Clayton Industries

Team members -
Gaurava Singhal
Krishan Tyagi
Pravata Nalini Dhall
Shrawan Kharkia
Venkatesan Jayaraman

Wednesday, October 6, 2010

 Problem Statement

Clayton SpA facing the following issues -

Declining sales - down by 19%
3rd year of losses
loss in the tunes of 1M USD/month

Wednesday, October 6, 2010

 Responsible factors
Following factors are responsible for the
situation -
Global recession has aggravated the
situation
Operating in-efficiencies - very high direct
cost (raw material cost has increased by
27%)
Inefficient sales/marketing strategy
Low cost and more efficient options
available in the market.
Wednesday, October 6, 2010
 Option#1
Bring in efficiency in the existing plant (no
investment):
In Support
Staffing levels may be 20-30% higher.
Raw material (steel) costs have increased 27%
Receivables and inventory above 120 days sales.
Currently the compression chiller market share is
85% of the total market for air treatment products.

Wednesday, October 6, 2010

 Option#1
Bring in efficiency in the existing plant (no
investment)
Against
We may not be able to bring in a lot of
improvement as raw material (steel) cost is the
major contributor in the high operating cost and
has increased 27% over the last 2 years.
Headcount reduction faces tough local laws and
a tense union relationship.
Sales were primarily to govt - so reducing the
receivable days would also be tough.
Revival in the industry is forecasted and need for
more AC’s is on the cards (exhibit - 5).
Wednesday, October 6, 2010
 Option#2
Bring in efficiency, improve product design &
revamp sales/marketing strategy (5M $)
In Support
If product design changes could bring down the
raw material cost/unit
As Clayton’s current market share is 21% (in Italy)
and 7% (in Europe) - there is a lot of market share
to be captured.
Clayton could play on the Brescia’s dominant
position in Italian markets and expand in Europe.
Currently the compression chiller market share is
85% of the total market for air treatment products.
Wednesday, October 6, 2010
 Option#2
Bring in efficiency, improve product design &
revamp sales/marketing strategy (5M $)
Against
Huge investment in cash crunch times (recession)
Product design would need to ensure that we are
competitive on any/all of the following -
Prices - by reducing the raw material cost/unit
to bring down the operating costs.
Innovative features - customers are ready to pay
more for our product.
Quality - more efficiency as compared to
substitutes.
Wednesday, October 6, 2010
 Option#3
Move to Absorption chillers (change in product
- 15M USD over next 5 years)
In Support
Absorption chillers - upcoming technology.
Technical know-how available with Clayton.
Technology more suitable for European houses -
growing market - inline with company’s objective.
Greener option: Europeans being environment
sensitive, acceptability will increase as we go.
Margins better than compression chillers - atleast
10% EBIDT (as observed in Barcelona).
In line with CEO’s vision of positioning company in
an advantageous state post recession.
Wednesday, October 6, 2010
 Option#3
Move to Absorption chillers (change in product
- 15M USD over next 5 years)
Against
Long term investment commitments in cash crunch
times (recession).
Path of no return.
High risk - high gain proposition.
Current market share (in Europe) for absorption
chillers is < 15%

Wednesday, October 6, 2010

 Summing it all
Investment
Options Supporting Arguments Against
(USD)
Bring in - Clayton market share is only 7% currently, scope of
growth - high raw material cost
operational - 85% market in Europe for compression chillers - price competition
NIL - Dominant brand in Italy, having more scope in - low margins
efficiency in the residential - inefficient product as compared to
- Least risky option products by other companies
existing plant - Buy time to see how the economy is shaping in

3 steps - - Huge investment (5M$ per year)

- Clayton market share is only 7% currently, scope of
1. improve plant growth
- cash flow constraints
- high raw material cost
efficiency - 85% market in Europe for compression chillers
- price competition
2. product design 5M/year - dominant in Italy, having more scope in residential
- only if we come up with an altogether new product
- low margins
- inefficient product as compared to
design (raw material cost/unit is reduced), then we can
3. aggressive sales/ pursue this option
products by other companies
marketing strategies
- lesser investment (3M$ per year)
- in line with Company objectives and CEO vision of
positioning company in an advantageous state post
- path of no-return
recession.
Transition to - Europeans more environment sensitive, so the
- high risk high gain proposition
- cash flow constraints
acceptability of absorption chillers will increase
absorption 15M/5years - Affiliation to local brands and cheaper options
- long term investment commitment
- currently the market share is < 15%
chillers - absorption chillers margin more
- upcoming technology
- inline with company’s objective of targeting commercial
and residential markets and this technology is more
suitable for European houses.

Wednesday, October 6, 2010

 Summing it all
Investment
Options Supporting Arguments Against
(USD)
Bring in - Clayton market share is only 7% currently, scope of
growth - high raw material cost
operational - 85% market in Europe for compression chillers - price competition
NIL - Dominant brand in Italy, having more scope in - low margins
efficiency in the residential - inefficient product as compared to
- Least risky option products by other companies
existing plant - Buy time to see how the economy is shaping in

3 steps - - Huge investment (5M$ per year)

- Clayton market share is only 7% currently, scope of
1. improve plant growth
- cash flow constraints
- high raw material cost
efficiency - 85% market in Europe for compression chillers
- price competition
2. product design 5M/year - dominant in Italy, having more scope in residential
- only if we come up with an altogether new product
- low margins
- inefficient product as compared to
design (raw material cost/unit is reduced), then we can
3. aggressive sales/ pursue this option
products by other companies
marketing strategies
- lesser investment (3M$ per year)
- in line with Company objectives and CEO vision of
positioning company in an advantageous state post
- path of no-return
recession.
Transition to - Europeans more environment sensitive, so the
- high risk high gain proposition
- cash flow constraints
acceptability of absorption chillers will increase
absorption 15M/5years - Affiliation to local brands and cheaper options
- long term investment commitment
- currently the market share is < 15%
chillers - absorption chillers margin more
- upcoming technology
- inline with company’s objective of targeting commercial
and residential markets and this technology is more
suitable for European houses.

Wednesday, October 6, 2010

 We need your
support to make it
happen!

Wednesday, October 6, 2010

 Together we can
revive Clayton!

Wednesday, October 6, 2010