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Product Level Planning of Kohat Cement Company

Product Level Planning of Kohat Cement Company

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Published by Qaiser Abbas
Complete process of product level planning at Kohat Cement Company.This will provide important and fruitful information regarding product level planning,Kohat cement Company and overall analysis of cement industry of Pakistan..
Complete process of product level planning at Kohat Cement Company.This will provide important and fruitful information regarding product level planning,Kohat cement Company and overall analysis of cement industry of Pakistan..

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Published by: Qaiser Abbas on Mar 20, 2012
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11/10/2012

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Final assignment

PRODUCT LEVEL PLANNING
ORDINARY PORTLAND CEMENT (GREY CEMENT) KOHAT CEMENT COMPANY

Submitted to the respected & honorable

The SIR OWAIS MUFTI

BY

QAISER ABBAS SHAH ZAMAN KHAN
MBA GENERAL 2ND SAMESTER GROUP C

INSTITUTE OF MANAGEMENT SCIENCES PESHAWAR

TABLE OF CONTENTS
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Executive Summary............................................................................................................................... 3
Market Analysis........................................................................................................................................ 4 Opportunities and Threats Analysis.................................................................................................... 10 Objectives……………………………….…........................................................................................................... 15 Marketing Strategies………………............................................................................................................. 16 Action Program…..................................................................................................................................... 17

Projected Profit and Loss Statement.............................................................................................. 18 Feed Back And Control ....................................................................................................................18

Crux……….……………………....................................................................................................................... 19 References……………………………........................................................................................................ 19

1.

EXECUTIVE SUMMARY:

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Cement industry is highly important segment of Pakistan’s industrial sector and plays a vital role in socio-economic development. Although cement industry of Pakistan has witnessed its ups and down in recent past but in last decade it has recovered and now it’s a self-sufficient industry of Pakistan not only fulfilling domestic needs of Pakistan also exporting a huge of amount of cement to other countries, bringing foreign reserves and help in up lifting Pakistan’s GDP. Pakistan is currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan. In this report we have selected Ordinary Portland Cement (OPC) of Kohat Cement Company simply called grey cement and we will describe how they do product planning for that? Kohat Cement Company Limited was incorporated in 1980, is an ISO 9001-2008 certified company, listed on Stock Exchanges of Pakistan and engaged in manufacturing of Grey and White Cements. The plant is located in Kohat on Rawalpindi road about 60 kilometers from Peshawar. They have two main head offices in Kohat and Lahore along with other regional offices in many big cities of Pakistan.

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2. CURRENT MARKET SITUATION:
This portion presents the data on the following factors;

MAEKET SITUATION:
Pakistan cement industry comprises of 29 firms dividing into 2 zones, North and South zones. North zone have 19 units situated in Punjab and KPK while south zone have 10 units (mostly situated in Sindh) striving for the current domestic market of over 22.5 million tons of cement. According to APCMA (All Pakistan Cement Manufacturers Association is the apex body of the cement manufacturers of Pakistan), 2003 to 2007 cement industry of Pakistan had registered an average growth rate of 20%. Another 20-25 % growth is expected till the end of the current year. The market or industry growth will be up to 15-20% annually for the next few years. The boost in cement sector is because of the rising construction activity in the country, reconstruction activity in Afghanistan and increasing development expenditure by the government. Due to this the sales of cement manufacturers will also rise every year.

PRODUCT SITUATION:
Since cement is a specialized product, requiring sophisticated infrastructure and production location. So, most of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity so Kohat Cement is situated near to the mountain region of Kohat to get raw materials (Limestone 80%, Clay 20%, Iron ore) easily for the production of grey cement. Kohat cement installed capacity for grey cement is 2.85million tons per annum while production for the fiscal year 2011 was 1.49million tons with the market share of 4.5%. Following table shows info regarding production, sales and export.

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Clinker is a semi finished raw material used in the production of cement. Kohat Cement is producing grey cement in 50kg paper bag or polypropylene@ Rs.400 /bag (20 bags to a metric

ton).

The company has earned a pre-tax profit of Rs. 125.7 million after accounting for all charges inclusive of depreciation of Rs.310.562 million. Following table shows financial performance of company regarding grey cement;

Increase in the profit is due to increase in demand locally and abroad as compare to last year when the company was going in loss and also increase in the prices of the cement. Following charts show the revenue and cost distribution of the company.
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North Zone

As on November 2011

COMPETITAVE SITUATION: In competitive situation we will describe all the competitors of Kohat Cement producing Gray
cement. There are 29 firms in the market along with Kohat Cement Company producing grey cements in Pakistan with installed capacity of 44million tons per annum fulfilling 25million tons of local needs and exporting 10-15million tons in 2011. All these companies are using different marketing tactics to grape as much market share and sales as possible but they are acting like a cartel under the tree of APCMA. They are producing same quality of cement with all most same price and features that’s why competition in the market is very tough for local as well as foreign market. All are using same bulk and penetration strategies to cover major portion of the market. Some are using cost leadership strategy but due to cartel act behavior they are not getting the target results that they want to achieve. Bestway, Maple Leaf, Lucky and D.G Khan Cement Companies are the market leaders with having majority market share in Pakistan and in foreign market as well.

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Sr. No.

Name Of Unit

Operational Capacity Clinker Cement 1,102,500 1,575,000 1,228,500 3,600,000 1,086,750 1,102,500 504,000 1,134,000 2,110,500 2,110,500 3,433,500 819,000 1,197,000 2,110,500 2,677,500 3,912,000 3,370,500 2,047,500 2,030,250 37,152,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Askari Cement Limited - Wah Askari Cement - Nizampur Bestway Cement Limited - Hattar Bestway Cement Limited - Chakwal Bestway-Mustehkum Cement Limited - Hattar Cherat Cement Company Limited-Nowshera Dandot Cement Limited - Jehlum Dewan Hattar Cement Limited - Hattar D.G.Khan Cement Limited - D.G.Khan D.G.Khan Cement Limited - Chakwal Fauji Cement Company Limited - Fateh Jang Fecto Cement Limited - Sangjani Flying Cement Limited - Lilla GharibWal Cement Limited - Jehlum Kohat Cement Company Limited - Kohat Lucky Cement Limited - Pezu Maple Leaf Cement Factory Limited - Daudkhel Lafarge Pakistan Cement Company Limited - Chakwal Pioneer Cement Limited - Khushab Sub Total (North Zone)

1,050,000 1,500,000 1,170,000 3,428,571 1,035,000 1,050,000 480,000 1,080,000 2,010,000 2,010,000 3,270,000 780,000 1,140,000 2,010,000 2,550,000 3,725,714 3,210,000 1,950,000 1,933,571 35,382,857

South Zone 1 2 3 4 5 Al-Abbas Cement Limited - Nooriabad, Dadu Attock Cement Pakistan Limited - Hub Chowki, Lasbela Dewan Cement Limited - Dhabeji Lucky Cement Limited, - Indus Highway, Karachi Thatta Cement Limited - Thatta Sub Total (South Zone) Grand Total (North+South) 540,000 1,710,000 750,000 3,428,571 300,000 6,728,571 42,111,428 567,000 1,795,500 787,500 3,600,000 315,000 7,065,000 44,217,000

Market shares of different companies according to their sales in Pakistan are given below:

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Following chart shows the exporting ratio of grey cement competitors according to their ratio of exports Lucky Cement with leading the market and KCC with 2% share almost.

DISTRIBUTION SITUATION:

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Kohat Cement Company uses different channels of distributions to transfer the gray cement from company to the different parts of the Pakistan. KCC distributes their 78% of production in local market and 23.5% of their production are being export to Afghanistan via land and 0.5% to other countries. In Pakistan they are using 4 different channels of distributions with up to 5-10% of commission given to distributors depending upon their size and purchase. They give majority of their cement production to wholesalers directly or through regional offices present in different parts of Pakistan.

KCC ► WHOLE SALERS► RETAILORS►CUSTOMERS  KCC►RETAILORS (BULKS)► CUSTOMERS  KCC► CUSTOMERS (BULKS)  KCC► REGIONAL OFFICES►W/S or RETAILORS

GEOGRAPHICAL SITUATION:
OPC (Ordinary Portland Cement) Grey cements are being distributed to all the parts of Pakistan but they have covered the major portion of KPK. According to their given information out of 78%, their 30_40% of sales revenue comes from KPK and the remaining from other parts of the country. They are exporting 24% (389788 tons) to Afghanistan, Iraq and India but majority of portion goes to Afghanistan.

MACRO-ENVIRONMENT SITUATION:
Macro-environment factors directly or indirectly effect the production of OPC or the performance of the company. Micro-environment factors are the forces that are not under the control of the company. These factors are

       

Political stability Laws of the country Terrorism Cultural values Technology Demographic Trends Economic Conditions Inflation

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All the above mentioned factors should be clear and supportive for the best performance of any product or company. But many of these factors are directly affecting the strategies regarding price, cost, raw materials, distribution, exports and profits etc of Kohat Cement while producing or selling of OPC. Like        

60% of cost of OPC is due to fuel and electricity prices 16% of sales tax is also affecting OPC Terrorism is the hurdle in expanding the cement businesses in remote areas KCC is paying Rs.62million in the form of taxes. Rs.750-900/ton export duty is very high and affecting the exports of OPC Political instability is also a problem for the growth of KCC 15% of inflation is directly affecting the industries along with KCC. Weak infrastructure is also the cause of high price of OPC.

3.

OPPERTUNITY AND ISSUE ANALYSIS:

After completing the market analysis now we will do analysis of opportunities and issues for the OPC of Kohat Cement Company. Opportunity is a chance for progress or advancement that is available in the market and the company has to avail it for the progress and profitability while issues are the weaknesses or threats for the company to avoid or settled down. For this purpose we have to do SWOT analysis of Kohat Cement.

STRENGHTS OF KOHAT CEMENT:
Strengths are the internal positive factors or advantages that a company possesses. Following is the strengths of OPC Kohat Cement: o Installed Capacity: Installed capacity of company for OPC is 2.8million tons per annum and they are producing 1.47millon tons per annum so they can exceed the OPC production easily by proper implementing their marketing mix strategies and it will directly increase profits of the company.

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o Raw Materials: Kohat Cement Company is situated in Kohat near the mountain regions on Rawalpindi road. So they can easily avail the huge reserves of raw materials with a very low cost as compare to other competitors as their cost of raw materials is 7% of cost of production.

o High Quality Of OPC: Quality of Kohat Cement is much better than the standards set by Pakistan and Importer. Quality of product is better than approved British and Pakistan Standards. Company is certified by ISO 9001-2008 which is an edge for the company.

o Domestic and Foreign Market: As they have captured up to 40% of KPK market so they can improve it more than that by implementing proper strategies and programs. Along with this they can easily captured the other markets of Pakistan through their quality, standards and price. They can also increase their exports to Afghanistan through roads because it is the nearest cement company to Afghanistan and they can easily transfer or sale out their OPC to Afghanistan by less distribution charges.

o Coal: They can easily avail coal reserves of KPK which is in abundance in these areas. They can reduce the fuel expenses which is 47% cost of goods now. As KPK is in rich of coal so they can get coal on low prices. o Cheap Labor: They are using the cheap labor market of Pakistan which is strength of them and due to this their price is low as compare to otter competitors. o Good Govt: Policies: Local and federal govts: policies are supportive and favorable to the cement sector. They are getting many benefits in term of gas and electricity from KPK Government. So over all KCC is enjoying good environment created by Government.

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WEAEKNESES OF KOHAT CEMENT:
Weaknesses are the internal negative factors of a company that should be avoided or to be controlled. Following are the negative factors of OPC: o Not Utilization Full capacity: KCC is not utilizing its full capacity of production of grey cement. They can produce 1.4million tons per annum extra cement besides their current production. So not utilizing their full capacity is also their disadvantage which they should convert it into opportunity.

o Fuel and Electricity Charges: Kohat Cement cost comprises 68% costs of fuel and electricity. So they should minimize these expenses as much as they can. It can really help them in uplifting their market share and growth and profit as well. They can convert their system to coal or can generate their own electricity by investing in this sector.

o Management: Kohat Cement major boards of directors are from the same family which is also a negative factor of them. So they should introduce competent personals in the company for the growth.

o Freight Charges: Freight or transportation charges to other parts of the country are also a problem for them which should be settled down as soon as possible. They should minimize their expenses to avail greater markets present in other parts of Pakistan.

OPPERTUNIITES:
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Opportunities are chances for progress or advancement that is available in the market and the company has to avail it for the progress and profitability. These are positive external factors. Following are the opportunities available for Koaht Cement: o Government Development Expenditures: Govt: is spending huge amount on developmental projects like roads, schools, hospitals, dams and infrastructure etc. So KCC can avail these opportunities by responding on time to these projects.

o Construction Of Big Projects: Recently there are many big projects are going on in Pakistan like construction of GHQ in Rawalpindi, Lawari Tunnel in Chatral, up-rising of Mangla Dam project, construction of Bhasha Dam, Gawadar Port and many other big projects are going on in the country. So KCC should explore all these opportunities to increase its market share.

o Demand Of Pakistani Cement: Recently Pakistani cement demand is increasing day by day in Afghanistan, India, Sri Lanka, Russia, Iraq, Africa, Middle East and many other countries so KCC can improve its foreign market share from 2%. This will be very favorable and profitable for them.

o Growth And Development In China And Other Countries: There is a rapid growth going on in China and other countries of the world so Kohat Cement Company can also avail these opportunities because it is fulfilling all the requirements of these new markets.

o Domestic Development in Pakistan: Domestic development works has been going on in Pakistan from the last two three years after the big floods. So demand of cement in local market is on boost so company should avail these opportunities.

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THREATS FOR KOHAT CEMENT:
Threats are the negative factors that are available in the external environments. These are unhidden threats that are waiting for KCC and they should be ready or be prepared to tackle down all these threats for their existence and survival. Following are the threats available for Kohat Cement Company:

o High Energy Prices: Energy prices are constantly increasing in Pakistan and worldwide which is directly affecting the profitability of KCC because major portion of OPC cost consists of fuel (furnace oil) and energy expenses so they should find out alternative source of energy to minimize the cost of goods.

o High Level Of Taxes and Custom duty: In Pakistan sales tax is charged @ 16% which is very high and Govt: is paining to take it to 19% which will be devastating for all industries in Pakistan. Custom duty is being charged @ Rs.750-900/ton on export of cement. So it will directly affect Kohat Cement prices and profit ratio. So govt: should take constructive steps for the development of the industries.

o Competitors: There are 29 firms in cement industry which make the competition very tough. Each firm is striving to get as much share as they can and they are using different tactics to excel their sales. So KCC should take proper steps for its growth while taking into consideration all the competitors.

o Terrorism: The threats of terrorism from Taliban, Al Qaida and other militants groups in Pakistan and KPK specially is affecting the sales and production of grey cement. So company should be aware of it and they should make their planning accordingly. o Political Instability: It is also a main threat for Kohat Cement Company because it brings changes in laws and regulations accordingly.

4. OBJECTIVES:
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After analyzing all the factors now we will set the objectives or targets we can say, for Kohat Cement Company that is going to be achieved in the next financial year of the company. Our objectives should be o o o o o Specific Measureable Achievable Realistic Time bound

There are two kinds of objectives which are:  FINANCIAL OBJECTIVES  MARKETING OBJECTIVES

FINANCIAL OBJECTIVES:
Financial objectives are related with the financial performance of the company or simply objectives that relate to finance. Following are the financial objectives that we will set for Kohat Cement Company for 2012: Profit after taxes should be Rs.340 million Cash flow should be Rs.500 million

MARKETNG OBJECTIVES:
Financial objectives should be convertible to marketing objectives. Marketing objectives are related to market or overall industry. Following are the marketing objectives of Kohat cement Company:

Sales should be Rs.10billion Exports should be Rs.3billion out of Rs.10 billion Average price should be up to Rs420/ bag Sales of 2.3 million tons should be achieved in 2012. Expand the number of dealers 10% Market share should be up to 7%.
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5.

MARKETING STARTEGIES:

Strategies are the game plan or road map to achieve the objectives set by the company by utilizing its resources. Following are the marketing strategies that should be used:  NEW MARKETS: New markets in KPK, Punjab, Sindh and other parts should be achieved also in India and Afghanistan, Iraq and UAE.  DISTRIBUTION OUTLETS: Distribution outlets or big distributors must be located in all the targeted and new markets with commission @ 12% of sales.  ADVERTISEMENT: 2% budget should be allocated for advertisement campaign on bill boards and certain media channels.  LOW PRICING STARTEGY: Low pricing strategy should be adopted as compare to competitors.  ALLIANCE STRATEGY: Alliances should be made with distributors and realtors in important markets and preference should be given to them.  SALES FORCE: Sales force or sales agents should also be hired in remote areas with 5-8% commission.

 MARKET RESEARCH: 10 % budget should be allocated to market research to know competitors, customer behavior and new markets.  LOWER COST OF GOOOS STRATEGY: Cost of the cement should be low down to earn maximum profit. 6.

ACTION PROGRAMS:

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Marketing strategies should be supported with action programs or day-to-day plans. Each strategy should be broken down in to small programs or actions that can easily be implemented. It tells us that which marketing strategy is to be completed by whom, when, how and what will be the cost of that?       Sales department have to do 3.5billlion sales after every 4 months. Production department have to produce 0.75 million tons after every 4 months. Purchase department should purchase furnace oil and raw materials 5% less as compare to previous year. Management should reduce unproductive expenses @ 10% as compared to last year. Other incomes should be increased up to Rs.3o millions as compare to last year (20 million) in the whole year. Marketing department should achieve their target within given budget on the basis of six months.

7.

PROJECTED PROFIT AND LOSS STATEMENT:

Following is the projected profit and loss statement of Kohat Cement Copmany: In millions
SALES

Increase 62% 36% 81% 258% 15% 60% 100% 315%

CGS G.PROFIT OTHER EXPs FINANCAIL COSTS OTHER INCOME
PROFIT BEFORE TAXES

9875 (8200) 1675 (38o) (820) 32 507 (250) 257

TAXES NET PROFIT

8. FEED BACK AND CONTROL:
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It is the last stage if product level planning. In this step we will actually that does the company have achieved it objectives or not that were set in the planning stage. In this step we will compare the actual results with the standards set out there in the planning stage. According to the above results and figures KCC has achieved all the targets and goals efficiently and effectively. They have properly implemented the planning as compare to previous year so they have achieved the level of performance what they want. Even more fruitful results have been achieved. Usually Kohat Cement Company carries out three types of controlling strategies which are as under:

 ANNUAL PLAN CONTROL:
Kohat Cement Company usually do audit or check up at the end of year that whether that have achieved their annual goals/ objectives or not regarding sales, profits, market share and growth etc. They want to know the gap between actual and standards, if found any and then will fix it down in the upcoming period. If they have performed much better then they watch out the reasons behind that to implement forever in the organization.

 AUDIT CONTROL:
Usually two kinds of audit are carried in KCC. One is Internal Audit and other is External Audit. Internal audit is carried out by the internal auditors usually on interim and half yearly basis to find out the weaknesses and strengths of the company.

External Audit is carried out by external auditors of the company, KPMG Taseer and Hadi Company to point out defects in the company.

 STRATEGIC CONTROL:
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Strategic control is the step of the last section. In strategic control usually they evaluate whether the Kohat Cement Company marketing strategy is appropriate to the market conditions or not. If not they do changes in it to make implementable in the market. They change their strategy according to the market situation that changes so rapidly.

CRUX:
From the above discussion we can easily conclude that how a company usually does their product or marketing planning. We pick Kohat Cement product (OPC) collect the data from different sources and then make the palling for them accordingly. All the above discussion gives us a bird eye view regarding a good product planning that a marketer can do. It also gives a path to the student that how to use the data for the production of product level planning.

References:     Main office, Gulberg 2,Lahore Regional office, City Tower , Peshawar www.kohatcement.com www.apcma.com

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