Quantitative Research on Pencil_New

8/12/2019 Quantitative Research on Pencil_New

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TEAM MEMBERS :

AKSHAY WAGLE (115)DURGESH KESARKAR(52)

SHAYAN KHAN(53)SHREEKANT DAGA(19)

SRINATHSUBRAMANIAN(100)

VISHAL AGRAWAL(4) 1


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The fourth most important tool at all

time, in terms of its impact on humancivilization-survey by Forbes Magazine

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Types of pencils

Wooden pencil Mechanical pencil

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Writing instrument market valued at Rs 28 bn

Increasing demand for branded products

Extensive sales & distribution leading to

increased penetration

79%

15% 6%

Segment share-writing instruments

Pens Pencils Others

Source: BIC Group Investor

Relations Department

Report, January 2009

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Indian SSI/SME sector

Accounts for major share of the stationery market

But in the pencil industry it produces around

5 million gross pencils every year which is a

small proportion of the total production

It is a growing segment increasing its share in the

market

Market Trends

Growth of organised book retailers

Shift in focus from inexpensive to quality products

Entry of foreign brands in Indian market driving theorganised segment

5

27%

73%

Stationery Market

Organised sector

Unorganised sector


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Staedtler set up their business in 1989

Faber castell set up their business in 1998

Concept of brands evolved in Indian Market because of

the competition faced from the above mentioned foreigncompanies which led Indian companies like Hindustan

Pencils to add core values to their recognized labels

Apsara and Natraj and consequently turn into brands.


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The peak demand for pencils begins in June

The major manufacturing season lasts from

January to April, the products are in transit inMay and on the shop shelves by June

Academic segment has remained the single

largest user of pencils

Hindustan Pencils is the leader

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There is sizeable demand from the specializedsegment too. E.g. drawing, glass marking andcosmetic pencils such as liners and shades

Faber-Castell, Mitsubishi and Conte are major brandswhich are outsourcing or setting up overseasmanufacturing facilities in South-East Asia or in India

With a high-tech product, the pencil industry, for all itssimplicity, has gone through a phase of consolidation

Multinationals are setting up manufacturing facilitiesoverseas

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Forest certification in Indiastill at nascent stage

No forests in India are

certified except 644 hectaresof private rubber plantationsin Tamil Nadu

To promote forest

certification, WWF hasadvocated a "step wiseapproach which the Uniongovt of India will implementsoon

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Supply side To gauge the impact of retailer margin on sale of

mechanical pencils

Demand side To determine if there is any shift in preference

from wooden pencils to mechanical pencils

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Not all wood can be used for pencil industry, only the soften

one is suit for pencil making,

--Cedrus deodara (cedar)

- Juniper Virginiana (red cedar)

- Calocedrus decurrens(Incense-cedar)

- Pinus Sibirica

- Pinus Koraiensis- Linden Wood (Basswood)

- Alnus

Wood used for

pencil

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Wood logs

Pencil blocks

Pencil slats

Treat with chemical

Making grooves in to the slats

Fixing of graphite in to the grooves

2nd grooved slat pasted

Compressed

Separation of pencil

Pencil is painted

Flow chart of

pencil

making

13

Pencil


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Pencil

manufacturing

process

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Gripping

AssemblyBarrel Assembly

A Mechanical Pencil Measures:

- 5.5 inches in length

- 0.5 inches in diameter

Description of Mechanical Pencil

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Cost of raw materials (wood, graphite, clay, brass or aluminium for ferrules,lacquer components, etc.)

Cost of parts or other finished components used to assemble the pencil

Cost of transportation and handling of various materials used and of thefinished product to the factory

Cost of labour and benefits for the factory workers employees

Cost of energy

Cost of supplies used to maintain equipment

Cost of government regulations

Cost of capital

Cost of management

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The quality of product they wish to produce will impact which rawmaterials and component parts they will purchase

Alternative suppliers for raw materials

Whether to make internally or buy externally different component parts

like slats, leads, ferrules and erasers or even semi-finished pencils fromother pencil manufacturers

Where to locate their pencil factories

The quantity of product to produce drives the level of investmentrequired in the factory and inventories as well as can effect the cost per

unit produced due to economies of scale

A constant cost industry i.e. because each firms long run average costcurve does not shift up or down as industry output changes

The long run supply curve for a constant cost industry is horizontal

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Pencil type included is mechanical pencils

Data type used: Primary; Gathered near Fort Area

from retailers on quantity sold and current margin;

Judgemental statistics on quantity sold if margin istweaked

To avoid heteroskedasticity, data collected from

only one area

A data point excluded to maintain a certain scale

of operation

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Supply side data collected from retailers because Supply can be calculated only at the last sale point

Before that the supply is merely routing through the

physical distribution system

Hence gauging supply of pencil with the single most

important factor for the seller at that point; i.e. sellers

margin

Demand is held constant since change in retailer

margin does not affect it

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#1Objective: To test if there is any

change in quantity sold if margin is

decreased by 2

Null: There is not much difference in

quantity sold; caused by the margin

Alternate: There is much differencein quantity sold; caused by the margin

#4

Objective: To test if there is any

change in quantity sold if margin isincreased by 2



Alternate: There is much difference in


#3

Objective: To test if there is any

change in quantity sold if margin isincreased by 1



Alternate: There is much difference

in quantity sold; caused by the margin

#2Objective: To test if there is any

change in quantity sold if margin is

decreased by 1



Alternate: There is much difference inquantity sold; caused by the margin

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Decision rule: Accept Null if

Chi^2calculated is


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#1

Decision: Null Rejected

Calculated statistic = 314

Managerial Outcome: A decrease

in margin by 2 decreases quantitysold significantly

#4

Decision: Null AcceptedCalculated statistic = 40.8516484

Managerial Outcome: A increase

in margin by 2 does not increase

quantity sold significantly

#3

Decision: Null AcceptedCalculated statistic = 21.4349817

Managerial Outcome: A increase

in margin by 1 does not increase

quantity sold significantly

#2

Decision: Null Rejected

Calculated statistic =167

Managerial Outcome: A decrease

in margin by 1 decreases quantity

sold significantly

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#1 Key take away:

Chi square value is huge

If margins are to be decreased by 2

many retailers tend to lose interest inselling and will stop stocking

(Qualitative response)

#2 Key take away:

Chi square value is relatively huge

If margins are to be decreased by 1

few retailers tend to lose interest inselling and will stop stocking

(Qualitative response)

The supply remains relatively inelastic for those retailers at higher margins.

The supply tends to be perfectly elastic at lower margin levels.

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#4 Key take away:Chi square value is near rejection point

If margins are to be increased by 2; it

still does not help in increasing sales

substantiallyFutile activity (Based on

data scrutiny and logical application)

#3 Key take away:

Chi square value is comparatively

smallest

If margins are to be increased by 1 a

bottle neck might arise somewhere in

the PDS (Based on data scrutiny and

logical application)

Manufacturers Cost

Value addition from

production

Manu

factur

ers

Margi

n

Distribu

tors

Margin

Wholesalers

Margin -Retailers Margin

Price Analysis of a Pencil (Based on notion) 24


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Step 1 Collect data of monthly sales of mechanical pencils and there

respective margins Collect data (judgment of retailer) on sales of mechanical pencils

if margins were to be increased/decreased by 1/2 Step 2

Find mean quantity sold at current margin level and the other fourscenarios

Reasoning for usage of means rather than original 30 valuesThe means improved the R square; More importantly use ofmeans removed the size of operation bias for retailers; Theequation does not change significantly; The data set is still

represented; The data becomes fit for analysis Step 3

Plot the mean values on the scatter diagram and find the trendline

Supply of pencil = Independent supply Coefficient + MarginCoefficient (Margin at last sales point)

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19.23333333

24.4

30.1379310331.63333333

33.5862069

y = 3.5939x + 27.798R = 0.932

0

5

10

15

20

25

30

35

40

-3 -2 -1 0 1 2 3

Quantity sold at varied margins

Quantity sold at variedmargins

Linear (Quantity soldat varied margins)

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Change in

Margins -2 -1 0 1 2

Quantity Sold 19.23333 24.4 30.13793 31.63333 33.58621

y = 3.593x + 27.79

Supply of pencil (testing at last sale point) = Margin

Coefficient (Change in margin at last sales point) +Independent supply Coefficient

Analysis of regression line atlower margins

The margin elasticity is high at

reduced margins, hence

reducing margins is not

favorable

Analysis of regressionline at higher margins

The margin elasticity is low

at higher margins, hence

increasing margins is not

favorable

Contrast of actual values and values obtained by substituting margins in the

equation

ManagersDecision

Dont

Change the

Current

Margin

levels 27


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Null Hypothesis

Lack of awareness is not a major cause for lesser

than expected number of beneficiaries subscribingto Rajiv Awas Yojana (RAY)

Alternative Hypothesis

Awareness is a major cause for lesser thanexpected number of beneficiaries subscribing toRajiv Awas Yojana (RAY)

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Responses to the questionnaire of 32 people fromthe LIG and EWG was collected

Status of ownership of television and cableconnection was also sought

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Step 1

Applying weights to the responses for the above questions 5- Strong willingness to subscribe to RAY once informed 4- Moderate willingness to subscribe to RAY once informed

3- Neutral (Null Hypothesis) 2- Moderate unwillingness to subscribe to RAY once informed 1- Strong unwillingness to subscribe to RAY once informed

Step 2

Calculating mean and standard deviation of the sample

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Step 3

Applying z-test of hypothesis

Comparing the calculated and tabulated values of

z at 10% level of significance

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Sample size 32

Population Mean 3

Sample Mean 3.65Sample Std. Deviation 1.13

Calculated z 3.253943

Tabulated z @ 10% 2.33

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Decision We reject null hypothesis since calculated z (>tabulated z

Managerial Outcome Less number of subscribers of the Rajiv Awas Yojana

(RAY) is a reflection of limited awareness of the schemeamong the target segmentLIG and EWG

Key takeaways Govt. needs to initiate awareness measures to increase

the subscription to RAY

Television is the most important medium to carry theseawareness messages as television ownership was

found to be 100% in the sample population 34


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Step 1 Collect data of monthly home sales registration in

Mumbai from July 2010 to November 2012

Collect data of Base rates (HDFC) applicable onhome loans during the same period

Step 2 Plot the values in a X-Y chart and consequently

the trend line

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y = -463.55x + 9316.6R = 0.4284

0

1000

2000

3000

4000

5000

6000

7000

8000

7 7.25 7.5 7.75 8 8.25 8.5 8.75 9 9.25 9.5 9.75 10 10.25 10.5

Series1

Linear (Series1)

Monthly Home Sales


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Demand for Residential Homes in Mumbai

Y = -463.55x + 9316.6

Coefficient of Determination

R^2 = 0.4284

Analysis

Since R^2 >0.05, there is a significant relationship betweensale of residential homes and lending rates

Managerial Outcome

There exists a significant inverse relationship betweenlending rates and residential home sales. High interest ratesaffect demand for residential homes and Rate cuts are

effective means to boost demand 37


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19%

19%

22%

40%

StronglyAgree

Neutral

Disagree

Agree

To gauge if external

environment factors

has affected demandfor pencils in general

59% of the respondents feel that technology hashad an impact on the consumption of pencils ingeneral

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28%

28%

44% Wooden

MechanicalBoth

To compare

demand for each

type of pencil

72% of the respondents use mechanical pencils

which shows a rising preference for the same

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33%

67% AgreeDisagree

To check if the

demand is price

elastic

Among respondents preferring wooden pencil,67% would continue to use wooden pencil even ifprice difference is marginal implying demand formechanical pencils is price inelastic

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47%

34%

3%3%13%

0-1

1-2

2-3

>4

N/A

To know frequency

of purchase of

mechanical pencils

Around 81% of the respondents who use onlymechanical pencils consume within 3 leads whichimplies it is cost effective and efficient

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11%11%

22%11%

45%

0-1

1-2

2-33-4

>4

To know frequency

of purchase of

wooden pencils

Around 56% use more than 3 wooden

pencils per month

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36%

22%

7%

21%

14%0-1

1-2

2-33-4

>4

For students using both type of pencils we can see that usageof wooden pencils of more than 4 shows a sharp decline from45% to 14% implying the effectiveness of mechanical pencils

29%

64%

0% 7%

0-1

1-2

2-3

>4

Mechanical leads/quarter No of pencils /month

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Wooden vs. Mechanical

pencil

Raw Materials Wood pencils require four times more raw materialsthan the plastic pencil. However , the wood pencil

consumes less than half the non-renewable

resources as the mechanical pencil.

Water The wooden pencil consumes approximately 60% of

the water used by the mechanical pencil.

Energy The wooden pencil requires approximately the

same amount of energy as required by the

mechanical pencil.

Consumption

of:


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Wooden vs Mechanical pencil

Atmospheric

Emissions

The wooden pencil results in emissions less than or equal

to those of the mechanical pencil for carbon dioxide,

nitrogen oxide, sulphur oxide, and particulate matter. Thewooden pencil emits 5 to 6 times more carbon monoxide

than the mechanical one. The wooden pencil emits about

10% of organic pollutants of the mechanical pencil.

Waste water

effluents

The wooden pencil emits insignificant quantities of waste

water pollutants; emissions of BOD and suspended solids

are greater for mechanical pencil.


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Wooden vs Mechanical pencil

Solid Waste The wooden pencil generates less net process solid wasterequiring disposal and less post consumer waste than themechanical pencil. The wooden pencil generates more

solid waste a greater proportion of this solid waste is later

recycled into various products.

Hazardous

waste

The wood pencil generates significantly less hazardous

waste than the mechanical pencil.


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The production factors (mainly man, machine, and material)are required to be maintained

Government banning graphite will lead to the loss of a lot ofjobs

Employers, employees, suppliers, the local businesses,energy suppliers, miners, machinist, shippers and producersall suffer which causes a ripple in the economy

The Governments decision to promote Green Pencilscreates an industry for China because of absence of such anindustry in India

Each individual macro economy affects the next microeconomy which affects the next and so on


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Retailer margins for mechanical pencils should remainunchanged

Since there is higher elasticity at lower margin levels, marginsof retailers at low end should not be tweaked

There is an opportunity to reduce margins which are currentlyslated to be high

A new branded market for mechanical pencils is on the rise

Since there are environment costs associated with mechanicalpencils, a new market could be created for eco-consciouspencils

Complementary goods like sharpener will be affected by therise of mechanical pencils

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Economics

Paul Samuelson

Economics: A Contemporary IntroductionWilliam McEachern

The Marketing Whitebook 2011-2012

Statistics for ManagementLevin and Rubin

www.pencil.com

http://articles.economictimes.indiatimes.com/2011-08-26/news/29931612_1_forest-management-t-r-manoharan-forest-certification

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http://articles.economictimes.indiatimes.com/2011-08-26/news/29931612_1_forest-management-t-r-manoharan-forest-certification


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YOU

Quantitative Research on Pencil_New

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