Asia Ghee Mill (MP)

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INTRODUCTION

Introduction of Ghee/Oil Industry

G hee industry was introduced in the sub continent in mid thirties, and since then it
has grown tremendously in face of all environmental hazards. It has been subjected
to serious edible Oil shortages, government inconsistent policies and severe
variations between demand and supply in the domestic market.

The country which was self sufficient in edible Oil production (0.154 million MT), till 1960, and
paying not a single dollar against the import bill, is today importing well over 1.160 million MT
against an import bill of no less that Rs.33000 million per year, being the third largest edible Oil
importing country of the world, after China and the European Union. All these imports
originated from Malaysia.

During the past 21 years of interrupted and partially half hearted efforts of successive
governments since 1979, the country has been able to procure only 0.5 million MT of edible Oil
from indigenous resources while the rest of the 1.1 million MT is procured from imports.

The structure of Ghee/Oil industry is just like all the other developing industries of Pakistan.
There are certain well-established companies working with good brand names, serving the nation
as a whole. Along with them there are certain units, which are working in limited areas, meeting
the requirements of these niche markets. Some of the vegetable Ghee mills are working under the
control of government and other are held privately.

The raw material required for the production of Ghee/Oil is imported from different countries
and this is the biggest imported item in food category. The prices of Ghee/Oil are very much
influenced by the duties on these imports and the international price fluctuations of these items.
In early 1990’s there had been a serious crisis in the Ghee industry, and the main reason for this
was that production of Ghee was greater than the demand. In this period due to the heavy looses
on account of these units government privatize so many Ghee producing units.

Vegetable Ghee is the commercial term for vegetable Oil hardened by the process of
hydrogenation. Cottonseed, soybean Oil, Sun Flower Oil, corn Oil, is being mainly used in
Pakistan for the manufacturing of Oil/Ghee. Pakistan is importing Palm Oil and Soyabean Oil
from America, Indonesia and Malaysia. During 1999-2000 Pakistan imports of soyabean Oil and
palm Oil has drastically decreased both in quantity and value. Pakistan imported soyabean Oil
worth $75.8 million and Palm Oil $267.8 million in year 1999-2000.

Ghee Industry in Pakistan

In Pakistan ghee industry is flourished over the years. Today there are many Locals and National
companies as well as international companies engage in the production of ghee and oil working
in Pakistan. Among multinational companies includes Lever Brothers (Pvt.) Ltd. They
manufacture DALDA and PLANTA cooking oil and ghee. Some other companies are as follows.

1) Al Hilal Vegetable Ghee Mills engages in the production of Sultan Banaspati Ghee. It is
situated in Multan.

2) Shehbaz Ghee Mills is engage in the production of Shebaz Banaspati. It is situated in Rahim
Yar Khan.

3) Wazeer Ali Industries Ltd. engages in the production of Tallo Banaspati ghee and cooking oil.
It is situated in Hyderabad.

4) Fatima Enterprises Ltd.

5) Refahan Maize Product Company involved in the production of Rafhan Corn Oil and it is
situated in Faislabad.

6) Ahmad Food Industries manufactures Ahmad Soyabean Oil.

7) Ghee Corporation of Pakistan (G.C.P) under which 26 units engaged in the production of ghee
are working all over the country.
Apart from these combines there are many other firms manufacturing ghee..

Introduction of Asia Ghee Mills

Asia Ghee Mill is situated 15km away from Bahawalpur at Karachi Road. This Ghee and Oil
manufacturing unit was established in 1994 and start production in 9th June 1997.

Asia Ghee Mill occupied a land area of approximately 3 acres.

The area of Asia Ghee Mill is divided in two heads:

a. Production Area

b. Non Production Area

Non-production area consists of offices, parking facility, and a big lawn. In non-production area
they have their own nursery. Asia Ghee Mill has a very attractive outlook because they have
wide variety of plants and flowers in the lawn and nursery. The office interior of Asia Ghee Mill
is very good because the offices are fully air-conditioned and heaters are also available in cold
weather.

In production area there are different sections related to productions, stores, printing, and
packaging of Ghee and Oil in different sizes.

Asia Ghee Mill is not incorporated in Stock Exchange. Asia Ghee Mill has a capacity of 150 tons
per day but currently they are using 50% of their total capacity.

MAJEED GROUP OF INDUSTRIES

Mr. Chuadry Abdul Majeed is the chairman of Asia group of industries, who is one of the best
businessmen in Bahawalpur region.

Majeed Group of Industries involved in the following businesses:

MAJOR BUSINESSES
 Asia Ghee Mills
Asia Flour Mills
Bismillah Cotton Industries

Rohi Cotton Mills

Rasool Model Industry Pvt. Ltd (Oil & Cotton)

Majeed Brothers Pvt. Ltd.

PRODUCTS OF ASIA GHEE MILLS

Asia Ghee Mill is manufacturing both Ghee and Oil. The brand names of the product are given in
the table along with their respective weights and prices.

MAJOR PRICES
WEIGHT PACKS
BRANDS RS.
16 KG Tin Pack 736
10 KG Tin Pack 460
ASIA BANASPATI

5 KG Tin Pack 250

2.5 KG Tin Pack 127
12 KG 1 Carton (12 pack of 1KG) 549
1 Carton (24 pack of
12 KG 549
0.5KG)
1 Carton (48 pack of
12 KG 549
0.25KG)
1 KG Plastic Pack 45.75
ASIA PURE COOKING OIL

16 KG Tin Pack 736

10 KG Tin Pack 460
5 KG Tin Pack 250
2.5 KG Tin Pack 127
12 KG 1 Carton (12 pack of 1KG) 549
1 Carton (24 pack of
12 KG 549
0.5KG)
12 KG 1 Carton (48 pack of 549
0.25KG)
 1 KG Plastic Pack 45.75

BY PRODUCTS OF ASIA GHEE MILLS

Asia Ghee Mill has two types of by products, which are:

 Laundry Soap

 CO2

Asia Ghee Mill has sold the laundry soap under the brand name of “Asia Laundry Soap”
where as they dispose off the carbon dioxide into the air.

STRATEGIC INTENTION

Vision
“Mr. Majeed is very social person and has an industrial mind, who always think about
the development of people of the country specially living in Bahawalpur through the
creation of employment and meeting their basic necessities of clothes and foods (Flour,
Ghee & Oil).”

Proposed mission
Asia Ghee Mill don’t have any written mission statement but through our discussion we came at,
and the mission of the Asia Ghee Mill should be:

“We care the health of our customers by providing them, wherever they live, the
superlative purity and best quality oil & ghee at comparable prices and continually
improve our products to meet their needs which help us to maximize the wealth of
owners who in turn, create more employment opportunities and provide maximum
benefits to employees.
Goals of Asia Ghee Mill
a) To eliminate the burden of debt.

b) To utilize maximum production capacity.

c) To ensure quality at each step of production for both ghee and oil to care the health of our
consumers.

d) To improve the morale and efficiency of employees.

e) To increase market share in Multan division.

f) To develop long lasting good relationships with distribution dealers.

g) To dispose and utilize the wastage in a better way.

Objectives of Asia Ghee Mill

a) They have financed the whole capital through equity and no debt. They have 10 crore
authorized capital and 7 crore paid up capital.

b) To increase production of ghee and oil from 27000 tons last year to 35000 tons this year.

c) Installation of Levi bond Tento Meter Model to check the color of oil and Spector Photo Meter
to assure zero percentage of Nickel in ghee.

d) To provide two bonuses to every employee in a year and 25% of basic pay as performance
reward. And to provide minimum 10% increment on their basic pay per year to each
employee.

e) To sell 8000 tons of ghee and oil in coming year in Multan division, specially in Malsey,
Wehari, Khanewal, and mia channoo.

f) To give bonuses to dealers Rs. 5/ 16kg beyond the sales target of 200 tons per month.
g) To manufacture the laundry soap from the wastage of ghee & oil and recycle the water for
reuses purposes in the production.

Problem statement
In start the organization has faced a plenty of problems but due to proper planning and well
implementation problems are decreasing day by day. But still the organization is not totally out
of trouble, and facing a problem.

PROBLEM

The major problem is related with the distribution network and utilization of production capacity
of the organization. The organization is utilizing limited production capacity because it has a
limited market and not supplying its products all over the country but only in Bahawalpur and
Multan. Furthermore firm is relying on private dealers for distribution of its final products. So
because of limited market some times these dealers refuse to take the supply because of having
old stock unsold, so that’s why inventory remains in the stores which cause the increase in
holding cost and cash shortage problems for the organization.

SITUATION ANALYSIS

ANALYSIS OF ASIA GHEE MILLS

First to analyze the environment as a whole, two techniques are used. Which are

PEST Analysis” and “Structural Analysis”. And for the specific analysis of
company “Value chain analysis”, “SWOT” and “Financial Analysis” is used.

PEST Analysis
PEST analysis is used to assess what environmental factors are affecting the organization, which
of them are most important and how they will effect in next years. It is an indicator of political,
economical, social and technological influences on organization. The analysis of Asia Ghee
Mills is as under:
POLITICAL AND LEGAL FACTORS

Industrial Laws

Industrial laws regarding unions has no impact upon the Asia Ghee Mills because no union exit
in the organization, but if in future it become so, then the company has to consider these laws in
their decision making concerning wage rates, bonuses, and benefits of the employees.

Foreign Trade

This matter will be of a key concern for Asia Ghee Mills. Because the Asia Ghee Mills is
importing four different types of oil from Singapore and Malaysia, which are not available
locally, but the Government don’t provide any support to import these raw materials and don’t
provide any relaxation in import duty upon the imported raw materials. So if Government bring
any change in its foreign policy, then it will be very much important to cope with that.

Environmental Protection Laws

Although the laws regarding environment are not very sophisticated in Pakistan but even if they
become so, they will not be hampering for Asia Ghee Mills, because in Asia Ghee Mills all the
wastes are considered as by products and used or sold. The water is also recycled for reuses
purposes. The only emission is of the carbon dioxide, which is within the prescribed range of
pollution.

Taxation Policy

The Asia Ghee Mills is paying tax each year. In last year the Asia Ghee Mills paid income tax
43% of net profit to the Government. But in this year Asia Ghee Mills has to pay income tax of
45% of net profit, which is equal for all the private companies.

Employment and Government Stability

Employment is not a matter of high concern for the organization because it is already following
all the labor laws. But recently the Government increases the wages of the employees but Asia
Ghee Mills has not affected by that, because this is a private company. But they are paying more
than the Government announced.
ECONOMIC FACTORS

Among the many of economic factors some are more important for Asia Ghee Mills, the detail of
these factors is in following:

Interest Rates

Interest rates increase and decrease has no impact upon the financial performance of the Asia
Ghee Mills, because the company has no loan of any bank. But it in future the company need to
take the loan then it must has to consider this issue.

Inflation

At the moment inflation rate does not seem to be very much related matter, because any increase
in oil prices will be off set by the increase in price of Ghee and cooking oil. Because there is no
close substitute of Ghee and cooking oil, so the sales will not be affected. But if we take it in
longer perspective the inflation in the country will increase the cost of production, which will
increase the sale price. And at high sale price the product will become in-competitive in the
international market if the company will involve in the export. So the pan of export will be
adversely affected by the inflation.

Disposable Income

Within the country the demand will be affected if the disposable income will be reduced. Ghee
and Cooking oil is a basic food ingredient and its primary demand cannot be eliminated. But
other than its direct use, it is also used in bakery and confectionery items and so many other
foods whose demand is dependent on disposable. So any decrease in disposable income of the
consumers will also be affecting Asia Ghee Mills negatively.

TECHNOLOGICAL FACTORS

Technology in ghee industry can be divided into two sectors. First is cotton seed and second is
ghee mills. The technological factors, which are more concerned with Asia Ghee Mills, are as
under:

Government Spending on Research

Usually in order to support some industry and improve economy, government allocates some
fund to R & D. Unfortunately our government doesn’t have any money for R & D. Due to this
non-serious behavior of government this sector along with others, is suffering very much. No
single mill owner can support R & D especially in the field of Cottonseed varieties. The varieties
which now a days are being cultivated are of sub-standard qualities. It gives less recovery and
more wastage. There is a need to find out the seeds, which can give better recovery.

New Discoveries and Developments

New discoveries in the field of raw material will be very much beneficial for the company, as it
will reduce the cost of production. But, if there will be any change in the technology of ghee
mills, or process development than it will be very difficult for the company to cope with that
change. In fact the company has made much investment in latest plant and machinery in 1994,
and almost 80% of its total fixed cost is stuck up in this area. So adopting any change means a
loss of all these assets. This is almost unbearable for the company.

SOCIO-CULTURAL FACTORS

Socio cultural factors like demographics; income distribution, life style etc. can also affect the
company in different ways. Let’s see which of them are more concerned to Asia Ghee Mills.

Life Style Changes

The consumption of ghee is very much related with the life styles of people. Now people, all
around the world, are becoming more and more health conscious. They are well aware that a
high consumption of ghee will increase the cholesterol, which leads to heart disease. That is why,
a significant change in the consumption of ghee is being observed in last many months. Although
the use of ghee cannot be fully eliminated but if this life style grows at same speed it will surely
decrease the demand of ghee but on the other hand the demand of the cooking oil is gradually
increase in last many months due to the same reason.

Level of Education

Level of education is directly related with awareness and health consciousness. In countries
where education rate is high the ghee consumption rate is low. In Pakistan, as well as in foreign
markets the rate of literary is increasing which will effect the organization negatively. High level
of literacy will lead to low level of ghee consumption and people started switch towards cooking
oil.

Structural analysis
The PEST analysis concerned with broad aspects of the environment while there is always a set
of external influences, which are more immediate, and directly affecting the organization. The
structural analysis draws on Five Forces approach prepared by Porter. It is a structured mean of
assessing the competitive environment.

THREAT OF NEW ENTRANCE

Threat of entry depends upon the extent to which there are barriers to entry. Ghee mills require a
big manufacturing unit which requires a huge capital investment; like Asia Ghee Mills has 10
crore authorized capital and 7 crore paid up capital. So we can say that ghee-manufacturing unit
is highly capital intensive and because of high capital investment it has high risk for new to enter
into production.

SUPPLIERS’ POWER

All organizations have to obtain resources and provide goods or services. The suppliers can
affects on strategic freedom of an organization and can influence the margins of that
organization. In Asia Ghee Mills, there are two types of suppliers. One is a local supplier, and
others are foreign suppliers. Because of many reasons the suppliers of oil have no powers. The
reasons are:

a) As well as the foreign suppliers are concerned they have power of bargain because the material
is not available locally and the buyer don’t have any option other than import, so the supplier
charge the high prices and transaction is done through banks by opening letter of credit and
buyer also has to bear high transportation cost and import duties.

b) As well as the local suppliers are concerned they have small oil mills, which separate oil from
seed. Ghee mills are highly capital intensive so they don’t have any power because they can’t
do forward integration.
c) There are large numbers of oil suppliers in Bahawalpur and in other cities so the buyer checks
the quality of suppliers’ oil and make contract with any one which meet their requirements
regarding quality or price.

BUYERS’ POWER

The buyers don’t have any power, because the prices of the products are fix, but high
competition among ghee/oil mills leads the company to minimize the prices.

COMPETITIVE RIVALRY

Organizations will also be concerned with the extent of rivalry between themselves and
competitors. The extent of competitive rivalry depends upon the nature of four forces described
earlier. It could be concluded from previous discussion that the ghee market is highly
competitive.

Value chain analysis

Value chain analysis is widely used to determine where cost improvements could be made or
value creation improved. This process involves the analysis of all the activities starting from the
raw material provisions to the distribution of final product. That is why it is necessary to
understand the complete procedure of production and distribution (please see chapter # 1) before
doing such analysis.

Organization Value Chain

All these activities are broadly categorized into two main heads, which are Primary activities and
Support activities.

PRIMARY ACTIVITIES

The primary activities of the organization are grouped into five main areas: inbound logistics,
operations, outbound logistics, marketing and sales & services. Cottonseed oil mills perform the
inbound activity in Asia Ghee Mills, which provide basic raw oil to firm. This activity should be
efficient in order to increase recovery rate by obtaining good quality oil. So in order to receive
good quality of oil, Asia Ghee Mills has its own cotton factories which provide required quality
of cottonseeds. The operations are the production process of ghee/oil where the major value
addition is made (production process of Asia Ghee Mills is given on next page). The
management subcontracts the outbound activity, and the distribution is through dealers. The
company owner believes that marketing has no benefit until unless they don’t utilize the enough
production capacity. The only thing they do for their marketing is to have good relationship with
the dealers and somewhat advertisement in print media in Ramzan. The company doesn’t
perform sales and services rather through dealers.

PRODUCTION PROCESS

When decanting tanks of oil entered in the factory first of all they have stored in main storage
tanks with the help of pumps. Then they transfer oil from main storage to refinery section where
first of all the oil pass through pre-neutralizer then through post-neutralizer then after filtration
they pass ghee and oil from pre-bleacher and then post bleacher. Then they pass ghee and oil
from deodorization then after deodorization they got the oil in the final stage where as for ghee
they pass for hydrogenation at particular temperature in the presence of nickel then after
filtration they got ghee in the final stage which is free from nickel. The production process of
Asia Ghee Mills is shown below

SUPPORT ACTIVITIES

The support activities can be divided into four groups, which are procurement, technology
development, human resource management and infrastructure. As the prime input of ghee is
available locally and some material has to import from out side countries. So procurement for
long time is not possible in case of raw material, which is locally available. Where as the
material that has to be import the company has a lead-time of 2-3 months. So the department of
inbound logistics is sufficiently performing the activity of procurement.

R & D and Process development researches are very important in ghee/oil industry in Pakistan.
So in the company value chain this thing should be emphasized much, rather it has a big
contribution in total value addition. Human resource management involves the training and
development of workers and employees in order to increase their productivity and efficiency. For
this purpose company make their employees to work with the senior worker to get the
experience, but they don’t have any separate training program for new employees. The company
has good planning, quality control systems and future orientation, which although does
contribute directly in value addition and increase the effectiveness of whole process. The
organization has the policy that the dealer who distributes their product will not distribute the
products of any other competitors or substitute.

ANALYSIS

All the value creation does not happen in the organization itself rather much of it can be occur in
the supply and distribution chains. So the whole process needs to be analyzed. For this purpose
we can divide it into three areas: suppliers, organization and channel members.

Suppliers

Suppliers play a very vital role in total value creation. The whole of the profitability depends
upon the quality of raw material; if supplier does not provide the good quality of oil then the
desired level of quality of ghee/oil cannot be achieved. The price structure of the country de-
motivates the grower to produce better quality of cottonseed. But good relationship with the
suppliers and fair and prompt payment can enforce the grower to cultivate better variety.

Organization

Within the organization the value addition activity is focused only on ghee/oil production, which
is their core competence. In order to provide the superior quality of ghee/oil to customers, Asia
Ghee Mills pass the raw material from two different machines for oil and ghee i.e. Post-
Neutralizer and Post-Bleacher, Which are not performed by other mills. But they do nothing for
by-products of ghee/oil. The carbon dioxide has directly released in the air and the laundry soap
has been packed and sold under the brand name of “Asia Laundry Soap”. Now the further
addition in ghee/oil is not possible due to the market conditions but there is a lot of space to
improve in by-products. With a little effort and investment.

Channel Members
There is a difference of 1-2 rupees per Kilogram in the Ex-mill price and market price and the
middlemen create this difference. As shown in the distribution network diagram, the ghee/oil is
not directly sold to the ultimate consumer rather it goes through a long process. And everyone
involves in this process take its share in terms of commission. Here the value addition takes
place in terms of price increase. Currently the company is using traditional distribution network
for ghee/oil sale but with a forward integration the company can increase the profit margin.

SWOT Analysis
STRENGTHS OF ASIA GHEE MILLS

Professional Leadership

Usually in such kind of traditional organizations leadership is deficient. People are usually
guided through specified rules and regulations. Also the professionalism is lacking in most of the
cases. But Asia Ghee Mills is clearly different in this aspect from other organizations. After
taking charge of many responsibilities Mr. Ch. Abdul Majeed has worked very hard for the
success of the mill. Due to his professional abilities and leadership qualities he has also achieved
many of his objectives. And now this is the result of his efforts that the company is showing very
good performance and operating on professional basis.

Skilled Labor With High Morale

In most of the factories skilled and semi skilled labor along with unskilled labor is hired from
outside. There is always a risk associated with them that whether they work properly or not. First
of all Asia Ghee Mills always hire the educated people, you can take the example that they
require at least Matric pass candidate for the post of helper. Asia Ghee Mills has placed its new
employees with the senior employees and trained them before they actually placed on job. They
have the career opportunity to move upward to become an operator because helper has known all
the responsibilities of the operator. So this will create the most loyal employees with high
morale, which are more productive.

Sophisticated Technology
There are no hard and fast rules in ghee/oil industry regarding the technology or process implied.
Even in some factories fifty years old machinery is also used. Such type of machinery affects the
quality of oil/ghee. Asia Ghee Mills has the latest machinery and plant. As it is one of the latest
ghee/oil mills build in Pakistan whose machinery is locally available from Multan & Lahore, so
it is using the most modern technology available in Pakistan. This machinery also gives an edge
to the organization over its competitors, because all the ghee/oil industries working in Pakistan
are using “By Pass” operations means that the same machinery is used for the production of
ghee and oil. Where as the only Asia Ghee Mills have separate processes for both ghee and oil to
assure the good quality products.

Backward Linkages

Generically the company has got an advantage of access to the sources of raw material. In fact
the owner of the company is big business man of Bahawalpur. The raw materials, which are
available in Pakistan, are mostly available in Bahawalpur. The other strength of the company is
that they take the oil from their own cotton factories but their cotton factories meet only 10% of
the total raw material required for the current capacity utilization

WEAKNESSES OF ASIA GHEE MILLS

Lack of Awareness

The major weakness of the Asia Ghee Mills is the lack of awareness among the consumers,
because the Asia Ghee Mills don’t go for any type of advertising program. Asia Ghee Mills use
print media one time in a month, where as they had used electronic media in start but now they
don’t have any advertisement for their products, so that’s why majority of the people even don’t
listen the name of company.

Limited Distribution Network

The other weakness of the Asia Ghee Mills is of having limited distribution network. As we have
already told that Asia Ghee Mills is distributing their products only in Bahawalpur, where they
are distributing their products at mass level and having a market share of 70-80%, but in Multan
division the firm has started its distribution. Because of this limited distribution network the
company is unable to utilize its full capacity because currently Mill is utilizing 50% of its full
capacity which is enough to meet the need of consumers in Bahawalpur, and other than
Bahawalpur the company don’t have so much demand because of no advertisement, and absence
of distribution network which forced the company to operate half capacity.

Dealership Marketing

Asia Ghee Mills distribute its products through outside dealers which cause increase in price of
the products which the consumers receive, because the dealers and retailers take their margin
which cause a 1-2 rupees difference in the Ex-factory price and Retail price.

OPPORTUNITIES

Generic Opportunities

The ghee/oil has so many opportunities due to its product nature. It is a necessity and no one can
avoid it. In Pakistan, the consumption rate of ghee/oil is high in the world, and as the population
growth rate is also very high so the company has an opportunity to meet the demand of local
market. Also the product has no substitute, so people have to buy it in any case. These are the
natural opportunities, which the company is enjoying.

THREATS

Low Production of Cottonseed

The cotton is not produced sufficiently in the country. It is due to the low productivity of the
varieties and due to the less area cultivation. Due to this low production the mill faces a shortage
of raw oil, which is always a problem for the company.

Decrease in Consumption

Due to the increase in awareness level of the people the consumption rate is decreased. The
reduction in disposable income is also a cause of decrease consumption of ghee. The high rate of
heart disease in the country is another cause, which restrict the people to use ghee. Because of all
these factors the consumption rate of ghee is decreasing in Pakistan. This is a source of
continuous threat for the company.
Financial Analysis
In order to see the viability of the company, Financial Analysis is necessary. In this analysis we
calculate financial ratio and some financial indicators.

PROFITABILITY RATIO

A profitable company will have to be expanded further. So we can analyze its profitability
through following indicators. The company has authorized capital of 10 crore, and the paid up
capital of 7 crore.

Gross Profit Margin

Gross Profit Margin = Gross Profit / Net Sales

Gross Profit Margin = 114270750 / 761805000 = 15%

Asia Ghee Mills is getting 15% profit margin after paying its cost of goods sold. From that 15%
margin company can easily pays its operating expenses and taxes. As firm is not raising any
long-term debts, so, the profit for the company is enough to pay its operating expenses.

Net Profit Margin

Net Profit Margin = Net Profit / Net Sales

Net Profit Margin = 29966640 / 761805000 = 3.93%

Company is earning very good profit margin, and it is improved from previous year by 0.93%.
Which shows good performance the main reason for that is the increase in sales from previous
year. Company is utilized its equity very well. Shareholder’s value is also increased.

ACTIVITY RATIO
From available data we are only able to calculate inventory turnover ratio. As firm is utilizing its
capacity about 50% and from that, they have to keep some inventory as safety stock.

Inventory Turnover

Inventory Turnover = CGS / Inventory

Inventory Turnover = 647534250 / 190451250 = 3.4 times

It means the firm is able to sell its inventory 3 to 4 times a year. Due to uncertainty they have to
keep about 25% inventory as ending inventory.

Existing STRATEGIES

Corporate Level Strategiees

C orporate level strategy focuses on strategies for enterprises consisting of more than
one business. Asia Ghee Mills, for instance, comprises several businesses, including
consumer goods and industrial goods. Asia Ghee Mills involve more than one
business is said to be diversified.

CONCENTRIC DIVERSIFICATION

“Adding new, but related products or services”.

Asia Ghee Mills involved in concentric diversification because Asia Ghee Mills has two by
products, laundry soap and CO2 gas. Asia Ghee Mills has developed a setup to sold laundry soap
under brand name of “Asia Laundry Soap” so Asia Ghee Mills is adding new but related
products in to the market. Instead of selling laundry soap as a raw soap to any other soap
manufacturer, they themselves start cutting and packaging of the soap and sold in the market as
their own new products under their own brand name. Then we said it concentric diversification
because they manufacture the soap from the by products they receive.
BACKWARD INTEGRATION

“Seeking ownership or increased control of a firm’s suppliers”.

Asia Ghee Mills involved in backward integration because they receive the cottonseed oil from
their own cotton factories. Although these three cotton factories provide only 10% of its total
requirement but this will increase the bargaining power of the Asia Ghee Mills if it has to
negotiate upon the prices of oil purchasing from other factories.

Business Level Strategy

Firms compete directly with one another at what is called the business level of strategic
management, so we will focus on crafting successful competitive strategies. Because competition
takes place at the business level, strategic management at this level is crucial to the overall
success of the firm.

COST LEADERSHIP

In manufacturing and especially in industries where the product differentiation is not possible the
only strategy the organization is left with is "Low Cost Production" or cost leadership. In fact
cost reduction is the only way to stay in the industry. Asia Ghee Mills has cost leadership
strategy. Asia Ghee Mills has the following two major competitors:

Major Competitors Weights Prices (Rs.) Weights Prices (Rs.)

Sultan Banaspati 1kg 48 16 kg 740
Shehbaz Banaspati 1kg 47 16 kg 736

Asia Ghee Mills is following cost leadership because the competitors especially Sultan Banaspati
has a very old name in the ghee industry so Asia Ghee Mills has to charge the low prices to
compete with the competitors.

Here from the above table we can see that the price of the Shehbaz Banaspati is equal to the
prices of the Asia Banaspati. But in Bahawalpur the sale of Asia Banaspati is more than Shehbaz
Banaspati, but in Multan division the sale of Sultan Banaspati and Shehbaz Banaspati has more
sales than Asia Banaspati.
According to the text, the low cost strategy is good when, product cannot be differentiated,
industry is producing standardized product, product has same usage and switching cost is low.
All the characteristics are fully applied in ghee industry. So company is using right strategy.

Operation Level Strategy

Operation level strategy focuses at how to develop capabilities in process execution that will
yield competitive advantages for a firm. This involves applying strategic management concepts
to what is known as the operations level, the level at which work inside the organization actually
takes place. We focus on how organizations go about improving their process capabilities,
including both total quality management and core process reengineering.

PRODUCT DEVELOPMENT

“Seeking increased sales by improving or modifying present products or services”.

Currently Asia Ghee Mills is following the product development strategy, because the Asia Ghee
Mills is continuously improving the quality of the ghee/oil for the consumers. Asia Ghee Mills
has a good image in the Bahawalpur, and they try to develop the same good image in all over the
country, so that’s why they are improving their products through TQM.

RECOMMENDed strategies

recommeded Strategies

A t this time when industry is fully mature, and the competition in terms of access to
final consumer is very high the companies usually face the problems of slow
demand growth, emphasize on cost and services, topping out and loss of
profitability. The Asia Ghee Mills is also facing the same problems. Although it has tackled the
major problems very well but still there is some room of improvement in its existing strategy.

FORWARD INTEGRATION
“Gaining ownership or increased control over distributors or retailers”.

The firm should use their own distribution network because the motive behind that when they
have their own distribution system the additional cost will be avoided which had been kept by
dealers as their own margin. In this dynamic and competitive environment the firm has to
maintain its current position of cost leadership to be competitive.

CONCENTRIC DIVERSIFICATION

Asia Ghee Mills is involving in the concentric diversification because of having two by products.
One is laundry soap and the other is CO2 gas. The firm is using laundry soap as the new product
and is selling under their own brand name. But they are disposing off the CO2 gas in the air.
They can generate good cash flows if they use CO2 gas as the new product of the factory and
sold to soda water or you may receive the application from different contractors.

MARKET DEVELOPMENT

“Introducing present products or services into new geographic areas”.

As it is already mentioned that the firm is only distributing in Bahawalpur and Multan division.
The firm should go for market development, means that the firm should introduce their products
in new markets or new geographical areas. This can increase the demand of the firm’s products.
Then increase in demand will lead the company to utilize the full capacity of the production.
When the company utilizes the full capacity its sales will increase along with the profitability of
the owners.

ADVERTISEMENT

Asia Ghee Mills is not using any mode of advertisement, because of low demand and
unavailability of their products. They believe that advertisement without availability of the
product is useless and creates a bad image. In order to create awareness Asia Ghee Mills must go
for advertisement.

ISO CERTIFICATE
Although the firm is working better than required ISO certificate but the firm should take the
ISO certificate. Because ISO certificate create a good image among the consumers.

DISPENSARY

Asia Ghee Mills has no dispensary in the factory for the employees’ injuries during the
production. Asia Ghee Mills must take some action to establish a full fledge dispensary for
dealing the employees’ injuries. This will provide the safety to the employees and they will be
more satisfied, productive and having high morale.

implementation

Asia Ghee Mills can implement on our proposed strategies in following ways:

FORWARD INTEGRATION & MARKET

DEVELOPMENT

Asia Ghee Mills has following options available for distribution of its products.

 Through private dealers

 Through their own networks.

As we already suggested Asia Ghee Mills should distribute its products through its own
networks. So for this it should take following steps.

 Purchase its own vehicles.

 Appoint more sales officers.

 Establish its own distribution networks in major cities of Pakistan i.e. Bahawalpur, Multan,
Khanewal, Mianchannoo, Sahiwal, Lahore, Faisalabad. The sales officers are required to
sell the product of the company directly to the retailers. When they got success in these
cities then the company should approach to other cities of the country to explore new
markets.
CONCENTRIC DIVERSIFICATION

For establishment of CO2 Gas plant, Asia Ghee Mills should take following measures:

 Construction of CO2 gas cracking plant and:

 Sold to Soda Water producers or any other contractor.

Gas cracking plant requires approximately 6.5 lac of investment. This plant has the capability to
eject the CO2 gas from the disposable gases. The disposable gases have transferred to sulpher
tower where these gases are required to be refined at 800c, which separate all the gases (H2, O2,
CO2, CO). Then these gases has to transferred to first converter then second converter where the
converter absorb the CO2 gas, then after absorbing this CO2 gas again has to reboil at 100c which
purify the CO2 gas and then CO2 gas has to transferred from low pressure tank to high pressure
tank. Then the CO2 gas is ready to fill the cylinders.

ADVERTISEMENT

Asia Ghee Mills has following options for advertisement:

 Electronic Medias

o TV

o Radio

o Internet

 Print Medias

o Newspapers

o Magazines

Asia Ghee Mills should advertise on electronic media especially on TV, Because TV is
more capable to create awareness about the company’s product among the people and
can facilitate its sales officers during sales to retailers. The timing of advertisement
should be during Khawatin programs.