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Document type
Date
CONFIDENTIAL AND PROPRIETARY
StratQ
Case Study Competition
September 2013
CONFIDENTIAL AND PROPRIETARY
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1
StratQ
It was a warm April day in New Delhi, and Mr. Ramesh Sharma, CEO of Orient Electricals,looked out at the blazing sun from the comfort of his board room. The quarterly meeting for
Q1, 2013 had just concluded, and Ramesh was extremely pleased with the commitment anddedication shown by his leadership team.
Ramesh had joined Orient Electricals 18 months ago. In this short period, he had invested inbuilding the leadership team’s capabilities and growth aspirations. The company reported a
strong performance in 2012, with good top-line and bottom-line numbers. Revenues for theyear stood at $200mn. The team had now begun to dream big and had set itself ambitiousgoals for 2013-14 and beyond. As Ramesh looked out of the window, he began to thinkabout the future of Orient Electricals, and how they would go about achieving these goals.
Orient’s goals are clear – to become the top player in the fans market while doublingprofitability and appealing to sections of society that have so far been out of reach. Thecompany wants to grow its revenues to US $1bn by the year 2018 and become a marketleader in electricals across all divisions.
Growth plan
In the third week of April 2013, Ramesh and his team met for an in-depth session wherethey discussed the organization’s future strategy to meet these goals. They had also
presented the same to the Chairperson of the Group, Mr. CK Birla, and had his consent toaggressively go after these goals.
Ramesh and his leadership team had to work on numerous aspects of the business. On thesales and marketing side, they had to strengthen the brand, distribution channels, salesnetwork and put in place a responsive after-sales service. At the same time, they needed tostreamline manufacturing facilities and leverage cost advantages through smarter supply
chain management. This was to ensure that the growth story is intact across all threedivisions.
After several discussions, they decided to work with a team of consultants from NIC (NewIdea Consultants) and went to them with a problem statement.
As a part of this team of consultants, you have to work on the problem statement givenbelow and make a presentation of maximum 10 slides to Ramesh and his team.
Strategy meeting
Orient Electrical Growth Strategy
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Problem statement
Orient Electricals wants to multiply its top line in 5 years while
increasing its bottom line keeping strategic priorities in mind
Achieve market leadership in fans andimprove profitability?
What levers should Orient Electricals pull to
1
Enter the LED lighting business?2
List of Exhibits
An overview of the CK Birla Group and Orient Electricals1
Turnover of Orient Electricals2
Orient’s presence in the lighting business 3
Growth in fans market4
Current distribution strategy5
Demand and scope in International markets6
Orient Fan’s domestic footprint 7
Brand-wise Domestic Retail Network snapshot8
Bill of Materials: Sample9
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Exhibit 1: Overview of the CK Birla Group and
Orient Electricals (1/2)
The CK Birla Group is a diversified conglomerate with interests spanning industriessuch as Cement, Consumer Electricals, Precision Bearings, Heavy Engineering
Products, Paper, Building Products, Automobiles, Auto Components, Healthcare,Education and ITES. The Group has 10 businesses across five continents with over
20,000 employees. With a combined turnover of over USD 1.6 billion and aglobal manufacturing and service footprint, the CK Birla Group stands today atthe forefront in delivering exceptional quality, lasting value and excellence to itsstakeholders.
The Group believes in giving back to society. Guided by its philanthropic legacy theCK Birla Group upholds human values at every stage of its business process – empowering the local communities through education, health care initiatives andsocial infrastructure development.
Orient Electricals, an integral part of the CK Birla Group, was established over 60years ago. It is the largest manufacturer and exporter of fans in India. It is a
household name in the Indian consumer electrical market. In 2012, Orientmanufactured 8 million fans of which 1 million were exported. The company isknown for innovation and high product quality. To accelerate its growth Orient hasentered into two new businesses in the last 3 years: Consumer Appliances andLighting. M.S. Dhoni, Captain of India’s cricket team is the brand ambassador.
The vast product suite of Orient is tailored to different lifestyle needs for aircirculation. Orient manufactures a range of fans which includes ceiling fans, tablefans, wall-mounted Fans, stand fans, exhaust fans and multi-utility fans. All the
products are an outcome of extensive research and development.
Orient Fans has seen much recognition in the past. The company has alwaysemphasized on unceasing research & development for better customer experienceand enhanced comfort. For instance, its PSPO technology, developed for fans in the‘1990’-s, provides more cool air to every corner of a room. Today, this patented pathbreaking technology has raised the bar in the industry and continues to be amilestone achievement in the industry.
Overview of Orient Electricals
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Exhibit 1: Overview of the CK Birla Group and
Orient Electricals (2/2)
As a leading manufacturer of fans in India, Orient Fans has a robust infrastructure. Itmanufactures fans at dedicated, state-of-the-art facilities in Kolkata and Faridabad.Both facilities are equipped with cutting-edge technology and machinery to offerinnovative and quality products. The company’s manufacturing capabilities are
enhanced by a strong process-driven environment. The Quality ManagementSystems at both locations are certified by Det Norske Veritas (DNV) as per ISO9001: 2000. The factory at Faridabad is ISO 14001: 2004 certified for itsenvironment management system. Six Sigma practices at both manufacturing unitsensure defects are kept to the minimum.
Manufacturing facilities for fans
▪ Biggest own manufacturing in India – over 8 million fans
▪ Largest exporter of fans from India for over a decade
▪ No. 2 position in total fan sales in India and No. 1 position in total fan sales in
many states within India▪ Network of 4,000 dealers and 80,000 retailers in India
▪ One of the largest distributed brands in India.
▪ Preferred supplier in government stores (CSD) and listed in govt. contracts
▪ 20 per cent market share in India with ceiling fan share above 21%
▪ Over 350 model variants
Orient Electricals has also recently forayed into the appliances and lighting business
Industry benchmarks for Orient Fans
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Orient Electricals currently stands at an annual
turnover of ~ USD 152 Mn
5OURCE: Orient Electricals, Finance Department
xx Achieved CAGR AppliancesLightingFans
21
15
10
10
9
FY 09 FY 11FY 10
123
153
FY 13
52
126
71
557
81
107
FY 12
10997
2
342%
44%
24%
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Domestic Fans market dynamics and Orient’s position
6OURCE: IFMA 2013, Company analysis
Total annual production
Million Units per annum
CAGR
(2008-13)Percent
Market production growth
11%
16%
12%
Orient Sales pattern
Economy
17%
Decorative
18%
Base
44%
Portable
18%
Exhaust
3%
Total Sales FY 12-13
8 Million Unitsper annum
▪ Price Realization: MEDIUM
▪ Contribution: 20-25%
▪ Price Realization: LOW
▪ Contribution: 10-15%
7.06.3 6.8
15.9
21.4
26.726.5
28.4
4.93.3
16.6
28.4
FY10
36.9
3.2 2.4
FY11
2.1
FY09
21.2
1.53.1
FY08
20.8
1.6
FY12
35.237.8
FY13
2.6
Base Economy/ Exhaust
▪ Price Realization: HIGH
▪ Contribution: >30%
▪ Price Realization: MEDIUM
▪ Contribution: 17-22%
Decorative Portable
Exhaust
TPW
Ceiling
% share to total salexx
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Orient’s position in organised domestic fans market
7
Market share of organised market, FY 13 vs. FY 12
Percent
13
10
16
1920
22
1113
14
1820
24
1 Orient 2 3 4 Others
12
10
15
18
2223
10
1214
18
23
25
Others432Orient1
Total Ceiling fans
1110
19
26
14
20
1112
15
22
18
21
32Orient1 Others4
26
14
18
13
9
2022
1717
12
8
24
Others432Orient1
TPW fans Exhaust fans
Organised fans market accounts for ~70% of the total fans market
FY’ 12-13FY’ 11-12
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Bill of Materials: Sample
8
Name of the Component Quantity Ball Bearing 112/6201 100 PC Ball Bearing 115/6202 100 PC Condensor 2.25 Mfd (+2+7) 100 PC Blade Sets 48"Alum.180 DiaWh. 100 SET D/Rod Pipe 260Mm CrystalWhite 100 PC Canopy Sets 100 SET Decorating Cup 100 PC Condensor Clamp (Ppcp) 100 PC Bearing Washer 0.8X15X27 Mm 100 PC Nylon Grease Ret Washer 100 PC Damping Washer Red Fibre 300 PC Preloding Spring . 100 PC Hanger Arm AsslyKit(Sq.Type)New 100 PC Wsaher Spring 3/16" /2 Ba 900 PC Washer Tooth 4 Ba U/P 300 PC Screw Ph.Hd 4Ba X 3/8" 400 PC Screw Ph.Hd 2Bax1/2 Zinc Pas 600 PC Screw Ph. 2Bax 1 1/2 Pl 300 PC Stator-48 New Breeze 100 PC No.St./Np/Gc-48"S/Cool 100 SET Painted Top Cover5.75"Wh.(180) 100 PC
Name of the Component Quantity Alchromed Aluminium B/C 48"(180 Dia) 100 PC Painted Rotor-48 Civil
100 PC
Painted F/Cover-48 S Cool W 100 PC C.B Rings92 Mm 100 PC Outer For Motor 48"Civil180 34 PC C.B.Box F 48 S/Cool(180MmBody) 100 PC Flaps /Filler Packing 48"Civil Big 34 PC Poly.Bag 12.5X12.5"X120G 0.57 KG Clear Plasic Tap 2" X1000 Mtr 53 M Clear Plasic Tap 1.1/2 X 1000 Mtr 67 M P.P. Strip 9 Mm X 0.5Mm PSPO 73 M Thermo Packing 48"C/Fan F(180 Mm Ø) 100 PC Despatch Serial No Sticker 34 PC Sticker Paper Crystal White Dlx. 400 PC Nut M.S.2 Ba 100 PC P.P Strap 9 X 0.5 Mm (Orient)Virgin 87 M Screw Ph. 4Bax3/8 With Flange 100 PC MRP Sticker For Motor 48"Summer Cool 100 PC Flaps /Filler Packing 48” CivilSmall 34 PC MRP Sticker For Outer 48"Summer Cool 34 PC Sticker For Month & Year 100 PC
Bill of Materials is made for a 100 pc Finished Product requirement
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International markets: Demands and scope
9OURCE: UN Comtrade 2010, interviews
Million units
World market for fan import 20101
Metal blade ceilingWooden blade ceilingPortable fans
18-26
21-25
11-16
33-40
AsiaEuropeNorth America
Africa Oceania MiddleEast
6-10
Total
2-3.5
3-4 ~0.1
22-27
2-30.2-0.4
5-6
1.5-2.50.3-0.5
2.5-3.5
90-110
0.2-0.32-3.5
4.5-5.50.3-0.5
0.152-30
1.2-2
South America
▪ Huge presence in Middle East, Asia and Africa
▪ Currently doing business in~30 countries
▪ Largest Exporter within theIndian Fan Manufacturers, withan 80 % market share
Strengths
▪ Portable Fans pricing weakcompared to Chinese
competition
▪ Plastic blade fans couldsubstitute wooden blade fans,but technology not yet in India
Head Winds
Orient’s market presence
No Yes No Yes No Yes No
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Orient Fan’s domestic footprint: Overall market share
of ~20%
1
Region-wise Market share versus growth last year
20
20
161410
24
23
24220
18
17 South
North
East
Growth over LY%
West
Market share %
1812 26
0
21
19
22
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Fans: Brand-wise Domestic Retail Network snapshot
xx Orient Position
North
Competitor 4
Competitor 1
Competitor 3
Orient
Competitor 2
#3Total of 1.59 Lac
Outlets Reported
#4#5
#3#1
#2
#5
#4
#2
#1
#3
#5
#4
#1
#3 #5#2
#1
#3
#4#2
▪ Total universe of retail outlets has increased from 1.33 lacs in 2008
to 1.59 Lacs in 2012
▪ Orient retail network grew from ~44,000 to ~80,000 outlets
▪ Similar growth has been shown by other brands as well
▪ Thus showing an increase in multi-brand culture in the retail outlets
East
West South
Pan
India
OURCE: Francis Kanoi census study of Retails outlets of 2012
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Retail/ trade channel: The “Indirect” approach
1
80,000 retail
points for
customers
4,000 billing
points from
distributors
16
distributors
25
depots
Orient fansdepots
Distributors
BigRetailers
2,500
Wholesalers1,200
Retailers
Redistribu-tion dealers
300Retailers
80,000include 2,500Big retailers
While the ground sales force is maintained by
the distributors, a 16-member Orient sales
team oversees overall operation
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1
Orient’s presence in the Lighting business
▪ Lighting industry in India currently stands at 9500 Crs.
▪ Growth in FY 13-14 expected at 8-10%
▪ CFLs, LEDs and Integrated Lighting |System solutions will bethe key drivers
▪ FTL (Fluorescent tube light) and GLS segments show lowgrowth trends, owing to increased usage of CFLs and LEDlighting systems in the consumer segments
▪ LEDs and High Wattage CFLs seeing a heavily growingdemand in the Industrial segments as well
▪ GLS and FTLs sustenance is owed to increased penetration inthe rural markets, however the margins incurred in thesesegments is negligible
▪ For Orient, the CFL segment accounts to nearly 80% of the
total revenues
▪ LEDs are expected to grow at a CAGR of 40% in the next 5years and are expected to gain nearly 40% of the total marketsize. According to Frost and Sullivan the LED lighting market isvalued at 1000 crores today and estimated to grow at +/- 40%CAGR over the next 10 years
▪ Orient’s retail universe currently stands at 70,000 retail countersacross India
▪ Threats currently standing against these high priced decorativelighting options are the rising dollar prices, combined withincreasing interest rates which will affect margins
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Orient Lighting’s domestic footprint
Orient’s region-wise market share vs. growth
120
SouthWest
East
North
Market share, %
8
7
6
4
3
0
Growth over LY, %
262414 22201816
5
Lighting industry: Key players and market positions
Market Shares, %
45
6
12
20
Others(Unorganizedsector included)
7
Orient Competitor 5
3Competitor 4
Competitor 37
Competitor 2
Competitor 1