1995.
After receiving the annual forecast of requirement from all the CSDs, the Directorate
negotiates annual rate and volume contract with suppliers. Currently, the department
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receives its supplies of security items primarily from four suppliers: India Security Press
(ISP), Nasik, Security Printing Press (SPP), Hyderabad and two private printers located at
Kanpur (Calcutta Security Printers Ltd) and Madras (Madras Security Printers Limited).
Negotiations over, each CSD is informed by y the Directorate about the source from which to
order its requirements. After that, each CSD manages its inventory without any interference
from the Directorate. However, in case of unforeseen developments, such as shortages, the
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Directorate intervenes by either allowing a CSD to source its requirements from suppliers
other than those specified initially, or by arranging inter-CSD transfers.
Inventory Management at CSD, Ahmedabad
The CSD at Ahmedabad is required to source its requirements from ISP, Nasik. Items are
ordered every quarter, with the order for requirement for quarter (t+2) being placed at the
end of quarter t. The entire quantity ordered is expected to be received by the end of quarter
(t+1). For example, the requirement for October-December
December
Decemb er quarter is ordered at the end of
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June and entire quantity ordered is expected to be received by the end of September. Thus,
the full requirement of any quarter is expected to be available at the beginning of the
quarter.
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The CSD also follows the norm of carrying about 3 months’ of “reserve” stock and 1 month
of “current” stock. Thus, at any point in time it expects to have about seven months’
requirement. The formula used for the quantity to be ordered every quarter is as follows:
Quantity Ordered = 7 * {Avg. Monthly Consumption} - {Stock on Hand}

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- {Stock for which invoice has been received}
The order is typically met through several consignments sent over the quarter. The attempt
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of material so that the cost of transportation is minimised.

is to make use of full wagon loads of
The payment for the supplies is typically made every month for the supplies received
during the month.
The orders from CSD Ahmedabad and supplies from ISP, Nasik for SPC and ILC for the
year 1995-96 are presented in Exhibit 4.
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Inventory Management at Head Post Office, Navarangpura
Each CSD typically supplies material to several Head Post Offices (HOs or Units). For
example, CSD, Ahmedabad, acts as a supplier to 42 Units. The Units place order on the CSD
every month, with the requirement for month (t+1) being ordered at the end of month t.
While ordering, the Units are required to provide the following information: stock on hand
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Unit since the last indent,

at the time of last indent, supplies to post offices (POs) under the U
and supplies received since last indent. Exhibit 5 presents the data that the Navarangpura
Head Post Office provided to CSD, Ahmedabad while ordering its requirements for the year
96. Typically, the order for a month is fulfilled
1995-96.
1995- fulf through two consignments sent in each
half of the month. The HOs carry a month’s requirement in inventory.
At the HO, the closing balance of various postal stationery is determined through “physical”
stock taking at the end of each day. The information on the receipts from the CSD is used
along with the closing stock (determined earlier) to compute the issues to the SOs: {Supplies
to SOs = Opening Balance + Receipts - Closing Balance}. The HO maintains a “Stamp
Register” which records information on inventory of various items.
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Inventory Management at POs
The inventory and the ordering at each PO or SO is governed by limits specified on holding
of Cash, Postal Stationery, Revenue Stamps and CRF (Central Recruitment Fee) Stamps. For
example, the SO at IIM, Ahmedabad, attached to the Navarangpura Head Post Office,
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functions with the following limits on these four categories of items:
Limits
Item
Maximum Minimum
Cash Rs. 5,000 Rs. 3,000
Postal Stationery Rs. 17,000 Nil
CRF Stamps Rs. 200
200 Nil
Revenue Stamps
Total
Rs.
Rs. 24,600
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2,400 Nil
Rs. 3,000
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Each SO submits a “Daily Account” (to HO), recording the balance in each of the four
categories. The data on daily balance of SPC and ILC for about a month in 1996 for SO, IIM
Ahmedabad are presented
ented in Exhibit 6. The data on the quantity of these two item ordered
by the SO are presented in Exhibit 7. Whenever the cash on hand at the end of the day
exceeds Rs. 5,000 an SO is expected to transfer the amount in excess of the minimum limit to
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the governing
overning HO. The transfer of cash between POs/SOs and HOs takes place in sealed
bags. A person accompanies these bags in the cash van, and the control used in the transfer
of bags is based on the weight of the bags. The counting and accounting of cash is done by
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the accounting department at the HO. The HO also has limits specified on the cash it can
hold. For example, the Navarangpura HO, operates with maximum and minimum cash
limits of Rs. 30 and Rs 20 lakhs. Whenever, the cash balance exceeds Rs. 30 lak lakhs, it is
expected to transfer the amount in excess of Rs. 20 lakhs to the Reserve Bank of India, under
intimation to Director Accounts. Withdrawals are made from the same RBI account after due
authorisation by the HO, again under intimation to Director Accounts.
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The SOs indent for items from the HO through indents. The number of indents could vary
from two to five a month, depending on the demand and the limits specified. The supplies
from the HO, Navarangpura are made on Mondays, Wednesdays and Fridays. In general,
therefore, an SO would receive its supplies in less than 48 hours after ordering. If there is a
large requirement from an SO, then the HO may sometimes split the delivery and supply the
requirement through more than one consignment. The mix of items ordered is decided by
the Post Master, within the overall limit on the value of inventory he/she is allowed to hold.
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In case of a stockout of an item, the HO supplies the item the very next day. Thus, the SOs
can operate with fairly low levels of sstock.
Staffing and Organisation of CSD
The staff managing the activities of CSD are as under:
Position Number
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Superintendent 1
Jr. Accounts Officer 1
Inspector 1
Stenographer 1
Supervisor 2
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Postal Assistant 9
Carpenter 1
Group D (Clerical staff) 10
Cleaner 1
The Superintendent is the overall incharge of the CSD who interacts with the Directorate,
the suppliers and the units. He reports to the CPMG. The job of the postal assistant is to
maintaining the records. The record keeping is entirely manual.
Logistics of Material Flow

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make packets of appropriate sizes for despatch to the units. The clerical staff is in charge of
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To ensure that the task of delivery is uniformly distributed over the month, the CSD
Ahmedabad follows a delivery schedule as given in in Exhibit 8. The packet size for various
items as received from ISP Nasik and as distributed to the units is as follows:
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Packet size from ISP Nasik Packet size to units

Item
No. of sub-
sub-packets
sub -packets
packets Quantity No. of sub-packets Quantity
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SPC 32 32000 6 6000

RPC 32 16000 6 3000
ILC 40 20000 10 5000
Envelope 30 30000 4 4000
Aerogram 30 15000 8 4000
SP
Reg. Cover 40 10000 8 2000
The relevant data on pattern of receipts of SPC and ILC by CSD Ahmedabad for the year
respectively.
1995-96 are presented in Exhibits 9 and 10 respectiv
Cost and Price of Items

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The cost at the CSD level and the nominal value (in Rs) of various items is presented in the
table below.
Nominal Value Proposed

Cost at CSD Cost at CSD
Item in 1995-96 & Nominal Value
ue
level for 1995-96 level for 1996-97
1996-97 for 1997-98
98
SPC 0.18 0.19 0.15 0.25
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RPC 0.36 0.38 0.30 0.50
ILC 0.35 0.37 0.75 1.00
Aerogram 0.58 0.65 6.50 6.50
Envelope 0.35 0.36 1.00 2.00
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Reg. Cover 0.13 1.43 8.00 10.00
Level of Inventory over the Year 1995-96
Ahmedabad, which represents an average sized CSD, carriers an average inventory (at cost)
of Rs 175 lakhs. At a 20 per cent commercial rate, the inventory carrying cost amounts to Rs
crores. Estimating the inventories at the units and the sub-offices

1994
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35 lakhs per annum. The estimate of this cost for the whole country would be nearly Rs 7
crores per annum. The total cost of the security items consumed during 1994-95 was Rs 62
sub-offices and branch-offices
sub- branch to be at
least equal to the CSD inventory, the total inventory carrying cost could be Rs 14 crores
crore per
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annum. This cost is exclusive of the manpower costs required to manage and maintain these
inventories.
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Exhibit 1
Demand Forecast of SPC and ILC for 1995-96

(In
n lakhs)
Single Post-cards Post-cards
Post
Inland Post- -cards
cards
Item
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(SPC) (ILC)
Actual issued during April 92 to March 93 1,085 334
Actual issued during April 93 to March 94 875 403
Actual issued during six months April 94 to Sep 94 317 232
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Average annual consumption based on the preceding 2.5 911 388
years
Estimated requirement for the current year (Oct 94 to 855* 257+

March 95)
Forecast for the ensuing year i.e. 1995 to 1996 (double of 1,600 500
previous row and rounded off)
* 2 x {Oct. Actual + Nov. Actuals + 4 x (Monthly Avg. of April to Sep)} + 1 crore
+
SPC in the previous year.
{Oct. Actual + Nov. Actuals + 4 x (Monthly Avg. of April to Sep)}
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Where the multiplier 2 and addition of 1 crore have been used to account for shortages in
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1996-97
Demand Forecast of SPC and ILC for 1996
(In lakhs)
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Single Post- Inland Post-

Item
cards (SPC) cards (ILC)
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Actual issued during
during six months April 95 to Sep 95 509 67
Average annual consumption based on the preceding 852 332
2.5 years
Estimated requirement for the current year (Oct 95 to 880* 244+
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March 96)
Forecast for the year 1996
1996-97 1,700 500
* 2 x {Oct. Actual + Nov. Actuals + 4 x (Monthly Avg. of April to Sep)}

where the multiplier 2 has been used to account for shortages in SPC in the previous year.
+ {Oct. Actual + Nov. Actuals + 4 x (Monthly Avg. of April to Sep)} + 65% of

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previous year’s prediction of demand for same six months
Source: Internal Documents

Exhibit 2
Forecast of SPC and ILC for 1997-98

(In
n lakhs)
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Item Single Post- Inland Post-
Post-
cards (SPC) cards (ILC)
Supplied in 9 months from April 96 to December 96 689 175
Three months average consumption 230 58
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(Jan 97 to March 97)
Total 919 233
Stock as on 31.12.96 98 212
Actual requirement for 97-98 1025 233
Add 10% to meet the emergency need 103 23
Total 1128 256
Less/Excess stock of 96-97 NIL 154
Total requirement for 1997-98 N 1128
1128 102
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Exhibit 3
Stock Position of Postal Stationery as on 31.7.95

(In
n lakhs)
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SPC ILC
S.No CSD Monthly Monthly Stock in
Stock in Hand
Requirements Requirements Hand
1 Ludhiana 20.00 66.46 80.00 14.75
2 Bombay 44.00 94.84 45.78 15.65
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3 Jaipur 41.40 47.12 26.51 5.30
4 Ahmedabad 126.51 98.54 40.24 0.80
5 Bhopal 67.00 205.66 50.00 2.10
6 Kanpur 40.00 79.46 60.00 15.74
7 Lucknow 32.00 109.22 49.64 1.90
8 Guwahati 10.00 22.30 15.00 201.04
9 Jammu 2.00 10.26 6.00 40.68
10
11
12
Calcutta
Delhi
Bangalore
133.33
16.00
60.00
N 87.57
104.90
144.97
66.67
37.00
65.00
5.51
0.55
11.62
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13 Pune NA NA NA NA
14 Nasik 66.54 36.66 25.65 12.99
15 Bhubaneshwar 20.00 117.25 20.00 54.85
16 Eranakulam 30.00 73.13 100.00 NIL
T
17 Madras 51.05 95.15 60.50 16.00

18 Trichirappalli 48.00 4.70 55.00 NIL
EC
19 Hyderabad 0.08 37.04 0.06 0.02
Source: Internal
al Documents
SP
IN
Exhibit 4
Statement Showing the Receipt and Supply Alongwith Opening Balance and Closing Balance
of Single Post-cards
cards (SPC) in Respect of Circle Stamp Depot (CSD), Ahmedabad for the Year
PY
1995-96
Single Post-cards (SPC)

(In
(In thousands)
Month Opening Indented Receipt Total Demand Issue Closing
Balance Balance
(1) (2) (3) (4) (5) (6) (7) (8)
Quarter –1
CO
Apr-95 7856 10848 18704 18462 8508 10196
May-95 10196 12256 22452 18024 7890 14562
Jun-95 14562 10240 24802
2480 2 17172 8628 16174
Total of Quarter - 1 (Receipt – 33344 65958 53658 25026 16174

33344)
70000
Quarter –2
Jul-95 16174 3040 19214 14964 9360 9854
Aug-95
Sep-95
9854
11834
N 11040
2400
20894
14234
15174
14796
9060
9258
11834
4976
IO
16480)
70000
Quarter –3
Oct-95 4976 5360 10336 19596 4974 5362
Nov-95 5362 6562 11924 15072 5118 6806
T
Dec-95 6806 5760 12566 14130 6474 6092

EC
17682)
60000
Quarter –4
Jan-96 6092 17840 23932 14574 9516 14416
Feb-96 14416 21080 35496 17574 14766 20730
Mar-96 20730 5536 26266 14280 14184 12082
SP
Total of Quarter-
Quarter- 4 (Receipt – 44456 85694 46428 38466 12082
44456)
77000
Total (1995-
(1995-96)
(1995 -96)
96) (Receipt – 111962 119818 193818 107736 12082
111962)
277000
IN
(5) = (2) + (4)
(8) = (5) - (7)

Statement Showing the Receipt and Supply along with Opening Balance and Closing Balance
of Inland Post-Cards
Cards (ILC) in Respect of Circle Stamp Depot (CSD), Ahmedabad for the Year
1995-96
Inland Post-cards (ILC)
PY
(In
n thousands)
Month Opening Indented Receipt Total Demand Issue Closing
Balance Balance
(1) (2) (3) (4) (5) (6) (7) (8)
Quarter –1
Apr-95 637.5 200 837.5 4400 830 7.5
May-95 7.5 1700 1707.5 4910 1530 177.5
CO
Jun-95 177.5 600 777.5 4620 735 42.5
Total of Quarter-1 (Receipt 2500 3322.5 13930 3095 42.5

–2500)
20000
Quarter –2
Jul-95 42.5 1200 1242.5 4995 1162.5 80
Aug-95 80 2400 2480 5020 1035 1445
Sep-95 1445 1800 3245 4995 1405 1840
Total of Quarter-2 (Receipt

- 5400)
24000
N
5400
5400 6967.5 15010 3602.5 1840
IO
Quarter –3
Oct-95 1840 1800 3640 6775 1825 1815
Nov-95 1815 3300 5115 5155 2435 2680
Dec-95 2680 4200 6880 5290 2725 4155
T
Total of Quarter - 3 2680 (Receipt 9300 15635 17220 6985 4155

–7500)
–7500)
28000
EC
Quarter-4
Jan-96 4155 8175 12330 4775 3495 8835
Feb-96 8835 0 8835 4820 4060 4775
Mar-96 4775 8800 13575 3440 3195 10380
Total of Quarter-
Quarter-4
Quarter -4
4 (Receipt 16975 34740 13035 10750 10380
–16975)
26800
SP
Total (1995
(1995-96)
(1995-
-96)
96) (Receipt 34175 34812.5 59195 24432.5 10380
– 32375)
98800
(5) = (2) + (4)

(8) = (5) - (7)
IN

Exhibit 5
Indent on the Circle Stamp Depot (CSD) at Ahmedabad for the Supply of Single Post
Post-cards
Post-
-cards
cards
(SPC) for the Month April 95-March 96 for Navrangpura Head Office
PY
Single Post-cards (SPC) (In
n thousands)
Month Stock at Supplies Issued to Qty Balance Quantity

the time of received HO from sold/issued available on the required
last indent since then CSD during the date of
previous submission of
month present indent (7)
(1)
(2) (3) (4)
CO
(5) (6)
Apr-95 64 300 199 165 180
May-95 165 240 240 293 112 180
Jun-95 112 180 180 225 67 210
Jul-95 67 210 210 192 85 210
Aug-95 85 210 210 266 29 250
Sep-95 29 240 240 219 50 270
Oct-95
Nov-95
Dec-95
50
77
7
270
150
180
270
150
180
N 243
220
127
77
7
60
300
300
300
IO
Jan-96 6 240 240 203.5
203.5 42.5 300
Feb-96 42.5 270 270 252.5 60 396
Mar-96 60 396 396 261 195 240
T
(6) = (2) + (3) - (5)

EC
SP
IN
Indent on the Circle Stamp Depot (CSD) at Ahmedabad for the Supply of Inland Post-cards
(ILC) for the Month April 95-March 96 for Navrangpura Head Office
Inland Post-cards (ILC) (In

n thousands)
PY
Month Qty Balance
Stock at Supplies Issued to
the time of received HO from sold/issued available on the Quantity
during the date of required
last indent since then CSD
previous submission of
month present indent
(7)
(2) (3) (4) (5) (6)
(1)
CO
Apr-95 26.5 25 39 12.5 150
May-95 12.5 50 50 57 5.5 150
Jun-95 5.5 50 50 36 19.5 200
Jul-95 19.5 - 35 19.5 - 200
Aug-95 - 50 50 - 50 250
Sep-95 50 30 30 80 - 250
Oct-95 - 75 75 75 - 250
Nov-95
Dec-95
-
23
100
150
100
150
N 77
92
23
81
250
250
IO
Jan-96 81 140 140 152.5 68.5 250
Feb-96 68.5 150 150 125 93.5 250
Mar-96 93.5 250 250 17 326.5 -
(6) = (2) + (3) - (5)

T

EC
SP
IN
Exhibit 6
Daily Balance at SO, IIM, Ahmedabad
(In Rs)
PY
Date SPC ILC
22/2/96 495.00 1305.00
23/2/96 465.00 1305.00
24/2/96 465.00 1245.00
26/2/96 450.00 1185.00
27/2/96 435.00 1185.00
CO
28/2/96 435.00 1185.00
29/2/96 435.00 1155.00
1/3/96 435.00 1080.00
2/3/96 390.00 1080.00
4/3/96 390.00 1080.00
6/3/96 390.00 1020.00
7/3/96 375.00 930.00
8/3/96
9/3/96
11/3/96
N 375.00
375.00
360.00
930.00
930.00
780.00
IO
12/3/96 360.00 690.00
13/3/96 345.00 660.00
14/3/96 480.00 975.00
15/3/96 450.00 870.00
T
16/3/96 450.00 870.00

18/3/96 450.00 840.00
19/3/96 435.00 780.00
EC
20/3/96 420.00 675.00

21/3/96 420.00 675.00
22/3/96 405.00 645.00
23/3/96 390.00 600.00
25/3/96 390.00 600.00
26/3/96 870.00
SP
390.00
27/3/96 375.00 870.00
29/3/96 375.00 840.00
30/3/96 375.00 780.00

IN
Exhibit 7
Indents from IIM SO, Ahmedabad
PY
(In Rs)
Date SPC ILC
15/2/96 150 750
11/3/96 150 375
CO
Exhibit 8
Schedule of Supply from Circle Stamp Depots (CSD) to HOs
Despatch during 1st and 3rd week
Monday Tuesday Wednesday

N Thursday Friday
IO
Ahmedabad GPO Surat Fateganj Bhavnagar Vadodara
Amreli Mahesana Himatnagar Gandhinagar Bhuj
Bilimora Gondal Surendranagar Dahod Khambhalia
T
Bharuch Navrangpura Revdi Bazar Rajkot

Dholka
EC
Despatch during 2nd and 4th week

Monday Tuesday Wednesday Thursday Friday
Porbandar Palanpur Jamnagar Veraval Valsad

SP
Modasa Dakor Godhra Bardoli Disa

Botad Dabhoi Kutch-Mandri Patan Kheda
Navsari Nadiad Anand Kalol Junagadh
Vijapur Visanagar
IN

Exhibit 9
Details of Receipts of Single Post-cards (SPC) by Circle Stamp Depots (CSD)
for the year 1995-96
(In thousands)
PY
Period Source Invoice Date of
Quantity Date of
for which of No & accounte Mode of Delivery
Received receipt
received receipt Date d for
Mar-95
1 4640 April 95 to ISP 140 23/2/95 1/3/95 Locked wagon by
June 95 Nasik 16/2/95 passenger train
CO
June 95 Nasik 14/2/95 passenger train
June 95 Nasik 8/2/95 goods train
4 1920 April 95 to ISP 157 25/3/95 29/3/95 Personnel delivery
June 95 Nasik 24/3/95 by road (truck)
15200
Apr-95
1 1280 April 95 to ISP
June 95 Nasik
150
N
20/3/95
31/3/95 6/4/95 Locked wagon by
passenger train
IO
T
June 95 Nasik 29/3/95

29/3/95 passenger train
8800
EC
May-95
1 576 Advertise
ment
3 2560 July 95 to ISP 16 5/5/95 26/5/95 Personnel delivery
Sep 95 Nasik 4/5/95 by road (truck)
SP
4 1280 July 95 to ISP 5 26/5/95 30/5/95 Locked wagon by

Sep 95 Nasik 22/5/95 passenger train
12256
IN
Exhibit 9 Conti…
Period for Source

Quantity Invoice Date of Date of A/C Mode of Delivery
which of
Received No & Date receipt for
received receipt
PY
June-95
Sep 95 Nasik 16/5/95 goods train
CO
10240
July-95
2 1120 Oct 95 to ISP 37 15/7/95 24/7/95 Personnel
Dec 95 Nasik 14/7/95 delivery by road
Aug-95
3040
N (truck)
IO
1 3200 Oct 95 to ISP 51 28/7/95 4/8/95 Locked wagon by
Dec 95 Nasik 22/7/95 passenger train
T

11040
EC
Sep-95
1 2400 Oct 95 to ISP 72 17/9/95 26/9/95 Personnel
Dec 95 Nasik 16/9/95 delivery by road
(truck)
2400
Oct-95
SP
1 2800 Oct 95 to CSD

Dec 95 Bhopal
2 2560 Jan 96 to ISP 83 18/10/95 31/10/95 Personnel
March 96 Nasik 17/10/95 delivery by road
(truck)
5360
IN
Exhibit 9 Conti…
Quantity Period for Source

Invoice Date of Date of Mode of Delivery
Receive which of
PY
No & Date receipt accounted for
d received receipt
Nov-95
(truck)
CO
(truck)
6560
Dec-95
1 3200 Jan 96 to ISP 95 7/12/95 15/12/95 Locked wagon by
March 96 Nasik 2/12/95 passenger train
Jan-96
5760
N (truck)
IO
1 4640 Jan 96 to ISP 105 8/1/96 12/1/96 Locked wagon by
March 96 Nasik 3/1/96 passenger train
2 4400 Jan 96 to CSD
March 96 Kanpur
T
March 96 Kanpur
March 96 Kanpur
EC
17840

SP
IN
Exhibit 10
Details of Receipts of ILC by Circle Stamp Depots (CSD)
for the Year 1995-96
(In
n thousands)
PY
Period Source Invoice Date of Mode of Delivery
Quantity Date of
Mar-95 for which of no and accounted
Received receipt
received receipt Date for
1 600 April 95 to ISP 156 25/3/95 27/3/1995 Personnel delivery
June 95 Nasik 24/3/95 by road (truck)
2 50 April 95 to CSD 8/3/95
CO
June 95 Jaipur
3 65 April 95 to CSD 13/3/95
June 95 Jaipur
715
Apr-95
May-95
200
June 95 Nasik 20/3/95
N goods train
IO
1 1700 July 95 to ISP 14 5/5/95 8/5/95 Personnel delivery
Sep 95 Nasik 4/5/95 by road (truck)
1700
June-95
T

600
July-95
EC
1 800 Oct 95 to ISP 42 15/7/95 21/7/95 Personnel delivery

Dec 95 Nasik 14/7/95 by road (truck)
1200
Aug-95
SP

IN

2400
Exhibit 10 Conti…
Period for Invoice Date of Mode of Delivery

Quantity Source of Date of
which no and accounte
Received receipt receipt
PY
received Date d for
Sep-95
1 1800 Oct 95 to ISP Nasik 74 17/9/95 23/9/95 Personnel delivery
Dec 95 16/9/95 by road (truck)
1800
Oct-95
CO
1 1800 Jan 96 to ISP Nasik 78 1/10/95 28/10/95 Personnel delivery
March 96 30/9/95 by road (truck)
1800
Nov-95
1 200 Oct 95 to ISP Nasik 77 4/11/95 6/11/95 Mail train
Dec 95 30/09/95
3
1500
1600
Jan 96 to ISP Nasik
March 96
Jan 96 to ISP Nasik
March 96
90
24/11/95
85
N
2/11/95
8/11/95
25/11/95 29/11/95 Personnel delivery

by road (truck)
10/11/95 Locked wagon by
passenger train
IO
3300
Dec-95
1 3400 Jan 96 to ISP Nasik 99 14/12/95 19/12/95 Locked wagon by
March 96 9/12/95 passenger train
T
2 800 Jan 96 to ISP Nasik 103 16/12/95 22/12/95 Personnel delivery

March 96 15/12/95 by road (truck)
4200
EC
Source:: Internal Documents

SP
IN

Ahmedabad IIMA/BP0287
A/BP0287
Cosmo Films Limited:
PY
Operations at Aurangabad (B)
Dealing with closed mindsets and entrenched attitudes combined with a strong
resistance to change was the first formidable challenge. I was not burdened by the
past failures and hence I could look at opportunities with an open mind. I was
willing to lead from the front. I wanted to create the right environment for every
CO
individual to excel.
- Ranabir Mukherjee, President (Operations).
***********
Provide people a sense of challenge and be transparent. Emphasize customer

orientation at all levels. Result would follow automatically. My prime task was to
build a sense of involvement in the company.
- Sushil Mittal, Executive Director
N
***********
IO
Mr. Ranabir Mukherjee and Sushil Mittal remarked as they reflected on their experience as
President Operations at Cosmo Films Ltd. (Cosmo) and Executive Director of Cosmo Films
Ltd. Ranabir, 49, a graduate in mechanical engineering, had taken over as the VP in July
1997. Sushil Mittal, 48, a Chartered Accountant, had joined Cosmo as the head of newly
created Strategic Planning Group in March 1996. In May 1997, he was asked by Ashok
T
Jaipuria, Chairman and Managing Director of Cosmo, to take over as the profit centre head
of Aurangabad plants. Cosmo Films Limited Operations at Aurangabad (A) provides the
details.
EC
Ashok Jaipuria, along with Sushil and Ranabir, noted the dramatic improvement in
performance since 1997. The sales had improved from `79 crores 1 in 1996-97 to `130 crores P0F P
in 2001 and the net loss of `5.45 crores had improved to a profit of `11.09 crores. While
happy at the dramatic improvement brought about by Ranabir and Sushil, remarked, Ashok
remarked:
SP
Both Ranabir and Sushil worked hard to identify and realize the true potential of our
resources. Building on this further is their next challenge
1
One crore equals 10 million and one lakh equals 1/10 million.
IN
Prepared by Professor Mukund R. Dixit and Professor Abhinandan Jain.

The financial support for writing this case was provided by the Research and Publications Committee
of the Indian Institute of Management, Ahmedabad.
 2003 by the Indian Institute of Management, Ahmedabad.
2 of 24 IIMA/BP0287
The Company in 1996-97
Cosmo was the first unit in India to commence production of BOPP film. In 1996-97, the
production units of Cosmo were located at Chikalthana and Waluj, Aurangabad,
Maharashtra, and at Silvassa, Daman. The two units at Chikalthana and Waluj produced
PY
BOPP films of varying dimensions. The speed of production, width and thickness of the
films produced at Chikalthana did not meet the quality standards of the films produced at
Waluj. The Silvasa unit produced synthetic paper and coated films. It also supported the
research and development activities of Cosmo.
The total production capacity of Cosmo had increased from 800 tonnes per annum in 1983 to
CO
4,800
800 tonnes per annum in 1995. In June 1995, the company set up another production line
called line III to augment the capacity further to 12,700 tonnes per annum. The design of the
plant was obtained from M/s DMT, a French company. Conversion of the design into
equipment was attempted indigenously to economise on the capital cost. Of the equipment
required, 60 per cent was to be imported. It was an opportunity to test whether Cosmo could
build a plant on its own. The operations of line III were stabilised in February 1996, but some
mismatches and imbalances still remained to be addressed. Cosmo was incurring a cash loss
of `1 crore every month in 1996-97. The details of performance are shown in Exhibit 1.
Early Diagnosis by Ashok and Sushil N

Faced with a crisis situation in 1997-98, Ashok and Sushil postponed their plans to set up
one more line of BOPP film production (Line IV). The duo decided to concentrate on
IO
enhancing the effectiveness of operations at Waluj. They interacted closely with the
employees at Waluj and noted the following:
- The current mode of rationing orientation, which that had developed during the
shortage situation, was counterproductive. Marketing was to be made much more
T
customer oriented through an understanding of customer requirements and

communicating them effectively to plant.
EC
- Lack of generation of cash from operations implied that the working capital had to be
managed well.
- There was an urgent need to reduce the high cost of funds and restructure long-term
finance for avoiding a cash crunch and reduce the high cost of funds.
- Management of finance needed to be centralised.
SP
- Transparency regarding the functioning of the organization was lacking. Even the senior
executives were not aware of the situation faced by the company.
- New skills were needed in technical, manufacturing and industrial functions.
Recruitment of a new person for heading the technical and manufacturing functions was
critical.
IN
- Cosmo as a whole was not responsive to the market and customers.

- The mechanism of monthly review meetings needed to be revamped.
- the roles were mismatched. An assessment had to be
Competencies of the people and their
made to figure out how each one could contribute to the company. Action had to be
taken to match the roles with the people‟s competencies.
3 of 24 IIMA/BP0287
- The human resources and data processing functions needed to be strengthened.

The assessment was complete by June 1997, but it took another six months to think through
the processes for initiating corrective actions. The first step towards implementation was the
appointment of Ranabir Mukherjee.
PY
Initial Initiatives by Ranabir
Ranabir took stock of the situation, identified issues that needed immediate attention and
recommended corrective measures.
- Bringing about an understanding of costing and financial issues at all levels of
CO
manufacturing.
- Inculcating an analytical culture; everything was moving from symptoms to remedy
without any analysis. This had to change.
- Enhancing healthy interpersonal relations and creating a cohesive organizational
culture.
- Reducing the high degree of compartmentalisation and encouraging integration.
- Building systems.
He noted that Cosmo had talented people, but they were unwilling or unable to step out and
be accountable. N
Ranabir initiated change by creating a work-friendly environment through daily meetings,
IO
weekly reviews and training seminars. He encouraged the employees of the Waluj unit to
think scientifically. With a view to remove their fear of failure, he urged them to experiment.
Assessment of Competence and Contribution

T
To assess the competence and contribution of managers, each manager was asked to write
down details like the current tasks performed by him/her, contribution to the company and
the additional tasks/contributions each one would like to undertake/make. The whole
EC
process was implemented hierarchically i.e. it was first introduced at the higher levels so
that the processes could be set before implementing them at the lower levels. It was an
evaluation of how the job was being performed and not how the individual was performing
the job. The exercise was carried out on the following dimensions:
Know-how
SP
1. The depth and range of practical, technical, specialist, professional and general skills
in the job.
2. The degree of planning, organizing, supervising, coordinating and managing
involved.
3. The extent of human relation skills required.
IN
Problem Solving
1. The complexity and intensity of problems arising on the job and the nature and scope
of thinking to solve them.
4 of 24 IIMA/BP0287
2. How broad and detailed were the policies, procedures and precedents that formed
the thinking environment of the job?
3. The amount of analysis, judgment and innovation involved in analyzing situations
and making recommendations.
PY
Accountability
1. The degree of authority and desecration vested in the job and the answerability for
exercising it.
2. The scale of areas of activity on which the job was expected to have an impact and
the nature of that impact.
CO
Each job was evaluated on the above points and assigned a score. The scores were compared
with those of other jobs. The scores were used to classify jobs and levels at which the jobs
had to be performed. Mr. Rakhunde, the HR manager in Aurangabad, compiled the data
and presented the analysis. This helped Ranabir and Sushil to identify overlapping roles,
complementary roles and the contribution of individuals. Based on this, they worked out
transfers, role change and severance plan for the executives in consultation with an external
consultant.
Redefining the Customer and Order Mix N

To improve profitability, the focus of marketing was shifted from high volume-generating
products and customers to high contribution-generating products and customers. Targets
IO
were fixed for the company as a whole and for each zone in terms of total contributions
made.
The emphasis on exports continued. In the first two years, Sushil and the international
marketing team members visited international exhibitions, developed contacts and
T
interacted with the converters and end users, wherever possible. During these visits, they
developed insights into the requirements of overseas customers with regard to new
products and application possibilities. They shared their insights with the R&D department
EC
and facilitated new products and application developments. From 1998 onwards, Ranabir
and the R&D team members also started visiting the international customers.
Cosmo entered into quarterly order-and-quality contracts with its major (A-class) customers.
A standard quality contract at Cosmo was a comprehensive document encompassing every
necessary detail. It included customer and product descriptions, functional requirements
(viz. to be used on
on side, machine, operating speed, process, additional process requirements
SP
etc.), technical requirements (specifications of all critical parameters like width, outer
dimension, thickness, surface treatment, joints etc.), winding requirements, packing
requirements, identification requirements, storage and shelf–life
shelf etc.
Ranabir remarked:
This policy led to improvement in the regularity of order booking as well as
IN
reduction in complaints through better understanding of customers‟

customers requirements.
This also helped in economising on the sales time spent on customers.
5 of 24 IIMA/BP0287
Changes on the Shop Floor
Ranabir visited the plant frequently, understood its functioning and installed managerial
processes like holding quality meetings, open communication of questions and deviations
from the desired plan of action. He walked around the plant and encouraged others to do so.
PY
The managers and supervisors, irrespective of their functional affiliations and hierarchies,
were asked to visit the plant and write down their observations and questions on the white
board fixed on the wall. The plant in-charge and his team were required to respond to the
queries.
Ranabir reflected:
CO
To me it was like going back to the basics. I went back to my books and refreshed the
fundamentals of engineering. I read as much as possible about polymers and
polymer engineering. I consulted people across the levels and got my doubts
clarified. The idea of the board on the shop floor was really innovative. It helped us
learn together.
I focused on identifying positive things, however small, and building on them.
Through his visits and discussions he noted the following:
those
th
N
1. Lines II and III were clearly separated. Line III personnel confined themselves to
the problems of line III and did not discuss their problems with other members.
osee in charge of line II did not go to line III.
Similarly, line II was separated and thos
IO
Line II had greater experience and fewer problems. It handled less variety and
lower micron with lower speed. Line III was more complicated.
2. The dividing line between maintenance and manufacturing was thick. The
maintenance went to the shop floor only when called. They shut down the
machine till they completed their maintenance work.
T
Based on these insights, Ranabir tried to identify the problems and work out solutions with
the help of his team. No consultant was involved at any stage except during the appraisal of
EC
managerial staff. Ranabir spent 70% of his time on the shop floor interacting with people.
Fixing Problems of Line III
The company went back to the supplier, who had design

designed line III, and developed a plan to
make modifications that would help solve the problems. The plan was developed in
SP
collaboration with equipment suppliers to increase the capacity and modernise the
company. ICICI, a large private financial institution, appraised the project and sanctioned
loans.
To bring about a new culture, four executives from the maintenance section were transferred
to the manufacturing unit and two executives from the manufacturing unit were transferred
to the maintenance section. The manufacturing and maintenance staff were made to
IN
constantly
constant ly interact with each other through daily meetings. Suggestions were sought from
all to fix the problems and imbalances.
Ranabir reflected:
As a result of these efforts, a lot of enthusiasm was generated on the shop floor,
which resulted in many breakthroughs. For example, the employees set a world
6 of 24 IIMA/BP0287
standard in modifying the lubrication cycle of the Transverse Direction Orientation 2T
TDO) Chain for line III. This increased the maintenance cycle 26 folds, while
(TDO)
2T
drastically reducing maintenance time and, hence, costs. This development became a
benchmark for even the French manufacturer of this equipment. The manufacturer
subsequently visited Cosmo to study and incorporate the TDO chain lubrication
PY
system in their design.
Product Rationalization
Product rationalization in terms of width, diameter, core size and length was initiated by
marketing along with production planning and control (PPC). The permutations and
CO
combinations of the above parameters for each product were phenomenally large for
designing and running a stable process. PPC along with the customer satisfaction
department (CSD) and marketing undertook a study of product varieties and rationalized
the product options. This led to better customer satisfaction and manufacturing efficiencies,
besides improvement in slitting efficiency.
Print lamination was a major product segment of the business. It was becoming difficult to
manage the variety. An analysis of the order pattern showed the following.
S.No.
1.
2.
Particulars
Order quantity per month
No. of sizes
N 60 tonnes
130
IO
3. Total number of codes, along
along with different 350
outer dimensions and different thickness
4. No. of customers 30
An analysis revealed that 40% of the smaller sizes accounted for only 10% of the order
T
quantity. The following action plan was, therefore, decided and implemented.
a) In order to reduce the number of customers buying smaller sizes, it was decided that
EC
the per-order quantity should not be less than a tonne for a product.
b) It was also decided that in an order, there should not be less than 200 kg of each
width. This helped to reduce production planning time, slitting machine, setting
time, wastage and excess stock.
c) Zones were given targets to reduce the number of widths per order. Earlier, there
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were widths with a gap of one or two mm. A minimum of 2 mm gap between two
widths was fixed. This step was taken to reduce production setting and planning
time.
d) In order to reduce excess inventory of print lam material, it was decided that the
marketing team would accept orders with a condition that up to 20% excess material
per width could be supplied, if it was regularly
regular required.
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e) The minimum width was fixed at 300 mm. Orders for films less than 300 mm were
not to be booked. This decision was taken to reduce secondary slitting as the primary
slitter could slit rolls above 300 mm width only. For slitting below 300 mm, the rolls
7 of 24 IIMA/BP0287
were to be further slit at secondary slitters. This resulted in increased utilisation of

secondary slitters.
f) The roll outer dimension (OD) for the print lam market was standardised for all
customers. This resulted in saving production slitting time, low wastage, less excess
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stock and standard packing material.
g) In order to improve order quantity, it was decided that volume discounts for the
print lam market would be introduced.
h) Sale of rejected rolls on “as is where is” basis for print lamination was stopped.
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Instead, such rolls were scrapped and recycled.
i) It was decided that an additional price of `5/kg would be charged for small width
orders. This was to compensate for the double slitting involved.
As a result of the above actions, the changed situation was as under:
1. Order quantity increased from 60 metric tonnes to 150 metric tonnes per
month.
2. Code numbers reduced to 75 from the earlier 350. N
3. Dealers and retailers were satisfied; this meant easier operations for them.
The number of customers reduced to 10.
them
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Produce to Order
Ranabir decided to produce against firm orders and not against forecasts. He also decided to
review the standard operating procedures and conditions. Rethinking the standard
operating procedures led to the design of new processes. Once the processes were in place, a
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system of continuous audit and deviation recording was installed.
A production executive commented:

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A major change was moving from production against forecast to production against
orders. This called for day-to-day
-day planning and monitoring of production. This also
day-to-day
day-to
necessitated a tight linkage between production and marketing. The emphasis earlier
was on producing at any cost. This changed to produce, only if profitable. Earlier,
stopping the line was not permitted, so, the line had to be kept running. In the new
culture, stopping the line was acceptable.
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The marketing personnel were given information on plant capacity and the load on the plant
on a given day. The marketing personnel at various regional offices were expected to review
this information against the orders and they even directed personnel in other regions to get
orders to fill the capacity.
On the relevance of this information sharing, a production executive remarked:

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Sharing information on plant load with the marketing people enabled the marketing
personnel to understand issues from the plant utilisation point of view. They not
only canvassed for more orders in their zones, but also urged others to follow suit.
8 of 24 IIMA/BP0287
Changes in Managing Production Lines
Earlier, the operators of production lines were not allowed to enter the Control Room. This
system was changed and workers were given adequate classroom and on-the-job trainings
and then, they were asked to take on the responsibility of operating the line.
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Ranabir commented:
As a result of this effort, the onus of regular production activities was shifted to the
operators. This gave the line managers time to invest in value-adding endeavours. By
building on several such successes, the attitudinal inflexibility was overcome. The
same people, who were once reluctant to try out the smallest of operational changes,
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became eager to test their abilities at newer and more challenging projects.
Changes in Slitting Operations
It was decided that instead of two, only one operator would manage every slitting machine.
Also, five non value-adding secondary slitting machines were removed. This change was
instituted after taking the operators into confidence and giving them better jobs than before.
People were apprehensive that this would result in more quality complaints and less
productivity. Ranabir gathered factual data to examine the impact of improvement
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measures. In 1999, total losses on account of customer rejection had reduced from `3.5 crore
to `35 lakh.
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Changes in Managing Finished Goods Store
Earlier, the Finished Goods Stores (FGS) department was going to be allotted considerable
additional space for the same capacity. Regular deliberations with the production team resulted
in reduction of stock from 120 tonnes to 40 tonnes in 1999. This created more space for packing
operations. At the end of the turnaround, FGS even had space to spare for the accounts and
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commercial departments.
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Improvements in Packaging
The shop floor team identified packaging of BOPP rolls as an area for improvement and cost
reduction. Two of the improvements were as follows:
Flow of Rolls from Production to Packaging:

Flow
U U
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In the old system, the rolls were taken up for packing after the entire production run
was over. The rolls that came down from the production line were stacked on the floor.
A contractor took the rolls, which had to be dispatched, for packing. The unpacked
rolls, which lay in the open, used to show signs of wear and tear over time.
In the new system, the packing process was synchronised with the production process.
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The concept of online packing was implemented to enhance product quality and speed
of operations. The rolls were packed and identified for dispatch as soon as they came
down from the production line. This reduced the need for space to stock the unpacked
rolls.
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Change in Pallet Making:

U U
Another improvement was the substitution of hard wood with soft wood for making
the pallets. An examination of the packing system for a major customer – ITC –
suggested that the company could save costs if they could persuade ITC to accept
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144 rolls in a pallet instead of four rolls in a box. The packing improvements reduced
the cost by `2.5 to 3 crore.
Attention to Process Management
A process management group was constituted in 1998. The group methodically analysed the
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data of the past six months for various critical process parameters to find and define
parameters at which the product performance was best. This would be the basis of defining
Standard Operating Procedures (SOPs) and Standard Operating Conditions (SOCs). A
regular process audit system was introduced.
An executive remarked:
Eventually, the concept of quality control was replaced by quality function
deployment. The basic premise of quality function deployment at Cosmo in 2001 was
not to repair bad quality, but to prevent it from happening. Translating customer
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requirements into product features and giving the right quality, shifted the quality
focus at Cosmo for the first time from addressing customer complaints to achieving
customer satisfaction.
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Table 1 shows the key indicators of performance which could be gauged after all these
changes were implemented.
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Table 1
Key Indicators of Performance
Indicator 1997-98 1998-99 1999- 2000

2000-01
2000--01
01
2000
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Gross Sales `crore 78.78 100.45 112.44 130.24
Net Profit: ` crore -5.45 -2.34 3.30 11.09
Cash Profit: `crore -0.42 3.90 9.75 17.92
Export Sales: tonne 1797 1941 2852 3949
Domestic Sales: tonne 4505 5859 5818 5989
Total Sales: metric tonne 6302 7799 8670 9938
Number of Employees 633 509 304 298
Sales/Employee: tonne 0.60 0.90 1.56 NA
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Finished Goods Inventory: `lakh 398 284 154 92
Work in Progress Inventory: `lakh 31 19 70 51
Total Inventory: ` lakh 429 303 225 143
Date of Finalising Accounts June 25 May 31 May 1 April 12
Communication Cost: ` in lakh 89 85 65 55
First Round Rejections ? ? ? ?
Percent of Production
Line I 26.41 15.85 7.38 5.26
Line II 19.54 3.71 3.43 3.40
Line III 15.29 3.14 2.64 2.50
Rejected Returns: as % of Sales
Source: Company documents
Supply and Stores Management

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2.30 1.86 1.64 1.09
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As a long-term strategy, focus was shifted to long-term buying of the key imported raw
materials homopolymer and copolymer. A system of yearly buying agreements with
suppliers was introduced. The process adopted was as follows:
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- Identify the suppliers on the basis of strategic advantage.

- Sign an annual agreement on the quantity to get maximum discount.
- To negotiate better, work with two or three suppliers only.
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- Keep a watch on the international price trend and accordingly reap the benefits.
developed.
In this process, suppliers of homopolymer and Matte film master batch were developed
This helped in buying homopolymer and copolymer at a competitive price.
Cosmo found out that the basic feedstock of both homopolymer and copolymer was the
same. However, due to high technology as well as low productivity involved in the
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production of copolymers, there were only a few manufacturers of copolymer. Copolymer

prices were more than double the price of the homopolymer in 1999. The above strategy
reduced the price gap in copolymer and homopolymer by 40-50% in 2000. This also enabled
the company to reduce the stock of homopolymer by 40% and the holding period from 50
days to 30 days of consumption.
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Cosmo identified alternative suppliers. The supplier M/s Solvey from Belgium was changed
to Chisso from Japan because the new supplier matched the price, but did not change the
terms of supply.
The company availed of all discounts from the suppliers. For example, Reliance Industries
had a cash discount structure. It sold its material through an authorised dealer. Cosmo
opened a line of credit with the authorised dealer and obtained the supply. As a
consequence, the company was able to save 1.6% of basic raw material cost.
The local purchase of spare parts was reduced to the just-in-time

-time format as far as possible.
Therefore, by 2000, the company was able to place orders and obtain the supply within three
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days.
The vendors were evaluated for quality and a process of quality assurance was installed at
the vendors‟ site. The suppliers were educated in quality control and their number was
reduced from 600-700 to 200–220. The order-to-delivery
-delivery cycle was reduced to 24 hours. The
delays arising due to inspection problems in Mumbai were sorted out by bringing the
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inspections and other documentation to Aurangabad.
A system of rating the vendors was introduced in 1999 to evaluate the performance of the
major suppliers in terms of delivery, quality and price. The rating was sent to suppliers. This
resulted in zero rejection in raw material, master batch and additives. There was a move to
connect the vendors through internet.
Earlier, all the spares required for a particular production line were kept in one place.
Owing to barriers in communication across production lines, the spares of identical
increased breakdowns and excess inventory of spares. Therefore, the stores were
reorganised to arrange parts according to the equipments in various plants.
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equipments of other lines could not be used when needed. This led to delayed maintenance,
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Logistics Management
Another area of focus for cost reduction was freight charges for imports and exports. Cosmo
imported homopolymer, copolymer and additives. To reduce costs, advance planning and
documentation were used as effective methods. Moreover, all consignments were called to
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Jawaharlal Nehru Port Trust, New Mumbai (JNPT), as it was cheaper than old Mumbai, and
a single transporter was given the contract of transportation. To avoid detention charges, a
14-day free detention time was negotiated with shipping companies for stocking containers.
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Cosmo also followed up with the the government and other concerned agencies to avail the
facilities of Inland Container Depot (ICD) at Daulatabad near Aurangabad. An ICD was
established at Daulatabad in October 1999. This resulted in major improvement in logistic
planning. The cost savings were around `200 per tonne for import and `100 per tonne for
export.
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Cosmo routed the bulk imports of homopolymer through the Daulatabad ICD. This resulted
in decrease in import costs from `1300 per tonne to `1150 per tonne for homopolymer and
from `2000 per tonne
tonne to `1800 per tonne for copolymers – a reduction of around 10%. The
strategy adopted was to work with two or three shipping lines and give them large volumes.
The same step was adopted for managing freight charges for export. Cosmo was exporting
60-70% of its production to the US and Europe. It selected a partner on the basis of export
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destination and frequency of service available for a particular country. This resulted in
reduction of the freight cost by 15-20% for the US and Europe. Earlier, the freight cost was
`10 per kg for the US and `6.50 per kg for Europe. Similar steps resulted in cost reduction of
around 10-15% in freight between Aurangabad and Mumbai.
Quality Management
Mr. A.K. Pathak was given the responsibility for quality assurance. Earlier, he was in charge
of line II production and maintenance. As the in-charge of quality assurance, he put all
quality processes in place and also audited the whole process. He scanned and analysed
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deviations from standards with a view to rethink the standard operating procedures and
standard operating conditions. These were reviewed in quarterly meetings. The quality
assurance function picked up samples from the shop floor at regular intervals of time,
analysed them and returned the defective parts to the production line immediately. The
rejected rolls were displayed boldly on the shop floor.
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The quality management meetings were attended by the heads of processes, quality
assurance,
ssurance, maintenance, finished goods stores, planning and exports departments. At times,
Ranabir was also invited. At the quality management meetings, the complaints from
customers and rejections in subsequent processes were analysed.
Mr. Pathak summed up the initiatives:

Quality control moved from product inspection to process audit. Quality was
checked online by the operators themselves and they used instruments dedicated for
this purpose. In case of difficulty, they sought guidance from the managers.
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Continuous quality efforts resulted in the building of a reliable quality procedure.
Being an ISO certified company necessitated complete traceability of each product.
Each order roll no was so designed that it supplied every necessary detail for that
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particular roll viz. month and date of production, slitter, position, concerneconcerned
operator etc. All this information would then be readily available if a customer
complaint was lodged with the quality assurance department against the said roll.
With the aid of this back-up information, the QA team could subsequently identify
the root cause, investigate the deviations and either correct the error at the source or
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improve the process further to stem the recurrence of the same problem in the future.
Maintenance Management
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In the earlier setting, any breakdown in the plant was reported to the maintenance team,
who then sent their staff for inspection and diagnosis. They diagnosed the problem and then
went back to bring the tools, which resulted in loss of precious production time.
An analysis by the company showed that certain parts wore out sooner than others did. To
provide fast access to belts, one set of belts was kept on the shop floor by the side of the
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equipment itself. Similarly, a toolbox of essential tools was kept on the shop floor itself. The
production people were required to notify the uses of the belt and request for replacement.
The major achievement of the new maintenance practice was reduction of down time time.
Earlier, down time was taken as a given. The loss of production owing to down time was
considered normal.
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Down time data was analysed and actions were initiated by the maintenance and
production teams to reduce down time to zero. This meant that maintenance was taken on a
prediction basis and not on prevention basis. Preventive maintenance was a scheduled
maintenance while the predictive maintenance was inspection maintenance, where certain
signals like temperature of the gear box that indicated that the machine would fail were
monitored and actions were initiated in time to avoid breakdowns.
From breakdown maintenance, the company shifted to preventive maintenance.

Improvements in equipment were made to enable offline maintenance and cause least
disturbance to equipment functioning.
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For example, earlier, whenever the rubber nip roll on the BOPP line had to be repaired due
to hardening of the surface or worn-out bearings, only the nip roll was removed,
disassembled, repaired and refitted on the line. During this period, the line was down. This
system was improved so that the whole nip roll assembly was replaced by a similar
assembly, by unlocking four bolts only, and that was kept ready for such breakdown
situations. This maintenance method reduced downtime from 1 hour to 10 minutes.
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Similarly, the gearbox along with the pulley was kept waiting in readiness. In case of a gear
box breakdown, the whole system was replaced to save production time through intelligent
maintenance.
Human Resource Management
Cosmo reorganised the corporate office and the plants. As a result, the total number of
personnel employed by Cosmo went down from 405 in 1997 to 348 in 1998 and further
reduced to 304 in 2000. Personnel at the corporate office in Delhi had declined from 41 to 11,
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in the zones from 24 to 15 and at the plant I from 126 to 43. However, in plant II, which
housed the production facilities of lines II and III, it went up from 214 to 235. The lamination
plant was relocated from Silvassa to plant II. The number of workers was reduced from 140
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to 123. The right sizing of the organisation was accomplished through three key initiatives:
fitting tasks and people, imparting training, and initiating steps to develop a new culture.
A suggestion scheme was introduced in 1999. On an average, 50 suggestions were received

per month. They were evaluated and rewarded in the next month. The evaluation team
consisted of heads of departments and head of human resources.
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Fitting Tasks and People

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Nobody was sacked but those identified for change were given an opportunity to relearn
and adjust. Those who adjusted stayed back; those who could not were helped to find
alternative jobs. People who left were the ones who were not capable of taking on extra load
and were not willing to do jobs other than assigned tasks. In retaining people, the company
looked for flexibility and willingness. The shifting or change was negotiated with the people
on a one-to-one
-one basis by Sushil or Ranabir. It was emphasised that it was not a reflection of
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the individual. It was explained to them that the company was striving to get better value
from the people and reducing the number of hurdles between need for decisions and
decision making. Those who decided not to move were given alternative roles in the
company. For example, when the exports department was shifted to Aurangabad from
Delhi, Ms Achal Khanna, the DGM-Export, was given an alternative responsibility and the
role of corporate communications was specifically created to suit her aptitude and retain her
in the company.
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Worker training and Involvement
The workers were trained in problem-solving approaches like quality control tools and basic
tools of statistical analysis. They were also provided preliminary exposure to the design of
experiments. Those in the supervisory category and above were trained in topics like
“Managers to Leaders” and communication techniques to make them effective leaders. The
training programmess were conducted both by in-house personnel, who are knowledgeable
programmes
program
about different subjects, and external specialists. The number of training programme
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organised over the years was as follows:
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Table 2
Number of training programmes
Year 1996 1997 1998 1999 2000

Number of training
programs organised 10 20 21 27 32
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New Work Culture
Changes in working methods led to development of a new work culture. One of the workers
remarked that earlier his family did not know much about his place of work or the products
manufactured by the company. A visit by the family to the work site increased the esteem of
the person in the family. There was a sense of pride in belonging to one of the bigger
factories in Maharashtra, and perhaps in India. One of the workers was proud in stating that
workers‟ load had
the visiting cards were called Cosmo cards. They did recognise that the workers
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increased but they were happy to state that they were able to rise to the expectations.
It was communicated by the top management that Cosmo was a family of people who could
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do things right. The emphasis was on building positivism. The improvements in
performance were recognised through appreciation letters and monetary compensation.
The financial compensation of the employees was enhanced. Salaries of many were doubled.
The salary of some was even tripled.
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Tables 2A and 2B provide details of various categories of employees and their average
months‟
compensation over the years. In 2001, all the employees received a bonus of six months
salary.
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An executive remarked:
Quality of life is much better as the tasks now are over within the office time, unlike
earlier when we used to work till midnight. Multi skilling and concern for other‟s
tasks and performance has come as a major development. Earlier, people did not
in-charge managed the total
bother about other‟s tasks. For example, the production in
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production and did not look at other parameters like wastage and quality. It was
supposed to be the responsibility of others. There were barriers everywhere. During
the period of crisis these barriers heightened. Through discussions and problem
solving airtight-compartments have been removed and a sense of sharing success has
developed. The roles and responsibilities of management have got enlarged.
New Product Development

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An overall change in Cosmo's focus to exports led to a shift in focus of R&D to customer and
market-driven development. The need for better co-ordination between R&D and
application
pplication development led to an organisational change in 1998, wherein the head of R&D
and head of application started reporting to the head of exports. The key tasks were
identified as: i) up-gradation of existing products, ii) new application developments, iii)
customer-based new product development, vi) new product development, v) cost reduction,
quality improvement and productivity improvement, and vi) communication improvement.
With a view to further strengthen the business focus, a new department – business
development department (BDD) – was created in June 2000 with the following
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responsibilities.
i) Assess customer requirements and market potential;

ii) Develop new products;
iii) Commercialise/introduce new products in the market
iv) Entrust to marketing
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The Business Development department in general and R&D, in particular, had realised the
importance
tance of streamlining the new product development process. Also the process itself
was identified as a critical one for Cosmo. Internal targets of 20% sales volume to be
generated by new products in the last two years had been fixed for both domestic and
export markets.
The key elements of achieving these developments had been identified as learning through
experimentation, learning from customers, improvement in technical ability and
to customers (both exports and domestic), they were encouraged to attend industry
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improvement in people's imagination. Besides exposing the R&D and other BDD personnel
exhibitions, seminars, etc. In addition, time to market was identified as a key indicator for
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BDD. Collaborative arrangements with IIT - Kharagpur and National Chemical Laboratory
(NCL), Pune, were initiated for streamlining the new product introduction process and
addressing complex technical problems. NCL had worked with Cosmo to delineate the NPI
process. An M. Tech student had done his thesis on a topic provided by Cosmo BDD.
As the company built its position in the international market, the pressure on decreasing the
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lead time to respond to new opportunities increased. In one instance, a new product had to
be developed within 24 days. On April 22, 1999, Ranabir called a meeting of all the managers
to communicate the urgency for reducing the lead time for new product development. On
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May 15, 1999, exactly 24 days later, they came out with a film better than any global leader.
An executive commented:
With just 24 days to go and Ranabir monitoring every move – even spending nights
in the plant encouraging and guiding the team – every member came alive with a
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new energy and relentlessly pursued the new goal. As one team, they toiled together
– day and night – to meet this deadline. They developed the third generation (TG)
film.
The TG triumph was not just a breakthrough product-development effort, it gave an

altogether new lease to the creativity and originality in people and a whole new
meaning to targets and achievements in Cosmo. By tapping the dormant energies
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and hidden potential of people, a change had been unleashed. With TG, Cosmo
learnt to work as one people – began believing in setting seemingly impossible
targets for themselves and thriving on making them possible.
The TG film came to occupy a prime position as an internationally acclaimed product with a
very high demand in the export markets. Even after more than two years, no manufacturer
had been able to match the qualities of the film.
Information Management and Technology
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The turnaround strategy depended on the effective use of available information and
obtaining the much-needed information. Towards this, all the major reports were converted
from hard copy to soft copy. The IT department, in collaboration with the production
planning and control (PPC) and marketing teams, developed a process for tracking the
logistics to improve the delivery time for export. This provided accurate information to the
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export customer on delivery of the material and helped Cosmo in achieving 99% delivery
efficiency. In case of any delay in dispatching the material, the customers were informed in
advance. Close monitoring of documentation was initiated to improve the cycle time of
export documentation.
Cosmo modified the order confirmation (OC) system. Earlier, the order confirmation by
different zonal offices was done by sending a hard copy through courier. This was changed
to sending information on a floppy in a ready-to-use
-use format. The order confirmation was
linked with production planning and control system.
The IT department designed a one-page management information report. This report

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contained information on order/dispatch/hold/short fall position along with line-wise
contribution and major consumption figures. The sheet in soft copy format was sent to each
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consumer individually.
In 1996-97, the company had 41 stand-alone PCs and data was transferred through floppies.
The data available across various sections was not compiled and compared. So, individual
departments entered data according to their formats. In some cases, like the invoicing and
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order management, finished goods and central stores departments entered the same data in
different formats. This led to duplication of data and lack of integrity in the said data.
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In 1996-97, Mr. S. V. Kulkarni, Manager (Systems) took the initiative and convinced Ashok
to install Enterprise Resource Planning (ERP) at Cosmo. At that time there were very few
versions of the ERP package available in the market, particularly for Cosmo. SAP, a leading
supplier of ERP package, considered Cosmo to be too small and an Indian version of the
package covering Indian tax issues was not available with them. TCS, a software consulting
company, was willing to try out its package Avalon, which already had some installations in
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India. Ashok agreed to sanction `2 crore for the project and reposed confidence in the four
people of the EDP department because of difficulties in payment. TCS worked out an
installment-based package wherein `25 lakh was to be paid between April and June 1997
and the remaining amount was to be cleared after six months.
In August 1997, the TCS team arrived on site for the implementation of Avalon. The team
members, consisting of a mix of technical and functional specialists, were new to the
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implementation process. In view of this, Cosmo deputed one core team member from each
department. This member was to help implement the Avalon package for that department
and also train other fellow team members in co-ordination with the head of department
(HOD). ERP implementation involved training the users, convincing them and at times
coercing them to try out.
The company set up an ERP lab in the EDP department and started training the employees.
Not all from Cosmo were familiar with computers. Some of the people from Cosmo saw the
„mouse‟ for the first time at training sessions. Between September and October 1997, the IT
Division (EDP department) conducted progress reviews. An internal review was conducted
once in a month or, at times, once in 15 days. In January 1998, Ashok and Sushil took active
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interest in reviewing the progress of implementation.
The first trial run of all transactions related to order entries was successfully completed in
April 1998 and the Avalon server was subsequently inaugurated by Ashok Jaipuria. In
September 1998 another review was carried out. An early sign of success was seen in
December 1998 when an invoice was prepared using the ERP. It took another six months to
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complete the installation in the finance department. The new system was implemented with
the beginning of the new financial year 2000-01.
Data on the film roll - date, source of raw material used, machine, shift, length, and
customer for whom the roll was being produced - was captured at the point where it was
made and this was available to everyone. The computerized labels were stuck on the rolls
manually as and when production of the roll was complete.
By 2001, the zonal offices were not on the ERP. They coded the data in text format and sent
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the same to the IT department by e-mail. The IT department converted the text format into
the ERP format and shared them simultaneously with everyone in the company.
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The zonal and Delhi accounts were also transferred to the accounts in Aurangabad.
Kulkarni remarked:
Once the package was implemented several advantages were seen. Duplication of
data entry efforts was reduced. The implementation of the ERP enabled the company
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to operate with uniform codes for products and spares and see the order as and
when it was placed. To harness these advantages further, our VP interacted
constantly with the functional heads in the plant and provided the interface with the
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EDP department. Anybody could see the planning process on Avalon, develop the
dispatch schedule and share the same details with customers. The ERP system was
transparent and did not leave scope for manipulation. The company was able to
monitor item-wise profitability.
There were plans to upload the information on the internet. The zonal offices could respond
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to the queries of customers without any difficulty. This was planned to be completed by
October 2001. In the meanwhile, Cosmo launched its own corporate web-site
www.cosmofilms.com
www.cosmofilms.com
www.cosmofilms
3TU .com. U3T
Other Costs
The other major costs were related to consumables, packing material, fuel etc. Cost reduction
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through value engineering and alternate sourcing was implemented to the tune of
approximately 19%. For example, packing material for the BOPP film was a large
consumable item. The cost of the packing material had shot up due to large export volume.
A major reduction in cost of packing material was brought about through introduction of
cost-effective design, taking back packing material from the customer and price negotiation
in the basic packing material. Working very closely with suppliers and developing a new
vendor very close to the manufacturing location helped Cosmo reduce the packing material
inventory, thus, saving the cost and reducing the working capital. Cosmo also got the
warehouse rent and overheads reduced through better negotiations.
Policy Deployment
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To build on the changed attitude and provide it with a definite direction, Ranabir initiated
the policy deployment programme in 1999. As a tool, it helped communicate and translate
organisational goals through successive organisational layers. The key to the success of this
technique too lay in its implementation. Ranabir provided comprehensive training to all the
heads of departments. The progress of the process was reviewed every Monday.
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Ranabir commented:
Once set in, policy deployment gradually trickled through all organisational levels.
Even the operators in Cosmo developed the capability to make presentations on their
achievements at the monthly review meetings for policy deployment.
Task before Ranabir and Sushil
Cosmo had achieved improvements on several dimensions. The improvement in

performance
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rformance per employee is in exhibit 3. The performance of Waluj plants and Cosmo on
quality-related aspects is shown in exhibits 4 and 5. The customer mix had changed as in
exhibit 6. Between 1996-97 and 2000-01, the down time of line III had reduced from 133.77
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hours to 22.56 hours. The input to output ratio had come down from 1.468 to 1.181. The
rejections as a percentage of production had gone down from 11.15% to 2.50%. Refer to
Table 1 for details. The total production had increased from 8,294 tonnes per year to 12,353
tonnes per year. The company had turned around from a loss of `5.45 crore in 1997-98 to a
profit of `11.09 crore. Ranabir and Sushil had to evaluate their experience and think through
T
an agenda for the future.

EC
SP
IN
Exhibit 1
Financial Performance of Cosmo 1994 to 2001
A. Operating Performance (`. in lakh)
PY
Year ended
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999
1999-
1999-00
-00
00 2000
2000-
2000-01
-01
01
March 31
Installed Capacity 4800 4800 12700 12700 14100 14100 14100 14100
(tonnes)
Production (tonnes) 4558 4901 6067 8294 7565 9766 11025 12353
Gross Turnover 5201 6143 7503 9351 7878 10045 11244 13024
Profit before Int.& 1079 1470 1735 1708 746 1279 1713 2294
Depreciation and Tax
CO
(PBIDT)
Interest 248 218 273 723 889 946 795 565
Profit/(Loss) before 660 1084 1179 710 (542) (232) 381 1,181
tax
Provision for tax 1 16 1 3 3 2
Profit/(Loss) after tax 659 1068 1178 707 (545) (234) 330 1,109
B. BALANCE SHEET
FIXED ASSETS:
Gross Block 3659 4256 8299 9578 11033 12267 10998 11320
Depreciation 1506 1671 1931 2378
237 8 2856 3464 3897 4478
Net Block
Capital work-in
progress
Investments
2153
-
184
2586
203
212
6368
41
211
7200
168
215
8177
1205
215
7803
2628
215
7101
136
618
N6842
591
564
IO
Net current assets 2234 4211 3741 4266 4089 3748 3540 3333
Less: Borrowings 215 2237 4411 5059 6996 6109 4273 3402
Secured
Unsecured 764 250 249 635 - 225 478 510
Net worth 1694 4758 5728 176 5941 5707 6672 7440
EPS (Rs.) - - - - - - 3.20 12.07
T
Dividend (`. In lakh) 91.0 154 225 120 82 - 149 310

Rate (%) 20 25 30 15 10 - 10 25
Value of raw material
EC
consumed
: Imports 1233 1296 2061 3203 954 1523 1847 2183
: Domestic 544 805 1063 780 2210 2694 3017 3678
Stores and Spares:
: Imports 29.28 54.78 30.43 29.69 16.11 49.61 129.52 131.82
: Domestic 212.7 293.22
293.22 313.47 474.81 498.87 595.73 659.82 721.59
Source: Cosmo Films Ltd. internal reports

SP
IN
Exhibit 2A
Manpower Profiles of Chikalthana and Waluj
Unit 1994-95 1995-96 1996-97 1997-98 1998-99 1999

1999-2000
1999--20
2000
00
Chikalthana
PY
- Managerial 12 14 14 3 6 7
- Staff and Assts 33 31 44 5 14 10
- Workers 61 61 66 41 29 26
Total 106 106 124 49 49 43

Waluj
CO
- Managerial 53 48 46 52 49 55
- Staff and Assts 109 102 94 106 92 83
- Workers 75 75 74 96 106 97
Total 237 225 214 254 247 235

Exhibit 2B
Changing Employee Profile
Category
Corporate Office & Zones
Year
1994-95 1995-
1995
1995-96
-96
96
N 1996-
1996
1996-97
-97
97 1997-98 1998-99 1999-2000
IO
- Managerial 32 37 40 29 24 15
- Office Staff and Assistants 27 29 25 16 15 11
Total 59 66 65 45 39 26
Plants
T
- Managerial 65 62 60 55 55 62
- Office Staff and Assistants 142 133 138 171 106 93
EC
- Workers 136 136 140 137 135 123
Total 343 331 338 303 296 278

Grand Total 402 397 403 348 335 304
SP
IN
Exhibit 3
Manpower and Average Monthly Sales
March 1998 March 1999 March 2000

No. of Employees 633 509 304
PY
Average Monthly Sales
(metric tonnes) 525 650 724
Exhibit 4
Cosmo Films Ltd., Waluj, Aurangabad
CO
Quality Indicator-I
Details of First-Hand Rejection (11/05/2001)
Year Quarter Line II-FHR% III-FHR%

III
Line III-
-FHR%
FHR%
1994-95 Q-1 to Q-4 (15.57)
1995-96 Q-1 11.45
Q-2 14.7 Commercial
Q-3 12.72 Production
Q-4 10.38 (12.30) Dec.1996
1996-97 Q-1
1997-98
Q-2
Q-3
Q-4
Q-1
N
(11.88)
19.54
(13.05)
15.29
IO
Q-2 11.22 10.42
Q-3 10.74 13.64
Q-4 4.98 (11.62) 5.26 (11.15)
1998-99 Q-1 5.19 4.1
Q-2 3.8 2.35
Q-33 2.2 3.53
T
Q-4
Q-
Q -4
4 3.89 (3.77) 2.29 (3.07)
1999-2000 Q-1
Q-
Q -1
1 6.54 5.44
Q-2
Q-
Q -2
2 2.1 1.51
EC
Q-
Q -3
Q-33 1.75 1.62
Q-4
Q-
Q -4
4 1.9 (2.81) 1.14 (2.37)
2000-01 Q-1
Q-
Q -1
1 2.00 1.67
Q-2
Q-
Q -2
2 2.51 2.31
Q-
Q -3
Q-33 4.57 3.0
Q-4
Q-
Q -4
4 4.0 (3.41) 3.1 (2.50)
Figures in the bracket indicate annual averages

SP

IN
Exhibit 5
Cosmo Films Ltd., Waluj, Aurangabad
Details of Customer Complaints (11/05/2001)
PY
Number of
Year Quarter Remarks
Complaints
0B
1994-95 Q-1 to Q-4 97 Quarterly data not

available: Total 97
1995-96 Q-1 to Q-4 70 Quarterly data not
available: Total 70
1996-97 Q-1 39 Total 190
Q-2 60
CO
Q-3 46
Q-4 45
1997-98 Q-1 42
Q-2 29 Total 182
Q-3 51
Q-4 60
1998-99 Q-1 58
Q-2 70 Total 256
Q-3 67
Q-4 61
1999-2000 Q-1
Q-2
Q-3
Q-4
N 59
43
36
27
Total 165
IO
2000-01 Q-1 41
Q-2 27 Total 140
Q-3 40
Q-4 32
T
EC
SP
IN
Exhibit 6
Customer Classification
Customer Class 1997-98 1998-99 1999-2000
PY
A: Number 4 8 8
Volume sold (tonnes) 53 112 147
B: Number 29 20 22
CO
C: Number 55 50 40
Total: Number 88 78 70

N
T IO
EC
SP
IN
Exhibit 7
PY
CO
ON
TI
EC
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IN

1 of 24 Ahmedabad
IIMA/PSG-81
Dredging Corporation of India
Mr C S Sastry, the Chairman and Managing Director, and Mr A K Dhar, Director (Finance) of
Dredging Corporation of India Ltd (DCI) were examining the concern areas and
recommendations made by a group of 18 middle to senior level officers during a workshop
organized by the Indian Institute of Management, Ahmedabad (IIMA) in September 2000. The
main concern areas were role of the project office, technology (for dredge operations),
maintenance management (including spare parts), staffing (including behavioral issues), and
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interfacing with the customer (including measurement, and tendering and bidding issues). The
workshop had been organized as a human resource development activity with the theme of
improving the management of the projects. This was in their current context of the changing
project scope in the direction of increasing service levels and competition.
O
Company Background
DCI currently catered to about 50% of the dredging requirements in India, most of which were at
C
the major ports. DCI was incorporated as a Private Limited Company (under the Ministry of
Surface Transport (MOST)) on 29-03-1976 in the Union Territory of Delhi, and subsequently
converted into a Public Limited Company on 10-03-1992. N
The Government of India had set up the Central Dredging Organisation (CDO) in 1966 through
acquisition of two small dredgers, with the main objective of offering dredging assistance to
minor ports. The dredgers and other floating crafts acquired by the CDO were operated
O
departmentally by the then Ministry of Shipping and Transport. Due to difficulties and constraints
experienced in their operation, the Ministry entrusted the work of operating the dredgers and the
other crafts to the Shipping Corporation of India (SCI) on agency basis in 1968.
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In 1971, two more large and sophisticated dredgers were acquired to cater to the capital dredging
requirements of major ports. The maintenance dredging requirements of the major ports were
being met by the ports themselves internally. The CDO took over some of these when further
EC
expansion was sanctioned in 1973. The Ministry decided to incorporate a fully owned government
company (called Dredging Corporation of India), headquartered at Visakhapatnam, under the
Companies Act in 1976. The Ministry felt that such a focus on dredging was essential, since there
was growing demand and the activity itself was highly capital intensive and specialised.
SP
As of 2000, DCI owned eight trailer suction dredgers, three cutter suction dredgers, one tug, three
inland dredgers, one portable desiltation plant and three other crafts. (Exhibit 1). The trailer
suction dredger worked like a large vaccum cleaner moving over the bottom of a dredging area.
The material (a mixture of solid and water) dredged was deposited in a hopper well. Once the
wells were full, the dredger moved to a designated dumping area where the material was
discharged. The cutter suction dredgers loosened the material by a rotating cutter. The material
IN
was carried in suspension through a suction pipe. It was then discharged through a pipeline,
normally to a shore reclamation area. The cutter suction dredgers operated more like stationary
equipment with a limited sweep and were better suited for capital dredging.
Prepared by Professors G Raghuram and Neharika Vohra. Our grateful thanks to Professor A Tripathy for
his inputs. Research assistance provided by Premlata Agarwal is acknowledged. We thank DCI for its
support.
Copyright  2001 by the Indian Institute of management, Ahmedabad.
2 of 24
IIMA/PSG-81
The total dredging capacity of DCI was taken as 50.55 million cubic meters per annum. This
capacity figure was based on 220 to 250 operating days in a year (depending on the age of the
dredger), as per a report by the MOST. As per this capacity measure, DCI had an output to input
performance of around 100% consistently over the past five years (Exhibit 2). As viewed by the
authors, the capacity measure was more a reflection of what the dredgers were expected to
perform rather than what they could perform.
During 1998-99, DCI had an income of Rs 229 crore, with a profit after tax of Rs 41 crore.
Exhibit 2 gives a five-year digest of financial and physical performance measures. The
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compounded annual growth rate between 1994-95 and 1998-99 was 6.8% for the income and
7.3% for the profit after tax. The asset base as on 31st March 1999 was Rs 438 crore (Exhibit 3).
The organisation structure of DCI for the top five levels (up to the Deputy General Manager) is
given in Exhibit 4. The project offices (PO), located at the various major ports, reported to the
Joint General Manager (Operations). The organisation structure for a typical PO and on board a
O
dredge is given in Exhibit 5 and Exhibit 6 respectively. The total staff strength of DCI was about
1,200, including about 200 shore based executives, 300 shore based non-executives and 700
floating staff. Out of the shore based staff, one third were at the HO and two thirds were at the
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POs. Out of the floating staff, 200 were officers, 400 were petty officers and crew, and 100 were
contractual monthly paid workers.
Company Environment
N
The major ports accounted for over 95% of DCI’s business. In terms of market share, during
1996-97, DCI catered to 95% of the major port requirements, while the remaining 5% were done
O
internally by the ports. Since 1996-97, foreign flag dredgers started operating along the Indian
coast, based on a relaxation of the Cabotage laws in 1992 (Exhibit 7), despite objections raised by
the Indian National Shipowners’ Association. This had an immediate impact on the market share
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for DCI during the years 1997-98 and 1998-99, when the share dropped to 61% and 48%
respectively. The foreign and other private organizations increased their share to 33% and 47%
respectively. The balance was done internally by the ports.
EC
The quantum of dredging by various service providers including the DCI share, as reported by
major ports, is given in Exhibit 8. Even though the market share for DCI went down, the absolute
quantity dredged did not drop, thus implying that the ports took up more dredging activity. The
significance of dredging to the ports could be seen in the expenditure incurred on dredging
(Exhibit 9). Also, the draft provided by dredging was a key parameter for competitive advantage
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to a port. For example, iron ore exports were more competitive with vessels of 250,000 to 350,000
DWT, used by Australia, Brazil, Canada and South Africa. In India, Visakhapatnam and Chennai
could handle iron ore vessels of up to 140,000 DWT, while New Mangalore and Paradip were
limited to handling even lesser DWT vessels. Mormugao could handle vessels upto 275,000
DWT, since "topping up" took place at the anchorage point. Such "topping up" or lighterage
IN
implied higher costs, but was resorted to especially at the minor and intermediate ports, which did
not have sufficient draft. Adequate draft was also crucial to enable the latest generation container
vessels (carrying over 4000 TEUs) to use Indian ports. Since this was not possible (as per current
drafts), containers had to be transshipped at hub ports in other countries and brought to Indian
ports by feeder vessels at a higher cost to the trade.
Due to the significant nature of dredging, and the liberalisation by MOST, the parameters of
competition were changing. While earlier, DCI would get dredging projects on a "nomination"
basis, the major ports were increasingly going in for a tendering system on a global basis. Even as
of 1998-99, most of DCI’s business was on nomination basis. Further, the major ports which used
to finalize contracts with DCI on a time basis (ie the DCI dredgers were to be made available for a
given number of days), were changing to finalising contracts on quantity basis (ie DCI had to
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IIMA/PSG-81
dredge a specified quantity in a specified time frame). It was expected that in future, contracts
might even be finalized on the basis of depth guarantee.
The international trend in the dredging business was towards providing a better service to the port
as a customer by taking on higher risks. The service included complete provisioning and
maintenance of approach channels to ports including navigation support. Investments in
technology and R&D were key strategies to alleviate some of the risks.
Workshop with IIMA
PY
In the above context, as part of the HRD plan for 2000-01, DCI invited IIMA in May 2000 to
conduct a training workshop, with the objective of improving their project management. (The
entire dredging activity of DCI was organised as “projects”). The workshop was to address both
the floating staff working on dredgers and the shore staff providing support services. The IIMA
faculty team undertook exploratory visits to the head office (HO) at Visakhapatnam, and POs at
O
Haldia and Kandla. These were the largest POs in terms of dredging activity, wherein projects
were to be executed on a continuous basis. The IIMA team developed caselets (Exhibit 10) based
on their field visits for use in the workshop.
C
The caselets highlighted issues around the role of the PO and the project manager. Maintenance
related aspects were significant including scheduling of maintenance and availability of spare
parts, ship shore coordination (for example, the conflicting perceptions of the value and urgency
N
of a maintenance activity), and role of HO in facilitating dredge maintenance. Communication
with various external stakeholders such as customers (ports), dry docks, equipment and spare part
suppliers, Indian Registry of Shipping was another issue.
O
At the start of the three day workshop (held in September 2000 at Visakhapatnam), the 18
participants representing the entire cross section of functions of DCI were asked to present their
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perceptions of the key concerns of DCI. The concerns (Exhibit 11) were primarily in the areas of
(i) role of project office and project manager, (ii) machinery, spare parts and maintenance, (iii)
staffing and behavioral issues and, (iv) interfacing with the customer. During the workshop, the
EC
participants deliberated on the concern areas in groups, to make recommendations (Exhibit 12) for
consideration by the top management.
Additionally, in response to the reducing market share of DCI, some of the executives felt that if
they had more capacity, they would have got the market. Some others were of the view that the
foreign dredgers were better both in quality and cost, and the market for DCI sustained only
SP
because much of the business was obtained on nomination basis. A related issue of interest and
concern was that the output volumes reported by DCI were approximately twice what were
reported by major ports, primarily due to differences in the approach to measurement. While DCI
reported what they dredged based on hopper solid measurements, the ports reported the effective
dredge material removed based on depth soundings at the dredge site.
IN
Top Management Concerns

The top management elaborated further the following concern areas in view of the changing
business environment.
4 of 24
IIMA/PSG-81
Dredge Operations
A typical dredge cycle could be divided into four activities, namely, dredging, sailing for
dumping, dumping, and sailing for dredging. Exhibit 13 outlines the dredge cycle along with the
various factors that influence it. The dredging time was typically 40 minutes to an hour in a total
cycle of 4 to 6 hours. The extent of non-dredging times was expected to increase with dumping
sites moving further away due to environmental concerns.
The technological concerns to improve dredge operations were the separation of dredging and
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dumping activities by using appropriately designed dredgers, and changing the focus of
measurement from quantity dredged to depth achieved. Other concerns related to dredge
productivity were allocation of dredgers to ensure an appropriate match with the project
requirements and to minimize the sailing time between project sites.
Maintenance and Spare Parts
O
The maintenance concerns were timing of maintenance activities (on board, along shore, or
during dry dock), scheduling of dry docking, and choice of dry dock location. The key issues
C
regarding spare parts were availability (especially because many of the dredgers were old),
inventory management and classification based on criticality, and time taken and steps needed to
process an indent (for example at the HO alone, an indent had to be cleared by the technical,
material, and finance departments).
N
Exhibit 14 shows the maintenance and personnel requirements on board a dredger. Due to the
leave requirements, there were issues regarding reporting and control, and handing over charge
O
among ship personnel. Often, poor documentation and inadequate housekeeping of tools and
spares resulted in avoidable delays in maintenance. The allocation of personnel to dredgers
needed to balance the requirements of continuity (for better maintenance) on a dredger and the
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aspiration for breadth of experience by the personnel.
Tendering and Bidding

EC
Competitive tendering and bidding was a relatively new activity in DCI. This called for better
understanding of the technical condition of the area to be dredged, the real cost implications and
the strengths, weaknesses and approach of the competitors towards the bid. Exhibit 15 provides an
example of a costing sheet used by DCI for a bid. The concern was whether the overheads being
charged were appropriate.
SP
HR Issues
DCI had been able to attract very competent ship crew and managers in its early days, due to an
internationally certified professional training for management of the dredge operations, and
IN
commensurate salary. Recently, however, DCI had not been able to attract talented people into
their cadre because the validity of the certification, being restricted to dredgers, was viewed as a
handicap. DCI had been forced to bring in retired naval and merchant navy personnel to serve at
various positions. In addition, involvement of some of the employees in maritime unions and
prevailing bureaucratic work culture had led to unhealthy working conditions. Most departmental
functioning was characterised by lack of belongingness and commitment, leading to alienation
among all levels of DCI staff. Senior management had not been able to empower those working
below them to take initiatives.
The need for ship crew varied from time to time, creating shortages (even though the absolute
number of ship crew across DCI was sufficient) and requiring crew to stay on board for longer
5 of 24
IIMA/PSG-81
than scheduled time periods. Unplanned and forced long stays on board led to poor morale.
Consequently, when the crew went on leave, they delayed reporting back for duty. Many of the
ship crew also needed training with respect to operation and maintenance of latest
equipment/instruments.
The situation at DCI was complicated by the presence of two distinct levels of salaries for ship
and shore staff. Ship staff, in accordance with industry standards in shipping, earned much more
than shore staff at the same level.
PY
Project Staff Issues
The shore staff transferred between the HO and the POs. Most of them had family establishments
at Visakhapatnam. Being in the HO was seen as more favorable than working in the PO. Most of
the staff at POs led forced bachelor like lives.
O
A project manager had to liaison between the dredger at sea and the HO. The POs main functions
were to support and enable the dredger to do its job by maintaining the relationship with the
client, Liasioning with suppliers, contractors, service providers at the port, and reporting to the
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HO. Exhibit 16 details the various activities of the PO. The PO however, had no power to
influence the work schedule of the dredger and its staff. Lack of direct communication between
the superintendent at HO and the dredger made the crew feel that their needs were not being met.
The top management was concerned about a proper definition of the role of the project office,
N
which currently was perceived in different ways ranging from a mere post office, to an agency, to
a “project office”.
O
Mr Sastry and Mr Dhar were considering what should be the future course of action for DCI.
TI
EC
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IN
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IIMA/PSG-81
Exhibit 1
DCI Dredging Fleet
Trailer Suction Dredgers
Hopper Maximum Maximum
Sr No Name of the Vessel Year Built Total HP Capacity Draft Dredging
(Cu M) (Mtrs) Depth (Mtrs)
1 DCI Dredge-V 1974 9700 3450 6.32 22
2 DCI Dredge-VI 1975 9700 3770 6.32 22
PY
3 DCI Dredge-VIII 1977 14800 6500 8.50 25
4 DCI Dredge-IX 1984 11800 4500 7.50 25
5 DCI Dredge-XI 1986 11800 4500 7.50 25
6 DCI Dredge-XII 1990 9800 4500 6.50 20
7 DCI Dredge-XIV 1991 9800 4500 6.50 20
8 DCI Dredge-XV 1999 7400 8.05 25
O
Cutter Suction Dredgers
Sr Name of the Vessel Year Total Maximum Maximum Maximum
C
No Built HP Draft Dredging Distance (Mtrs)
(Mtrs) Depth (Mtrs)
1 DCI Dredge-IV 1972 8000 2.25 22 2000*
2 DCI Dredge-VII 1976 8500 2.50 22 3000*
3 DCI Dredge-Aquarius
* Depends upon strata to be Dredged
1977
N
17300 4.35 25 6000*
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Tug
Sr Name of the Type of Vessel Year Built Total HP Bollard Maximum
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No Vessel Pull Draft (Mtrs)

1 DCI Tug-VI Ocean-going, Twin 1979 3600 38.0T 4.20
Screw Kort Rudder
EC
Inland Dredgers
Maxi- Maximum Maximum Rated
Sr Name of Year Total mum Dredging Pumping Output
Type of Dredger
No the Vessel Built HP Draft Depth Distance per hour
(Mtrs) (Mtrs) (Mtrs) (Cu M)
1 DCI ID-I 1984 Portable Cutter 695 1.00 11.00 1000 150
SP
Suction
2 DCI ID-II 1989 Portable Cutter 335 1.00 6.00 1500 80
Suction (Jack up
Type)
3 DCI ID- 1991 Portable Cutter 1230 1.25 12.00 2000 350
IV Suction
IN
4 Desiltatio 1982 Portable Suction 95 0.60 3.50 200 10

n Plant (Electrical)
Others
Sr
Name of the Vessel Year Built Type of Vessel LOA (Mtrs) Draft (Mtrs)
No
1 DCI Work Boat-I 1978 Self-propelled 12.00 1.90
2 ‘A’ Frame Pontoon-I 1982 Nonpropelled 16.50 0.50
3 ‘A’ Frame Pontoon-II 1982 Nonpropelled 16.50 0.50
Source: Company Documents, 2000

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IIMA/PSG-81
Exhibit 2
DCI – A Five Year Digest
(Rs Crores)
1998-99 1997-98 1996-97 1995-96 1994-95
Financial
PY
Income from Operations 229.16 220.01 214.19 204.47 176.44
Cost of Operations 151.86 148.02 148.53 147.19 127.52
Depreciation 22.11 22.01 26.22 23.95 27.93
O
Interest 6.26 5.87 6.83 7.13 6.55
Total Operating Cost 180.22 175.90 181.58 178.27 162.00
C
Margin from Operations 0.49 0.44 0.33 0.26 14.44
Other Income 27.07 28.18 28.48 27.45 16.45
Profit Before Tax N 76.00 72.28 61.08 53.65 30.89
Provision for Taxation 35.08 29.94 27.71 20.61 -
Profit After Tax 40.92 42.34 33.38 33.04 30.89
O
Physical
Dredging capacity (Million M3) 50.55 50.55 50.55 51.80 54.30
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Quantity Dredged (Million M3) 50.57 49.44 49.74 49.77 54.73

% of Quantity Dredged to Dredging 100.04 97.81 98.40 96.08 100.79
EC
Capacity
Income per M3 (Rs) 4.53 4.45 4.31 4.11 3.22
Cost of Operations per M3 (Rs) 3.00 2.99 2.99 2.96 2.33
Total Operating Cost per M3 (Rs) 3.56 3.56 3.65 3.58 2.96
SP
Source: DCI Annual Report 1996-97, 1997-98 and 1998-99

IN
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IIMA/PSG-81
Exhibit 3
Balance Sheet Of DCI
(Rs Lakhs)
Particulars 31-03-99 31-03-98 31-03-97 31-03-96
A. Sources of Funds
Shareholder's Funds
PY
Capital 2800.00 2800.00 2800.00 2800.00
Reserves and Surplus 25895.30 22727.63 19417.26 16779.39
28695.30 25527.63 22217.26 19579.39
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Loan Funds 15083.23 12333.70 14199.63 17414.20
Total 43778.53 37861.33 36416.89 36993.59
C
B. Application of Funds
Fixed Assets
Gross Block 35200.52
N 34186.54 34175.71 35292.58
Less:Depreciation (25534.42) (23353.21) (21522.63) (18903.63)
Net Block 9666.10 10833.33 12653.08 16388.95
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Capital work in progress 8607.22 1872.18 9.68 14.83
Equipment in transit 169.28 - 2.98 -
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18442.60 12705.51 12665.74 16403.78

Investments 49.01 49.01 49.01 49.01
Current Assets, Loans &
EC
Advances
Inventory 1088.97 910.62 930.23 1062.37
Sundry Debtors 7177.55 3275.98 4773.63 3140.20
Cash and Bank Balances 20744.79 23533.13 18614.04 16233.47
SP
Other Current Assets 2042.08 3868.75 3390.27 4423.12

Loans and Advances 6358.29 5378.38 5225.50 4884.03
37411.68 36966.86 32893.67 29743.19
IN
Less:Current Liabilities and (12124.76) (11860.05) (9191.53) (9202.39)

provisions
Net Current Assets 25286.92 25106.81 23702.14 20540.80
Total 43778.53 37861.33 36416.89 26993.59
Source: DCI Annual Reports 1996-99

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IIMA/PSG-81
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Exhibit 4
DCI Organisation Chart
O
Chairman Cum Managing Director
C
Director (Ops & Tech) Director (Finance)
(vacant)
N
LEVEL Operations Technical R&D Vigilance Personnel & Admn Finance & Acc Internal Secretarial & MIS CMD
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Dept Dept Dept Division Dept Dept Audit LS Dept Division Secretariat
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GM GM GM CVO GM
GM (Ops) (vacant) (Tech) (R&D) (Part Time) (P&A)
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JGM JGM
JGM (Ops) (Fin)
DGM DGM DGM DGM DGM DGM DGM DGM DGM DGM
DGM (Ops) (Ops) (vacant) (Mktg) (Tech) (Tech) (Tech) (P&A) (Fin) (Fin) (FS) (MS) (vacant)
SP
* The Project Managers and supporting officers/staff at various project offices throughout the country function under the control of JGM (OPS)

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IIMA/PSG-81
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Exhibit 5
Organisation Chart of Project Office, Kandla
O
C
Manager (Projects)
N
PA (G)
O
AM (Survey) DM (Instrument) AM (Materials) AM (Finance) Dy Manager (P&A)
Surveyor Surveyor
TI AM (Tech) Supdt (Accounts) Sr Asst (Administration)
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SGM Messenger
SP

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IIMA/PSG-81
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Exhibit 6
Organisation Chart of a Dredger
O
C
N
Captain
O
Chief Engineer Dredge Masters Administrator Radio Officer
TI
EC
2nd Engineer Officers Crew
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Engineers Crew
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Exhibit 7
Regulatory Issues: Cabotage
• Dredging industry also comes under the purview of Cabotage Laws.
PY
Removal of various restrictions on employment of foreign dredgers in India in 1992 has led to
large multinationals like HAM, Boskali, Great Lakes etc setting up operations in the country.
• Foreign dredging companies handle around 30% of the total dredging of 55 m m3 carried out
O
in major ports in India.
• INSA observed in their annual report (1998-99) that "…a number of foreign flag dredgers
C
were being employed by the Indian ports without obtaining any permission or license from
DG Shipping in disregard of the provisions of MS Act, thus depriving employment to Indian
N
dredgers.”
O
Source: Maritime Monitor, Editorial, 'Cabotage Law in India - An International Comparison',
April 2000
TI
EC
SP
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Exhibit 8
Major Ports: Quantum of Dredging
(Million M3)
Port 1997-98 1998-99
Port DCI Other DCI Port DCI Other DCI
Agencies Share Agencies Share
(%) (%)
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Calcutta 0.49 11.54 0.99 88.63 0.41 11.80 12.50 47.75
Paradip 0.00 2.49 0.00 100.00 0.00 2.83 0.00 100.00
Visakhapatnam 0.64 0.63 0.00 49.61 0.48 0.25 0.00 34.25
Chennai 0.61 0.00 0.00 0.00 0.43 0.50 0.00 53.76
Tuticorin - - - - - - - -
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Cochin 0.78 0.00 8.61 0.00 0.97 0.00 10.55 0.00
New Manglore 0.01 5.60 0.00 99.82 0.06 5.57 0.00 98.93
Mormugao 0.00 2.57 0.00 100.00 0.00 2.22 0.00 100.00
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Mumbai 0.39 0.00 5.26 0.00 0.44 0.00 2.95 0.00
JNPT 0.00 1.30 0.00 100.00 0.00 1.00 0.00 100.00
Kandla 0.00 3.67 0.00 100.00 0.00 2.62 0.00 100.00
Total 2.92 27.80 14.86 60.99 2.79 26.79 26.00 48.20
N
Source: Major Ports of India : A Profile-1998-99, Indian Ports Association, 2000
O
Exhibit 9
TI
Major Ports: Expenditure on Dredging

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(Rs crores)
Port 1994-95 1995-96 1996-97 1997-98 % of 1998-99 % of
Expenditure Expenditure
Calcutta 59.49 70.51 111.10 169.28 41.10 379.01 57.23
Paradip 11.89 15.30 18.92 12.09 11.70 12.02 10.60
Visakhapatnam ** 7.34 5.53 8.37 4.74 1.66 0.92
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Chennai 6.37 2.75 2.13 4.10 2.06 - 0.00

Tuticorin - - - - 0.00 - 0.00
Cochin 9.22 20.42 29.18 35.39 31.81 41.09 31.73
New Manglore 8.87 17.71 20.35 25.19 35.02 26.80 32.48
Mormugao 5.41 10.31 4.69 8.14 9.76 7.59 7.56
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Mumbai 18.19 2.39 30.93 24.56 6.21 27.40 6.31

JNPT 1.43 5.34 9.90 13.21 7.78 7.46 3.99
Kandla 15.59 22.50 29.50 31.08 34.65 23.02 26.69
Total 136.46 174.57 262.23 331.41 17.92 526.05 23.48
(**) Dredging carried out departmentally
Source: Major Ports of India: A Profile-1998-99, Indian Ports Association, 2000

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Exhibit 10
DCI Caselets
Gyro for Dredge VI (Haldia)

22/7/2000
16/7/2000 Gyro failure reported by Master.

17/7/2000 Project Office (PO) reported to Head Office (HO).
PY
19/7/2000 PO found out that Tug VI Gyro (no longer needed for Tug VI) was
awaiting customs clearance at Chennai.
20/7/2000 Reminder sent to HO to reallocate the Tug VI Gyro to Dredge VI.
21/7/2000 Reminder sent to HO to speed up customs clearance at Chennai.
O
Earlier History
3/2/1999 Due to unreliability of Gyro, spares and repairs were requested.
C
5/2/1999 During repairs, the issue of procuring a new Gyro was discussed.
7/4/1999 Recognised need for possible replacement during dry dock.
23/9/1999 Unreliable performance of the Gyro reported. Indent was raised for a
spare Gyro by the master and sent to the PO.
N
23/12/1999 PO reminded HO of the indent. HO faxed back to the PO to confirm
indent.
O
Related Information
• Gyro was ordered and received for Dredge VI sometime, but 'hijacked' for Tug VI.
•
TI
Another one was procured for Tug VI. Even after the receipt of the Gyro for Tug VI, and
awaiting customs clearance at Chennai, no information was received by PO at Haldia.
• Gyro was not viewed as essential by the PO, since magnetic compass was available.
However, the compass was viewed by the shipboard personnel as literally a "pain in the
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neck". They felt that it affected their work.
Bow Thrust Engine for Dredge VI (Haldia)

22/7/2000
SP
25/6/2000 Crankshaft of the Bow Thrust Engine (BTE) broke down.

Until 7/7/2000 PO co-ordinated with IRS for survey. CEO and PO had differing views
before placing indent. CEO wanted the BTE to be opened and all items
examined before indent was placed. PO felt that other items (which
would not be that expensive, eg bearings, shells etc) could anyway be
IN
indented, since opening the BTE would mean lay up from dredging. PO’s
view was accepted.
10/7/2000 CEO placed indent. This was received by PO and forwarded to HO, with
comments on the importance of this towards safety and output.
15/7/2000 Indent received by HO.
As of 22/7/2000 HO was still processing the indent. The BTE was expected to cost Rs 70
lakhs. Clearances by the Superintendent, Manager (Material) and
Manager (Technical) was required before enquiry was floated. This
matter was also being overseen by the GM (Technical).
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IIMA/PSG-81
Related information
• BTE was not considered "essential" for safety or output. Without the BTE, Dredge VI could
not operate close to the jetty, even though it was required to. Though at present there was
enough to dredge away from the jetty, flexibility was being compromised, since free times (no
ship berthed and tide permitting the draft) at the jetty could not be utilised. Finally, when
dredging near the jetty only would remain to be done, the utilisation of the dredge (with BTE
working) would be compromised.
• The BTE was supposedly 27 years old. There had been earlier problems on this.
•
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It was expected that order execution would take about four to five months.
Shaft Generator (750 KVA) for Dredge XII (Haldia)

22/7/2000
Nov 1999 Shaft generator was burnt.
O
12/12/1999 PO asked "approved" party A to do the repairs.
Until 4/5/2000 Party A could not finish repairs inspite of reminders.
4-6/5/2000 PO obtained okay from HO to change the party (to even those not
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enlisted). Obtained quotes. Party B quoted Rs seven lakhs as repair cost.
PO verbally obtained okay from HO for budget and party B was asked to
begin work.
6/5/2000 Work was started.
20/7/2000
N
Rewinding was finished and the generator was connected to Dredge XII,
but not fitted. The decision was to do the fitting either during the next
maintenance or dry dock.
O
Related information
TI
• Haldia port wanted the dredge to continue and would not release it for repairs off site.
• It was possible to draw power from the other shaft generator. However, if that also failed, the
dredger would have to be towed to dry dock, which would be expensive and cumbersome.
•
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As stated by the project manager, when "push comes to shove", matters could move fast.
Paper work could be taken care of later.
GMDSS for Dredge XI (Kandla)

21/8/2000
SP
• Deadline from MMD for GMDSS installation was 30/9/2000.

• Dredge XI GMDSS equipment was brought from Mumbai, on its way after dry dock at Goa.
It reached Kandla on 11/7/2000.
• There was delay in installation because some item was found defective.
IN
• The defective item needed to be imported and on its arrival would be installed by a party from
Mumbai.
• There was uncertainty about the date of installation.
• The radio certificate, which was issued until 31/7/2000, had to be extended up to 30/9/2000.
• Though a radio officer was not required in Kandla, he was being held back to await
installation and certification of GMDSS.
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IIMA/PSG-81
Main Engine Breakdown of Dredge XI (Kandla)

21/8/2000
11/7/2000 Dredge XI reached Kandla at 2130 hrs, after emergency dry dock from
Goa, four days late due to bad weather enroute. The emergency dry dock
was due to the stern tube leakage. 300 to 400 litres of lube oil was
leaking into the sea daily. While Dredge XI had gone for dry dock,
Dredge IX had been brought in to continue work at KPT.
12/7/2000 Port entry formalities were completed for Dredge XI. Proceeded for
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dredging. A defect in the hydraulic system occurred. Dredge was brought
to anchorage. No dredging could take place.
13/7/2000 The defect was corrected. Proceeded for dredging. Portside main engine
broke down. Dredge was brought to anchorage. Repairs were started.
Until 22/7/2000 Repairs on portside main engine were completed. Grease was found
around lining of unit one of the starboardside engine. However, there
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were no spare liners on board. A liner had to be borrowed from Dredge
IX. IRS surveyor suggested cleaning of all the seven units of the
starboardside engine, which apparently had not been cleaned for 10
C
years.
KPT Chairman did not allow Dredge IX to sail. He wanted Dredge XI to
be fully functional and demonstrate atleast one day's working
successfully. The DCI CMD questioned the functionaries as to why the
23/7/2000
N
engines had not been examined during the just completed dry dock.
Dredge XI dredged and Dredge IX sailed.
17/8/2000 Dredge XI was brought along side for regular maintenance at 0730 hrs.
O
Units one and five of the starboardside engine were taken up for cleaning.
This was to be completed by 0730 hrs on 19/8/2000. The CEO wanted
six diesel fitters. None were available locally and were mobilised from
TI
Patel Engineers in Mumbai.

18/8/2000 In the evening, the IRS surveyor suggested that units three and four also
be taken up for cleaning. There were discussions between the IRS
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surveyor, project manager and CEO about the time required for cleaning.
As per the CEO, an additional three days were required. From business
considerations, it was considered too long. It was finally agreed (in
consultation with the Super at the HO incharge of Dredge XI) that the
work would be attempted to be completed by 20/8/2000 morning, and in
the worst case, an extra day would be taken. The Super mobilised
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personnel from Western India Shipyard Limited, Goa. However, there

was shortage of spares.
19/8/2000 Completion of work on units one and five was getting delayed. The CEO
was to proceed on leave (in fact from a few days before) and the new
CEO was already at shore. It was finally decided that work on the two
IN
more units would not be taken up now.

20/8/2000 Work on units one and five was completed by 0430 hrs. Dredge XI left
along side at 1015 hrs and went straight into lack of floatation (LOF). It
dredged from 1300 hrs onwards till the next LOF at 2235 hrs.
21/8/2000 The new CEO took over in the morning.
Related information
• The loss per day of Dredge XI not working at Kandla was estimated at Rs 14.6 lakhs/day.
Source: Company Documents and Interviews, 2000

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IIMA/PSG-81
Exhibit 11
Analysis of Participants' Concerns
Role of Project Office and Project Manager

• Before taking up any project, a feasibility study should be undertaken so that failures can be
avoided.
• Contract agreement (with project execution parameters) as planned at HO alongwith time and
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cost estimates/targets for all the activities and services should be made available to project
office before arrival of dredger, to enable project manager to deal with client and other
agencies.
• HO should make contingency plans, considering the dredger and machinery records, spares,
O
stores, statutory requirements and certifications to avoid downtime.
• Realistic quantification of outputs/performance of dredgers at projects is required. This has
implications on HO data collection, storing, and appraisal.
C
• Project wise and dredger wise database should be created.
• PO should have all the information that is necessary for its functioning.
•
N
During execution of dredging projects, it is required to define other services which are to be
engaged from the private parties ie (i) labour supplies (ii) boat and transport services and (iii)
repair work. These services are engaged on contract basis. If any services are not provided, it
O
will effect the dredging activities, and appropriate actions should be taken.
TI
Machinery, Spare Parts, and Maintenance

• Modernization and automation of equipment is required.
• To compete in the global market, equipment needs to be modernized.
EC
• Upkeep of equipment by scheduled dry dock/annual lay up to reduce downtime is necessary.

• Good suppliers of spares need to be identified.
• Spares and stores inventory consumption are approximately Rs 5 to 6 crores each month.
Total inventory of spares and stores at HO are approximately 2000 items. From the above
SP
items, 200 items have been stored for more than 10 years. Necessary action needs to be taken
to dispose it off.
• Very old items, sometimes more than 10 years old and unserviceable, are transferred to HO
from PO. Disposal action should take place at the PO to reduce the transportation costs.
IN
• Procurement of spares (often from foreign countries) and stores should be categorised as (i)
fast moving items, (ii) consumed during preventive maintenance period, (iii) replacement
item during survey based maintenance and (iv) safety stock.
• Clear picture of maintenance requirements and duration to be furnished well before any new
assignment for the vessel. In one instance, when a vessel was assigned to Chennai port and
needed maintenance soon after, the client objected.
• The maintenance activity involves care for machinery. Staff involved should not be
pressurized.
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IIMA/PSG-81
• Time estimate of dry docking should be obtained from dredger itself.

• Unavailability of spares and old age of machinery cause delays in maintenance.
• Normally the dredger will be sent for dry dock/annual lay up as per plan. However, due to
committed assignment, and demand for dredging, some of the dredgers are working beyond
their limits and end up with major breakdowns.
• The project manager/technical person should talk with the master/CEO to fix the maintenance
time.
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• Maintenance should be undertaken by vessel staff even in workshops rather than being
outsourced.
Staffing and Behavioral Issues

•
O
Our company has got the best ship crew and managers.
• Lack of belongingness and commitment both among floating and shore staff.
• Fear among employees in exercising their powers/delegation/functions.
C
• Poor team approach.
• Improve standards and working knowledge of employees by proper training to face
competition.
•
N
Shortage of ship personnel and consequent over stay of floating staff.
• Inadequate shore support.
O
• Shore staff should have onboard training programmes to empathize better with floating staff.
• Reduce cost by reducing the manpower, both on dredgers and shore.
TI
• Caring for staff, interaction, and cordial relationship required.

• Labour supply for work on board dredgers is often short of requirements. It is necessary to
coordinate with the supply contractor and discuss the problems/requirements for fulfilling the
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services.
• Good relationship between shore and floating personnel required.
• Lack of clear targets and monitoring systems. Remuneration system not based on target
achievement.
SP
• There should be more delegation of powers to the field.

• Threats from maritime unions and interference in day to day functioning, creating unhealthy
working atmosphere. Remedial measures are essential.
• HO should be lean and responsive.
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Interfacing with the Customer

• Improve customer relationship.
• Requirements of customers are changing from time to time. DCI should gear up in meeting
the changing requirements, for example, precise dredging in terms of depth, width and length
by using latest technology and equipment. Unless we meet the specific requirements of the
customers, market share will further reduce.
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IIMA/PSG-81
• A good coordination and rapport with the customers. Legacy of procedures not matched with
customers’ requirements and competition.
• So far, DCI has not touched the dredging market in the neighboring countries. DCI may have
to do aggressive marketing in the neighboring countries alone or collaborate with other MNCs
in the field.
• Bills are raised on the customers on the quantity dredged, given a rate for a dredger. If this
rate is high, we may lose contracts. Hence proper cost reduction areas need to be analysed to
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keep our place in the present market environment. Cost reduction should not affect quality of
work, which should be maintained at required standards.
• For short term dredging at ports like JNPT, Goa, and Mangalore, dredgers should be in good
condition to work to the satisfaction of the customers. Any loss of time during short term
O
dredging attributable to break downs affect timely completion and attract adverse remarks
from the clients.
• DCI has in depth knowledge of Indian ports and dredging requirements. While this is a
C
strength, there isn’t reliable data for assessing quantum of work. Sound R&D including bore
hole data for better assessment is required.
Source: DCI-IIMA Workshop, 2000

N
O
TI
EC
SP
IN
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IIMA/PSG-81
Exhibit 12
Participants’ Recommendations
Role of Project Office

1. Involvement of project manager from the stage of data collection and feasibility studies of a
project for effective execution and monitoring of a project. Review meeting with project head
periodically and appraisal to avoid or minimise time and cost overruns.
2. Project manager should be informed of the desirable levels of production time and cost
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parameters.
3. Advice, guidance and prompt support from HO should be extended to the project manager in
respect of all the factors affecting performing of the project.
4. Cutting down of the existing procedures affecting productivity:
 The requisition for funds based on master's requirement for monthly disbursement, since
it is routine, can be arranged directly by HO without involving PO.
O
 Finance department should directly send DD when dues/wage revision arrears are advised
by P&A department, without waiting for requisition from master and PO.
 For purchase of consumable with fixed requirement existing practice of seeking approval
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of HO can be dispensed with.
5. Delegation of adequate powers to project manager depending on size and number of
assignments. N
Maintenance Management
1. Time to be set aside for maintenance of dredgers between two projects.

O
2. Timely dry docking and attending complete scope of repairs.
3. Full manning on dredger to be ensured during operations and dry docking period.
4. Grouping of masters and CEO for sister vessels (rotation among three sets of masters and
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CEOs).
5. On board training of personnel for the new equipment fitted.
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Project Manning
1. Project to be headed by atleast Deputy General Manager ranked person.

2. Deputy Project Manager (DPM) with appropriate financial and executing powers for co-
ordination between PO and dredger.
3. Deputy managers of all disciplines (Ops, Tech, Fin, and Admin) to support DPM.
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4. Project officials should be governed by separate service rules.
Measurement of Quantum of Task
1. Purchase of appropriate hardware and software for survey and project monitoring.
IN
2. Training of staff at HO, PO, and dredger.

3. Data communication between dredgers, PO, and HO.
Suggestions for Human Resource Development (HRD)
HRD division should organize group discussions at inter and intra departmental levels for
i) Updating experience and knowledge of professional issues.
ii) Appreciating mutual constraints and roles.
iii) Review inequitable practices and wasteful activities.
iv) Developing collective wisdom and ultimately team building.
Source: DCI-IIMA Workshop, 2000

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IIMA/PSG-81
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Exhibit 13
Dredging Cycle
O
C
Dredging Sailing for Dumping Dumping Sailing for Dredging
N
Type of Soil Distance Type of Soil Distance
O
Pumps Tide Method of Dumping Tide
Draghead Under Keel Clearance Shipping
TI
Jet Shipping (Traffic) Weather
Skill of Dredge Master Weather Speed
EC
Speed of Vessel Preparation for
Dredging
Condition of Machinery
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and Propellers

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IIMA/PSG-81
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Exhibit 14
O
Dredger Requirements
C
Dredger
N
Surveys Repairs Stores and Spares Leave of Personnel
O
Statutory Running Consumables Senior Officer
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Major (Project Office) (4 On 2 Off)
(Dry Dock) Spare Parts Junior Officer
(8 On 4 Off)
EC
Limited Quantity Supplied by Crew
Supplied by Manufacturers (9 On 3 Off)
Project Officer Through HO
SP

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IIMA/PSG-81
Exhibit 15
Cost Sheet for a Bid
Sr No Particulars (Rs lakhs) (%) (%)

1 Crew Wages 271.20 10.84 -
Repairs and Maintenance 150.00 6.00 -
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Stores and Spares 150.00 6.00 -
Insurance 36.00 1.44 -
Fuel 650.00 25.99 -
Lubricants 65.00 2.60 -
O
Operational Expenses 110.00 4.40 -
Depreciation of Pipeline 459.00 18.35 -
C
Overheads 70.00 2.80 -
Contingency N 140.00 5.60 -
ROI (12%) 400.00 15.99 -
Total Operating Cost of Dredger 2501.20 - 88.38
O
2 Mobilisation and Demobilisation (17
days)
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Charges of Dredger Aquarius 170.00 - 6.01

3 Mobilisation and Demobilisation (from
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Visakhapatnam to Mangalore) of 3kms 75.00 - 2.65

Pipeline
4 Project Pipeline Laying, Assembling,
Maintaining and Dismantling 85.00 - 3.00
SP
Total 2830.00 100.00

The calculation is for 10 months, for 17.5 lakhs m3, ie 250 days.

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IIMA/PSG-81
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Exhibit 16
Project Office Activities
O
C
Clients Project Manager Dredgers
N
O
Material Tech, Mech and Inst Survey Administration Finance
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1) Supply of Consumables 1) Running Repairs 1) Hydrographic 1) Office Staff 1) Office Bills
2) Supply of 2) Surveys and Survey 2) Floating Staff 2) Repair Bills
Limited Spares Statutory 2) Check 3) Purchase Bills
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3) Supply of Fuel Requirements Quantities 4) Dredging Bills
4) Supply of Lubricants 3) Scrutinize 3) Raise Bills 5) Cash on Board
5) Connecting up Bills (On Clients)
SP
Spare Parts to 4) Dredging Bills

the Vessel 5) Cash on
Board
IN


Ahmedabad IIMA/CMA0796TEC
Technical Note
Post Harvest Operations in Paddy
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Farmers choose crops/varieties for inclusion in the crop mix and allocate area during a
season/year on the basis of expected net returns per unit of land. The expected net returns
are computed from projected yield and expenses per acre and price of output for the
commencing season. While yield and expenses follow a trend price moves up and down
from year to year. The farmers respond to the changes in price in terms of allocation of area
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among different crops/varieties
s/varieties in each crop season. Thus to ensure supply of a commodity
the price given to farmers should be high enough to maintain the relative economic
superiority of the crop/variety. The expenses incurred comprised of cost of cultivation and
post harvest costs borne by the producers. While cost of cultivation is more or less given
(under the control of farmer) post harvest costs vary. In this context examination of post
harvest operations is crucial from farmer's point of view. As buyers compensate the ffarmers
for their contribution, costs incurred by farmers are important for them. Also buyers
(processors, traders and exporters) perform some post harvest operations (handling,
quality and quantity
transportation, storage and processing) and bear the costs. Some loss of qualit
N
may occur in these operations. Therefore the interest of a buyer would be to procure the
quality paddy at low cost and minimize quality and quantity loss at various stages. Thus the
the possibility of minimizing costs
study of post harvest operations is necessary to examine the
and losses in various operations of procurement, processing and disposal of products.
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Since under commercial agriculture crops are produced for the market, the harvest is
handled, processed and delivered as per specific requirements
requirements of the end users, may they be
ultimate consumers, exporters or processors. Those requirements normally relate to supply
of commodities of particular grades at low cost and at times and places they are needed. The
T
farmers, the channel, and the users perform certain post harvest operations to accomplish
the job. These operations involve costs and losses occur in the process. The post harvest
losses could be in terms of quality deterioration and physical loss. While the basic quality of
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commodity iss determined from the variety grown it gets affected by the harvesting time and
technique used. The quality deterioration may occur at different stages in the post harvest.
Similarly physical losses may occur at the farm, in the channel or at user's place. All these
losses are costs to the respective entity and finally are borne by the ultimate consumer. In
addition costs are incurred in the post harvest on different post harvest operations. In this
note we discuss the post harvest operations and related losses and costs for Basmati paddy
and how to minimize them.
SP
Post Harvest Operations
The twin objectives of post harvest operations are to prepare the harvested field for the next
crop and to take the produce to the users. The post harvest operations thus relate to
harvested field and the harvest.
IN
The Harvested Field
Under intensive cultivation, the post harvest operations related to harvested field have
twofold objective, that is, preparation of the field in short period and check spread of pests
Prepared by Professor Gurdev Singh, Indian Institute of Management, Ahmedabad.

 2000 by the Indian Institute of management, Ahmedabad.
2 of 6 IIMA/CMA0796TEC
and diseases to the next crop. Farmers take care of these by managing harvesting and post
harvest operations in different ways. The first aspect is tackled by mechanising operations
where feasible. For instance, to clear the field early harvester is used. In case harvester
combine is used, the grains are separated and straw is left in the field. In case of manual
harvesting the harvest is threshed to separate grains. In both the cases the stalks and straw
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are burnt in the field. The harvested field is ploughed and
d prepared for the next crop.
Since availability of harvesters and tractors is not a constraint, preparation of the harvested
field for the next crop is not a common problem. However, on small and marginal farms the
use of these machines may not be technically
ically feasible or economical for the machine owner.
Table 1 shows the custom charges for some machine uses. On cash starved farms liquidity is
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managed by kind payment of custom charges. Some local machine owners many a time
agree to collect custom charges on disposal of produce.
Table 1
Custom Charges for Some Farm Operations for Paddy in Haryana
Machine Operations Charges (Rs./acre)
Harvester Combine Harvesting & threshing 600.00
Tractor
Ploughing
Disc ploughing
Tilling
Tilling in standing water
N 200.00
150.00
150.00
200.00
IO
Planking in standing water 100.00
Winnowing 100.00
The second aspect is taken care by immediately removing the remains of harvested crop
from the harvested field. The left over biomass (waste) consists of plant roots, stubs, stalks,
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leaves, etc. In case of paddy normally the remains are burnt in the field as such.
While ploughing the waste in the field enriches the soil with organic matter, burning it not
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matter but also useful flora and fauna and hence causes
only destroys valuable organic matter
ecological imbalance in the field. Nevertheless, burning checks spread of pests and diseases
to the next crop. The ideal way is to collect the waste and make compost out of it. However,
the economics off this treatment to different kinds of waste needs to be established.
The Harvest
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The objectives of post harvest operations performed on the harvest are many, such as the
following.
by
1. The harvest consists of main and by-products. The markets for the two types of products
have different users. Thus post harvest operations are performed to separate them for
disposal.
2. The production and consumption areas are different. Thus transportation is required to
take the produce to the consumers.
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3. The production of agricultural

ag commodities is seasonal while consumption is more or
less evenly spread throughout the year. Storage would be required to supply the
produce at the time it would be needed.
4. The harvest is not consumable as such. It requires processing to make it fit for
consumption.
5. Farm produce being perishable deteriorates in quality in movement or storage. Proper

processing and packing is needed to avoid quality losses.
6. Quality loss occurs in handling, transportation and storage. Packing and pest control
would minimise such losses.
Various post harvest operations carried out by the producers are threshing (the manually
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harvested crop); cleaning, drying, bagging, storage, transportation of produce to the market.
Handling, cleaning, filling, weighing and stitching
ing bags, and transportation to storage or
processing unit are performed by the channel at market place. Some other post harvest
operations such as handling, processing, grading, packing and selling are carried out by
processors/exporters at their premises. While post harvest losses depend on harvesting
technology used, nature of produce, and handling; quality deterioration depends on
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condition of produce, packing, storage conditions, transport and handling in the market
yard; and costs are the function of technology, logistics and infrastructures.
The basic quality of produce and yield per unit area depend on the variety grown and purity
of seed used. These however are affected by the stage at which the crop is harvested.
Harvesting before maturity reducess yield and lowers quality of output. On the other hand,
delayed harvesting causes yield loss. The farmers try to avoid such losses by staggered
harvesting or harvesting at right stage.
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The harvest consists of straw and grains. Some parts of plant remain behind in the field and
are referred to as waste. The harvest is threshed to separate grains and straw. Some waste
results from this operation and cleaning and grading of paddy. The waste is either used as
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fuel or mixed with household waste to make farm yardyard manure. The straw is either used as
fodder in packing fruits, delicate glassware etc. Alternative uses of straw are not popular.
Because of bulk and low value, invariably straw is not collected.
Post harvest operations performed on paddy harvest includ include threshing, drying grains,
grading, packing for safer storage and transit, transportation to storage/processing
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unit/market, storage for future sale, marketing, and processing.
In case of harvester combine while lot of time is saved and main product is ccleaner, the by-
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product is lost unless collected separately. Nevertheless, grain losses are high (up to 5%).
The output from manually harvested crops contains more weed seeds and from traditionally
threshed harvest contains more physical impurities (straw, dirt, gravel, etc.). Sieving and/or
winnowing is done to remove these impurities. Paddy at harvest has high moisture content
and develops fungus if stored as such. The produce is sun sun-dried to improve storability. At
farm level no grading of produce is attempted because of (i) lack of grade specifications, (ii)
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grading involves additional cost, and (iii) pricing is not linked with quality. Nevertheless
farmers keep different varieties separately. Admixtures are a quality problem. Admixtures
field, at threshing yard, in storage, in transit and at market yard. Sometimes
occur in the field,
admixtures are inherent in seed itself. To manage the problem different varieties are sown
and harvested separately. Cleaning machines, yard, godown, trolley before use avoid
admixtures.
admixt ures. Sometimes farmers on their own keep certain harvest separately thinking it of
better/poor quality.
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Table 2:
Cost of Some Post Harvest Operations for Paddy in Haryana
Operation Equipment used Cost (Rs.)
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Harvester Combine 600.00/acre
Threshing (including harvesting)
Manual 800.00/acre
Tractor 100.00/acre
Cleaning (manually threshed)
Manual 120.00/acre
Transportation to market Tractor 1.00/quintal/km
Storage charges Warehouse 1.00/bag/month
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Processing Paddy
Processing consists of shelling

helling paddy, polishing brown rice, bran oil extraction and its
refining, and making activated carbon. Purchased paddy is transported to processing plant
where it is unloaded. At this point samples are taken to judge the quality of paddy visually
and in lab. If on visual inspection the quality of paddy is found below the prescribed norms
the lot is rejected. The paddy is then dried and stored for processing. At first stage paddy is
shelled to separate brown rice. Brown rice is then polished to get white rice (whole rice and
processing technology. Fractions are graded and sold as by-

are the by-products
by-products.
by -products.
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fractions). Recovery of white rice depends on quality of paddy, its moisture content and
products. Rice bran and husk
products obtained from this processing. Husk is sometimes processed to get
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activated carbon. Rice bran is processed to get crude oil and de de-oiled cake. The crude rice
bran oil is refined oil and wax is removed as a by-product.
by-product.
by- product. All these operations though add
value to the final product (white rice) involve
involve costs. There is weight loss due to drying and
grain loss in handling and other operations. Similarly higher proportion of fractions means
loss because of their low price. Some oil remains in the cake and in wax. Though quality is
monitored at all stages in processing some variation can not be ruled out. The main product
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and by-products
products are packed and labeled for disposal in domestic or export market. It
involves cost of packaging, storage, transportation, sales tax and other local taxes and
commission n for the distribution channel.
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Logistics for Post Harvest Operations
The logistics to perform harvesting and post harvest operations include harvester combine,
winnower, tractor/bullock cart, and storage accommodation. While as stated earlier the
ability of harvesters is not a problem their use on small and marginal holdings is not
availability
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convenient and economical for the machine owner. In case of tractors/carts, both availability
and use are not constraints. Availability of cash could, however, be a cons
consideration on some
farms. Normally, at household level the produce is stored in heaps in some corner of a room
where fumigation and other protection measures against pests could not be effective. Thus
storage losses occur due to pest infestation and spillage as well. Since different crop outputs
are stored in the same room admixtures can not be avoided. Warehousing being at a
distance are not availed by the farmers. The produce is taken to market on tractors/carts
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(loose) and is subject to spillage in the transit. On the other hand packing involves additional
cost on gunny bags.
Infrastructures
The infrastructures needed for disposal of crop produce are all weather roads and market
yards. In northern region, though villages are linked with market places by pucca approach
roads their maintenance is very poor. It results in inefficiency in transportation. It also
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causes excessive wear and tear to carts and tractors and transit losses due to breakdown of
equipment. Since service stations are normally located at market places repairs are costly
and time consuming. Again the condition of market yards is not always good. The floors are
broken, uneven, and dusty. The space is limited. Stray animals and birds invade the yards.
There is hardly any protection of produce
oduce from rains, etc. All these result in wastage and
admixtures and hence loss of some revenue.
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Large arrivals in the peak season cause congestion in the market yard and result in
admixtures, pilferage and wastage. Handling becomes difficult and daily bidding can not be
completed in some cases. Thus weighing is postponed to next day and the farmers have to
stay back with their animals, carts and tractors. The stay arrangements for the farmers at
market yards are either non-existent
existent or inadequate, not to speak of arrangements for their
animals. One may witness columns of tractor trolleys and carts on roadsides leading to
market yard. This not only costs them dearly in terms of loss of time (own and tractor), but
also they have to bear the stress of staying g out in adverse weather conditions. Thus
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inadequate infrastructures and their poor maintenance result in physical losses and quality
deterioration, and hence increase cost of marketing for the farmers.
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or carts is unloaded and cleaned before
The produce brought to the market yard on tractors or
auction. After auction the cleaned produce is bagged, weighed, loaded and taken to storage
or processing unit by the buyer. Marketing costs vary from state to state. Table 3 gives these
costs for Haryana and Punjab.
In Haryana and Punjab regulated markets operate where the seller farmer bears the costs of
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unloading and cleaning while weighing and filling, and stitching charges are borne by the
buyer. In addition the buyer pays market fee, Cess Tax / Rural Development Fund,
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Infrastructure Development Fund, and commission to artias. In a way all these charges are
paid by the seller farmers as the buyers consider them while bidding for a lot. As such the
price realized by the farmers is a discounted price.
Since no standards
ndards are prescribed for agricultural produce the quality of a commodity is
subjectively judged by visual inspection by the bidders as per their own perceptions about
bidders.
it. Further, a fair average quality forms the basis for pricing commodities by the bidde
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This discourages farmers to clean and grade the produce at farm level as they believe price is
not linked to quality. Further the number of bidders for a lot in a market yard is small. In
some markets auction is organized by the kacha artia in an inforinformal way. He invites few
traders/millers and bidding is done. The auction price is rarely competitive. In other words,
farmers pay for the imperfections of the market. The payment of sale proceeds by the artias
interest on sale proceeds.
is invariably delayed and the farmers lose int
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Table 3
Marketing Costs for Paddy in Haryana and Punjab (Rs/unit)
Operation Unit Haryana Punjab
Unloading Bag 0.65 0.83
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Sieving Bag 1.10 0.83
Filling and weighing Bag 1.65 1.73
Stitching Bag 0.25 0.35
0.35
Market fee % 2.00 2.00
2.
Cess/RD Fund % 2.00 2.00
Commission-Kacha artia % 1.40 1.40
Pucca artia % 2.50 2.50
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Auctioner % 0.08
Purchase Tax % 4.00 4.00
Marketing Finance
Since crop loans are repayable at the end of crop season farmers have to sell th the produce
immediately after harvest to repay crop loans. Marketing loans are available against pledge
of produce kept at government warehouses. The banks finance 80 per cent of the value of
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produce at current market price. Since warehouses are located at market places or at block
level farmers have to transport the produce to these warehouses for storage. The rent
includes cost of pest control. However, the produce is to be insured compulsorily against
technically infeasible. In brief marketing
fire, etc. This makes the marketing loans costly and technically
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loans are not availed by primary producers and hence they can not realize the off season
price advantage.
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Coil and Sheet Steel Company Limited
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In March 1999, the top management team of Coil and Sheet Steel Company Limited (CSSL)
was considering various strategies and operational issues to gear up the supply chain. In the
recent years, due to economic liberalisation,
sation, the market environment for cold rolled coils
(CRC) and galvanized steel products had changed considerably and CSSL’s performance
1994-95
had been affected. The gross profit margin had declined from 13.6% in 1994-
1994 -95
95 to 8.7% in
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1997-98.
98. The market share in galvanised steel (their main product line) had been declining. It
was at 13.6% in 1997-98 and expected to be 12.5% in 1998-99. CSSL had done various studies,
both in-house
house and through consultants to assess the market as well as examine internal
systems and processes. As an outcome of this, it had become clear that better supply chain
management held great promise for the future. In this context, a training workshop had
been organised in December 1998 for the top management on supply chain management by
a leading
ding management institute. This workshop had brought into focus key areas of concern
and demonstrated that cross functional teams working on specific areas of improvement
could deliver results.
Company Background
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Company Information
The vision to set up a green field steel plant in India resulted in the incorporation of CSSL in
the mid eighties, with a continuous galvanising line for manufacturing 50,000 tpa of thin
gauge galvanized sheets in central Maharashtra. Over the years the company had expanded
its CRC and GP/GC manufacturing capacities to 300,000 tpa and 225,000 tpa respectively.
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The year 1991-9292 heralded in the economic liberalization policy of the Indian government
and provided the group with an opportunity to expand their flagship company as an
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integrated
ntegrated steel producer. As of March 1999, as per the financial press, the sponge iron and
hot rolled coils projects had suffered from time and cost overruns (to the tune of at least
25%), both due to implementation delays and scope changes.
Company Performance
rmance
The total income and the net profit of CSSL improved significantly during the financial years
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1994-95
95 (9 months) and 1995-96
1995 (12 months) (Exhibit 1). This was primarily due to the
capacity expansions. Since then, the total income had remained more or less steady, while
the net profit had dropped from over Rs 100 crores in 1995
1995-96 to Rs 55 crores in 1998-99.
While liabilities had been going up primarily due to borrowings (debt equity ratio had gone
up from 1:3 in March 1995 to 1:5 in March 1998), a large part of investments (65%) were still
capital works in progress (Exhibit 2). The compounded annual growth rates of various key
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Prepared by Prof. G. Raghuram, Prof. A. Tripathy and Gunjan Bhatt, Indian Institute of Management,
Ahmedabad.
administrative problems. Professors G Raghuram and A Tripathy also thank Research & Publications
Committee of IIMA for providing financial assistance in this case writing project.
parameters are given in Exhibit 3. As can be seen, while the performance in the initial years
has been good, it had dipped over the last two years.
A comparison of CSSL’s performance with the rest of the industry is given in Exhibit 4. CSSL
had been performing financially better than its competition.
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Process Flow at Plant Site
The process ss flow (Exhibit 5) began with the primary raw material (hot rolled coils (HRC),
both imported and indigenous,) reaching the plant by road and being stored in the excise
surface. The
bonded coil storage bay (CSB). The HRC typically had a layer of oxide on their surface
continuous hydrochloric acid pickling line (CPL) removed this layer by chemical treatment.
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The pickled HRC were then cold rolled to provide strength and appropriate thickness either
(Mill II). At this stage, the
by a conventional rolling mill (Mill I) or a modern rolling mill (Mill
coils (rolled strips) took different flow routes depending on whether they were to end up as
cold rolled (CR), galvanised plain/corrugated (GP/GC) or colour coated (CC) products.
For the manufacture of CR products, the cold rolled d strips went through alkaline cleaning by
a high current density electrolytic process (ECL) which gave the strip surface total
cleanliness, free from emulsion patches. The coils were then annealed in a bell type
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annealing furnace (BAF) to ensure perfect grain refinement and to provide brightness to the
strip surface. The cold rolled annealed strips then passed through a skin pass mill to have
perfect flatness, and a desired stiffness and surface finish (bright/matt finish), according to
end use. Slitting (CRS),
CRS), if required, ensured different widths of coils, tailor made for the
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customer's use with crack free edges. Further, cropping lines allowed the coils to be cut to
directly
length (CTL) for sale as packets of sheets. Small volumes of CR coils were even sold dire
without any of the above process. The 1999-1999-2000
1999 -2000
2000 production target for CR products was
350,000 tpa with a commensurate increase in capacity.
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For the manufacture of GP/GC products, the cold rolled strips were coated with zinc and
antimony using one of the two continuous galvanising lines (CGL). The coating provided an
effective prevention of rust and gave the product a longer life. Further, cropping lines (CGL
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CUT) allowed the galvanised coils to be cut to length, either for sale as GP sheets or to go
through
rough a corrugation process for manufacture and sale of GC sheets. Galvanised coils were
typically supplied in bundles weighing up to 5 metric tons. All galvanised products (coils,
GP and GC) were made in different surface finishes, namely bright, dull or matt as required
by the customer. The end product was finally given chemical treatment, not only for added
protection from rust but also for longer original surface lustre. Sheets were normally
available in a thickness range of 0.15 mm to 1.60 mm, widths of 900 mm and 1000 mm, and
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in lengths as required by the customer. The 19991999-2000 production target for galvanised
products was 225,000 tpa.
Each of the finished products was packed and made ready for despatch at the site of the last
process. Packing involved treating each coil/sheet with rust preventive oil on both
sides. Sheets were wrapped with plastic air bubble material, and then jacketed on all four
sides by a thin metallic sheet. The packet was covered on all four sides and on top by CR
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sheets and strapped. Coils were also wrapped with the plastic air bubble material, covered
with thin metallic sheet and then strapped. Edge protection angles were also provided for
the coils.
The standard material flow routes as a combination of the various products and markets
(trade, export, and direct buyers including OEM) is summarized in Exhibit 6. The plant
layout is shown in Exhibit 7. Both the inbound and outbound gates were at the extreme left
hand side of the layout diagram. The layout was reflective of evolving expansions over time
and thus involved a lot of internal material handling and transfers. Despatches often
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required outbound trucks to pick up finished goods from more than one location within the
plant.
Environment
Products and Markets
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Although India was the ninth largest steel producer in the world, per capita consumption of
steel was merely 26 kg as compared to 71 kg for China, 66 kg for Brazil and a world
1990-91 to 17.8
aggregate of 143 kg. Steel production in India had gone up from 13.5 mtpa in 1990
mtpa in 1994-95,
95, but the Ministry of Steel had reported a stagnant growth rate over the past
three years. Consumption for 1998-99 99 was only 24 mtpa. The demand for steel including
2001-02.
export was expected to increase to 37 mtpa by the end of the ninth five year plan in 2001-
Steel products could be basically classified into two major types: long products (46% of
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overall steel consumption) and flat products (45% of overall steel consumption). Special
steels accounted for the balance 9%. Long products included bars, rods and structurals
whereas flat products included coils and sheets.
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CSSL manufactured and sold two categories of flat steel products: CR and GP/GC. Flat
products were used as raw materials by engineering industries (automobiles, white goods,
etc.) and
d enjoyed a premium in the quality sensitive market. Flat products could be hot
rolled, cold rolled or galvanised. Since flat products offered better profit margins, most of
the post liberalisation capacity expansions were for flat steel. Currently the HR steel sector
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had a capacity of nearly 8 mtpa with a demand for 6.5 mtpa. The floor price for imported HR
coils had been fixed at USD 302 cif (cost, insurance and freight) per tonne. At this price, the
landed cost at port including duty worked out to Rs 17, 17,665 per tonne. For the material
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ex-works
ex
sourced domestically, the ex- works price was around Rs 14,100 per tonne. Companies were
-works
also known to offer marginal discounts to the trade sector. Recent investments required for
manufacturing HR coils from sponge iron were of the order
setting up a one mtpa plant for manufacturin
of Rs 2000 crores.
The CR sheets of CSSL were used in a wide variety of applications for industrial goods such
as automobile components, precision tubes and consumer durables. They were used in the
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manufacture of bodies of vehicles as varied as automobiles and railway coaches. They were
also used to make heavy machinery like earthmoving and material handling equipment. The
sheets were specially suited for panel applications in refrigerators and washing machines.
Items like bicycle parts, office equipment and furniture were also made from these sheets.
They were also used to make more basic items such as galvanised sheets, tin plates, drums
and barrels.
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About 60% of all the HR steel produced in the industry was uutilized for manufacture of CR
products. About 25% of CR steel was used in the manufacture of automobiles, 25% for
galvanised products and remaining for the white goods and engineering sector.
Consumption of CR products had risen from 0.55 mtpa in 19811981-82 to 2.07 mtpa in 1995-96.
Likewise, the production of CR steel in the private sector was expected to go up from 1.45
mtpa in 1995-96 to 2.3 mtpa by 2001-02. The top three companies accounted for 50% of the
CR capacity in India. Pricing of CR products depended on domestic HR products price
trends. The average conversion cost of HR to CR coils was around Rs 3,400 per tonne, lower
than Rs 6,200 per tonne as duty differential between CR and HR provided for through
government notification. The boom in automobiles and white goods industries in 1994-95
1994-95
1994- 95
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had created a demand for high quality deep drawn (DD) and extra deep drawn (EDD)
varieties of CR products. As of 1995-96,
96, 10% of the country’s CR requirement was met by
imports.
Galvanised sheets found applications in construction (roofing, sidewalls, partition panels,

valley gutters and louvers), industry (ductings, hoardings, exhaust pipes, drums, rolling
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shutters, containers and drawn parts) and agriculture (grain silos, sprayers, ghamellas and
pans). Galvanised sheets were also used in the manufacture of domestic use articles such as
trunks, ice boxes, household machines, tubs and dustbins. CSSL estimated the demand for
GP and GC products to grow from 0.97 mtpa in 1996-97 2001-02.
97 to nearly 1.3 mtpa by 2001
CC products could
ould be used for architectural and building products (paneling, facades, false
ceilings, wall cladding, roofing and sliding. doors, gates, shutters, windows, partitions,
canopies),
metal building systems, sandwich panels, cold rooms, bunk houses, kiosks and canopies)
domestic appliances and electrical goods (refrigerators, washing machines, ovens, air
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coolers, water coolers, air conditioning equipment and light fittings), industrial products
(instrument dials, machinery castings/ body shells and jacketing), transport (bus/coach/
rail/ ship interiors, dash board panels, license plates and under bonnet components),
furniture and office equipment (storage and shelving furniture and office equipment) and
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for sign boards, trunks and hoardings.
Government
The governmental environment

nvironment can be viewed in two aspects: (i) Liberalisation reforms and
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(ii) Revival package for the steel sector. Liberalisation had increased the level of activity in
this sector and given it a much needed volatility. Major reforms were:
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• July 1991: Licensing restrictions removed
• January 1992: Pricing and distribution controls on steel removed
• April 1992: Iron and steel included in the list of high priority export group
• April 1994: Steel Development Fund discontinued

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• Reimbursement Scheme discontinued

June 1995: International Price Reimburs
• April 1998: Last remnants of Freight Equalisation Scheme (FES) scrapped.
As a result, the financial institutions had sanctioned 19 major steel plants in the private
sector since 1991, involving an investment of about Rs 25,000 crores and an additional
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capacity generation of 13 mtpa. Out of these, 7 projects with a total capacity of 3.68 mtpa had
been commissioned.
1998-99, there was lack of

On account of the general sluggishness in the economy in 1998
adequate growth in infrastructure and
a construction sectors. Compounded by the Asian
financial crisis, the steel industry had been facing trying times for the past 18 months. The
government had come out with a revival package, which included:
• Fast track clearance of infrastructure projects.
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• 1998-99.
Announcement for creation of 20 lakh housing units in the financial budget 1998-99.
• Anti dumping duty on HR products. Fixing of floor prices by the DGFT.
• Launching of a national campaign for increasing demand for steel in non traditional
sectors like rural and agro based industrial sector
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• Requests to financial institutions to reschedule loans and offer bail out packages.
CSSL had been affected by the floor price of HR coils in a positive manner, since they sold
out more HR coils out of their plant than they bought in. The rescheduling package of the
financial institutions had affected CSSL’s project schedules. The financial institutions
insisted on greater market discipline. In this context, CSSL began with a market study of the
GP/GC market, which constituted 60% of its sales.
Market Study
CSSL’s sales for galvanised sheets since 1996-97 are shown in the table below:
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1996-97
97 (tonnes) 1997-98
1997-
1997-98
98 (tonnes) 1998-99(Proj)
(tonnes)
Domestic 69,438 108,723 130,000
Export 13,804 25,582 48,000
Total 83,242 134,305 178,000
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% growth over previous year - 61.34 32.53

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The market study involved understanding of the customer profile and customer perceptions
of CSSL’s GP/GC products.
Customer and Competitor Profile
The state wise GP/GC sales in 19961996-97, 1997-98, and the sales growth is given in Exhibit 8.
Exhibit 9 gives the state wise estimated market size and the potential for CSSL for 1998
1998-99.
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Exhibit 10 provides the region wise and depot wise monthly sales plan for the period
September 1998 to March 1999. OEM ssales are specially reflected only in the western region
data. An analysis of the sales performance of the key branches is given in exhibit 11. The
existing (1998-
(1998-99)
99) and estimated (1999
(1998-99) (1999-2000) GP/GC capacity of competitors along with
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utilisation (product availability) and market share is given in exhibit 12. With 9.3% of total
galvanising capacity in the country, CSSL was one of the major players in the market. In
relation to its competitors, CSSL enjoyed a freight advantage in central and eastern
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Maharashtra and the eastern states. For the rest of the country including the new industrial
Maharashtra
growth centres in Maharashtra, CSSL faced a freight and tax disadvantage from Rs 500 to Rs
consignment/c
2000 per tonne. Some of this was attempted to be offset by opening a consignment/carrying
and forwarding agent as part of the distribution system in a few of the states.
Here it is useful to mention why central Maharashtra was preferred for plant location over
coastal regions. Being a pioneer in galvanised steel and cold rolled coils, CSSL
SSL felt that a
location in the center of the country would make it attractive for use by downstream
industries located anywhere. The site location was selected due to the tax incentives offered
by the government of Maharashtra.
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The major cost heads for flat
at products were HRC (80%) and conversion costs (20%). Iron ore
(6-10%),
10%), scrap (in tandem with international prices), and power (20%), freight, and interest
costs/duties were the key determinants of the HRC costs. The key element of the conversion
cost was power and zinc/zinc alloys. CSSL also had a strategic locational advantage because
the western region accounted for the largest offtake of flat products.
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Customer Perception of CSSL and Competition
The market study also provided inputs on the customers’ perceptions of CSSL’s standing in
the market. Exhibit 13 gives an analysis of attributes of product rating across five key
players in this market. The factors influencing the sales and market share, along with a
rating of each factor for each player is given in exhibit 14.
In addition to the direct sales, CSSL also sold its products through a number of traders
days credit for payment.

within three weeks of placing an order and were allowed 30 day N
located in major cities and consumption centres. Most of the customers received goods
Discussions with some major customers revealed that they sourced steel from more than one
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manufacturer. This was triggered by their need for product variety and was also a hedge
Ahmedabad specifically indicated a need
against delayed deliveries. A large customer from Ahmeda
for shorter delivery periods and a greater range of widths, so as to minimise trim losses. A
few small customers in Mumbai expected CSSL to fulfill their entire requirements even
though demand in some categories would be small. trade-offs
small. Some customers were open to trade
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in terms of delivery periods, price and credit. They expressed a desire to enter into long term
contracts with the steel manufacturers based on their supply credibility.
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Supply Chain
Overview
process from the trade, channelised through the depots, was the main driver
The ordering process
for the monthly production planning of GP/GC products. The OEM orders were more
predictable since the requirements were fairly steady and known in advance. Marketing
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executives consolidated the depot wise orders and gave the inputs to production planning
by the 20th of every month for the following month.
Based on the SKU wise orders (fresh and pending), unassigned finished goods stocks were
first assigned, followed by the work in process.
proc Once the ‘balance to produce’ was
determined, an optimization model based on a linear programming approach helped the
production planning and scheduling for a given month. Here decisions like what
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combinations of lengths to cut, what combinations of widths

w to slit and what thickness HR
coils to use to produce the desired and reduced thickness were taken.
The sourcing decision for HR coils was taken based on a six monthly plan, to provide for
lead times, especially for imports. With increased internal sourcing, this lead time was
expected to reduce.
Exhibit 15 gives the changing profile of average finished goods stock in relation to capacity
and production over the past four years. Exhibit 16 gives the expected and actual cycle times
both in the galvanising line and the cold rolling mill. As can be seen in the context of
galvanising, the largest amount of the cycle time is consumed in the packing to despatch,
especially in relation to the norm. Variations in cycle times across months are also
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noticeable.
e. The details of raw materials consumed at plant are provided in exhibit 17. As
regards HR coils, a high inventory level is noticeable from the HR receipt to the pickling line
to the tune of 21.4 days for the GP/GC products. This is as high as 70.8 days for the CR
products (Exhibit 16). The end usage wise sourcing pattern of HR coils is given in exhibit 18.
Workshop on Supply Chain Management
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With a view to focus on supply chain management and develop a “shared value” on the
subject, a workshop of the 25 top executives (organisation structure is given in exhibit 19)
was organised in December 1998. The workshop was facilitated by a leading institute of
management in western India. Prior to the workshop, a questionnaire had been circulated to
the participants to obtain their perspectives on supply chain coordination. The participants
were spread across marketing, production, materials and sourcing, and support (including
IT, Costing and Budgeting, etc) functions. Each participant was asked to identify his
customer
tomer and supplier, (both internal and external). The inconsistencies between the
N
expected and actual performance in the specific relationship with the customer/supplier
were also sought. Suggestions for improvement, both in the short run and long run were
invited. Exhibit 20 summarises the inputs received through the questionnaires.
IO
The workshop brought out the need for coordination if the supply chain performance had to
towards
match market expectations. For this, there would have to be proactive attitudes toward
coordination and teamwork, and better analytical support for decision making. As a start,
cross-functional
cross
participants decided to form cross- functional teams to work on specific problem areas in a
-functional
project oriented mode. Over twenty problem areas were identified, out of which three were
T
selected for immediate attention. These were:
1. Streamlining of procurement of HR coils in terms of specifications, scheduling and

EC
compliance
2. Reducing unloading time of HR coils
3. Marketing-PPC
Improving Marketing-
Marketing-PPC interface to effect lead time reduction in order processing
Some of the participants suggested that a logistics cell could be created under marketing to
SP
facilitate implementation of some of the recommendations, while others felt that it was more
important to actually coordinate rather than create another structure to ensure coordinaion.
At a more strategic level, the issue of backward integration to make rather than buy HR coils
was also an issue.
IN
Abbreviations
PY
BAF Bell-type Annealing Furnace
CGL Continuous Galvanizing Line
COR Corrugation
CO
CPL Continuous Pickling Line
CRCA Cold Rolled Continuously Annealed
CRS Cold Rolled Slitter
CSB Coil Storage Bay
CTL Cut To Length
DESP
ECL
Despatch
Electrolytic Cleaning Line

N
IO
HRC Hot Rolled Coils
OEM Original Equipment Manufacturer
SKP Skin Pass

T
EC
SP
IN
Exhibit 1
CSSL: Profit and Loss Statement
Rs crores
Mar-95
PY
Year Mar-98 Mar-97 Mar-96 (9 Jun
Jun-94
Jun--94
94 Jun
Jun-93
Jun--93
93
months)
Income:
Sales turnover 1,469.19 1,413.64 1,382.02 629.47 566.64 460.66
Other income 57.38 66.66 68.55 45.36 20.06 8.02
CO
Stock adjustments 50.82 -10.29 14.50 33.78 -22.24
-22.24 21.08
Total income 1,577.39 1,470.01 1,465.07 708.61 564.46 489.76
Expenditure:
Raw materials 809.70 727.39 756.73 400.08 346.00 315.95
Power & fuel cost 142.77 131.60 113.77 40.10 14.59 12.71
Employee cost 18.86 17.54 16.96 7.08 5.85 4.47
Other manufacturing expenses
Excise duty
Selling and administration
76.43
160.32
59.62
N
31.94
150.17
107.57
31.55
140.42
97.59
15.50
57.22
43.92
16.81
43.48
41.55
13.43
31.65
33.65
IO
Miscellaneous expenses 42.47 37.55
37.55 27.43 13.13 9.17 7.14
Less; pre-operative expenses
Operating profit 267.22 266.25 280.62 131.58 87.01 71.11
Interest 139.39 120.60 119.85 46.21 23.92 33.28
T
Gross profit 128.03 145.65 160.77 85.37 63.09 37.83

Depreciation 67.54 66.82 60.18 25.90 15.25 18.06
EC
Profit before tax 60.49 78.83 100.59 59.47 47.84 19.77

Tax 5.32 2.24 0.06
Net profit 55.17 76.59 100.53 59.47 47.84 19.77
Adjustment below net profit
P & L balance brought forward 89.69 49.08 21.67 8.69 2.13 8.71
SP
Appropriations
ions 29.25 35.98 73.12 46.49 41.28 26.35
P & L balance carried down 115.61 89.69 49.08 21.67 8.69 2.13
Earnings per share (Rs) 3.60 5.09 6.78 5.55 4.24 3.20
Equity dividend (%) 15.00 25.00 26.67 22.00 20.00
Dividend (Rs crore) 22.37 36.49 23.79 20.98 11.60
IN
Preference dividend (Rs)

Extraordinary items -12.60 -0.31 -0.67 4.61 7.67 4.64
Source: Capital Line database, March 1999

Exhibit 2
CSSL: Balance Sheet
Rs crores
Year Mar-98 Mar-97 Mar-96 Mar-95 Jun-94
94 Jun-93
Jun-
Jun -93
93
PY
Sources of funds:
Share capital 153.13 150.55 148.17 142.08 112.81 61.86
61.86
Reserves total 658.42 636.05 437.01 367.67 295.69 195.10
Total shareholders funds 811.55 786.60 585.18 510.47 408.50 256.96
Secured loans 3,113.24 1,826.66 1,465.47 1,098.55 668.59 598.13
CO
Unsecured loans 967.25 1,020.79 618.27 485.41 502.13 3.31
Total debt 4,080.49 2,847.45 2,083.74 1,583.96 1,170.72 601.44
Total liabilities 4,892.04 3,634.05 2,668.92 2,094.43 1,579.22 858.40

Application of funds :
Gross block 1,548.62 1,500.70 1,203.99 1,107.70 349.54 337.12
Less: Accumulated
depreciation
Net block
342.10
1,206.52
259.24
1,241.46
N 175.76
1,028.23
112.52
995.18
84.06
265.48
65.61
271.51
IO
Capital work in progress 3,484.81 2,031.70 974.09 389.33 849.08 456.21
Investments 28.56 47.58 57.08 91.94 69.59 16.15

Current assets, loans &
T
advances
Inventories 353.63 306.77 373.27 302.38 173.37 119.86
Sundry debtors 178.84 223.79 220.79 240.92 136.23 103.32
EC
Cash and Bank Balance 192.09 55.68 66.14 55.75 37.48 12.20
Loans and Advances 632.02 430.35 447.85 359.85 256.55 38.37
Less: Current liabilities and
provisions
Current liabilities 937.10 704.46 489.95 345.63 218.32 168.41
SP
Provisions 18.91 30.57 42.67 29.28 25.79 15.46
Net current assets

assets 400.57 279.56 575.43 583.99 359.52 89.88
Miscellaneous expenses 71.58 33.75 34.09 33.99 35.55 24.65
IN
Total assets 4,892.04 3,634.05 2,668.92 2,094.43 1,579.22 858.40

Book value (Rs) 38.80 36.78 35.40 31.30 30.40 30.51
Contingent liabiliti
liabilities 1,710.18 1,094.20 422.30 198.33 113.33 109.61

Exhibit 3
CSSL: Compounded Annual Growth Rate*
Figures in percentage
Mar-96 Mar-95 Jun-94 Jun-93
93
PY
(2 years) (3 years) (4 years) (5 years)
Sales turnover 3.11 20.52 26.89 26.11

Operating profit -2.42 15.06 32.38 30.31
CO
Gross profit -10.76 4.00 19.35 27.61
Net profit 25.92 -11.39 3.63 22.78
Equity 1.66 2.36 7.94 19.88
Debt 39.94 37.08 36.64 46.66
Gross block 13.41 11.82 45.08 35.65
Investments -29.26 -32.27 -19.96
19.96 12.08
Networking capital -16.57 -11.81
11.81 2.74 34.84
Exports
*Base year 1998

-16.83 N 7.52 22.97 36.48
IO
T
EC
SP
IN
Exhibit 4
CSSL: 1997-98 Profit and Loss Aggregates
Rs crores
PY
CSSL Steel CSSL Group All Industry
(HR/CR/GP/GC)
Sales turnover 1,469.19 6,382.08 1,899.03 809,456.90
Stock adjustment 50.82 121.10 73.90 4,226.67
Other income 57.38 231.82 89.28
9.28 38,382.47
CO
Total income 1,577.39 6,735.00 2,062.21 852,066.10
Raw material cost 809.70 4,016.08 1,005.23 354,563.30

Power and fuel cost 142.77 500.29 251.24 42,974.20
Employee cost 18.86 93.50 34.09 59,368.89
Other manufacturing 76.43 324.76 92.39 67,854.17
expenses
Excise duty
Selling and
administration
160.32
59.62
N 548.71
208.06
202.12
85.54
57,929.60
59,701.55
IO
expenses
Miscellaneous 42.47 112.24 182.64 30,681.22
expenses
Less: pre-operating 1,966.13
expense capital
T
Operating profit 267.22 931.77 208.96 179,897.20

Interest 139.19 498.9 186.05 102,893.30
EC
Gross profit 128.03 432.87 22.91 77,003.86

Depreciation 67.54 275.35 94.98 31,411.67
Profit before tax 60.49 157.52 -72.07 45,592.19
Tax 5.32 16.35 6.54 11,177.54
Net profit 55.17
55. 141.17 -78.61 35,194.82
SP
Source:: Capital Line database, March 1999

IN
Exhibit 4 (…contd.)
CSSL: 1997-98 Profit and Loss Aggregates Ratios
Figures in percentage
Steel
PY
CSSL CSSL Group All Industry
(HR/CR/GP/GC)
Sales turnover 100 100 100 100

Stock adjustment 3.46 1.90 3.89 0.52
CO
Other income 3.91 3.63 4.70 4.74
Total income 107.36 105.53 108.59 105.26
Raw material cost 55.10 62.93 52.93 43.80

Power and fuel cost 9.72 7.84 13.23 5.31
Employee cost 1.28 1.47 1.80 7.37
Other 5.20 5.09 4.87 8.38
manufacturing
expenses
Excise duty 10.91
N 8.60 10.64 7.16
IO
Selling and 4.06 3.26 4.50 7.38
administrative
expenses
Miscellaneous 2.89 1.76 9.62 3.79
expenses
T
Less: pre-operating 0.24

expense capital
Operating profit 18.19 14.60 11.00 22.22
EC
Interest 9.47 7.82 9.80 12.71

Gross profit 8.71 6.78 1.21 9.51
Depreciation 4.60 4.31 5.00 3.88
Profit before tax 4.12 2.47 -3.80 5.63
Tax 0.36 0.26 0.34 1.38
SP
Net profit 3.76 2.21 -4.14 4.35
Source:: Capital Line database, March 1999

Source
IN
Exhibit 4 (Contd….)
CSSL: 1997-98 Balance Sheet Aggregates
Rs crores
PY
Steel
CSSL CSSL Group All Industry
(HR/CR/GP/GC)
Equity capital 153.13 765.90 296.23 139,211.90
Preference capital 194.60 1.00 5,412.09
Unclassified shares 1,519.57
Reserves (excluding 440.98 2,917.61 573.04 266,058.10
revaluation)
CO
Revaluation reserves 217.44 224.07 288.12 19,367.16
Shareholders funds 811.55 4,102.18 1,158.39 431,568.90
Secured loans 3,113.24 5,969.58 4,028.61 361,777.10

Unsecured loans 967.25 1,438.14 1,060.03 768,905.50
Loan funds 4,080.49 7,407.72 5,088.64 1,130,683.00
Total funds employed 4,892.04 11,509.90 6,247.03 1,562,251.00
Gross block
Accumulated depreciation
1,548.62
342.10
N 5,321.24
1,089.64
2,865.57
596.20
591,057.60
207,166.30
IO
Net block 1,206.52
06.52 4,231.60 2,269.37 383,891.30
Capital work in progress 3,184.81 3,681.24 3,377.32 133,968.10
Investments 28.56 1,530.90 38.01 322,876.90
Inventory (total) 353.63 1,275.20 506.78 144,790.00

T
Sundry debtors 178.84 1,048.87 288.80 114,238.80

Cash & bank 192.09 245.80 236.01 160,266.20
EC
Loans, advances & deposit 632.02 1,632.98 706.94 598,971.60

Total current assets 1,356.58 4,204.85 1,738.53 1,018,267.00
Sundry creditors 937.10 2,205.86 1,241.98 268,825.60

Other current liabilities
liabilities and 18.19 70.94 21.73 38,223.95
provisions
Total current liabilities 956.01 2,276.80 1,263.71 307,049.50
SP
Net current assets 400.57 1926.05 474.82 711,217.10
Miscellaneous expenses 71.58 140.11 87.51 10,299.85
Total assets 4,892.04 11509.9 6,247.03 1,562,253.00

IN

PY
Exhibit 5
Imported HRC Process Flow at CSSL Indigeneous HRC
HR Receipt: Coil Storage Bay (CSB)
CO
Continuous Pickling Line
(CPL)
Mill II Mill I
ON
Electrolytic Cleaning Line
(ECL)
CR Slitter (CRS)
Bell type Annealing Furnace

(BAF)
Continuous Galvanising Line
TI
(CGL)
Skin Pass Mill
(SKP)
EC Cropping
(CGL CUT)
CR Slitter (CRS)
Corrugation
(COR)
Cropping (CTL)
SP
CRCA CRCA CRCA Galvanised Galvanised Galvanised

(Coils) (Coils) (Packets) (Coils) (Plain) (Corrugated)
Source: Company records, September 1998

IN
Exhibit 6
PY
Standard Material Flow Routes at CSSL
1) CSB CPL MILL I/II CGL 1/2 OFF CUT 1/2/3 COR 1/2/3 Despatch (Trade / GC Export)
CO
2) CSB CPL MILL I/II ECL/ CRS 2 Despatch (CR Export)
3) CSB CPL MILL I/II ECL BAF SKP Despatch (OSP Trade)
ON
4) CSB CPL MILL I/II CRS 2 CGL 1 Despatch
5) CSB CPL MILL I/II ECL BAF CRS 1/2/3 Despatch (Coil Form CR)
TI
6) CSB CPL MILL I/II ECL EC BAF SKP CRS 1/2/3 Despatch (SKP Coil Form CR)
7) CSB CPL MILL I/II ECL BAF SKP CTL 1/2/3/4 Despatch (CR OEM Packets)
SP
8) CSB CPL MILL I/II ECL BAF SKP CRS 1/2/3 CTL 1/2/3/4 Despatch (CR OEM Packets)

IN
PY
Exhibit 7
Plant Layout
CO
SKP MILL I MILL II
CPL
ON
ECL BAF 1 BAF 2 CSB
CRS 3 CRS 1 CTL 1 CRS 2 Narrow CR

Slitter
TI
CTL 4
CGL 1
EC CGL CUT 1 CGL CUT 2
COR 1/2/3/4
Gate
CTL 2
SP
CTL 3
IN

PY
CO
ON
TI
EC
SP
IN
Exhibit 8
GP/GC: State-wise Sales during 1996-97, 1997-98 and % Sales Growth
State Sales
PY
1996-97 % 1997-98 % % Growth
Growth
(tpa) of total (tpa) of total 1996-97
1996
over 1996-
-97
97
Maharashtra 13,924 20.05 31,225 28.72 124.25

Madhya Pradesh 3,303 4.76 1,405 1.29 --57.46
57.46
CO
Gujarat 0 0.00 1,197 1.10
Rajasthan 1,436 2.07 1,761 1.62 22.63
Goa 0 0.00 104 0.10
Assam / North 15,987 23.02 18,093 16.64 13.17
East
West Bengal 9,977 14.37 15,108 13.90 51.43
Bihar 2,648 3.81 3,047 2.80 15.07
Orissa 0 0.00 170 0.16
Uttar Pradesh 7,305 10.52 10,712 9.85 46.64
Punjab
Haryana
Himachal Pradesh
4,619
2,812
0
6.65
0.00
4.05
N 7,263
1,219
4,305
6.68
1.12
3.96
57.24
53.09
IO
Jammu Kashmir 574 0.83 927 0.85 61.50
Delhi 3,993 5.75 7,022 6.46 75.86
Andhra Pradesh 2,486 3.58 3,275 3.01 31.74
Tamil Nadu 241 0.35 807 0.74 234.85
T
Kerala 0 0.00 133 0.12

Karnataka 133 0.19 950 0.87 614.29
EC
Total 69,438 108,723 56.58
Source: Company records, March 1999

SP
IN
Exhibit 9
1998-99 Target Market: State-wise Marketsize, Distribution Setup and Share
Quantity in tonnes
PY
State Mkt size Monthly Sale (Est) CSSL potential per No of
month
per Season Off Season Season Off Season Dealers
annum
(6 months) (6 months) (6 months) (6 months)
CO
Maharashtra 150,000 15,000 10,000 4,500 2,000 29
Madhya Pradesh 95,000 9,500 6,333 300 150 5
Gujarat 70,000 7,000 4,667 350 125 3
Rajasthan 60,000 6,000 4,000 250 100 4
Goa 1,800 180 120 50 25 1
Assam/North East 80,000 8,000 5,333 3,000 1,200 8
West Bengal 75,000 7,500 5,000 1,500 850 4
Bihar
Orissa
65,000
40,000
6,500
4,000
N
4,333
2,667
450
150
250
75
5
1
IO
Uttar Pradesh 95,000 9,500 6,333 900 600 4
Punjab 65,000 6,500 4,333 1,000 700 3
Haryana 25,000 2,500 1,667 150 70 1
Himachal Pradesh 20,000 2,000 1,333 400 200 7
T
Jammu Kashmir 40,000 4,000 2,667 700 300 2

Delhi 85,000 8,500 5,667 1,000 500 4
EC
Andhra Pradesh 50,000 5,000 3,333 500 250 4

Tamilnadu 35,000 3,500 2,333 300 150 5
Kerala 20,000 2,000 1,333 100 50 1
Karnataka 20,000 2,000 1,333 100 50 2
OEMs / Projects 55,000 5,500 3,667 250 250 8
SP
Total 1,146,800 114,680 76,453 15,950 7,895
Source:: Company records, September 1998

Source
IN
Exhibit 10
Depot-wise, Monthwise Sales Plan from Sep-98 to Mar-99
Quantity in tonnes
PY
Location Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar
Mar-99
Mar-
-99
99 Total
Guwahati 1,400 1,350 1,700 1,750 2,100 2,300 2,400 13,000
13,000
Calcutta 1,000 1,100 1,400 1,200 1,300 1,800 2,700 10,500
10,500
Patna 200 250 250 250 275 200 250 1,675
Ranchi 50 50 50 50 50 50 50 350
CO
Cuttack 50 50 50 50 50 50 50 350
Subtotal (East) 2,700 2,800 3,450 3,300 3,775 4,400 5,450 25,875
Ahmedabad 150 250 250 300 400 500 500 2,350
Mumbai 0 400 400 425 425 425 500 2,575
Goa 50 50 50 50 50 50 50 350
Nagpur/Marathwada 1,600 1,700 2,000 2,300 2,700 3,300 3,500 17,100
Indore 50 450 450 500 525 550 600 3,125
Raipur 92 50 50 50 50 50 50 392
Bhopal
Gwalior
Jabalpur
50
50
50
125
50
50
N
150
100
75
150
75
75
100
100
100
150
100
100
200
175
150
925
650
600
IO
OEM 200 125 125 150 200 200 200 1,200
Subtotal (West) 2,292 3,250 3,650 4,075 4,650 5,425 5,925 29,267
Delhi 500 450 450 450 500 500 500 3,350
Chandigarh 150 150 200 200 200 200 200 1,300
T
Ludhiana 600 625 650 725 700 750 750 4,800

Jammu Kashmir/Srinagar 300 200 200 200 0 0 150 1,050
Ghaziabad 350 400 400 500 350 425 450 2,875
EC
Kanpur 350 400 450 550 550 550 600 3,450

Gorakhpur 125 100 100 100 125 125 150 825
Karnal 200 150 200 200 225 225 225 1,425
Parwanoo 300 300 325 350 275 275 275 2,100
Udaipur / Jaipur 150 175 200 225 225 250 250 1,475
Subtotal (North) 3,025 2,950 3,175 3,500 3,150 3,300 3,550 22,650
SP
Hyderabad 400 400 400 400 400 425 425 2,850

Chennai 400 200 350 350 350 350 350 2,350
Bangalore 54 75 75 75 50 50 50 429
Hubli 200 225 200 200 175 250 250 1,450
Coimbatore 29 50 50 50 50 50 50 329
Cochin 100 150 150 150 100 150 150 1,000
IN
Subtotal (South) 1,183 1,100 1,225 1,225 1,125 1,275 1,275 8,408
Grand Total 9,200 10,100 11,500 12,100 12,700 14,400 16,200 86,200

Source
PY
Exhibit 11
Galvanised Steel Section (Domestic): Performance at a Glance
Quantity in tonnes
No Calcutta Guwahati Kanpur Delhi Mumbai Marathwada Rest of India Total
CO
1 Performance
1996-97 9,560 16,425 2,960 4,568 11,875 24,050 69,438
1997-98 15,112 18,583 4,365 7,880 3,012 28,438 31,333 108,723
Growth in 1997-98 compared to 1996-97 (%) 58.08 13.14 47.47 72.50 139.48 30.28 56.58
2 Performance
Apr-97 to Aug-97 4,630 6,831 1,230 3,201 1,136 8,760 9,705 35,493
Apr-98 to Aug-98 5,649 7,314 2,490 4,024 2,386 13,791 17,726 53,380
ON
Growth in 1997-98 compared to 1996-97 (%) 22.01 7.07 102.44 25.71 110.04 57.43 82.65 50.40
5 Sales plan
Sep-98 to Mar-99 10,500 13,000
13,000 3,450 4,400 2,575 17,100 35,175 86,200
6 Realisation (Rs lacs)
Sep-98 to Mar-99 3,050 4,085 710 1,350 816 4,160 8,129 22,300
7 Stock >30 days 590 151 78 223 0 0 N.A. 1,042
TI
Liquidation plan 11/30/98 11/30/98 11/15/98 11/15/98
8 Debtors >60 days (Rs lacs) 0.00 2.18 0.00 0.00 25.00 50.82 78.00
Recovery plan EC Dispute 9/30/98 9/30/98

SP
IN
Exhibit 12
All India Galvanising Capacity Estimations
Quantity in tonnes per annum
PY
Company Capacity Increase Capacity Availablity % Share
1998-99 1999-2000 1999-2000 1997-98* 1998-99
99 (Est) 1997
1997-98
1997--98
98
Sail / Tata 350,000 365,000 340,000 350,000 28.36
28.36
Jindal 400,000 200,000 600,000 241,789 350,000 20.17
IIL 175,000 75,000 250,000 162,890 175,000 13.59
CO
Bhusan 140,000 100,000 240,000 117,888 125,000 9.83
Lloyds 150,000 150,000 110,000 90,000 9.18
National 70,000 50,000 120,000 81,234 80,000 6.78
Sipta 80,000 80,000 56,526 60,000 4.72
Uttam 150,000 150,000 48,252 50,000 4.03
Shree Precoated 50,000 50,000 40,195 40,000 3.35
B.C. Jindal Group 50,000 50,000 100,000 25,000 0.00
Bharat Berg
Steelco
Assam Asbestos
35,000
50,000
30,000
N 35,000
50,000
30,000
5,000
5,000
5,000
0.00
0.00
0.00
IO
Metalman 50,000 50,000 20,000 0.00
Siddhartha Metal 50,000 50,000 100,000 5,000 0.00
Hansa Metallics 50,000 50,000 20,000 0.00
T
Total 1,880,000 525,000 2,420,000 1,198,774 1,405,000 100

EC
Source: Cold Rolled Steel Manufacturers Association (CORSMA)
* Figures include export of 203,217 tonne

SP
IN
Exhibit 13
PY
Analysis of Attributes of Product Rating (GP/GC sheets)
GP Sheets
CSSL Co A Co B Co C Co D
CO
Defects in prime 14-18% Nil Nil Nil Nil
Tarr (temp) Not ok Ok Ok Ok Ok
Brightness Poor Very good Good Very good Very good
Flatness Ok Ok Ok Ok Ok
Thickness Variation Major Minor Minor Minor Minor
Edges Mill/with burr Slit/clean Slit/clean Slit/clean Slit/clean
ON
Spangle Non uniform Uniform Uniform Uniform Uniform
Light Light Light Light Light Light
GC Sheets
CSSL Co A Co B Co C Co D
Defects in prime 14-18% Nil Nil Nil Nil
TI
Edge waviness Common in p1/p2 Nil in prime and S1 Nil in prime Nil in prime Nil in prime
Hardness in 0.15 mm to 0.3 mm Low required hardness 93 - 95 hrb Ok Low Very good Low
Brightness
Thk.. Variation 0.45 mm to .75mm
To improve
Major
EC Good
Minor
Good
Minor
Very good
Minor
Good
Minor
Edges Mill/with burr Slit/clean Slit/clean Slit/clean Slit/clean
Spangle Non uniform Uniform Uniform Uniform Uniform
Bundle weight Light Light Light Light Light
SP
Stacking Poor always with damaged sheets Very good Good Good Very good
Bowness in thin gauges Common Rare Rare Rare Rare
Number of pieces on tag/challan Generally incorrect Correct Correct Correct Correct
Corrugation defect Common and iirregular No defect No defect No defect No defect
IN

PY
Exhibit 14
Factors Influencing Sales/Market Share
Ratings on 5 point scale
CSSL Co A Co B Co C Co D Co E Co F
CO
Price (ultimate cost to customer) 4 4 5 5 4 5 5
Quality 3 4 4 4 4 3 3
Packing 3 5 3 3 4 3 2
Availability of product mix 4 4 3 3 3 2 3
Good corporate image and brand equity 5 5 5 3 3 2 2
ON
Consistent marketing policy & customer relation 5 4 3 2 3 2 3
Distribution policy and dealer network 5 5 4 4 3 3 4
Technology 4 4 4 3 4 3 3
Delivery 4 4 3 4 3 2 3
TI
Customer service 4 4 3 3 4 3 2
Customer satisfaction level 4 4 3 3 4 3 3
Potential EC 5 5 4 4 3 2 2
Total 50 52 42 41 42 33 35

SP
IN
Exhibit 15
Details of Finished Goods at CSSL
Installed
% of Production
PY
% of total Capacity
Product name Year capacity (tonnes per
stock (tonnes per
utilisation annum)
annum)
CR carbon steel
Mar-98 19.17 76.21 285,000 217,192
sheets/coils
Galvanised coils/sheets Mar-98 25.35 81.11 175,000 141,938
Color coated sheets Mar-98 4-.01 27.50 50,000 13,750
CO
Sales
Mar-98 2.24 N.A
returns/claims/discounts
CR carbon steel
Mar-97 24.44 69.78 285,000 198,868
sheets/coils
Color coated sheets Mar-97 4.32 28.22 50,000 14,108
Sales
Mar-97 2.51 N.A
returns/claims/discounts
CR carbon steel
sheets/coils
Galvanised coils/sheets
Color coated sheets
Mar-96
Mar-96
Mar-96
23.09
18.12
3.06
N 68.89
72.14
23.02
285,000
125,000
50,000
196,346
90,178
11,511
IO
CR carbon steel
Mar-95 28.98 47.71 250,000 196,346
sheets/coils
Color coated sheets Mar-95 2.87 10.86 50,000 5,428
T

EC
SP
IN
Exhibit 16a
PY
Process Cycle Time in CRM for September 1998
CO
70.8 2.2 2.3 5.0 3.0 5.0
1.7 11.5
HR BAF CRS
CPL MILL ECL SKP CTL Packing Despatch
Receipt
3.6 2.3
ON
2.0
2.0
Segregation
TI
Route CPL MILL ECL BAF SKP SLT SKP CTL QC-OK PKG ROLL ROLL
to to to to to to to to to to to to
MILL ECL BAF SKP EC SLT CTL CTL SEGG PKG DESP PACK DESP
Sep-97 2.4 2.0 4.6 3.0 1.8 1.9 2.2 1.5 2.3 14.4 13.4 27.8
Apr-98 3.0 3.5 5.4 3.8 4.4 3.9 11.4 2.0 1.9 14.0 21.8 35.5
May-98 2.6 3.4 5.2 4.5 5.9 6.4 11.8 2.5 2.1 9.6 23.5 32.9
SP
Jun-98 2.4 7.5 5.4 4.7 3.7 3.1 10.8 2.3 1.9 8.9 24.2 33.1
Jul-98 2.0 6.8 6.0 3.0 5.0 2.5 3.0 2.1 1.6 6.5 22.8 29.2
Aug-98 2.2 4.0 5.6 2.8 4.7 1.9 3.0 2.9 1.9 7.8 19.9 27.6
Sep-98 2.2 2.3 5.0 3.0 3.6 2.3 5.0 2.0 1.9 11.5 16.8 28.1
IN

PY
Exhibit 16b
CRM Operation for September 1998
in days
HRC CPL MILL ECL BAF SKP SLT SKP MILL CTL FINISH PKG HRC ROLL ROLL TOTAL
CO
Segment wise Routewise Ageing ==> to to to to to to to to to to to to to to to to Qty
CPL MILL ECL BAF SKP SLT CTL CTL SLT SEG PKG DESP ROLL QC-OK DESP DESP (tonne
G s)
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (A+B) (C to J) (C to (A to L)
L)
Hard 1.Direct MillL 10.4 1.5 4.7 16.7 11.9 0.0 21.4 33.0 61
CRC/CR
Baby/CR Deft 2.Through (ECL\SLT) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0
ON
Average Hard CRC 10.4 1.5 0.0 4.7 16.7 11.9 0.0 21.4 33.3 61
CR Export 1.Through 50.7 1.1 2.9 0.4 1.7 51.8 2.9 5.0 56.8 459
2.Through (Slitter) 41.7 5.5 6.4 1.7 5.9 47.2 6.4 14.0 61.2 106
Average CR Export 49.0 1.9 2.9 6.4 0.6 2.5 50.9 3.6 6.7 57.6 565
CRCA Coils 1.OSP Trade 163.8 3.7 10.2 12.8 4.3 29.4 25.1 167.5 27.3 81.8 249.3 10
TI
2.OEMs 37.2 2.0 3.0 4.9 3.1 4.0 1.9 18.2 39.2 15.0 35.1 74.3 635
Average CRCA coils 39.1 2.0 3.1 5.0 3.1 4.0 2.3 18.3 41.1 5.2 35.8 76.9 644
CRCA Packet 1.OEM(w/o Slit) 22.1 1.7 EC 2.2 4.1 2.6 5.0 1.8 8.1 23.8 13.9 23.8 47.6 194
2.OEM(w/o Slit) Segg 15.3 2.6 3.2 5.2 2.1 4.7 1.5 1.6 7.4 17.9 16.7 25.7 43.6 39
3.OEM(with Slit) 77.1 2.3 2.0 4.9 2.8 3.5 2.2 1.7 9.9 79.4 15.4 27.0 106.4 2,303
4.OEM(with Slit) Segg 95.0 2.4 2.1 5.2 3.2 3.7 2.5 2.0 2.3 14.9 97.4 18.7 35.9 133.3 1,386
Average CRCA packets 80.1 2.3 2.1 5.0 2.9 3.6 2.3 5.0 2.0 1.9 11.6 82.4 16.5 30.0 112.4 3,922
Average coils and 74.3 2.3 2.2 5.0 3.0 3.6 2.3 5.0 2.0 2.0 12.5 76.6 16.3 30.8 107.4 4,566
SP
packets
Average (Total) 70.8 2.2 2.3 5.0 3.0 3.6 2.3 5.0 6.4 2.0 1.9 11.5 73.0 14.9 28.1 101.1 5,192

IN
Exhibit 16c
PY
Process Cycle Time in CGL for September 1998
1.9
GP Coil
CO
2.7 2.7
21.4 1.4 3.0 2.5
5.1
HR
CPL MILL Transfer CGL Prodn GP Cutting Packing Despatch
Receipt
2.4
ON
1.0
Corrugation
in days
TI
CPL MILL MILL SLIT XFR CGL CUT CUT COR Prodn to Packing PKG Roll Roll
Route to to to to to to to to to GPS GCS COIL to to to
MILL XFER SLIT XFR CGL CUT COR PKG PKG DESP PACK DESP
Sep-97 1.0 1.2 1.2 1.1 3.0

EC 8.8 3.2 3.0 3.0 18.3 13.2 3.3 9.3 13.2 22.5
May-98 4.5 1.1 1.7 1.3 1.2 2.6 0.8 2.6 2.6 8.3 3.4 2.3 3.6 5.7 9.3
Jun-98 2.4 2.3 1.9 1.9 1.8 1.8 1.8 1.7 1.7 4.8 4.1 2.4 3.1 7.7 10.8
SP
Jul-98 2.7 2.0 4.5 1.6 2.0 1.7 1.8 1.4 1.4 3.0 4.2 3.3 2.9 8.2 11.2
Aug-98 1.7 2.1 5.0 2.5 3.3 1.4 1.9 1.1 1.1 13.7 3.8 2.8 4.0 10.1 14.1
Sep-98 1.4 2.7 3.7 1.7 2.5 2.7 2.4 2.7 2.7 5.7 5.9 1.9 5.1 9.6 14.8
Norm 2.0 1.0 2.0 1.5 1.5 1.5 1.7 0.1 0.1 3.3 1.6 1.1 2.0 5.5 7.5
IN

Exhibit 16d CGL
PY
Operation for September 1998
in days
HRC CPL Rolling Rolling SLIT Total XFR CGL CUT COR CUT PROD Total PKG Grand Qty
CO
Route-wise Ageing to to to to to HR to to to to to to CGL to Total tonnes
CPL ROLLING XFR SLIT XFR Receipt to CGL CUT COR PKG PKG PKG XFR DESP HR
Segmentwise CGL XFR to PKG Receipt
to
Despatch
CGL OEM
with slit (Packet) 25.3 0.7 1.6 1.5 29.1 3.6 2.3 4.0 9.9 2.8 41.8 58.30
ON
w/o slit (Packet) 2.0 2.0 0.0 4.0 2.9 4.9 157.0 164.6 0.0 168.6 3.20
with slit (coil) 183.0 4.9 17.0 13.9 218.8 18.9 1.1 20.0 12.9 251.7 6.30
w/o slit (coil) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.00
Average GP OEM 38.9 1.2 0.0 3.1 2.7 45.6 5.0 2.4 12.1 1.1 18.2 3.8 67.4 67.90
Trade
TI
GC Sheet 16.1 1.3 2.9 20.3 2.2 2.5 2.5 0.8 8.0 6.9 35.2 3,811.10
GP Sheet 9.1 0.9 1.4 11.4 1.6 3.0 2.6 7.2 3.9 22.5 611.50
GP Coils 14.2 1.2 3.4 18.4 3.7 1.6 5.3 5.5 29.6 2,180.00
Average Trade 14.8 1.2 2.9 EC 19.0 2.6 2.6 2.5 0.8 2.6 1.6 7.0 6.2 32.2 6,602.60
GP Export
GC Sheet 39.0 0.9 1.0 40.9 1.1 2.8 2.1 1.9 7.9 6.0 54.8 662.00
GP Sheet 61.7 1.1 1.8 64.6 0.7 3.2 1.8 5.7 10.0 80.3 611.40
GP Coils 43.6 0.9 0.5 45.0 1.0 1.7 2.7 3.6 50.3 488.20
SP
Average GP Export 48.2 1.0 1.1 50.3 0.9 3.0 2.1 1.9 1.8 1.7 5.7 6.7 62.7 1,761.60

IN
Exhibit 17
Details of Raw Materials Consumed at CSSL
Quantity Value Cost/Unit

Product name Year
PY
(tonne) (Rs crore) (Rs/tonne)
HR coils Mar-98 234,229 343.30 14,656.60
CR coils Mar-98 138,421 260.75 18,837.46
Zinc & zinc alloy Mar-98 7,024 47.72 67,938.50
CO
HR coils Mar-97 206,584 327.06 15,831.82
CR coils Mar-97 92,327 180.47 19,546.83
Zinc & zinc alloy Mar-97 5,097 28.58 56,072.20
HR coils Mar-96 223,133 355.95 15,952.37
CR coils
Zinc & zinc alloy

Mar-96
Mar-96
N
87,647
4,941
182.74
26.74
20,849.54
54,118.60
IO
HR coils Mar-95 129,504 181.99 14,052.85
CR coils Mar-95 65,159 120.76 18,533.13
Zinc & zinc alloy Mar-95

95 3,453 18.80 54,445.41
T

EC
SP
IN
Exhibit 18
Source-wise and End Usage-wise

wise HR Coils Receipt from 1/4/98 to 30/09/98
Quantity in tonnes
PY
Source For OEMs For GP/GC/CCS Export Total
EDD D Total Spl GC MSGC Total Source
Imports
Posco, S Korea 11,969 11,969 27,757 27,757 39,726
Sidmar, Belgium 14 14 0 0 14
CO
Subtotal (imports) 11,983 0 11,983 27,757 0 27,757 39,740
Indigenous
Tisco 3,843 5,625 9,468 6,723 13,496 20,219 29,687
Essar 757 3,957 4,715 11,487 11,090 22,577 27,291
Ispat 0 8,275 8,275 0 12,270 12,270 20,545
Lloyds 0 549 549 0 23,164 23,164 23,713
Sail 0 0 0 0 759 759 759
Sub-total 4,601 18,406 2,306 18,210 60,799 78,988 101,995
(indigenous)
Total HR coil receipt 16,584 18,406 34,989 N 45,967 60,799 106,745 141,735
IO
Thicknesswise HR Coils Receipt from Various Sources (1/4/98 to 30/09/98)
Quantity in tonnes
Source 1.6 mm 1.8 mm 2 mm 2.2-2.6 mm 3.0-4.0 mm Total

T
Imports
Posco, South Korea 19,014 2,847 4,673 2,998 10,195 39,726
EC
Sidmar, Belgium 0 0 0 0 14 14
Subtotal (imports) 19,014 2,847 4,673 2,998 10,209 39,740
Indigenous
Tisco 1,246 4,211 6,066 11,365 6,799 29,687
Essar 5,071 2,718 3,862 14,100 1,540 27,291
Ispat 1,527 5,390 3,514 4,845 5,269 20,545
SP
Lloyds 0 0 5,375 11,789 549 23,713

Sail 0 0 0 759 0 759
Sub-total
total 7,844 12,319 18,817 48,858 14,157 101,995
(indigenous)
Total HR coil receipt 26,858 15,166 23,490 51,856 24,366 141,735
IN

Source
Exhibit 19
PY
Organisation Structure
Director Incharge
CO
Dy. Manager
(Coordination)
ON
GM VP GM Senior VP Senior VP
(CR - Marketing) (Marketing) (PPIC & CB) (HRD & GS) (Operations)
DGM GM GM AGM VP
TI
(CR - Marketing) (GP/GC Marketing) (Materials) (HRD & GS) (CRM)
Senior Manager VP
(CR - Marketing) DGM
(Exports)
EC DGM
(Accounts)
Dy. Manager
(HRD & GS)
(Projects)
GM
(Construction)
AGM DGM
SP
(Marketing) (IT) GM
(Mechanical)
Source: Company records,

rds, September 1998 GM
(CGL)
IN
Exhibit 20
PY
Questionnaire Summary
Support
Marketing Production Materials (IT, Costing & Budgeting,
etc.)
CO
Customer
Internal • Prodn, Planning and • Marketing dept. • Manufacturing
Control dept. • Projects dept.
• Costing dept
External • Dealers • Customers of
• OEMs secondary steel
• Government buyers products
• Overseas buyers
ON
Inconsistencies • Time delays • Size variations in • Arranging urgent
• Quality complaints thickness material at short
mainly related to rust • Need for upgrading notice causes excess
technology or inadequate stock
• Nonconformance to quantity
quality specs in GP/GC • Cut to length lines need
deliveries to eliminate • Stockouts
TI
• Price higher than dimensional
competitors inaccuracies
Supplier EC
Internal • Manufacturing • Rolling Mills • Stores
• Accounts
External • Transporters • Raw material suppliers • Material suppliers
• Maintenance
contractors
- Inconsistencies • Timely delivery • Quality inconsistency in • Time overruns • Accuracy of data
SP
• Material defect raw material • Quality inconsistency • Delay in supplying

• No communication information
regarding the status of
the order
IN
PY
Questionnaire Summary (Contd…..)
Support
Marketing Production Materials
(IT, Costing & Budgeting, etc.)
Action Plan
• • • •
CO
Short Run Better communication Offer better service Track and plan for Improve information flow
with internal suppliers level by providing more requirements across the organisation
• Harder bargain with customized product • Closely monitor and also include the
external supplier quality supplier performance suppliers and customers
• Keep the customer • Improve customer
informed feedback
ack system
Long Run • Eliminate time delays • Ensuring consistency in • Build loyalty from • Better co-ordination and
ON
• Improve co-ordination raw material suppliers planning across different
with internal and • Technological • To fulfill low volume functional areas
external suppliers upgradation especially non-standard size
• Improve pre-sales and Mill I orders
post-sales service level • Better inventory
• Prompt issue of management
TI
refund/credit notes
EC
SP
IN

Body Line Health Care Ltd
PY
Body Line Health Care Limited (BLHC) was a pharmaceutical company established in 1951.
Over the years, BLHC established itself as a major pharma player, with extensive
penetration in over 20 major therapeutic segments, exports to 40 nations and a wide range of
products registered overseas. BLHC had a turnover exceeding Rs 300 crores in 1997-
1997-98,
1997 -98,
98, and
offered nearly 350 product formulations through five divisions. Each division addressed
CO
specific therapeutic segments, and operated as a profit centre with its own marketing
organisation. BLHC had a wide distribution network across the whole country including
remote pockets, serviced by 18 carrying and supplying (C&S) agents, 2100 wholesalers and
1,30,000 retailers. The company had one factory
actory located in a major city in Western India.
Thirty per cent of the products by volume were outsourced from third party manufacturers
in the region.
The marketing effort was carried out through a total field force of 1200 medical
representatives (MRs). The five divisions had approximately 400, 300, 200, 150 and 150 MRs
the doctors. Nearly 500 individual sample items had to be despatched to the MRs.
BLHC had a Sample

N
respectively. A key element of the marketing strategy was to offer free samples and gifts to
mple Distribution Warehouse (SDW) for packing and despatching samples to

IO
MRs. The SDW was adjoining the Main Distribution Centre (MDC) which looked after
BLHC’s regular product despatches. SDW activities were carried out whenever a sample
campaign was launched
ched by marketing. Typically, there was a campaign every month for
each division. The number of items to be despatched varied from campaign to campaign
and across divisions. The number of items usually required one, two or three cartons per
T
campaign per MR. (Two was considered a reasonable average).
The SDW did not have its own complement of staff. The staff for the operations came from
EC
the MDC as and when required. The manager of the MDC was also incharge of SDW
operations. He could release a maximum of 110 persons at any given time from MDC, but
preferred to release fewer. The SDW operations were usually subject to time urgency due to
campaign requirements. Typically, despatches had to take place with atmost two clear days
of packing time. The working hours
hour at the SDW were 9.30 am to 5.30 pm. With lunch and
rest breaks, the effective working time was reduced to six hours. In a crunch, the manager
could also hire some of the labour required for the SDW on a daily basis. However, this had
SP
a problem that the same labour may not be available, thus affecting the SDW efficiency
adversely.
The sample items came from the factory or from the third party manufacturers/suppliers,
packed individually in cartons. They were received and kept in Hall 1 of the SDW (Exhibit
1). The campaign list was supplied by the marketing department. The SDW had to pack the
sample cartons according to the campaign list. The operation was divided into activities as
IN
given in Exhibit 2. This exhibit also provides the time taken for each operation
opera based on six
Prepared by Professors G Raghuram and Bibek Banerjee

Banerjee, Indian Institute of Management,
Ahmedabad. Research assistance of Kaustav Roy Chowdhury is gratefully acknowledged.
Ahmedabad
Teaching material of the Indian Institute of management, Ahmedabad, is prepared as a basis for class
 1999 by the Indian Institute of management, Ahmedabad.
observations, during a campaign in which 16 items were to be packed in a carton. After

packing and stacking, they were despatched to the MRs through the C&S, using truck
couriers.
The manager of the SDW had observed that at most 300 cartons ns were being packed in a day.
PY
He was quite concerned about the productivity of SDW operations, and wanted to run it as
efficiently as possible, preferably with fewer persons, since it would then least disrupt his
MDC activities. He was also considering ways ys of improving the operation through better
technological support, co-ordination for supplies etc.
CO
N
T IO
EC
SP
IN
Exhibit 1
Layout of the Sample Distribution Warehouse
PY
Hall 2 : Stacking of Hall 1 : Stacking of
packed sample cartons individual sample items’ cartons
(8) (5) (1) (1)

(7) (6)
CO
(5) (2)
(4)
(3)
Notes:
1. Numbers in brackets refer to activities as described in Exhibit 2. N

2. The layout is not to scale. A larger area was taken for stacking of individual sample items’ cartons.
T IO
EC
SP
IN
Exhibit 2
PY
Assembly Line for Packing of Samples
No of Time taken for each trolley/carton (in seconds)

Activity Activity Description people
CO
involved Obsn 1 Obsn 2 Obsn 3 Obsn 4 Obsn 5 Obsn 6
1 Load sample items in trolley 2 55 45 55 55 55 60
2 Send trolley for checking 5 5 5 6 5 5
3 Check samples against the campaign list 1 40 45 42 45 40 40
4 Drag trolley to hall 2 and bring
ON
an empty trolley to put items 1 15 15 15 10 12 15
5 Open out a new folded carton, and
put sample items into it 2 70 70 78 70 72 75
6 Gum labels and tape the carton 2 50 50 45 50 50 50
7 Strip pack the carton 1 20 20 20 20 18 20
TI
8 Stack the carton 1 20 15 15 15 20 20
Total 10 275 265 275 271 272 285
Notes:
EC
1. 16 items are to be packed in a carton. For activity (1), the first person puts 10 items on the trolley and moves it to the second person.
The second person puts 6 items on the same trolley. The first person takes about 10 seconds more than the second person.
2. Activity (2) is performed by the second person.
SP
3. Activity (5) is done at two work tables. The time taken

taken for opening a new carton is about 10 seconds.
4. Activity (6) requires two persons simultaneously, one to hold and gum the carton, and another to label and tape.
5. Activity (7) is done using a stripping machine
6. Activities (1) and (8)) can vary in time depending on location of stacks.
IN

International Cosmetics Limited
PY
Mr. Himendra Ratnayake, factory manager at International Cosmetics Limeade’s (ICL) plant
in Ja-Ela
-Ela near Colombo, Sri Lanka was concerned about the quantity and quality of output in
the facility producing mosquito coils. The domestic sales for mosquito coils had been
growing steadily in recent years, and the company was forced to import coils from Malaysia
to meet demand. Of the company’s annual sales of 35,000 cases, the plant could supply
CO
about 2000 cases a month. The balance ce was imported. The company was therefore
considering alternatives to increase the capacity of the facility. He was also worried about
the number of defective coils that were produced. Although they had taken several
successful measures to reduce the number er of defectives, he felt that there was scope for
further improvement.
Company background
International Cosmetics Limited (ICL), a division of the Maharaja Group, Sri Lanka,
produced and marketed a variety of personal care products like shampoos, hair gel gels and
N
talcum powder. ICL also made mosquito coils and sold them under the Lion brand name in
the domestic market. The major competition came from Mortein coils which held about 80%
of the market. Mortein coils enjoyed a very strong brand image and people ssometimes
held most of the remaining market
referred to a mosquito coil as Mortein. ICL’s Lion brand he
IO
share.
The factory had separate facilities for each product line. The mosquito coil facility had a total
investment of Rs.20 million Sri Lankan rupees, of which Rs.15 million were spent on
equipment. Last year, the total sales, including domestic production and imports, was
T
Rs.87.5 million. Sales were seasonal, and the period from January to March had low sales.
Sales peaked during the monsoon which stretched from the third week of May to end of
July, and again, in November and December. The facility employed a total of 44 regular
EC
workers and except for the packing line, it operated on a two shift basis throughout the year.
The packing line was operated for only only one shift per day. An additional 5 persons were
employed for maintenance and supervision.
Each mosquito coil consisted of two spirals coils intertwined with each other and was called
a double coil. Coils were sold in the retail market in packets of 5 do
double coils costing Rs.
27.50 per packet for ICL’s Lion brand. The competing brand, Mortein sold for Rs.30 per
SP
packet. ICL’s margin on sales from domestic production was 5 to 6 times the margin on sales
from imported coils.
Production process
The first step in the production process was dry mixing tabu powder, starch and wood dust.
This mixing was done in a dry mixer (Figure 1) which could process 50kg at a time in about
fac
20 minutes. The mixer was located separately in a small room in a rear corner of the factory.
IN
After mixing, the mix was then sent to a kneader, located on the main shop floor along with
Prepared by Professors A. H. Kalro, S. T. Sastry and A. Tripathy, Indian Institute of Management,

Ahmedabad.
Case Material of the Indian Institute of Management, Ahmedabad is prepared as a basis for class
other equipment required for production of coils. About 32 kg. of water was added along
with the active ingredient, Pynamine Forte and a colouring agent. Processing
essing in the kneader
took another 15 minutes. A visual and sensory check was made on the quality of output which
was in the form of a dough or paste called the wet mix. The production supervisor
mentioned that it was difficult to fully standardise the output
put since some of the ingredients
PY
like wood dust varied from batch to batch. After kneading, the dough was crushed to
remove any lumps and then passed through an extruder, which converted the dough into
wide sheets which were about 4 mm thick and about a metre etre wide. There was some rejection
of material at this stage but it did not exceed 1% or 2% of the total weigh. The extruder took
35 minutes to process a batch of material from the kneader.
CO
The output from the extruder was fed continuously into a stamping machine, where a set of
7 dies stamped out wet double coils, each weighing 45 grams. These coils were loaded onto
trays, with each tray having two rows of 7 coils each. The stamping machine was designed
to operate at 18 strokes a minute. However, to reduce the problem of defective coils, it was
operated at 12 strokes a minute. The production supervisor mentioned that it took about 35
minutes, including about 10 minutes of set up, to process one batch of material, yielding
about 1800 double coils per batch. The stamping machine was used for two shifts every day.
There were three operators at this machine. One helped to load trays, another to unload
N
trays, and a third to check quality, which was done visually. Any defective coils were
removed from the tray. Itt had been observed that there were quite a few defective coils per
batch at this machine. Several attempts were made to reduce the number of defective coils.
For instance, it was noticed that the stamped coils sometimes broke as they fell onto the
IO
trays used for storing the wet coils. They felt that if they could cushion the trays, then the
number of broken or damaged coils would come down. After trying different materials like
cardboard, paper, and plastic, they finally decided to use x-ray
x film. The defect rates did
come down as a result of this change.
T
They also considered using statistical process control methods to improve the yield.
However it was difficult to do standardise the process given the varying composition of raw
materials, some of which like wood dust, were organic. There was also some variation in the
EC
composition of other raw materials. Finally, based on the advice of a consultant, they
decided to increase the thickness of the extruded sheets from 3.8mm to 4mm. This helped to
reduce the problem
blem of breaking or snapping of the wet sheets coming out of the extruder
which fed into the stamping machine. However, it increased the weight of the coil and the
variable cost of production. The output of the stamping machine measured in number of
coils per batch also came down since more material was used for each coil. Further, as
mentioned earlier, operating the machine at 12 strokes a minute instead of 18 strokes a
SP
recycled
minute, increased the time it took to process a batch. All rejected material was recycl
through the stamping machine after further extrusion.
After stamping, trays were loaded on trolleys, each of which could accommodate 135 trays.
Trolleys were wheeled into to a dryer, which consisted of a long closed room or chamber
which could be completely sealed off. The company had 70 trolleys and 3 drying chambers,
IN
each of which could accommodate 28 trolleys. Hot dry air was circulated in the dryer at
about 70oC to dry the wet coils. The entire drying operation or firing took about 14 hours.
During firing, the dryer was completely sealed off and no material could either be put in or
taken out. After firing, the hot air circulation was switched off, and it took another 2 hours
for the dryer to cool. It was then opened, the trolleys were wheeled out into a storage area
earmarked for trolleys, and the trays were unloaded from the trolleys. The unloading
operation took another 30 minutes. During full scale production, one dryer was normally in
operation i.e., either under firing or cooling, while a second was being loaded. All three
drying chambers were rarely in use (i.e., being loaded, fired or unloaded) at the same time.
After the trolleys were unloaded and the trays removed from the trolleys, the coils were
PY
manually removed from the trays and kept ready for packing. The trays were then available
for use in the stamping machine. The dry double coils, which now weighed 27gm each, were
placed on a slowly moving line where workers visually inspected them, removing any
defective coils. They were then stacked into lots of 5 each and passed into the packing
machine which wrapped them in cellophane wrapping. Although the machine could
operate at a speed of 70 packets a minute, it was actually operated at 50 packets a minute to
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match the speed of the line workers inspecting and loading coils. On the average, about 5%
of the dry coils were rejected from the packing line. The wrapped lots of 5 coils were
manually placed in cartons or packets, which in turn were placed in cardboard cases for
shipping. Each case contained 100 packets. Although coils were shipped in cases of 100
packets each, they were sold at retail stores in packets.
As mentioned earlier, the average output of the plant was 2000 cases a month while
operating in two shifts. Even though sales were seasonal, production was steady. The plant
manager felt that capacity was a bottleneck and demand far exceeded the production since
about 11000 cases of coils were imported and sold under the Lion brand last year.
Purchasing and Costing
There were three major items
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ems that were purchased. Pynamine Forte, the active ingredient,
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was imported from Japan through the Sumitomo Corporation, which had a local
representative in Colombo. Orders were placed once in 2 months since ICL had to place
orders at least equal to a specified
cified minimum order quantity. The other two major items, tabu
powder and starch, were imported from a Malaysian distributor, who in turn obtained
stocks from Indonesia. These were purchased once a month in lots of 12 tons and 3 tons for
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tabu powder and starch respectively. Receipt of orders had been regular and the company
did not face any difficulty with the present arrangement. However, raw materials were a
major component of total cost and they were keen to explore ways of reducing costs.
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Of the total cost of raw materials and packaging, 65% was the cost of raw materials. Of the
total raw material cost, about 40% was the cost of Pynamine forte and about 27% was the
cost of tabu powder. The margin on sales was about 25%.
Conclusion
Mr. Himendra was wondering if he could achieve higher output from the plant without
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additional investments in equipment and machinery. Specifically, he was thinking about the
best way to use the drying chambers. Currently they loaded the trays containing the wet
stamped coils on trolleys which were then wheeled into the drying chamber. However,
some of the trays were not fully loaded since defective coils obtained from the stamping
machine were taken out. One of the workers had suggested that all trays be filled with wet
before sending them to the dryer. This would require an inventory of wet coils and
coils before
perhaps cause some delay in loading wet coils on trays that were not full. He was not sure if
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this would help in increasing output from the plant. On the other hand, investing in
equipment to increase the capacity would require additional funds. If he chose this option,
he would have to decide which equipment to buy, and how much capacity to add. Another
possibility was to increase the number of shifts. However this would mean that some of the
machines would operate all three shifts. Mr. Himendra wanted to arrive at a decision soon
about the best way to increase output from the plant and cut costs.
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Plant Layout
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Mixer
Extruder Kneader Screw Conveyor
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Conveyor
Platform
Stamping
N Dryer 1
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Platform Trolley
Dryer 2
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Dryer 3
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Packaging Line
Figure 1
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MAR0321
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Konkan Railway Corporation Limited
Ninety-four rakes in nine months sure looks dismal, Mr Sinha, when we needed
to have achieved this in perhaps nine days. I am convinced that Konkan Railway
undamentally different
needs to approach this business in a manner which is fundamentally
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from the traditional. And unless we can efficiently and effectively deliver values to
m afraid, a huge national liability!
satisfy market needs, we would be, I=m
These were the words of B. Rajaram, Managing Director of Konkan Railway Corporation
Limited (KRC), as he reviewed the traffic summary until October 1998. D Discussing
iscussing the future
of KRC=ss commercial prospects in freight traffic with P .B. Moorty,
P.B. Moorty Chief Operations
Manager, and V.C. Sinha, Deputy Chief Commercial Manager, Rajaram h had just informed
them about his decision to hire an external consulting team to help structure a marketing
strategy for KRC. First, with the help of the consultants, Rajaram was seeking to identify the
profile of the market KRC should target. Second, an overall
in order to serve and sustain its business activities.

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overall marketing strategy had to be
formulated in order to serve the target market. Finally, given KRC
KRC=s independent status vis-à-
organi
vis the Indian Railways (IR), a structure for its marketing organization had to be put in place
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Introduction
KRC, a 738 km railway infrastructure project between Roha (about 150 km south of Mumbai)
and Thokur (22 km north of Mangalore), built at a cost of Rs 3,375 crore (Rs 2,425 crore
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investment and Rs 950 crore as capitalized

capitalized
capitalized interest), had commenced operations on January
26, 1998. Out of Rs 3,375 crore, Rs 800 crore was equity capital (from the governments of
Maharashtra, Goa, Karnataka, and Kerala, and the central government through the Indian
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Railways). The project was conceived

conceived with the objective of bridging the Konkan gap and
reducing the distance and travel time between Mumbai and coastal Karnataka and Kerala.
Exhibit 1 gives the all India railway map with major routes, in which KRC constituted the
segment between Roha and Mangalore on the west coast. A detail of the KRC segment is
given in Exhibit 2. The idea of a railway in the Konkan region (then between Mumbai and
Calicut) had been considered even in the late 19th century. However, because of the difficult
terrain, the line was never constructed. The portion from the south had come until Mangalore
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(early 20th century) and then Thokur (in the 60s, as part of a railway line to the New
Written by Professors Bibek Banerjee, and, G. Raghuram, Indian Institute of Management, Ahmedabad,
and Professor Naray
Narayan Rangaraj, Indian Institute of Technology, Mumbai. Research assistance provided
by Kaustav Roy Chowdhury is gratefully acknowledged.
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The authors wish to thank Mr. B. Rajaram, Managing Director, Konkan Railway Corporation Limited,
for his cooperation. Professor Bibek Banerjee and G. Raghuram also thank the Research and Publications
Committee of IIMA for providing financial assistance.
problems.
Mangalore port), and from the north until Roha (in segments, during the 60s and 70s,
primarily to serve the growing industrial belt around Mumbai). The gap to be covered was
thus from Roha to Thokur.
Transfer (BOT) operator in July 1990. Rajaram was a

KRC was set up by IR as a Build-Operate-Transfer
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member of the project teamm from the beginning. He was a civil engineer and headed the
construction team in two of the seven subsections of KRC. Rajaram had joined IR in the mid
mid-
60s where he had a distinguished career. He had seen the KRC project through several
charge of the construction of the Goa subsection where
turbulence, especially when he was in-charge
environmentalists had embarked upon a serious and prolonged agitation against the KRC
alignment. 1
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KRC had just completed the build phase, and was expected to operate profitably and pay
back the entire investment over 10 years. Thereafter KRC operations would be transferred to
IR. KRC was a public sector company under the Ministry of Railways (MOR). With a staff
strength of 3,400, KRC=ss interest and salaries/maintenance burden called calle for urgent
measures to bring in traffic, especially freight. The cash expenses of KRC were in excess of Rs
1 crore a day. Given that KRC was assured of daily earnings of Rs 25 lakh by way of passenger
traffic, Rajaram and associates envisaged that aboutt 10 loaded freight trains (rakes) needed to
ply over the entire KRC segment to break even. Over and above this, KRC needed to make
surpluses to pay back the debt burden of Rs 2,575 crore in the 10 year time frame.
Mangalore gap, KRC was expected to offer substantial savings in

By bridging the Mumbai-Mangalore
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time and distances for various streams of railway traffic. However, KRC had been directed by
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MOR to charge a 50 per cent premium over its segment for freight (40 per cent for passengers),
under the premise that at extra revenue would be generated. This implied that the freight rate for
chargeable=
chargeable= at a rate equivalent to 1.5 km travelled on any
one km travelled on KRC was >chargeable=
other IR route. A summary of the savings in time/distances owing to KRC from a sample of
different traffic originating points is given below:
below:
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From Vadodara
To Kilometers
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Old KRCL Savings Chargeable Saving in hours*

Madgaon 1148 965 183 1187 6
Mangalore 2389 1283 1106 1653 37
Cochin 2206 1612 594 2082 20
From Kota
To
Madgaon 1676 1493 183 1715 6
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Mangalore 2917 1811 1106 1653 37

Cochin 2734 2240 494 2610 16
From Mangalore
To
Delhi 3031 2247 784 2617 26
Kanpur 2841 2169 672 2538 22
Gwalior 2718 2046 672 2415 22
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* Calculated at an average speed of 30 kmph for goods trains

Source:
So urce: KRC Brochure, 1998.
1 A detailed discussion of this appears in “Konkan Railway Corporation: Choice of Alignment in Goa,” Vikalpa,
Vol. 20, No. 3, July-September 1995.

A major source of concern for Rajaram was that the earlier projections of freight traffic on KRC
had not materialized. Segment-wise, station-wise, and commodity-wise wise analysis of the rakes
moved over KRC from January to October 1998 8 is given in Exhibit 3. Out of 94 rakes, 33 passed
through KRC, 35 terminated on KRC, and 26 originated on KRC. Out of 33 rakes that had
passed through, 29 rakes terminated in Vasco and Mangalore, which were stations adjacent to
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KRC; one rake originated inn Panambur, a station adjacent to KRC. The organizations who had
moved freight over KRC were mainly from the public sector like FCI, IFFCO, KRIBHCO, and
HPCL. The private sector organizations had moved cement (Gujarat Ambuja) and fertilizer
icals). Most of these organizations used KRC to reach their markets close to
(Zuari Agrochemicals).
KRC. HPCL, Zuari Agrochemicals, and FCI (for loading from Karwar port) were the
exceptions. All these products being bulk, the organizations used KRC for the price advantage
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over other modes.
Evidently, very few goods trains, with both origin and destination at stations not adjacent to
KRC, had used KRC as a through route. It was clear that KRC was not going to get required
traffic volumes from rake movements only for destinations within KRC and/or origins out of
KRC. It was in this light that the consultants were hired to help identify the profile of the
market KRC should target. An overall marketing strategy also had to be formulated, and a
structure for KRC=s marketing organization
ion had to be designed.
Customer Survey
Prior to the commissioning of KRC, RITES a consulting company under MOR had given
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estimates of road traffic volume that KRC was expected to attract. Exhibit 4 provides excerpts
from the RITES report. Unfortunately for KRC, the volumes had not materiali materialized. The
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consultants believed that, without a proper understanding of the customer requirements and a
well defined service offer, KRC was unlikely to attract a majority of the potential market as
defined in Exhibit 4.
customers= needs and wants had to be

The consulting team believed that the precise nature of customers
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identified, which would help segment the market for freight transportation. Following the
identification of the segments, KRC would have to decide on its target customers to focus its
marketing activities. For this purpose, it decided to undertake a detailed market survey of 13
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organizations KRC=s services. Exhibit 5 gives a summary of the

ations that could potentially use KRC
organizations
results from the 13 organiz
organizations
ations surveyed.
ring the survey, it was found that more and more organi
During organizations were attempting to take
direct control of their logistics operations, ranging from owning transport to entering into long
term arrangements with transporters. The key service parameters they lo looked for were transit
time, availability of transport when required, predictability of delivery, door
door-to-door service,
loading unloading ease/minimum handling, small shipment size, claim settlements for
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damages/delays during transit, and price.
Competition
Competition
KRC=s
KRC
KRC= =ss major competition was seen to be from road transport and coastal shipping. Over the
years, rail transportation had steadily lost substantial market share to road transportation. The
major advantages that road offered were flexibility of shipment size, ready availability of
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trucks, favourable rates (in response to market conditions), and door door-to-door movement.
summarizes the comparative customer satisfaction levels from rail vis-à-vis road, as
Exhibit 6 summari
reported by an earlier consultant survey. As iis evident, road scored favourably on all
summarizes recommendations to IR from reports submitted by two
parameters. Exhibit 7 summari
consultants, namely A.F. Ferguson & Co. and a small consulting company called
earlier consultants
CARE.
Another unintended source of competition for KRC was the rest of the Indian Railways
system (especially the adjoining railway zones). They preferred to maintain the traffic on
existing routes rather than use the KRC route even if the latter was more efficient for a variety
of reasons which are explained below:
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KRC Route
KRC was adjacent to the Central Railway (CR), Southern Railway (SR),, and South Central
Railway (SC) zones.. Traffic was exchanged with CR at Roha from where route went on to
astern India. From Diva, a
Panvel and Diva to feed Mumbai and other parts of northern and eastern
western and n
line to the Western Railway (WR) carried traffic bound for the western northwestern
orthwestern
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states. Traffic was exchanged with SR at Thokur from where the route went south via
Mangalore to Calicut and Cochin in Kerala and parts of Tamil N Nadu.
adu. From Mangalore, there
ast towards Bangalore. Traffic was exchanged with SC at Madgaon from
was a line that went east
where the route went east into northern Karnataka,, and west to the port of Mormugao.There
weree four major ports close to the Konkan line, namely, Mumbai and Jawaharlal Nehru
(served by CR), Mormugao (served by SC), and New Mangalore (served by SR). The smaller
ports were Ratnagiri, Karwar, and Honnavar.
The route passed through the southern coastal al districts of Maharashtra (375 km), Goa (110
km), and coastal districts of Karnataka (255 km). The route was essentially on the coastal plain
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west of the Western Ghats. The Ghats ran parallel to the western coast of India. Since the
Ghats reached right up to the coast in some sections, the KRC route had to cross difficult
terrain involving significant tunnelling, cuttings,
cuttings, and bridging. Major industries like steel,
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petrochemicals, petroleum, fertilizers, etc., were located north of Roha on the CR stretch up to
Panvel and Mumbai. Goa had iron ore mines and was a major centre for tourism. Mangalore
was the outlet for Kudremukh iron ore and had an oil refinery. The coastal districts
processing industries.
contributed raw materials for agro-processing
Competition from Road Transport

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Most of the potential customers of KRC continued to prefer road transport. Trucking offered
door delivery at lower shipment volumes, and there was immediate settlement of
door-to-door
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claims for damages. s. For consumer goods, movement by rail would incur a larger
corresponding total logistics cost because of higher inventory ((owing to larger shipment size),
additional warehousing and handling related costs, and additional secondary transportation
costs. Along the west coast, National Highway 17 provid provided an almost parallel transport
corridor. Typical truck rates for Mumbai to Kerala movement (say for 1,200 km) were Rs
18,000 per 10 ton truck load. However, for the return journey, the rates were as low as
15,000-18,000
10,000, because the quantum of north
Rs 8,000-10,000, north-bound freight movement was relatively lower
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than the south-

south-bound
bound traffic
south-bound traffic.. The trucks typically covered about 350 km a day.
For the consumer goods sector, pure transportation (usually by road) was only 40 per cent of
total logistics cost. The logistics cost constituted about 6 per cent of selling price. On the other
hand, for the bulk goods sector, pure transportation (usually by rail) was 80 per cent of total
logistics cost. The logistics cost constituted about 50 per cent of selling price.
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According to current >chargeable= rates, the price (and hence earnings) for KRC=s top ten
commodities on its segment is given in Exhibit 8.
Competition from Coastal Shipping
Many natural railway users along the west coast (cement, steel, and petroleum based
industries) had made significant investments in coastal shipping infrastructure like vessels,
he railways in the long run.
jetties, bulk handling facilities, etc. This was a serious concern for the
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Exhibit 9 gives a summary of investment projects in Gujarat (a major potential market for
KRC). As many as 21 per cent of these new projects involved possible investments in
industries situated along the coast and support infrastructure to enable coastal movement.
Coastal shipping could take place in barges (smaller vessels of about 3,000 ton capacity),
whose costs were approximately Re 0.25 per ton/km, km, or larger ships (up to 30,000 ton
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ssuming average levels of depreciation on the related
capacity) whose costs were even lower, assuming
infrastructure. Correspondingly, for a 1,200 km movement, the freight rate for 10 tons was Rs
3,000. The smaller ports could handle barges only. Travel times on sea were comparable to rail
eds of 25 to 30 kmph), though port loading and unloading times and hinterland
(average speeds
access could take a few days more. As observed by KRC executives, A Even if the additional
AEven
elements of the logistics cost for coastal movement were higher by Rs 2,000 for 10 tons, rail
would not be competitive. Clearly, KRC would not be competitive against coastal shipping on
price, if appropriate coastal infrastructure was in place.@
place.@
There would be scope for KRC to tap customers who could otherwise use coastal movement
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as long ass they did not have coastal infrastructure in place. Lack of infrastructure implied that
many small coastal ports were not accessible directly by larger ships. The option was then to
have secondary movement through smaller barges to enter the ports, which required
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additional handling. These barges did not provide reliable service during the monsoon (up to
four months in a year).
Competition from Indian Railways
The explicit instructions by the Railways to commercial

commercial staff were to route via KRC only traffic
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bound for stations on KRC. Distance tables to KRC destinations had been made available to
IR goods clerks. But there were several origin
origin-destination (OD) combinations, not necessarily
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involving stations on KRC, which could be re-routed through KRC (either entirely or partially)
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to reduce the total chargeable or even physical distance. Exhibit 10 provides the break
break-even
distance analysis (using both chargeable and actual distances) taking a representative sec
section
as illustration, namely Cochin to Hubli (and neighbourhood).
Currently, routing of through traffic was a matter of either the customer or the goods clerk
taking the initiative to work out the appropriate distances and preparing the railway receipt
RR). Customers often expected the goods clerk to suggest the shortest (chargeable) route.
(RR).
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Most often this did not happen since the goods clerk was not equipped with the appropriate
instructions, or even the usual information containing distance tables via KRC to major
destinations. Another reason given by the neighbouring railway zones for not rerouting
traffic via KRC was lack of capacity in the sections of their zones adjoining the Konkan line.
One of the KRC executives added, AThe neighbouring zones are under pressure to show more
earnings. Hence, if rerouting via KRC implies reduced movement (and hence reduced
earnings) over their zone, rerouting would not happen automatically. In fact, there would be
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resistance to such rerouting.

rerouting.@ (The earnings from a rake were appropriated as follows: 7% for
the railway zone of the originating station, 3 per cent for the zone of the terminating station,
and 90 per cent in proportion to the distance over each traversed zone.)
For the Cochin to Hubli movement, it was ccheaper to route all traffic from Cochin to 14 km
west of Hubli through KRC even on (50 per cent inflated) chargeable distance basis (see map
in Exhibit 11). Therefore all traffic from Cochin bound for destinations from Madgaon to 14
km west of Hubli, as well as Londa and north (in SC), could ply on KRC.
If the extra charge on the KRC section was discounted, breakeven occurred 60 km south of
Hubli route (via SC), the breakeven
Hubli (via the SR route). Considering an alternate Cochin-Hubli
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was two km west of Hospet. Therefore, the 74 km north-south Acorridor@ and the 156 km east-
east-
west Acorridor@ around Hubli were potential markets for KRC. Obviously traffic originating
in the SC and SR segments discussed above bound for Cochin and via could be routed
nlike in the SR case above, SC had an incentive to encourage the KRC route
through KRC. Unlike
since it would earn more than on the existing route.
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Similar analysis for traffic originating and/or terminating in other railways (eg CR and WR)
could identify potential markets for KRC.
In this context, Rajaram also felt a certain helplessness in having access to the market, in that
the KRC line ended more than 100 km away from the southern industrial belt of Mumbai, a
major traffic generator. He often said, AKRC is a railway withth no address.@
address.@
Marketing Mix
KRC had made attempts to contact industries and industry associations directly in states like
traffic solicited by them to the extent of the 50 per cent surcharge on KRC=s
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Gujarat and Kerala. In order to attract traffic, KRC had been offering discounts for some of the
KRC segment. Apart
from distributing promotional literature, it had started advertising in newspapers to inform
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potential customers the savings of moving by rail using KRC.
On the basis of customer expectations (Exhibit

(Exhibit 5), and recommendations from previous
consultants= reports based on market surveys (Exhibit 7), KRC considered segmenting the
market as follows:
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ake load movers requiring station-

rake station -to
to--station
station service
station-to-station
ake load movers requiring door-
rake door -to
to--door service
door-to-door
art load movers requiring door-
part door -to
to--door
door service (containeri
door-to-door (containerized transport)
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art load movers not requiring door-

part door -to
to
door-to-door service
Rajaram was also wondering if there were other relevant dimensions on which KRC should
segment the market. He had to prioriti
prioritize the source of competition to go after in order to
generate traffic for KRC (in the short and long run).
In this context, KRC had to develop an overall marketing strategy on the following
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dimensions:
• Product/service elements
• Pricing, viewed in the ccontext of competition, customer expectations, and costs. Exhibit 12
gives an insight into costs of freight operations for KRC.
• Places of operation, especially for soliciting customers, anand providing a single window
service.
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• Promotion and public relat relations. Exhibit 13 gives a sample of promotion literature
distributed at a meeting with the Gujarat Chamber of Commerce and Industry
• Partnership with customers, complimentary service providers
providers, and IR
Finally, the marketing organi

organization to enable marketing strategy implementation had to be
decided. Exhibit 14 gives the current organization chart of KRC, wherein sales/marketing
tasks were performed by Dy. CCM. He spent most of his time facilitating rake allocation for
client using KRC by coordinating with the respective zonal railways where the traffic
originated. He also negotiated the pricing structure including discounts (in consultation with
the MD) and took care traffic accounts and claims. Dy COM M looked after train operations and
loading and unloading at stations in KRC. Both Dy CCM and Dy COM reported to COM. All
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others looked after the engineering and support activities.
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Exhibit 1
All India Railway Map
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Exhibit 2
Konkan Railway Map
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Exhibit 3
Summary of Rake Data
Aggregate (Period : Jan 1998 to Oct 1998)
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Number of rakes which passed through KRC 33*
Number of rakes which terminated in KRC 35
Number of rakes which originated in KRC 26**
----
Total 94
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* Out of 33 rakes that had passed through KRC, 29 rakes terminated in Vasco and Mangalore, and one rake
originated in Panambur. All these are stations adjacent to KRC.
** This does not include the LPG rakes originating in Thokur,
ur, and immediately moving out of KRC into SR. About
40 such rakes per month have moved over the past two months.
Segment-wise
Segment within Chargeable Commodities No of Period
KRC Km Rakes
Roha - Ratnagiri 305 Cement, Rice, Wheat, Urea, 27 Jan=98 to Oct=98
Fertilizer
Roha - Verna
Roha - Thokur
645
1108
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Cement, Wheat, Rice,
Sponge Iron, Foodgrain,
Urea, Wheat, Cement,
Fertilizer
22
13
Feb=98 to Oct=98
Feb=98 to Oct=98
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Thokur - Roha 1108 LPG 11 July=98 to Sep=98
Karwar - Thokur 356 Wheat 9 Mar=98 to June=98
Verna - Madgaon 19 Urea 5 July=98
Thokur - Verna 463 Cement 2 May=98 to June=98
Thokur - Udupi 70 Rice 1 May=98
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Thokur - Madgaon 444 Rice 1 June=98

Madgaon - Ratnagiri 358 Cement 1 June=98
Madgaon - Verna 19 Wheat 1 July=98
Verna - Roha 645
645 Urea 1 July=98
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TOTAL 94
Stationwise
Terminating Station
tation for rakes passing through KRC
Station Commodity No of Rakes Period
Vasco Wheat, Rice, Cement, Foodgrain 20 Feb=98 to Oct=98
Mangalore Urea, Cement, Fertili
Fertilizer 9 Feb=98 to Oct=98
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West Hill Wheat 1 June=98

Bellary Cantt.
Cantt. Rice 1 June=98
Kallayi Cement 1 Aug=98
Alwaye Cement 1 Sep=98
TOTAL 33
Terminating S
Station
tation in KRC
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Ratnagiri Cement, Rice, Wheat, Urea, Fertilizer 28 Jan=98 to Oct=98
Verna Cement, Sponge Iron, Foodgrain 5 Feb=98 to June=98
Udupi Rice 1 May=98
Kolad Cement 1 Oct=98
TOTAL 35
Exhibit 3 (continued)
Originating Station in KRC
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Thokur LPG 11 July=98
98 to Sep=
=98
= Sep=98
Sep 98
=98
Karwar Wheat 9 Mar=98
Mar=98
Mar= 98 to June=
June=98
June 98
=98
Verna Urea 6 July=98
July=
July 98
=98
TOTAL 26
Commodity-wise
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Rakes Passing through KRC
Commodity No of Rakes KRC Earnings Period

(Rs)
1
Wheat 9 36,32,901 Jan=98
Jan=98
Jan= 98 to Oct
Oct=98
2
Rice 8 67,68,554 Mar=98 to Sep=98
Mar
Urea 6 84,22,959 Jan=98 to Oct=98
Jan
3
Cement 5 45,29,230
45,29,23 0 April=98 to Oct=98
4
Foodgrain 4 5,52,898 June=98 to Aug=98
Fertilizer
TOTAL
Rakes terminating in KRC

1
33
N -
5
Aug=98
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Commodity No of Rakes KRC Earnings (Rs) Period
6
Wheat 12 51,10,233 Mar=98 to Oct=98
7
Rice 11 52,96,085 Mar=98 to Oct=98
8
Cement 7 25,18,545 Jan=98 to June=98
9
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Foodgrain 2 - Aug=98
Fertilizer 1 3,36,307 June=98
Urea 1 4,83,875 May=98
Sponge Iron 1 11,10,604 Mar=98
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TOTAL 35
Rakes originating in KRC
Commodity No of Rakes KRC Earnings (Rs) Period

LPG 11 Yet to be allocated July=98 to Sep=98
Wheat 9 Yet to be allocated Mar=98 to June=98
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Urea 6 Yet to be allocated July=98

TOTAL 26
______________
1
Earnings available for 5 rakes
2
3
Earnings availabe for 2 rakes
4
Earnings available for 1 rake
5
Earnings not available
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6
7
8
9
Earnings not available
Source : KRC Data and Authors= Analysis, November 1998

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Exhibit 4
Traffic Potential as Estimated by RITES
Commoditywise Road Traffic Estimates for Diversion to

Through Traffic from South to North on KR
Chargeable TRAFFIC ESTIMATES IN TONNES
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Distance Distance Rail.Com. Actuals PROJECTIONS FOR
(km) (km) Classification for 1996-97 2000-01 2005-06
COMMODITY ORIGIN DESTINATION KR Total KR Total 1994-95
1994-
1994 -95
95 1993-94 1st year 5th year 10th year
Building material Kottayam Gujarat 739 1836 1109 2206 105 775 938 1184 1527
Cattle Feed Trivandrum Gujarat 739 1997 1109 2367 120 775 938 1184 1527
Caustic Soda Ernakulam /Cochin Gujarat 739 1773 1109 2143 135 775 938 1184 1527
Chemicals & Drugs Kottayam Gujarat 739 1836 1109 2206 260 6730 8138 10274 13250
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Chemicals & Drugs Quilon Dharwar 297 1046 446 1195 260 0 0 1184 1527
Edible Oils Ernakulam / Cochin Belgaum 297 1016 446 1165 185A 0 0 39 51
Edible Oils Ernakulam / Cochin MP 739 2051 1109 2421 185A 775 938 1184 1527
IO
Edible Oils Kozhikode Belgaum 297 1016 446 1165 185A 0 0 1184 1527
Fruits & Vegetables Ernakulam / Cochin Rajasthan 739 2229 1109 2599 105K 775 938 1184 1527
Fruits & Vegetables Kozhikode Gujarat 739 1773 1109 2143 105K 775 938 1184 1527
Fruits & Vegetables Trivandrum Rajasthan 739 2453 1109 2823 105K 775 938 1184 1527
Oil Seeds Kozhikode Delhi 739 2475 1109 2845 130B 775 938 1184 1527
CT
Parcels Trivandrum Gujarat 739 1997 1109 2367 230 775 938 1184 1527
Provisions Kozhikode Delhi 739 2676 1109 3046 210 862 1042 1315 1697
Provisions Kozhikode Gujarat 739 1773 1109 2143 210 1551 1876 2368 3054
Provisions Kozhikode MP 739 2051 1109 2421 210 775 938 1184 1527
Provisions Kozhikode Rajasthan 739 2229 1109 2599 210 775 938 1184 1527
Rubber&R.Products Ernakulam / Cochin Gujarat 739 1997 1109 2367 170 4050 4897 6183 7974
PE
Rubber&R.Products Kozhikode MP 739 1870 1109 2240 170 775 938 1184 1527
Rubber&R.Products Trivandrum Gujarat 739 1997 1109 2367 170 862 1042 1315 1697
S.Machinery&Parts Kottayam Gujarat 739 1836 1109 2206 240 775 938 1184 1527
S.Machinery&Parts Trivandrum MP 739 2275 1109 2645 240 69 83 105 136
S
IN
PY
Commoditywise Road Traffic Estimates for Diversion

Through Traffic from South to North on KR Region
Chargable TRAFFIC ESTIMATES IN
Distance Distance Rail.Com.
Rail.Com. Actuals PROJECTIONS FOR
CO
1994 1993-94 1st year 5th year 10th
Tea Ernakulam / Cochin Belgaum 297 1036 446 1185 150 0 0 1184 1527
Tea Ernakulam / Cochin Delhi 739 2696 1109 3066 150 517 625 789 1018
Textile&Yarn Ernakulam / Cochin Gujarat 739 1773 1109 2143 200 775 938 1184 1527
Textile&Yarn Kozhikode MP 739 1870 1109 2240 200 284 344 434 560
Timber&Bamboo Ernakulam / Cochin Gujarat 739 1773 1109 2143 135 775 938 1184 1527
Timber&Bamboo Kozhikode Rajasthan 739 2028 1109 2398 135 862 1042 1315 1697
N
Timber&Bamboo Quilon Gujarat 739 1921 1109 2291 135 775 938 1184 1527
Tobacco Ernakulam / Cochin Gujarat 739 1773 1109 2143 150 775 938 1184 1527
Tyres & Tubes Ernakulam / Cochin Gujarat 739 1757 1109 2127 170 345 417 526 679
IO
Tyres & Tubes Ernakulam / Cochin Gujarat 739 1773 1109 2143 170 775 938 1184 1527
Tyres & Tubes Trivandrum Gujarat 739 1997 1109 2367 170 689 834 1052 1357
Washing Powder Trivandrum Gujarat 739 1997 1109 2367 160 775 938 1184 1527
CT
S PE
IN
PY

Through Traffic from North to South on KR Region
CO
1994 1993-94 1st year 5th year 10th
Building Materials Gujarat Trivandrum 739 1997 1109 2367 105 775 938 1184 1527
Building Materials Gujarat Kottayam 739 1836 1109 2206 105 52 63 79 102
Building Materials Rajasthan Trivandrum 739 2453 1109 2823 105 775 938 1184 1527
Building Materials Rajasthan Kozhikode 739 2028 1109 2398 105 862 1042 1315 1697
N
Building Materials Rajasthan Ernakulam/Cochin 739 2229 1109 2599 105 2499 3022 3815 4920
Cattle Feeds Gujarat Ernakulam/Cochin 739 1773 1109 2143 120 862 1042 1315 1697
Cement Rajasthan Trivandrum 739 2453 1109 2823 150 862 1042 1315 1697
IO
Chemicals & Drugs Bombay Trivandrum 739 1554 1109 1924 260 129 156 197 254
Chemicals & Drugs Gujarat Trivandrum 739 1997 1109 2367 260 862 1042 1315 1697
Chemicals & Drugs Rajasthan Trivandrum 739 2453 1109 2823 260 862 1042 1315 1697
Chemicals & Drugs Rest of Maharashtra Ernakulam/Cochin 739 1433 1109 1803 260 819 990 1250 1612
Cotton (Raw) Delhi Ernakulam/Cochin
CT
739 2696 1109 3066 160 862 1042 1315 1697
Cotton (Raw) Gujarat Ernakulam/Cochin 739 1773 1109 2143 160 1637 1980 2499 3224
Edible Oils Gujarat Kozhikode 739 1572 1109 1942 185A 1637 1980 2499 3224
Edible Oils Rest of Maharashtra Ernakulam/Cochin 739 1433 1109 1803 185A 775 938 1184 1527
Fruits & Vegetables Bombay Trivandrum 739 1554 1109 1924 105K 862 1042 1315 1697
Fruits & Vegetables Gujarat Kozhikode 739 1540 1109 1910 105K 862 1042 1315 1697
Fruits & Vegetables Gujarat Ernakulam/Cochin 739 773 1109 1143 105K 775 938 1184 1527
PE
Fruits & Vegetables Rest of Maharashtra Trivandrum 739 1581 1109 1951 105K 2309 2793 3526 4547
Fruits & Vegetables Rest of Maharashtra Alleppey 739 1507 1109 1877 105K 732 886 1118 1442
Fruits & Vegetables Rest of Maharashtra Ernakulam/Cochin 739 1433 1109 1803 105K 2283 2761 3486 4496
Fruits & Vegetables Rest of Maharashtra Quilon 739 1581 1109 1951 105K 775 938 1184 1527
S
IN
PY

Through Traffic from North to South on KR
CO
(kms) (km) Classification for 1996-97 2001-01 2005-06
Iron & Steel Rods Gujarat Trivandrum 739 1997 1109 2367 230 517 625 789 1018
Limestone & Dolomite Rajasthan Ernakulam/Cochin 739 2229 1109 2599 130 862 1042 1315 1697
Oilseeds Gujarat Kozhikode 739 1540 1109 1910 130B 862 1042 1315 1697
Paper & Stationery Rest of Maharashtra Ernakulam/Cochin 739 1433 1109 1803 175 1551 1876 2368 3054
Parcels Bombay Trivandrum 739 1554 1109 1924 230 1206 1459 1842 2375
N
Parcels Delhi Kozhikode 739 2475 1109 2845 230 775 938 1184 1527
Parcels Gujarat Ernakulam/Cochin 739 1773 1109 2143 230 2197 2657 3354 4326
Provisions Gujarat Kozhikode 739 1540 1109 1910 210 862 1042 1315 1697
IO
Provisions Gujarat Ernakulam/Cochin 739 1773 1109 2143 210 862 1042 1315 1697
Provisions Honavar Quilon 169 763 254 848 210 327 396 500 645
Provisions Rest of Maharashtra Ernakulam/Cochin 739 1433 1109 1803 210 775 938 1184 1527
Rice Delhi Ernakulam/Cochin 739 2675 1109 3045 95 775 938 1184 1527
Rice Dharwar Trivandrum 297 1122 446 1271 95 0 0 895 1154
CT
Rice Gujarat Ernakulam/Cochin 739 1773 1109 2143 95 3447 4168 5262 6786
Rice Gujarat Kozhikode 739 1572 1109 1942 95 3447 4168 5262 6786
Rice Jammu&Kashmir Ernakulam/Cochin 739 3290 1109 3660 95 862 1042 1315 1697
Rice Punjab Ernakulam/Cochin 739 1773 1109 2143 95 775 938 1184 1527
Rice Rajasthan Trivandrum 739 1870 1109 2240 95 862 1042 1315 1697
Rubber & R.product Gujarat Kozhikode 739 1572 1109 1942 170 775 938 1184 1527
PE
Salt Bombay Trivandrum 739 1554 1109 1924 85A 862 1042 1315 1697
Sugar & Khandsari Bombay Quilon 739 1478 1109 1848 145M 862 1042 1315 1697
Sugar & Khandsari Rest of Maharashtra Trivandrum 739 1657 1109 2027 145M 862 1042 1315 1697
S
IN
PY

Through Traffic from North to South on KR Region
CO
Distance Distance Rail.Com. Actuals PROJECTIONS
S.Machinery & Parts Gujarat Kozhikode 739 1572 1109 1942 240 775 938 1184 1527
S.Machinery & Parts Gujarat Trivandrum 739 1997 1109 2367 240 862 1042 1315 1697
S.Machinery & Parts Rest of Maharashtra Ernakulam/Cochin 739 1433 1109 1803 240 862 1042 1315 1697
Textile & Yarns MP Ernakulam/Cochin 739 2051 1109 2421 200 689 834 1052 1357
Timber & Bamboo Gujarat Ernakulam/Cochin 739 1773 1109 2143 135 775 938 1184 1527
N
Tyres & Tubes Punjab Trivandrum 739 3314 1109 3684 170 775 938 1184 1527
Tyres & Tubes Rest of Maharashtra Ernakulam/Cochin 739 1433 1109 1803 170 862 1042 1315 1697
Washing Powder Delhi Ernakulam/Cochin 739 2676 1109 3046 160 862 1042 1315 1697
IO
Washing Powder Gujarat Quilon 739 1921 1109 2291 160 862 1042 1315 1697
Washing Powder Gujarat Trivandrum 739 1997 1109 2367 160 862 1042 1315 1697
Washing Powder Gujarat Ernakulam/Cochin 739 2676 1109 3046 160 5342 6460 8156 10519
Washing Powder Rajasthan Ernakulam/Cochin 739 2229 1109 2599 160 1723 2084 2631 3393
Washing Powder Rest of Maharashtra Ernakulam/Cochin 739 1433 1109 1803 160 775 938 1184 1527
CT
Wheat Delhi Ernakulam/Cochin 739 2675 1109 3045 95 1034 1250 1579 2036
Wheat Gujarat Kozhikode 739 1572 1109 1942 95 862 1042 1315 1697
Wheat Gujarat Trivandrum 739 1992 1109 2362 95 862 1042 1315 1697
Source: Rites Report, May 1996

S PE
IN
Exhibit 5
Customer Profile
PY
Organization Product Market/Customer Volume Current Key Services Desired
Mode
FACT Caprolactum, Mumbai, Gwalior, 10 trucks Road for Low Prices

Prices
Fertilizers AP, Karnataka,TN per day Caprolactum
Kerala Fertilizers
Fertili
Rail for Fertilizzers
ers Low Freight Charge
CO
IPL Fertilizers Entire Eastern Significant Road/Rail Low Freight Charge
India
Rubber Board Rubber Cochin, Mumbai 5 lakh tons pa Road Door to door delivery,
Rajasthan Insurance, Safety,
Rubber Mark Rubber North & East India 1.5 lakh tons pa Road Door to door delivery,
I S f
TTPL Titanium dioxide Bombay, Gujarat 480 tons pm Road Door to door delivery,
FCI
EICL
Foodgrains
Kaolin
Palghat
North, West & East

N
Significant
3500 tons (for north)

Rail
north) Road/Rail
R li bilit P i
Price
Cost, door to door

IO
& ) d li B ki
Godrej GE White goods South Indian market Significant plus Own containers Containerization,
b
advantages t in the Road/Rail S f t S d C t
fform
orm of other
sister concerns using
il
T
DCW Salt & Atta All India for

for the 1.5 lakh tons pa Road Rake, Single window
Gandhidham plant
EC
Ceat Tyres Cochin for raw 3000 tons pm Road Cost, Door to door
t India
& all i l for finished i
Products
P roducts
Gujarat Cement Gujarat, Maharash

Maharashtra 5-6 rakes a month Coastal Vessels Damages in monsoon
A b j
M&M Utility vehicles & KIndia
All l 30% of the Rail & road ill b: Economies
Bulk d of
Asian Paints Paint besides All Indi
India l d i
Significant Road l added services in
Value
SP
t i l th f fD t d
Source: Authors=
Authors= Analysis, January 1999
IN
Exhibit 6
Mode Choice: Customer Perceptions
PY
Parameters for Level of Importance Level of Satisfaction
Mode-Choice (On a scale of 10) (On a scale of 10)
Road Rail
Quality Parameters Category "A"
Reliability 8.68 8.34 4.60
Availability 8.50 8.41 4.61
CO
Product Specifiers Category "B"
Price 8.20 7.57 5.94
Transit Time 8.16 8.12 4.89
Category "C"
Connectivity 7.99 8.74 3.72
Product Suitability 7.86 7.76 5.42
Hygiene Factors Category "D"

Loss and Damage 7.46 8.00 4.52
Customer Information
Adaptability
Customer Friendly attitude
Negotiability
N 7.37
7.23
7.11
6.89
7.02
7.78
7.47
7.79
3.55
3.24
3.37
2.78
IO
Category "E"
Access to decision makers 6.62 7.62 3.65
Ease of payment 6.50 8.06 3.97
Claim processing time 6.41 7.71 2.68
Weighted Average Score 7.82 3.91
T
Source : AF Ferguson Report -Shipper

Shipper Survey, December 1997
EC
SP
IN
Exhibit 7
Recommendations for Improving Service
PY
Sl Recommendations Ferguson Report CARE Report
No (December 1997) (January 1992)
(% who made the
i
recommendations)
1 Reduce transit time Need to reduce transit time so that Railways SC : 12.8
are at least on par with road (or even slightly NR : 7.3
CO
lower)
2 Improve condition of Proper maintenance of wagon is necessary SC : 7.1
wagons NR : 19.5
3 Improve customer More customer friendly, less bureaucratic SC : 25.7
orientation N
NRR : 19.5
4 Enable shipment Tracking system with necessary information to SC : 7.1
tracing shipper will enable appropriate decision NR : 14.6
making, such as preparation for unloading at
destination and result in higher wagon
utilisation
5
6
Make delivery time
predictable
Reduce damage Care should be taken for proper
loading/unloading of wagons
N
Strict time schedule should be followed. SC : 10.0
NR : 9.7
SC : 5.7
NR : 4.8
IO
7 Simplify procedure Extremely cumbersome procedure SC : 7.1
NR : 4.8
8 Provide information Information of missing, sick and detained SC : 14.2
wagons along with likely date of arrival at NR : 2.4
destination is required
T
9 Give time to locate SC : 1.4

shed NR : -
10 Enable negotiability of Freight rate could be lower for rail than road - SC : -
rate should be genuinely telescopic NR : 2.4
EC
11 Provide door to door Should able to cut the total time by reducing SC : 8.5
delivery administrative procedures, allow for quicker NR : -
loading/unloading of wagons
12 Lower rates Telescopic
Telescopic rate - significant concession for long SC : 2.8
distances NR : 7.3
13 Provide specially SC : 2.8
designed wagons NR : 2.4
SP
14 Provide credit SC : 1.4

facilities NR : 2.4
15 No restrictions SC : 2.8
NR : 4.8
16 Should accept Should start accepting smaller loads, wagon
smaller load load or less than wagon load
1.
In the CARE Report, data were collected from customers of South Central Railway (SC) and Northern Railway
IN
(NR). Customers could give more than one recommendation.

PY
Exhibit 8
Top Ten Commodities: Classification Code and Potential Earnings for KRC
CO
Sl No Commodity Classification Code Potential Revenue Earnings (Rs)
T/L W/L T/L W/L 1000 T 1500 T 2000 T 3000 T
1 Petroleum (Petrol) 300 300x 171.63 182.96 17,16,300 25,74,450 34,32,600 51,48,900
2 LPG 220 280 126.52 160.33 12,65,200 18,97,800 25,30,400 37,95,600
3 Iron & Steel 210A 210B 118.69 129.51 11,86,900 17,80,350 23,73,800 35,60,700
4 Kerosene 150 160 87.10 92.98 8,71,000 13,06,500 17,42,000 26,13,000
5 Cement 150A 150B 85.27 88.04 8,52,700 12,79,050 17,05,400 25,58,100
ON
6 Coal 135A 135B 78.58 81.42 7,85,800 11,78,700 15,71,600 23,57,400
7 Iron ore 125 130 72.95 75.77 7,29,500 10,94,250 14,59,000 21,88,500
8 Urea 85 95 53.54 56.07 5,35,400 8,03,100 10,70,800 16,06,200
9 Grain & Pulses 95M 100M 52.56 55.20 5,25,600 7,88,400 10,51,200 15,76,800
10 NPK Fertilizer & Potash 85B 90A 38.01 40.00 3,80,100 5,70,150 7,60,200 11,40,300
TI
Notes: 1) Revenue earnings are in respect of the Roha - Thokur section, the total chargeable distance is 1107 km
2) T/L=Train (rake) load, W/L=Wagon load
Source: KRC Data and Author Analysis, November 1998

EC
SP
IN
Exhibit 9
Summary of Investment Projects in Gujarat
PY
Sl No District & Place Investment Coastal Type Of Investments Remar
Investments Rs (Crore) Yes/No UI/A/P
Rs (Crore)
1 Jamnagar Digvijaygram 10,736 No Paraxylene, Petroleum Product UI

2 Total=28, 834 Jamnagar 7,558 No Water, Hydrocarbons, Meters, Thermal P/A/UI
Electricity, Roadways, Telephone Com.
CO
Storage & Warehousing Service
3 Vadinar 5,815 No Petroleum Products UI/A
4 Motikhavde 2,100 No Coal Based Thermal Electricity P
5 Sikka 1,785 Yes Ports A
6 Mithapur 456 Yes Soda Ash UI
7 Navlakhi 270 Yes Jetty, Storage & Warehousing Service UI
8 Okha 114 Yes Jetty, Storage & Warehousing Service P
9 Bharuch Bharuch 6,285 No Yarn, Purified Terephthalic Acid, Nitric Acid, UI/P/A
10
Total=21, 721
Dahej 5,328 Yes

N Polyethylene Terephthalate, Polyacet
Polyacetals,
Rubber, Gas Based Thermal Electricity
Organic Chemicals, Alcohols, Caustic
Soda, Mono
Mono-Ethylene Glycol, Acrylonitrile
P/UI/A
IO
Butadiene Styrene, Diammonia Phosphate
Pig Iron, Copper, Thermal Elect
Electricity, Ports
11 Jageshwar 2,495 No Hydrocarbons, Roadways UI
12 Paguthan 2,350 No Gas Based Thermal Electricity UI
13 Gandhar 2,031 No Acrylonitrile, Thermal Electricity P
14 Jhagadia 1,119 No Technology & Industrial Park, Alumunium UI
T
15 Vagra 500 No Cold Rolled Coil &Other Flat Rolled Product A

16 Kharaj 500 No Viscose Staple Fibre UI
17 Amletha 382 No Cotton Yarn P
EC
18 Ankleshwar 246 No Textile, Organic Chemicals, Ether, Sodium UI

Sulphites, Castings
19 Chavaj 160 No Glass Shell For BW TV Tube UI
20 Vilayat 125 NA Technology & Industrial Park UI
21 Jambusar 100 No Bottles UI
22 Narmadanag 100 No Thermal Electricity, Nitric Acid, Acetic Acid UI
Hydrogen, Rare & Other Gases
SP
IN
Sl No District & Place Investment Coastal Type Of Investments Remarks
PY
Investments Rs (Crore) Yes/No UI/A/P*
Rs (Crore)
23 Kachchh Mundra 2,815 Yes Jetty, Technology & Industrial Park, Coal A/UI
Total=11, 936 Electricity
24 Gandhidham 2,038 No Salt, Aluminium Ores, Hotels UI
25 Kachchh 1,864 Yes Water, Sacks & Bags Of Polyethylene, A
CO
Portland Slag Cement, Bentonite, Hotels,
Jetty
26 Kandla 1,616 Yes Port, Pipeline Transport Service, Jetty P/UI/A
Diphosphorous
hosphorous Pentaoxide, Diammonium
Phosphate, Instant & Semi Processed
27 Kharai lakhapat 1,250 No Cement, A
28 Akrimota 1,174 No Thermal Electricity P
29 Panandhro 302 No Thermal Electricity UI
30 Khavda 280 No Bromine A
31
32
33
Khar Thar
Bhuj
Anjar
216
192
189
Yes
No
No
N Thermal Electricity
Roadways
Thermal Electricity
UI
UI/A
A
IO
34 Amreli Pipavav 8,458 Yes Cement, Copper, Coal Based Thermal UI/P/A
Total=11, 058 Ports, LPG Storage & Distribution,
Storage & Warehousing Service
35 Chhara 1,900 No Gas Based Thermal Electricity P
36 Jafrabad 500 Yes Cement P
37 Kodinar 200 Yes Coal Based Thermal Electricity UI
T
38 Surat Hazira 6,462 Yes Yarn, Mono-Ethylene Glycol, UI/P/A

Total=9, 755 Carbon Dioxide, Kerosene, Urea,
EC
Thermal Electricity, Ports

39 Mangrol 1,228 Yes Thermal Electricity UI
40 Surat 715 No Gas Based Thermal Electricity, Hotels, P/UI
41 Udhna 600 No Polyester Filament Yarn UI
42 Barbodhan 590 No News Print UI
43 Olpad 160 No Other Chlorides UI
SP
IN
Sl No District & Place Investment Coastal Type Of Investments Remarks
PY
Rs (Crore)
44 Vadodara Koyali 1,053 No Petroleum Product, UI

45 Total=4, 029 Fertilisernagar 1,030 No Ammonia UI
46 Vadodara 805 No Fruits & Nuts Preserved, POY, Plastics, P/UI
Tyres, Vials For Injectables, Aluminium
CO
Colour TV Receivers,
ers, Parts Of Railways &
Telephone Communication Service, Hotels
47 Savli 682 No Technology & Industrial Park, Tyres & P/UI
48 Jawarnagar 459 No High Speed Diesel Oil P
49 Ahmedabad Vatwa 500 No Thermal Electricity

Electricity P
50 Total=2, 639 Ahmedabad 448 No Drug Formulation, Insulated Cables For UI/A/P
Computer Software, Paint & Varnish,
Foils, Hotels, Airports, Kraft Paper & Paper
51
52
Sabarmati
Khartej
420
300
No
No
N Fruits & Nuts Preserved & Canned, Cotten
& Blended Fabrics
Coal Based Thermal Electricity
Knitted/Crocheted Fabrics
P
UI
IO
53 Sanand 266 No Polyester Filament Yarn, Terry Towelling & UI/P
Fabric, Cotton Woven Blended Fabric
54 Sachana 250 No Paper P
55 Santej 250 No Cotton Woven Blended Fabric UI
56 Moriya 105 No Drug Formulation UI
57 Jakhwada 100 No Cotton Woven Blended Fabric UI
T
58 Bhavnagar Bhavnagar 1,367 Yes Oxygen P/A

59 Total=2, 531 Kalatalav 1,039 No Sodium Carbonate (Soda Ash) UI
EC
60 Nani Dudhalal 125 Yes Cement Clinker UI
61 Kheda Wanakbori 735 No Gas Based Thermal Electricity UI

62 Total=1, 025 Kheda 290 No Apparels P
63 Valsad Vapi 216 No Terry Towelling & Terry Fabric, Paper, UI/P
Total=638 & Paper Board, Acetanilide, Di-Calcium
Drug Formulation, Insecticides,
SP
Gelatin, Chemicals, Kraft Paper & Paper

64 Navsari 172 No Cotton Woven & Blended Fabrics UI
65 Bhilad 150 No Cotton Yarn UI
66 Valsad 100 No Cotton & Blended Yarn P
IN
Sl No District & Place Investments Coastal Type Of Investments Remarks
PY
Rs (Crore)
67 Gandhinagar Gandhinagar 600 No Coal Based Thermal Electricity UI

Total=600
68 Junagadh Ranavav 450 No Cement UI
CO
69 Total=550 Veraval 100 Yes Viscose Rayon Yarn, Electricity Energy P
70 Mehesana Santhal 278 No Petroleum Oil, Telephone Communication UI

71 Total=545 Santej 142 No Cotton Yarn, Hot Rolled Coil & Other Flat UI
72 Rajpur 125 No Tubes & Pipes UI
73 Panch Panch 453 No Hydro Electricity, Irrigation UI

Total=453
Total of the 14 districts
Total investment in Gujarat

N
96, 314 (78% of the total investment in Gujarat)
1, 22, 191
IO
* UI: projects under implementation; A: projects announced; P: projects proposed
Source : Centre for Monitoring Indian Economy,
Economy, Survey of Investment Projects
Projects-States, February 1998
and Author Analysis, November 1998
T
EC
SP
IN
Exhibit 10
Cochin to Hubli (and neighbourhood)
PY
Sl Stations Distance: Stations Distance:
No via KRC (Km) Existing (Km)
A Chargeable
1 Cochin to Mangalore 420 Cochin to Bangalore 591
2 Mangalore to Madgaon 466 Bangalore to Hubli 469
3 Madgaon to Hubli 202
Total Cochin to Hubli 1088 Cochin to Hubli 1060
CO
Therefore breakeven point is 14 km west of Hubli
B1 Actual
2 Mangalore to Madgaon 318 Bangalore to Hubli 469
3 Madgaon to Hubli 202
Total Cochin to Hubli 940 Cochin to Hubli 1060
Therefore breakeven point is 60 km south of Hubli
B2 Actual
2
3
4
Mangalore to Madgaon
Madgaon to Hubli
Total Cochin to Hubli

318
202
940
N
Bangalore to Dharmavaram
Dharmavaram to Guntakal
Guntakal to Hubli
Cochin to Hubli (via Guntakal)
235
141
257
1224
IO
Therefore breakeven point is 142 km east of Hubli
Hubli (which is 2 km west of Hospet)
Notes: 1. Chargeable km on KRC is 1.5 times the distance on IR (Madgaon to KRC/SR point actual is 296
km, Roha to KRC/SR point actual is 738 km).
2. Other
ther distances obtained respectively from Southern Railway, South Central Railway, and Central
Railway Timetables.
T
EC
SP
IN
Exhibit 11
Zones of Indifference under Chargeable and Actual Distances
(via KRC vs Existing Route: Cochin to Hubli)
PY
CO
N
T IO
EC
SP
IN
Exhibit 12
Marginal Cost Structure for Rake Movement
PY
(in Rs)
30 Wagon Rake 30 Wagon Rake 40 Wagon Rake 40 Wagon Rake
1 2 3 4
(1000 T) (1500 T) (2000 T) (3000 T)
5
Wagon Hire 18,150 18,150 24,200 24,200
(Rs 605/Day)
6
Loco Hire 36,000 36,000 72,000 72,000
(Rs 1500/Hr)
CO
Fuel 44,280 66,420 88,560 1,32,840
(Rs .06/Ntkm)
Crew Running 44,280 44,280 44,280 44,280
7
Allowance
(Rs 60/Km)
Total 1,42,710 1,64,850 2,29,040 2,73,320
Note: The overheads for KRC (including financial costs, staff and maintenance costs) are Rs 1crore per day.
Passenger traffic contribution is expected at Rs 25 lakh per day.
1
2
3
4
5
Average load per wagon: 33.3T
Average load per wagon: 50T
N
IO
Wagon hire = Rs242 per four-wheeler
wheeler per day x 2.5; and transiting through KRC (738 km) takes one day (i.e.
an average running speed of 30.75 kmph)
6
2000T rake needs two locos
7
Night allowance and possible overtime payments are ignored (since the amount is comparatively insignificant)
Source: KRC Data and Authors= Analysis, November 1998.

T
EC
SP
IN
PY
Exhibit 13
KRC Promotional Material
ORIGINATING STATION - KANKARIA

COMMODITY CEMENT CHEMICALS NOC MARBLE SOAP LIMESTONE
CO
CLASS W/L-150B5 W/L-210 T/L-210 W/L-135 T/L--
T/L W/L-130
W/L T/L- W/L-130 T/L-125
STN TO DIST W/L T/L W/L T/L W/L T/L W/L T/L W/L T/L
RN 927 749.3 726.6 1027.2 1027.2 668.6 - 644.8 - 644.8 621

VEN 1266 992.3 961.6 1362.3 1362.3 885.2 - 853.2 - 853.2 821
MAQ 1752 1310.4 1269.2 1784 1784 1156.1 - 1114.4 - 1114.4 1072.7
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CLT 1973 1411.5 1366.9 1922.8 1922.8 1245.1 - 1199.9 - 1199.9 1163.2
CHTS 2181 1490 1442.9 2029.9 2029.9 1314.3 - 1266.4 - 1266.4 1218.8
CBE 2158 1486.2 1439.1 2025 2025 1311 - 1263.6 - 1263.6 1215.5
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MADURAI 2448 1607 1556 2190 2190 1417.1 - 1365.3 - 1365.3 1314
ORIGINATING STATION - KANKARIA

COMMODITY FERTILIZERS DAP/NPK UREA SODA ASH
CT
CLASS W/L-110 T/L-105 W/L-90A
W/L-
W/L-90A
90A T/L-85B W/L-95 T/L-85 W/L-160 T/L-155
STN TO DIST W/L T/L W/L T/L W/L T/L W/L T/L
RN 927 549.4 525.3 341.2 324.3 821.4 456.8 791.3 764.6

PE
VEN 1266 725.9 693.5 449.8 427.3 630.4 601.9 1048.1 1012.6
MAQ 1752 947.1 904.6 585.8 556.1 821.4 783.3 1370 1323.6
CLT 1973 1019.3 974.2 863.3 598.4 883.8 842.8 1475.7 1425.8
CHTS 2181 1075.6 1027.9 664.8 631.3 932.4 889.1 1557.7 1505.1
CBE 2158 1073 1025.1 663 629.3 930.2 886.3 1553.7 1501.2
S
MADURAI 2448 1159.4 1107.8 716.1 679.7 1004.9 957.3 1680 1623.2
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Source: KRC Data, August 1998

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Exhibit 14
Organization Chart
Ministry of Railways (Railway Board)
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Board of Directors
MD
N
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COM CE CSTE CME FA&CAO Stores IT Personnel
(Track (Signalling & (Rolling Stock (Finance/
Maintenance) Telecom) & Crew) Accounts
Dy. COM
(Station
Dy. CCM CT
PE
Operations)
Chairman, Railway Board, was also part time chairman of KRC

MD = Managing Director CME= Chief Mechanical Engineer
S
COM= Chief Operations Manager FA & CAO= Financial Adviser & Chief Accounts Officer
CE= Chief Engineer Dy COM= Deputy Chief Operations Manager
CSTE= Chief Signalling & Telecommunication Engineer Dy CCM= Deputy Chief Commercial Manager
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Source : KRC Data, August 1998


Ahmedabad IIMA/F&A0446
L & T Hydraulic Works
Larsen & Toubro Limited (L & T), an engineering giant, is engaged in diversified activities.
It manufactures hydraulic excavators in its Bangalore Plant. The required hydraulic
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equipment for the excavators are manufactured in its Hydraulic Works in the same plant.
The main products of Hydraulic Works are the hydraulic motors, pumps, cylinders etc.,
which use steel round seamless steel tubes as a main input raw-material.
material. The raw-material
raw-material
raw- material is
brought in running length from steel mills and is cut to the required size before
before taking up
for further machining operation. L&T Hydraulics Works has an eight year old German
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make, "Kasto", power-saw
saw machine which is used for the cutting operation. As the cutting
capacity of this machine is highly inadequate, the company has been sending raw-
sending the raw
material out to sub-contractors semi-
contractors for the cutting operation and sometimes, for further semi
finishing operation also.
In the beginning of 1997, the materials manager of L & T Hydraulics thought a need of
buying a high-productivity cutting machine
hine to replace the age-old
age old power-saw
power machine. He
felt that this could stop sub-contracting
contracting of the cutting operation. He was faced with the
problem of justifying the need for buying a band-sawing
band-sawing
band- sawing machine to the management and
getting the budget sanctioned before March 1997.
Band-Sawing Machine
N
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The materials manager procured the details and funding offer from the manufacturers of
eight comparable high speed automatic band-sawing sawing machines. Costs of these machines
band--sawing
varied from Rs 800,000 to Rs 2.6 million. But, they differed in terms of their construction
feature and thereby, the rigidity, although cutting parameters were comparable.
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After careful evaluation of the technical parameters and the construction details, the
materials manager felt that a double column
column machine made by Behringer of Germany was
the most suitable one. This feeling was also reinforced by the fact that a few other companies
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in similar business had possessed the same make and the performance was satisfactory. The
offer obtained for this machine
machine was at Rs 1.75 million, inclusive of air-freight delivery
charges to the plant in Bangalore.
The prevailing customs duty on this type of machine was at 35%. However, under the EPCG
(Export Promotion of Capital Goods) scheme, the company could import the machine with a
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customs duty of 15%. The condition to be fulfilled under the EPCG scheme was that the
company should export four times the C&F value of the machine within five years and the
machine should be used for producing the goods meant for expor exports. As the company had
already received an export order and a letter of intent for the next five years, the materials
manager was sure that the benefit can be made use of in buying the band-sawing machine.
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Prepared by
by Professor I. M. Pandey, Indian Institute of Management, Ahmedabad and Mr.
Chandershekhar Kakal (formerly with L & T Ltd.).

2 of 4 IIMA/F&A0446
The materials manager had received an offer forr selling of the old "KASTO" machine for a
price of Rs 35,000 to a sub-contractor. This machine was originally bought for Rs 520,000,
and has been depreciated at 25% WDV (written-down down value). The expected life of the new
Behringer band- sawing machine was 10 years, and its salvage value was expected to be
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-down value after being depreciated at 25% for tax purposes.
twice of its written-down
Cutting Requirements
The steel rounds and seamless tubes were cut by the power-saw saw machine in the factory and
used for further machining. The cutting was also sub-contracted
contracted in the following two ways:
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(a) Cutting the rounds and tubes and returning the cut-pieces
pieces to the factory. (b) Cutting and
semi-finishing
finishing to components and supplying to the factory. The different sizes and the
number of pieces to be cut in each size per year is given in Exhibit 1.
It was calculated that about 20% of the total requirement is cut in-
in-house.
in-house.
house. The following rates
were paid to the sub-contractors for cutting operation:
Up to 160 mm diameter Rs. 0.16 per mm of dia cut

Above 160 mm to 280 mm diameter Rs. 0.22 per mm of dia cut
Above 280 mm diameter
When the cutting alone is done by the sub- sub-contractors

sub -contractors
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Rs. 0.30 per mm of dia cut
contractors as in case of (a), there was

transportation charges associated with it to send raw-
raw -material
material and to collect it back from the
raw-material
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house cutting, the direct cost of cutting blade was involved.
sub-contractors. In case of in-house
The power, coolant charges and maintenance charges could be taken as overheads.
Cost Savings
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One of the main reasons why the materials manager wanted to buy the band sawing
machine was the possibility of saving on the hidden cost in the cutting operation, which he
perceived to be quite high. When the cutting operation is done using the power hackshacksaw
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house or by the sub-

machine either in-house sub -contractors,
contractors, there used to be taper-in
sub-contractors, taper cutting and as a
result, more allowance had to be given. Also, the thickness of the power hacksaw blades is
about 3 mm compared to the thickness of the bandsaw machines which is 1.2 mm. Due to
this there could be a saving in the cutting loss. The power saw machines produce a taper of 5
mm per 100 mm diameter whereas the guaranteed accuracy perpendicularly by the
bandsaw machine was .1 mm in 100 mm diameter.
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The materials manager had calculated that on an average about 7 mm of material saving per
piece is possible by installing a band sawing machine and at the rate of about Rs 20.00 per kg
of steel used, the saving per year would be substantial. The weight per meter of each
diameter is also given in Exhibit 1.
diameter
The cost of each blade used for the power saw machine was about Rs 500 and the average
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area cut by each blade was about 50,000 sq. cm∗ he agent who was willing to supply the
imported Behringer band sawing machine
machin was also willing to supply the band-saw blades at
∗
Area of steel rounds/seamless tubes can be calculated as follows:
π x R2, where π = pie = 3.1428, R = radius = 1/2 (diameter).
3 of 4 IIMA/F&A0446
a cost of Rs 3500 per blade. He also provided the statistics that the average area that could be
cut with each blade was about 175,000 sq. cm.
The power saw machine was operated by a semi-skilled worker. The new proposed
automatic band-sawsaw machine had simple controls and could be operated by the same
operator with little training. The materials manager had taken the operator to another
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company where the similar machine was working and ensured that there wa wass no need to
recruit or change the operator. However, the labour union would demand that the
automatic machines can be operated by skilled workmen only, and it may put up a case for
the promotion of the worker. There could be a small percentage increase in the labour cost if
this had to be done. The company has a work-force of about 350 out of which about 100 are
skilled operators.
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Other Benefits
There are other tangible and intangible benefits perceived by the materials manager which
go along with
th the decision to buy the new machines. These benefits are:
1. There would be a direct saving of about Rs 60,000 per year on transportation if the
material is cut in-house instead of by sub-contractors.
2. There would be reduction in inventory-carrying N

carrying cost and the work-in-process.
work
3. Throughput time would be reduced and response will be faster.

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4. Accounting of material would be greatly simplified as cut- pieces only can be sent to
ntractors for further processing. The present method of accounting was very
sub- contractors
cumbersome as the raw material was sent in running lengths and received as
components.
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Capital Budgeting Issues

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The materials manager had informal discussion with production manager, planning
manager, and finance manager about the proposal of buying the new band-sawing machine.
Most of them had raised their eyebrows on Investing more than Rs 2 million for a 'cutting
machine' as the cutting was perceived a lowlow-tech, mundane job which is better left to the
sub-contractors. The unit-
unit-head
unit-head also had similar opinion. This made materials manager's task
head
of proving the viability of the new band
band-sawing machine quite difficult. He also knew that
the corporate finance department expects a post-tax return of 18% on all such investments.
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Corporate tax rate is 35%.
The materials manager has to present and justify the case with hard facts and attractive
return on such investment during the budget sanction meeting.
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4 of 4 IIMA/F&A0446
Exhibit - 1: L & T Hydraulic Work: Cutting Requirements

Dia(mm) Weight Length/piece(mm) No. of pieces
per meter
(kg)
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80 39.5 1100 300
90 50.0 1200 850
100 61.7 1450 450
110 74.7 40 150
62 300
75 350
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120 88.9 1650 650
80 450
105 360
130 104.3 52 150
68 200
75 230
84 120
140 120.9 90 350
100 320
150 138.8
120
90
102
110
N 180
120
110
80
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160 158.0 150 115
165 210
190 120
170 178.3 200 640
220 350
T
280 450
180 200.0 20 400
260 400
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190 222.7 230 150

200 246.8 250 80
280 60
220 298.6 300 120
240 355.4 80 80
260 419.1 100 100
280 483.7 300 150
SP
320 631.8 240 80

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Indian Institute of Management IIMA/PROD0240

PROD0240
Ahmedabad
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Rang Bharti Pvt. Ltd.: Gomia Plant
"Product variety at the Gomia plant of Rang Bharti Pvt. Ltd., has grown over the years. It
reflects the increasing capabilities of the processes and the people at Gomia. We will
acturing and R&D capabilities so that we can continue to
continuously upgrade our manufacturing
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provide paint for every surface". With these words the Managing Director closed the meeting
of the board. Shri J.K. Sahi, the plant manager of Rang Bharti's (RB) Gomia plant
plant, left the board
room in a hurry. He was feeling uncomfortable after the MD's speech. This "product variety
and competitiveness" issue was bothering him. His experience at the plant was that increase in
product variety had made managing manufacturing operations more complex. The
certainties at his plant had grown over the years. The question that kept coming to his mind
uncertainties
was: was his plant "competitive"? His plant was not losing money but was it "competitive"?
The answer was not very clear to him.
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Competition in the paint market had started to grow considerably with the liberalization of
the Indian economy; there had been a spate of alliances by existing competitors with paint
majors abroad as well as keener participation by MNCs in their domestic subsidiaries.
ering a very wide range of products at competitive terms. The industry
Competitors were offering
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post-liberalization
post-liberalization period. Shri Sahi wondered
growth rate had been around 21 per cent in the post-liberalization
as to how he could make the operations of the Gomia plant more responsive to the needs of
he customer without sacrificing the cost advantage that RB's products had in the market.
the market He
felt that there should be a way of managing complexity in markets and operations by
enhancing the productivity of his people and assets.
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The Competition
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Ranga Bharti was a leader in the decorative paints (used for home and office applications)
segment of the market with a share of about 40 per cent. Its market share in industrial paints
segment was around 14 per cent.
cent. During the last few years, several global paint
pai majors (like
PPG and DuPont of USA, Kansai, Nippon and Choguku of Japan, Transocean Marine and
Germany etc.) had entered
Sigma Coatings of Holland, Tikkurila OY of Finland, Herberts of Germany,
set
into collaboration with Indian paint manufacturers. Several firms had started to set-up world-
class capacities by expanding their existing plants or setting up new ones. One MNC had
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recently set up a fully automated factory in western India with a capacity to produce 20
million litres per annum of water based paints (at a cost of Rs. 40 crore). RB had recently set up
a joint venture company with a large international firm for manufacturing industrial paints.
This company would produce 10,000 to 12,000 tonnes of automotive coatings in the coming
years.
Case written
writ
written
ten by Professors Pankaj Chandra and A. H. Kalro, Indian Institute of Management,
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Ahmedabad.
Casess of the Indian Instit
Case Institute of Management, Ahmedabad, are prepared as a basis for class discussion.
Cases are not designed to present illustrations of either ccorrect or incorrect handling of administrative
problems.
Industry margins were coming down each year though the paint market was expected
to grow by about 15 per cent. The industrial paint segmentt was going to see fresh competition
th the coming of new automobile manufacturers in India. RB was a new entrant in this
with
segment. The leader in the automotive paint segment was supplying 90 per cent of the
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requirements of the largest automobile producer in the country as well as to other new auto
firms from USA and Japan that had set up plants in India. In addition, growth in the
engineering industry would affect the demand in this segment positively.
puterized tinter mixing machines at

Recently, some Indian paint companies had set up computerized
dealer locations where the customer could choose a shade with the help of a computer (from
among a very large selection). The dealer could deliver the paint to the customer on the spot
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ase paint. This process was also controlled by the computer
by mixing the desired tint to the base
2000 shades of colours through these schemes.
for precision. These firms were promising 600-2000
RB was not sure whether it should respond to this customer service phenomenon.
The Gomia Plant
ts founding in 1942 as a small partnership firm, Rang Bharti had fiercely competed in a
Since its
highly competitive market. Rang Bharti produced a variety of decorative and industrial paints.
Organization wide, the company produced around 5000 SKUs annually of which about 900
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were based on forecast and the remaining on order. RB was a market leader in what was
industrial segment. Its entry in the industrial paints
known as "bazaar paints" or the non-industrial
market had been recent. It had developed industrial lines for products from Maruti, TVS TVS-
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Suzuki, Bajaj, GM, etc. RB manufactured paints at plants located at Gomia (in Bihar), Meerut
(in Uttar Pradesh), and Bhadrachalam (in Andhra Pradesh). The head office of the
organization was located in Mumbai. The Gomia plant was set up in 1981 with an installed
capacity of 28,000 MT of paint per year. With successive capacity additions and process
improvements, the plant's projected production for the year 1996-1997 was around 40,000 MT.
volume and turnover in RB's portfolio. Over past
Gomia had emerged as the largest plant by volume
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several years, RB had been diversifying into the manufacture of raw materials for paints.
Other than paints, the Gomia plant also produced different types of resins and emulsions that
formed key raw materials for
for various types of paints. Phthalic anyhydride, a critical ingredient
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in the manufacture of paint, was also produced by RB at a separate facility adjacent to the
Gomia plant. Penta, yet another key raw material
material, was produced by PentCol (a subsidiary of
RB) at Ambatur near Madras.
Exhibit 1 shows various production and storage blocks at the Gomia plant. It comprises
separate stocking locations for resins, raw materials used in the manufacture of resins and
paints, resins, solvents, packing materials for end product, and finished goods. The finished
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goods warehouse was located in the vicinity of the plant. While decorative paints may use
some common resins, those for industrial paints were developed especially for individual
customer/application.
The paint plant worked for 307 days a year (approximately two shifts for eight regular months
and three shifts for the remaining four peak months) while the resin house worked for 357
days a year on a three shift basis. The total size of the permanent workforce was 361
IN
comprising 265 workmen, 80 staff (including engineers, chemists, officers

officers, etc.), and 16
managers. Manufacturing costs and plant overheads were 35 per cent while the cost of the raw
material was 65 per cent of the ex-factory cost of the product. The plant worked with the
production plan that was developed by Central Planning in Mumbai. Central Planning
allocated product lines and volumes to each of the three plants. The plants, in turn, created
fortnightly schedules for these production plans.
Product Profile
The Gomia plant produced three main categories of paints: distemper, water based paints (i.e.,
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emulsion paints), and solvent based paints (i.e., enamel paints). In addition, the plant also
cations. At an aggregate level,
produced industrial paints for customized industrial applications.
distempers, water based (WB), and solvent based (SB) paints were classified as decorative
paints.
Distemper was the simplest form of paint. It came in two distinct varietes: Kisan Synthetic
Distemper (KSD) and Kisan Acrylic Distemper (KAD). KSD and KAD used different types of
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emulsions as raw material. WB paints were produced in five different varieties (Royalplast
Primer or RP(C), Special Decoplast or SD, New Special Acrylic Paint or NSAP, REX, and
Superb) while there were four major varieties of SB paints (Ganga Synthetic Enamel or GSE,
Kesar Patang Synthetic Enamel or KPS, Bulbul General Purpose Synthetic Enamel or Bulbul
and Primers). In addition, each paint type was produced in different shades and packaged in
istemper and each shade could be
different sizes. For instance, there existed 48 shades of distemper
packed in five different sizes (1, 2, 5, 10 and 20 kg packs). Industrial paints were custom
produced to OEM specifications.
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The projected production volume at Gomia, across all paint types, for the year 1996-97
1996 was
about 40,000MT. The volumes across the four major paint types, i.e., Distemper, WB, SB and
Industrial were 14,000MT, 5,600MT, 18,400MT and 2,000MT respectively. Exhibit 2 shows the
sed on actual production at Gomia during 1995
proportion of various products based 1995-96.
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Resin House
The resin house produced a variety of resins that were used in the manufacture of solvent
based paints. Resins provided the adhesive and binding properties to a paint. Oil, penta, and
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other raww materials were processed in a reactor to produce solvents. This reaction being
endothermic, the resin had to be cooled (after adjusting for the correct viscosity) and then
discharged into a blender which mixed the resin further. The reactor processing ti time was
between 24 to 36 hours while the blending time was four hours. The blended mixture went
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through a filtration process which took anywhere from five to eight hours depending on the
resin was stored in storage tanks from
type of filteration press used. The final product, i.e. the resin,
paint b
where it was retrieved by the paint lock as and when required.
block
Four types of resins – A, B, C and D types (used in GSE, KPS, Bulbul, and Primers
formed the bulk of resin production (i.e., 90 per cent of total solvent type
respectively) – formed
paints). The remaining 10 per cent of solvent type paints required 15 different types of resins.
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Two types of reactors were used for processing: steam heated and oil heated (or bulk reactors).
The steam heated reactors were used to produce ememulsions that formed the input in emulsion
paints. The oil heated reactors were used to produce four types of resins used in SB paints as
well as those for industrial paints. Resins used in SB paints were compatible and did not
require any changeover at the reactors. The capacity of oil heated reactors were as follows: 6
reactors of 10MT capacity, 1 reactor of 3 MT capacity, and 1 reactor of 5 MT capacity. The 10
MT reactors were dedicated to produce resins for SB paints while the remaining two types
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were
we re used
used to produce resins required for industrial paints. Exhibit 3 shows the yield of resins
used in SB paints from a batch of 10MT reactor (e.g. a 10 MT reactor produces about 16.7 KL of
A type resin that could be used to produce 24 KL of paint). Currently, o on the average, 18
batches per month were being scheduled on a 10 MT reactor.
The capacity of the blenders was as follows: 3 blenders of 35 KL capacity, 2 blenders of 33KL
nders which
each, 2 of 27 KL, 2 of 22 KL, and 2 of 11 KL capacity each. Other than the 11KL blenders
were used for mixing industrial paints, all others were used for producing resins for SB paints.
There were 7 filteration presses in the resin house. Filteration was a continuous process and
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took 8 hours of processing on a 11 plate press (5 in number) as opposed to 5-6 6 hours on a 23
plate press (2 in number). The resin house worked with the derived demand from the paint
shop. The efficiency of the resin house depended on the accuracy of the charging process and
manual setting of controls at reactors. Being low on the learning curve, currently operators
took more time for setting controls. In addition, charging time was on the higher side.
Resins for SB paints (A, B, C and D) were stored in 31 tanks of varying capacity: 12 tanks of
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235 KL, 6 tanks of 210 KL, 4 tanks of 140 KL, 3 tanks of 90 KL, 2 tanks of 70 KL,2 tanks of 60 KL
and 2 tanks of 50 KL respectively. Industrial paints were stored and transported in carbuouys.
In the manufacture of SB paint, resin comprised 70 per cent by volume. The current
current norm was
to hold 300 KL of resin in stock. The value of this resin stock was estimated at Rs. 30 per litre.
This quantity was sufficient to produce about 429 KL of paint.
Distemper Line
The distemper line comprised pugmills where a batch of paint was prepared. Once the paint
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batch was ready, i.e. approved by Quality Assurance, it was transferred into holding vessels
from where the paint was drawn for filling into various sized boxes/tins/drums and then
packed. In order to prepare a batch of paint, the pugmills were first charged with different
liquid ingredients (water, dispersing agents, surfactants, thick
thickener, etc.) which took about 30
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minutes. Then the powder charging (e.g., tinters, or colou
colo u
colouring agents) was done which also
took 30 minutes. The two were then mixed in the pugmill for about 90 minutes. Finally,
emulsions were added and the contents of the pugmill were mixed again for about 30 minutes.
Now the paint was ready for testing. Testing for quality, shade matching
matching, etc. was done at the
same location and modifications done to the paint, if required. This process of testing and final
approval took 60 minutes. It took about 4 hours to empty the contents of the holding vessels
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given the existing packing capacity. Packing points or stations coul

could be moved and attached to
any holding vessel.
EC
The capacity of various processes in the distemper line is given in Exhibit 4a. Currently, the
entire distemper line was operating at a nominal capacity utilization of 75 per cent.
Changeover required cleaning
cleaning of pugmills, holding vessels as well as packing machines. It
takes 4 hours to clean a pugmill and 8 hours to clean a holding vessel. In addition, 8 per cent of
the capacity wass lost on each machine if a changover was done on the packing machine. A 4
MT pugmill would cost anywhere between Rs. 44-6 lakh while a holdup vessel would cost
between Rs. 30,000-
30,000 -40,000
40,000 (m
30,000-40,000 (mild
ild steel) or Rs. 1.5 lakh (stainless steel). A load cell type packing
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machine would cost around Rs. 1 lakh each while a cantilever type packing m machine ould cost
Rs. 50,000.
Water Based Paint Line
The production process for WB paints consisted of mixing raw materials in a twin shaft
dispensor (TSD), storage in holdup vessels, and finally packing in containers of various sizes.
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Five mixing vessels were capable of producing 2 KL of paint per shift (in a single batch) or 375
KL per month on a three shift per day and 25 days per month basis. The total processing time
was 6 hours and approval time was 8 hours. Packing time could be from 4 to 8 hours
pending on pack size. The packing line operated on all three shifts on standard output
depending
norms. The number of different product-shade batches produced were of the order of 60.
The capacity of various processes in the water based paint line is given in Exhibit 4b.
Changeover required cleaning of mixers, holding vessels as well as packing machines. It took
four hours to clean a mixing vessel and one hour to clean a holding vessel. In addition, 15 per
cent of the capacity was lost on each machine if a changeoverr was done on the packing
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machine.
Solvent Based Paint Line
mixing operations in a twin shaft

The production process for SB paints consisted of pre-mixing
dispenser, grinding in a sand mill, final mixing, and packing. Equipment was dedicated for
each colour stream (primers, red, blue, green, yellow, and white). A set of dedicated
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mixer, two temporary holding vessels (used to quickly release
equipment consisted of a pre-mixer,
the pre-mixer), one sand mill, and some final mixers (whose number depended on the colour
mixed paint was transferred into temporary
stream). Pre-mixing was a batch process. The pre-mixed
mixer was released for further processing. The average total
holding vessels while the pre-mixer
processing time was 4 days. Of this total process time, approval time of the paint batch
(quality testing, colour matching, etc.) was one shift (or 8 hours); thinning and adjustment
time was also one shift; the process time of a batch (of 2 KL) in the premixer was around 6
hours; the sand mills processed continuously with a flow rate rate of 3.5 litres/minute; and the
average process time at the final mixer was around 10 litres per minute.
olvent b
The capacity of various processes in the solvent based
ased p
paint
aint lline N
ine is given in Exhibit 4c. Since,
change-overs at the pre-mixing, grinding, and final mixing operations could take anywhere
from 1 to 2 days (depending on the colour sequence being changed), equipment was dedicated
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to each colour stream. About 15 per cent of the capacity was lost due to any changeover on a
packing machine.
Production Planning
Production planning was being done in two stages: a mo

monthly plan for aggregate volumes
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across all SKUs was provided to the plant and subsequently after the last month
month’s sales were
tabulated, a SKU based requirement was developed. This process worked in the following
manner:
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1) before the end of the month (around 25th of the month) a revised plan for the current
month and a proposed plan for the next month is communicated to the plant by Central
Planning in Bombay. The revised plan is at the SKU level and indicates any changes to an
earlier fixed plan for the current month - the plant has about 5-7 days to produce the
changed requirements, if any;
2) finished goods are despatched to the warehouse (located in the vicinity of the plant) on a
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daily basis; goods are despatched to branches and regional distribution centres from the
finished goods warehouse;
3) in the next month, before the end of the first week (around 4th of the month) a revised
product-
product -shade
shade plan for the new current month is communicated to the plant; this was a
product-shade
fortnightly plan for the current month;
4) by the end of the first week, SKU level sales data become available to Central Planning;
around this time, Central Planning develops the final plan for the plants and freezes this
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plan till
till about the 25th of the month;
5) sometimes in the second week of the current month (around the 10th of the month) a final
SKU level plan is communicated to the plant;
6) from the above plans, the plant develops a derived production plan fortnightly;
7) the plant also receives a tentative SKU level plan by the 25th of each month for the first
fortnight of the next month.
An yearly plan at the product level was developed each February.
The production planning process allowed for modifications to the plan based on market sales
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information, while giving plants enough time to plan for capacities. At the plant, the key
objective of production planning was to meet the monthly volume requirements while
keeping deviations in SKUs less than 5 per cent. In otherer words, while SKU level planning was
essential, SKU level plan could be changed in order to meet the overall volume requirements.
In practice, the discipline in following a frozen production schedule was not strictly strong.
Requests for expedite orders was also not uncommon and such an order had a priority over
planned production. While the production process was more market oriented, it imposed
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certain capacity related constraints for the plant given long changeover times.
Product mix for each plant was generally fixed for a couple of months. Central Planning
allocated products to different plants and more than one plant could be producing the same
product line. For example, Distemper was currently being produced at Gomia, MeerutMeerut, and
Bhadrachalam. Thiss allocation depended on the capacities of each plant, the regional demand
requirements, and a desire to maintain flexibility in product production capabilities. Fast
moving shades were allocated region wise while the production of each slow moving shade
was concentrated at a single plant location.
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The supply chain comprised external raw material suppliers, internal raw material producers,
plant warehouses, regional distribution centres (RDC), branch locations, wholesalers (some of
whom were also retailers), and retailers. The plant warehouses distributed paint both to the
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regional distribution centres as well as to branch locations. Wholesalers in turn serviced
retailers. The distribution network was segmented on the basis of a plant
plant-RDC-market linkage.
Capacity Scheduling
Based on the production plans communicated to the plant, the plant scheduled production on
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various paint lines. Capacity planning was done for each SKU with the objective of meeting
var
the overall volume requirements while keeping the variance across SKUs produced each
month to less than 5 per cent from the planned requirement. Priority based scheduling was
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backorder SKUs, SKUs

undertaken - custom orders had the highest priority, followed by backordered
with high volumes and others. Within each priority category, a shade sequence had been
developed that minimized changeovers (by scheduling along a pre-determined shade
sequence in the same primary colour, changeovers could be reduced). Scheduling capacity for
various colours was a complex planning pro problem - some shades were more complex than
others (e.g. blue as compared to white) - not only did they require more time for cleaning the
process equipment, they tended to take longer processing times. For example, when more than
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one pigment was mixed, the mix tended to become hard. As a result, homogenization took
longer time. Exhibit 5 gives the scheduling policy of the plant.
Flexibility in the market place was slowly increasing the complexity of production operations
whe
at Gomia. It was not quite clear whether technology alone could deliver capabilities to the
plant in order to manage the increasing variety. In addition, the industry operated on very
tight margins and Shri Sahi felt that inventory in the system had to be reduced to improve the
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profitability of the plant.

Exhibit 1: Production and Storage Plants at Gomia Plant
Resin House Resin Storage
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Raw Material
Warehouse
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Finished Goods
Paint Block Warehouse
Packing Material
Solvent Storage Stores
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Exhibit 2: Proportion of Various Products Based on Actual Production in 1995
1995-1996
Product Category Product Variety Volume (MT/KL)
(MT/KL) Proportion of Total Volume (%)
Distemper KSD 8682.747 77.11
KAD 2577.152 22.89
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Water Based Paints RP(C) 1075.256 28.99

SD 842.968 22.73
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NSAP 1166.040 31.44

REX 287.722 7.76
SUPERB 336.898 9.08
Solvent Based Paints GSE 7552.623 65.80
KPS
KPS 0.000 0.00
BULBUL 1501.884 13.09
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PRIMERS 2423.418 21.11

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Exhibit 3: Yield of Resin (used in Solvent Based Paints) from a batch of 10MT reactor
Resin Type Used in Yield from a batch of Product Type as Fraction of
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Product Type 10M T Reactor Total Solvent Based Paint
Volume
A GSE 16.7 KL 50
B BULBUL 20 KL 20
C PRIMERS 22 KL 20
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D KPS 22 KL 10
Exhibit 4a: Available Capacity in the Distemper Line
The capacity of the various processes in the Distemper Line was as follows:
Pugmills:
* 1 pugmill of 4 MT capacity, 4 pugmills of 2MT capacity each, and 1 pugmill of 1 MT capacity;
* total pugmill capacity: 13MT.
Holdup Vessels:
* number of vessels = 12 ;
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* number of different vessel sizes: 2 vessels of 1 MT, 8 vessels of 2 MT and 2 vessels of 4 MT each ;
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* total capacity of all vessels = 26 MT.
Packing Points:
* number of moveable packing machines = 7 ;
* each packing machine could be used for packing any of the sizes listed below;
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* packing capacities (or standard output norms) on each machine for various sizes were:
size no. of units packed no. of workmen

per shift per machine
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1 kg 3840 3
1 kg (lined 3760 2
carton)
2 kg 1960 2
5 kg 1440 2
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10 kg 350 1
20 kg 250 1
The proportion of 1 kg, 2 kg, 5 kg, 10 kg, and 20 kg sizes in the current annual requirement was
expected to be 7%, 13%, 45%, 18% and 17% respectively.
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Exhibit 4b: Available Capacity in the Water Based Paint Line
The capacity of various processes in the Water Based Paint Line were:
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Mixers:
* 3 TSDs were dedicated to produce Regular Bazaar Paints on 1 batch/shift basis and 3 shifts per
week for 25 days per months (as mentioned above);
* 2 TSDs were dedicated to produce the premium Superb paints on a single shift per day and 1 batch
per shift basis for 25 days per month.
Holdup Vessels: 12 stainless steel holdup vessels had the following capacities:
2 vessels of 8KL capacity each
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1 vessel of 4 KL capacity
Packing Points:
* number of moveable filling and packing machines = 5;
* 3 machines were used for 1 litre and 4 litre packs while 2 machines were designed for 10 and 20 litre
packs;
size
1 litre
quantity packed
per shift
4.2 KL
N no. of workmen
per machine
3
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4 litres 5.7 KL 2
10 litres 3.6 KL 1
20 litres 6.6 KL 1
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The proportion of 1 litre, 4 litres, 10 litres, and 20 litres sizes in the current annual requirement was
expected to be 10%, 40%, 10%, and 40% respectively.
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Exhibit 4c: Available Capacity in the Solvent Based Paint Line
The capacity of various processes in the Solvent Based Paint Line were:
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Pre-Mixers: 5 twin shaft dispensors of 2 KL capacity each
0 vessels of 2 KL capacity each; two vessels dedicated to each pre-

Temporary Holding Vessels:10 pre-mixer
mixer
pre-mixer
Sand Mills: 8 sand mills; each dedicated to a colour stream;
Final Mixers: 44 stainless steel mixing vessels of the following capacities:

17 vessels of 12 KL capacity
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Packing Points:
* number of moveable filling & packing machines = 9;
* currently 6 machines were used for the retail pack sizes (i.e., 500 ML, 1 L and 4 L), 2 machines for
50 ML, 100 ML and 200 ML sizes, and 2 machines for 10 L and 20 L pack sizes;
50 ML
size quantity packed
per shift
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24000
no. of workmen
per machine
6
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100 ML 20600 6
200 ML 15200 6
500 ML 5600 3
1L 4800 3
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4L 1640 2
10 L 421 1
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20 L 360 1
For the current year, the production volumes of small pack sizes (i.e., 50 ML, 100 ML and 200 ML) was
planned at 1000T while that for the other pack sizes (i.e., 500 ML, 1 L , 4 L, 10 L and 20 L) was planned
at 17,000 T. The proportion of 500 ML, 1 L, 4 L, 10 L, and 20 L sizes in the current annual requirement
was estimated at 12%, 22%, 30%, 12%12%, and 24% respectively.
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Exhibit 5: Production Scheduling Policy at the Plant
cheduling exercise is an attempt at addressing the problem of utilization of the available

The production scheduling
resources and offering greater predictability in the scheduling of batches. Further, realizing the
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n attempt has been made to link the schedule with
importance of greater responsiveness to the market, an
the despatch plan.
Statement of the Problem
The plant receives a Monthly Production Volume Requirement from Planning (Mumbai) at a Product
utili
Shade, as well as at an SKU level. This plan has to be translated to a schedule at a batch level, utilizing
the available machine capacities, within the available manpower constraints. The factors identified for
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sub-optimal capacity estimation as well as utilization are:
* Improper scheduling of batches

* aterials arising out of an inability to estimate the
Non availability of raw materials or packing materials
requirements.
The production scheduling exercise seeks to address these issues. The objective, thus, is to maximi
maximize
in the given constraints. This would also result in the
machine utilization to adhere to the given plan, within
following :
*
*
*
Minimization of SKU variance
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Improved capacity utilization, which would translate to higher production volumes
Identification of bottlenecks to increases in production within the available resources.

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ndicator has also been proposed. Every product shade has an RM indicator,
The concept of an RM indicator
which gives the earliest date before which the given batch cannot be charged for want of raw materials,
packing materials and Mediums. This, it is hoped, would help control postponement of batches due to
raw material stock-outs at a daily level.
The monthly schedule offers guidelines for the scheduling of batches at a shift level. This, in turn, would
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aterial and m
help in predicting raw material mediu
edium
mediumm requirements. However, keeping in mind problems that can
crop up at a daily level, the option of re-
re-scheduling
scheduling is also to be incorporated. This could be due to
several factors, like:
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* Non-availability of raw m
materials
aterials
* reak downs
Machine break
* hortage
Manpower shortage
The emphasis is on checking re- re -scheduling

scheduling on a pro
re-scheduling pro-active basis, as this would result in greater
predictability of output as well as a reduction in SKU variance.
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Further, this exercise would be carried out at a weekly level to arrive at the schedule for the following
week. The daily re --scheduling
scheduling would be done to accommodate any deviations from the original schedule.
re-scheduling
Assumptions
* The product shades are clubbed at a colour group level.

* The mixers are classified by colour groups.
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* The ccolour
olour ccycle
ycle is defined for the colour groups. This determines the changeover of a mixer from
one colour group to another.
* The mmixer
ixer cycle Time is available at a product shade level.
* Manpower is available for every section at a shift level.
* A two
ttwo-pass
wo-p scheduling exercise is proposed. In this, the paint house would first schedule its batches
for the month. Using this as a guideline, the resin house would draw up a schedule for the resin
batches. This would make the date of availability of mediums available to the paint house. Using this
information, the paint house would repeat the scheduling exercise to draw up the master schedule
for the month. This calls for a better flow of information between the paint house and the resin
esin h
house.
* The re-order policy is to be followed for tinters. When the stock of a tinter falls below a critical
volume, it would be scheduled with the highest priority in the corresponding colour group. The re-
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order level would be specified for every tinter, depending on the storage capacity and the need during
the month.
Inputs
The inputs required during the monthly and the fortnightly schedule exercise are:
* The plan at a product shade and SKU level
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* The machine cycle times at a product shade level
* The time taken from one operation to o the next successive one on the machines (the inter
inter-stage
times).
* tocks for the tinters required during the month
The desired tinter stocks
* chedule planned for all the machines
The preventive maintenance schedule
* The norms, detailing the points given to the various operations on the shopfloor
* aterials and the packing
The earliest availability date for the raw materials acking m
materials
aterials (which have to be
procured)
* aterial stocks at the plant.
The raw material and packing material
The inputs required at a shift level are:
*
*
manpower available for that shift
The pipeline status of the machines
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* The machine status at the start of the shift
* aterial required for charging of batches during the current shift
The status of raw material/packing material
* If a batch cannot be charged on a particular day due to raw material or packing material stock-out,
ndicator for that batch (if possible).
the new updated RM indicator
* The available stock of the tinters
* The breakdown information for the machines, including the earliest availability date.
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Outputs
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e outputs of the scheduling exercise at a monthly or fort

The fort-nightly level are:
* roduct sshade
The schedule at a product hade and SKU level
* wise schedule at a machine batch level
The shift-wise
* ack plan
The shift level pack
* anpower allocation i.e., detailing the manpower required at a section shift level, including the
Manpower
transfer of manpower from one section to another, if necessary. This would be worked out from the
operating manpower model.
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The outputs at a shift level are :
* The batches to be charged during the current shift.

* Manpower deployment i.e., workers required by each section would be suggested. Work allocation
Manpower
would also be done at a shift level. This would act as a guideline for the shift chemist.
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Summary of the scheduling process
The scheduling is done in the following steps:
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1. A priority is assigned to the each product shade in the plan. This is a function of the despatch
quantity. (Line 1 and the DSO quantity from the despatch plan) and the total production volume for
the planning period.
our group, the product shades contend for machines. On the other hand, product shades
2. In a colour
across colour groups contend for available manpower.
3. In every colour group, product shades are ranked in decreasing order or priority. The top most
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product shades of every colour group are again ranked in decreasing order of priority, and the top
most product shade is to be scheduled first.
4. The scheduling exercise for each product shade starts with the selection of the mixer. Once the
mixing machines are identified by working backwards. Only
mixer is identified, the grinding and pre-mixing
when the machines required at all the processing stages are available the machines are booked.
5. During the above booking of machines the following factors are taken into consideration
consideration:
* The availability of the machines in the current shift

*
* anpower available at a daily level. This includes the inter-
Manpower inter-section
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The product shade qualifies for scheduling for the shift (determined by the RM Indicator).
section transfers, if necessary.
inter-section
his process is repeated until all the product shades for the period are scheduled in their respective
6. This
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colour groups or the available machinery has been booked.
g
7. Once the colour group capacities are used up, the remaining product shades for that colour group
would be scheduled in the next colour group in accordance with the colour cycle precedence rules.
scheduling of batches can be effected, depending on the following factors:

8. At a daily level, the re-scheduling
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a) aterial(s) required for the batches to be scheduled on the current day.

Stock-out of raw material(s)
b) Shortage of manpower
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c) Machine breakdown
d) Power cuts etc.
re
This would also incorporate the effect the re-scheduling exercise would have on the subsequent
batches.
Advantages
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Production Department:
* It would help in attaining better capacity utilisation, while trying to minimize SKU variance, enabling a
better degree of plan adherence while improving the responsiveness to the market needs.
* The daily operations of the chemists can be augmented by the shift schedules as well as taking care
re-scheduling
re-scheduling operations that have to be carried out at the daily level.
of the re-scheduling
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* stock
It would help in streamlining of the issue of materials at the plant as well as monitoring stock-outs,
t play a more proactive role as far as raw and packing material inventory
thus allowing the plants to
management is concerned.
* A scheduling system would help the paint house to coordinate with the resin house and allow the
latter to plan its operations and thus, avoid medium stock-outs.
outs. This would result in streamlining the
charging of batches and minimise re-scheduling.
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* It would provide a snap shot of the production activities, including scenarios like two shift vis-a-
vis-a-vis
vis
vis-a-vis
three shift operations, overtime requirements, temporary manpower requirements etc. This would be
available as decision support tools.
* It would allow the blocking of machinery for preventive maintenance.
* roduction d
An attempt at tuning the production to the market would help the production department
epartment in reacting to
the market needs sin a pro-active manner.
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Material Function:
* cheduling system would help in the planning of raw and packing material with a
A formal production scheduling
greater degree of certainty.
* outs can be anticipated with a higher degree of accuracy by the m

Stock-outs materials
aterials function (using the
weekly schedule)
* lanning department can be attuned to anticipate the requirement of raw and packing
The purchase planning
materials with the required delivery dates at the plant.
Source: Gomia Plant Documents

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Fresh Fruits Processing Private Limited (FFPL)
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Context
The Government of India (GOI) was keen on improving the balance of payment problem
processing as one of the thrust areas in enhancing the exports.
and therefore identified agro-processing
Horticulture was one of the focus areas identified in which policies regarding removal of
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infrastructural bottlenecks, maximization of capacity utilization setting up of agro
agro-business
consortiums and focus on better technology induction postpost -harv
harvest
est management and
post-harvest
marketing were given importance. The GOI approved export enhancement programme
with an outlay of Rs.600 crore in order to increase the export of horticultural produce to
Rs.2000 crore from present level of Rs.700 crore in three years. The The Central and State
Governments have announced several schemes of incentives, duty drawbacks, transport
subsidy, equity participation, etc to boost horticulture production and setting up of
processing units of international standards. Moreover, GOI with th the assistance from
international organization suggested one of the leading term lending financial institutions
(DICI) to implement a project (CACE) to boost private investment in this sector. This is
because India has very strong horticulture base with scope N
scope for integrated agro-business
agro
value addition in its products. The Government of Maharashtra announced relaxation in
and
-based projects upto 1000 acres/unit compared to present

holding of land for integrated agro-based
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land ceiling of a maximum of 54 acres. This was to promote such units for grapes and
mangoes which are widely cultivated in the state with a good source for revenue generation
and employment.
Promoters Background
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Fresh Fruits Processing Private Limited (FFPL), a new company was promoted by Mavani
and Tohra groups. Both these groups are family owned and started the company on a
partnership basis.
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The Mavani group was represented by Ajay V. Mavani who obtained his B.Tech. degree
from IIT Bombay. The group started the packaging business with the man manufacture of
cardboard boxes for hosiery items with an investment of Rs.2 lakh in 1978. The group
expanded its operation by setting up three additional units for manufacture of corrugated
sup
boxes in GIDC industrial estate located near Ahmedabad. The group supplied these boxes
to renowned customers like the Amul Dairy, Pioma industries, Crown TV, Vadilal Icecream,
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Torrent Laboratories, etc. For the past five years, the group has been supplying boxes for the
exp
packaging of grapes and other fruits for local and export markets. The group had a turnover
of Rs.594 lakh on which it earned an operating profit of Rs.8 lakh. The group was regular in
its repayment of the loan to GSFC and its outstanding loans was Rs.20 lakh (For details see
1).
Exhibit 1).
w in the business of fresh fruits for the past forty years. The Tohra
Bhagwandas H. Tohra was
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group was involved in the procurement, packing and distribution of fruits in India specially
in Gujarat, Madhya Pradesh, Rajasthan and Delhi. The Tohra group also extended financial
Prepared by Professors Sourindra Bhattacharjee and Bhupat M. Desai, Indian Institute of
Prepared
support to the growers for the purchase of inputs which was later adjusted with the sale
proceeds of the farmers. The group dealt with farmers from Nasik, Junnar, Satana for grapes
for last 20 years and with mango growers from Sindhudurga, Ratnagiri and KonkanKonkan for the
last 15 years. The group has an account of over 8000 farmers all over the country. The group
also maintained a warehouse in Delhi and Ahmedabad. The total turnover of the group was
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1).
Rs.1693 lakh with an operating profit of about Rs.14 lakh (For details see Exhibit 1).
These two groups formed an alliance as their business activities were complimentary to
each other. In 1991, they formed a partnership firm namely D. C. International which
exported mangoes, litchis and some vegetables to the Middle East. st. An understanding was
also reached with the Gujarat Agro Industries Corporation for the export of fruits and
vegetables to Europe which helped the promoters to establish contacts with the major
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buyers in the market. A trial shipment of 15 tonnes of Kesar
Kesar mangoes to London was
already reported in ‘Eurofruit' magazine in England. The experience in Europe gave them
insights of the immense potential for the export of fresh fruits which required precooling,
cold storage refrigerated transport etc. Therefore a new company was floated named as
FFPL which would exclusively deal with export of fresh fruit and vegetables in the
European and Middle East markets.
A memorandum of understanding (MOU) was reached by these two groups for having fifty
percent equity stakee in the company and equal representation in the Board of Directors.
Ajay V. Mavani was proposed to be the Managing Director of the company. The Tohra
group was to supervise

cold storage.
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group would look after the procurement of fresh fruits from the growers whereas the other
pervise the marketing, sales and management of the precooling unit and
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Project
cooling and cold storage unit at Dingri near Nasik in

FFPL proposed to set up a pre-cooling
Maharastra with an installed capacity to handle 2400 metric tonnes of fresh ffruits per
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annum for export to European and Middle East markets.
The decaying process of any fruit or vegetable is arrested by precooling the product at a
particular temperature and humidity. This helps to extend the shelf life and enables
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transportation by sea and thereby saving freight cost by air transport. The growth of
microorganisms results in the decay of fresh fruits which can be prohibited with the
management of the temperature around 0o C. The humidity loss leads to shrinkage of the
product and loss
oss of weight affecting its salability. Both these are maintained with the help of
precooler which consists of a air handler with a refrigeration unit circulating air at 0o C and
relative humidity of 98 percent over the product to be cooled. The precooled product is then
transferred to a cold storage which has a separate refrigeration unit and separate air handler
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alongwith humidity controller.
Technology, Plant and Machinery
The technology for the pre-cooling

pre and cold storage would be provided by Caltex
umifresh (India) Private Limited (CHP) which would supply the main plant and
Humifresh
machinery. The P/M manufactured by Pressure Cool Company, USA which has been
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working satisfactorily in USA, Israel, Egypt, Mexico and other countries would be used for
the project.
project. Thus the supply of technology and plant and machinery with its erection and
pre
trial run would be done on turnkey basis by CHP. Incidentally, similar pre-cooling units
commissioned by CHP in two other projects in Maharastra has been working satisfactorily.
CHP would be paid Rs.19.2 lakh for the turnkey contract. Under the agreement, CHP has
guaranteed capacity of the plant with a performance test run and process knowhow for
grapes, mangoes and pomegranates. CHP has also agreed to rectify free of cost any
deficiencies, in the event any guarantees are not met.
The equipment consisting the precooler and three air handlers is estimated to cost US $
89,450 (equivalent to about Rs.27.7 lakh). FFPL has applied for import license for the import
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of equipment under the Export Promotion Capital Goods (EPCG) scheme with a
concessional rate of 15% of the CIF value (as against 258%)to be paid subject to the condition
that FFPL exports 4 times its CIF value in a period of 5 years. FFPL will have to furnish an
undertaking to the GOI alongwith a bank guarantee of Rs.66 lakh (duty saved) which will
be released only after compliance of the export conditions.
Raw Material
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The main raw materials for the project are grapes, mangoes and pomegranates. FFPL
proposes to procure most of its raw materials from Nasik, Pune, Ratnagiri and South
Gujarat, which are within the reach of the project facility. FFPL would require about 1255
tonnes of Thompson seedless grapes, 202 tonnes of Alphanso mangoes, 250 tonnes of kesar
mangoes and 104 tonness of Ganesh variety of pomegranates. The company is not likely to
face any difficulty in procuring the raw materials as all these are produced extensively in
Maharastra and Gujarat. Moreover, the promoters are in the business of procurement of
fresh fruits for almost four decades, an experience which would help them to procure raw
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materials of proper quality and adequate quantity. They have also gone into MOU with the
grape producers in Nasik, Junnar and Narayangoan which includes the quality of grapes, its
2). The farmers selling raw materials to FFPL
amount and the price to be paid (See Exhibit 2).
have already been exporting fresh produce to foreign markets and therefore are aware of
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pesticide and fungicide residue limits.
ays, polythene sheets, plastic pouches, air bubble pads

The other inputs such as plastic trays,
and printed corrugated boxes etc are to be obtained from indigenous sources which are
readily available.
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Utilities
FFPL applied to Maharastra State Electricity Board for supply of power, the maximum
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demand of which would be around 63.5 KVA. The company plans to install 63 KVA
generator set as a stand-
stand -by
by arrangement. The total requirement of water is estimated to be
stand-by
10,000 liters per day. A provision of bore bore-well has been made to meet the water
ement. An underground tank of 10,000 liters capacity and two overhead tanks of 2000
requirement.
and 5000 liters capacity are also to be constructed.
Manpower
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FFPL would require 7 managerial cadre and 7 supervisory staff for its proposed project. The
company plans to recruit experienced persons in these two cadres. Another 30 skilled and
unskilled labour would be recruited locally.
Environmental Aspects
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The plant is not likely to produce any gaseous, solid or liquid waste and the company has
already obtained provision
provisional clearance from Maharastra Pollution Control Board.
Cost of the Project
The project cost is estimated to be around Rs.150 lakh including the margin money for
working capital. The details of which are as follows:
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(Rs. in Lakhs)
Items Rupee cost Rupee equivalent Total
of F.E. cost
Land & Site Development 3 -- 3
Buildings 24 -- 24
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Plant & Machinery
Imported -- 27 27
Indigenous 42 -- 42
Duty & Transportation 5 -- 5
Miscellaneous Fixed Assets 9 -- 9
Pre-operative expenses 15 -- 15
Contingency
Capital Cost
Margin money for Working Capital
N 2
100
23
--
27
--
2
127
23
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Total 123 -- 150
The cost of the land is based on the actual purchase deed with the previous owner. The cost
based on the plan of the architect. The cost of the
of the building and site development is based
plant and machinery is based on the CHF's quotation. The import duty component is
calculated at 15% of CIF value in terms of EPCG scheme. The cost of the miscellaneous fixed
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assets include laboratory equipments

equipments such as gas liquid chromatograph for testing pesticide
pre-operative
residue, sugar content, etc. The pre-
pre operative expenses include those incurred during
-operative
company formation, interest expenses during construction and bank charges for furnishing
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bank guarantee to CCI & E.
Due to the seasonal nature of operations of FFPL, its delivery schedule and export plans, the
company would operate on an average seven and a half months in a year. The maximum
requirement of working capital of Rs.174 lakh was in the month of May wh which would
reduce to nil in October. The margin money provided therefore was Rs.23 lakh which would
enable the company to draw Rs.112 lakh from the bank. The balance amount for the
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money.
working capital is to be met by creditors for raw material and margin money
Sources of Finance
The estimated cost of Rs.150 lakh for the project was proposed to be financed through
equity participation from the promoters (52 lakhs), Rupee Term loans from CACE (75
lakhs), subsidy from APEDA (3 lakhs) and Special Capital Incentive (20 lakhs).
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Fifty percent of the equity is to be subscribed by the Mavani group whereas the balance
would be subscribed by Tohra group in terms of the MOU between them. FFPL approached
DICI (CACE) for Rupee term loan which was provided at an interest of 19.5 % payable
quarterly. Personal security to be provided by the two promoters and negative lien on assets
being financed out of loan proceeds. The loan repayment spread over 20 quarterly
instalments starting from December, 1994.
The subsidy of Rs.3 lakh offeredffered by Agriculture Processed Food Products Export
Development Authority (APEDA), GOI was for purchase of two refrigerated vehicles for
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transportation of fruits. The other incentive of Rs.20 lakh as Special Capital Incentive was
provided by Government of Maharastra for setting up an unit in the backward area.
With the above mode of financing of the project, the promoters contribution came to 34.67
percent.
Market
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The high nutritive value, good taste coupled with increased health consciousness of the
ople lead to spurt in demand of fresh fruits in the developed countries. In the European
people
market (EEC), table grapes from India are preferred due to its good quality and taste and
mangoes for its exotic taste which command a premium price in the market. Whi While in the
middle east (ME), the countries depend on imports for their requirement of fresh fruits.
Hence, there exists a good market for fresh fruits in both the markets FFPL is trying to
promote. The market share of the Indian companies exporting fruits tto Europe is negligible,
whereas it is around 20 percent in the Middle East market.
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The current demand for mangoes and grapes in the EEC market is around 36,000 tonnes and
828,000 tonnes per annum respectively. The corresponding demand in the ME market is
laced around 20000 tonnes and 50000 tonnes. The supply of table grapes to EEC and ME
placed
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countries are met by Brazil, Chile, USA, Australia and South Africa. The demand for the
mangoes are met from Kenya, Mexico, Brazil and some Asian countries including India India.
Although the market for table grapes has remained stable, demand for mangoes is growing
@ 15% in EEC countries and @ 13% in ME countries. As the seedless Thompson variety of
grapes is more acidic in nature, it suits the taste for table purpose, especiall
especially in the EEC
countries. The production of this variety was being expanded with improved cultural
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practices, increase in production area and productivity. In the case of mangoes, India being
the largest producer of this fruit; specially quality mangoes with increase in shelf life and
refrigerated sea transport stands in position to be price competitive in the EEC and ME
EC
markets. The seasonal advantage gained by the Indian exporters for supplying
pomegranates during June-August
June-August can also help in boosting foreign earnings.
FFPL CIF cost for table grapes, mangoes and pomegranates including duty and commission
works out to be 1.22, 1.36 and 1.27 pounds per Kg respectively as against the corresponding
market prices of 1.42, 1.65 and 1.80. This price advantage can assist FFPL gaining
competitive advantage over other suppliers in the market.
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The promoters of FFPL had already exported a trial consignment of mangoes by sea and
have received enquiries from companies in the EEC and ME engaged in fruit business. FFPL
has already entered into MOU with Winfruits Limited in London for marketing about 5
containers (77.5 tonnes) of table grapes per week, i.e. about 930 tonnes in three months in an
average grape season. Moreover, some trading houses in Europe and Middle East have also
shown their willingness to sell the products from FFPL and act as selling agents for them.
IN
FFPL plans to export 75% of their produce to EEC markets and rest to ME market.
re
The precooled, palletised fruit boxes stored in cold storage are loaded in refrigerated
containers which are then brought to Bombay for loading. An officer of FFPL will oversee
the loading operations at Bombay port. The shipping time to London and Middle East is
about 3 weeks and 1 week respectively. FFPL agents would receive the containers. And they
would either auction it or sell it to supermarkets on a consignment basis. The agents after
deducting their commission, duties, etc would give the net payment to FFPL. One of the
nloading, marketing and the
representatives would be stationed in London to monitor unloading,
payments.
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Implementation
FFPL had already acquired land and completed site development. The tentative date for the
January, 1993. The orders for the plant and machinery were placed
civil construction is mid-January,
anuary, 1993. Given one month for erection,
in October which will be delivered by mid-January,
commissioning and trial run of the plant, FFPL is expected to start commercial production
from third week of February, 1993.
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FFPL has entered the high value fresh fruit business in a planned
planned manner and the products
are likely to be accepted in the markets they would be promoting. FFPL is not likely to face
any major difficulty in selling its product due to its prior experience in addition to the
increase in demand for fresh fruits and huge market size in EEC and Middle East countries.
While Exhibit 3 gives information on quantities of fruits dispatched, output prices and
input costs, Exhibits 4 and 5 are respectively profit and loss statement and balance sheet of
the FFPL.
Question
Suppose you
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ou are appraising the project on the behalf of DICI, would you recommend giving
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the loan to the company? What all issues you will look for better informed decision?
T
EC
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IN
Exhibit 1
Fresh Fruits Processing Private Limited (FFPL)
Promoters Profile
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Name Nature of Business Total Operating Profit
turnover (Rs. in Lakhs)
(Rs. in Lakhs)
Mavani Group
Capital Packaging Pvt. Ltd Packing Material Corrugated 407 3.4
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Boxes
Packaging products Same as Above 95 2.6
Capital Packaging Same as Above 92 2.0
Total 594 8.0
Tohra Group
Tohra Fruits Pvt. Ltd
D. C. Company
Fresh Fruit Trade
Procurement, Packaging &

Marketing
N 31
531
0.6
4.2
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D. C. Enterprises Same as Above 632 3.8
D. C. Sons Same as Above 479 5.4
Total 1673 14.0

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EC
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IN
Exhibit 2
Fresh Fruits Processing Private Limited
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Raw Material Procurement Schedule
Name of the Society/Co-operative Period of Procurement Total Quantity

(Tonnes)
Grapes
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Vaibhav Grape Co-op. Society, Junnar February 150
March 350
April 300
Tithi Enterprises, Nasik March to May 200
Sri Pratap rao March to May 100
From Other Farmers January to March 200
Total 1300
Alphanso Mangoes from Ratnagiri/

Mangoes
angoes N
May 100
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Sindhudurg
Alphanso Mangoes from Valsad, Gujarat May 100
Kesar, Junagarh Area May 156

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Total
T otal 454
EC
Pomegranates
Pomegranates
Nasik July 30
Sinnar August 59
Sanganmer September 15
Total 104
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IN
Exhibit 3
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Amount Despatched, Input Costs and Output Prices
1993 1994 1995 1996

Amount Despatched in Tonnes
Grapes-Europe 403 574 744 930
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Grapes-Dubai 139 201 264 325
Mangoes 452 452 452
Pomegranates 104 104 104
Output Prices
Export CIF IF & other FOB Prices FOB Prices
Prices selling
(Rs./Kg)
Expenses
Grapes (London)
(5 Kg/Box)
Grapes (Dubai)
7.1 pounds
Dir 9.0
N 3.1 Pounds
Dir 1.9
4.0 Pounds
Dir 7.1
35.20
34.30
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(1.5 Kg/Box)
Mango (4 Kg/Box) 6.6 Pounds 3.1 Pounds 3.5 Pounds 38.50
Pomegranates 8.1 Pounds 3.1 Poun
Pounds 5.0 Pounds 48.88
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(4.5 Kg/Box)
Conversion Rate-- 1 Pound = Rs.44; Dir = Rs.7.25
Rejection Rate has been assumed @ 3% on FOB basis.
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Input Cost
Grapes Rs. 22.5 per Kg
Mango Rs. 22 per Kg
Pomegranate Rs. 22 per Kg
Power Cost: MSEB Rs: 1.20/Unit Own Generation Rs: 2.00/Unit
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Company has employed 45 persons & the wage is based on the prevailing industry rate
The maintenance cost is taken as 1%, 1.5% and 2% of the equipment cost for the first three
years
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Exhibit 4
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Profit and Loss Statement (Rs. in Lakhs)
1993 1994 1995 1996 1997 1998 1999 2000
Total income 185 481 560 644 644 644 644 644
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Raw Material 123 297 349 405 405 405 405 405
Power & Fuel 1 4 4 4 4 4 4 4
Packaging 38 93 109 127 127 127 127 127
Salaries & Wages 2 14 15 16 16 16 16 16
Repairs & Maintenance 0 1 1 2 2 2 2 2
Admins & Mis. Exp 2 15 16 17 17 17 17 17
Raw material Trans. Exp
Total 166
1
430
3 N 503
4
580
5
580
5
580
5
580
5
580
5
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PBDIT 18 50 57 64 64 64 64 64
Interest 8 26 24 22 20 17 14 12
Depreciation 9 9 9 9 9 9 9 9
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Operating profit 1 15 24 33 35 38 41 43
Taxation 0 0 0 0 0 0 0 0
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Gross Cash Accruals 10 24 33 42 44 47 50 52
Dividend 0 10 13 13 13 13 13 13
Net Cash Accruals 10 14 20 29 31 34 37 39

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IN
Exhibit 4 (conti…)
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Balance Sheet (Rs. in Lakhs)
1993 1994 1995 1996 1997 1998 1999 2000
Liabilities
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Equity Share Capital 52 52 52 52 52 52 52 52
Reserves & Surpluses 1 6 17 37 60 85 113 144
Apeda Subsidy 0 3 3 3 3 3 3 3
Spl. capital Incentive 0 9 20 20 20 20 20 20
Unsecured Loans 23 23 11 0 0 0 0 0
Term Loans -CACE
Working - capital loan

75
88
75
88
N67
88
52
88
37
88
22
88 73
7
58
0
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Total 240 245 247 253 260 270 269 277
Assets
Net Fixed Assets 118 119 120 126 132 138 144 150
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Net Current Assets 110 108 110 112 112 112 112 112
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Cash & Bank Balance 12 18 18 15 16 21 13 15
Total 240 245 247 253 260 270 269 277

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IN

IIMA/PROD0233
PROD
Ahmedabad
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Maruti Udyog Limited
Coordinating the Supply Chain
After a decade of growth during which Maruti Udyog Limited (MUL) had captured over 70
per cent of the passenger car market, the economic reforms announced by the Government of
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1994-95.
1994-
India had led to a spate of new entrants in the market in 1994-95. 95. Mr. R.C. Bhargava,
Managing Director of MUL, was wondering about the implications of the reforms for the
company. Each one of the potential competitors was a joint venture between an Indian partner
ablished international automobile company. At the same time, rising incomes in a
and an established
sizeable segment of the population was expected to lead to an expanding market.
The key question facing MUL was how it should respond to the changing environment. Mr.
a was also concerned about improving MUL's operations in all aspects including
Bhargava
marketing, manufacturing, vendor development, engineering, and improving coordination
between different functions.
Some of the key issues facing MUL were as follows.

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How could MUL improve coordination between different functions based on market and
operational requirements?
What were appropriate performance measures to be used for various functions? How could it
make sure that these measures did not create conflicts across var
various departments, and that
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they were effective in enhancing performance?
Coordination led to the establishment of various support functions and forums, like the
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ssurance department and p

quality assurance production
roduction planning and control meetings. What were
some wayss of managing these interfaces between functions, and what were appropriate
performance measures, if any,
any, for these interfaces?
Increasing domestic competition and exports had to led to various product modifications and
improvements. These improvements were we an ongoing process, and required coordination
between various departments like Marketing, Engineering, Quality Assurance, Production
and Materials Management (if(if parts requiring modification were outsourced). What were the
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effective ways of managing these changes?
Written by Professors Pankaj Chandra and Trilochan Sastry

Sastry, Indian Institute of Management,
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Ahmedabad..
Ahmedabad
Case of the Indian Institute
Instit of Management, Ahmedabad, are prepared as a basis for class discussion.
il
problems.
IIMA/PROD0233
2 of 15
BACKGROUND
overnment of
Maruti Udyog was established in February 1981 as a joint venture between the government
uki Motor Corporation of Japan with an initial plan to make small cars. The
India and Suzuki
government of India hoped that the new company would help modernize the car industry
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through the introduction of fuel efficient cars in large volumes. Production started in
Decemberr 1983 and the assembly line was inaugurated by the then Prime Minister, Mrs. Indira
Gandhi.
Since then the company had gained over 70% market share and became the largest car
manufacturer in India. Demand had always been ahead of capacity, and the compa company had
traditionally operated with a sizeable list of pending orders. Customers often had to wait for
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over six months to obtain delivery of a car. Exhibit 1 gives the details of Maruti's growth over
the years. The other two major manufacturers were Premier Automobiles and Hindustan
Motors, who split the remaining market equally among themselves. Hindustan Motors had
recently entered into a joint venture with General Motors and Premier Automobiles had
entered into a collaboration with Peugot.
In 1994 and 1995 a series of joint ventures between Indian companies and some of the best
international automobile companies significantly altered the situation. Exhibit 2 gives details
of some of the major joint ventures announced in 1994. The Association of Automobile
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Manufacturers (AIAM) expected significant growth in the market in the coming years. At the
same time about 10 new joint ventures had been announced. The emerging scenario was
therefore not clear. Exhibit 3 gives the demand forecasts made by AIAM.
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Further,, as part of Suzuki Motor Corporation's global strategy, Maruti started exporting cars
overseas. Maruti had also been introducing new models for the domestic and export markets.
Exhibit 4 gives details of new products introduced since inception.
Suzuki Motortor Corporation had steadily increased its equity holding from 26 per cent in 1982 to
40 per cent in 1987, and finally to 50 per cent in 1992. Suzuki had controlling shares in the
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ompany and decided on important issues like new product introduction. It wa

company was also decided
that the design of new models would be done by Suzuki at its facilities in Japan. As a result of
this strategy, Maruti in many ways functioned as an assembly plant for Suzuki, which had
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similar plants in Canada, Pakistan, Malaysia

Malaysia, and Egypt. Maruti's export plans were integrated
into the global plans of Suzuki. For instance, Zen, a new model
model, was assembled only at the
Maruti plant in India for export worldwide.
MARKETING
Marketing had two roles: dealer development and sales. The goal of the th former was to
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increase the number of new dealers. It was measured by the number of new dealers
maximi sales. Increasing competition had resulted
developed. The goal of the latter was to maximize
in an enhanced role for the sales department - from trend analysis of customer demand to
interfacing with manufacturing on production planning. The key objective was to maximize
contribution by choosing an appropriate product mix in a given period. Marketing had
recently started using sales trends in determining product mix. Competition was also forcing
marketing to interact with manufacturing on a regular basis to discuss a variety of issues
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including cus
cu stomer
tomer preferences and special orders, changes in market trends, export orders
customer
and their special requirements, and ship
shipping schedules.
Marketing also kept manufacturing informed about product improvements and changes
needed to satisfy customer preferences. Different overseas markets required various product
modifications depending on local regulations and conditions of use. At the same time,
domestic customers
tomers had a wider choice of vehicles and were becoming more demanding.
Marketing therefore had to be in close touch with customers to understand product
improvements and the changes required to meet their preferences.
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MUL was thus in the process of learning to become a market driven company after a decade of
enjoying success in a seller's market. Mr. Bhargava was concerned about bringing about
organizational changes to achieve this. This meant that the traditional dominance
dominance of
production would have to be complemented with strengths in marketing and engineering. He
was also wondering how Engineering and Production could become more responsive to
market needs.
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MANUFACTURING AND PRE-DELIVERY STAGE
A rolling plan of three months was derived by the Production Planning and Control (PPC)
group. PPC meetings were held each week to review "achievement against plan". These
manufacturing, and
meetings were attended by representative of vendor development, manufacturing
marketing. Marketing informed d the PPC of any changes in the requirement for the next week
or month. Several conflicts occurred
red during these deliberations - Vendor
Vendor Development and
Production did not like fluctuations in the demand. Production found it easy to produce in
"fixed ratios" of product mix and at a level production rate to help reduce production cost. It
was also easy to allocate resources on the shopfloor under steady conditions of operation.
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Changes in product mix adversely affected productivity due to time lost in set ups and
changeovers. Changes in volumes also affected output and increased inventory and WIP
levels since Production had to build up inventory during low demand periods to meet peak
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demand. Incentives and bonuses in Production were tied to output volumes, and people from
production were prone to resist frequent or large changes in production plans. Materials
Management
anagement found fluctuating demand made it difficult to procure raw material and
components. It also put pressure on vendors to change their production pl plans. There was
some concern about vendors switching over to competitors if they were unable to absorb
frequent order fluctuations.
uctuations. However, production was slowly recognizing that it would have
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to become more market oriented. At the same time, there was somesom concern that it might just
be paying the price for poor sales forecasts. For instance, earlier the production plan would
never change once it was agreed upon. Now changes were not infrequent.
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PRODUCTION PLANNING
The long term production plan was developed

develo on a rolling basis for the next four years. The
following year's aggregate plans were developed six months in advance. This took into
account projections of demand growth, lead times for raw material and component imports,
production lead times for the vendors, and plant capacity. Although over 90 per cent of the
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parts were indigenized,

indigenized,
indigenized, vendors still imported some raw materials for their production needs.
The medium term plan was developed for a duration of three months. The next month's plan
was confirmed
confirmed by marketing by the middle of the current month while the plan for the
following two months remained tentative. The daily requirements were detailed in the next
month's plan and were based on line considerations and minimum batch requirements.
QUALITY ASSURANCE
IN
The Quality Assurance Department (QA) obtained product quality related information from
information:
various sources. There were two key mechanisms for collecting quality related information
quality audits and field reports. Quality Audit was done by QA in order to check the overall
quality level of a vehicle (mostly performance and aesthetics). Samples of vehicles were taken
from dispatch, a huge parking lot where finished vehicles were kept after final inspection, and
an evaluation of various aspects of quality

uality was quantified. A "quality index" of the vehicle was
thus obtained.
Currently, MUL offered parts and service warranty for 1 year or 20,000 km, whichever was
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less. If a component failed in the field, the customer usually brought it to the attention of the
dealer. The dealer was the first level of support on vehicle complaints, and filed a Field
Trouble Report with MUL if a component in a vehicle failed in the field (see Exhibit 5). The
dealer attempted to address the problem of the customer and replacedced the part, if needed. The
defective part and information on its failure was sent to MUL's service department as a claim
for reimbursement. The Service Department evaluated the claim and checked its validity (i.e.,
authenticity of the part and whether thee vehicle was still under war wa rranty).
ranty). The Service
warranty).
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Department monitored the Claim Ratio, i.e., percentage of claims (= number of claims /
number of cars under warranty).
The number of claims for each part and the failed parts were then sent by the Service
Department to QA which performed an in-depthdepth analysis to determine the root cause of the
problem. Process improvement tools like Pareto Analysis and Cause and Effect Diagram were
used to perform this exercise. Once the problem was identified, QA coordinated with other
groups like Technical Administration and Vendor Development to make necessary changes.
The solution was finally implemented for all vehicles. This request from Service to QA to
perform the above exercise was made via a document called "Market P
NProblem
Countermeasure Report " (MPCR) (see Exhibit 6). This report was monitored by the MD and
was also sent to the weekly Management Committee Meetings (MCM). An MPCR identified
measures to be taken in order to solve the identified problem, who was to per
perform this task,
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when and where was it implemented, within the plant or at a vendor location. When solutions
were not readily available, QA established a "Cross Functional Team" from amongst QA,
Engineering, Production Engineering, and Vendor Development de departments. A number of
teams could get formed for each "troubled" part and they continued to work on it till the
problem was resolved. Each week a report on pending MPCRs and the duration over which
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they were pending was sent to MCM.
An example on how a problem was resolved:

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A dealer sent a field trouble report to the service department complaining that the "head light
on a vehicle was not focusing correctly. The vehicle was within the warranty period. The
reflector was replaced but the problem did not go away." Service department raised an MPCR
for QA, which perpe rformed
formed some tests in their laboratory and found that when light was
performed
projected there was no sharp dividing line between the bright and dark zones. It interacted
with the Parts Inspection (PI) depa
department and the vendor (LUMAX). It was found that the
vendor's process needed some change
changes in order to eliminate this problem. The problem was
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resolved in 20 days. While performing this exercise, the vendor initiated some new
improvement processes in his pr production facility.
There was a small group of 10 people in QA who were also authorized to raise an MPCR and
work on it as part of the Market Feedback Activity. Urgent problems often got resolved in this
manner. This group often visited the customer locati
location if it was unable to understand the
causes of a problem or when a customer wrote to MUL directly about a problem. The Director
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Engineering dealt with customer complaints addressed directly to MUL.

PRODUCTION
95 was 200,000 vehicles per year, which was enhanced to 240,000
The plant capacity in 1994-95
vehicles in 1995-94. Vehicles came out of the final assembly at the rate of about one vehicle
every 1.5 minutes. The production facilities included a Blanking Line, Press Shop, a Weld
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Shop, an Engine Assembly line, Machine Shop, Paint Shop, Assembly lines for different
models, and Testing and Inspection facilities.
The Press Shop output consisted of large panels used in the body of the car. Smaller sized
panels were sourced from suppliers in which MUL had equity uity holding. MUL used a JIT
system for supply of bumpers, instrument panels and other items sourced from these
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suppliers. Die changeover times in the Press Shop were about 15 minutes. Production was
done in batches, and a typical batch size was about 3000,, although this number varied a lot to
meet actual requirements.
The Weld Shop was a modern facility, and some of the welding was done by robots. The Paint
Shop was a bottleneck in the production process and it took about 9 hours per car.
MUL had to contend end with two issues in planning production. One was the scheduling of work
within a shop or facility. The second was to coordinate the flow of work between shops and
facilities. For instance, in the paint shop, painting different colours on different model
models
up times. However, it was not clear that optimizing the work in the
involved significant set-up N
paint shop would necessarily lead to optimization of work flow in the entire production
process. To maintain smooth flow of work and avoid production delays, an inventory of work
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was kept to buffer the paint shop from the rest of the production process. Exhibit 7 shows the
schematic layout of the production facilities.
Production was monitored on various parameters. These included the volume of output for
del, the quality measured in first pass yield or number of cars passing final inspection.
each model,
In addition, Quality Assurance carried out a complete check on 4 to 6 vehicles chosen at
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random and used a formula to measure the outgoing quality. The number of vehicles going
through the final assembly but in "hold up", i.e., not passing final inspection
inspection, was also
monitored. Inventory levels at various stages of production were also closely monitored.
EC
Productivity was measured on a monthly basis in terms of number o of hours per vehicle and
was compared with standard output norms. A series of performance measures were thus in
place to measure productivity, quality, efficiency, and improvements made including kaizens
implemented. Exhibit 8 gives a list of some of the pe performance measures monitored by
production. Cycle times of the assembly lines were not measured. It was difficult to measure
the cost of rejects and the cost of rework, and hence this was not done.
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MUL had implemented a number of productivity enhancement programmes in the plant. It

regularly monitored the performance of these program
programmes and reports were reviewed by the
respective departments as well by senior managers during weekly meetings. The objective
was to meet the approved production plans and to re reduce the resources required for
manufacturing the cars.
Actual performance was measured against targets for each department. One of the key targets
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that was monitored regularly was the "number of vehicles in hold up up” (after assembly and
before final inspe
inspection check). For reducing costs, a target was set for each department and
these individual departments developed programprogrammes, sought resources, and allocated
responsibilities. All workers were on the regular payroll. The key incentive for direct labour
was based on the amount of production above a certain target capacity utilization. The
incentives for direct production staff were on an average 15 per cent higher than those in other
areas of the plant. Last year, the average incentive amount earned by each line worker was
around Rs. 4300.
MATERIALS MANAGEMENT
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Since over 50 per cent of the parts were outsourced, materials management and vendor
development were critical functions.. MUL purchased nearly Rs.2000 crore worth of materials
from suppliers. There were re nearly 400 suppliers, although they varied widely in their
capabilities and the amount they supplied, with the largest ones supplying about Rs.80 crore
of material to MUL and the smaller ones doing less than Rs.1 crore. MUL's approach to
vendors could be characterized by long term relationships, and a policy of encouraging
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vendor growth and investment in capacity to match MUL's growing needs. Usually, MUL had
two vendors per component, although there were exceptions. In case of slippage in vendor
ance in terms of quality or delivery, MUL altered the percentage of business sourced
performance
from that vendor. This allowed it to monitor vendor performance while maintaining long term
relationships.
currently about Rs.30 crore. The

MUL also had an annual target for cost savings, which was currently
out components was brought down every year based on price negotiations
cost of bought-out
with vendors to meet the annual targets. MUL sought to help vendors to bring down costs in
various ways. Vendors could sometimes bring down their their costs by consolidating raw material
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purchases. This was often a problem for smaller vendors because their liquidity position
forced them to seek working capital financing from banks. However, banks were often
reluctant to provide this type of financing. MUL's intervention helped vendors to get this type
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of financing. MUL also sought to improve manufacturing practices and systems at vendor
locations to help improve their capabilities and bring down costs. MUL had also introduced a
performance and
vendor rating scheme. This scheme rated them on cost, quality, delivery performance,
process capabilities. Exhibit 9 gives some details of the vendor rating system.
Another key performance measure for the materials function at MUL was the target inventory
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bout Rs.25 crore, or a little more than 1 per cent of total purchases. Delivery
level, which was about
schedules to assembly lines were also closely monitored. Other performance measures were
ation achieved in outsourcing, and the quality of bought-out
the level of indigenization bought components
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Indigenization
Indigenization was a time consuming responsibility that involved
based on warranty analysis. Indigenization
identifying vendors, coordinating with in house Engineering and Parts Inspection, sometimes
arranging tie ups between vendors and foreign collaborators, and setting up target cost and
quality parameters and monitoring them.
EXPORTS
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Government of India policies required MUL to export vehicles in exchange for imports of
equipment and other items. At the same time, it was felt that to remain competitive, an
exposure
posure to international markets was essential. Exports placed some pressure on the
production processes since requirements in different countries varied. Exports to Europe
emission, and safety. Further, these
required strict adherence to EEC norms on performance, emission
norms were becoming more stringent over time. It became necessary for Maruti to get its
vehicles homologated in Europe. This meant that MUL vehicles had to pass stringent tests in
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approved testing laboratories located in Europe. Over 80 per cent of exports were to Europe.
On the other hand, exports to Africa presented a different kind of challenge. There were very
few regulations in place. The driving conditions were very different, the roads were often bad,
overloading was common, and vehicle breakdowns
brea were a problem. MUL responded by
redesigning tyre mounting and suspension, and by ensuring that dealers had adequate stocks
of frequently required spares.
Exports to the Gulf were currently not feasible as Maruti was not able to meet the stringent
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safety regulations there. Exports to Russia required special underbody coating to withstand
the severe cold.
Another problem associated with exports was the long lead time of over four months to
here buyers could import from
produce and deliver vehicles. In a competitive environment where
any part of the world, some managers felt that long lead times could have a negative impact
on sales and costs.
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Some of the other problems were related to shipping. Movement of vehicles from Gurgaon to
sed the wax coat on the vehicles to soften due to heat and get
the port in Bombay caused
impregnated with dust. The company was considering whether to do the waxing in Bombay.
In addition to increasing revenues, some of the other benefits of exports were increased pride
among some employees who felt that their products were being accepted abroad, and the
raising of quality consciousness among the workforce. Overseas dealers sometimes visited the
plant and gave suggestions on how to improve manufacturing practi
practices.
PRODUCT MODIFICATIONS AND ENGINEERING
Although MUL did not have a full-fledged

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fledged facility for designing cars, it did work on product
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modifications to suit local conditions, and made efforts to continuously improve its products.
Its goal of exporting to different countries also put pressure on Engineering to carry out
product modifications.
Vehicles for many countries had to be lefthand drive, whereas for the domestic market
righthand drive vehicles were needed. Where emission norms were stringent, MUL had to
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install catalytic
tic converters, which cost about Rs.15,000. Vehicles exported to colder countries
required heating systems to be installed, and exports to hot countries often required an
airconditioner to be installed. Similarly, the type of preferred colours and the kind of finish on
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the paint were different for different markets. Design modifications were required if
conditions of use were different depending on road conditions, ambient temperature, levels of
overloaded or not. These requirements
dust, and driving practices like whether vehicles were overloa
placed pressure on Engineering to continuously bring about improvements and on Production
to make a wide variety of vehicles.
At the same time, increasing domestic competition and the introduction of new models of
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quality
higher qua lity by competitors put pressure on MUL to improve quality and cut costs.
Although market share had been growing over the years, it had dipped from 71.7 per cent in
1993-93
93 to 70.4 per cent in 1993-94.
1993 MUL was concerned about halting this trend.
MUL was inin the process of fine tuning its feedback systems to improve product quality, meet
varying requirements of different markets, meet production targets, targets and improve
productivity. Planning for exports started with finalizing product specifications, incorporating
incorporat
IN
changes in regulations, fixing target quality parameters, and making product modifications
based on local conditions. Most of this activity was done by people in export marketing. This
information was made available to Production and Engineering. Engineering
Engin usually fixed a
target date for completion of the required modification. Major modifications had to be
sanctioned by the Director Marketing who also oversaw Engineering. Engineering
modifications, when ready, were passed onto Production. The Quality Assurance department
tracked the consumption of spares in various overseas markets and fed this information back
to Production. This gave an idea of recurrent problems which were then corrected.
DELIVERY AND POST-DELIVERY STAGE
PY
Vehicles were sent to dealers
lers on the basis of a fixed schedule derived from order receipts. A
critical issue in managing the logistics of distribution was to decide on shipment schedules. A
dealer would prefer to receiveve his requirements in one consolidated shipment. However, this
often meant that shipments had to be delayed while waiting for production of his model mix
to be completed. On the other hand, sometimes it was more cost effective to ship requirements
for a particular model to dealers in a particular location or city as soon as production was
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completed. As far as possible, MUL tried to ship a dealer's requirement in one shipment. The
dealer was supposed to perform a complete check on the vehicle before delivering it to the
customer and file a report to MUL. A similar issuee was relevant for shipping overseas:
whether demands across different countries could be bunched together to form a production
lot size for exports. A key issue therefore was how to coordinate despatches with production
plans and with individual dealer and export requirements.
The Service Department received Field Technical Reports from domestic dealers and from
dealers located abroad when there appeared to be an abnormal defect which the dealer was
unable to repair. An MPCR was raised for QA. The Service Department then decided whether
the problem had been solved based on a report submitted by QA. N
A Customer Complaint Cell in the Service Department dealt with all complaints sent directly
IO
in
to MUL by customers. In case a dealer could resolve this issue, information was sent to the
dealer. If required, a person was deputed to look into the problem. If detailed work was
required, an MPCR was raised. Similarly, if there was any damage in the transit of vehicles a
report was made by Sales and Despatch.
ly, the Service department's activity was driven by a problem that was reported. There
Currently,
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active effort to suggest new changes in the product or process design. Most
was no pro-active
product design changes were discussed at the dealers’ dealers conference. Service personnel were
located at the plant and in the field (i.e., regional offices). The field service staff (30 in number)
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reported to the respective regional managers for all administrative purposes and to the Plant
Service Chief for all functional activity. These peoplepeo had a better understanding of the
customers problems due to their close proximity to the customer. The plant service personnel
(also 30 in number) followed up at the plant on requests made by the field service staff, dealers
or customers. They also interacted with all the departments on the shopfloor where problems
could be occur.
SP
By the end of 1994, MUL under Mr.Bhargava's leadership had already initiated a series of
v
changes within the organization. However the task of streamlining operations within various
functions, establishing better performance measures, and designing more effective
coordinating mechanisms remained.
IN
Exhibit 1
Performance of MUL
Year Sales (units) Sales Pre-tax profits
PY
Domestic Exports (Rs. million)
1983-84 852 - 417.0 17
1984-85 22,048 - 1242.3 9.0
1985-86 47,694 - 2863.6 30.0
1986-87 82,206 102 6303.5 102.0
1987-88 93,320 713 7665.0 264.4
1988-89 104,184 1408 9257.7 314.2
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1989-90 112,032 5223 11754.5 500.5
1990-91 115,400 4908 14886.8 481.2
1991-92 99,517 22,921 19137.0 357.9
1992-93 112,309 14,566 21500.5 366.1
1993-94 142,942 17,187 29235.0 1366.8
Exhibit 2
Joint Ventures in India
Premier
Indian partner
Mahindra and Mahindra

Foreign partner Foreign
Ford
Peugot
equity
50%
29%
N
Price (in lakhs)
Rs.5.7 - Rs.8.7
Rs.3.9 - Rs.6.0
Near Bombay
Near Bombay
Location
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Telco Mercedes 51% Rs.12 Near Bombay
DCM Daewoo 51% Rs.6.6 - Rs.7.8 New Delhi
Eicher Volkswagen 50% Rs.5.9 - Rs.6.7 Skoda and New Delhi
Hindustan General Motors 50% Rs.5.8 Near Baroda
Sipani Rover 16% Rs.9.2 Bangalore
T
EC
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IN
Exhibit 3
Demand Forecast for Passenger Cars
Year Sales (units)
PY
1994-95 240,000
1995-96 261,600
1996-97 287,800
1997-98 316,500
1998-99 348,200
1999-2000 383,000
2000-2001 421,300
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Total 2,258,400
Source: AIAM, 1996
Exhibit 4
Introduction of New Models
Date Model Description
December 1983
November 1984
December 1985
April 1986
Maruti 800
Omni
Gypsy
Maruti 800
N
796 cc, hatchback car
796 cc, van
970 cc, off road vehicle
New Model 796 cc hatchback car
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October 1990 Maruti 1000 970 cc, Box car
October 1993 Zen 993 cc, hatchback car
November 1994 Esteem 1.3L 1298 cc, Box car
T
EC
SP
IN
Exhibit 5
PY
CO
N
T IO
EC
SP
IN
Exhibit 6
PY
CO
N
T IO
EC
SP
IN
PY
Exhibit 7
Production Process
Finished Vehicle 7 Final Inspection - II 7 Final Assembly - II 7 Paint Shop -II

Parking Area
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* Car - 800 cc * Car - 800 cc Painting of body shells
* YE - 2 * YE - 2 * Car - 800 cc
* YE - 2
8
Finished Vehicle Weld Shop - II
Parking Area Welding of sheet metal
parts to form body shell
N
* Car - 800 cc
* YE - 2
8 8
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Final Inspection - I Press Shop & Blanking
* Car - 800 cc Line
* Omni Manufacture of external
* Gypsy sheet metal parts
CT
* 3-
3-Box
Box Car
3-Box
8 9
Machine Shop 6 Engine Assembly - I Final Assembly - I Paint Shop -I Weld Shop -I
──────── Assembly of Cast Iron * Car - 800 cc Painting of body shells Welding of sheet metal
Machining lines for Cast engines * Omni * Car - 800 cc parts to form body shell
PE
Iron engine components * Gypsy * Omni * Omni
───────── * 3-Box Car * Gypsy * Gypsy
Machining lines for * 3-Box Car * 3-Box Car
Aluminium engine
components
7 7
S
6 Engine Assembly - II
Assembly of Aluminium
IN
engines
Exhibit 8
Performance Measures Monitored at MUL
PY
1. Shop Level Productivity
* Direct manhours required for assembling a vehicle - this is measured shop wise and includes
only the assembly workers; this measure is discussued in the Management Committee
Meetings (MCM).
2. Quality
* warranty cost per vehicle
* breakdown hours - includes all sources of downtime, e.g.,, maintenance activity, machine and
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tool failures, shortage of components, etc.
* quality index
* total cost of rejects
* cost of rejects per vehicle
3. Efficiency
* actual times vs. standard times
4. Improvements
* reduction in physical movement of workers
* reduction in kwhr
* reduction in material movement (number of handlings per vehicle)
* reduction in component rejects
N
* reduction in weight of material carrying equipment (e.g., ration of rake weight to total weight
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carried by a trolley)
* reduction in line rejects (e.g., improve first pass yield at weld shop, paint shop, assembly shop
etc.)
* reduction in direct consumables (e.g., paint)
* reduction in expenditure for removing scrap especially in the press shop
* reduction in number of failures before any scheduled preventive maintenance
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* reduction in repainting per month
5. Work Life
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* number of accidents (number(number

(number of mandays lost due to accidents; number of accidents is
ou
classified under those that are "locally treated" and those that are "treated outside" - a detailed
report to this effect is sent to JMD (Production) and DGM(Production) and discussed in MCM)
* absenteeism ( attendance %)
6. Programme
Kaizen Programme
* number
umber of ideas generated
* umber of ideas implemented (e.g., 1400 last month = number of modifications in a product *
number
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number of units modified)

* number of suggestions given for commonalization of components across different models
number
* number of suggestions for commonization of equipments across different lines
number
* number
number of suggestions for indigenization of spare parts via vendors
IN
Exhibit 9
Monitoring System for Vendors
Check Item Measure Comments
PY
Documented quality system OK/ not OK
Drawing Control OK/ not OK
Incoming Inspection
- parts OK/ not OK
- raw materials OK/ not OK
Inspection of tools/jigs OK/ not OK
Process Control OK/ not OK
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Routine check of production equipment OK/ not OK
Check as per Maruti Inspection Standard OK/ not OK
Rework Control OK/ not OK
Quality Abnormal Control OK/ not OK
Organization and Education OK/ not OK
N
T IO
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IN

Ahmedabad IIMA/CISG0039
Managing Container Traffic at

Asia Pacific International Seaport
PY
Asia Pacific International Port (APIP) is a busy container port in the Asia Pacific region. The
The
number of containers handled by the port has been increasing steadily over the last few year
years
and the projections for the future are even more encouraging. APIP management is therefore
concerned about managing the future container traffic, both effectively and efficiently.
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The chain of events in APIP operations commences with the application for a berth for the
ship 2 to 3 days before its intended arrival. The allocation of berth depends on a number of
factors such as ship's characteristics, berth characteristics, marine considerations and so on. As
owered to lift import cargo and place them on
soon as a ship is berthed, the quay cranes are lowered
the chassis/trailers of prime mover. These prime mover carry the containers to their
designated stack yards where Yard cranes pick them and stack them in their designated slots.
The reverse operation takes place for export containers. APIP has a fleet of 45 quay cranes, 160
yard cranes, 250 prime mover, and 300 trailers. A common practice followed at APIP is to
position a quay crane for every 75 meters of warf length. Quay cranes are operated in three
N
shifts of 7 hours each. One crane operator, one ship supervisor, one warf supervisor 66-8
lashing workmen, and 4 prime mover drivers are attached to each crane per each shift of
operation. The stack yards have a capacity of approximately 100000 TEUs. Containers for
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mport, export, and transhipment are stacked separately in the stack yards.
import,
Each quay crane can perform on an average 25 moves (full cycles) per hour. Thus theoretically,
three quay cranes assigned to a ship should be able to handle 525 containers in a 7 hour shift.
Exhibit 1 shows the number of containers for loading and unloading for a few vessels. Since
the average load per ship is 500 containers (250 for import and 250 for export), APIP should be
T
practice container operations do not go so

able to turnaround a ship n about 7 hours. But in practice,
smooth. Exhibit 2 gives some data on the turnaround time of ships calling at APIP.
One of the factors responsible for slowing down the loading/unloading operations is the
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difficulty in coordinating the operations of quay cranes; yard cranes and the prime mover. The
3-4
3-
current practice of assigning 3-4 4 prime mover to each quay crane generates separate prime
mover queues for each crane. It is not unusual to observe a quay crane operator waiting
container onto his prime mover, while at the same time a prime
impatiently to discharge his container
mover driver is waiting in the adjoining lane for his quay crane to load/unload his container.
Prime movers have to travel some distance between the quay side and the container stacking
ending on the specific location of the stack yards as can be seen from Exhibit 1. The
areas, depending
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turnaround time of a prime mover depends on the quay side and the yard side operations. It is
possible for a quay crane to unload an import container onto any prime mover.mover On the other
hand, a yard crane has to load an export container only onto the specified prime mover
attached to the quay crane loading for that specific destination. In the case of containers meant
for transshipment, the operations may take even longer, as the exact positioning of the
container in the stack yard also depends on its next destination.
IN
The above constraints on the transportation of containers between the quay side and the yard
side by the prime movers result in a certain amount of idling of the quay cranes, yard crane,
Prepared by Professor K.V. Ramani, Indian Institute of Management, Ahmedabad

problems.
and the prime mover. The APIP management is wondering how to maximise the productivity
of its resources in order to achieve a quicker turnaround of the vessels calling on APIP.
Exhibit 1: Containers Handled and their Storage Locations
PY
Vessel ID Berth Containers Handled
Import Export
No. Locations No. Locations
A001 T1 603 E8 B5 213 C6 B7
B2 H4 K6
Q7A Q8A
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A002 T3 305 A3 F3 352 E3 C3
V9A F/L B4 K7
RFDGS K3 E1
A003 T2 - A5 C1 203 B3 A1
M5 K7
K8 E1
A004 T2 - C5 H3 121 J7 K3
K7
A005
A006
T5
T7
352
455
N
E6 B2
J5B MT
FCL RF
E1 C1
429 A6 E5
RF
531 H3 G3
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J5 Q6 J7 K3
H8 F6 J6
F/L DGS
A007 T7 629 C3 E3 786 F2 H2
F4 F1 F5 K3
T
V6 U5A B7 M6
B7 K13 G4 J8
A008 T2 572 C1 G4 162 J3 G3
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F4 G3 J8 J6
J4 K5 K7
C91 RF
A009 T4 - - 277 F6 B4
K3 CL2
RF DO
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IN
Exhibit 2: Data on Ships' Arrival/Departure Times in APIP
Vessel ID Arrival in Actual Containers Operations Time Departure

Port Time Handled completed Unberthed from Port
Berthed
PY
IN OUT
A001 1/0500 1/1250 603 213 2/0335 2/0350 2/0500
A002 1/0600 1/1440 305 252 2/0725 2/0910 2/1000
A003 1/0700 1/1240 - 203 1/1915 1/1930 1/2030
A004 1/0600 1/0710 - 121 1/1130 1/1145 1/1300
A005 1/0700 1/1410 352 429 2/0710 2/0805 2/0930
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A006 1/0900 1/1220 455 531 2/0615 2/0630 2/0730
A007 1/0930 1/1115 629 786 2/1830 2/1845
2/1845 2/2000
A008 1/1000 2/0500 508 - 2/0120 2/0340 2/0500
A009 1/1700 1/2045 572 162 2/1105 2/1150 2/1300
A010 1/0700 1/2315 - 277 2/0830 2/0900 2/1000
A011 1/2300 2/0500 95 8 2/0935 2/1035 2/1130
A012 1/0400 1/0645 299 187 1/1705 1/1910 1/2000
A013 2/0100 2/0935 15 602 2/2310 2/2325 3/0030
A014 1/0100 1/0430 222 298 1/2145 1/2200 1/2300
A015
A016
A017
1/1400
2/0700
2/0300
1/1500
2/1435
2/1000
33
314
240
10
256
270
N 1/1645
3/0845
2/2245
1/1700
3/0900
2/2300
1/1800
3/1000
2/2359
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A018 2/0700 2/0915 1 497 2/1800 2/1830 2/1930
A019 2/0400 2/0750 291 50 2/1720 2/1730 2/1830
A020 2/0500 2/1020 - 171 2/1345 2/1430 2/1530
A021 2/1300 2/1645 126 58 2/2115 2/2130 2/2230
A022 2/0600 3/0030 30 204 3/0620 3/0735 3/0800
A023 2/0700 2/2315 232 40 3/0815 3/0830 3/1000
T
A024 2/0700 2/23009 99 52 3/0655 3/0730 3/0830

A025 2/0700 2/1150 221 104 2/1845 2/1900 2/2000
A026 2/0700 2/1245 262 650 3/0530 3/0630 3/0730
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A027 2/1030 2/1510 155 121 3/0435 3/0530 3/0630

A028 2/1330 2/1930 75 93 3/0355 3/0405 3/0500
A029 2/1500 2/2319 203 202 3/1115 3/1130 3/1230
A030 2/1500 2/1935 577 361 3/0600 3/0755 3/0900
A031 2/1700 3/0850 321 329 4/0330 4/0425 4/0530
A032 2/1800 3/1025 242 - 3/1620 3/1630 3/1730
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A033 2/1900 2/2245 303 268 3/0945 3/1035 3/1130

A034 2/1500 3/1030 - 625 4/0130 4/0200 4/0300
A035 2/2100 3/1145 72 227 3/1845 3/1900 3/2000
A036 2/2300 3/0915 358 324 4/0330 4/0345 4/0445
A037 2/2359 3/0715 375 439 4/0235 4/0245 4/0400
A038 3/0200 3/0940 68 51 3/1720 3/1730 3/1930
IN

Ahmedabad IIMA/BP0233
IMA/BP0233
Tristar Chemicals Private Limited
PY
In 1986, three friends, Narayan, Moorthy and Vasudevan in their early forties with several
years of experience behind them in national and multinational fertilizers and pesticides
companies decided to become entrepreneurs. rs. They floated a company called Tristar
Chemicals(P) Ltd. in Madras to take over and revive a sick small scale pesticides
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manufacturing company. The company recorded annual turnovers of Rs. 80, 148 and 160
lakhs respectively in the first three years of operation.
Promoters
The Chairman and Managing Director Mr. Narayan, a Chartered Accountant, was
associated with the Fertilisers and Pesticides Division, Rallis India Ltd. in Bombay for over
16 years. Later he was Director (Finance) for five years in a medium scale pesticides
company in Madras where the other two promotors, Mr. Moorthy and Mr. Vasudevan were
N
his colleagues. During his association with this company for eleven years as Factory
Manager Moorthy was instrumental in increasing operations substantially. Vasudevan had
over 25 years of marketing experience in agro chemicals with multinational and Indian
companies.
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Takeover of KP Industries
Pesticides industry had been under close scrutiny of the Central Government for some time
so much so that evenen a new small firm required a licence to commence operation, but the
T
government discontinued issuing such licences in the Eighties. Also the registered name of a
firm could not be altered. Even existing firms could not manufacture a new pesticide
without prior registration and approval of the Central Insecticides Board (CIB). Despite
these entry barriers competition was severe and several existing small pesticide units fell
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sick.
The Tristar promotors took over KP Industries in June 1986 and as per the aagreement
cleared its accumulated bank overdraft of Rs. 1.50 lakhs. The only worthwhile asset of the
unit that it obtained was a CIB registration for one product. They also paid for existing
machinery, licences and good will, and hired the premises for cont continued operations. They
inherited a mild steel tank for mixing chemicals and had to get additional machinery and
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equipments for sealing, packaging and weighing and some lab equipments for testing. They
acquired land and built a new factory in half of it. La
Land prices had trebled there since then.
Finance
The initial capital of Rs. 6 lakhs was raised from various sources as given below.
IN
Prepared by Professor K. Ramachandran, Indian Institute of Management, Ahmedabad.

The author gratefully acknowledges use of data on pesticides industry from "Pesticides Industry in
India: Issues and Constraints in its Growth" by U.K. Srivastava and N.T. Patel, Oxford & IBM Publishing
Co, New Delhi, 1990.
2 of 22 IIMA/BP0233
Promoters Rs. 4.50 lakhs
Friends Rs. 0.75 lakhs
PY
Distributors Rs. 0.50 lakhs
Staff Rs. 0.25 lakhs
Total Rs. 6.00 lakhs
CO
With a clean slate, they sought fresh bank limits from the same branch of the bank which
had financed KP Industries. The response was cold. They had to convince senior officers to
get their initial requirement of Rs. 20 lakhs of working capital released. Similar efforts were
needed to raise the limit to Rs. 50 lakhs within a few months and to Rs. 80 lakhs in the
subsequent year. Although delay in obtaining the loan led to materials procurement
problems, their long years of industry association helped them at the end.
Product - Market
Pesticides are broadly classified into insecticides, fungicides, rodenticides, herbicides and
N
fumigants. These broad groups are further classified in terms of chemical identity and site of
action. In terms of chemical identity all the five broad types of pesticides are classified into
organic and inorganic pesticides.
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reliance in the production of technical grade materials for pesticides has been an
Self-reliance
important goal, and the installed capacity has grown from 19,280 tonnes in 1966 to 102,328
86, at the rate of 8.3% per annum. Actual production as a percentage of
tonnes in 1985-86,
installed capacity has fluctuated around 65% during 19661966-1986. Insecticides account for
more than 85% of total pesticides production both in terms of quantity and value.
T
The number of pesticides in use varied over the years. With an average life of 10 years new
products appeared and existing products disappeared from the market. There were also
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instances of reappearance of some pesticides. During 1982-1987, only 42 pesticides were

actually being produced. Besides, the growth rate in the consumption of pesticides varied
between products (See Table 1).
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IN
3 of 22 IIMA/BP0233
Table 1
Product-wise Growth Rate from Two Points of Time in Quantity Terms
Name of the product Year Growth Rate
PY
From To %
Insecticides
1. BHC 1966 1986-87 5.50
2. DDT 1966 1986-87 5.30
3. Malathion 1966 1986-87 9.60
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4. Parathion 1968 1986-87 11.80
5. Metasystox (Methyl-O- 1970 1986-87
87 19.00
Demeton)
6. Femtrothion 1970 1986-87
86--87
86 87 7.50
7. Dimethoate 1966 1986-87
87 25.30
8. Phosphamidon 1972 1986-87
1986 11.20
9. DDVP 1972 1986-87
1986-
1986-87
87 39.30
10. Quinalphos
11. Carbaryl
12. Endosulfan
1974
N
1974-75
1974-
-75
75
1978-79
1978-
1978-79
79
1978-79
1978-
1978-79
79
1986-87
1986-
1986-87
87
1986-87
1986-
1986-87
87
1986-87
1986
18.50
4.30
67.00
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13. Monocrotophos 1978-79
1978-
1978-79
79 1986-87
1986 59.00
14. Fenthion 1979-80
1979-
1979-80
80 1986-87 0.05
15. Thimate/Phorate 1982-83
1982-
1982-83
83 1986-87 30.90
16. Phosalone 1983-84
1983 1986-87 38.70
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17. Ethion 1983-84

1983 1986-87 27.60
18. Fenvalerate 1983-84 1986-87 37.50
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19. Cypermethrin 1984-85 1986-87 122.70

Sub-group
group (Insecticides)
(Insecticides) 1966 1986-87 7.04
Fungicides
1. Copper Oxychloride 1966 1986-87 1.58
2. Thiocarbamates (Zineb, 1966 1986-87 8.04
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Mancozeb, Maneb)
3. Carbendazim 1978-79 1986-87 10.10
4. Captafol 1978-79 1986-87 14.30
5. Organomercurials 1966 1986-87 4.40
6. Captan
Captan 1983-84 1986-87 194.30
IN
7. Calixin 1984-85 1986-87 35.00

Sub-group (Fungicides)
Sub 1966 1986-87 3.25
Herbicides/Weedicides
1. 2, 4-D 1968 1986-87 20.40
4 of 22 IIMA/BP0233
Table 1
Product-wise Growth Rate from Two Points of Time in Quantity Terms
Name of the product Year Growth Rate
PY
From To %
2. Paraqust 1978-79 1986-87 22.90
3. Basalin 1979-80 1986-87 43.40
Sub-group 1966 1986-87 24.80
(Herbicides/Weedicides)
Fumigants
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1. Aluminium Phosphide 1968 1986-87 21.20
2. Methyl Bromide 1968 1986-87
87 6.50
3. Ethylene Dibromide 1970 1986-87
1986-
1986-87
87 0.30
Sub-group (Fumigants) 1966 1986-87
87 21.60
Rodenticides
1. Ratafin 1970 1986-87
1986-
1986-87
87 9.40
2. Zinc Phosphide
Sub-group (Rodenticides)
Overall in quantity terms
N
1966
1966
1966
1986-87
1986-
1986-87
87
1986-87
1986-
1986-87
87
1986-87
1986
2.80
3.10
7.60
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in value terms 12.61
Two of the pesticides affected by the structural changes were BHC and DDT whose share in
total production came down from 71% in 1966 to 56% in 1985 1985-86. In value terms the fall
was from 53 to 12 percentages.
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In 1988, the share of Indian pesticide industry in the world market was a meagre 2% but
was the second largest in Asia.
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Technical Grade Materials
Technical grade materials manufacturers provide raw materials to pesticide formulators

who sell their products through wholesalers and retailers to farmers. Out of 79 technical
grade material manufacturers in the country only 51 are actively produced in recent years.
Among g them 20 account for 94.3% of the production of technical grade materials (See Table
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2). The market concentration in terms of value of production is given in Table 3.

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5 of 22 IIMA/BP0233
Table 2
Market Concentration for Technical Grade Materials (in terms of qty.
produced)
PY
Technical grade material Name of company Market
concentration
(% share of market)
1. BHC Kanoria Chemicals 58%
2. DDT Hindustan Insecticides Limited 100%
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3. Malathion FICOM Organics 28%
4. Methyl Parathion Bayer 99.8%
5. Metasystox Bayer 100%
6. Fenthion Bayer 100%
7. Dimethoate Rallis India 77.4%
8. DDVP
9. Quinalphos
10. Monocrotophos
Ciba-Geigy
Sandoz
Ciba-Geigy
Geigy
N 100%
84.5%
45.1%
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11. Phosphamidon Ciba-Geigy
Geigy 75.5%
12. Thimet Phorate Cyanamid 62.9%
13. Ethion Shaw Wallace 39.4%

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14. Endosulfan Excel 70.1%
15. Fenvalerate Gujarat Insecticides 31.3%

EC
16. Cypermethrin Bharat Pulverising 38.7%
17. Copper Oxychloride Travan Cochin 100%
18. Dithane Indofil 100%
19. Paraquat Indian Expo. Ltd.(ACCI) 100%

SP
20. Aluminium Phosphide United Phos. P. Ltd. 54.4%

Total production of 20 products =51811 tonnes
Total production of remaining products = 3107 tonnes
Grand Total =54918 tonnes
Share of 20 products in total production
production-94.3%
IN
6 of 22 IIMA/BP0233
Table 3
Market Concentration for Technical Grade Materials

(In terms of value of production) (1985-86)
PY
Technical grade material Name of company Market concentration
(share of market)
1. BHC Kanoria Chemicals 58.4%
2. DDT Hindustan Insecticides 100%
Limited
3. Malathion FICOM Organics 27.97%
CO
4. Parathion Methyl Bayer 99.80%
5. Metasystox Bayer 100%
6. Femtrothion Bayer 91.92%
7. Fenthion Bayer 100%
8. Docopol HIL 100%
9. Dimethoate Rallis India 77.42%
10. DDVP Ciba-Geigy 100%
11. Quinalphos
12. Monocrotophos
13. Carbaryhdon
Sandoz
Ciba-Geigy
Paushak
N 84.55%
45.08%
100%
IO
14. Phosphamidon Ciba-Geigy
Geigy 75.52%
15. Phosalone Volrho Ltd. (Medak) 100%
16. Thimephorate Cyanamid 62.93%
17. Ethion Shaw Wallace 39.37%
18. Endosulfan Excel
Excel 74.14%
T
19. Fenvalerate Gujarat Insecticides 31.35%

20. Cypermethrin Bharat Pul. 38.71%
EC
21. Captafol Rallis India 100%

22. Captan Rallis India 100%
23. Copper Oxychloride Travan Cochin 100%
24. Dithane Indofil 100%
25. Ziram Ciba-Geigy 100%
26. Nickel Chloride Bharat Pul 100%
SP
27. Pheny Mercury Acetate Excel Ind. 66.67%

28. MEMC Excel Ind. 79.12%
29. Carbendazim (Bavistin) BASF 47.42%
30. Cahxin BASF 100%
31. 2, 4-
4-D
4-DD Atul 60.84%
IN
32. Isoproturon Triti-Chemi. Ltd. 56.67%

33. Paraquat (Gramoxo
(Gramoxone) I.E.L. (ACCI, KTIS) 100%
34. Dalapon HICO 100%
35. Basalin BASF 100%
36. Diuron Agromore 100%
7 of 22 IIMA/BP0233
Technical grade material Name of company Market concentration

(share of market)
37. Ratofin Agromore 100%
38. Zinc Phosphide Excel India 51.25%
PY
39. Aluminium Phosphide United Phos. P. Ltd. 54.05%
40. Methyl Bromide Tata Chemicals 100%
00%
41. Ethylene Dibromide United Phosphorus (Shriffs) 100%
42. Plant Growth Regulants BASF (Cyeocil/Lihocin) 100%
CO
A brief profile of each of the constituents of the pesticides industry is presented in Figure 1.
Table 4 shows that 80 percent of the technical grade materials are manufactured by 10 firms.
In fact, 3 firms control more than half the production.
The share of each of the 35 companies in terms of value as shown in Table 5 gives the reader
a better picture of the structure of the industry.
┌──────────────────┐
N
Figure 1: Structure of Pesticide Industry
IO
Manufacturers (51)├────────────────┐
┌───────────── ─┤Manufacturers (51)├────────────────┐
│ ├──────────────────┤ │
┌───┴───┐ │ │ ┌───┴────┐
│Exports│ Indian
│Indian Foreign │ │Imports ├──_═════╗
└───────┘ └───────┬──────────┘ └────────┘ │ ║
┌─────────────────────┴────────────────────────────┐ │ ║
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┌─────┴─────┐ ┌────┴────┐ │ ║
┌───┤Atleast 50%│ │Under 50%├─┼───┐ ║
│ │of output │ │of output│ │ │ ║
│ └───────────┘ └─────────┘ │ │ ║
EC
│ ┌───────────────────────────────┘ │ ║
│ ┌───────────────────────────────┴──────────────────────────────┐ │ ║
│ │ Formulators (800) │ │ ║
│ │ │ │ ║
│ ├───────────────┬───────────────────────────────────┬──────────┤ │ ║
└───┤Non-associated
associated │ │Associated├────┘ ║
│ (640)
640) │ │ (160) │ ║
SP
└───────────────┴──────────┬────────────────────────┴──────────┘ ║
╔════════════╡ ║
║ ┌─────┴─────┐ ║
║ │Wholesalers╞════════════════════════════════════╝
║ └─────┬─────┘
║ ╞════════╗
║ ┌─────┴─────┐ ║
╠══════╡ Retailers │ ║
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║ └─────┬─────┘ ║
Total sale points 77080 ╞════════╝
║ ┌────┴────┐
╚═══════╡ Farmers │
└─────────┘
─────────────────Primary route ══════════════Secondary route
8 of 22 IIMA/BP0233
Table 4
Market Concentration in Total Production of Technical Grade Materials
(Company-wise in terms of qty. produced) (1985-86)
PY
Company Production of tech. grade % to total
materials in '000 tonnes production
1. Kanoria Chemicals 14993 27.3
2. Hindustan Insecticides 9121 16.6
CO
3. Tata Chemicals 6787 12.4
4. Excel 2390 4.4
5. Indofil 2324 4.2
6. Ciba-Geigy 2309 4.2
7. Bayer 2137 3.9
8. Mico-Farm 1429 2.6
9. Cynamid
10. Rallis India

N 1343
1281
2.4
2.3
IO
Total of above 10 companies 44114 80.3
Other 25 companies 10804 19.7
Total of all 35 companies 54918 100.0

T
EC
SP
IN
9 of 22 IIMA/BP0233
Table 5
Market Concentration in Total Production of Technical Grade Materials (1985-
1986)
(Company-wise in terms of value of production)
PY
Name of the company Production of tech. grade % to total
materials (in '000 Rs.) production
1. Ciba-Geigy 335171 9.82
2. Excel Industry 300533 8.80
3. HIL 286572 8.40
4. Bayer 232350 6.80
CO
5. NOCIL, Bombay 231830 6.79
6. Rallis India 193809 5.68
7. United Phos. Pvt. Ltd. 144992 4.25
8. Bharat Pulverising 142400 4.17
9. Sandoz India 127400 3.73
10. Indofil Chemicals 124900 3.66
11. Gujarat Insect. 120000 3.52
12. Kanoria Chemicals 113946 3.34
13. I.E.I. (ACCI, KLTS)
14. Cynamid
15. Sudarshan Chemicals
N 113100
113100
100025
96350
3.31
2.93
2.80
IO
16. Searle India Ltd. 95550 2.82
17. Triti Chem. Ltd. 77765 2.28
18. Indian Explosive Ltd.(ACCI) 62400 1.83
19. Ghardha Chemicals 59456 1.74
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20. Tata Chemicals 56755 1.66

21. Pesticides India 51484 1.52
EC
22. FICOM Organics 48920 1.43

23. Khatau-Junkar
Junkar 47520 1.39
24. B.A.S.F. 40125 1.17
25. Travan Cochin 39465 1.16
26. Atul 38380 1.12
27. Shaw Wallace 34174 1.00
SP
28. Volrho Ltd. (Medak) 23958 0.70

29. Agromore 20136 0.59
30.. Gujarat Distilleries
30 19304 0.56
31. Mico-
Mico-Farm
Mico-Farm
Farm 11019 0.33
32. J.K. BM 9675 0.28
33. Paushak 7650 0.22
IN
34. IFFCO 6360 0.18

35. H.I.C.O. 84 0.02
Total production 3413558 100.00
Pesticide Formulators
The total estimated consumption of pesticides in agricultural sector for various crops was
15% per annum.
about Rs. 555.6 crores in 1984-85 (Table 6), and the annual growth was 10-15%
Cotton and paddy alone accounted for 67.3% of the total consumption of pesticides. The
PY
consumption of pesticides was less than n 1% in the case of barley, gram, ragi, jute, sugar
cane, rape and mustard, soyabean, onion, potato, tobacco, sunflower and tapioca. The share
of wheat and jowar was 6.4% and 8.9% respectively.
tart with 4-5

Pesticides formulators in the small scale sector generally start 4-55 products and
4-
gradually expand the range, very often to 15-2020 products, including both liquids and
powders.
CO
Their methods of demand estimation and production planning varied widely. For instance,
while some of them planned production based largely on previous year's figures, some
others collected data from the field and made estimations afresh.
Liquid pesticides were generally sold in 100 ml, 250 ml, 500 ml, 1 litre, 5 litres and 20 litres
sizes. According to a study in Gujarat and Andhra Pradesh, more than half the sales were in
1 litre pack, and a quarter of the sales in 5 litres pack. 100 ml and 20 litres constituted less
than 1% of the total sale of liquid products.
Technical grade materials such as phosphamidon, DDVP, monocrotophos, dimet

butachlor were not easily available during post-monsoon
post-monsoon period.
N
dimethoate and
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It was also learnt that while the prices of pesticides belonging to the organ phosphorus
compound group has been rising annually at the rate of 5%, those of synthetic pyrethroid
up had been declining at the rate of 4% in the recent past.
group
There were a total of over 800 registered formulators. Out of them 160 were associated
formulators and the remaining non- non -associated
associated formulators. Associated formulators were
non-associated
T
associated with technical grade material manufacturers who supplied raw materials easily
and on credit even in peak season. Their products got promotional and sales support from
the big companies. The largest 11 companies together had a sale of about Rs. 350 crores in
EC
1986. Their sales for 1988 was as given in Table 7.
Distribution
The rules of the game were generally set by the large companies. Wholesalers/distributors,
dealers and retailers formed the link between formulators and consumers. Many local
products to the distributors as well as to the retailers. In case of direct
formulators sold their products
SP
sales to retailers, formulators often passed on a small percentage of their profits to the
concerned area distributors. Dealers sold products of different formulators generally on
credit.
Of late, dealers in Tamil Nadu and Karnataka had started future trading operations.
Accordingly, they committed to buy the entire produce of cotton from farmers who bought
p
pesticides from them. Farmers paid for the pesticides from the sale of their produce after
IN
cropping. This enabled them to get pesticides on credit. Dealers charged commercial rates of
interest with an additional margin for risk on such credit sales. In any event the total
amount due to the dealer was fixed, and the quantity of cotton cotto depended on its market
price. In North India where the crop was sold generally to the government agencies such
practices had been prevailing for years at an interest rate of 36% per annum.
State government departments, cooperatives and private shops undertook retail sale of
pesticides. In 1986, there were over 77,000 distribution points all over the country, 7% of
which were run by state departments, 21% by cooperatives and 72% by private traders.
More than half of the distribution points were located in Andhra Pradesh, Tamil Nadu,
Uttar Pradesh, Gujarat and West Bengal (See Table 8). The major consumers of pesticides
PY
were Andhra Pradesh, Karnataka, Gujarat and Punjab (See Table 9).
Table 6
Crop-wise Consumption of Pesticides for 1984-85
Crop Estimated pesticides % to total
CO
pesticides
consumption (in lakh Rs.) consumption
1. Paddy 12,720.50 22.8
2. Wheat 3,541.80 6.4
3. Jowar 4,954.00 8.9
4. Bajra 990.50 1.8
5. Barley
6. Ragi
N 0.00
240.40
0.0
0.4
IO
7. Maize 636.20 1.1
8. Arhar 1,552.00 2.8
9. Gram 122.00 0.2
10. Jute 153.80 0.3

T
11. Cotton 24,721.30 44.5
12. Sugarcane 384.10 0.7

EC
13. Groundnut 1,368.40 2.5
14. Rape and Mustard 91.00 0.2
15. Soyabean 9.50 0.0
16. Sunflower 30.40 0.1

SP
17. Onion 109.20 0.2
18. Potato 24.50 0.0
19. Tobacco 39.30 0.1
20. Tapioca 1.00 0.0

IN
21. Fruits and Vegetables 3,873.80 7.0

(excluding Onion and Potato)
Total 55,563.70 100.0

Table 7
Turnover of major companies (1988)
PY
(in Rs. lakhs)
Rallis, India 8200
NOCIL 6100
BAYER 6900
CO
CIBA 6600
Hoechst 4700
Excel 4000
Sandoz 5000
Shaw Wallace 3000
Indofil
Searle India
N 2400
2250
IO
Cyanamid 2200
51350
T
EC
SP
IN
Table 8
Sale/ Distribution Points of Pesticides Operated by Various Agencies -

Reported by States/U.Ts.
PY
Sl. State/U.T. State Distribution points Total
No. Dept.
Cooperatives Private Trade
1. Andhra Pradesh 820 2810 6156 9786
2. Assam 22 10 1075 1107
3. Bihar 466 500 5000 5966
CO
4. Gujarat -- 3277 4038 7315
5. Haryana 436 83 1051 1570
6. Himachal Pradesh 70 4 191 272
7. Jammu and Kashmir 88 5 525 618
8. Karnataka -- 1026 4252 5278
9. Kerala 400 886 1123 2409
10. Madhya Pradesh 457 3000 2000 5447
11. Maharashtra
12. Manipur
13. Meghalaya
68
19
--
N 450
26
--
4126
54
27
4644
99
27
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14. Nagaland -- -- 12 12
15. Orissa 6 1840 670 2516
16. Punjab 118 90 1692 1900
17. Rajasthan 170 400 1540 2110
18. Sikkim -- -- -- --
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19. Tamil Nadu 774 1077 7863 9644

20. Tripura -- -- -- --
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21. Uttar Pradesh 932 337 7312 8581

22. West Bengal -- 323 6932 7255
23. Andaman and Nicobar 35 -- -- 35
24. Arunachal Pradesh -- -- -- --
25. Chandigarh -- 1 5 6
26. Delhi 12 4 163 179
SP
27. Dadra & Nagar Haveli 10 -- -- 10

28. Goa Daman and Diu 9 150 -- 159
29. Mizoram 50 -- -- 50
30. Lakshadweep -- -- -- --
31. Pondicherry 11 8 56 75
IN
Total 4973 16237 55870 77080

Table 9
State-wise Consumption of Pesticides for 1984-85
State Estimated Percentage to total
PY
pesticides pesticides
consumption (in consumption
lakh Rs.)
1. Uttar Pradesh 962.80 1.7
2. Bihar 466.70 0.8
3. Assam 152.80 0.3
CO
4. West Bengal 1,635.80 2.9
5. Madhya Pradesh 62.40 1.0
6. Orissa 1,082.30 2.0
7. Karnataka 8,997.30 16.2
8. Tamil Nadu 1,974.50 3.6
9. Punjab 6,339.10 11.4
10. Andhra Pradesh 18,650.30 33.6
11. Haryana
12. Himachal Pradesh
13. Rajasthan
N 2,578.20
71.00
71.30
4.7
0.1
0.1
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14. Maharashtra 2,852.40 5.1
15. Gujarat 8,427.10 15.2
16. Kerala 739.70 1.3
Total 55,563.70 100.0
T
Technical Grade Materials Allocation Scheme
A scheme to allocate 50% of the pesticides production of indigenous units to respective state
EC
governments was introduced by the central government in 1974. The main objective of this
of the
scheme was to distribute available pesticides at reasonable prices in different regions o
country, thus ensuring their stable supply and price. The formulators would get technical
grade materials easily and at reasonable price.
Pesticides covered under this scheme were BHC, DDT, malathion, parathion, fenitrothion,
dimethoate and endosulfan.
endosulfan. Carbaryl which was also covered under this scheme was
completely stopped after the Bhopal gas tragedy.
SP
Small-scale
scale pesticides formulators, however often complained to the Central Government
technical grade materials at reasonable
that SSI units were unable to get timely supplies of technic
prices. The procedure was thus revised subsequently in March 1987 (See Annexure 1).
Tristar Products
IN
Along with the takeover of K.P. Industries, Tristar acquired licence to make one product -
afterwards they applied for licence to make butachlor as the
endosulfan. Immediately after
season for it was about to begin in Punjab for paddy cultivation. In fact, the season for
endosulfan was coming to a close and they needed some other licence to start production.
The licensing procedure involved applying to the Central Insecticides Board in seven copies.
The Board had to certify that the product was harmless to the chemist in the factory and
easy for use by laymen in the field. Since experts had to certify this, it took a minimum of 9
months to obtain a licence, and therefore they applied for all the products they were
interested in and started production as and when they got licences. Over a period of three
years, they acquired registration for additional 23 products (See Annexure 2).
PY
One of the critical problems was procurement of technical grade materials and packing
materials like containers. Technical grade materials were supplied by large multinational
and national companies which also manufactured pesticides. Despite their very very long
association, some of these companies were not prepared to deviate from their general norms
and insisted on very strict terms such as bank L/Cs and fixed price. They, however, got
concessions in terms of extended credit and availability in times of scarcity. Mr. Vasudevan
cited an instance when in 1987-88 88 the technical grade material for monocrotophos was in
CO
short supply during the season. Since the branch manager of NOCIL was personally known
to the partners for years they could get regular supply off it throughout the season. Similarly,
they got regular supply of fenvalerate from Searle India mainly because of their contacts
with its President Dr. Ram Goel. He was the first to extend help. Seeing him, other friends
also came around to offer help.
ticides were packed in tin containers of various sizes ranging from 100 ml to 5 litres.
Pesticides
About half the produce was packed in 5 litres tins, a quarter in one litre tins and the
remaining in 250 and 100 ml tins. Some of the products which were corrosive were packed
in HDPE bags. During lean periods they made the small tins ready for despatch. N
Initially, tins were bought in Ahmedabad, but this had to be discontinued when the parties
thr months'
put stiff terms. Their contacts in Metal Box came handy then. They gave three
IO
requirements to the company at any given time. Over a period of time they built up
reputation, and started getting a price advantage of about 3 per cent from Metal Box.
Another input called avamax came from the Indian Oil Corporation where they did not get
any credit nor receive any price advantage.
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Market
They started marketing in October 1986 in Tamil Nadu and expanded the coverage to
Karnataka in Nov. 1986 and AP in Jan. 1987. Mr. Vasudevan said that they had to price their
EC
vely giving credit ranging from 35 to 60 days. Although pesticides

products competitively
commanded seasonal demand, they operated factory almost around the year without
building up substantial inventory. Their market seasons were as given below.
Andhra Pradesh - Karnataka June to Sept.
Punjab March/April to August

SP
Sept/Oct. to Jan/Feb
Tamil Nadu Sept/Oct. to Feb.
Their sales were largely in Punjab and AP (30% each) with the remaining in Tamil Nadu
(25%) and Karnataka (15%).
IN
s
Soon after setting up, the partners started contacting various pesticides distributors whom
they knew. While these distributors were in general sympathetic to the plans of Tristar, no
tangible interest was forthcoming. Consequently they had to appoint virtually unknown
people as distributors for their products. Most of them were dealers for pesticides earlier.
They began with a few distributors in Tamil Nadu and Karnataka who subscribed to the
company's shares.
Tristar had distributors appointed district wise who were paid a margin of 5 to 7.5 percent
of the turnover. Dealers who got products from the distributors were entitled a margin of
7.5 to 10 percent. These rates, incidentally were better than those offered by large
PY
companies. Narayan felt that if they could deal directly with the dealers it would have
meant more money to operate or to introduce new marketing schemes.
They faced severe competition from the multinationals who had fixed norms for pricing.
These companies commanded different customer images of product quality and pricing.
Since the Tristar product quality was comparable to that of large company products, dealers
were inclined to sell their products also for a higher margin. In the first year of their entry
CO
into Punjab market, Vasudevan approached a few dealers whom he knew and requested
them to sell Tristar products on an experimental basis. His average sale per `mandi' (small
market place) in that year was about 1000 litres, forming about 10 percent of the total mandi
sales. This went up in the subsequent year. Most farmerss would go largely by the quality of
products, and so would buy pesticides for specific purposes.
"Developing market in Punjab with our base in Tamil Nadu was not easy," said Vasudevan.
They appointed a Regional Manager there who was in fact known to Vasu
Vasudevan from his
yester years. Tristar gave samples to dealers who checked product quality. Some of the
dealers even checked with officials of a multinational company who also approved of
N
Tristar quality. From the second year onwards Tristar demanded advance cash deposits
from dealers.
IO
Unlike their competitors they appreciated genuine difficulties of the dealers and distributors
and extended reasonable credit to them. He cited an instance when one of the multinational
companies lost substantial business mainly because its representative could not support one
of the important dealers when he faced some crisis. In another instance the regional
national company was asked by the Finance Director to improve his
manager of a multi-national
monthly collection substantially. Since he had to meet the target fixed by his boss he
T
telephoned a few dealers and distributors randomly and got the amount.
In Trichy there were 9 dealers for the large companies who were making marginal profits.
EC
Vasudevan approached one of them and askedas him whether he was interested in becoming
a distributor to Tristar products where the quantity would be small but the margin higher.
He continued to do business for the other companies but at the same time took Tristar
companies did not allow such dealings, they could not do
distributorship. Although large companies
much about it since it was an industry practice. Initially Vasudevan told the man from
Trichy that he should take at least 1000 litres of Tristar products and come back only if he
was satisfied with it.
SP
Delay in payments had certainly affected their working capital cycle. Narayan was thinking
of giving cash discount on collections in Punjab if necessary.
Their earlier colleagues and friends from the industry used to meet them in the early days
extend `free' consulting. Narayan thought that probably for that reason, Hoechest did
and extend
not kill them. They gratefully acknowledged that representatives of large competitors often
IN
o
"asked" dealers to give a chance for Tristar to survive in their first year of operation. Senior
executives of large companies often gave them guidance to be successful. They often told
under-
Tristar to be always quality conscious and not to under-cut prices dangerously.
Their pricing decisions were based both on cost and competition. Vasud
Vasudevan mentioned the
1988 prices of some of their products and their competitors.
Price per litre

(in Rs.)
Monocrotophos Tristar 155
CIBA 180
PY
Others 140-145
Endosulfan Tristar 85
Hoechst 90
Rallis 90
Others 78-82
78--82
78 82
CO
Price varied from region to region also as they charged Rs. 165 per litre of monocrotophos in
South India compared to only Rs. 155 in the North. Similarly, a large company charged Rs.
205 per litre of monocrotophos in the South where they had to sell on credit.
mix changed whenever required under

They monitored costs very closely. Their product-mix
pressure from costs and prices.
N
Although they have licences to produce 25 pesticides, most of the time they produced only
7-88 of them. Indosulfan and monocrotophons used in paddy and cotton fields were the most
important products of Tristar.
IO
Although Tamil Nadu accounted for only a quarter of the total market for them, most of the
100 ml containers were sold in the State. Mr. Murthy said that their major bottleneck was
bottling, especially in the smallest size category. They were going to purchase a new
capping machine.
T
Personnel
They recruited a chemist and ten casual workers. Over a period some of them were given
additional benefits and more people were recruited. Some of them wit with experience were
EC
recruited from the same industry through contacts. In May 1990 they had altogether 26
people employed (6 in the office, 5 labourers, 2 chemists, 1 generalist, 1 watchman, 8 field
staff and the partners). Three of the field staffs were in Tamil Nadu, two in Andhra Pradesh
and three in Punjab. They planned to have two more people in Andhra Pradesh and one in
Karnataka in 1990. Narayan was quick to add that none of them was their relatives or
friends. They offered salary matching industry sta standards, and provided a family-like
working environment. Some of them indeed faced conflicting problems of sentiments v/s
SP
business requirements. These were, however, sorted out in a short period of time.
Since each of the partners had distinct areas of expertise

exp there was no problem in deciding
their responsibilities. They met every morning to review all operations. They had budgets
with weekly break-up
break-up
breakup and prepared trial balance on a monthly basis. They did not interfere
prov
in each other's functions, but provided useful inputs wherever possible.
IN
Assignment
What do you think of Tristar's decision to enter this industry? How are they managing?
What are the prospects for the company?
Sole Proprietor of K P Industries
Balance Sheet for various years
PY
Particulars 31.03.198 31.03.198 30.06.1987
9 8
(Rs. '000)
I. Sources of Funds
Capital 600 600 600
CO
Reserves and Surplus 831 531 195
1431 1131 795
Secured Loans 5919 5932 2285
Unsecured Loans 695 336 657
8045 7399 3737
II. Application of Funds
Gross Block 2288 1576 597
Less Depreciation
Investments
N 624
1664
200
376
1200
100
147
450
--
IO
1864 1300 450
Current Assets, Loans and Advances
Inventories 3263 3501 1604
Sundry Debtors 5037 4424 5360
Cash & Bank balances 264 40 19
T
Loans and Advances 194 569 511

8758 8534 7494
EC
Current Liabilities 2534 2362 4132

Provisions 47 80 80
2581 2442 4212
Net Current Assets 6177 6093 3281
Miscellaneous Expenditure 4 5 5
Total Assets 8045 7399 3737
SP
IN
Sole Proprietor of K P Industries
Profit & Loss Account for various years
PY
Particulars 1989 1988 1987
(Rs. '000)
I. Income
CO
Sales 16025 14778 8021
Other Income 15 14 9
16040 14792 8030
II. Expenditure
Materials Consumed 12356 11919 6369
Operating Expenses N 2079
14435 13668
1749 1034
7403
IO
Profit Before Interest 1604 1124 626
Interest 995 489 205
609 635 421

T
Depreciation 249 229 146
Profit Before Taxation 360 406 275

EC
Provision for Taxation 60 70 80
300 336 195
Appropriations :
SP
General Reserve 300 336 195

IN
Annexure 1
a. associated formulators desirous of obtaining technical grade material from a

Non-associated
PY
manufacturer should indent for their requirements on quarterly basis at least two months
in advance of the quarter for material that is required. This would only give an indication
and not a commitment which would only be on issuing of letter of credit.
b. Their indent will indicate the phasing of requirement of the requisite material in the
appropriate size packing offered by the manufacturer and a list of prices to be circulated
by the manufacturers at least four months in advance of the ensuring quarter and which
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price should remain firm for the entire quarter of supply.
c. Formulators should deposit at least 10% of payments for quantities required as per indent
at least 30 days in advance of delivery to make it a firm commitment.
d. In view of the commitment to supply and in order to plan production as per the
deposit 15 days in advance the full
commitments, it is necessary that formulators should deposit
value of the consignment either by cash or by confirmed irrevocable letter of credit.
e. Revolving letters of credit can be used for subsequent quarters provided there is a mutual
f.
agreement between the manufacturer and the formulators.
form ulators.
N
Manufacturers of technical grade material will adhere to the deadline for delivery of the
contracted material for which they have accepted firm commitment.
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g. In case of heavy indents backed by firm commitments, the manufacturer will ensure
equitable pro rata allotments to the indenters.
h. The manufacturers would make available 50% of the actual monthly production to non non-
associated formulators. The formulators would lift the stock during off
off-season also and
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build up a stock for the peak season.
i. ufacturers will pay interest at bank rates on advance payments made by the
The manufacturers
formulator for any period of delay in despatches.
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j. Sale price to be charged by the manufacturer should be that national transfer price is
based on internal costing of the company.
SP
IN
Annexure 2
Sl. No. Name of Product
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1. B.H.C. 10% DP
2. Malathion 50% EC
3. Endosulfan 35% EC
4. Methyl Parathion 50% EC
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5. Monocrotophos 36% SL
6. Butachlor 50% EC
7. Cypermethrin 25% EC
8. Phosphamidon 85% SL
9. Methyl Parathion 2% DP
10. Fenvalerate 20% EC
11. Quinalphos
12. Dicofol
N 25% EC
18.5% EC
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13. Dimethoate 30% EC
14. Isoproturon 50% WP
15. Fenitrothion 50% EC
16. Sulpur 80% WP

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17. Diazinon 20% EC
18. 2, 4-D
4-D
4- D Amine Salt 58% SL
EC
19. Decamethrin 2.8% EC
20. B.H.C. 50% WP
21. Phenthoate 50% EC
22. Dichlorovos 76% EC

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23. Mancozeb 75% WP
24. Oxy Demeton Methyl 25% EC
25. Cypermethrin 25% EC

IN
Annexure 3
Import of Technical Grade Materials
89 took a decision to allow import of 15 technical grade pesticides

Government of India during 1988-89
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under the Open General Licence Policy. The import duty on them was brought down from 105 to 70%.
The aim is to make available these pesticides at lower prices to the farmers. The 15 technical grade
pesticides which are covered under OGL policy are:
1. Monocrotophos 2. Methyl Parathion

3. Dimethoate 4. BHC
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5. Malathion 6. Endosulfan
7. Phorate 8. Dithane
9. Zineb 10. Maneb
11. Thiram 12. 2, 4-D
13. Butachlor 14. Banthiocarb
15. Isoproturon
Under
nder the OGL Policy, only the Indian Farmers Fertilizers Cooperatives (IFFCO), Krishak Bharati
Cooperative (KRIBCO) and State Agro Industries Corporations can import these 15 technical grade
N
pesticides. As per the procedure, these three specified organizations have to get licence/ registration
from the Central Insecticides Board to import these 15 technical grade pesticides under OGL Policy.
The CIB while registering the products, specifies sources in the international market from whom they
can import the technical grade pesticides.
IO
The conditions to import technical grade pesticides are as below:
The actual user (industrial) shall, within seven days of the clearance of each consignment, send to the
Department of Agriculture and Cooperation (Plant Protection Division), New Delhi, particulars of the
items imported, the quantity and the C.I.F. value thereof.
T
All actual users at the time of clearance of goods shall furnish to the customs authorities a declaration
giving particulars of their industrial licence/registration
licence/registration as an actual user with the concerned authorities
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namely, the number and date of the licence/ registration and the end product(s) of manufacture, and
affirming that: (i) the industrial licence/registration has not been cancelled or withdrawn or otherwise
made inoperative, and (ii) the technical grade pesticides imported under OGL are strictly in
accordance with the terms and conditions of their industrial licence/registration with the sponsoring
authority concerned as an industrial unit and th their approved phased manufacturing programme. In
case, no phased manufacturing programme has been approved for them, they should say so in the
declaration. In cases, where separate registration number is not allowed by the sponsoring authority
concerned, thehe importers shall produce other evidence to the satisfaction of the customs authorities
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that they are registered as industrial units and eligible to the import made. Actual users (industrial)
shall also furnish, at gramme, if any, approved for them by the sponsoring authority or other concerned
authority.
Following the suggestions made by the expert committee, Government of India in Oct. 1989, banned
the use of DDT in agriculture.
IN

IIMA/PROD02
Gunny Bags Inventory at Western India Cement
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Company
The Western India Cement Company (WICC), a reputed and large Cement Manufacturer
operates an one million Tonne Cement plant at Cement Nagar in Western India. The plant
has access to high quality limestone in close proximity of the plant. Due to this, WICC has a
Competitive edge in terms of cost of production and quality of Cement. However, WICC is
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not so fortunate in respect of some of the other materials it consumes, particularly coal and
Gunny bags.
WICC has to put up with low quality (High Ash content)of coal and also irregular supply.
In addition there is long haulage for Coal. WICC manages its Coal requirements though
adequate stock of Coal along with occasional purchase from open market and ro road
transport.
The situation in respect of Gunny bags is somewhat different. Gunny Bags with polythene
Gunny bags is not a serious issue but the cost incurred on m

inventory is of concern to the management of WICC.
N
lining inside is used by WICC for packaging of cement for distribution. The availability of
maintaining the Gunny bags
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Almost the entire quantity of Cement produced in the Country is despatched through 50 Kg
bags. The bulk transport of Cement, as in developed Countries, is yet to be accepted wid
widely
in India.
There are some choices in respect of the Bags for transportation of Cement: in the form of
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paper, polythene, Gunny Bags - with or without polythene lining, etc. The Government of
supp
India has been consistently advocating and continuously supporting the use of Gunny bags
for Cement transportation, partly to keep the Jute Industry viable and also for energy and
EC
environmental considerations. WICC has been as a policy using Gunny B Bags with polythene
requirement of Cement.
lining for the entire transportation requirements
The total requirement of Gunny bags for a 1.0 million Tonne plant comes to 20.4 million
bags per year, considering burstage and other losses of about 2%. The annual expenditures
on procurement of Gunny Bags comes to 510 million m.u. (monetary unit) at an average cost
of 25.00 m.u. per bag. This being a high consumption value item it becomes essential to
monitor its supplies on a regular basis, so that there is no abnormal increase in the
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inventories as also the plant is adequately catered against stock

stock-outs. The monthwise
receipts and consumption pattern of Gunny bags for the years 2001, 2002, and 2003 have
been presented in Appendix - 1, Appendix - 2 and Appendix - 3 respectively.
Al
Kolkata is the major source of Gunny bags in the Country. Almost entire quantity of Gunny
bags requirement of WICC is obtained from Kolkata. There is no major bottleneck in the
availability of Gunny bags. However, there is variation in the transportation time of Gunny
IN
bags from Kolkata to the works of WICC. The bags are despatched from Kolkata by goods
train to Delhi. Once the wagons arrive in Delhi, the bags are unloaded within 5 hours and
Prepared by Professor Arabinda Tripathy, Indian Institute of management, Ahmedabad

Teaching material of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class
© 1992 by the Indian Institute of management, Ahmedabad
loaded on to trucks for transportation to the works site. Past records of railway receipts
received from Kolkata and the date on which the bags were received at the factory indicates
that on an average 12 days (Appendix - 4) are required from the day the materials are
despatched from Kolkata till it reaches the factory. Normally monthly orders are placed by
the Purchase Division. The despatches from Kolkata are regulated through despatch advice
PY
communicated periodically through phone/fax.
The expected monthly requirements of bags for the year 2004 have been furnished in
Appendix - 6. It is desired to finalise the procurement and d inventory policy in respect of
Gunny bags for the year 2004 in order to minimise the total cost related to Gunny bags.
The Purchase Division has indicated an ordering Cost of 1500 m.u. /order (Appendix - 5).
m.u./order
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The cost of each Gunny bag can be taken to be 25 m.u. per bag.
Comment on the Computation of Ordering Cost. Suggest an alternate (better) method if any.
Also indicate how the inventory carrying cost (which has been estimated to be 13%) needs
to be computed.
Suggest a procurement and inventory policy for Gunny Bags for the year 2004, with cost,
consumption and other data provided in the case.
N
T IO
EC
SP
IN
Appendix 1
Statement showing month-wise receipt and consumption of gunny bags for 2001
Month Opening Receipt Consumption Closing Stock

Stock
January 1624628 1770000 803189 2591439
PY
February 2591439 80000 688372 1983067
March 1983067 - 850059 1133008
April 1133008 450000 621129 961879
May 961879 948500 735840 1174539
June 1174539 1437625 653332 1958832
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July 1958832 573000 861061 1670771
August 1670771 476125 722555 1424341
September 1424341 287500 829322 882519
October 882519 867752 926057 824214
November 824214 1034209 904917 953506
December 953506 1354250 920334 1387422
Total
- Average monthly closing stock = 16945537/12 = 1412128

9278961
N 9516167 16945537
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- Average monthly receipt = 9278961/12 = 773246
- Average monthly consumption = 9516167/12 = 793014

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EC
SP
IN
Appendix 2
Statement Showing Monthwise Receipt and Consumption of Gunny Bags for 2002
Month Opening Stock Receipt Consumption Closing Stock

January 1387422 904472 855671 1436223
PY
February 1436223 356832 560734 1232321
March 1232321 1099879 587368 1744832
April 1744832 392577 778870 1358539
May 1358539 508736 976932 890343
June 890343 1035135 789330 1136148
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July 1136148 732383 815240 1053291
August 1053291 798005 950996 900300
September 900300 969893 746705 1123488
October 1123488 500530 675513 948505
November 948505 573571 755735 766441
December 766441 781330 1046812 500959
Total 8653443
8653443 9539906 13091390
Notes: N
1. In consumption figures of May, 99983 bags are included which were destroyed due to fire.
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2. 25,000 bags sent for repairing in the month of October.
3. 9850 bags sent for repairing in the month of November.
- Average monthly closing stock is = 13091390/12 = 1090949
- Average monthly receipts = 8653443/12 = 721120

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EC
SP
IN
Appendix 3
Statement Showing Month-wise Receipt and Consumption of Gunny Bags for the year - 2003
Month Opening Stock Receipt Consumption Closing Stock
January 500959 909450 751815 658594
PY
February 658594 475830 452478 681946
March 681946 1091125 630922 1142149
April 1142149 1030000 730675 1441474
May 1441474 263250 825397 879327
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June 879327 391500 774885 495942
July 495942 1363900 818618 1041124
August 1041124 587400 594647 1033877
September 1033877 727640 467580 1292927
October 1293937 480840 571630 1203147
November
December
1203147
959592
N 419700
415600
663255
790628
959592
584564
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Total 8156235 8072530 11415673
- Average monthly closing stock = 11415673/12 = 951306
- Average monthly receipts = 8156235/12 = 679686

T

EC
SP
IN
Appendix 4
Receipt Frequency of Gunny Bags in 2003

(No. of days in transit taken from date of R/R till the date of receipt at works)
Instances of No. of days in transit
PY
Months No.of Trucks 10 days 11 days 12 days 13 days 14 days 15 days
Received
January 42 2 2 35 3 - -
February 26 2 3 16 5 - -
March 57 3 3 47 4 - -
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April 52 - 4 40 4 2 2
May 20 - 3 12 2 1 2
June 24 - 4 16 3 1 -
July 61 - 9 46 4 1 1
August 33 - 2 26 3 1 1
September 37 - 7 25 3 1 1
October 26 2 5 13 5 - 1
November
December
Total
22
23
423 13
3
1
46
2
2
N 13
17
306 42
3
3
1
8
-
-
-
8
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Average No. of days in transit = (13*10*11+306*12+42*13+8*14+8*15) / 423
= (130+506+3672+546+112+120) /423
5086/423
= 5086/
5086//423
423 = 12.02 Say 12 days.
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EC
SP
IN
Appendix 5
Computation of Ordering Cost
Purchase Department, New Delhi, has furnished the following information in connection with the
Purchase orders released both from Delhi and Plant Office as also the establishment charges for both
PY
the places:
A No. of Orders Released –
a) From New Delhi 1320 Nos.

b) From PLANT 806 Nos.
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Total 2126 Nos.
B In addition to the above, one order per month is released for Coal and two orders per month for
Diesel.
C Total no. orders released would be –
a) No. of orders from Delhi & PLANT 2126 Nos.

b) No. of orders for Coal 12 Nos.
c) No.of orders for Diesel
N Total
24 Nos.
2162 Nos.
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D Establishment Costs of Purchase Department at Head Of
O
Office
fffice
fice & Plant
P Office
(Based on the information furnished by Manager (Accounts)), New Delhi = 3.24 m.u.
E) Ordering Cost 2
3,240,000 / 2162
order
= 1498 m.u per order. (Say 1500 m.u. per order)
T
EC
SP
IN
Appendix 6
Requirement of Gunny Bags for 2004

(One tonne =20 gunny bags, 2% extra bags required due to burstage) (Quantity in Tonnes & Nos.)
Month OPC PPC Total OPC PPC Total
PY
Cement Cement Cement
(Requireme (Requireme (Requirement
Despatch Despatch Despatch
nt of bags in nt in Nos.) in Nos.)
(in Tonnes) (in (in Nos.)
Tonnes) Tonnes)
January 12350 18500 30850 251940 377400 629340
February 15500 23250 38750 316200 474300 790500
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March 18500 27700 46200 377400 565080 942480
April 17300 25900 43200 352920 528360 881280
May 17300 25900 43200 352920 528360 881280
June 15600 23400 39000 318240 477360 795600
July 17600 26300 43900 359040 536520 895560
August 18800 28200 47000 383520 575280 958800
September 18200 27200 45400 371280 554880 926160
October
November
17600
17900
26300
26900
43900
44800
N 359040
365160
536520
548760
895560
913920
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December 19200 28800 48000 391680 587520 979200
Total 205850 308350 514200 4199340 6290340 1048960
- Average Requirement of OPC bags/month = 4199340/12 = 349945, say 350000
- Average Requirement of PPC bags/month = 6290340/12 = 524195, say 525000

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- Average Requirement of bags/month = 10489680/12 = 873390, say 875000

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IN

Ahmedabad IIMA/QM0230
Indian Railways
PY
Freight Operations Information System
This case describes the project identification, formulation and implementation aspects of the
computer based Freight Operations Information System (OIS) being planned on Indian
Railways (IR). This system is expected to bring about improved efficiency through
modernisation in information handling and decision making processes, as well as a
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qualitative change in the railways' customer services. The project envisages the setting up of
a computer network with associated communications support to help the management in
planning, monitoring and reviewing freight operations and in improving the utilisation of
rolling stock and other assets.
Computerisation in Indian Railways until 1976
The need for computerisation (starting with automated data processing) in Indian Railways
had been recognised as early as the 60s, when the Indian Railways set up unit record
ON
machines and followed it with IBM 1401s at the zonal headquarters. After these initial
efforts, for over a decade the technology had not been updated in any significant manner.
Since the quantity of work in the railways was increasing, the need for computerising more
functions had been felt.
1977 Task Force

I
A task force consisting of Railway Officers (Exhibit 1) was set up in 1977 to study and make
CT
recommendations on computerisation in Indian Railways. The recommendations of the task

force were based on literature survey and field survey. The literature survey examined the
documentation of existing computer applications' on different zonal railways, reports of
Railway Convention Committees, Estimates Committees, Public Accounts Committees and
Administrative Reforms Commission, reports of special committees such as the Committee
on Reservation and Booking, published papers on various aspects of the use of computers in
railways appearing in many foreign journals and books and papers on data processing and
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advanced computer systems. Exhibit 2 summarises the various aspects of computer usage
for freight control on some foreign railways. The field survey determined the information
and data processing needs of railway management at various levels through questionnaires
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and interviews.
The main recommendations

recommendations made by the Task Force were as follows:
1. An integrated approach to data processing should be attempted, keeping in view the

organisation structure and the decision making process of the Indian Railways. The
bigger and more versatile computers available would make it possible to develop such
IN
an integrated system.
Prepared by Professors Rekha Jain and G. Raghuram, Indian Institute of Management, Ahmedabad.
Case Material of Indian Institute of Management, Ahmedabad, is prepared as a basis for class
2 of 44 IIMA/QM0230
2. The range of applications could be outlined as (a) passenger reservation system (PRS)
(b) transportation management system and (c) batch processing applications like
assets maintenance, workshop management, financial management etc. A more
detailed list of applications is given in Exhibit 3.
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3. A general configuration consisting of an integrated network of computers with reliable
and adequate communications should be developed, since the railway operations are
geographically dispersed, dynamic in character and involve interaction among various
departments at different levels. Intelligent terminals at important stations, yards,
yards
transshipment points, locosheds, goods terminals, interchange points etc. would be
connected to small computers in the divisional offices. Information from other stations
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would be communicated through control phone to the divisional office and from there
online into the computer. These computers would be connected with large computers
at the zonal headquarters; which in turn would be connected to the central computer
in the Railway Board's office. The railway board computer would consolidate the
reports received from each of the nine zonal railway computers. It would als also
coordinate and regulate the inter-railway
railway movement of rolling stock.
4. Regarding communications, it was envisaged that the present microwave network

(being used only for voice communication) with suitable upgradation could be U Used
for data communication. Separate
ON
eparate technical groups could be constituted for (a)
coordinating the planning and execution of microwave projects and other
telecommunication works with the needs of the computer networks, (b) undertaking
extensive field tests for data transmission on the existing railway microwave channels
and (c) determining the specification for the hardware equipment necessary for
communication on the microwave channels.
5. The implementation would have to be phased over a period of 10 years due to the va
vast
I
network of computers.
mputers. It was planned to implement the transportation management
CT
module for one zonal railway having adequate telecommunication facilities (Southern
or Central Railway) in the first phase. Subsequently similar systems would be
implemented on the other zonal
zonal railways too. By 1988
1988-89 the train ordering and stock
control components of transportation management were also expected to be
computerised.
6. Application software for transportation management developed by foreign rail rail-roads

E
could be purchased and adapt

adapted to suit Indian conditions. This was suggested to
expedite the system
system development since the experience of the rail-road
rail industry abroad
had shown that fresh development on application programmes for transportation
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management takes a large number of man years. The British Railways had followed a
similar approach by purchasing a package developed for Southern Pacific Railways so
as to cut short the implementation time.
This team did not consider the financial aspects of computerisation.
1979 Study T
Team
eam
IN
On the basis of the recommendations of the 1977 task force, a study team consisting of
railway officials (Exhibit 4) was deputed in 1979 to study real
real-time computer systems for
freight operations control and passenger reservations on a few foreign railway
railways and airlines
in U.S.A, Canada, U.K. and France. The team submitted a report highlighting advantages of
3 of 44 IIMA/QM0230
the OIS in these railways in terms of improved operations and better customer service
through computerisation (Exhibit 5). It also recommended a freightt operation system
implemented on an IBM computer developed by the Southern Pacific Railway (U.S.A.)
called TOPS (Total Operations Processing System) (Exhibit 6). This system had taken 660
man-years during 1960-1968 for its development. It was felt that if Indian Railways were to
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develop the system afresh it would take 10-12 12 years whereas adapting TOPS to suit Indian
Railways' needs would take only five years. The study team suggested four TOPS based
systems to be implemented in Madras, Bombay, Calcutta and Delhi. The suggested
hardware configuration and associated costs for implementing TOPS are given in Exhibit 7.
It was estimated that the total project (OIS + PRS) would cost Rs. 210 crores, of which Rs. 100
crores was for communication. It was recommended that the PRS be implemented only
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along with the OIS, since otherwise the PRS was not found to be financially viable.
This report came to the attention of the World Bank in 1980 which felt that the OIS was a
viable project. They were prepared to fund the project,
roject, insisting that all systems be
imported. This was opposed by the Indian Railways. The World Bank was also inclined to
take a stand that funding would be available for any other project of the Indian Railways
provided OIS was also implemented.
May 1981 Setting up of OIS Directorate

ON
A separate directorate in the Railway Board for implementing freight operations
information system was set up with Mr. N.C. Gupta (Divisional Railway Manager, Mughal
Sarai) as Director and Mr. Ramakrishnan as Joint Director. Prior to this, the com
computerisation
activities in the Railways were controlled by the Joint Director (Computer Coordination and
Accounts) reporting to the Financial Commissioner.
The OIS directorate recognised the need to involve other ministries like Department of
I
Electronics (DOE), Department of Telecommunication (DOT) etc. given the large magnitude
CT
and implications of the OIS project. An inter

inter-ministerial working group was set up to
examine various issues related to implementing OIS. The working group commissioned a
study of the South Eastern Railway by Electronics Corporation of India Limited (ECIL) to
evaluate the effectiveness of indigenous hardware for OIS. ECIL had suggested that this
study could be done for one zonal railway, in a distributed manner, with many computers,
each covering a small territory. ECIL was prepared to demonstrate the results of
implementation in one territory. On the other hand, the working group felt that any
E
meaningful evaluation should cover at least one zonal railway.
May 1981 to July 1981, ECIL Study

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The study covered the South Eastern Railway and concluded that a distributed system
would not be cost effective. Further, indigenous hardware was not capable of covering one
zonal railway as a centralised system.
June 1381, Initiation of Pro

Project Interact by Computer Maintenance Corporation
IN
Project Interact (International Education and Research for Application of Computer

Technology) was a computer technology development and training programme being
carried out by the Government of India on the basis of Technical Cooperation among
Developing Countries (TCDC). This was funded by UNFSST, United Nations Development
Programme (UNDP) and Government of India. The project aimed to develop technology in
dedicated real time computer based information systems. The Computer Maintenance
4 of 44 IIMA/QM0230
Corporation (CMC) was to execute this project on behalf of the Government of India. The
development included integration of various hardware
ardware and software elements and field
testing in the real life situation.
The OIS group of the Railways came to know of this project and suggested that freight
PY
operating informations systems could form a component of this project. CMC decided to
take this up as one of the applications (the others being management of energy control
centres and image processing system for meteorology). It was decided that professionals
from CMC would interact with the OIS group of Indian Railways and other co-professionals
co-professionals
co- professionals
from developing countries to design core software to handle messages, terminals, lines etc.
from remote terminals to host computers and applications to cover management of yards
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and terminals.
2nd July 1981. Inter Ministerial Meeting of Secretaries
The report of the 1979 study team and the ECIL study were discussed in a meeting held on
2nd July 1981 between the secretaries of the Ministries of Railway, Atomic Energy,
Electronics, Economic Affairs, Telecommunications and the Planning Commission. The list
of officers present in this meeting is given Exhibit 8. The main issues discussed in this
meeting revolved around adapting a foreign software vs developing indigenous software
and management of the telecom network.
ON
Shri M.S. Gujral, Chairman, Railway Board felt that since there will not be major variation in
the freight operating needs of different railway systems in the world, one of the already
proven systems could be installed for Indian Railways. Dr. P.P. Gupta, then Secretary, DOE
(earlier Chairman, CMC), and Dr. H.N. Sethna, Principal Secretary of the Department of
Atomic Energy (DAE) felt that TOPS was a 10 year old system and it may not be able to
exploit the recent developments in computer technology. It may be possible to desig
design and
I
implement similar systems indigenously with, less effort. Moreover, modifications on TOPS
CT
to meet the needs of Indian Railways may be more difficult than development of a new
system.
Shri. R.N. Malhotra, Secretary, Ministry of Economic Affairs felt that as the introduction of
OIS had already been delayed, the proper course of action would be to select a system
already working successfully on foreign railways and adapt it to suit our co
conditions. He also
felt that the relevant Government agencies with expertise in this field should collectively
E
take a decision on selection of a suitable system and adapt it for our needs. He felt that the
adaptation itself would encourage the development o of indigenous technology and expertise.
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Shri. A. Parthasarathy, Secretary, Electronics Commission cited the instance of an integrated

communication -telemetry
-telemetry - computer based control system which had been implemented
indigeneously for Oil and Natural Gas C Commission's (ONGC) offshore oil programme.
Earlier it had been planned to implement ONGC's programme through foreign
collaboration. However, the operational needs of ONGC were very different and had a
number of features which did not exist in other availab
available offshore programmes. The
indigenous system could also exploit the recent developments in electronics and it proved to
IN
be a cost-effective
cost-effective system for ONGC.
Shri M.S. Gujral and other members felt that Indian Railways could operate this crucial
application only if the communication channels were operated and maintained under its
applicatio
own management. ONGC had gone in for its own satellite based communication system.
5 of 44 IIMA/QM0230
However, Shri M.M. Wagle, Member, P&T Board felt that the communication department
would not like railways to develop, operate and maintain a separate telecom network for the
OIS since the P&T would be better placed to do this job. ONGC had been allowed to have its
own system since it was from off shore to shore, where P&T channels did not exist.
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The following decisions were taken at the meeting:
1. There is need for introducing on a carefully planned basis, an on-line/real-time

on-line/real
online/real--time
time
computer-based
based freight operations information system on the Indian Railways, as
speedily as possible.
2. Railways would define the operational/user requirements of such a system, including
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the kind, scope and format of the information required at different levels of railway
management. This task would be undertaken on top priority for one major zone
namely the Northern Railway with assistance
sistance from DOE, ECIL and CMC. This task
should be completed within a month. This user requirement document would then be
used as the basic input into two parallel exercises, as specified in the following:
i. A team consisting of representatives from Railways,

Railways, DOE, DAE and DOT would
visit and study some successfully established railway freight operations
ON
information systems in other countries and assess the possibility of adapting such
systems in India possibly after necessary modification. The modification would be
on the basis of indigenous expertise in terms of software and equipment to meet the
defined operational requirements of the Indian Railways. The team would also
assess the contemporaneity of the electronics technology on which such systems are
based
ed and the capability of the system for providing additional useful information
and operational aids to the railways.
I
ii. ii. Simultaneously, a pilot freight operations information system project would be
CT
undertaken on the Northern Railway with active involve

involvement of Project Interact of
DOE (executed by CMC), ECIL, National Informatics Centre (NIC), National Centre
for Software Development and Computing Technology (NCSDCT) on systems
design and engineering covering both computers and communication segments. It
was required that the project report should be ready by end of November 1981.
September 1981, Definition of Operational/ User Requirements

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The Northern Railway project team completed defining the operational/user requirements
and submitted its report in September, 1981.
SP
1982 Study T
Team
eam
The team (Exhibit 9) visited five railway systems-

systems-SNCF of France, DB of West Germany, BR
of UK
UK,, CN of Canada and SP of USA. The major conclusions of the team were as follows:
1. A centralised system would be preferred to a totally distributed system. Basic

IN
operating functions like wagon control, train movements, routing and empty wagon
distribution needed a centralised system whereas yard management and other
function like way billing, accounting etc. can be done in a distribut
distributed manner. DB, the
only railway which had attempted a totally distributed system had to give up the
same due to technical problems and had decided to go in for a centralised system.
6 of 44 IIMA/QM0230
2. Adapting a foreign system was preferred over developing a fresh system since it
would take considerably less time. CN and BR which adapted a proven system took 4
to 5 years for implementation while others took 8 to 10 years.
3. The TOPS based system on SP, CN (modified and called as TRACS - Trains Reporting
PY
and Control System) and BR are superior to the systems on SNCF (GTM) and DB (ITS)
in terms of a) range of user applications b) ability to capture real time events c)
achieving involvement of participating staff and management, d) adaptability to
railways with different organisational structure, operational complexities and
geographical spread, and e) choice of computer hardware on which the software can
run.
CO
4. Communications being owned, installed and maintained by the railways was essential
for successful implementation of OIS. All the railways visited owned their own
communication network. Even CN, which had earlier handed over the
communications to a sister organisation, now operated it by itself due to problems
with the other management.
5. The team felt that foreign consultancy support

ON
pport for the core function of TOPS would be
needed. CN and BR had indicated their willingness to extend such support while SP
said that it could not. In terms of user applications and applicability of tele- tele
communication expertise (due to the geographical spread and use of MW channel) for
the Indian situation, CN could be preferred over BR.
6. An estimate of the time frame for implementation of the project on IR was assessed at
10 years, details of which are presented in Exhibit 10.
I
CT
31st May 1982 Inter Ministerial Meeting o

off Secretaries
Subsequently, a meeting of secretaries (Exhibit 11) held on May 31st, 1982. Secretary (EA)
apprised the members the need for early introduction of OIS since the World Bank was of
the view that this was critical to the productivity improvement on Indian Railways,
especially if other projects funded by it (upto $ 700 million) for the railway modernisation
were to be meaningfully exploited. The members had comprehensive discussions ba based on
E
the report of the 82 study team and the initial experience of the pilot project (which was still
in progress). The committee felt that with best possible efforts the minimum configuration
for atleast two zones and the central segment would take upto eight years for
SP
operationalising the system.
The following specific decisions were taken:
1. Basic configuration for OIS would be a combination of centralised and decentralised

functions as follows:
IN
i. the core functions related to operations management like control of wagons,

locomotives, train movements, routing of traffic, and empty wagon distribution
would be done centrally. The Indian Railways should adapt a proven foreign
system like the TOPS-based system operating on CN or BR, along with
consultancy support.
7 of 44 IIMA/QM0230
ii. Other functions such as terminal and yard management, locomotive and wagon
repairs, crew and fuel management, accounting and way billing should be done
on a distributed basis, either at the regional or zonal level based on techno
techno-
economic considerations which were then being worked out by the pilot project
team. Software development and selection of hardware for these functions
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should be done with the help of indigenous technical expertise involving
minimum foreign support. The implementation ion could start with Northern,
Eastern and South-Eastern
Eastern Railways. Both centralised and decentralised
functions should be implemented simultaneously.
2 To monitor the progress and periodically review development and implementation of
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the project it was decided to constitute
(a) A Steering Committee of Secretaries
(b) A Technical Advisory Committee
(c) A Communication Advisory Committee
A negotiating committee was also constituted under the control of the Steering Committee
to finalise the necessary consultancy arrangements for the central system.
ON
3 CN & BR were to be invited to study and submit feasibility reports stressing the
applicability of TRACS
ACS or TOPS system to suit Indian Railways requirements.
December 1932, Pilot Project Report Submission
The terms of referencee for the study of system design and engineering of a pilot project on
I
Northern Railway were evolved based on the report defining the operational/user
requirements. The compositions of the project team and the screening committee which was
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to monitor the working

orking of this team are given in Exhibit 12. It was first envisaged that the
team should consider four alternatives for system architecture:
i) Regional (four TOPS-based

TOPS-based systems)
ii) Distributed
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iii) Distributed with central update
iv) Any other alternative the team may consider.

SP
Later, this fourth alternative was defined for consideration of the group after discussions
and approval of the screening committee in its meetings on 25.2.1982 and 9.3.1982. Director
(OIS), Railway Board's note dated March 9, 1982, defined this alternative as under:-
"The applications concerning wagon and train movement control, routing

of wagons and empty distribution to be handled centrally. The balance
IN
applications like yard inventory control, freight accounting, locomotive

control, wagon repairs control, watch on special type of stock, statistics,
data bank for various studies etc. may be distributed on Zonal basis at the
4 Regional or 7 Zonal Computers".
IIMA/QM0230
This alternative was to be preferred over alternative (iii) since it specified the central and the
regional/zonal functions.
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During the course of study and after several discussions within the group and with the
screening committee, the team concluded that distributed architecture without central
update was not feasible and practical. This eliminated alternatives (i) and (ii) also.
Alternative (iv) which defined the central and regional functions was to be considered under
two configurations:
Configuration A: All the identified core functions to be processed on the central system and
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decentralised functions to be processed at respective zonal/regional
systems.
Configuration B: All the core functions to be processed on the central system and
decentralised functions to be processed on the respective divisional
systems. One of the Divisional computers will perform the zonal functions
also.
Some of the considerations and assumptions underlying this exercise are given in Exhibit 13.
ON
The team went into great details regarding specification of hardware, software and telecom
requirements (Exhibit 14), implementation and phasing strategy (Exhibit 15) and resource
requirements for the system (Exhibit 16). The team identified a phasing strategy based on
resource, functional and geographical considerations. Geographically, the system would be
tested and proved first on the Northern Railway, followed by Eastern Railway. Even on the
Northern Railway, the system implementation would start on the Ferozepur division which
is an extreme end of the railway, so that the disruption to the eexisting operations would be
I
minimised. The implementation of the Northern Railway system including both the
computer and communication segments was estimated to take five years. Extension to cover
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Eastern Railways would take another two years. The estimate

estimated time required to cover the
entire Indian Railways system was 10 year3. The estimated duration for the
telecommunication segment was seven years for the Indian Railways (Exhibit 17).
December 1983, Invitation for Bids

E
Formal bids from CANAC and TRANSMARK, the respective subsidiaries of CN and BR
were invited in 1983 for software and consultancy support for the central system.
January 84 to December 84.

84. Project
Proj Interact Field Testing by CMC
SP
As a part of Project Interact, CMC developed and tested an application sub-system called
TYMS (Total Yard Management System) designed to provide real time information and to
assist in decision making for the people at the yards/terminals and at control centres. The
two broad users of this system were identified as (a) operating people at the yard and the
railway management and (b) commercial people involved in booking goods, etc. After the
IN
development of the TYMS software, it was tested on the South South-Central Railway at the
following locations.
Prepared by Professors Rekha Jain and G. Raghuram, Indian Institute of Management, Ahmedabad.
Case Material of Indian Institute of Management, Ahmedabad, is prepared as a basis for class
9 of 44 IIMA/QM0230
(a) Vijayawada - Yard, Goodshed and Division Control

(b) Kazipet - Yard
(c) Sanathnagar - Goodshed
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(d) Secunderabad - Division / Zonal Control
CRT's were installed at the above locations and linked to the computer system located at the
Secunderabad officeof CMC Limited, through a communication on network. The fieldtesting
lasted for a period of six months.
This project generated necessary skills and field experience for further development work in
the area of freight operations. It was also felt by the project team that the TYMS software
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with suitable modifications could be used on the other zonal railways.
July 1985, Setting Up of COIFOICS and Selection at Consultants
A separate organisation named Central Organisation for Freight Operations, Information &
Control Systems (COFOICS) was set up by the Railway Board under the Executive Director
(OIS). The organisation headed by a Chief Project Administrator, was to undertake the
following in the first twelve months:
1. Carry out refinements to the Northern Railway pilot project, by

ON
i. developing telecom project plans based on the overall project scheduling,
staffing, training and implementation plans, and
ii. developing preliminary specifications and estimates for:

I
(a) computer hardware
CT
(b) microwave network,

(c) communication data control centre and
(d) test equipment for terminals and microwave network.
2 Set up consultancy arrangement for OIS.

E
3 Develop a detailed plan for the zonal systems in consultation with CMC/ECIL.
4 Complete a detailed OIS study, including identification of and formulation of plans fo

for
: (a) application programme modification, (b) required changes to Indian Railways
SP
coding systems and (c) staffing requirements, training and implementation schedules.
In July 1985, the Railway Board selected CANAC as the consultants for the OIS project. The
total value of the contract was Rs. 18 crores (extendable upto 1987). The consultancy
arrangements with CANAC were finalised by COFOICS as :
IN
a) CANAC would supply TRACS Software running on Canadian National.
b) They would suggest modifications of TRACS for Indian Railways (for on

on-line
applications only).
c) Advise in preparation of Detailed Project Document (DPD)

10 of 44 IIMA/QM0230
d) Provide training to Indian personnel on TRACS.
Involvement of CMC/ECIL for the zonal system was defined as :
a) CMC would have major responsibility for system design, computer system
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architecture, hardware and system specification for handling zonal functions.
ECIL would have prime responsibility for design of the data communication network
including computer terminals, data communication equipment such as modems,
multiplexers, terminal control units etc.
COFOICS planned that the interface segment with the central system would be designed
CO
and implemented after mutual consultation with CMC, ECIL, Railways, CANAC and the
Telecom Consultants (which the Railways
ays were planning to appoint for this project). The
Telecom consultants would be required to consider and evaluate three transmission media -
microwave, optical and satellite.
December 1985, Meeting of Inter Ministerial Secretaries
During this meeting, a specific

pecific decision to start implementation of the telecom network for
Northern Railway from January, 1986 using digital microwave as transmission media,
ON
without waiting for the telecom consultants report was taken. However, tenders were to be
invited for all three - microwave, fiber optics and satellite. The World Bank was to be
informed about this decision and their concurrence obtained.
January 1986, Appointment of Telecom Consultants
Ms/DETECON of West Germany were appointed as consultants for design of th the main
I
telecom network for the Indian Railways. They were found to be well suited on
technological grounds for Indian Railways. An organisation called Central Organisation for
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Consultancy on Telecommunication was set up for assisting Ms/DETECON for prepara

preparation
of detailed design of the communication infrastructure for meeting OIS requirements and
for other needs of Indian Railways upto the year 2000.
Max 86, Setting up of Centre for Railway Information Systems

E
In May '86 the Ministry of Railways sponsored a registered society named the Centre for
Railway Information Systems (CRIS) to take up a) the work of planning, development and
implementation of freight OIS, b) other computerisation works of railways and c) other jobs
relating to computerisation and comm
communication that the society may like to, in the future.
SP
Exhibit 18 gives more details about the society and its functioning. AS CRIS was entrusted
with the job of planning and executing the OIS project, COFOICS was consequently wound
up.
Mr. Asit Chandm

Chandmal,
Chand mal,
al, who was the Managing Director of Tata Elxsi at Singapore was offered
the job of the first executive director of CRIS in September 1986. After accepting the offer,
IN
Mr. Chandmal joined CRIS in early 1987 but stayed only for a few days. Mr. N.C. Gupta, the
Executive
E xecutive Director (OIS) in the Railway Board was then appointed in his place (Exhibit 19).
Though the decision to set up CRIS was taken in May, 1986, the organization effectively
started functioning in July, 1987.
October 1986, Submission of Detailed Project Document
The DPD for OIS, with the report of Ms/DETECON for the communications component was
submitted in October '86. The total cost was estimated at Rs. 1777.46 crores. Exhibit 20 gives
the summary of cost estimates, along with the break up of funds requirements yearwise and
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activitywise. The difference in the estimated costs between the DPD and the Pilot Project
(about Rs. 500 crores) was primarily due to the telecom components. Ms/DETECON had
planned for a digital microwave network afresh for the entire tire needs of Indian Railways
without considering upgradation or usage of existing channels.
The OIS, as envisaged in the DPD, would consist of a single large computer, known as the
CO
Central System Computer (probably located in Delhi) and seven smaller computers
computers in the
Zonal Railways, which would form the Zonal or Second Tier Level. Large Zonal Railways
would have their own Zonal Computer, but some smaller Railways would have their
functions performed by neighbouring Zonal Railway Computers. There would be a
functional division of work between the Central and Zonal systems. While the Zonal System
would deal with events belonging to its sphere of functions occurring within its Zone only,
the Central System would deal with events within its functional sphere oc
occurring over the
entire Indian Railways. ON
Generally, reporting of events into the Computer System would be centralized at 131
locations (over 48 divisions of the BG system) known as Area Reporting Centres (ARCs)
which would be equipped with a number of Data Entry Terminals. Each ARC would be
responsible for inputting data reported to it from a nominated geographical area known as
its Responsibility Area. Exhibit 21 gives an overview of the configuration. A map giving the
location of the ARCs is given as Exhibit 22.
The geographical phasing of to be extended to all the other Railways. Implementation on

I
Northern Railway would be achieved in 11 months starting from February, 1989 to
CT
December, 1989 with the help of one team. Implementation on a hop (usually Consisting of
three ARCs) would be completed in six weeks time. As the system was to be implemented
on the remaining railways within the next two years, it was proposed to achieve the same by
utilizing two teams, each to implement the system in three ARCs per m month, enhancing the
hop to six ARCs in most of the cases. Actual size of any hop would, however, depend upon
the concentration of terminals,
terminals, work load in that area and the number of implementors
planned for a team. In all, 31 hops had been identified on Indian Railways for
E
implementation. Based on these considerations, a time table for implementation of the

system in various ARCs had been given. Schedule dates for availability of communication
facilities, power supply, airconditioning and making available the terminals in training
SP
mode had also been given.
Functional phasing was essentially based on two considerations. Firstly, it was necessary to
start in small manageable steps to build experience and confidence in the user; and
secondly, the time require
required to change or modify computer programs, files and tables with
the help of reasonable manpower should be manageable. Within these constraints, priority
had to be given to those systems which should produce maximum return on the investment
IN
and also which fo form a composite group. The broad details of the geographical and
functional phasing for implementation are given in Exhibit 23.
The DPD also identified various groups that would need to be set up to facilitate
implementation of OIS. Namely, User Interface Group, Implementation Control
Organization, Training Organization and Zonal Railway Coordinators. Detailed manpower

requirements for each of these groups was also arrived at.
April 1987. Submission of Alternative Plan by DOR
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On submission of the detailed project document, serious concern was voiced about, the
steep escalation in the cost of the project. DOE submitted alternative proposals in April '87,
with the costs assessed at less than Rs. 500 crores. DOE considered three alternatives for
implementing FOIS:
Centralised System: It was proposed to use TOPS as a central system to perform all the FOIS
functions. The major deviation, however, was in the area of design and implementation of
CO
telecom network for FOIS. A satellite based data communication network was proposed to
meet functional requirements of FOIS with master earth stations located at Delhi and
Bombay. To meet the voice transmission requirement as may be essential for FOIS, a
supplementary voice network based on satellite and VHF was superimposed on the data
communication network. The total cost of this proposal was estimated at Rs.499 crores.
Multiple TOPS - Based System: In thiS alternative, it was proposed to implement TOPS
based FOIS at Delhi, Bombay, Calcutta and Madras/Secunderabad. The phil philosophy of this
ON
approach is to decentralize the FOIS functions at the Zonal level to achieve better response
time. The localised processing of FOIS functions at the zonal level would reduce the data
traffic to the centre. The associated data communication network
network would employ the same
technology as the centralised system, but the master earth stations would be located in
Delhi, Bombay, Calcutta, Madras and Secunderabad. The cost of this alternative is estimated
to be Rs. 445 crores.
Multi-level Distributed System:

ystem: The philosophy behind Multilevel
Multi Distributed System was
I
to provide appropriate computing power at each level of functional hierarchy of freight
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operations in IR so that FOIS functions could be performed in a decentralised manner. This

approach is aimed at designing FOIS in such a way that the FOIS layers could be mapped
directly onto the existing pattern of decision making in IR for freight operations. This
alternative was planned to be implemented on Super ATs at ARC levels which would be
connected to PC based terminals at activity centres. A cluster of Super ATs would be
installed at Divisional HQ's to implement all the FOIS functions at this level. The zonal and
Railway Board functions would be implemented on 33-4 MIPS mainframe computer system.
E
Alll computer systems for this approach would be available indigenously. Master central
earth stations would be installed at the center, zones, and divisions (62 in all). Micro earth
stations would be installed at all other levels to provide data communication facilities (400 in
SP
all). The cost of this alternative was estimated at R3. 377 crores.
June 1987. Response of CRIS

C to DOE Proposals
CRIS felt that the DOE proposals were not realistic. CRIS also felt that the user needs were
not fully understood by DOE, and attributed this to the fact that no railway official had been
involved in this estimation.
IN
In the area of computer architecture, the DOE proposal goes back to the beginning,
reexamining decisions taken already (to which DOE were themselves a party). Th The three
alternatives suggested by DOE modify the system architecture, computer sizing and
configuration at all levels. The alternatives proposed warrant major changes in important
areas like approach to maintaining data integrity which could make it extremely difficult for
the project to succeed. Of these three alternatives, the first alternative is stated to be in line
with Indian Railways two-tier approach.
Some of the-specific
specific issues suggested by DOE and not agreed to by CRIS, along with the
reasons for the disagreement are as follows:
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Issues Reasons for Disagreement
(a) Since the Indian Railways have a four-tier Though the railways are organised
organised on a four
four-tier
management structure, a distributed system structure,
ture, the rolling stock of railways are not
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may be more appropriate. handled only locally. It is the nature of this
moveable asset which requires a central
computer system.
(b) Development time for FOIS can be Even the software for zonal systems being
substantially cut down by use of advanced developed by CMC do not use 4 GL tools as
fourth generation language (4 GL) tools rather these would not satisfy the response time
than modification of TOPS. requirements in a real-
real-time
real-time
time application. Further
fresh development effort would take substantially
more time than modification of an existing proven
ON system.
(c) Use of a disaster backup system in a manner Though the approach of disaster back up has
that idle capacity of the disaster system can some advantages, disadvantages relate to
share normal FOIS load communication and management control.
(d) Implementation of the system to be completed Field implementation of massive real time system
in three years. is complex and three years is very optimistic.
I
(e) Voice requirements can and should be Voice Communication is essen
essential for Railway
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replaced by message switching networks

networks . operation.
The comparative cost estimates for computer hardware and software of the DPD and DOE
proposals are presented in Exhibit 24. In response to the concern over the high cost of this
E
project, CRIS prepared arevised estimate (Exhibit 25) by pruning the computer
computer-segment cost
by Rs. 52 crores, the telecom local network by Rs. 13.4 crpres and main network by Rs.211.6
crores. The reduction in telecom network was arrived at by envisaging a mix of digital
microwave and satellite based communication. The revised total cost estimate of Rs. 1500
SP
crores included a contribution to the Depreciation Reserve Fund (DRF) o of Rs. 466 crores. Out
of this contribution to DRF, if Rs. 284 crores due to Signalling and Telecommunication is
allocatable elsewhere, the project cost comes down to Rs. 1216 crores.
1989 Current Status

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1. The Planning Commission has approved the revised proposal by CRIS. Funds for
some of the items like computer for the central system, consultancy charges,
implementation at one yard etc. have been released.
2. One machine for the central system has been installed (inaugurated by the Railway
Minister on April 11, 1989) in the office of CRIS, New Delhi.
3. Modification to the existing TOPS based programs is being carried out. Towards
this the consultancy arrangements with CANAC have been extended upto 1991 1991-
1992.
4. CMC has set up a separate Rail Freight Group to work on the Zonal
onal and interface
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system software.
5. The issue of whether Indian Railway or DOT would own and operate the telecom
network has not yet been resolved. In the meanwhile Planning Commission has
allowed the Indian Railways to upgrade the existing microwave channels to a
digital network for implementation of OIS at one yard.
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6. A separate group within CRIS is involved with OIS in a dedicated manner.
I ON
E CT
SP
IN
Exhibit 1
Members o£ the 1977 Task Force
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1. Shri K.T. Mirchandani, Additional Member, Finance, Railway Board
2. Shri V.S. Sastry, Joint Director, Finance (CCA) Railway Board.
3. Shri. Jambunathan, EDPM, South Eastern Railway
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4. Shri. S. Kalyanaraman, Sr. DAO, South Eastern Railway
5. Shri. H. Krishnamurthy, EDPM, Central Railway
6. Shri. V. Kumaran, EDPM, Southern Railway
7. Dr. H.S.S. Prasad, Dy. Director, Efficiency Bureau (Civil Engineering), Railway Board
8. Shri. A.N. Saxena, Dy. G.M. (G), Western Railway and
9. Shri. R.N. Soni, Sr. DAO, South Central Railway.

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The Task Force worked under the guidance of Shri. K.T. Mirchandan
Mirchandani. Shri V.S. Sastry was the
Coordinator for this group.
I
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SP
IN
Exhibit 2
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Computers in Freight Control Railroads Abroad
Railway Route Computers Numbe Number of Cost of Annual Informatio Compatibl Is Information handled Principal advantages
Km/ r Wagons System Cash n e with comput by computers
Memorized Saving available other er
to railways leased
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customers or
purchas
ed
1 2 3 4 5 6 7 8 9 10 11 12
Belgian 4, 144 IBM 600 (see footnote BFRs .. Yes Yes Leased Wagon and Container Elimination of costly manual
National 370/1451 2) characteristics, tasks improved wagon and
Railways Siemens 384 230,000,000 movement; status of train utilisation; service
(SNBC) 484/6 trains , loaded and generally
N
empty wagons
British 18,566 IBM 370/168 400 330,000 13,000,000 10,000,000 Yes .. .. Location arid status Control and distribution of
Railways and wagons and motive wagons immediately they
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(BR) power in real times are reported empty
Burlington 41,178 IBM 370/168 656 125, 000 4,000,005 1,000,000 Yes Partially leased Al 1 wagon Volume of present-day
Northern movements and status wagon movements make
charges computerised reporting
essential for information and
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fleet control
Chessie 16,748 Burroghs B- 190 150,000 .. .. Yes Partially Leased Wagon and train Better services; improved
System 6700 movements including fleet control ability to
inter –charge forecast trends and analyse
receipt/delivery; waybill results
data and special
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handling
French 35,917 Univac 1050 450,000 .. .. Yes Yes Leased All freight charging; Improved freight; efficiency;
National wagon movements and better stock management;
Railways 1110 status; statistics; wagon special accounting
maintenance
S
German 29,479 300,000 .. DM Partially Yes Leased Data for charging and Fault pass charging and
Federal accounting information account; fast; reliable supply
Railways IBM 370/165 231 21,000,000 for use by management of data to management.
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(DB) and commercial

departments
Italian State 16,014 Honeywell 398 .. (see footnote .. Yes Yes Leased Charging and Five-year electronic
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Raiways 6050 IBM 3D) accouting; train and development plan is
370/155 wagon movement and designed to establish
status; preparation of computerised control of
statistics freight operations
Japanese 20,281 Univac 490 600 7,000 .. .. Yes No Both Processing of statistics Most effective was of
National wagon control; space resources cost saving better
Railways Univac 494 (handled reservation on express service to customers
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(JNR) daily) trains and container
NERC 2200
freight control
Netherlands 3,148 Siemens 48 22,000 F1 (see footnote Yes Partially Hire Train composition; High quality information
Railways 2,900,000 5) Purchas wagon control; available to all management
(NR) 40004/5 e preparing maintenance levels in a short time.
(annual cost) schedules, processing
statistics
South 21,419 IBM 370/155 116 156,000 R 150,000 .. Yes Both Wagon and train Improved wagon and train
Africans (monthly Movements utilisation rapid information
Railways IBM 370/145 cost)
N
(SAR)F
Southern .. IBM 370/1650 350 120,000 USD22,000, Yes (see Both 300 different functions Improved equipment
Pacific (SP) 000 footnote 9) related to card, utilisation rapid information
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IBM 370/145 locomotive and train for shippers
operation
Spanish 13,495 IBM, 378/158 (see .. .. .. No Yes Purchas Traffic; revenues; type Detailed knowledge of traffic
National foot ed of freight; details of flow; complete control of
Railways note 10 customer’s revenues; better service to
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(SEMFE) customers
SWEDISH 11,512 IBM 360/30 200 50,000 US Yes No Purchas Train movements; Better utilization of
STATE 250,00011 ed wagon maintenance equipment; improved
RAILWAYS distribution of empties;
(SJ) planning
PE
1. TWO IBM 376/165 computers are located at SNCB’s
SNCB’
SNC B’s
s com
co
computer
mputer
puter centre;
c 12 Siemens 304-484/6 units are located at regional Marshalling yards.
2. Central computer cards memorize SNCB's 55,000-strong
55,000--st
55,000 strong
rong wagon fleet a
and all foreign wagons entering the Belgian network, Regional computer are
able to memorize 13,000 wagons each.
3. Cost of the FS five-year 1972-77 electronic development
develop programme is on US$179 Millions Main objective of the programs is to seek cybentrnetics.
S
4. The three types of computers in use by JNR ha have individual applications. There are, in fact, two Univac 190 machine-one for preparing statisticias,
and one for train control and on-line
line
line reservation of space on empress trains. The NEAC 2200 computer process data for use in wagon dispatching.
IN
The Univac 494

94 unit has been installe
install
installed
edd ready for controlling container traffic.
5. MS savings are directing equal to costs estimated at FI 1.6 Million annually for the central computer
pute
put err equipment
equipment
equipm ent and FI.1.1 Million annually for field
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equipments.
6. Existing MS data-control system has the ability to be extended to an integral system for controlling all fre
fr
freight
eight
ight traffic op
operations.
7. Present stage of SAR’s computer developments represent only thE first-phase implementation
tion of 1arga—sc
1arga
1arga—scale
—sc freight control applications.
8. SP is at present in the process of changing over to an IBH/3?0/168 Machine.
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9. SP is attempting to offer the TOPS system to other railroads to ensure compatibility.
10. RENFE has no terminals at present
nt in operation but is planning to install equipment as part of plant* to introduce on
on-line freight management control
within the near future.
11. Cost of terminals and transmission equipment is not included.
N
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Exhibit 3
Areas Proposed For Computerisation
1. Transport Management:
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i. Monitoringg and controlling of flow of different streams of traffic to avoid bottlenecks in
yards, transhipment points and goods terminal stations.
ii. Locomotive power and crew scheduling and minimum cost solution for matching power,
crew and load.
iii. Yard Management
iv. Empty wagon distribution in a most optimum manner within the constraints of priority
loading etc.
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v. Time-tabling for both passenger and goods trains.
vi. On-line Real-time
time control of both passenger and goods trains. (To be taken up in the
Eight Plan period).
2. Commercial Management
i. On-line Real-time
time Passenger Reservation System;
ii. On-line invoicing for goods traffic.
iii.
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Ticket stock indenting integrated with production planning and control system of ticket
printing press.
iv. In-depth
depth analytical reports for marketing and sales management.
3. Inventory Management:
i. Scientific Inventory Management, covering procurement planning and control,

replenishment and inventory forecasting, budgeting and resource scheduling.
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ii. Simulation studies for fixing optimum levels for EOQ, reorder point etc.
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4. Asset maintenance:
i. For rolling stock a system integrating the repair scheduling, workshop facilities, inventory
and financial resources.
ii. Maintenance of "History Files" on each unit of rolling stock.
iii. For maintenance of fixed assets like track, bridges, signalling equipment and other
structures, monitoring the performance of the assets, forecasting of possible failures,
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planning for preventive maintenance, maintenance of data banks for providing

information on the characteristics of different assets.
iv. Computer based engineering design.
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5. Fuel
el Stock
Stock Control
i. Analysis of stock status in various loco sheds, coal dumps etc. to control iinventory levels
and decide upon programmes of coal loading for railway use.
ii. Analysis of fuel consumption by various types and classes of locomotives.
6. Workshop Management
Management:
i. Load simulation, production scheduling and progress control for repair activities.
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ii. Production planning and control for manufacturing activities.

7. Mew Construction Projects
Projects-
i. Engineering design and drawing
ii. Project control system etc.
iii. Data banks for planning information

8. Man-power planning and personnel management:
i. Forecasting of requirements of staff in various grades and categories, training and

placement of staff.
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ii. Maintenance of service records, leave accounts, P.F. accounts and preparation of pay-
pay-
rolls.
9. Financial Management:
i. Integrated financial management to enable development of performance oriented
budgeting, responsibility accounting and management reporting.
ii. Cost Accounting integrated with financial accounting.
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iii. Discounted cash flow for project appraisal.
10. Planning Studies:
i. Traffic forecasting and planning for facilities,

ii. Traction Policy Evaluation.
11. Scientific studies:
i. Extensive use of simulation studies for different problems such as optimal wagon
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distribution, analysis of yard congestion, line capacity planning, unit train operation.
ii. Engineering Research.
iii. Econometric models for railways.
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Exhibit 4
1979 Study Team
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Mr. M.S. Gill, Advisor (Finance), Railway Board
Mr. V.S. Shastry, Jt. Director Finance (CCA), Railway Board
Mr. A. Malhotra, Jt. Director (Railway Traffic), Railway Board
Mr. B. Prasad, Jt. Director, Vigilance, Railway Board
Mr. Sarapat Kumaran, Dy. CSTE, South Central Railway
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Mr. Vishwanathan, Dy. CAO, Southern Railway
Mr. M.H. Balakrishnan, Dy. CME, Southern Railway
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Exhibit 5
Observed Benefits Foreign Railways Due to Computerisation
Country Systems Studied
Canada VIA Rail
CN
CP
Air Canada
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U.S.A. SP
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Southern Railway Pan Am

U.K. British Railways
France SNCF
Remarks
BR: Savings reported due to computerisation of freight $6.2 million a year.
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CN: System cost $50 million over a six year period Wagon turnaround time has been reduced from
average of 17.5 days in 1975 to 13 days in 1978. This is largely attributed to computerised OIS.
Savings on equipment due to computerisation are reported at $450 million annually.
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All Railways report a 10-

10
10-20%
-20%
20% reduction in fleet due to computerisation.
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Exhibit 6
Total Operations Processing System (Tops)
Total Operations Processing System (TOPS) is a system designed specifically for railway operation
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transaction processing. TOPS has been operating efficiently on a number of railways of varying si2es
for over 20 years. Having been developed for a small railway system (Southern Pacific) it has been
used for fairly a large system of Canadian National Railway. TOPS being a special purpose package
is more efficient than a general purpose, transaction processing software.
TOPS is a centralised system which includes
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i. Transaction processing software specially designed for railway operations.
ii. Programmingng language specially created for railway operation with macros for carrying
out railway operation functions and without general purpose verbs.
iii. Organised data based structure, data dictionary, I/O handling module, validity checking
specification, cut over programmes and procedures and data specification procedures.
iv. 3 level testing packages.
v. Field procedure manuals.

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vi. Training packages, production support, standard implementation.
vii. Field survey procedures.
TOPS is implemented in TOPSTRAN which is an assembly level language with macros. From the
initial machine and operating system for which TOPS was implemented, it has migrated to improved
hardware and modern operating systems. TOPS software concerns itself with locomotives, wagons
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and consignments which are the major components of the OIS functions. Anything affecting the
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movement and effective and operational status is captured by TOPS.

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Exhibit 7
Configuration of the Proposed System (1979 Study Team)
Calcutta Delhi, Bombay and Madras
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Main CPU 3 MB 2.5
Back up 3 2.5
Online Storage 40*100 MB 30*100 MB
Tape Units 12 High Speed 8 High Speed
Printers 2 High Speed 2 Low Speed 21
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Card Readers 2 HS 2
Communication Processor One One
Terminals 700 500 to 600
Total cost of 4 systems Rs. 60 crores.
Components Cost in Rs. crores

Hardware
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Wagon Control System 60.00
PRS 32.00
Software Development 6.50
Training 3.50
Building, etc. 8.00
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Loan 110.00
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210.00
Cost of Telecom Component with the Rs. 1100 crores

following break-up
Percentage of total coat for setting
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Microwave Channels
(a) on three major new routes 45%
(b) on five alternative routes 35%
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(c) for connecting regional computing 20%

centres, major yards, important
stations etc.
100%
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Exhibit 8
Officers Present at the meeting of Secretaries Held in CRB’s Chamber on July, 1981 at 15.30 hrs.
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Secretaries
Ministry Name Designation
Railways Sh.M.S. Gujral Chairman & Ex-Officio Principal Secretary
Sh.A.V. Poulose Financial Commissioner & Ex- Ex-Officio
Ex -Officio
Officio Secretary
Sh.N.N. Sarma Member, Engineering & Ex-Ex-Officio
Ex -Officio
Officio Secretary
Sh.B.B. Lai Member, Mechanical & Ex- Ex-Officio
Ex -Officio
Officio Secretary
Sh.K.P. Jayaram Member, Staff & Ex-Officio
Officio Secretary
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Atomic Energy Dr.H.N. Sethna Principal Secretary
Electronics Dr.P.P. Gupta Secretary
Economic Affairs Sh.R.N. Malhotra Secretary
Communications Sh.M.M. Wagle Member (Telecom Operations), P&T Board
Planning Commission Dr. Manmohan Singh Member-Secretary
Secretary
Other Officers
Finance (Exp) Sh.D. Sankaraguruswamy Jt.Secretary
Economic Affairs Sh.R.P.Kapoor Joint Secretary
Communications Sh.T.Rangachari DDG(ML), P&T Board
Planning Commission Sh.Mahesh Kapoor
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Joint Advisor (Transport)
Electronics Sh.A.Parthasarathi Secretary, Electronics Commission
Sh. P.C.P. Bhatt Director (CD), DOE
Sh. A. Mehra EA to MD, CMC
Atomic Energy Sh.S.R.Vijaykar Managing Director, ECIL
Railways Sh.H.C. Johari Director, Rly.Planning
Sh.NC Gupta Director, Operations Information Services
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Sh.K.Subrahmanyam Director, Signal and Telecommunication
Sh.P.S. Sarnpath CSTE (Microwave Survey), N. Rly.
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Sh.P.N. Maini Addl.Director Finance (L&F)

Sh.R. Dayal Addl.Director, Spl. Duty
Sh.K.Vishwanathan Addl.Director Finance (OIS)
Sh.Y.M. Garg Joint Director Railway Planning.
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Exhibit 9
1982 Study Team
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1. Mr. N.C. Gupta Director (OIS)

2. Mr. Saklani Chief Project Manager (OIS)
3. Mr. Sahani Mechanical Engineer
4. Mr. V.S. Shastry Joint Director (CCA)
5. Mr. S. Jain Telecommunication Officer
6. Mr. R. Jhunjhunwala CMC
7. Mr. Telang ECIL
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8. Mr. V.V.N. Simha Rao ECIL

Exhibit 10
Estimate of time Frame for implementation of the project on I.R.
The implementation time frame, as a first order assessment, for adopting TOPS on I.R. assuming that
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the functions to be covered initially are real-time
time data acquisition and processing related to wagons,
trains, locos, empty wagon distribution mainly, and to some extent yard and terminal
erminal management
and maintenance management will be as follows:-
Detailed feasibility study, Systems
Design and Project Report
Preparation with selected
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consultants 6 months
ii) Project approval
Project approval decision and funding arrangements 3 months
iii) Software
Finalisation of specifications for software modifications and recruitment
of 60 computer professionals (Besides
required programmers and other
supporting staff)
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Training on hardware and software
Adaptation of the software
System Integration and off-line testing
Field Trials
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Total of (i), (ii), & (iii)
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Computer System &. Terminal Hardware Procurement

Finalisation of specifications
Tender floating
Evaluation & selection
Order and agreement
Delivery
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Installation, Commissioning and

acceptance
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9 months 6 months 36 months 6 months 6 months

63 months
72 months
3 months 3 months 6 months 3 months 9 months
6 months
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30 months
Total of (i), (ii) and (iv)

39 months.
Site preparation activity to start after finalisation of specs

21 months available for this activity.
v) Communications
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System, study and design
Tender for one region
Evaluation and selection
Order and agreement
Delivery
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Testing and commissioning
Total of (i), (ii) & (v)
9 months 3 months 3 months 3 months 24 months 12 months
54 months
63 months
Civil Engg. works to start after system design

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36 months available for this activity
vi) Training of field staff and management

1200 terminal operators in batches of 60, one month duration each
1000 supervisory staff in batches of 80, one week each
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300 management staff in batches of 20, 2 days each
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The training will be in parallel and should start after installation of the euipments (39 months after the
start).
Training centre facilities to start after stage (ii)
Recruitment of 30 trainers after stage (ii)
Training of trainers
20 months 4 months 1 month
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24 months
9 months 6 months
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vii) Operations staff for_ development and implementation

Recruitment of 20 experts for development of data base and application development (along with
computer professionals) Recruitment of 60 staff for field implementation, 3 batches of 20 in each. (15
months before the start of field trials)
Training of the above personnel
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viii) Implementation in the first region

First cut-
cut-over
cut -over
over
(This activity will start after the
field trials)
Second cut-over
Third to sixth cut overs 1 month each (with proper advance action)
Total time to computerise the first region (i), (ii), (iii) & (viii)
Preparation work for the cut overs would be in parallel.
ix) Implementation in. the. remaining regions o_£ B.G. System on I.R.
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(Even though parallel activities could start, the critical factor will be communication network)
x) Total time, frame, far, computerisation of. B.G.. freight operations an. I.R.
9 months
9 months 6 months
6 months
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3 months
4 months 13 months
85 months
36 months
Sum of (viii) and (ix)

or say
121 months 10 years
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Exhibit 11
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Members Present in the meeting of secretaries
May 31, 1982
Ministry Name Designation
Economic Affairs Railways Sh.R.N. Malhotra Secretary (In the chair)
Sh.M.S. Gujral Chairman & Ex-Officio
Officio Principal Secretary
Sh.A.V. Poulose Financial Commissioner & Ex- Ex-Officio
Ex -Officio
Officio Secretary
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Sh.N.N. Sarma Member, Engineering & Ex- Ex-Officio
Ex -Officio
Officio Secretary
Sh.B.B. Lai Member, Mechanical & Ex- Ex-Officio
Ex -Officio
Officio Secretary
Sh.K.P. Jayaram Member, Staff & Ex-Ex-Officio
Ex -Officio
Officio Secretary
Atomic Energy Dr.H.N. Sethna Principal Secretary
Electronics Dr.P.P. Gupta Secretary
Communications Sh.M.M. Wagle Member (Telecom Operations), P&T Board
Planning Commission Dr.Manmohan Singh Member
Member-Secretary
Member- -Secretary
Secretary
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Exhibit 12
Considerations and Assumptions (Pilot Project)
1. Only the broad gauge system will be covered.

2. In case of broad gauge/metre gauge transhipment sheds, information regarding metre gauge
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stock will be captured from suitable hand shake points on the metre gauge system
neighbouring the transhipment sheds.
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3. In case of smalls (less than wagon load), details of packages loaded/unloaded will not be
recorded for this system.
4. Locomotives on coaching services will not be monitored with regard to their performance.
Their transfer from and to coaching services will however be recorded.
5. Steam locomotives will not be monitored except for the arrivals and departure from sheds,
that too for freight locomotives.
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6. Performance of wagons on coaching services will be monitored by treating passenger trains

carrying wagons as freight trains.
7. For assessing volumes of data flow, all the goods sheds and sidings cumulatively contributing
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to 98% of the total inward and outward traffic on the Northern Railway have been taken into
account.
8. For assessing volumes of data flow, the traffic on the peak day at each terminal has been
taken into consideration.
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Exhibit 14
Specification of Hardware, Software and Telecom Requirements.
(Pilot Project)
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Software Considerations and Specifications: A real-time time operating system supporting multi-
multi-
programming, priority ta3k scheduling and event driven processing is proposed. For phased
implementation and inclusion of applications at a later time, the design consideration has taken into
account modularity, upgradability and flexibility requirements. An operating system like UNIX, higher
level language like PASCAL for system software and languages like Fortran and Cobol for application
software are proposed for transportability considerations. A total of about 450 application modules
catering to the file and query processing needs at the zonal/regional levels have been identified.
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Teleprocessing or communication software should support remote terminals connected to the system
through communication links.
Hardware Considerations and. Specifications: The system has been designed to provide response
times of 4 to 12 seconds for queries; between 15 to 25 seconds for input update; between 10 to 30
seconds for broadcast messages and within minutes in case of solicited reports. To ensure the above
response times, the memory requirement and processing speed for the host and front end computers
and terminal control units are specified. For ensuring continuous availability of the system, it is
proposed to provide duplex computer system with adequate redundancy of the peripherals and
terminal equipments.
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Telecommunication Requirements: These are based on star or tree configuration with the central
computer at Delhi. In configuration 'A',
A', the telecom alternative with concentrators located at divisional
headquarters has also been considered. Line speeds catered for (a) 1200 bps between terminal and
divisional concentrators in configuration 'A'
A' (b) 4800 bps between divisional computers/concentrators
computers/co
and zonal/regional Computers in configuration 'A' & 'B' and (c)4800 bps between regional/zonal
computers and the central computers. It is envisaged that existing MW channels with suitable upup
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gradation and provision for the required reliability (99.9%) and error rate (1 in 10**5) would be used.
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Exhibit 15
Implementation and Phasing Strategy (Pilot Project)
Phasing Analysis-
A. Resource Oriented B. Functional C. Geographical
1. Wagons, Brakevans
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Locomotives, Trains, 1. Data acquisition (Build up
Locomotive Shed3, Wagon functional data base)
Repair Depots 1. Part Ferozepur division
2. Fixed Time Reports, Daily
2. Yard and other Local Area Performance Reports and Statistical
Management Reports (Offline) 2. Rest of Ferozepur division
3. Containers, Crew, Fuel, 3. Remaining four divisions on
3. Enquiries on Resource Disposition
Workshops Northern Railway
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4. Decision and control oriented
functions like Empty Wagon
Distribution, Power Balancing,
Wagon Routing etc. 4. Northern Railway System
5. Invoicing and other customer 5. Simultaneous development
oriented services on other zones.
6. Integration
A(2) to be taken up independently and extended geographically.

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* The geographical implementation to start from Ferozepur division since it is at one end of the
railway system thereby causing least disruption to existing operations.
The various elements outlined above would be clubbed together as indicated below to constitute
seven phases for implementation.
Phase Phase Phase Phase Phase Phase Phase
A1, B1, C1
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A1, B2, C2
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A1, B3, C3
A1, A3, B3, C4
A1, A3, B4, B5, C4
A1, A3, B4, B5, C5
A1, A3, B4, B5, C6
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+A2 +A2 +A2 +A2 +A2 +A2 +A2

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Phasing of Application, Processing Centre-wise:

Proposed phasing of implementation on various Division/Zones and local areas is summarised
below:-
Yd/LAM Configuration A Configuration B
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Phase 1 Yd/LAM1 R1/Z1 D1
Phase 2 LAM R1/Z1 D1
Phase 3 LAM R1/Z1 D1 to D5
Phase 4 LAM R1/Z1 D1 to D5 + Northern Railway
Component on one of the
Divisional Centres
Phase 5 LAM R1/Z1 Central Computer D1 to D5 Central Computer
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Phase 6 LAM Rn/Zn Central Computer D1 to Dn; Central Computer
Phase 7 LAM Rn/Zn Central Computer D1 to Dn; Central Computer
Rn = Region n
Zn = Zone n
Dn = Division n
Yd = Yard
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LAM = Local Area Management
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Exhibit 16
Resource Requirements for the System
(Pilot Project)
Configuration A Configuration
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OIS Project
Manpower (number) 183 (NR) More than in A
488 (IR)
Manpower (man years) 418 (NR) More than in A
1545 (IR)
Investment Cost (Rs. Crores) 89.66 (NR) 95.19 (NR)
478.38 (IR) 520.48 (IR)
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Communication Cost 70% of above 70% of above
Foreign Exchange Component of Investment 27.45 (NR) 28.24 (NR)
(Rs. Crores)
137.71 (IR) 137.58 (IR)
OIS Operations
Annual Operating and Maintenance Cost (Rs. 3.82 (NR) 5.32 (NR)
Crores)
22.32 (IR) 30.94 (IR)
Computer Maintenance Specialists (number) 139 (NR) Three times that of A
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1166 (IR)
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Exhibit 17
Estimated Duration of the Telecommunication Segment
(Pilot Project)
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For setting up Telecommunications facilities for computerisation, it will be necessary to take up work
on parallel activities simultaneously. On the Northern Railway, the field work on all the five Divisions is
envisaged to be executed concurrently. The estimated durations for various phases of implementation
on the Northern Railway are given below:-
System study, Planning & Engineering 15 months
Tendering 3 months
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Evaluation & Agreement 3 months
Order & Agreement 3 months
Supply of Equipment 21 months
Installation 6 months
Testing, Alignment & Commissioning 9 months
60 months
The Civil Engineering and Electrical Engineering works will be taken up simultaneously after the
system design has been finalised and will be completed in 33 months. These works will have to be
completed before testing & commissioning can be commenced. The Telecommunications Network for
ON
Northern Railway will thus take at least 60 months for completion after the project is sanctioned. For
setting up the network to cover the entire Indian Railways, it will take at least 84 months.
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Exhibit 18
Centre for Railway Information Systems
The Centre for Railway Information Systems (CRIS), is a Government Society formed by the Ministry
of Railways under the Chairmanship of the Minister of State for Railways. The position of the
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Governing Council is as follows:
Minister of State for Railways Member & Chairman
Chairman, Electronics Commission Member
Cabinet Secretary Member
Chairman, Railway Board Member
Financial Commissioner, Railways Member
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Secretary, Communications Member
Secretary, Department of Electronics Member
Additional Secretary to P.M. Member
Executive Director/CRIS and
upto 3 other Directors of CRIS Members
In addition there is provision for nomination of upto 5 other specialists on the council.
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CRIS is an autonomous organisation, set up with the objective of taking up computer related activities
on the Indian Railways, for the following reasons:
a. To avoid duplications of staff by individual railways
b. To ensure standardisation of computer hardware and software on the railways
c. To undertake design and development of major applications on railways requiring higher
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levels of expertise, continuity of personnel, sustained guidance, and system wide
applicability.
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d. To organise the combined effort of railway executives and computer specialists,

considered essential for the development of computer application on railways.
e. To develop expertise in highly specialised fields like operations research, simulation,
expert systems, CAD/CAM, process control etc.
f. To keep abreast of the fast changing technology in the computer field.
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Exhibit 19
Railways' Computer Politics
Mystery shrouds the fate of the most ambitious computerisation programme ever undertaken in this
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country - the design, development and commissioning of the mammoth three-tier
tier freight operations
information system for Indian Railways which has been on the drawing board sincel977.
Even as a wave of controversy has erupted over the investment actually required for setting up this
prestigious project, it has gone unnoticed that Asit Chandmal, the computer whiz- whiz-kid
whiz -kid
kid hand-
hand
hand-picked
-picked
picked to
head the team implementing the project, has quietly packed his bags and departed for greener
pastures. According to sources in the capital, Chandmal, who won himself a golden reputation
reputation within
the Tata group of companies, and who moved on to become the Singapore-
Singapore-based
Singapore -based
based managing director
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of the highly successful Tata Elxsi joint venture, was roped in specifically at the behest of the political
supremos of the transport ministry who felt that the talent available within the railways was inadequate
to handle such a hi-tech task.
Accordingly, after a global talent hunt, Chandmal was given the job as the first head of the
autonomous Centre for Railway Information Systems (CRIS) sometime in September last year, over
the claims of the railways' own computer specialists. To the notoriously clannish fraternity of
railwaymen,, this was an affront that they could not take lying down for as they pointedly mention, it
was they who had taken up the equally difficult task of designing, evaluating and conceptualising the
computerisation programme for Indian Railways in the first place.
ON
It is a measure of the unconcealed hostility to Chandmal*s appointment as head of CRIS that not only
has Chandmal, after long months of delay, recently decided to backtrack on his decision to join the
railways but that in an abrupt reversal, the dapper N.C. Gupta, the IIM trained executive director
(operations and information services) in the railways, has been designated the new chief of CRIS.
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But while the first round has gone to the railwayrnen, it is still a long wait yet for the final bell. At the
moment, Gupta and his team are reeling from the salvo fired by Dr. N. Seshagiri, the high profile
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additional secretary of the department of electronics (DOE), who is sticking to his guns that the
projections of data flows to be handled by the system as worked out by the railways, are highly
exaggerated. It is this, in conjunction with the needless insistence by the railways on a voice channel,
that has reportedly sent the project cost zooming from the Seventh Plan estimate of Rs.520 crores to
a figure close to Rs.2,000 crores. While Gupta's first priority has been to try and pare costs down to a
more respectable Rs.1,500 crores, Seshagiri's outburst has caught the railways completely off off-guard.
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Given the fact that Seshagiri is himself a member of the governing council of CRIS, quite clearly there
seems to be a communication problem between the railways and the DOE. But whether Dr. Seshagiri
will be scared off as easily as Chandmal, of course, remains to be seen.
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Source:: Business World, Feb. 15 - Mar. 1, 1987.

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Exhibit 20
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Summary of Cost of Estimates
Foreign
Sl. Description of Item Exchange
No Component Rupee Component Total
(Figures in crores of Rupees)
Preparation and writing of
0.00 1.39 1.39
1 Detailed Project Document
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Cost of Hardware of Central,
93.54 64.11 157.65
2 Zonal and Terminal Systems
3 Cost of Software 27.06 12.19 39.25
Cost of Consultancy provided by
9.54 15.67 25.21
4 CANAC
Cost for Local Distribution
21.33 46.19 67.5
5 Network
6 Cost for Main Telecom Network 461.20 829.81 1291.09
7 Cost for Training 3.68 10.92 14.6
8 Cost for Implementation 0.00 16.61 16.61
9 Cost for Facilities
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Electrical 0.00 69.53 69.53
Civil 0.00 89.72 89.72
Cost for Project Management and
0.00 2.98 2.98
10 General Adminiatratiort
11 Accounts Organization 0.00 0.99 0.99
Total 616.35 1161.11 1777.46
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Break Up Of Requirement of Funds (Figures In Crores of Rupees)
Si. Description I985-86 1986-87 1987-83 1983-39 1989-93 1998-91 1991-92 1992
1992-93
1992-
-93
93 Total
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Indian Component
1. Preparation & 1.84 0.35 ■■ 1.39

Writing of
Detailed Project
Document
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2. Hardware - 1.50 3.41 5.39 17.93 16.56 19.35 - 64.11
3. Software - 0.21 1.33 1.54 6.83 1.54 1.54 - 12.19
4. Consultancy 1.90 2.25 2.75 2.75 2.75 1.98 1.29 - 15.67

\CANAC)
5. Local Distribution - 0.10 13.60 13.60 6.00
6. 6.00
6.00 5.29 - 46.19
Network ON
6. Main Telecom - 3.38 107.50 250.00
250
250..00
00 255.00
255. 00 162.50 48.75 2.68 829.81
Network
7. Training - 1.02 4.38 2.42 1.74 0.79 0.55 0.32 10.92
3. Implementation - 0.15 2.26 2.90

2.90 4.65 4.65 2.00 - 16.61
Total (Indian 2.94 14.37 164.14 297.11 335.79 23

230.54 113.52 2.70 1161.11
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Component)
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Foreign Exchange 1.14 20.43

.43 89.96 188.98
188.9
188.98
8 148.01 109.50 60.01 3.32 616.35
Component
Total 4.08
4.0
4.08
8 34.80
34.80 254.10
254.1 481.09 488.00 340.04 173.53 6.02 1777.46
Exhibit - 21
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An Overview Of the OIS Configuration (Detailed Project Document)

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Exhibit 22
CENTRAL RAILWAY
A. Bombay Area
• Wadi Bandar
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• Panvel
• Kurla
EASTERN RAILWAY
8. Calcutta Area
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LOCATION OF AREA
REPORTING CENTRES
• Howrah
• Chitpur
C. Asansol Area
• Andal
• Asansol
• Sitarampuf
ON
D. Ohanbad Area
• Gomoh
• Ohanbad
• Katrasgarh
NORTHERN RAILWAY
I
E Oelhl Area
CT
• Ghaziabad
• Snakurnastl
• Tughtakabad
SOUTH EASTERN RAILWAY
F. Adra Area
• Adra
E
• Bhajudth
• Bokaro Steal City
SP
• Murt
IN
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CO
I ON
E CT
SP
IN
Exhibit 23
Phasing STRATEGY (Detailed Project Document)
Phase Functional Geographical Field Test Implementation
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Start Date Date Comp. Date
Start
I Yard Management NR Aug 88 Feb 89 Dec 89

system including
Operating Waybill,
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Central System Interface
and Man Machine ER Mar 90
Interface (Zonal Systems)
SE Apr 90
ALL IR Dec 91
(b) Train Movement Aug 88 Feb 89 Dec 91

Control, Wagon Movement
Control, and Departmental
Wagon Control (Central
System)
ON
II Empty Wagon Mar 90 Jun 90 -
Management (Central
System) Terminal
Management System
including On-Line Invoicing
(Zonal System)
I
CT
III Locomotive Control Aug 90 Nov 90

(Central System)
IV a) Container and - - - -
Customer Service (Central
System)
E
b) Revenue - - - -
Accounting
Loco Repair Management
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Crew Management Wagon

Repair Management Fuel
Management Safety
Management (Zonal
System)
IN
Note:
1. Phase I constitutes the core functions of OIS.
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2. The other functions need capturing of large amounts of data and are meaningful only after the
implementation of the core functions of OIS.
Empty Wagon Management being the most beneficial of the lot, as far as return on investment is
concerned, would be undertaken in Phase II. This is scheduled to be added only upon completion of
Phase I over the entire Northern and Eastern Railways. By this time train and yard movement
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functions would have been established which is a prerequisite to empty wagon management and also
sufficient time would be available to carry out the required survey and analysis needed for creation of
basic and exception control orders and movement instructions.
Locomotive control would be added in Phase - III, towards the end of implementation over South
Eastern Railway. Sufficient time would thus be available for developing and testing this system.
Moreover, perceptible impact of its introduction would be felt only when at least these three Zonal
Railways, over which locomotives are pooled in a big way, have been covered.
ON
I
E CT
SP
IN
Exhibit 24
Comparative Cost Estimates
(Doe Proposal And Detailed Project Document)
The following table gives the comparison between the DOE and Detailed Project Document (DPD)
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costs for DOE's Centralised System alternative, supposed to be based on the Indian Railways
approach:
(In Crores of Rupees) DPD costs DOE costs
i. Preparation & writing of DPD 1.39
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ii. Cost of Hardware:
Central System including Disaster back- 45.46 40

up
Zonal System 64.30 30
Terminal Sub-system 22.27 10
Total 132.03 80
Iii Maintenance & Operation for 5 years
ON 39.25 45
iv Cost of Software: 25.21 -
v Cost of CANAC Consultancy
vi Cost of facilities including Building and 40.00

quarters
I
Consultancy and installation including site
preparation.
CT
- Electrical 69.53
- Civil 89.72
vii. Cost of training 14.60
viii. Cost of field implementation 14.61
ix. Cost of project management & general 2.98

E
administration
x. Cost of accounts organisation 0.99

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xi. Cost of Local Distribution Network 67.52
Total 403.45 165
Comments
omments by CRIS
1. "The cost estimates given in DOE's report are not complete. They also do not include any
detailed break up of costs as given in the DPD. Many supporting activities and administrative
IN
costs are not taken into account. Cost estimates of DOE are not, therefore, comparable with
costs projected in the DPD".
2. "As the DOE alternative does not provide any technological changes or innovations for saving
iin
n costs, the difference can only be in unit costs, or in charges over and above unit costs or in a
perception of requirements. If unit costs are lower than what are assumed in DPD, these can be
corrected in consultation with DOE. Satellite communication does not also have any effect on
the computer segment costs".
Exhibit 25
Cost of OIS Project
Segment Original Reductions Revised Capital DRF DRF Revised
Proposed Total Cost
cost OIS S&T
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Cost 0IS
Project
1 2 3 4 5 6 7=4+5
I Computer 409.58 52.04 357.54 357.54 - - 357.54
II
Telecommunications
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a) Main Network 1297.62 211.60 1086.02 520.02
02
02 282.00 284.00 802.02
b) Local Network 69.90 13.40 56.50 56.50
56.5
56.500 56.50
III Total 1777.10 277.04 1500.06 934.86 282.00 284.00 1216.06
Note :
1.
ON
The above distribution of costs takes into account the observations of the DOE Committee's
Report.
Co
2. Marginal variations in original cost as compared to DPO is due to rounding off of the figures.
I
E CT
SP
IN

Biotech Pharma Limited
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N. D. Karanjia, the Managing Director of Biotech Pharma Limited (BPL), convened an
extraordinary Executive Committee meeting on 2nd August 1988 to discuss the issue of
suspending production of vitamin B since the market offtake fell sharply consequent to the
import policy changes of the Government of India from 1st April 1988. Until 31st March 1988,
vitamin B was in Appendix 3A of the Import Policy which meant that only an exporter of a
Pharmaceutical formulation 1 using vitamin B could ould import vitamin B as a bulk drug 2. The
import policy of 1st April 1988 liberalized the existing policy to allow the import of items
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under Appendix 3A, such as vitamin B against any export, not necessarily formulations
containing vitamin B, (see Exhibit-1). Since the landed price of imported vitamin B at Rs. 145 per
gram was much cheaper than the price of Rs. 220 per gram of BPL, the offtake from BPL
experienced a sharp decline.
The change in the import policy had come as a rude shock to Karanjia who was anticipating
an increase in his profits before tax for 1988 to Rs. 114 lakhs from Rs. 67 lakhs achieved in the
previous year. Vitamin B operations were to account for at least 50% of these profits though it
accounted for only 17% of the total turnover of BPL. The GM Marketing, J.N. Dubey, had
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reported the sales for vitamin B for the first half of 1988 as 55 kgs. as against the sales of 77 kgs.
in the corresponding period of the previous year. With a production of 20 kgs per month, the
finished goods stock of vitamin B stood at 84.7 kgs. as of 31st July 1988. Given the prevailing
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scenario, Dubey felt that BPL would not be able to cross 100 kgs. Sales mark for vitamin B for the
entire year 1988, against 200 kgs sold in 1987.
Karanjia had the unaudited half-yearly

arly results in front of him which showed that the profit for
the company was down by 72% mainly caused by the drop in sales of vitamin B and the
corresponding drop in profits of 111%, refer Exhibit 2.
T
In view of this situation, Karanjia had convened the Executive Committee with the following
agenda:
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1 Should BPL continue production of Vitamin B? If so, at what production level?

2 Given the mood of the Govt.
Govt. of India on liberalization,
liber should BPL be in the business of
Vitamin B at all?
Background of BPL
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BPL started
rted its operations in India in 1959 as a subsidiary of a leading research based U.S.
1
Formulation is an end product used by * consumer in the form of a dosage like tablet, capsule,
injection.
2
Bulk drug is an active ingredient which is combined with other ingredients to make a formulation. Case
prepared by Mr. K. V. Balasubramaniam (PGP '81), and Profe
Professor R. Sridharan.
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Professors K.V. Balasubramaniam and R. Sridharan, Indian Institute of Management,
Ahmedabad.
Case material of the Indian Inst
Institute of Management, Ahmedabad, is prepared as a basis for class
manufacturer of pharmaceutical products. The parent company is also credited with the
discovery of vitamin B. Manufacture of vitamin B in India commenced in 1963, with a
production of 15 kgs per annum. In fact, BPL was known mainly as a vitamin B company since
it was the only manufacturer in India and most formulators depended on BPL for vitamin B. It
also prided itself in being one among a few manufacturing vitamin B in the
he world. Vitamin B
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was part of the Chemical Division of BPL, Pharma and veterinary being the other two
divisions.
The Pharma Division of BPL manufactured and sold a range of pharmaceutical formulations for
the human health market, while the Veterinary Division catered to the animal health market
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The parent company held 60% of the shares of BPL. Twenty per cent was held by one of the
largest industrial houses in India and balance twenty per cent was with the general public. Over
the years, the parent company found operations in India increasingly difficult due to price
control in the Pharmaceutical Industry and the FERA regulations. Since 1974, the parent
company did not launch any new formulations in India, nor provide technical assistance for
vitamin B manufacture. BPL's market position slipped from 4th position in 1963 to 40th in
1983. (There are about 150 big and medium sized companies and numerous small companies in
the Indian Pharmaceutical market.)During the period from 1975 to 1983 BPL's profit position
posit was
not good. The best dividend payment it had made was 10% and it had even skipped
Director of BPL and among the first steps he initiated was Indianisation of the
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dividends on a couple of occasions. It was in 1983 that Karanjia took over as the Managing
t company through
the reduction of the share of the parent company to 40% by 1984, with a plan to reduce it to
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zero per cent by 1988. He also rationalized the operations in the company with a view to
reducing costs in manufacturing, marketing and distribution,
distribution, besides launching new formulations
based on own development efforts.
Consultants' Study
T
In 1983 he initiated a study by a consulting firm to look into the manufacturing effectiveness
of vitamin B since at that time the vitamin B manufacture was a losing proposition. The
company was producing about 130 kgs of vitamin B at a cost of Rs. 132 per gram and selling at
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the Govt controlled price of Rs. 124 per gram.
The consultants recommended that since BPL did not have access to newer technology, the best
that could be done was to obtain cost reduction through economies of scale. They suggested
that the production capacity be increased from 144 kgs per year to 240 kgs per year by
incurring a capital expenditure of Rs. 156 lakhs.
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The company was expecting an approval from the Govt. for an increase in the price of vitamin B
from Rs.124 per gram to Rs.156 per gram and felt that the capacity expansion would be
worthwhile.
BPL was apprehensive about raising funds from the public and therefore resorted to a
modernization
moderni zation loan from IDBI on bill rediscounting facility. The expansion project was
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completed by end 1986 and by 1987, vitamin B manufacture was back on the rails with
manufacturing cost at Rs. 135 per gram. (@ 1987 prices) and the selling price at Rs. 156 per
gram. Exhibit 3 gives details of the plant set up, manufacturing process and other aspects of
vitamin B after the expansion was complete.
During this period the Company recruited as Plant Manager, K.V. Srinivas (30 years), an
Engineer-cum-MBA, who actually ly conducted the above mentioned study as a consultant. The
Company also recruited a young fermentation specialist, Dr. A. De Silva (28 years), to work on
improving the manufacturing process. De Silva was reporting to Srinivas who in turn reported to
A.M. Lakhani (48 years), G.M. - Technical, who held a Ph.D. in organic chemistry. Together
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they started setting directions for improving the vitamin B manufacturing process.
Government Policy Changes
In May 1987, the Govt. announced a new Drug Price Control Order (DPCO) which removed
vitamin B from price control. BPL took this opportunity to hike its price from Rs. 156 per gram
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(being the control price) to Rs. 220 per gram. Vitamin B became the most profitable product of
BPL and it was looking forward to 1988 with th great hope since it had several other products on
the anvil. Vitamin B business was thought of as the cash cow for the company to finance its
other projects. Just as things were going well for BPL, the government introduced the import
policy change liberalizing the import policy on vitamin B. It is in this backdrop that Karanjia
had convened the Executive Committee Meeting. The Executive Committee consisted of
senior officers of BPL. Exhibit 4 provides the composition of the Executive Committee.
Followingg is an excerpt of what transpired in the meeting.
Excerpt from the Executive Committee Meeting
Karanjia
N
Good morning gentlemen. As you all know we are facing a very tight situation
with vitamin B. It seems, we need to swim all alone as our parent ccompany is
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absolutely not interested in what happens here. Of course, it does not bother
me very much as I am very confident that we can find a solution to take us out
of this trouble. After all, we have faced crises in the past and found solutions
on our own.
wn. So, why not now?
T
Tiwari Sir, the situation is a lot worse than what we have faced so far. From all
indications,
it seems that the government is very keen on maintaining its liberalization
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policy. I see no scope of competing against the import market as our

manufacturing costs are very high. We also have a very large amount of
finished goods inventory and continuing production will only add further to
our woes.
Dubey Except for one or two of our clients who take about 30% of our production, the
rest
SP
of tthem
hem have already placed orders with overseas suppliers. We have to bring
our price down to around Rs. 145/gm if we want to remain in the business.
Tiwari We are currently producing at a cost of Rs. 137/gm. Our cost will go up to
Rs.
145/gm if we cut down production to 12.5 kg per month from September 1.
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And if we suspend production from September then we will still be incurring a

cost of Rs. 960,000 towards utilities and Rs. 264,000 towards overheads from
September to December. Of course, when we cut down production our
inventories are likely to go down (see Exhibit 5). If we totally suspend
production from September 1, then we can reduce the inventory level to 67 kgs.
We can sustain this inventory only if Dubey pulls a rabbit out of our ailing
veterinary business.
Dubey Thank you for your suggestion. I think maybe we can start selling vitamin B
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to
rabbits.
Karanjia Now gentlemen, please get serious. Srinivas, do you have any suggestions?
Srinivas I have been working on this for some time now. Let us face it it. Our
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manufacturing is expensive. Our fermentation yields are lower than
international levels, as also our scales of operations. You have seen my
"Engineering Analysis" on vitamin B (refer Exhibit 6). I feel there is scope for
reducing our manufacturing
acturing costs of vitamin B by at least Rs. 25 per gram.
Karanjia Now, he is definitely pulling a rabbit out of his hat
Srinivas I am sure of my analysis.
Tiwari If that is the case, we can definitely compete with the import market
Shankar
N
That will be nice, because closing of vitamin B would mean a major IR crisis.
IO
We have been having a relatively peaceful time until now. Also, we need to sign a
new settlement with the union and we cannot afford any decision that will
alienate the workers from us.
Lakhani Let us not go overboard with optimism, gentlemen. I know the figures
quoted by
T
Srinivas are reliable. But, they cannot be achieved overnight Srinivas and De
Silva have been working on this for some time now and the figures quoted by
Srinivas are based on the assumption of higher yields. It may be possible to
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achieve higher yields but not immediately.
Karanjia Then, what do we do now?
Srinivas I know I am sticking my neck out. We cannot continue to produce at current

levels and add more inven
inventories. May be we can use this threat as an
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opportunity. I suggest that we suspend production for a few months and

utilize the time to make the necessary engineering changes needed for
increasing the yield. I think I can convince the workers in vitamin B
manufacturing
m anufacturing and the Union with help from Shankar. We can get them
temporarily redeployed until we get the necessary engineering changes made.
Shankar Yes, may

maybe I can help, but it is not easy. Our talks on the settlement are not
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going on well and they may see it as a management ploy. But, we will try.
Karanjia It is all fine Srinivas. But, what is the guarantee that we would be able to
achieve
the higher yields and also reduce the cost of manufacturing?
Srinivas I have complete faith in my analysis. De Silva and I have carried out a lot of
experiments on media enrichment and our results suggest that we can achieve at
least an increase of 10% on yields and will also be able to save a lot on energy
costs by making a few modifications. I am confident we can see see this crisis
through. I need Rs. 35 lakhs for making modifications in the plant to improve
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the process conditions and about Rs. 30 lakhs to begin an R&D set up which
will lay the foundation for future cost effectiveness. We would also need an
additional Rs. 7 lakhs to carry out some repairs and maintenance.
Karanjia I do not think that at this point in time we can afford to make such an
investment I would suggest a phased program. But, what is your time frame?
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Srinivas We should be able to complete the modifications
ifications in the plant to improve the
process
conditions during the suspension of vitamin B production which I estimate to
last for 4 months. For the R&D effort, we can temporarily convert our "seed"
vessels as pilot fermentors. This way, we will be able to keep the total investment
within manageable levels.
Karanjia Well, maybe we can take up some of these investments on a priority basis.
Black
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Sir, all these efforts may not really pay off if the government continues its
liberal import policies. Our image as the only manufacturer of vitamin B in the
country will soon vanish if we are not able to sustain our production. Could
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we not try to persuade the government to change its import policy vis-a-vis
vis
vitamin B?
Exhibit 1
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Import Policy Changes
Prior to April 1988, licences against export entitlement could be utilized for import of unprocessed bulk
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drugs and chemicals, appearing in Appendices 3 (limited permissible) and 5 (canalized) only to the
extent they were actually used in the product exported.
Licence
icence premium for vitamin B prior to April 1988, was between 75% to 110% as import of vitamin B was
allowed to the extent used in the formulations exported from India.
The import policy of 1st April 1988 introduced a new concept of FLEXIBILITY in utilization of licences
against export entitlement
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Under this facility REP licences issued against export of any product are eligible for import of any item
appearing in Appendices 3 and 5, Para A, to the extent of 10% of the net value addition (FOB value of
exportt minus import replenishment). The only restriction is that import of a single item cannot exceed
10% of the overall flexibility, subject to a maximum of Rs. 10 lakhs.
With this change, all REF licences can be utilized for import of items appearing in Appendix 3, to the
extent of 10% of the net value addition.
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As a result of this, licence premium which used to vary from item to item evened out, based on
demand and supply position in the market. The prevailing premium for import of any item appearing in
appendix
appe ndix 3 was 25 to 30% which is also true in the case of vitamin B. The imported price was reported
to be Rs. 145 per gram after the policy changes.
Karanjia That is easier said than done, Black. Unfortunately, we do not have any lobbying
power with the Central Government at present
Black But Sir, among our shareholders, we have a highly powerful and respected industrial
house. Could we not try to use their clout? Also, our suppliers of molasses are a
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Government Company, and solely dependent on us and along with them the farmers who
supply the basic raw materials for the molasses. May be they can pull their weight to
change the mood of the government.
Karanjia May be. But we cannot be too sure. We know that even our molasses supplier is only
keen on raising prices year after year. It seems to me that we have to try all these
things simultaneously.
CO
Lakhani Yes, now there is definite need, more than before to influence public policy. We
cannot bury our own heads in the sand, hoping that the problem will blow itself over.
Should we close down vitamin B operations, we will be disillusioning many of our young
technical people.
Tiwari Now look, let us not be sentimental about this. These people cost us money and we
are not a charitable institution. If we have to close down, we should without
compunctions.
Srinivas I know our R&D guys. You give them the challenge and they will deliver. To me,
Karanjia
N
it is a question of tiding over the present and despite the crisis we are in, we need to still
put money in the plant and in R&D. I am positive, we will pull through.
You are a born optimist I would advise caution. At the same time, I am encouraged to
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face the crisis based on the strength of the group's confidence. I have a meeting with
the Chairman next week and I can get his views also. Let us meet again on 16th August
and take a final decision on vitamin B.
T
EC
SP
IN
Exhibit 2
Operating Results as on 30-6-1988
(Rs Lakhs)
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A. Profit and Loss Account
Actuals 6 months Budget 6 months Budget 12 months Actuals 12

30-6-1988 30-6-1988 31-12-1988
1988 months
31-12-1987
31
31-
-12
12--1987
1987
Vit B Total Vit B Total Vit B Total
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1 Sales 118 1226 242 1489 530 3083 2623
2 Cost of Mfg. 74 748 163 893 355 1837 1715
3 Gross Margin 44 478 79 596 175 1246 908
(1) - (2)
4 Period Costs 19 62 24 100 51 212 201
5 Selling & Admin. 14 348 16 368 35 790 667
Expenses
6
7
8
Interest
Total Expenses
Profit/loss)
13
46
(2)
52
462
16
15
55
24
N 60
528
68
32
118
57
130
1132
114
107
975
67
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Before tax
(3) - (7)
Notes:
(1) Cost of mfg. includes raw and packaging materials, utilities, direct and indirect labour, and plant
overheads.
T
(2) Period cost includes depreciation and interest and plant administration overheads.
(3) Selling and Administration includes overhead costs in selling and administration, promotion,
distribution, medical etc
etc..
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(4) Interest includes both term interest and working capital interest
(5) Sales include misc. income.
Exhibit 2 (Contd.)
Balance Sheet as at 31-12-1987
Rs lakhs
31-12-87 31-12-86
SP
I. Sources of Funds
(1) Shareholders' funds:
a) Capital 180 180
b) Reserves & Surplus 196 175
376 355
(2) Loan funds:
a) Secured loans 396 383
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b) Unsecured loans 176 109

572 492
Total 948 847
II. Application of Funds
(1) Fixed Assets:
a) Cross block 646 578

b) Less: Depreciation 365 344
c) Net block 281 234
d) Capital work-in progress 21 57
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301 291
(2) Current Assets,
loans and advances:
a) Inventories 480 464
b) Sundry debtors 346 256
c) Cash & Bank balance 30 7
d) Loans and advances 92 83
CO
948 810
Less: Current Liabilities and
Provisions
a) Current Liabilities 258 235
b) Provisions 43 19
Net Current Assets 301 254

647 556
Total
N 948 847
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Exhibit 3
Vitamin B - Plant Setup, Manufacturing Process and Other Aspects
The Process
T
Vitamin B is manufactured by a fermentation process using a micro micro-organism to grow on a media

consisting mainly of molasses in a sterile fermentor setup. The micro
micro-organism is stored in lyophilized
(freeze dried at - 20°C) form and has to be activated by incubation in the same media progressively from
a volume of 50 ml to 450 ml (in glass flasks) upto 2000
2000-9000 ml (seed vessel) before they could be
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inoculated into the fermentor.
Fermentation
BPL had three fermentors of size 15200 Its., 38000 Its. and 76000 Its. which could be operated upto 80%
by volume. Each fermentor had to be steam sterilized before the media could be charged. The media
also had to be sterilized by steam and cooled down before the seed from the seed vessels could be
inoculated. This process took about 24 hours per fermentor.
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The fermentors ran for 120 hrs. (5 days) for each batch during which sterile air was passed for
respiration of the organisms and the heat removed by cooling with chilled water. The yield would be about
50 meg of vitamin B per ml of the broth. Thus the 76000 Its. fermentor could produce 2.85 kgs. of
vitamin B at fermentation stage in a 6 day cycle. The plant could be run for all 365 days in a year on a
continuous basis.
IN
Extraction
The vitamin B from fermentation is extracted by first harvesting the broth, acidifying it to release vitamin
B and then absorbing it on resin columns. This is released from the resin columns into an alkaline
solution by washing the column with the solution and then concentrated for refining. Refining is carried out
by crystallization in a solvent
solvent. The yield in extraction was 82.7% of the fermentation output The
extraction set up could process about 24 kgs. per month.
Raw Material
Molasses, the main raw material, was supplied by just one source - a Govt Company which made
molasses as a by-product
product in the manufacture of sugar. In fact, the entire production of this company was
lifted by BPL and sometimes they had to resort to import at twice the cost to meet the shortfall. All other
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raw materials were available locally.
Labour
The labour employed in the plant is as follows:
Chemical Division
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Total Vitamin B Pharma Other Areas*
Division
Workmen
51 37 161 150
Management staff 28 13 15 77
Vacancies:
Workmen 7 3 - NA
Mgmt staff 2 - 4 NA
*Other
Total
88 N 53
Other areas constitute Engineering, Quality Control, Warehouse, Administration and Personnel.
180 227
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Other Factor
BPL estimated that a new plant of similar size (240 kgs p.a.) would cost approximately Rs.10 crores and
given the sale realization of Rs. 5 crores (@ Rs. 220/gm), it would not be attractive for a new entrant.
Technology would be difficult since only a handful in the world were on the vitamin B business. A new
T
entrant would also have no access to supply of molasses in India.
BPL also estimated that

at it would cost Rs. 200 lakhs for adding a new fermentor of size 76000 litres along with
other supporting manufacturing, utility and effluent treatment equipment. This would help increase capacity
EC
by 142 kgs p.a.
The domestic demand for vitamin B was projprojected at 500 kgs p.a. in 1988 growing at 12% p.a. BPL was
geared to meet only upto 240 kgs p.a. and the balance used to be imported, though at higher cost (before the
import policy changes) or even smuggled into the country by the trade at much cheaper prices.
SP
IN
Exhibit 4
Members of the Executive Committee as on 1-8-1988
Name Age Qualifications Previous Designation
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Experience
ND Karanjia 50 M.A. (Economics) CEO of an Managing

Cambridge International Director
Marketing Co.
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AM Lakhani 50 B.Sc.(Tech.) QAD, Chem. G.M.
Ph.D.(Org. Chem.) Mfg. in BPL (Technical)
JN Dubey 52 M.Sc. D.B.M. Mktg. Manager G.M.

Multinational (Marketing)
Pharma Co.
J. Shankar 30 M.A. (Pers.) Pers. Officer Personnel

Multinational Manager
Engg. Co.
KV Srinivas 30 B. Tech., M.B.A.

N Consultant
Cons ultant in
Pvt. Consulting
Plant
Manager
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firm.
HJ Tiwari 33 ACA, ACS Finance Executive in Finance

Multinational Manager
Company
T
RK Black 52 ACS Executive Company

Corp. Affairs Secretary
in BPL
EC
SP
IN
Exhibit 5
Manufacturing Cost for Vitamin B Production Options
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Option Decision Production Cost (Rs / gm) Expected Year
1986 (kgs) end Inventory *
Raw Utili- Over- Total
mad ties heads
1 Continue 240 66 38 33 137 147

production
@ 20 kgs p.a.
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2 Cut back 210 66 41 38 145 117
production
to 12.S kgs
from 1 Sept
3 Suspend 160 66 * * * 67
production
from 1 Sept
*The
The above figures assume stock as on 31 Aug. 1988 at 97.2 kgs. and sale at 7.5 kgs. p.m. from
September to December.
Option 3:
N
Suspend production from September 1. Cost of utilities per month from September to
December will be Rs. 240,000 and the overheads per month from September to December
will be Rs. 66,000. Salaries would have to be paid whether production was continued or not,
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but overtime of approximately Rs. 60,000 could be saved.
T
EC
SP
IN
Exhibit 6
Extract from Engineering Analysis of K.V. Srinivas
A. Cost comparison with European manufacturer for same scales of operations but higher
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efficiency level.
Cost Component BPL Std Cost. European Remarks

Manufacturer
at Indian Material rate
Raw Material Fermn. Yield: BPL-
BPL
66 43 --50mcg/ml;
50mcg/ml; Europe
75mcg/ml
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Extraction Yield: BPL:
82.9%
Europe: 84.5%
Utilities 38 25
Overheads 33 33
Total 137 101
B. Cost Comparison with European manufacturer for higher scales of operation and lower input
costs.
Cost Component European Mfr.

at Indian rates
N At 50% higher scales
scales of operation
At 50% higher scale of
of operation and lower
input cost
IO
Raw material 43 43 31
Utilities 25 25 18
Overheads 33 22 22
Total 101 90 71
Molasses which constitutes 50% of raw material costs is cheaper by 25% in Europe (excluding duty
T
component). Other raw materials are also cheaper by 30% due to lower petro
petro-derivative costs. Besides,
rates of power and fuel in Europe are lower by at least 30%.
EC
C. Conclusion of the report in brief
1 Contamination was a problem in fermentation. The air line was still of mild steel construction,
generating rust particles/choking filters and carrying contamination. Modern plants use stainless
steel air lines. The air filters were not 100% bacbacteria proof. Modern membrane hydrophobic
filters were reported to avoid this problem.
2 Energy utilization was still high. There was scope for reducing energy consumption by heat
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recovery in the air system, proper sizing of pipelines and condensate recovery for steam.
3 The report envisaged spending Rs. 10 lakhs for the above two and indicated savings if Rs. 4
lakhs per annum on fuel (for steam), Rs. 1 lakh on power and Rs. 1 lakh per annum on filters
for sterile air which otherwise had to be constantly replace
replaced.
4 Production cycle time could be reduced since it was observed that vitamin B productivity rise
was not high during the terminal stage of the batch. The study in fact made a regression
IN
analysis to arrive at a batch termination decision.


IIMA/PROD0202
Ahmedabad
Madras Refineries Limited

"It has been said that we have less inventory and this is true. Our inventories are less than
PY
other comparable refineries. But, we have been able to manage it Tanker scheduling has been
managed well and finished goods movement are coordinated with our only customer -
Indian Oil Corporation. This is the culture here", said the Financial Adviser of Madras
Refineries Limited (MRL). Another senior executive of MRL added, "In addition to crude and
finished products, other refineries havee intermediate storage but we do not have any. We try
to adjust the product characteristics by watching refinery operations carefully and by
blending a product with another of differing characteristics if necessary - and we are able to
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maintain flow through h the plant continuously and delivery products of desired
specifications."
Background
MRL, ninth in the chain of twelve Indian refineries, was commissioned in June 1969 to
produce lube base stocks (for the first time in India) and refine crude into an arra
array of
petroleum products and sulphur. Initially the company involved collaboration of three
partners: the Government of India with 75 per cent share capital, the National Iranian Oil
ON
Company, and Amoco India (a subsidiary of Standard Oil of Indiana), each wwith 13 per cent
share. The standard production pattern for which MRL was designed and the actual
production in 1981-82
82 are compared in Exhibit 1. Although the refinery was originally
designed to process 2.5 million tonnes of crude per annum, the crude proc
processing capacity
was increased gradually to 2.8 million tonnes (410 m3/hr) after making suitable
modifications.
I
The refinery has 13 process plants and each has a specific function - to purify, to rearrange
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the molecular structure, or to crack the molecules to make desired products. A brief
description of the manner in which crude oil is processed through various plants is given in
Exhibit 2. The refinery produces light distillates (LPG, Motor Spirit, Naphtha), middle
distillates (Aviation Turbine Fuel, Superior
Superior Kerosene, High Speed Diesel, and Light Diesel
Oil), lube-base
-base stocks, Asphalt, Furnace oil, and Sulphur.
Sales of MRL increased from about Rs. 237 crores in 1976

1976-77 to about Rs. 733 crores in 1981-
E
82, primarily because of crude cost increases. The pre

pre-tax profit was Rs. 11.75 crores in 1981-
82, about 16 per cent of sales (Exhibit 3). An expansion project is currently being
implemented to double the processing capacity from 2.8 mt. to 5.6 mt. per year. The present
SP
refinery is designed to process lube yielding high

high-sulphur crude whereas the new facility
will be able to process medium sulphur crude.
The General Managers of Refinery, Finance, and Projects report to the Chairman and
Managing Director who is the overall in
in-charge. The organization structure is shown in
Exhibit 4. Both inventories and production are controlled by Deputy General Manager
(Manufacturing), who along with Deputy GM (Maintenance) and Deputy GM (Technical
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Services) report to GM (Refineries).

Prepared by Professors L S Murthy and J. K. Satia, Indian Institute of Management, Ahmedabad
Ahmedabad.
Case material of the Indian Institute of Management, Ahmedabad, is prepared for class dis discussion.
problems.

Inventory Levels
At the end of year 1981-82 the spares stores were about Rs. 12 crores and inventory of
intermediate was about Rs. 3 crores. The main controllable components of inventory are,
however, crude and finished products. The average crude inventory over the six month
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period April 1983 to September 1983 was about 100,000 tonnes (about 12.6 days of
consumption), worth about Rs. 16.80 crores (Exhibit 5). The average finished products
inventory is about Rs. 24 crores (about 11.8 days of off take).
). Monthly production and
inventories are given in Exhibit 6.
Although a norm of about 45 days of inventory is generally used for this industry, it is very
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difficult to fix any specific norm as a variety of considerations dictate the inventory levels
desired. Primarily the crude stocks should be sufficient to allow for uncertain crude supplies
and smooth operations of the refinery. The finished products inventory is determined by the
requirements of the region and the need to provide for uninterrupted supply of goods.
Reasons for holding inventory are discussed
ssed in more detail later.
Production Planning and Control
Production plans for all Indian refineries are coordinated by the Oil Coordination
ON
Committee (OCQ*) In September of every year MRL submits a proposed annual production
plan for the ensuing production on year. This plan includes various items like crude
throughput for the year, assumed (or anticipated) mix of crude oil supply, month
month-wise,
range of product-wisewise production targets and maintenance shutdown schedules.
Considering the national crude supply position, demand for refinery products, and
operating conditions of various Indian refineries, OCC approves the proposed plan with
amendments, if necessary, after consultation. Such an approved plan becomes the basis for
the operation of the refinery. Subsequently,
Subsequently, OCC closely monitors the progress of the
I
refineries with regard to achievement of the production plan (targets). For the purpose of
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monitoring, OCC conducts two types of meetings each month at Bombay - Crude Planning
Meeting (CPM) for reviewing the the supply and allocation of crude oil and Supply Plan
Meeting (SPM) for reviewing the product movement position. OCC also conducts a monthly
Industry Coordination Meeting (ICM) chaired by the Chairman of the Indian Oil
Corporation (which is the canalizing agent
agent for import of crude and petroleum products) to
firm up the plans for the following month based on the latest market demand pattern and
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import programmes.
OCC in its monthly CPM indicates the crude allocation for the ensuing month in terms of
the name of oil tanker ship, the quantity of crude allocated, and the expected time of arrival
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(ETA) of the tanker at the relevant port. MRL then monitors the movement of its supply
tankers and adjusts its own operations.
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*OCC,
OCC, an executive arm of the Department of Petroleum, is chaired by the Secretary to
Government of India, Department of Petroleum.
Crude Oil Inventory
MRL has four tanks, each of 35,000 tonnes, to store crude oil. The maximum storage
capacity of 140,000 tonnes can provide refinery with about 17 days of consumption at full
capacity. However the effective storage capacity may be reduced by as much as 10 per cent
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due to dead stock limited by suction line height from bottom, mechanical constraints of the
floating roof of the tank, and sludge. At MRL, the problem of sludge formation is
minimized by frequent stirring of crude and fully draining the tanks periodically.
Considering the high cost of crude oil, it is not advisable to store excessive amounts of
crude. On the other hand, low levels of inventory ory would affect operations. When the
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inventory level of crude oil is declining rapidly, the following responses are possible: First
the crude throughput can be reduced but the refinery cannot function below 60 per cent of
the designed crude throughput rate of 8,300 tonnes per day. Considering the high demand
for refinery products, the opportunity cost of reduced throughput is very high. In the case
of further drop in inventory, some of the products could be recycled, consequently
incurring cost of refining. Finally, the refinery
efinery may have to be shut down. In addition to the
opportunity cost of lost production, plant shutdown involves the cost of shutting down and
restarting which are very high. There are also several uncertainties in the process of
restarting
g the refinery and one would always like to avoid this situation.
ON
On the other hand, storage capacity provides a limit to the maximum inventory one can
hold. Should a tanker arrive and enough storage capacity is not available to empty the
tanker, it will have to wait and demurrage charges are high, about Rs. 1.27 lakhs per day for
a normal tanker of 80,000 tonnes capacity. Tanker may also not wish to wait for more than a
few days. Thus, keeping an optimum level of crude inventory is very important
important. The crude
inventory levels obviously fluctuate and are shown in Exhibit 5 for the period April 1983 to
September 1983.
I
CT
Tanker scheduling is of critical importance in success

success-fully managing crude inventory levels
and the Oil Movement and Storage (OM&S) Department is responsible for it A tanker is
normally scheduled to arrive every 8 to 10 days at the port. After receiving the tanker slate
(the detailed schedule of crude oil shipments allotted by OCC in the monthly Crude
Planning Meeting), OM&S follows the movement of the relevant tanker ships right from the
voyage of the tanker to the arrival of the tanker at Madras Port. Several kinds of changes
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occur from the schedule - delays at loading and unloading ports caused by non-availability
non
of berth, improper documents an and weather conditions; delays in sailing of the ship, etc.
Although the journey from the Gulf port to Madras takes about 8 to 10 days, delays may
result in actual arrival being early or late by as much as 2 days from the scheduled arrival. A
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tanker may also be held up at intermediate ports because of lack of storage capacity in the
crude oil tanks of the refineries. To monitor these uncertainties, OM&S maintains extensive
communication using telex and telephones with all parties concerned - OCC, ship, Shipping
Corporation of India (shipping agents for MRL), and the port authorities.
The stock position of crude and products is monitored by OM&S through daily production
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statement dip statement, and product transfer statement. Apart from these reports OM&S
continuously
conti nuously gets information over phone on the operations of the refinery. Based on this
data, OM&S is able to predict crude stock levels for about one month in advance. Should
there by any indication of under
under-stocking or over-stocking of crude stocks, the department
gets in touch with all the relevant agencies concerned. As the Manager (OM&S) put it, "the
first cry comes from us. We have established a high degree of credibility with OCC and we
get full cooperation from them in obtaining crude stocks in such a way that we are able to
meet our production requirements."
Apart from quantity considerations, quality considerations are also very critical to the
operations of the refinery. Product yield is sensitive to type of input crude oil; the variation
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of product yield with respect to the mix of input crude oil is shown in Exhibit 7. Larger the
storage capacity and stock levels, more the flexibility available to refinery management to
blend different types of crude coming in to smoothen the effect of fluctuations in in incoming
crude on operations and product yield.
Commenting upon the adequacy of crude storage capacity, a senior executive said, "we are
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comfortable with four tanks when we had one type of crude to be processed. Three are just
right. Although we have operated in the past, during emergencies, for one year with two
tanks, it cannot be done for a long period."
However, difficulties with crude stock can arise and it has happened twice in last three
years. In these situations, crude stock goes below the minimum minimum level because of
unpredictable factors and beyond MRL's influence (such as international conflicts). But MRL
has taken risks rather than reduce the throughput and did not have to ever shut down. By
the general standards of industry, the inventory levels at MRL are low and MRL executives
ON
claim that this is possible because of close coordination among all parties, anticipating the
problems (raising an early cry!) and by willing to strip the tank, if necessary.
Finished Products
The finished products arc lifted

ted by Indian Oil Corporation Limited (IOCL). The annual
month-wise product-wise
wise demand for finished goods is given to MRL by OCC before the
production year begins and is subsequently reviewed periodically in the Supply Plan
I
Meeting (SPM). Product availability,
availability, demand for product and product movement are also
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reviewed in the SPM and MRL is, accordingly, instructed to make necessary changes in
product mix.
IOCL markets the products manufactured by MRL. Product distribution is being done by
IOCL, BPCL, and HPCL. CL. To facilitate proper lifting of products, a Marketing Executive of
IOCL is stationed at MRL. His function is mainly to coordinate the movement of products
from MRL to the local tanks of IOC, BPCL and HPCL located about three to five kilometres
E
away fromm the refinery site. Products other than LPG, asphalt, and sulphur are moved by
pipelines to the marketing terminals under the charge of IOCL. As cost of pipeline was only
Rs. 20 lakhs compared to about Rs. 80 lakhs for a storage tank, MRL chose to connect these
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storage tanks and its own tanks by a pipeline. The storage tanks of IOCL, BPCL, and HPCL
put together have capacity to store about 15 days of normal consumption. The pipelines are
earmarked for different products as follows: white oil (MS, Kerosene, Diesel), black oil
(Furnace oil), light diesel oil, and lube base stocks. LPG is filled into cylinders and asphalt
into drums and then they are moved by trucks and railway box wagons from the refinery.
LPG and asphalt can also be loaded into tank wagons. Sulphur is despatched by tank trucks.
Sometimes some of the products like kerosene, naphtha, MS, diesel, LDO, and lube base
IN
stocks are directly loaded into tanker ships. MRL also supplies naphtha, black oil, and LPG
to a nearby fertilizer plant through pipelines. In all there are five pipelines to IOCL tanks
and three to the fertilizer plant.
The product-mix for the year 1978-83 is given in Exhibit 8. The finished product inventory
has to be maintained for several reasons - in lieu of intermediate storage, to provide for
interruptions in supply either due to utility failure or external factors, need to maintain
uninterrupted flow of sensitive products, fluctuations in demand, and logistic
considerations. As the considerations for keeping finished goods inventory for each product
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vary the inventories also differ.
Before the products are pumped out, they should be tested and certified to meet the IS
specification. This sometimes needs blending of products with differing characteristics.
Certain products like gasoline,
asoline, light diesel oil, and fuel oil also inherently need blending but
intermediate tanks are minimum. Therefore, most of the blending can only be achieved
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either in a pipeline (pipe-blending)
blending) or in storage tanks (tank-(tank
(tank-blending).
-blending).
blending). Sometimes the
process of blending, circulation, and testing can take as much as 12 to 18 hours and
occasionally even more.
Another reason for having finished product storage is to ensure continuity in the supply of
product in the event of any interruption in plant operation. Interruption
Interruption may be due to
power failure, utility supply failure, plant failure, preventive maintenance, etc. Utility
failure is unpredictable and is usually only partial. Such partial failures, for instance failure
of one of the boilers, are estimated to be of 25% to 50% intensity and may occur about 5 to 6
ON
times a year. It usually takes somewhere between 3 days to 1 week to restore the total
supply of utilities when a failure occurs.
The flow of goods to the market may be influenced by some external factors. Recently for
instance, there was a fire in Cochin Refinery. As the product flow from Cochin Refinery
dwindled, MRL used its finished product inventory to prevent shortages in die market.
This, of course, was a temporary measure until goods could be moved from another region
I
which took about 7 to 10 days. In addition, there are always planned plant shut
shutdowns for
overhaul. Such shutdowns usually are of 30 to 45 days duration and are taken once in two to
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three years. As there are twelve refineries in the co

country, one refinery or the other may be
down at any time with the concurrence of OCC.
The shortage of refinery products in the market usually results in dislocation of normal life.
Of particular importance is the supply of LPG. Dislocation of its supply results in press
reports and usually MRL is faulted whenever such dislocations occur.
E
The demand of products is also seasonal. For instance, low distillate (High Speed Diesel Oil
and Light Diesel Oil) consumption is high when agriculturists need to pump wate water for
irrigation purposes. Weather conditions such as rain and drought also result in changes in
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the demand pattern.
Logistic considerations are perhaps one of the main reasons for finished products inventory.
Although IOCL tanks and MRL tanks are connecte connected by pipelines, the differences in
production and demand pattern may result in need for stocking. However, Aviation
Turbine Fuel (ATF), Furnace Oil (FO) and light diesel oil (LDO) require finished product
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inventory as these are more often shipped by tankers. Naphtha is also received in the
refinery by tankers occasionally for supply to a nearby fertilizer factory. ATF has to be
moved out by tankers and a tanker at a time will take 8,000 to 12,000 kiloliters. It is also
produced in a batch mode with a batch usually run for 15 days. Diesel tank storage is 7,000
kiloliters whereas production is about 2,000 kl/day. But a tank when being emptied cannot
receive at the same time. Similarly fuel oil has to be shipped in a minimum parcel of 15,000
kiloliters.
When stock of an item is in excess or some item is in short supply, product-mix

mix will have to
be altered. Usually such changes mean that less profitable products may have to be
produced. The indices for relative profitability of products vary (see below), but choices
choices of
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product-mix are limited (Exhibit 2).
Pricing of Petroleum Products
The ex-refinery
refinery prices of petroleum products are fixed by the Department of Petroleum in
the Energy Ministry based on the recommendations of the pricing committees appointed for
the purpose from time to time. Till the middle of 70s, the recommendations of the Shantilal
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Shah Committee were implemented which were essentially based on import parity for
fixing the product prices. With the nationalization of the refineries managed by the
international
nternational oil companies at Bombay and Vishakhapatnam, the contractual obligation of
the government regarding import parity principle ended. The new Oil Prices Committee, set
up in March 1979 under the Chairmanship of Dr. K. S. Krishnaswamy, then Dy. Gov Governor,
RBI, discarded the principle of import parity and evolved a flexible system based on certain
norms and parameters for pricing petroleum products keeping in view the overall energy
policy, the demand for petroleum products in the country, and refinery economics as
detailed below:
ON
(a) Standard levels of throughout and standard patterns of production and percentage
of own fuel and loss for each refinery was evolved.
(b) A common FOB price of crude oil based on the weighted average price of the
indigenous and imported crudes was determined.
I
(c) Standard rates for ocean/inland freight, marine/inland insurance, ocean/inland
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loss, landing, and letter of credit charges were fixed.
(d) Based on these standard rates and the actual levies of wharfage and auxiliary
customs duties,
s, the delivered cost of crude for each refinery was determined.
(e) The average refining cost per tonne of crude for each refinery was evolved taking
into account expenses under the main heads:
E
Chemicals and catalysts

SP
1) Utilities (power, steam, water, etc.)

2) Re
Repairs
pairs and maintenance
3) Administrative expenses
4) Salaries and allowance
5) Insurance expenses
6) Depreciation
IN
(f) The Committee also provided for a fair return on the capital employed by the
refineries, i.e. 15% on nex fixed assets and 15% on working capital.
The Comm
Committee has worked out the retention price per tonne of crude throughput for each
refinery by adding the following items:
i The delivered cost of crude per tonne
ii The average refining cost per tonne of throughput.
iii The return on working capital and net fixed assets

ets per tonne of throughput.
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A statement showing the build-up up of retention price per tonne of crude throughput is
shown in Exhibit 9. The retention prices for each product produced in the refinery have been
worked out using a set of following relative indicesces evolved by the Committee keeping
kerosene as base.
Table 1
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Indices for Different Products
LPG 1.15
Motor Spirit 1.05
Naphtha 0.98
Aviation Turbine Fuel 1.20
Superior Kerosene Oil 1.00
High Speed Diesel Oil 0.95
Light Diesel Oil 0.91
Furnace Oil
ON 0.70
Bitumen 0.73
Similar indices have been evolved by the Committee for lube base stocks also. These indices
are evolved taking into account factors like present and prospective demand and supply,
ability of individual products to bear additional
additional charges, their end-use
end patterns, refinery
I
economics, and other relevant technical factors. These indices also serve as a basis for
allocation of total refinery costs to individual products.
CT
The retention price of a product is the amount which the refine

refinery is entitled to on sale of the
product Ex-refinery
refinery price is the price at which the refinery sells a product to the marketing
company. The difference between retention price and ex ex-refinery price, if any, is settled
through the all India pool account.
E
As explained above, the retention price is built up of several elements and many
assumptions are made to work out the retention price. In practice, there may be deviation
from the assumptions. The differences, both positive as well as negative, which are due to
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factors not under the control of refinery management, are funded to the all India pool
account.
Claims under Pool Account
(a) Difference between exex-refinery and retention prices: Since the refineries are entitled
only to the retention prices applicable to tthem, the difference between the ex-refinery
IN
price and the retention price has to be claimed or surrendered as the case may be to
the pool account
(b) Crude Oil Price Equalization (COPE) Account: This is operated when the actual
crude oil price is different fro
from the budgeted price of crude oil.
(c) Ocean Loss: The committee has made a provision up to 0.5% of the loaded quantity
towards ocean loss. Any ocean loss beyond 0.5% has to be borne by the refinery.
(d) Marine freight, insurance, wharfage, and customs duty: Any difference
ifference between
actuals and standards is settled through the pool account.
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(e) Production Pattern: The standard level of throughput assumed by the Committee in
the case of MRL is 2.6 million metric tonnes per annum. If the company is not able to
achieve the standard throughput for reasons within its control, the company is not
compensated for loss due to shortfall in throughput If the refinery achieves a higher
throughput than the standard during the year, the refinery will be compensated for
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the incremental refining cost only. If the government directs a refinery to change the
standard pattern of production and if the refinery incurs loss due to shortfall in
realization, the refinery is fully compensated for the above by the government
(f) Own fuel and other losses:

es: Any financial benefit due to reduction in the percentage
of own fuel and other losses due to the refinery's own efforts can be retained by the
refinery.
Need for Strategic Reserves

ON
Given the uncertain international environment, most countries are now m maintaining
strategic reserves of crude. Japan, for instance, is reported to be maintaining a reserve of 6 to
8 months. The government of India has also decided to maintain a mandatory reserve of 45
days of crude stock in the first instance. After these stocks, are built up, a mandatory reserve
of finished products will also be kept Accordingly MRL has already built two storage tanks
and construction of four tanks is in progress. Although financing arrangements have not
been completely worked out, it is understood
understood that mandatory stocks will be maintained on a
I
separate account and cannot be used for the purpose of routine operations without the prior
CT
permission of government But as several executives of MRL pointed out "this materially
alters the nature of inventory
entory problem and now such tight control of stocks may not be
necessary
E
SP
IN
Exhibit 1
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Designed Production Pattern
Product Production ('000 tonnes p.a.)
Design Actual in 1981-82
Light Ends
Gas 80 ..
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LPG 10 43
Gasoline 830 N 113 96
Naphtha 290 253
253
Middle Distillates
Superior Kerosene 340 474
Aviation Turbine fuel 30 96
Jet Fuel 40 ~
HSD
Lube Oil Stock
ON 515
200
570
174
Fuel Oil 716 490
Refinery Fuel & Gas 180 224
Asphalt 80 220
Sulphur 19.7 8
Loss - 28
Other Products - 24
I
2313.7 2800
CT
Note: The refinery was originally designed to process 2.6 million

tonnes of crude oil p.a. Later on with some modifications this
crude capacity was raised to 410m3/hr (i.e. 2.8 million tonnes
p.a.).
Source: MRL. Process Fundamentals Manual, d. 76.

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Exhibit
Exhibit 2 Refinery Process Flow at Madras Refineries Limited
((Source:
Source: Process Fundamentals Manual)
SP
A simplified sketch of the manner in which the crude oil is processed through various units is shown in
Figure 1. The crude oil is separated into several fractions all of which require further processing or
blending to meet the quality requirements. The separation is effected by distillation in atmospheric
tower and two stage vacuum towers. The steams obtained are gas, overhead distillates (LPG,
naphtha, motor spirit), middle distillates (heavy naphtha, kerosene, diesel, and Aviation Turbine Fuel)
from atmospheric tower and gas oil, spindle oil, light neutral oil, intermediate neutral from the first
stage vacuum tower and heavy neutral and vacuum residuum from the second stage vacuum tower.
IN
The gas from crude distillation unit is used as refinery fuel gas along with the off gases from the
Unifier (Plant No. 3), kerosene hydrodesulphurizer (Plant No. 4), and thermal cracker and visbreaker
(Plant No. 6) after recovering the hydrogen sulphate by amine treating, in Plant No. 12.
The overhead stream is sent to the Vapor Recovery Unit (VRU) where it is split up into gas, LPG,
LPG, Light Straight Run Gasoline (LSRG), and light naphtha. The gas is used as feed to hydrogen
10 of 17 IIMA/P&IR00202
plant after amine treating, LSRG is partly blended to gasoline after merox sweetening, and the
balance is sent to the naphtha pool. The light naphtha splits up into two streams. A part is de
sulphurized in the Unifier and forms the feedstock for the Plat former and the balance is sent out to
the naphtha pool untreated.
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The light naphtha stream is reformed in the Plat former to improve its octane number and blended to
gasoline. Catalytic reforming of naphtha products yields hydrogen as by-product
product which is used for de
sulphurizing the naphtha feed to the Plat former in the Unifier and the surplus is used with the feed in
the de sulphurizers.
The heavy naphtha stream from the atmospheric tower is the first side stream. Part of the heavy
naphtha is sweetened using merox catalyst and blended with superior kerosene. The balance will be
blended with diesel oil draw off to product HSDO.
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The second side stream from the atmospheric tower is kerosene. This draw off is adjusted to make
aviation turbine fuel (ATF-K50) to meet
et the specifications whenever the plant is producing ATF
ATF-K50.
The balance of the period, the plant will be on superior kerosene (SK) operation. The stream is de
sulphurized in Plant No. 4 with hydrogen and sent to product tankage. The third side stream of the
atmospheric tower is diesel oil. Part of this is de sulphurized in Plant No. 5 using hydrogen. Raw
diesel, de sulphurized diesel, and heavy naphtha form the components of HSDO.
The bottoms product of the atmospheric tower is the feed to the first stage vacuum distillation. Four
streams are separated from the feed: gas oil, spindle oil, light neutral, intermediate neutral. These
ON
form the feed for Plants 8, 9,, and the thermal cracker. The spindle oil, light neutral and intermediate
neutral streams required to meet the feedstock requirements of furfural extraction and MEK (Methyl
Ethyl Ketone) de waxing units are sent to intermediate tanks. The feedstock to the thermal cracker is
de sulphurized in Plant 13. The cracked gas oil and LFO (Light Fuel Oil) produced in Plant 6 are used
for blending fuel oil. The light gasoline produced as a result of the cracking is used for gasoline
blending. The thermal tar in Plant 6 is mainly used as refinery fuel with the surplus diverted to the fuel
oil pool.
The bottoms product of the first stage vacuum tower is separated into vacuum residuum and heavy
I
neutral fractions in the second stage vacuum tower. Heavy neutral is drawn off as side stream and
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vacuum residuum is used partly as feed in the Visbreaker, partly to produce asphalt, and the balance
is blended directly as refinery fuel or fuel oil. Asphalts are produced by air blowing of the vacuum
bottoms. The heavy neutral is stored in an inter-
inter-mediate
inter - tank and is processed in furfural extraction
and MEK de waxing units.
The furfural unit processes the spindle oil, part of the light neutral, intermediate neutral, and heavy
neutral feed stocks on a blocked
blocked-out
--out
out operation to produce high and medium viscosity index lubrication
oil components. Furfural extracts the aromatics which have low viscosity index of the lube component.
E
The products from the furfural unit are routed through the MEK de waxing unit through storage tanks.
The extracted aromatics, called lube extracts, are sent to the vacuum distillate de sulphurizer. The
heavy neutral extract is sent to fuel oil blending directly.
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The MEK de waxing unit processes all the finished raffinate from the furfural extraction unit and the
low viscosity index streams of spindle light neutral, intermediate neutral, and heavy neutral. The unit
removes the wax from the feedstock and improves the pour point of the product. The slack wax is
blended directly to fuel oil and the finished lube oil products are sent to storage.
The Lube oil hydro finisher processes the MEK finished lube oil components to improve color stability,
oxidation stability, and remove part of the sulphur and nitrogen compounds. The de waxed oil from
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the MEK unit is fed to the hydro finisher (Plant No. 10) on a blocked-out operation. The finished lube
oil components are stored and blended to various grades of lube oil outside the refinery.
The hydrogen
hydrogen-sulphide rich gases from Plant Nos. 3,4,5, 10, and 13 are amine treated to recover the
hydrogen-sulphide.
hydrogen-
hydrogen-sulphide.
sulphide. The hydrogen-sulphide
hydrogen recovered thus is converted into sulphur in Plant No. 12.
11 of 17 IIMA/P&IR00202
The yield (product-mix) is sensitive to the composition of the input crude oil. To some extent it is
possible to change the yield pattern by manipulating the process. Few illustrations for this type of
variation are shown below:
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Inter-product Flexibility
1. SK ATF HSD
- 1.3 1 0.3
2. HDS FO LDO
t 0.5 * 0.5 1
3. FO HSD Bitumen
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* 1.7 0.7 1.0
That is, if kerosene is increased (decreased) by 1.3 units, ATF is decreased (increased) by one unit,
and HSD by 0.3 units.
Exhibit-3
3 Financial Statement of MRL
Balance Sheet (Rs. in lakhs)
Particulars
ON 1980-81
1980-
1980-81
81 1981-82
Source of Funds
1. Shareholders' Funds
a) Capital 12,87 12,87
b) Reserves & Surplus 15,45 16,20
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2. Loan Fund
Unsecured Loan 1,78 29,32
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30,11 583
Application of Funds
1. Fixed Assets
ssets
a) Gross Block 47,33 50,08
b) Less: Depreciation 40,26 41,88
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c) Net Block
7,07 8,20
d) Capital W1P
9,72 31,36
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2. Investments 0.5 0.5

3. Current Assets, Loans & Advances 262,92 311,98
a) Inventories 125,73 62,28
b) Sundry debtors 12,13 27,99
c) Cash & Bank balances 0.2 0.3
d) Other current asse
assets 94,89 52,89
e) Loans & Advances 495,67 427,42
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Less: Current Liabilities & Provisions 465,21 381,32

a) Liabilities 17,33 27,39
b) Provisions 482,54 408,71
Net Current Assets 13,13 18,71
Miscellaneous 18 12
12 of 17 IIMA/P&IR00202
30,11 58,39
Exhibit-3(Contd)
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Financial Statement of MRL
Profit and Loss Statement (Rs. in lakhs)
Particulars 1980-81
81 1981-82
1981-
1981-82
82
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Income
Sale of products 339,14 485,47

Recoveries from Government 265,30 247,34
Interest on investments, deposits, loans and advances 89 59
Miscellaneous receipts 9 14
Profit on sale of assets 0.4 2
605,42 733,55
Expenditure
ON
Operating expenses 587,04 704,32
Interest 10,63 11,88
Depreciation 3,31 1,68
Deferred Refinery Expenses 6 6
Feasibility report expenses - —
601,04 717,94
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Profit for the year 4,38 15,61
CT
Adjustments relating to prior years 2,68(Cr.) 3,87(Dr.)

Pre-tax Profit 7,06 11,74
Major components of Operating expenses:
Raw material consumption 581,35 694,92
Repairs & Maintenance of Plant & Machinery 3,98 3,16
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(including stores & spares)

Details of Inventories:
Stores, spares, chemicals & catalysts (in stock in 9,07 12,06
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transit, and with others)

Loose tools at cost 25 27
Raw material (crude oil) 229,46* 272,50*
Intermediate products
products 4,84 3,05
Finished products 19,31 24,10
* Includes stocks held elsewhere on MRL account.
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13 of 17 IIMA/P&IR00202
Exhibit 4 Organization Chart
Chairman &
Managing Director
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GM (Project) GM (Finance) DGM (Admin. Manager
M anager
& Secy.) (Personnel)
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General Manager
(Refineries)
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DGM (Mfg.) DGM DGM (Tech. &
(Maintenance) Services)
Sr. Mgr. (Utilities)

Sr. Mgr. (Field)
I
Sr. Mgr. (Process Co-ordin)
Sr. Mgr. (Planning)
CT
Sr. Mgr. (Crude)

Sr. Mgr. (Elec.)
Sr. Mgr. (H2 Plant)
Sr. Mgr. (Instrument)
Sr. Mgr. (Lube)
Sr. Mgr. (Packaging)
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Sr. Mgr. (OM&S)

Sr. Mgr. (Construction)
Sr. Mgr. (Matts.)

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14 of 17 IIMA/P&IR00202
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IIMA/PROD0202
Ahmedabad
Exhibit-6 Production and End-of-Month Inventories of Finished Goods
('000 tonnes)
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May 1983 June July August September October
P I P I P I P I P I P I
Light Ends 21.7 16.2 26.1 11.8 31.1 14.6 28.4 133 26.4 6.5 28.7 7.5
Middle
distillates 74.9 17.9 913 29.2 125.8 27.8 119.9 33.1 117.1 27.4 95.1 24.0
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Lube
base 4.2 15.2 S.8 12.2 12.8 14.0 16.9 18.8 143 15.7 8.5 18.0
stocks
Furnace oil
and 66.7 22.2 61.4 27.2 74.0 20.8 76.8 36.4 76.1 28.3 66.8 27.1
bitumen
Legend : P - Production; I - Inventory
ON
Exhibit 7 Crude-Mix-Yield
Mix--Yield
Mix Yield Relationship
June Sept. Dec. March
Lavan Blend 73.8 64.9 38.4 69.1

Iranian Light 15.2 - 20.4 1.4
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Arab Light
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- 18.5 14.3 17.1

Iranian Heavy 8.0 0.3 - 3.2
Arab Heavy 3.0 12.6 12.9 9.3
Arab Mix - 3.6 13.9 -
Light ends 11.5 10.9 11.7 13.8
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Middle distillates 39.4 46.0 43.4 42.5

Lube base stocks
stocks 2.2 6.5 6.9 7.9
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FO, Sulphur, etc.

35.3 30.3 32.5 29.0
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16 of 17 IIMA/P&IR00202
Exhibit 8 Product Mix 1978-83

1976-79 1979-80 1980-81 1981-82 1982-83
1982
Crude throughput ('000 tonnes) 2758 2822 2611 2801 2857
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Product Mix (%)
- Light ends (LPG, MS, Naphtha) 14.3 14.0 13.2 13.1 12.9
- Middle distillates (ATF, SK, HSD, LDO) 46.0 44.6 45.8 45.3 47.2
- Lube base stocks 5.9 6.2 5.8 4.8 4.8
4.8
- Asphalt 6.3 7.3 5.8 7.9 9.1
- Furnace oil, Sulphur, etc. 18.0 18.7 20.4 20.4 18.2
Fuel and loss (%) 9.4 9.2 9.0 8.9 8.2
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Exhibit 9 Retention
tion Price Calculations per Tonne of Crude Oil
Throughput
Rs/Tonne
Crude 1680.00
Ocean/Inland Freight 90.00
Marine/Inland Insurance
ON 2.67
Ocean/Inland Loss 11.14
1783.01
Wharfage 14.00
Other landing charges 0.20
Auxiliary duty L/C 9.50
Charges 1807.91
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Refining cost 21.22
Return at 15% on Net Fixed Assets
CT
3.78
Return at 15% on Working Capital 37.36
Retention price per tonne of Crude Oil 1870.27
Incremental refining cost 4.52
Retention price per tonne of incremental crude run
1849.79
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Ahmedabad IIMA/F&A0378
F&A03
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Reliable Texamill Limited
The Reliable Texamill Limited (RTL) is expecting its net sales to increase from Rs 1,208.61
lakhs in 1982 to Rs 2185.94 lakhs in 1983. The company would need more working capital
funds to support the expanding sales. It has therefore requested its banker, the Premier Bank
of India, in April 1982 for increasing its fund-based
based working capital to Rs 625 lakhs in 1983.
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The existing credit limit of Rs 400 lakhs has been secured against the hypothecation of the
company’ss entire stocks, book debts, receivable and other outstandings and present and
future rights and assets. The bank has also provided to charge 2.5% p.a. interest above its
normal rate under the existing arrangement.
The Company and its Performance
RTL was promoted by Shri Shyam Lal,, Chairman and Managing Director and Shri Kajari
Lal, the whole-time Director, in 1977. Thee company commenced commercial production in
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1979. RTL manufactures synthetic blended yarn which is a raw material for other textile
weaving millss and also for handloom and powerlooms. The company
company’s mills are situated in
an industrially less developed area in a northern state. The company has a licensed capacity
of 80,000 spindles and existing installed capacity of 26,890 spindles (this includes 6, 6,210
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82). The average capacity utilization of the
spindles added in 1981-82). t company was 81% in
1980-81 and 85% in 1981-82. It expects to use 87% of the installed capacity in 1982-83.
In the year 1979-80,

80, the company could generate a net sales of Rs 191.13 lakhs, and incurred
a net loss of Rs 57.11. The acutee power shortage was a dominant reason, besides the initial
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teething troubles, for the poor beginning of the company. RTL has since been able to
increase its sales from Rs 191.13 lakhs in 1979-80
1979 to Rs 973.32 lakhs in 1980-81 and to Rs
1203.61 lakhs in 1981-82. For 1981-82,
1981-82, the company had estimated its sales at Rs 1767.55
EC
lakhs. The management of RTL has attributed the lower actual sales to the sluggish market
conditions that prevailed during the second half of the year 1981-82. This forced the
production at a low level and also to a certain extent due to the
company to keep their production
company manufacturing substantial quantity of yarn in lesser counts and blends of lower
value to suit the market conditions. After incurring a loss in the first year (the company
1980-
operated for seven months only), the company made a net profit of Rs 24.48 lakhs in 1980-81.
The company showed a net profit of Rs 32.42 lakhs in 1981-82,1981 without charging any
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depreciation.
power--cut
power
The increased power-cutcut is attributed as the reason for the low profitability of the company
21 25,811 kgs of yarn in 1981-82 against 19,11,562 kgs
in spite of its higher production of 21,
during the previous year. Because of the power
power-cut, the company supposedly had to carry
pu
on production with the help of power generators with diesel oil purchased at exorbitant
IN
t production to the extent possible. The lower profitability was

prices in order to adhere to the
t increase in input costs and administrative expenses resulting from
also contributed by the
1981-
the expansion of capacity in 1981-82.
Prepared by Professor I.M. Pandey, Indian Institute of Management, Ahmedabad.
2 of 6 IIMA/F&A0378
RTL has not so far paid any tax and dividends. The company has not envisaged any tax
liability for quite a few years because of the various tax benefits to which it is entitled on
account of its
ts being a new unit and also being located in an industrially less developed area.
The actual and estimated balance sheets and the profit and loss account of the company are
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given in Exhibits 1, 2, and 3.
Production Facilities
The company’ss existing production facilities are considered adequate for operating the
spinning mills at the enhanced installed led capacity. The production process for obtaining the
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duct, viz., the synthetic yarn, originates with the mixing up of the different fibres,
main product,
i.e., acrylic, polyester and viscose as per the blend proposed to be manufactured. The annual
consumption of these ese fibres generally depends on the product mix manufactured during the
particular year; the actual consumption during the years 1980- 1980-81
1980 -81 1981-82 being about
81 and 1981
1,973 tonnes and 2,303 tonnes valued a respectively at Rs 713.11 lakhs and Rs 902.30 lakhs.
The company generally does not encounter any significant difficulties in procuring their full
requirements of raw materials and stores at the current market prices from suppliers.
In the past three years of its operations, the company has been facing frequent powercuts.
of 250 KVA and in place thereof purchase one imported 5KODA5

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As a result, the company built up adequate captive power generating capacity by installing
one more set of 860 KVA diesel power generator. RTL is now planning to dispose off 2 sets
set of 860 KVA as it is
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expected to be more economical from the point of view of diesel consumption and also can
be kept in use for longer period.
Competition and Selling Arrangements
The company’s end-products

products cater to the needs of large and medium scale manufacturers of
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fabrics and also handlooms and powerlooms. The major buyers buyers, accounting for the
85% of sales, include reputed firms. The rremaining 15-20% is sold to small
company’s 80-85%
dealers and traders.
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RTL faces a fair amount of competition from a number of companies. In spite of the stiff
blended yarn manufactured by RTL is well received in the market
competition, the synthetic blended
and is supposed to enjoyenjoy a premium over the yarn manufactured by other leading
manufacturers in the country. The selling operations of the company are managed by its
four branches located in different parts of the country. The full-fledged
full sales depots recently
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situated far away from the company’s

opened are situated company factory. As a result, a good part of the
company sales are
finished goods remains in transit at any point of time. About 65% of the company’s
being affected on credit terms ranging from 45 to 60 days depending on the market
ions. The company has been finding it difficult to realize their dues within the normal
conditions.
credit period allowed to customers. The management attributed this to their being new to
the competitive textile market. Till 1981-82, the company had a practice of selling a part of its
production through selling agents to small buyers. This practice has been discontinued, and
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now the company directly sells to these buyers. The company, however, allows a discount
2
ranging between 2-2.5% for sales on demand/cash basis.
Expansion
xpansion
Soon after starting commercial production in 1979 RTL had planned to undertake an
3 of 6 IIMA/F&A0378
expansion programme for installation of another 20,000 additional spindles. Since the
company incurred a loss in the very first year, the company attempted a modest expan expansion
programme involving installation of additional 6,210 spindles only during 1981-82. 1981-82. The
company felt that this increase in their installed capacity had become absolutely necessary in
order to bring about a better economy in their operations. The expansion programme was
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completed with a capital expenditure of Rs 275.88 lakhs (exclusive of working capital
margin) against the estimated cost of Rs 275.00 lakhs (inclusive of Rs 22 lakhs working
capital margin). The expansion was financed partly from internal accruals and partly from
loans from financial institutions and banks (Rs 155.88 lakhs). The entire accruals during
1981-82 were utilized towards meeting the cost of the expansion project. The margin money
for working capital provided by the financial al institutions in the term loan for expansion
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project would be released in April 1982. The additional spindles would be put to commercial
production from April 1982.
As stated earlier, the company plans to acquire one 860 KVA generator at a cost of Rs 47
47.70
lakhs in 1982-83.
83. This is proposed to be financed by the term loan of Rs 40 lakhs from the
bank and internal accruals. The installation of generator will enable the company to combat
the power shortage and to carry out uninterrupted production.
Future Prospects
N
The operations of the company are effected by the changes in the Government policy for
textile industry from time to time. The recent announcements made by the Government in
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the Union Budget for 1982-83 83 about excise payable on synthetic yarn ar are expected to help
the company in boosting up its sales of yarn in blends of higher value. The changes in the
import policies announced by the Government from time to time also affect the company company’s
operations; especially the prices of their basic new material, viz., viscose/polyester fibres, as
the prices of these fibres ruling in the international market are reportedly a little lower than
the prices prevailing in India. While the prices of viscose/polyester fibres have increased
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substantially during the last two years, 1980-811980 and 1981-82, the prices of RTL’s end-
products have, more or less, remained at the same level. As the company has not been able
to absorb in the selling prices the increased costs of inputs, the company faces an urgent
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here also seems to be an urgent need to bring long-term

need of funds. There long funds to improve
the company’ss liquidity position. RTL raised substantial amount of funds (nearly Rs 112.80
lakhs) as unsecured loans from directors/associates for financing part cost of the expansion
projects, and considers it difficult to raise long-term
long- funds now.
The power supply in the state, where the company is situated, is presently snowing signs of
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improvements, and it is expected to be satisfactory in the coming months. With the

preference
preference during the recent years having shifted to blended fabrics and the
consumer preference
company’’ss products being of good quality and well accepted in the market, RTL can hope to
company
company’s
fare well in the coming years.
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4 of 6 IIMA/F&A0378
RTL produced 1,182 tonnes and 1,315 tonnes of yarn during 1980-81 and 1981-82
respectively. In 1982-83, it has planned yarn’ss production of 1,758 tonnes. RTL normally
plans its production schedule on the basis of the market trend, i.e., as per the counts/blends
of synthetic yarn acceptable in the market so as to sell the end-products products with ease.
Manufacturing operations during 1979-80 and 1980-81 81 were more confined to production of
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yarn in lesser counts/blends of lower value as yarn in these counts/blends was found to be
more readily acceptable in the market and carried a better profit margin for the company
since excise duty payable on yarn in these counts/blends was very low. The same pattern
was maintained in 1981-82. 1981-82
82. Production during the second half of the year 1981-
1981 -82
82 was kept
at a lower level as RTL experienced nced difficulties in selling products mainly due to
sluggishness in the textile market during this period. RTL’ss production plan for 1982
1982-83 has
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been devised keeping in view the changes in excise payable on synthetic blended yarn
effected by the Government in the budget of 1982-83.
83. As excise payable on yarn produced in
blends of higher value has been reduced and on yarn produced in blends of lower value has
been increased substantially, RTL has planned to manufacture more quantities of yarn in
blends of higher value during the year 1982-83. 83. These blends are expected to be more
acceptable in the market.
The company has projected its energy costs at about 3.4% of the total cost of production. The
other expenses have been estimated in line with the past experience. Also the assets and
liabilities
lities of the company have been estimated in accordance with the past trends.N
RTL had depended quite substantially on trade credit for meeting its working capital needs.
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Trade credit forms about one-third
third of current liabilities.
liabilities. The normal credit period allowed by
suppliers is 45 days; however, a discount of 2% for payments made within 15 days of the
purchase date is allowed. In the past,
past, creditors did not object to RTL RTL’s stretching of
payments to them. In view of the credit
credit squeeze,
squeeze, they are likely to pressurize hard for early
payment of dues.
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Exhibit 1
Balance Sheet (Actual & Projected) as on March 31
(Rs in lakhs)
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Actual Estimated Actual Estimated
1981 1982 1983 1981 1982 1983
LIABILITIES & CAPITAL ASSETS
Current Liabilities Current Assets
Bank borrowings 366.74 490.02 622.91 Cash and bank balance 4.35 6.06 7.44
Trade creditors 200.94 239.16 70.79 Receivables 293.25 269.48 303.19
ON
Term loans payable 10.56 5.89 98.74
Misc. Liabilities and Provisions 47.71 70.71 73.72 Inventory
Total 625.95 805.78 866.16 Raw materials 162.00 202.13 275.22
Stock-in-process
Stock 51.02 64.96 80.85
Term Liabilities Finished goods 22.94 160.44 177.87
Term loans 479.68 641.88 611.04 Consumable spares 16.80 27.20 32.34
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Deferred credit 29.95 24.06 17.21 Others 29.67 27.20 36.68
Term deposits 10.27 20.54 56.77 Total 580.03 757.47 913.59
Others 11.32 114.66
EC 114.66
Total 531.22 801.14 799.68 Fixed Assets
Total Liabilities 1157.17 1606.92 1665.84 Gross block 820.04 1121.13 1146.19
Acc. depreciation 73.66 73.66 127.34
Net Worth Net block 746.38 1047.47 1018.85
Share capital 199.44 199.44 202.13
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Reserves 24.26 24.26 24.26 Other Non - Current Assets 14.08 9.14 8.50
P & L surplus (deficit) (32.63) (0.21) 65.04
Total 191.07 223.49 291.43 Intangible Assets 7.75 16.33 16.33
Total funds 1348.24 1830.41 1957.27 1348.24 1830.41 1957.27
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6 of 6 IIMA/F&A0378
Exhibit 2
Profit and Loss Accounts for the year ended March 31
(Rs in lakhs)
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Actual Estimated
1981 1982 1983
Net sales 973.32 1208.61 2185.94
Cost of goods sold 775.98 921.96 1850.32
Gross profit 197.34 286.65 335.61
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Operating expenses:
Selling and administration Interest 97.26 123.30 127.74
Interest 81.68 137.83 140.68
Total 178.94 261.13 268.42
Operating profit 18.40 25.52 67.19
Other income (deficit)(deficit) 6.08 6.90 (1.94)
Profit before tax 24.48 32.42 65.25
Provision - - -
Profit after tax
Exhibit 3
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Statement of Cost of Sales
24.48 32.42 65.25
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(Rs in lakhs)
Actual Estimated
1981 1982 1983
Raw material 685.94 933.67 1649.36
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Power and fuel 36.67 55.37 64.68

Direct labour 40.00 57.16 79.41
Other mfg. expenses 12.87 27.21 36.52
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Depreciation 41.57 - 53.68

Total 817.05 1073.39 1883.65
Add: Opening stock
stock-in-process
--in
in--process
process 24.92 51.02 64.96
Total 841.97 1224.41 1948.61
Less: Closing stock-
stock-in-process
stock -in
in--process
process 51.02 64.96 80.85
Cost of production 790.95 1059.46 1867.76
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Add: Opening
pening stock of finished goods 7.97 22.95 160.44
Total 798.92 1082.40 2028.20
Less: Closing stock of finished goods 22.95 160.44 178.87
Cost of sales 775.97 921.96 1850.33
Note: The working capital norms for Cotton & Synthetic Textiles are as follows:
1. Raw material (month's consumption) 2 months
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2. Other consumable spares (% of total inventory) 5%

3. Stock-in
Stock-
Stock-in-process
in (month's cost of production) 2 weeks
4. Finished goods (month's cost of sales) 5 weeks
5. Receivables

IIMA/CMA0
IIMA/CMA 0
Revised 1980
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Gambhirpura Collective Farming Society
When the Collector of Kaira district approached Shri Narendrabhai with a proposal that he
should take a lead in organising and running a collective farming society, Narendrabhai had
all the misgivings. The society was meant for marginal farmers and landless labourers in the
area, most of who were from Baraiya (Rajpur) community. (See Exhibit I & II). Narendrabhai
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belonged to the Patel community, the traditional farming community of the area. He came
from a relatively more affluent family and had no experience of running any type of
cooperative - credit, marketing or farming. He was very active in the freedom movement
and had earned a reputation of being selfless and forthright person.
The task which he was as asked to handle was a particularly difficult task. The villages on the
banks of River Mahi which flows through Kaira district are constantly threatened with
floods. Four of these villages in Borsad taluka of the Kaira district suffered heavily by the
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past floods which inundated area in these villages, washed away the fertile crust of the soil
and deposited layers of sand on it, thus rendering it useless for cultivation. The cultivators in
this tract own very small plots of lands and depend much on agricultural labour - for which
they go to nearby prosperous tract of Anand nd taluka as on the cultivation as such. In order to
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rehabilitate the most acutely affected cultivators, the government granted a plot of 280 acres
of land to persons from 4 of the worst affected villages. Initially only 200 joined but about 91
more individuals were enrolled as member. The plot was near the affected villages and was
on higher elevation.
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It was thought that dividing the land among the individual households would not serve any
purpose, as at best it will replicate their earlier status of destitute farmers. Organising them
in a collective farming society
soci ty was considered to be a much better alternative as they would
socieety
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be able to avail of the economies of scale and could mutually benefit from collective action.
Nearly 90 per cent of these farmers belonged to Baraiya community with a sprinkling of
Machhis, Harijan Rawals
Raw
R als and Muslims. There were only 2 Patel members. Excepting a few
awals
(about 20), all the members were illiterate and tradition bound. They had strong kinship ties,
but had no experience of working in large groups. The members are from 4 different
villages;; two villages claimed 80 per cent of the members in approximately equal members
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while another 10 10 per cent of the members hailed from the third village and the remaining 5
per cent were from the fourth village (see Exhibit III).
Since the society’s holding was rather large, the society decided to divide the members of
three groups, the groups being formed on the basis of the villages from where the members
came. Thus two groups were constituted by the inhabitants of the two bigger villages and
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the third group comprised of the villagers from the remaining two villages.
The working of the society for the next two years convinced the management that this
Prepared by Professor V.S. Vyas, Indian Institute of Management, Ahmedabad.
© 1979 by the Indian institute of Management, Ahmedabad.
IIMA/CMA0386
2 of 10
system had not worked at all satisfactorily. There was bickering within the groups as well as
among the groups. The production performance varied immensely and the group which
were doing slightly batter complained that the numbers of the other groups hindered their
task. They complained of theft and illegal trespass in the plots allotted to them.. Most of the
members found that working on the society’s land conflicted with the prospect of working
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as hired agricultural labourers. At the same time the returns that they got got were totally
inadequate.
There was a general slackening in the discipline and the society was virtually disintegrating.
Few individuals started taking undue advantage of the society’s resources to their per personal
advantage. Only 10 members and pairs of bullocks which they were were reluctant to loan for
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society’s work. Similarly, there was no irrigation facilities on the society’s
society’s farm. Only in case
of one group, it was possible to buy water from neighbouring fa ffarmer’s
armer
rmer’s ffield,
’s fiel
ield, that too to
d, and th
irrigate hardly 15-20 acres.
It was at this point that Narendrabhai thought of reorganising the farm work of the society.
He visited other cooperative farming societies in the State and came to the conclusion that
the results obtained in other societies were in no way better, although all of ththem were
following the same system, i.e., a) pooling of the resources of land, livestock and other
productive assets, b) organising members in large working groups, c) taking collective
paid premium for the land and livestock contributed

contributed by the members).
members
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decisions on all major items and d) distributing the output on the basis of the labour days
contributed by the members of the household of a particular member (some societies also
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He called a meeting of the General Body and made the following observations:
1. Availability of land, in relation to the number of members, is so small that until and
unless it can be worked vary intensively, the output will be meagre.
me
2. For intensive agriculture, and particularly for multiple cropping, the first and foremost
need is assured irrigation and that means more investment.
T
3. There is also a need to go in for a high value crop, like tobacco, so that larger incomes
can accrue
ccrue from the same land.
EC
4. Since
ince most of the members are subsistence farmers, they will not be able to go in for
ommercial crops until and unless
commercial unless the supply of the staple foodgrain is assured to them.
5. For growing commercial crops the requirement of cash c inputs is very large and timely
availability of modern inputs, particularly fertilisers, has to be ensured.
6. As very few members have experience of growing tobacco crop, strong extension efforts
SP
make it a success.
will be needed to make
of draught power has to be resolved.

7. The problem of
While the members in the General Body agreed with the diagnosis of Narendrabhai,
problem that they were faced with was how to organise the activities of the society in future
in view of so many constraints.
IN
However after detailed discussion farmer members agreed upon a certain plan of action and
the results achieved aare given (See Exhibit V onwards). Keeping in view the Indian rural
environment, what should have been the strategy evolved by them that should have
resulted in such, a tremendous success.
IIMA/CMA0386
3 of 10
EXHIBIT I
GAMBHIRPURA COLLECTIVE FARMING SOCIETY
Total Number of Members
PY
Years Total Members Active Members Inactive Members
1965-66 291 262 29
1966-67 291 262 29
1967-68 291 263 28
1968-69 291 265 26
CO
1969-70 291 265 26
1970-71 291 270 21
1971-72 291 270 21
1972-73 291 275 16
1973-74 291 290 1
1974-75 291 290 1
1975-76 291 290 -
1976-77 291 290 -
1977-78 291 N 290 -
IO
EXHIBIT
E XHIBIT II
Caste-wise Classification of Member — 1977-78
Caste No. As %
Baraiya 272 93.47
Machhis 8 2.75
T
Harijans 3 1.03
Rawals
als 2 0.69
EC
Muslims 1 0.34
Patidars
Patida
Patidars
rs 3 1.03
Others 2 0.69
291 100.00
SP
EXHIBIT III
Village-wise Members
Village No. of Members As %

Gambhira 24 42.91
Khotigakhad 112 38.49
Namisharli 49 16.84
IN
Bilpad 6 2.06
291 100.00
IIMA/CMA0386
4 of 10
EXHIBIT IV
Net Area Sown and Area Sown More than Once
Years Net area Area under Total cropped % of double cropped area
sown double crops area to net area sown
PY
1965-66 198.00 86.00 284.00 43.43
1966-67 198.00 96.00 294.00 48.48
1967-68 256.00 108.00 364.00 42.19
1968-69 356.00 118.00 474.00 33.15
CO
1969-70 356.00 135.00 491.00 37.92
1970-71 387.00 138.30 525.30 35.73
1971-72 387.00 121.20 508.20 31.31
1972-73 387.00 222.20 584.50 57.41
1973-74 320.10 170.00 557.25 53.11
1974-75 438.00 220.00 657.50

657.50 50.23
1975-76
1976-77
454.00
460.00
150.00
150.00
N 604.00
604.00
610.00
33.33
32.61
IO
1977-78 461.00 168.00 628.80
628.80 36.44
T
EC
SP
IN
EXHIBIT V
PY
Area Under Food and Non-Food Crops
Year Area Under Food Area Non Food under Crops Value of Gross Value
Crops Other
Tobacco Cotton Seeds Products Total Acre
CO
Area Value Area Value Area Value
1965-66 188 97996 96 121670 - - 20260 239926 845
1966-67 198 219413 96 208581 - - 23456 451450 1536
1967-68 214 100733 150 276887 - - 20642 398262 1094
ON
1968-69 29 4 247905 150 348059 - - 13609 609573 1286
1969-70 311 194282 180 204341 - - 947 399570. .814
1970-71 370 205972 153 325901 2.00 2303 3193 570744 1087
33375
TI
1971-72 304 188540 203 601643 1.20 Acre 62000 - 852183 1677
1972-73 406 287765 203 260095 0,20 Acre 22050 16475 586385 1003
1973-74 170 279987 EC 150 182106 0.10 10560 _ 479797 861
1974-75 404 261400 203 322340 50.00 90170 - 673910 1025
1975-76 354 332640 220 718660 30.00 93420 - 1144720 1895
1976-77 350 199420 220 778120 40.00 - - 978540 1604

SP
1977-78 408 287020 220 771910 - 8790 - 1067720 1700

IN
EXHIBIT VI
PY
Income from Cultivation Business
(Value in Rupees)
Items 1971-72 1972-73 1973-74 1974-75

75 1975-76
1975 1976-77 1977-78
CO
Value of food crops 188540.54 287765.80 279987.00 261400.00 332640.00 199420.00 287020.00
Value of grass - 16475.00 - - - - -
Value of tobacco 601643.76 260095.14 182106.20 322340.00 718660.00 778120.00 771910.00
ON
Value of cotton seeds 62000.00 22050.00 10560.60 90170.00 93420.00 - 8790.00
Other income - - 7144.00 - - - -
Total income 852184.30 586385.94 479797.20 673910.00 1144720.00 978540.00 1067720.00
TI
Income per active member 3156.23 2132.31 1654.47
EC
SP
IN
EXHIBIT VII
PY
SHRI MAHISAGAR COLLECTIVE CO-OPERATIVE FARMING SOCIETY LIMITED, GAMBHIRA
Balance Sheet As on 30-6-75, 76, 77, 78, 79
(Rupees in Thousands)
CO
LIABILITIES 1971- 1974- 1975- 1976- 1977- 1978- ASSETS 1971- 1974- 1975- 1976- 1977- 1978-
72 75 76 77 78 79 72 75 76 77 78 79
Share Capital 3 3 3 3 3 3 Fixed Assets
Bonus Share - - - - 1 1 Engine 29 42 42 42 42 42
Reserve Funds 168 255 276 342 418 480 Tractor 28 63 100 159 135 135
Long Terms Fund Jeep Car 22 22 22 22 22 22
ON
Land Improvement fund 19 19 18 19 19 19 Ambassador Car - - - 32 32 32
Welfare fund 10 1 4 166 16 26 Machinery Purchase - - - - - 2
Machine depreciation fund 166 225 277 312 358 410 Gambharia Tube well 68 100 100 100 100 100
Lift-Irrigation Subsidy 3 3 3 3 3 3 Farm Implement 4 4 4 4 4 4
Rustom donation fund 5 5 5 5 5 5 Other tools - 2 2 2 2 2
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Kharland Improvement fund 117 117 117 117 117 117 Dead Stock 13 16 23 27 30 37
Development Fund - - 3 17 15 28 Road
Road-Purchase account - - - - - -
Admission Fee - - - EC - - - Pan Voh Bore account - - 26 26 26
Share Transfer fee - - - - - - Bore account 13 13 13 13 13 13
Current Liabilities Pipe Lines 13 13 13 13 13 13
K-D.C- Bank (Cash on) 26 69 4 _ _ _ Building Purchase account 4 4 4 4 4 4
Revenue deposit 87 5 24 21 20 22 New Tube well - 13 13 13 14 14
SP
Sundry Creditors 7 — 4 — — — New 35 Bore _ 44 44 44 43 45

Bhagmanteshwar Temple 1 1 1 — 1 — Wheat Presser account — 16 17 17 17 17
Member Bonus - - _ — - _ Investment and Long Term
deposit
IN
Staff Bonus _ 10 11 22 _ 9 Investment in Share 8 8 8 8 9 9

Dividend account - - _ _ _ _ National Saving Certificate 10 10 - 20 20 20
PY
LIABILITIES 1971- 1974- 1975- 1976- 1977- 1978- ASSETS 1971-
1971- 1974-
1974 1975- 1976- 1977- 1978-
72 75 76 77 78 79 72 75 76 77 78 79
Group leader - 5 8 7 8 11 National Saving War 12
12 12 5 - - -
Certificated
Trader account - 13 7 19 6 19 GEB Deposit 43 43 43 16 16 16
CO
Power Deposit 3 3 3 3 3 3
Other Liabilities Telephone & P.
P.O.
P.O
O.. Deposit 1 1 2 2 7 7
Library account — — _ — _ _
Foreman’s account 6 — _ — _ _ Farm Exp. Deposit account — — _ 6 26 7
Members account 1 5 17 - - - Kharland Reclamation 220 211 211 211 211 226
Expenses
ON
Nootan Vidyalay - - - - - - Current Assets
Marketing Cess 2 2 2 2 2 3 Cash on Hand 1 - - 1 1 -
Salary deposit account - - 2 2 2 2 Cash in Bank 1 1 29 23 64 130
Tractor Help account - - 2 28 27 27 Stock of Goods 8 36 14 10 26 20
Miscellaneous 18 - - - -. - Development Fund - 3 - - - -
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Net Profit 232 103 333 239 311 390 Kharland Improvem
Improvement - - - - - -
expenses
EC Member Account - - - 5 25 49
Sundry Debtors 369 161 407 351 429 580
TOTAL 871 843 1119 1174 1332 1575 Total 871 843 1119 1174 1332 1575
SP
IN
EXHIBIT VIII
PY
SHRI MAHISAGAR BHATHA COLLECTIVE COOPERATIVE FARMING SOCIETY LTD., GAMBHIRA
77, 77-
Trading account for the year ended on 1974-75, 75-76, 1976-77, 77-78,
78, 78
77-78, 78-79
(Rupees in Hundreds)
RECEIPTS 1971- 1974- 1975- 1976- 1977- 1978- PAYMENTS 1971- 1974- 1975- 1976- 1977- 1978-
CO
72 75 76 77 78 79 72 75 76 77 78 79
Foodgrains 1887 2471 3512 2020 2871 2773 To farmers members 50% of 3965 - 5724 4983 5414 7135
production
Cotton-4 seed 560 15 - - - - To machine oil 65 127 157 115 146 163
Income of Tobacco 6016 3224 7187 7791 7719 11180 To machine repairs 82 180 151 202 96 403
KRUTAN Tobacco income - - 379 - - - To machine repairs 3 4 - 5 37 -
ON
Grassfodder (Rajako) - 46 42 - - - To petrol 32 64 51 56 71 73
income
Castor (Divali) income - 340 555 - - - To seeds purchase 173 419 562 713 299 666
Verzlaxmi seeds – income - - 7 9 25 - Revenue 490 - 240 41 68 68
Machinery income 6 - 26 20 34 59 Maintenance expenses - 24 52 - - 33
TI
Wheat 6 - - - - - Farming expenses 81 93 113 253 78 336
Paddy 21 - - - - - Hybrid 4 cotton seeds 281 76 - - - -
production expenses
Cotton seeds
Centre income
60
-
-
-
-
-
EC -
-
-
-
- Tobacco expenses
- Fertilizer & Manure
35
172
30
385
48
118
54
195
99
193 117
54
Oil pipe - - - - - - Power and Light 110 329 160 204 200 244
Gross income Bajari - - - - - - Foreman’s account 11 - - - - -
Stock in hand 86 383 129 101 250
2 184 Farm wages 156 193 212 220 217 264
SP
Addition in stock 1 - - - - - Cotton and other stock - 226 383 129 101 250
Gross income - 459 8 - 88 376 Members account - 3368 - - - -
Cotton sales 11 - - - - - Miscellaneous 87 - - - - -
Gross Profit 2911 1420 3874 2861 3968 4766
IN
Total 8654 6938 11845 9941 10987 14572 Total 8654 7238 11845 9941 10987 14572
EXHIBIT IX
PY
SHRI MAHISAGAR BHATHA COLLECTIVE FARMING SOCIEITIES LTD., GAMBIRA GAM BIRA
77, 1977-
Profit and Loss Account for the Years 1974-75, 1975-76, 1976-77, 1977-78,
78, 1978
1977-78, 1978-79
(Rupees in Hundreds)
CO
INCOME 1971- 1974- 1975- 1976- 1977- 1978- EXPENDITURE 1971- 1974- 1975- 1976- 1977- 1978-
72 75 76 77 78 79 72 75 76 77 78 79
Gross: Trading Profit 2911 1420 3874 2861 3968 4766 Administration expenses 45 55 58 69 71 86
Less: Discount - - - - - - Audit Fee 3 7 3 7 2 -
Add: Interest Account - - 171 110 49 56 Supervision fee - - - - - -
Add: Profit and Loss - - - - - - Building rent 6 6 6 6 6 6
ON
Dividend - - - - 12 - Depreciation 475 254 530 367 457 516
Miscellaneous Income - - - - - 1 Litigation expenses 31 - - - 250 200
Travelling expenses 4 4 4 4 3 8
Stationary Expenses 2 2 4 5 5 4
KASAR (Discount) - - - - 9 -
TI
Insurance 9 8 15 17 20 17
Interest 7 11 22 - - -
EC Machinery tax 3 7 8 19 12 14
Post, Telephone charges - - - 1 9 10
Discount - - 1 1 - 1
Advertising expenses - - 1 1 4 -
Report press expenses - - - 26 - -
SP
Miscellaneous - 31 64 58 70 64
NET PROFIT 2326 1035 3329 2390 3111 3897
TOTAL 2911 1420 4045 2971 4029 4823 TOTAL 2911 1420 4045 2971 4029 4823
IN

Ahmedabad IIMA/OB0039
Panchvati Handloom Development Corporation
PY
Limited
Introduction
The Panchvati Handloom Development Corporation (PHDC) was established during 1975
CO
with an, authorized capital of Rs. one crore by the Government of Panchvati State. The main
objective of the corporation was to promote aid and assist the rehabilitation, growth and
development of the handloom industry in general and, in particular, of that sector of the
handloom industry which is outside the co-operative
operative sector in the State of Panchavati". In
order to achieve this objective, PHDC had started the fallowing activities:
1 Intensive handloom development projects for cotton fabric production.

2 Export oriented pilot production projects for silk fabrics.
ON
3 Production centres for controlled cloth arid exportable'
exportable' cotton fabrics.
4 Raw material depots for procurement and supply of raw materials
5 Retail outlets to sell, handloom goods
6 Pre-loom and past-loom
loom support facilities to provide assistance to the weaving
community in the state
I
CT
Progress till 1977
By the end of 1977, the Corporation succeeded in establishing the following activities.
1 Two intensive handloom development projects sponsored by the Central

Government
E
2 Two export oriented pilot production projects, one for silk and one for cotton,
sponsored by the Central Government.
3 Three more intensive handloom development projects for cotton with the State
SP
Government's assistance
4 23 retail outlets (2 ‘A’ class showrooms, 12 ‘B’ class showrooms, and 9 ‘C’ class
showrooms)
5 A common printing unit to provide service facilities for all projects, and
6 A readymade garment unit with 10 machines producing on an average 60
garments per day
IN
Prepared by Professors K. Balakrishnan and T.V. Rao, Indian Inst

Institute of Management, Ahmedabad.
Case material of the Indian Institute of .Management, Ahmedabad is prepared as a basis for class
administrative problems
©1979, by the Indian Institute of Management, Ahmedabad.
2 of 10 IIMA/OB0039
As a part of its developmental activities, PHDC, by the end of 1977, covered a total of 5,022
looms for cotton fabrics and 395 looms for silk fabrics. The Corporation also succeeded in
assisting about 4,000 weaver families’ in the state directly and about 4,000 more families
indirectly by utilising their service for processing facilities.
PY
The Corporation supplied raw material worth Rs. 54 lakhs over its first year of existence and
procured finished goods worth Rs.62 lakhs from the weavers. The next year it supplied raw
material worth Rs«100 lakhs (r and bought fabrics worth Rs.150 lakhs. Its achievement of
sales was Rs.48 lakhs in the first year and 125 lakhs in the next year. The production capacity
of 5,000 odd looms was estimated to be about Rs.30 lakhs a month, which the Corporation
hoped to achieve in the near future. Of the total looms covered, about 2,000 odd looms were
CO
deployed for producing Janata sarees which were sold at a very low price fixed by the
Government.
Even though the long term financial needs of the Corporation were provided or by the
Central and State Governments partly in the form of share capital (Rs.41 lakhs) aand mostly
in the form of loans (Rs.136 lakhs), the Corporation had to approach commercial banks for
its working capital, needs. The loans for working capital usually carried an interest rate of
10-17
17 per cent per annuam. Though there was a great demand from fro more weavers to
include them in the Corporation's developmental schemes, the Corporation found it
difficult to expand its activities for paucity of funds.
ON
Organisational Structure
In order to perform the various activities mentioned above, PHDC was organized as
follows.
I
The Corporation was governed by a Board of Directors mostly consisting of Secretaries of
various Government departments and a few outsiders who were interested in handlooms.
CT
The Honourable Minister of State for Small Scale Industries in Panchavati State functioned
as the Chairman of the Board. The Managing Director (MD) was the Chief Executive of the
Corporation and this position was normally held by an IAS Officer assigned to the task by
the State Government. MD was assisted by an Executive Assistant and a number of other
top officers, such as, a Purchase Manager, a Secretary
Secretary-cum-Financial Adviser, a Marketing
Manager, a Technical Officer arid a Personnel Personnel-cum-Administrative Manager. The
E
organisational chart is presented in Exhibit.
The Purchase Manager looked after all purchases to be made by the Corporation including
SP
the purchase of fabrics for sale. He was assisted by two Assistants. The Marketing Manager's
functions included opening of sales outlets, arranging sales arid distribution of handloom
fabrics, supervising sales offices, and looking after exports. He was assisted by four Sales
Officers. The Sales-
Sales-Officers
Sales-Officers
Officers looked Rafter export, domestic sales, showrooms, and co co-
operatives. The Financial Adviser's functions included preparation of annual budgets, cash
flow statement, advising MD on cash flow bottlenecks and remedies, and advising on
taxation, maintenance of accounts books, preparation of annual accounts, arranging of
IN
auditing of accounts, preparation of final accounts, 'advising on overall profitability

position, and maintenance of all records as required under the Companies Act. He was
assisted by three Junior Officers. The Technical Adviser was expected to advice on all
technical matters including pricing of fabrics, machine re requirements, evaluation of new
products, etc. He was assisted by Technical Officers and Technical Assistants. One of these
Technical Officers supervised the Printing Unit and another looked after the Readymade
3 of 10 IIMA/OB0039
Garments Unit. The Personnel-cum-Administrative Manager was overall incharge of all

personnel (the total employees strength was 295) and day-to-day day administrative matters
which included salary administration, recruitment, implementation of incentive schemes,
career planning, promotion, performance appraisal,
aisal, etc. He was also assisted by three Junior
Officers.
PY
The Project Administrators were incharge of the various intensive handloom development
projects. They were expected to provide all support to the weavers under their project,
timely and adequate supply
upply of raw material to the weavers, assist weavers in obtaining
loans from banks, and ensure the quantity and quality of the fabrics produced by the
weavers. Some of the smaller projects were managed by the Technical Officers. The Project
CO
Administrators and the Technical Officers directly reported to the Technical Adviser. A
typical organisational chart under the Project Administrators is presented in Exhibit
Exhibit-2. The
weavers under each project were grouped, based on geographical proximity, into sub sub-
centres. The number of sub-centres
-centres varied from project to project.
Some of the bigger retail outlets in the 'A' category were managed by Sales Managers,
whereas the rest were managed by Sales Assistants. In order to have an effective control
over t-he functioningg of the retail outlets, the Sales Assistants wore placed under .the
administrative control of the Project Administrators Technical Officers, or senior Sales
ON
Managers of ‘A’ class showrooms nearer to their location. Such administrative control was
mainly in
n relation to financial matters like T.A., D.A., salary administration, and inspection
of accounts. A copy of the relevant circular in this regard is presented in Exhibit 3.
In the first couple of years various officers were hired on consolidated salaries. During 1977
it was decided to evolve a set of proper scales of salary with the assistance of an outside
consultant. As, a result, all the officers were placed into one of five scales of salary. The
I
details are presented in Exhibit-4
CT
Reactions to the Organisational Structure
Interview with some of the officers at the Headquarters revealed the following:
1 The Administrative-cum-Personnel
Administrative-cum
Administrative- cum--Personnel
Personnel Manager felt that the organisation has been quite
flexible and they are in the process of working out detailed job
job-descriptions for various
E
positions. The flexibility of the organisation was indicated by the following changes
that had taken place in the past.
SP
(a) Reallocation of roles for Sales Officers. Earlier five officers were made incharge
of five different regions each looking after the outlets in his region. Now the
whole state is divided into two regions and the Sales Officers are allocated
functions like export, domestic sales, showrooms, co co-operatives, etc. This change
it is hoped, will help in paying more attention to different functions
(b) In place of a financial Adviser, recently a Chief Accountant (in a lower grade of
IN
salary) was appointed to perform the same functions as the earlier Financial
Adviser.
(c) Special Officer (Marketing) has now been redesignated as Marketing Manager.
(d) Project Administrators were given administrative control over the retail outlets
4 of 10 IIMA/OB0039
in their regions recently.
(e) Career development plans are now being worked out.
2. An interview with two of the Sales Officers indicated that they were quite happy with
PY
their functions. They had to tour a lot. They stated that they enjoyed their jobs and had
no role conflict with the Project Administrators and had no major problems.
3. The following were the responses given by the Managing Director to the Cast Writers
on some of the issues raised:
CO
Q. What do you feel about the organisational structure, you have?
A. I am quite happy with it. No problems. We are very flexible and that is our strength.
We already have staff in excess. Even with the present overheads we could double our
achievements in the next two years.
Q. What are your expansion plans?
A. the Central Government gave a target of 10,000 looms in intensive project areas. This is
ON
an ambitiouss target. We already have a number of weavers covered. We are not
working to meet the Government's targets just for the sake of numbers. What is
important for us is to sustain the existing weavers and develop them well. The
stronger the base we would have, the easier would it be to expand a few years later.
Q. What are the problems you are facing in this process?

I
A. There are several parallel "organisations" working on the weavers. For example,
master weavers usually start operating three months before the peak selling season.
CT
The weavers are not available to us during the most needed time. The main problem
now is to contain the master weavers.
Q. What do you consider as the strengths of your organisa

organisational set up?
A. Flexibility is our strength. Although, at present, there are no career development plans
E
for my staff, I think they are quite happy. I try, to provide them satisfaction by
increased responsibilities for capable people. If I find one person good, I am prepared
to give him higher responsi
responsibilities. For example, I found that our Purchase Manager
SP
has had a long experience of working in textile mills. He had quite a bit of technical
skill and was incharge of production control in his earlier jobs. Realising his strengths,
I made him incharge o of production control here. He is quite happy with this decision. I
am using the talents of an officer and he is quite happy that his talents are being
utilised. (A circular issued by the MD with regard to this is given in Exhibit-5).
Another thing he did was to introduce a staff incentive scheme. In this scheme if any
IN
marketing staff shows consist

consistently high performance (exceeding the targeted sales
continuously for 6 months) he is eligible for bonus at a certain percentage of sales. This
induces my staff to work hard and earn more. After introducing this scheme, our sales
have gone up. Some of the boys are constantly on the move and are putting intensive
efforts. Some of them are likely who get quite high incentive payments this year.
5 of 10 IIMA/OB0039
Q. What are the career development plans and promotional opportunities for your staff
in various categories?
A. As I said, we are flexible. We have no definite plans at present. If a person does very
well and shows remarkable achievements, I am prepared to put him on higher higher
PY
responsibilities. There is no hierarchical order of promotions worked out hero. There is
no fixed number of posts. We will think of detailed career plans in future. For
example, one of the Technical Officers was found very sound in technical knowledge
andd was doing a good job. So, I appointed him as Special Officer, Silk Production. We
had no such post before. However, for some categories formal career development can
be introduced. For example, Project Inspectors can be trained to become Project
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Administrators.
Q. Do people, in the Head Office go to field and acquaint themselves with field
problems?
A No. Actually that is no need. We have very good staff at the field level and there are
enough problems and tasks at the Headquarters that keep us busy all the time.
The MD concluded the interview commenting, 'As our Corporation is relatively now,
ON
the rules are somewhat changing and reorganization is going on continuously."
Questions for Discussion:

I
1 Identify the facilitating factors you see in
in- this organization in relation to its
CT
structure and processes that help in achieving its objectives.
2 What are the possible inhibiting factors?
3 Is there a need for changing the organizational structure of this Corporation? If

there is, why, and how would you reor
reorganise? If there is no need, what are then
E
mechanisms you would suggest to ensure the continuance of some; of the

positive aspects you notice and to prevent the possible problems?
4 Predict some of the role dynamics that are likely to emerge as the Corporat
Corporation's
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activities expand.
IN
6 of 10 IIMA/OB0039
Exhibit 1
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Panchavati Handloom Corporation Ltd.
Organizational Structure
Board of Directors
CO
Chairman
Managing Director
N
Executive Assistant
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CT
Purchase Purchase Marketing Purchase Personnel &
Manager Manager Manager Manager Administrative Manager
PE
Purchas Material Accounts Assistant Cost Accounts Assistant Cost Officer in Assistant Office
e Control Officer Accounts Accounta Sales Officer Accounts Accounta charge Accounts Superint
Assistant Assistant Officer nt Officer Officer nt Readymad Officer endent
S
e Garments
IN
7 of 10 IIMA/OB0039
Exhibit 2
Panchvati Handloom Development Corporation Ltd.
Organizational Chart for Project Administrators
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Project Administrator
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Project Promotion Office Account Subcentres
Officer Manager Officer
Project Project Project

Inspector
Inspector Inspector Inspector
I ON
E CT
SP
IN
8 of 10 IIMA/OB0039
Exhibit 3
Panchavati Handloom Development Corporation Ltd Administrative Control of the Retail

Outlets
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30th 3uly, 1977
Circular
Our Corporation has started 23 retail outlets all over the State. In order to have an effective control
over the functioning of these retail outlets it has become necessary to attach them to the Project
Administrators/Officers-in-Charge
Charge of raw material depots/Managers of 'A' class showrooms. It will be
CO
the duty of the Project Administrators/ Technical Officers/Managers of 'A' class showrooms to
supervise and administer the retail outlets attached to them as per the details mentioned below (hot
reproduced here) for their smooth functioning and also to have administrative control over the Sales
Assistants. It willll take some time for the Regional Marketing Offices to be established for effective
control of these outlets. Meanwhile, payment of salaries} travelling allowance, rent and contingent
expenditures of the outlets may be made from the Projects/Raw Material Depots/'A' class showrooms
which are supervising the outlets. An imprest amount of Rs.200/- for ‘C’ class and Rs.400 for ‘B’ class
may be paid from the Project/Raw-material
material Depot 'A' class showroom. The recoupment of imprest
advance should also be made and incorporated in the Project/Raw material Depot/’A’ class
showroom; accounts. The Officers who are designated should visit these outlets atleast once in a
goods
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month and conduct inspections of accounts, cash and availability of stocks' and replenishment of
s required by them and send a consolidated report to the Marketing Division.
SD/-
Special Officer for Marketing
To all concerned Project Administrators/Managers, ‘A’ class showrooms/ Technical Officers.

Copy to:
I
1 AH Retail Outlets
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2 Administrative Officer
er
3 Financial Adviser
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SP
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9 of 10 IIMA/OB0039
Exhibit 4
Panchavati Handloom Development Corporation Limited Salary Levels of a Few Selected

Officials
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Present Salary
Designation Revised pay scale
(Consolidated)
Managing Director Held by an IAS Officer on Deputation
putation
Secretary-cum-Financial Advisor Rs. 1800 Rs. 1525-75-1900-100-2000
1900--100
1900 100--2000
2000
Administrative Officer-cum-Personnel
Rs, 1250
Manager
Marketing Manager Rs. 1600 Rs. 1300-75-1900
1300-75
1300- 75--1900
1900
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Technical Adviser Rs. 1600
Purchase Manager Rs. 1500
Project Administrator 1 Rs. 1100
Project Administrator 2 Rs. 1000 Rs. 1000-60-1300-75-1825
1000-60
1000- 60--1300
1300
Project Administrator 3 Rs. 900
Project Administrator 4 Held by Bank Officials and are paid by the banks
Project Administrator 5
Technical Officers:
Processing
ON Rs. 1100
Looms Rs. 1100
Silk Export Project 1 Rs. 800
Silk Export Project 2 Rs. 750-50-1000-60-1300-
Rs. 750
75-1525
Silk Project, Head Office Rs. 750
Accounts Officer, Head Office Rs. 850
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Fabric Designer (New Part-time)
time) Rs. 500
CT
Textile Designer: Held by D

Deputed Officer
Regional Manager, Sales Rs. 600
Sales Manager, Bigger
Emporiums:
‘A' Rs. 800
‘B' Rs. 600
Accounts of officers Projects
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Accounts Officer Rs. 750 Rs. 600-30-750-50-1000-60-

Asst. Accounts officer, projects Rs. 700 1240
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Asst. Accounts
ccounts Officers, Head Office Rs. 650/550
Project Inspector, Degree Holders Rs. 500
Manager, Raw Material
Material-cum-
Procurement Depot
Depot 1 Rs. 700
Depot 2 Rs. 550
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10 of 10 IIMA/OB0039
Exhibit 5
Panchavati Handloom Development Corporation Ltd FIO's Circular Regarding the Purchase
Manager
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22nd August 1978
MEMO
There.is no effective control over the production in the Cotton Projects. It is considered necessary that
there should be regular inspections of the Cotton Projects Production. The Purchase Manager from
the Head Office will in addition to his duties inspect the Cotton Projects from time to time to have an
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effective' control over the production activities of these Centres. He should set apart for this purpose
one week every month prepares advance tour programmes and submit them for the approval of the
undersigned. He is empowered to issue spot instructions to the Project Administrators, which the
Project Administrators should comply with immediately without making any further references to the
Head Office. The Project Administrators may also take instructions from him whether on technical or;
administrative sides so far as the production matters are concerned. Depending on the merit of the
case the Purchase. Manager is entitled to suspend officials concerned for any: lapses. Such cases of
suspensions should be brought immediately to the notice of the undersigned in writing for further
directions. ON
All Project Administrators incharge of Cotton Projects shall comply with the instructions that may be
issued by the Purchase
rchase Manager both during his visits to Cotton Projects or otherwise.
For Panchavati Handloom Development Corporation Limited
SD/-
Managing Director
Copy to
I
All the Project Administrators, Intensive
CT
Handloom Development Projects

The Purchase Manager
The Special Officer for Production, PHDC
The Chief Accounts Officer, PHDC
Master File
E
Spare copy.
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IN

QM0111
Urabian Airbus Project
PY
1976
June 20, 1976
Dear Professor Puri:
It was nice to meet you last year, when you stopped over in our country on your way to
Mexico City to attend the Conference on Planned Population
opulation Models. I hope you had a very
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successful conference and a pleasant journey back home.
On your recommendations, we did hire Mr. Shombe, the Urabian boy who was doing his
MBA at your Management Institute in Ahmedabad. As I mentioned to you, we had
tentatively decided to replace our existing fleet of turbo-props
props and Caravelles with wide
body jets. At that time, we were not
ot very sure whether we would go for Boeing's modified
Jumbo or Airbus as our government officials had not made u up
p their minds.
We had, however, appointed Mr. Shombe as the Project Manager fo for our fleet
modernization programme. We had also instructed him
would be finally going for five wide body
committee meeting where we had decided af
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him to work on the assumption that we
dy jets from Airbus. We also had a top management
after
ter long deliberations, the list of activities to be
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coordinated by Mr. Shombe towards the smooth introduction of the aircrafts. This list of
activities is enclosed for your perusal (Exhibit 1)
We found Mr. Shombe very competent in his work and were impressed with his dynamism
in persuading
suading various senior officials in our Airlines as well as executives of Airbus to
furnish him with required data for compiling the project plans. His work was progressing
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extremely well, when his father Mr. Shombe

Shombe Sr. was sent to Washington as our country's
Ambassador. Mr. Shombe Jr. had to leave our job in a hurry to accompany his father and
had left the work on the project plans incomplete. He was planning to compile a project
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network for the Airbus introduction and had left with us the basic data colle
collected by him in
this regard. All information available with us is tabulated and presented in Exhibit 2.
As you know, we do not have any person with formal management training in our staff and
I would appreciate if you could find some time to figure out what he was trying to do in
these documents compiled by him. Meanwhile approval had been obtained from our
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Government to purchase seven Airbus aircrafts, five of which would be ordered soon.
We would very much appreciate if you could tell us when the five aircaircrafts would be ready
for commercial operations if we start the ba
ball rolling right now. This is urgently required as
we are very keen to synchronize the timing of our publicity campaign with the formal
introduction of the new wide body jets. Any help you ca can give would be highly appreciated.
You may also bill us for any expenses and your usual fees.
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With best regards,
Prepared
repared by Professor K. Balakrishnan, Indian Institute of Management, Ahmedabad.
2 of 12 IIMA/QM0111
Yours sincerely,
Sd/-
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Managing Director
Urabian Airlines
encl:
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T IO
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3 of 12 IIMA/QM0111
Exhibit 1
Urabian Air Bus Project
Suggested list of action to be coordinated by the Project Manager
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1. Material for loan negotiations with Exim Bank, US Aid, consortium of Commercial Banks.
2. Determination of specifications. While there may be little to determine about the airframe
and engines, different cells may need to be set up to give advice in consultation with the
manufacturers on the following in order to provide for interchangeability, if possible, with
equipment installed on Caravelles and/or held in Stores.
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i. Radio and Radar
ii. Other ancillary equipment
iii. Interior decor
iv. Catering
g equipment and facilities on board .
v. Exterior color scheme
3.
4.
the new equipment -- space requirements—
requirements— buildings etc.
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Advice to top management on selection of main base for the maintenance/ overhaul of
Advice on selection of maintenance equipment/ramp equipment/ground support

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equipment etc. Schedule to be drawn up for their purchase, installation etc. Advice on
procurement of their spares and positioning of staff..
staff
5. Programme of Training of:
Pilots;
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Engineers;
Group Instructors
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Stores Personnel;
Commercial staff (deputation for sho

Commercial short periods with other operations of the
equipment)
6. Simulator - Ground mock

mock-ups - for continuous training of Pilots and other cabin crew
location-housing
location-housing
location- housing of equipment etc.
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7. Preparation of Manuals/Check Lists/Trim sheets etc.
8. Appraisal of communication/navigational/runway (length and strength) facilities at

stations to and through which the new equipment will be operating, as also at the
'Alternates'. Also other airports to which Boeing or Caravelle should operate -- Liaison
with Civil Aviation Authorities to improve runways. Particular attention to be paid to
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Runway Loading requirements for the Airbus as well as the Caravelle.
9. Streamlining of procedures in respect of bookings, baggage clearance, freight booking in

coordination with Chart Room and Cargo Bookings to ensure using the full cargo
capacity available.
10. Advance study of schedules for the maximum permissible utilization of the new aircraft
4 of 12 IIMA/QM0111
and the aircraft replaced by it such as the Caravelles. Watch on existing flow of traffic.
11. Appraisal of the adequacy of staff in all Sections concerned - flying crew, engineering
personnel, commercial, transport (equipment and staff), catering personnel etc.
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12. Publicity - Commercial/Institutional as a means to attract sufficient tourist and local traffic
as the new aircraft/more and modern capacity becomes available. Preliminary publicity
builds up.
13. Planning of modifications, in consultation with the manufacturers to increase the number
of seats ?
14. To be in touch with Airbus manufacturers to depute teams of experts during the different
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phases such as:
i. Planning of ground facilities including maintenance/overhaul

aintenance/overhaul facilities;
ii. Planning of training of all categories of personnel connected with the introduction/
operation of the new aircraft;
iii. Stores inventories;
iv. Drawing up of Manuals, Trim sheets, Check Lists etc. in the light of the
v.
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peculiarities of conditions and the route pattern obtaining in Urabian Airlines.
A team of technical experts to remain available in the initial stages of the

introduction of the new equipment, for a suitable period.
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vi. Flight Planning on the Computer.
vii. Computer Operations Analysis.
15. Mementoes’/Given away for appropriate occasions.

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16. Flight Dispatch Scheme.
17. Baggage/Cargo Containers - including ground support equipment for loading/unloading

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and modification to aircraft flooring for easy loading/unloading

loading/unloading.
18. Cabin and Galley Equipment
19. Supply of advance information on the Airbus for the use of the staff as well as of the
passengers.
20. Air Safety aspects.

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21. Preparation of Turn

Tur round Servicing Arrangement Charts and Critical Time Paths.
Note: The Project Manager should study in particular the latest edition of the World Airline Suppliers'
Guide brought out by the Air Transport Association of America and other such material.
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5 of 12 IIMA/QM0111
Exhibit 2
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Urabian Air Bus Project
Code Activity Time Earliest Latest Slack Previous

month start start Activity
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time time
1 2 3 4 5 6 7
1-4 Planning of the items of customer choice which are
required to be fitted on the aircraft such as:
a) Instruments
ON
b) Seats
c) Other flying essential equipment 2 0 0 0 0
01 -2 Planning of the contract itself items which have to be

incorporated into the project, such as training of
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personnel, the type and design of simulator and other
equipment to be supplied by the manufacturer. 2 0 0 0 0
01 3 Planning of the whole of the Project for the

introduction of new aircraft that is:
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0-Mar Planning of the whole of the Project for the
introduction of new aircraft that is :
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Correspondence and selection of the equipment

for the maintenance and overhaul shops, servi-
servi-
cing equipment. The Planning
ning of Site and building
design for the overhaul shops. Framing of the
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Project report. 5 2 2 0 0
6 of 12 IIMA/QM0111
Exhibit 2 Conti..
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1 2 3 4 5 6 7
03 5 Chalking out and framing the financial budget keeping
into view the requirements of shop and funds available. 2 2 2 0 01-Feb
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01-Apr
01-Mar
5-42 Management Acquaintance Programme 3 weeks 2 2 0 01-May

AIR CRAFT DELIVERY
ON
3-24 Delivery period for 1st Aircraft 12 months 2 5 0 01-Mar
3-24 Delivery period for essential spaces, spares for premature

failure, Expendable spaces, Accessories, Flight kit and
flight equipment. 12 5 5 0 03-May
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EC
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7 of 12 IIMA/QM0111
Exhibit 2 Conti…
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1 2 3 4 5 6 7
SERVICING EQUIPMENT PURCHASE
5-C Transmission of report from the Project Office to the
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concerned department 1/2 5 5 0 03-May
C-11 Calling tenders, sanction from Governments Technical

Development Department (GTDD) and placing of
orders 10 4/8 51/2 51/2 0 5-C
11-6 Delivery period for the servicing equipment’s: 6 3 8 0 C-11
1) Sump Draining Carts
ON
2) Hydraulic Fluid servicing
3) Tire servicing
4) Portales water servicing
5) Lavatory waste system servicing
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6) Engine oil servicing
7) Constant speed drive oil servicing
8) Oxygen servicing.
5-C
LOCAL PURCHASE FOR SERVICING EQUIPMENT
Transmission of report to the concerned department
EC 1/2 5 5 0 03-May
D-12 Calling tenders getting sanction for purchase from
(GTDD) and placing of orders 10 1/2 51/2 51/2 0 5-C
12- 6 Delivery period for the servicing equipment 6 8 8 0 D-12
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GROUP SUPPORT EQUIPMENT

5-15 Calling tenders for ground support equipment getting
sanction from GTDD, planning of orders 1 5 5 0 03-May
15-13 Delivery period for the ground support equipment. 7 6 6 0 May-15
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13-J6 Installation of the equipment, foundation making and

wiring etc. 2 12 12 0 15-13
8 of 12 IIMA/QM0111
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1 2 3 4 5 6 7
CATERING EQUIPMENT
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5-B Call of tenders for the purchase of catering equipment.
Getting sanction for purchase from GTDD 1 5 5 0 3-*5
B-14 Release of orders 2 6 6 0 5-B
14-*6 Delivery period for the catering equipment 6 8 8 0 B-14
FABRICATION OF TRUSSLESS ETC. FOR
ON
MAINTENCE SHOPS
Transmission of the project report to the area
5-A managers 1/2 week 5 5 0 3-*5
Calling of tenders sanction of GTDD and placing of
A-10 orders 3 5 5 0 5-A
10 *6 Fabrication and Delivery period 6 8 8 0 A-10
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STORES BUILDING
5-A The transmission of the project report to the
A-8
concerned department
Tender call, getting sanction and placing of orders
orders
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3
5
5
5
5
0
0
3-*5
5-A
8-*6 Construction period for the stores building 9 8 8 0 A-8
STRUCTURE FOR MAIN SHOPS
A-F Tender call, getting sanction from GTDD and placing of
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orders 1 5 4 1 5-A
F-9 Building time for such structure and enclosures 4 7 8 1 A-F
9-*6 Installation of equipment in the shops 2 11 12 1 F-9
A-E Tender call for building of hangers, getting sanction
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and placing of orders 3 5 5 0 5-A

9 of 12 IIMA/QM0111
E-6 Period for building for building of hangers 9 5 2 --3

3 5-A
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1 2 3 4 5 6 7
OVERHAUL SHOP BUILDING CONSTRUCTION
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5-*7 The calling of tenders. Getting financial sanction for
order and placing of orders 3 5 2 -3 3-*5
7-*37 Construction period for the overhaul shops 12 8 5 -3 5-*7
1) engine overhaul
2) Pneumatic system
3) Avionics
ON
4) Electrical systems
SIMULATOR
5-*39 Getting sanction, placing orders for the simulator 2 5 5 0 3-*5
39-28 Delivery period for the simulator 18 7 7 0 5-*39
24-25 Delivery period for the 2nd and 3rd aircraft after 1st
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Aircraft 1 15 15 0 3-*24
25-26 Delivery of the 4th Aircraft 1 16 16 0 24-25
26-27 Delivery of the 5th Aircraft EC 1 16 16 0 25-26
TOOLS FOR MAINTENANCE SHOPS
5-*38 Calling of quotations, getting financial sanction
and placing orders 3 5 5 0 3-*5
38-*6 Delivery period 6 8 8 0 5-*38
TOOLS SPARES & EQUIPMENT FOR ENGINE O/H PNEUMATIC AVIONICS
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SHOPS
5-G Quotation call, quotation clearance 1 5 7 2 3-*5
G-16 Placing of orders 2 6 8 2 5-G
16-39 Delivery of special & General tools, Rot able spares for
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overhaul shops 12 8 10 2 G-16

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1 2 3 4 5 6 7
5-H Quotation call and clearance from DGTD for equipment
for the overhaul shops 1 5 - - 3-*5
H-17 Placing of orders 1 6 0 -6 5-H
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17-21 Equipment delivery period 15 8 2 -6 H-17
21-30 Setting up of the equipment and installation 6 23 17 -6 17-21
MACHINE SHOP
5-J Quotation call for the purchase of machine shop equipment 1 5 8 3 3-*5
J-19 Placing of orders 1 6 9 3 5-J
ON
19-22 Equipment delivery period 6 8 11 3 J-19
22-30 Machine shop setting and installation 6 20 17 -3 19-22
24-30 The period that should elapse between the delivery of 1st
Aircraft and setting up of overhaul shops for. 8 15 15 0 6-*24
1) Engines
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2) Pneumatics
3) Avionics
AIR FRAME OVERHAUL, FABRICATION OF DOCK EC
5-*32 Planning, placing of orders and clearance Calling of
tenders for dock for the maintenance shops 3 5 18 18 3-*5
32-40 Fabrication period for the dock 6 8 21 13 5-*32
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AIR FRAME OVERHAUL (SHOP EQUIPMENT)

5-N Calling quotations for equipment and placing of orders 2 5 5 0 3-*5
N-40 Airframe overhaul shop equipment delivery
delivery 6 8 21 13 5-N
24-40 The period elapsing in between the delivery of 1st
Aircraft and overhaul of airframe being due 1 15 15 0 3-*24
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1 2 3 4 5 6 7
OVERHAUL OF MAJOR PART OF AIR- CONDITIONING & ELECTRIC
POWER
5-l Placing of orders for equipment for shops 3 5 18 13 3-*5
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5-*20 Placing of orders for spares etc. 2 5 18 13 3-*5
l-33 Delivery of the equipment for shops 12 8 21 13 5-L
33-35 Installation of the equipment 6 20 33 13 L-33
20-34 Delivery of the spares 12 8 24 16 5-*20
ON
TRAINING OF ENGINEERS
46-48 Dummy activity showing the training programme at the regional - 8 9 1 43-46
areas should start after the 1st batch of instructors have been 2 8 17 9 46-48
trained in the foreign countries 2 10 19 9 48-52
48-52 Training programme at Region 1 2 12 21 9 52-53
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52-53 Training programme at Region 2
53-54 Training programme at Region 3
54-30 The dummy activity showing that the training should be
42-44
complete when the overhaul shop be ready
Selection of Engineers with the manufactures
EC 1
- 14
5
23
11
9
6 5-*42
44-47 Training of overhaul engineers with the manufacturers 3 6 12 6 42-*44
42-43 Selection of maintenance engineers for training at the
manufactures base 1 5 6 1 5-*42
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1 2 3 4 5 6 7
43-46 Training of engineers, supervisors & instructors (1st batch) 2 6 7 1 42-43
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46-49 do- 2 8 9 1 43-46
49-50 do- 2 10 11 1 46-49
50-51 do- 2 12 13 1 49-50
3-*27 Engineers to stay at the manufacture's shop to look after
the construction of the aircraft 16 2 2 0 1-*3
ON
TRAINING OF PILOTS AND FLIGHT ENGINEERING STAFF
56-57 Selection of pilot officers and flight engineers for
training with the manufacturer, before the delivery
of the 1st aircraft 2 5 13 3 5-*56
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57-58 Training of1st Batch 2 7 15 8 56-57
58-59 Training of 2nd Batch 2 8 16 8 57-58
24-61 Training of 3rd Batch 2 9 17 8 58-59
28-62 Flight and route training to the pilots etc. in Urabia
Simulator training in Urabia
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-
15
25
15
25
0
0
6-*24
39-28
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IN

IIMA/ QM0104
The Capacity Tangle
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In November 1975, Mr. Chatterjee, Director of the National Institute of Design (NID), was
examining a proposal for use of the Institute's workshop facilities for commercial
production. He remarked, "over the years there has been a growing wing problem of allocating"
our capacity correctly to ensure that educational needs are not, and that the ability of our
workshops to earn is exploited without jeopardising the basic educational purposes for
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which this capacity exists. No satisfactory solution has been worked out so far, and one
reason for this is that the capacity of our workshops has never been clearly established.
Without this data, it is difficult to plan and allocate the capacity correctly".
NID Background
The National Institute of Design was set up in 1961 by the Government of India as an
autonomous national institution for research, service and training in Industrial Design
(Product Design, Furniture Design, Ceramic Design, Textile Design) and Visual
Communication (Graphic Design, Typography, Photography, Film and Sound).
The educational tasks at NID include:

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* Educating students in the various fields of design
* Continuing the education of professional designers
* Experiments and development projects in design

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* Design services and consultancy services to Government and Industry

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* Schemes for technical training to apprentices in NID workshops and audio-visual

audio- studios
* Propagation of design consciousness in the country through lectures, seminars, short-

short
term courses and design workshops as well as exhibitions of well-designed objects
NID offered design courses in eleven disciplines.
The product design workshops consisted of the woodshop, the metal shop, the ceramic shop
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and the textile shop. They were all equipped with various types of machines to develop
d and
fabricate models and prototypes. The workshop facilities were being used for educational
purposes as well as for professional practice (design projects commissioned by clients). The
management felt that a 'good'
'good design must necessarily gain widespread consumer
acceptance, and therefore decided to utilise the spare capacity of the shops (after meeting the
requirements of education and professional practice) for commercial production (to meet
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customers' orders for a range of standard products in furniture, textiles and ceramics).
Prepared by Professors A.H. Kalro and A.M. Issac and Mr. N. Narayanan, Indian Institute of
Case Material of the Indian Institute of Management, Ahmedabad is prepared as a basis for class
2 of 8 IIMA/QM0104
The Differing Viewpoints
There was a widespread feeling in the workshops that in order to effectively utilise the
existing capacities for commercial production, there should be no 'interference' in the
production programmes arising out of demands of educational and professional practice.
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Further, the shop personnel felt that the economics of commercial production would
necessarily require batch production, and that this would require an increase in manpower.
The faculty viewpoint,
point, however, was that since NID was essentially an educational
institution, the requirements of commercial aspects should be subservient to the needs of
education. They insisted that only after meeting fully the requirements of education should
the shops be used for commercial production. It was difficult for management to decide on
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how to allocate the available capacity to meet the different requirements (education,
available
professional practice and commercial production) as it was unable to assess the availabl
capacity and manpower requirements of each workshop. Management therefore decided to
conduct a study of the workshop capacities, starting with the 'Ceramics Shop'.
The Ceramics Shop
The ceramics shop was primarily equipped to meet the needs of students studying
s ceramics
design at the Institute. As the original intention was to meet the varied course requirements,
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only a small workshop was created and no special attention was paid to balancing capacities
of work centres. Furthermore, most of the equipment was obtained as gifts from various
agencies. The equipment was mainly used by students for their course requirements, by
faculty for developing new design (either for research purposes or at the request of clients)
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and for commercial production of standard designs on a limited scale.
On account of the innovative designs of the products, the demand was much higher than
what NID had been catering to. In fact, more products were also not added to the existing
product line because demand for the existing products
produc was not satisfied and because of the
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general impression that, there was no slack capacity.
Products
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The product line consisted of nine classes, as outlined in Exhibit 1. The exhibit also gives the
sizes, weight and volume of the various items comprising each class. While demand for
most of the items was not fully satisfied, the unsatisfied demand for some products was
much more than for others. The most popular item was the NID glass and the coffee mugs,
cups and saucers and dinner plates ranked next in popularity. Demand for the remaining
items was not so high when com compared to these items. The production pattern of the
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ceramics shop had largely conformed to this demand pattern.
The Production Process
The flow process chart given in Exhibit 2 illustrates the various stages in the production
process used at NID for the manufacture of a ceramic article. The raw materials quartz and
felepar in the required quantities are calcined for about 8 hours in a calcination kiln. During
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this calcination one operator's full time attention is required. The charge is then allowed to
cool in the kiln for 2 to 3 days and then withdrawn. The calcined material is then ground to a
pre-determined
pre--determined
pre determined granular size in an edge runner mill. The ground material along with ball
clay and china clay is mixed in a ball mill into an acceptable paste consistency. The mixing
and grinding process in the ball mill takes about 14 to 16 hours.
3 of 8 IIMA/QM0104
Two processes are available for moulding this paste into the shape required for the articles
to be made. One method is to form the clay into required shapes while rotating on a jolly
and jigger by means of a plaster mould. The time taken for 'moulding' each article is about 1
to 2 minutes. Normally the processing capacity of the jolly-jigger jigger is limited only byby the
number of plaster moulds available. Before moulding in the jolly-jigger,
1 jigger, the clay from the
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ball mill is first filtered using a filter press and then de-aired
aired in a pug mill. The filtering time
is about 3 hours, and continuous attention by one operatorr is required for this process. The
pulg mill also requires about 3 hours to complete the de-airing
-airing operation.
The other method of moulding is to cast the required shape using the appropriate moulds.
The choice between the two processes depends upon the shape ape and size of the article to be
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moulded. For example, a saucer is formed by using the jolly-jigger,
-jigger, whereas a tea kettle must
necessarily be moulded by the second process.
The moulded product is then surface finished on a finishing machine which operates on the
same principle as the jolly—jigger.. Some items are also hand-finished.
hand-finished.
Next, the moulded article which has been surface finished must be fired a number of times
in kilns. The first firing is referred to as biscuiting. All biscuited articles must be refined
either once or twice depending upon whether they are only glazed or coloured, or both
well as colouring are similar operations involving spraying a pre-prepared

pr
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glazed and coloured. The last column in Exhibit 1 gives the number of firings required per
article for the various items of the nine product classes listed in the exhibit. Both glazing as
glaze on the item
and subsequent firing. Glazes are prepared by mixing certain chemicals in a pot mill. The
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mixing operation, on an average, takes 20 hours, and upto 24 Kg of glaze material can be
prepared at one time. On an average, 20 Kg. of glaze is required per firing of glaze and
colour. Invariably, glazes are prepared in advance and stored for future use, as the older the
glaze, the better it is. In the past, this operation has never been a bottleneck.
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Exhibit 3 gives a list of the equipment used at NID in the above process. The exhibit also
gives the capacity per charge of the equipment. However, as the capacity of the "Boghie
Kiln" which is used for all the three firings described above (bisuciting, glosting and
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colouring) depended upon the nature of the articles fired, its capacity in terms of the
ceramics articles to be fired was not known.
The Operation and Other Details of Boghie Kiln at NID

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The various
arious articles to be fired are loaded on platforms with suitable separators depending
upon the size and volume of the articles. These platforms are stacked in a boghie and when
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the loading is completed, the boghie is rolled into the kiln which is electrically fired. After a
predetermined time, the articles are allowed to cool within the Kiln itself, and when the
temperature has fallen to acceptable levels, the boghie is rolled out. However, unloading of
articles can begin only after room temperature has been reached. The shop supervisor
opined that on an average, it took about 30 hours for cooling to be completed,
completed and another 6
hours for loading and unloading the boghie. If cooling was completed during non-working
hours, unloading was deferred to the next working
w period. However, during the firing time,
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one person's presence was essential during the entire time, till the kiln could be shut off.
Exhibit 4 gives the relevant data on boghie kiln and the platforms' storage dimensions.
However these could be easily manufactured as desired and hence did not pose much problem at
1
the NID.
4 of 8 IIMA/QM0104
The Study of Boqhie Kiln
In order to study the boghie kiln utilisation, 25 firings were re randomly chosen, and the firing
time, as well
ll as the different kinds of articles fired, and their number were examined. It was
found that while firing time range between 13 hours and 18 hours, thee average was
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approximately 16 hours. The totals of each product class actually fired in these 25 randomly
chosen firings are given in Exhibit 5. Data was also calculated on the total number of articles
which went through various types of firings in the first 1975. This data is
rst nine months of 1975.
provided in Exhibit 6.
Capacity Assessment
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The problem of assessment of the Capacity of the NID Ceramics Workshop will depend
upon the identification of the equipment bottlenecks which limit the total capacity. Besides
deciding the Ceramics Workshop capacity, NID was also interested in estimating how the
capacity figures could change if some products are either added or dropped from its
products range. Since the most expensive equipment in the workshop was the Boghie Ki Kiln,
NID was specially interested in designing a production plan which would facilitate
maximum utilization of the Kiln and finding ways of increasing the possible utilisation.
Although currently the entire ceramics workshop was working only a single shift per day, it
was hoped that the capacity assessment would help to decide the need for operating
N
additional shifts to meet the unsatisfied demand for NID ceramics products and to estimate
the manpower requirements.
T IO
EC
SP
IN
5 of 8 IIMA/QM0104
Exhibit 1
Product - class - weight - volume data
Product Class Representative

Operation Management Case Studies Combined

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This document is authorized for personal use only by Prasad Kulkarni , of KLS Gogte Institute of technology Belgaum till

18th November ,2020. It shall not be reproduced or distributed without express

Indian Institute of Management

Bharat Steel Furniture Company

on all sales to distributors. It supervised BSF’sBSF selling organisation which covered 4

In addition to the distributor system,

in the city. Approximately 25%

company on any sales made by the depot.

The folding chair consisted of 3 basic sub-assemblies:

brief description of the manufacturing process is given in Exhibit V. A similar series of

factory cost. These were then

Mr. Deo explained this figure as follows:

His total wage bill for direct labourers in 1962-63

Bharat Steel Furniture Company

Sales during Fiscal Year March 1962 - February 1963

Monthly Cost of City Depot, Storage Facilities

Production, Sales and Month-end

Production Sales Inventory

1963 Mar 2376 1385 1120

Aug 2829 2357 4695

1964 Jan 906 1210 608

1962 Mar 1132

Manufacturing Process for Folding Chair

7 Three bending fixtures were used on various components (U)

11 The chair frame was levelled (S) 500

coating. It was then dried. (S-

Cost per 100 units of output (1962-63)

Note 1: For 1962-1963,

Direct Labour Overrun (Actual-Std) 27,200

Note 2: For 1962-63

Office Rent 600

Depreciation (Office equipment) 100

Indian Institute of Management

Dudhudyog Dairy (D)

In September, milk price did not come down as expected previously.viou

Price Per Litre (Paise)

Rs. 2 for imported SMP/kg.

Rs. 3 average for 50/50 mix.

Prepared by Professor P. S. George, Indian Institute of Management, Ahmedabad.

1. Supply arrangements permit a minimum of 160,000 -litres

(over 160,000 litres daily), is 0.89 paisa.

standard milk are sold only in ½-litre

1. The response of consumers on price change is not appropriate.

Season Urban Area Rural Area

Season Consumption (1000 Converted milk products Sold as liquid

Items Urban area Rural area

At a daily minimum intake of raw fresh milk

Power 450 720 1000

Pay and allowances 37 49 60

At a daily minimum intake of raw fresh milk

Machines and maintenance 100 125 150

Stores, issues, and receipts:

Price Dairy Total Price Daily Total Price Daily Total

Sub-total 5294.65 5804.32 5383.5

Sub-total 4892.84 4713.44 3952.34

Net contribution 401.81 1090.88 1481.16

Price Dairy Total Price Daily Total Price Daily Total

Low fat milk 36 60,000 36 60,000 36 60,000

Net contribution 533.96 491.01 598.99

*Includes 9 paise spent at the primary centres

Total liquid milk collection 70,671,000 litres

Income (1000) Expenditure (Rs.1000)

Indian Institute of Management

The State Trading Corporation of India